Central Bank of the Ph and Hon. Jose Fernandez v.
CA, RTC Judge Gualiz, o MB adopted a resolution that approved the consolidation of PBP’s
Producers Bank of Ph, Producer Properties, Inc. | G.R. No. 88353/92943 | May
8, 1992 | J. Davide, Jr.
FACTS:
● Two cases were consolidated, whereby the facts are as follows:
CASE #1: PBP was placed under Conservatorship by the CB for being unable
to pay its outstanding overdrafts with the latter. MB issued Resolutions
proposing rehab plans and directing PBP’s stockholders to indicate whether
they accept or reject the same. Instead of responding to MB’s communications,
PBP filed a complaint with RTC, asking for damages and that CB restore PBP
to viability.
o Central Bank (CB) claims that on 29 April 1983, during the regular
bank of Producers Bank of the Ph (PBP), highly questionable loans
extended by PBP management to several entities were discovered,
totaling approx. P300M. These loans were “fictitious” (i.e. extended w/o
collateral) to interests related to PBP owners. Furthermore, the exceeded
PBP’s total paid-in capital a the time (P140.544 M), meaning depositors’
money and paid-in capital of the bank were used to fund unsecured
loans.
o Around Aug. of that year, newspaper blind items re: family-owned
Binondo banks granting fictitious loans granted to stockholders triggered
a bank-run in PBP, causing continuous over-drawings of the bank’s
demand deposit account with CB1 -- in short, PBP could not maintain
the solvency and liquidity necessary to protect the interests of its
depositors and creditors.
o Thus, on the basis of a report submitted by the Superviison and
Examination Sector of the CB, the Monetary Board (MB), pursuant to its
authority under Sec. 28-A of RA 265, thru MB Reso. 164, placed PBP
under conservatorship.
o PBP requested that the Conservatorship be lifted. MB directed PBP’s
principal stockholders to increase its capital accounts by such amount as
was necessary to eliminate PBP’s negative net worth of P424M. CB
further expressed willingness to lift conversatorship under certain
conditions.2
1 Reaching P74M by 29 Aug. ’83 P143M by 17 Jan ’84
2 a) PBP's unsecured overdraft with the Central Bank will be converted into an emergency loan, to be
secured by sufficient collateral, including but not limited to the Following properties offered by PBP's
principal stockholders:
i. 6 floors and other areas of the Producers Bank Bldg., at Paseo de Roxas, owned by PBP;
ii. 15 floors of the Producers Bank Bldg., at Paseo de Roxas, Makati, owned by the Producers Properties,
Inc.;
iii. Manhattan Bldg. on Nueva Street, Binondo, Manila; and
iv. Producers Bank, Makati Branch Bldg. at Buendia Avenue, Makati;
(b) A comptroller for PBP and any number of bank examiners deemed necessary to oversee PBP's
operations shall be designated by the Central Bank, under terms of reference to be determined by the
unsecured obligations to CB with its overdraft and authorizing the
conversion thereof into an emergency loan, and authorizing the CB
governor to lift the conservatorship upon completion and full
collateralization of the emergency loan, payable in five equal annual
installments with pertinent interest and penalty rates.
o PBP submitted a rehabilitation plan,3 but this fell through, and no other
rehab plan was submitted by PBP for almost 3 years, causing its CB
overdrafts to continue to accumulate, swelling to P1.023B by June
1987. Thus, CB-MB approved what it considered to be a viable rehab
plan.
o When PBP and PPI did not respond to the proposed rehab plan, MB issued
a Resolution instructing the CB management to advise the bank that:
▪ a) CB conservatorship over PBP may be lifted only after PBP
identifies new group of stockholders who will put in new capital in
PBP and MB accepts such new stockholders, and;
▪ b) stockholders of PBP have to decide whether or not to accept the
terms of the rehab plan within one week from receipt of notice, and if
such terms are not acceptable, CB will take appropriate alternative
actions.
o CB further called PBP’s BoD’s attention to Sec. 107 4 of RA 265,
whereby banks must fully cover overdrafts with the CB not later than the
next clearing day, and in the event of their failure to settle such
overdrafts, CB is authorized take such action against the bank as
warranted under this act.
o PBP, without responding to CB’s communications, filed a complaint
with RTC Makati against the CB, alleging arbitrariness in the
implementation of the conservatorship, frauds and abuses in the same, and
that by virtue of the conservatorship, PBP suffered losses, concluding with
a prayer for judicial review of the MB Resolutions and that judgment be
rendered nullifying the same and ordering CB to restore the viability
of PBP by fully repairing the damages suffered by the latter. 5 PBP also
Governor;
(c) A letter from the Management of PBP authorizing the Central Bank to automatically return clearing
items that would result in an overdraft in its Central Bank account shall be submitted to the Central Bank.
3 The transfer to PBP of 3 buildings owned by Producers, Properties, Inc., its principal stockholder, and
the subsequent mortgage of said properties to CB as collateral for the bank’s overdraft obligation
4 any bank which incurs an overdrawing in its deposit account with the Central Bank shall fully cover
said overdraft not later than the next clearing day: Provided, further, That settlement of clearing balances
shall not be effected for any account which continue (sic) to be overdrawn for five consecutive banking
days until such time as the overdrawing is fully covered or otherwise converted into an emergency loan or
advance pursuant to the provisions of Sec. 90 of this Act. Provided, Finally, That the appropriate clearing
office shall be officially notified of banks with overdrawn balances. Banks with existing overdrafts with
the Central Bank as of the effectivity of this amended section shall within such period as may be
prescribed by the Monetary Board, either convert the overdraft into an emergency loan or advance with a
plan of payment, or settle such overdrafts, and that upon failure to so comply herewith, the Central Bank
shall take such action against the bank as may be warranted under this Act.
5 “Only P102.00 was paid as docket fee.” 😐
 filed an Amended Complaint impleading PPI as an additional plaintiff,
though no new allegations or causes of action for PPI were made.
o CB filed an MTD:
▪ The amended complaint states no cause of action. MB Resolutions are
merely advisory, thus no rights of PBP were impaired, nor was PBP
prejudiced. No basis for the averments on the legality or illegality of
the conservatorship since neither the complaint nor the amended
complaint seek its annulment.
▪ The amended complaint is not authorized by PBP’s management.
▪ The lower court did not acquire jurisdiction over the case except to
order the amended complaint expunged because the proper filing fee
was not paid.
What did Respondent Judge do?
o Issued a TRO, pending hearing for application for Preliminary Injunction.
o Issued an Order granting the writ for PI and enjoining CB or any of its
agents from implementing the MB Resolutions, or from taking the
threatened “appropriate alternative action”
o Denied the MTD:
▪ PBP’s rights were violated, MB Resolutions were issued arbitrarily
and in bad faith in a scheme to divest PBP’s stockholders of control
and award them to PDIC or its unknown transferees, and averments of
legality or illegality of the conservatorship are relevant to the cause of
action since the complaint seeks the lifting of the cosnervatorship
▪ Even if the conservator takes over management of a bank, the BoD of
such bank is not prohibited from filing a suit to lift the
conservatorship and from questioning the validity of both the
conservator’s fraudulent acts and the MB’s arbitrary action, and
besides, PPI is now a party-plaintiff
▪ Plaintiffs paid the correct filing fees
CASE #2: Conservator undertook several reforms to make PBP more viable.
PBP and PPI filed motions to counter these reforms.
o Atty. Encarnacion (Conservator), having been appointed conservator of
PBP by the CB, instituted reforms aimed at making PBP more viable. She
reorganized the bank’s personnel and committees.
o To prevent the Conservator from continuing with the reorganization,
PBP filed an Omnibus Motion asking for the reinstatement of PBP
officers to their original positions, enjoin the lease of any portion of the
bank’s space in Producers Bank Centre to third parties and the relocation of
PBP offices, and to hold the Conservator in contempt for disobedience of
and resistance to the writ of injunction.
o PPI, upon being included as party-plaintiff via PBP’s amended complaint,
filed a motion asking the lower corut to order CB to restore to PPI the
administration of 3 buildings earlier assigned to PBP pending lifting of
conservatorship, to prevent the rental income of such buildings from
being dissipated by the conservator.
What did Respondent Judge do?
o Ordered Conservator to reinstate PBP officers to orignal positions
o Restrained Conservator from leasing to third parties any portion of PBP’s
space in PBC building
o Ordered the transfer of administration over the three buildings to PBP
o Ordered Conservator to publish the financial statement of PBP in the
manner prayed for in a motion filed by PBP
o When Conservator caused the publication of PBP’s financial statement
albeit without carrying the items enumerated by the lower court as
“suspense accounts,” filed 2 contempt charges against her and declared
Conservator guilty of contempt of court on several counts
CA affirmed RTC, hence this petition.
ISSUES:
1. WON CA erred in affirming the challenged Orders of respondent Judge, i.e.
WON RTC Judge committed GAD in:
a. Not dismissing the Civil Case on grounds of:
i. lack of legal personality to bring the action as the same was filed in the
name of PBP without authority of the conservator – YES. While PBP
does not need the authority of the conservator to bring an action for
damages, but the complaint in this case is defective because it was
not initiated by PBP’s majority stockholders.
ii. failure of the complaint and amended complaint to state a cause of
action --
iii. non-payment of correct amount of docket fees
b. in granting the writ of prelim. injunction – YES. There was nothing
objectionable about the actions the actions of the MB that the
injunction issued against.
c. in issuing the assailed Orders in G.R. 92943. – YES.
RULING: Petition GRANTED. Respondent judge ordered to dismiss Civil Case,
and all proceedings undertaken and orders issued by the former are SET ASIDE for
being null and void. Preliminary injunction issued by trial court LIFTED.
1. RTC Judge committed GAD in not dismissing the case for failure to comply
with the requisites of Sec. 29, Central Bank Act. RTC Judge was under the
mistaken impression that PBP wanted the conservatorship lifted when, in fact, what
PBP sought was not the lifting of the conservatorship, but that CB conservator
be ordered to restore the viability of PBP.
● If RTC Judge thought that the conservatorship was arbitrarily imposed
because PBP was not given the opportunity to be heard, the case should
 have been dismissed on grounds of prescription and lack of personality
to bring action.
● RE: Lack of Personality to Bring Action: Under Sec. 29 of the Central
Bank Act, actions of the MB may be assailed only in an appropriate
pleading filed by stockholders of record representing the majority of
the capital stock, within ten (10) days from receipt of notice of the order
placing the bank under conservatorship.
o Requisites before the Order of Conservatorship may be set aside by
the court:
▪ Appropriate pleading filed by stockholders of record representing
majority of the bank’s capital stock in the proper court
▪ Pleading must be filed within 10 days from receipt of notice by
said majority stockholders of order placing bank under
conservatorship
▪ Convincing proof, after hearing, that the action is arbitrary and
made in bad faith
o APPLIED:
▪ Order placing PBP under conservatorship became final
because the requisites for setting it aside were not met. PBP
was placed under conservatorship on 20 Jan. 1984. PBP filed its
complaint on 27 Aug. 1987, 3 years, 7 months, and 7 days later,
and the complaint was not initiated by stockholders holding
majority of the bank’s capital stock.
o PBP was fully aware it could no longer set aside the conservatorship,
which is precisely why it limited its action to a claim for damages.
● PBP was not asking for the conservatorship to be lifted. PBP was
asking for damages. This action must fail. Like an action to lift the
conservatorship, an action for damages in relation to the
conservatorship must also comply with the above-mentioned requisites.
In this case, the fact that the claim for damages was not initiated by the
bank’s majority stockholders constitutes failure to meet one of the
requisites, and is a ground for dismissal.
o RE: damages arising from MB’s act of placing PBP under
conservatorship may be claimed only if the MB’s action is plainly
arbitrary and made in bad faith; thus, this action for damages is
inseparable from an action to set aside the conservatorship.
o RE: damages arising from the acts of the conservator, Sec. 29’s
procedural requisites still apply because the questioned acts are
incidental to the conseravotrship, especially insofar as only
stockholders of record representing the majority of the capital
stock may bring the action to set aside an MB resolution. Why?
▪ to ensure that the MB’s actions are not defeated by the bank’s
incumbent BoD or officers. It is presumed that such MB
resolution is directly against the acts of said BoD and officers
which place the bank in a state of continuing inability to maintain
a condition of liquidity adequate to protect the interest of
depositors and creditors.
▪ To protect and safeguard the rights and interests of the
stockholders. Majority stockholders are expected to be more
objective in determining whether the resolution is plainly arbitrary
and issued in bad faith.
o APPLIED:
▪ PBP’s original complaint was not initiated by the majority of
the stockholders, hence it should have been dismissed. PBP’s
counsel addressed this flaw thru shrewd maneuvering by
impleading as co-plaintiff PPI, a corporation that was not under
conservatorship. However, the maneuver was imperfectly
executed, because nothing was added to the original complaint in
terms of causes of action and reliefs for PPI, making the
amendment to the original (defective) complaint futile.
o THAT SAID, the Court took pains to state that even if PBP’s original
complaint cannot lie for not having been initiated by the majority
stockholders, a bank placed under conservatorship does NOT
require prior approval of the conservator before it files an action.
No such approval by a conservator is necessary where the action
was instituted by the bank’s majority stockholders. Why?
● The bank retains its juridical personality even if placed under
conservatorship.
● A bank is neither replaced nor substituted by a conservator, whose job is
merely to manage the institution and exercise all powers to preserve the latter’s
assets and restore its viability.
● RE: Prescription:
o The court is vested with jurisdiction over the subject-matter or nature of
the action not just by filing of the complaint or appropriate initiatory
pleading, but by the payment of the prescribed docket fee.
o PBP’s claim for damages arose out of an alleged injury to its rights.
Art. 1146 of the Civil Code prescribes that such action be initiated
within 4 years from the time the cause of action accrued.
o Since the damages arose out of alleged unwarranted, ill-motivated,
illegal, unnecessary and unjustified conservatorship, the cause of
action, if any, first accrued in 1984 and continued until 27 Aug. 1987,
when the original complaint was filed.
 o Even assuming that the four-year period began to run on 27 August
1987, that period lapsed on 27 Aug 1991, and there was no showing
that PBP paid the correct filing fee for the claim within the prescribed
period.
▪ PBP paid only P102 docket fees, by making it appear in its
complaint that the action was one for injunction, deliberately
omitting the claim for damages as a specific cause of action. This
was done to evade payment of the corresponding filing fees which
on the basis of specified losses alone would amount to about
P437k.
2. There was nothing arbitrary nor in bad faith about the issuance of the MB
Resolutions placing PBP under conservatorship. The issuance by the lower
court of preliminary injunctions was in GAD, as there was nothing objectionable
to the actions of the MB. The issuance of a preliminary injunction was
completely without legal or evidentiary basis.
● The banking business is properly subject to reasonable regulation
under the police power of the state because of its nature and relation to
the fiscal affairs of the people and the revenues of the state.
● It is the Government’s responsibility to see to it that the financial
interests of those who deal with banks and banking institutions
(depositors, etc.) are protected. This task is delegated to the CB,
pursuant to its Charter.
● One important measure adopted by the gov’t to protect the public from
unscrupulous bankers is to require banking institutions to set up
reserves against deposit liabilities. This ordinarily takes the form of a
deposit with the CB.
● MB was fully justified in taking the remedial measures that it did. PBP
never disputed that it had grossly overdrawn its reserve account with the
CB. (p1.233B as of 13 Feb. 1990), evidencing the patent inability of the
bank’s management to keep PBP liquid.
● MB’s resolutions were not promulgated to arbitrarily divest the present
stockholders of control over PBP. In fact, even before issuing these
resolutions, MB gave PBP’s management ample opportunity to submit a
viable rehabilitation for the bank.
o The MB resolutions simply asked PBP to identify and submit a
new list of stockholders who will infuse new capital to the bank,
and who must signify their acceptance or rejection of the rehab
plan proposed by MB.
o What was conveyed to PBP was a mere proposal of a rehab
plan – nothing in the resolutions indicated that such plan was
mandatory. PBP was given a specific period to accept or reject the
plan. The plan was not self-implementing. CB simply warned that
were the plan to be rejected, CB would take approrpaite alternative
actions – this did not make the plan compulsory.
o The assignment of claims to PDIC and the subsequent dacion
en pago (i.e. payment of credit through shares) do not divest the
present stockholders of control, since the shares that would be
issued to PDIC were preferred, non-voting and non-
participating shares. PDIC would have no hand in the bank’s
operation or business.
3. The Orders6 issued by RTC Judge were issued without hearing, the reliefs
granted were not prayed for in the complaint, nor covered by an specific
allegations therein. Except for the prohibition to lease, the rest partook of the
nature of a preliminary mandatory injunction.
● PBP never asked in its complaint for the setting aside of the
conservatorship. It even asked that the conservator be ordered to
restore PBP’s viability. RTC Judge’s orders in effect set aside the
conservatorship that PBP itself had earlier accepted.
● RTC Judge ceased to be an impartial arbitrator; he became a godfather of
PBP and PPI, granting all they asked for in their motions..
● What’s worse is RTC judge issued orders of contempt against the
conservator, which were irregular for a) having been issued without
hearing, and b) the Orders were issued in GAD, thus were not lawful,
and resistance thereto could not be punished by contempt. At most, if
at all, the conservator could be liable only for indirect contempt 7, and even
6 ORDERS:
a. directed the conservator to restore both the PBP officers to their original positions prior to the
reorganization of the banks personnel, and the PBP’s standing committees to their original
compositions, and;
b. restrained the conservator from leasing out to a third party an y portion of PBP’s space in
Producers Bank Centre
c. granting PPI’s motion for an order transferring to PPI the administration of three buildings
d. granting the motion directing the conservator to publish the financial statement of PBP in the
manner prayed for by the latter
7 SEC. 3, Rule 71, ROC: Sec. 3 Indirect contempts to be punished after charge and hearing. –– After
charge in writing has been filed, and an opportunity given to the accused to be heard by himself or
counsel, a person guilty of any of the following acts may be punished for contempt:
xxx xxx xxx
(b) Disobedience of or resistance to a lawful writ, process, order, judgment, or command of a court, or
injunction granted by a court or judge, . . .;
then, only after the party charged was given an opportunity to be heard.
RTC judge granted the motions without holding a hearing. Furthermore,
since the judge’s orders were issued with GAD amounting to lack of
jurisdiction, they cannot be characterized as lawful, thus resistance thereto
cannot be punished as contempt.