Commercial Law Review Digests | 1

014 Dexter Gascon

G.R. Nos. 70054,
68878, 77255-58,
Banco Filipino Savings Bank vs. Monetary Dec. 11, 1991
78766, 78767, 78894,
Board 81304, 90473
(Ponente) (Division)
(Topic)

DOCTRINE: Too many to put here

FACTS: This refers to nine (9) consolidated cases concerning the legality of the closure and
receivership of petitioner Banco Filipino Savings and Mortgage Bank pursuant to the order of
respondent Monetary Board.

Petitioners Top Management Programs Corporation and Pilar Development Corporation were
extended a loan by Banco Filipino. These loans were secured by real estate mortages.

Subsequently, Monetary Board issued a M.B. Resolution 87 finding Banco Filipino insolvent and
unable to do business without loss to its creditors and depositors. It placed Banco Filipino under
receivership of Carlota Valenzuela, Deputy Governor of the Central Bank. The Monetary Board
issued another resolution placing the bank under liquidation and designating Valenzuela as
liquidator. Banco Filipino questioning the validity of the resolutions issued by the Monetary Board
authorizing the receivership and liquidation of Banco Filipino. This Court resolved to issue a
temporary restraining order, enjoining the respondents from executing further acts of liquidation
of the bank; that acts such as receiving collectibles and receivables or paying off creditors' claims and
other transactions pertaining to normal operations of a bank are NOT enjoined.

Top Management and Pilar Development failed to pay its loan on the due date. An extra-judicial
foreclosure sale of the proceedings ensued, but was contested by both companies by fililng a
preliminary injunction and prohibition. However, the court dismissed said petition. Hence, the
following cases rose.

Six (6) of these cases, involve the common issue of whether or not the liquidator appointed by the
respondent Central Bank has the authority to prosecute as well as to defend suits, and to foreclose
mortgages for and in behalf of the bank while the issue on the validity of the receivership and
liquidation of the latter is pending resolution in G.R. No. 7004. Corollary to this issue is whether the
CB can be sued to fulfill financial commitments of a closed bank pursuant to Section 29 of the Central
Bank Act.

On the other hand, the other three (3) cases, all seek to annul and set aside M.B. Resolution No. 75
issued by respondents Monetary Board and Central Bank on January 25, 1985, which ordered the
closure of Banco Filipino and placed it under receivership.

This MB resolution was based on the report regarding the major findings of examination on the
financial condition of petitioner Banco Filipino as of July 31, 1984. The report and examination
findings indicate one of insolvency and illiquidity: saying that there sufficient justification for
forbidding the bank from engaging in banking.
 Commercial Law Review Digests | 2

Banco Filipino sought to annul the resolution of the Monetary Board. The Central Bank and the
receiver filed a motion to dismiss the complaint on the ground that the receiver had not authorized
anyone to file the action. The respondent appellate court granted the petition and dismissed the
complaint of Banco Filipino with the trial court. Thus, this petition for certiorari was filed with the
petitioner contending that a bank which has been closed and placed under receivership by the
Central Bank under Section 29 of RA 265 could file suit in court in its name to contest such acts of the
Central Bank, without the authorization of the CB-appointed receiver.

ISSUE/S:
1. WON the liquidator appointed by the respondent Central Bank (CB for brevity) has the authority
to prosecute as well as to defend suits, and to foreclose mortgages for and in behalf of the bank
2. WON the CB can be sued to fulfill financial commitments of a closed bank pursuant to Section 29
of the Central Bank Act.
3. WON the the closure and receivership of petitioner Banco Filipino Savings and Mortgage Bank
pursuant to the order of respondent Monetary Board is legal
4. whether or not the Central Bank and the Monetary Board acted arbitrarily and in bad faith in
finding and thereafter concluding that petitioner bank is insolvent, and in ordering its closure

RULING:
Issue #1: devoid of merit.
Section 29 of the Republic Act No. 265, as amended known as the Central Bank Act, provides that
when a bank is forbidden to do business in the Philippines and placed under receivership, the person
designated as receiver shall immediately take charge of the bank's assets and liabilities, as
expeditiously as possible, collect and gather all the assets and administer the same for the benefit of
its creditors, and represent the bank personally or through counsel as he may retain in all actions or
proceedings for or against the institution, exercising all the powers necessary for these purposes
including, but not limited to, bringing and foreclosing mortgages in the name of the bank.

If the Monetary Board shall later determine and confirm that banking institution is insolvent or
cannot resume business safety to depositors, creditors and the general public, it shall, public interest
requires, order its liquidation and appoint a liquidator who shall take over and continue the
functions of receiver previously appointed by Monetary Board.
The liquid for may, in the name of the bank and with the assistance counsel as he may retain,
institute such actions as may necessary in the appropriate court to collect and recover a counts and
assets of such institution or defend any action against the institution.
When the issue on the validity of the closure and receivership of Banco Filipino bank was raised
in G.R. No. 70054, pendency of the case did not diminish the powers and authority of the
designated liquidator to effectuate and carry on the a ministration of the bank.
In fact when we adopted a resolute on August 25, 1985 and issued a restraining order to respondents
Monetary Board and Central Bank, We enjoined further acts of liquidation.
Acts such as receiving collectibles and receivables or paying off credits claims and other transactions
pertaining to normal operation of a bank was not enjoined. There is no doubt that the prosecution
of suits collection and the foreclosure of mortgages against debtors the bank by the liquidator are
among the usual and ordinary transactions pertaining to the administration of a bank.
Clearly, the liquidator by himself or through counsel has the authority to bring actions for
foreclosure of mortgages executed by debtors in favor of the bank.
The liquidator is likewise authorized to resist or defend suits instituted against the bank by debtors
and creditors of the bank and by other private persons.
Similarly, in G.R. No. 81304 (where BF Homes sue to compel the Central Bank to restore the
formers financing facility with Banco Filipino Banco Filipino finances BF homes), due to the
aforestated reasons, the Central Bank cannot be compelled to fulfill financial transactions entered
 Commercial Law Review Digests | 3

into by Banco Filipino when the operations of the latter were suspended by reason of its closure.

Issue #2: We cannot uphold the legality of its closure. We hold that the closure and receivership of
petitioner bank, which was ordered by respondent Monetary Board on January 25, 1985, is null
and void.

Under Section 29 of Republic Act No. 265, as amended, also known as the Central Bank Act: the
Monetary Board may order the cessation of operations of a bank in the Philippine and place it
under receivership upon a finding of insolvency or when its continuance in business would
involve probable loss its depositors or creditors. If the Monetary Board shall determine and confirm
within sixty (60) days that the bank is insolvent or can no longer resume business with safety to its
depositors, creditors and the general public, it shall, if public interest will be served, order its
liquidation.
Under Section 29 of the Central Bank Act, the following are the mandatory requirements to be
complied with before a bank found to be insolvent is ordered closed and forbidden to do business in
the Philippines:
Firstly, an examination shall be conducted by the head of the appropriate supervising or examining
department or his examiners or agents into the condition of the bank; secondly, it shall be disclosed
in the examination that the condition of the bank is one of insolvency, or that its continuance in
business would involve probable loss to its depositors or creditors; thirdly, the department head
concerned shall inform the Monetary Board in writing, of the facts; lastly, the Monetary Board shall
find the statements of the department head to be true
Tiaoqui (one who investigated Banco Filipino) revealed that the finding of insolvency of petitioner
was based on the partial list of exceptions and findings on the regular examination of the bank as of
July 31, 1984
Clearly, Tiaoqui based his report on an incomplete examination of petitioner bank and outrightly
concluded therein that the latters financial status was one of insolvency or illiquidity.
In the instant case, the basic standards of substantial due process were not observed. Time and again,
we have held in several cases, that the procedure of administrative tribunals must satisfy the
fundamentals of fair play and that their judgment should express a well-supported conclusion.
Despite the existence of the partial list of findings in the examination of the bank, there were still
highly significant items to be weighed and determined such as the matter of valuation reserves,
before these can be considered in the financial condition of the bank. It would be a drastic move
to conclude prematurely that a bank is insolvent if the basis for such conclusion is lacking and
insufficient, especially if doubt exists as to whether such bases or findings faithfully represent the
real financial status of the bank.
The test of insolvency laid down in Section 29 of the Central Bank Act is measured by determining
whether the realizable assets of a bank are less than its liabilities.
Hence, a bank is solvent if the fair cash value of all its assets, realizable within a reasonable time by a
reasonable prudent person, would equal or exceed its total liabilities exclusive of stock liability; but if
such fair cash value so realizable is not sufficient to pay such liabilities within a reasonable time, the
bank is insolvent.
Examination appraises the soundness of the institutions assets, the quality and character of
management and determines the institutions compliance with laws, rules and regulations. Audit is a
detailed inspection of the institutions books, accounts, vouchers, ledgers, etc. to determine the
recording of all assets and liabilities. Hence, examination concerns itself with review and appraisal,
while audit concerns itself with verification.
We believe that the closure of the petitioner bank was arbitrary and committed with grave abuse of
discretion. The fact that petitioner bank was suffering from serious financial problems should not
automatically lead to its liquidation. Section 29 of the Central Bank provides that a closed bank may
be reorganized or otherwise placed in such a condition that it may be permitted to resume business
with safety to its depositors, creditors and the general public.
 Commercial Law Review Digests | 4

DISPOSITIVE PORTION:
1. The motion for reconsideration in G.R. Nos. 68878 and 81303, and the petitions in G.R. Nos.
77255-58, 78766, 81304 and 90473 are DENIED;
2. The petitions in G.R. No. 70054, 78767 and 78894 are GRANTED and the assailed order of the
Central Bank and the Monetary Board dated January 25, 1985 is hereby ANNULLED AND SET
ASIDE. Reorganize Banco Filipino or otherwise placed in such a condition that it may be permitted
to resume business with safety to its depositors, creditors and the general public.