Case No.

8:

PHIL. VETERANS BANK EMPLOYEES UNION, et. al. v. THE PHIL. VETERANS BANK
GR NO. 67125, AUGUST 24, 1990

FACTS:

On April 10, 1983, the Philippine Veterans Bank (PVB), due to its precarious condition, was
placed under receivership by the Monetary Board of the Central Bank. A year after, the
receivership was challenged by herein petitioner, and on the ground of security of tenure,
prayed that the program be declared prohibited.

While the case was pending, the Monetary Board ordered the liquidation of PVB. This was
opposed to by petitioner-union in a supplemental petition for prohibition with preliminary
injunction. On March 26, 1987, the Court issued a writ of preliminary injunction enjoining the
Central Bank from proceeding with liquidation proceedings against PVB.

On March 18, 1988, Simeon Medalla et.al., in their own right and “on behalf of the remaining
510, 000 WW2 veterans or their heirs”, filed an original petition for restitution and for
extraordinary and equitable writs. The said petition sought, among others, a judicial declaration
that the petitioners were entitled to the ownership, possession, and control of the Bank and an
order restraining the Central Bank from disposing of the assets of the Bank or making any
disbursements therefrom.

Hence, the instant consolidated petition.

ISSUE:

1. Whether the Central Bank (CB) has the power to liquidate the PVB

RULING AND RATIO DECIDENDI:

1. Yes, the CB is authorized to liquidate the PVB:

The arguments by petitioners which are COUNTERED by the Court:

 a.) Petitioners aver that since the PVB was created by a special law, a contractual
relationship exists between the Government and the stockholders of PVB which
cannot be disturbed without violating the non- impairment clause1;

NO. The Court held:

First, the mere fact that PVB was created by a special law (RA No. 3518) does not
confer upon PVB extraordinary privileges above those granted similar charters like
the Land Bank of the Philippines and the Development Bank of the Philippines.
Being a lending institution, PVB remains part of the banking system of the
Philippines and under the regulatory power of the Central Bank, as stipulated by the
provisions of the Central Bank Act;

Second, even if it be conceded that the PVB charter created a contract between the
Government and PVB, the said contract suffers from congenital infirmity, meaning,
where public interest is affected, the said contract may be validly altered. Hence, the
constitutional non-impairment clause does not apply when the contract calls for the
involvement of public interest.

b.) Petitioners contend that the benefits (referring to the stockholdings) accepted by the
petitioners cannot be revoked, and if revoked, may be done only by the Legislature
and not by the Central Bank; and

NO. The Court held:

First, the mere acceptance of these shares of stock by the petitioners did not create
any legal assurance from the Government that their original value would be
preserved and that the owners could not be deprived of such property under any
circumstance no matter how justified. These stockholdings are like any other
stockholdings of the same nature in the trade industry, and they do not enjoy any
special immunity.

Second, the mere circumstance that the charter was granted directly by Congress
does not mean that only Congress can modify or abrogate it by another enactment.
The PVB charter itself provides that it shall be subject to regulation by the Central
Bank which is empowered by law to order PVB’s liquidation. Also, by its own terms,
the charter will automatically become functus officio2 after 50 years and the Bank
itself will cease to exist, unless its life is extended by a positive act of the Legislature.

1
The purpose of the non-impairment clause of the Constitution is to safeguard the integrity of
contracts against unwarranted interference by the State. As a rule, contracts should not be tampered with
by subsequent laws that would change or modify the rights and obligations of the parties.
2
Functus officio refers to an officer or agency whose mandate has expired, due to either the arrival of an
expiry date or an agency having accomplished the purpose for which it was created.
 Third, quo warranto proceedings may be filed against the Bank by the Solicitor
General on behalf of the Republic of the Philippines (RP) pursuant to the Rules of
Court.

The foregoing exist and/or can be done without any legislative act.

c.) Petitioners proffer that the Central Bank cannot exercise any authority over the PVB
since the latter is also a government bank.

NO. The Court held:

First, the PVB Charter provides that although 51% of the capital stock was initially
fully subscribed by the RP for and in behalf of the veterans, their widows, orphans or
compulsory heirs, the corresponding shares of stock were to be turned over within 5
years from the organization of the Bank to the said beneficiaries who would
thereafter have the right to vote such common shares. The balance of about 49%
was to be divided into preferred shares which would be opened for subscription by
any recognized veteran, widow, orphans or compulsory heirs of said veteran.

Second, the PVB Charter also provides that the affairs of the bank are managed by a
Board of Directors composed of 11 members.

Lastly, the PVB Articles of Incorporation states that “notwithstanding the provisions of
any existing law to the contrary, said Bank shall be deemed registered and duly
authorized to do business and operate as a commercial bank as of the date of the
approval of this Act.”

It is therefore indubitable that, upon careful inspection of the provisions of the Central
Bank Act, and the Charter that created the PVB, the purpose of the same is to enable the
Central Bank, as the entity charged with the responsibility of maintaining the stability of the
banking and monetary systems of the country, to take the necessary steps against any banking
institution whose continued operation may cause prejudice to its depositors and creditors, and
the general public as well.

The instant petition is DENIED. The writ of preliminary injunction dated March 26, 1987
is lifted.

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