Banco Filipino V Monetary Board

EN BANC
[G.R. No. 70054. December 11, 1991.]
BANCO FILIPINO SAVINGS AND MORTGAGE BANK , petitioner, vs.

THE MONETARY BOARD, CENTRAL BANK OF THE PHILIPPINES,
JOSE B. FERNANDEZ, CARLOTA P. VALENZUELA, ARNULFO B.
AURELLANO AND RAMON V. TIAOQUI , respondents.
[G.R. No. 68878. December 11, 1991.]

HON. INTERMEDIATE APPELLATE COURT AND CELESTINA S.
PAHIMUNTUNG, assisted by her husband , respondents.
[G.R. Nos. 77255-58. December 11, 1991.]
TOP MANAGEMENT PROGRAMS CORPORATION AND PILAR

DEVELOPMENT CORPORATION , petitioners, vs. THE COURT OF
APPEALS, The Executive Judge of the Regional Trial Court of Cavite,
Ex-O cio Sheriff REGALADO E. EUSEBIO, BANCO FILIPINO
SAVINGS AND MORTGAGE BANK, CARLOTA P. VALENZUELA AND
SYCIP, SALAZAR, HERNANDEZ AND GATMAITAN , respondents.
[G.R. No. 78766. December 11, 1991.]
EL GRANDE CORPORATION , petitioner, vs. THE COURT OF APPEALS,

THE EXECUTIVE JUDGE OF The Regional Trial Court and Ex-O cio
Sheriff REGALADO E. EUSEBIO, BANCO FILIPINO SAVINGS AND
MORTGAGE BANK, CARLOTA P. VALENZUELA AND SYCIP, SALAZAR,
FELICIANO AND HERNANDEZ , respondents.
[G.R. No. 78767. December 11, 1991.]
METROPOLIS DEVELOPMENT CORPORATION , petitioner, vs. COURT

OF APPEALS, CENTRAL BANK OF THE PHILIPPINES, JOSE B.
FERNANDEZ, JR., CARLOTA P. VALENZUELA, ARNULFO AURELLANO
AND RAMON TIAOQUI , respondents.
[G.R. No. 78894. December 11, 1991.]

COURT OF APPEALS, THE CENTRAL BANK OF THE PHILIPPINES,
JOSE B. FERNANDEZ, JR., CARLOTA P. VALENZUELA, ARNULFO B.
AURELLANO AND RAMON TIAOQUI , respondents.
CD Technologies Asia, Inc. © 2019 cdasiaonline.com

[G.R. No. 81303. December 11, 1991.]
PILAR DEVELOPMENT CORPORATION , petitioner, vs. COURT OF

APPEALS, HON. MANUEL M. COSICO, in his capacity as Presiding
Judge of Branch 136 of the Regional Trial Court of Makati,
CENTRAL BANK OF THE PHILIPPINES AND CARLOTA P.
VALENZUELA , respondents.
[G.R. No. 81304. December 11, 1991.]
BF HOMES DEVELOPMENT CORPORATION , petitioner, vs. THE COURT

OF APPEALS, CENTRAL BANK AND CARLOTA P. VALENZUELA ,
respondents.
[G.R. No. 90473. December 11, 1991.]
EL GRANDE DEVELOPMENT CORPORATION , petitioner, vs. THE

COURT OF APPEALS, THE EXECUTIVE JUDGE of the Regional Trial
Court of Cavite, CLERK OF COURT and Ex-O cio Sheriff
ADORACION VICTA, BANCO FILIPINO SAVINGS AND MORTGAGE
BANK, CARLOTA P. VALENZUELA AND SYCIP, SALAZAR,
HERNANDEZ AND GATMAITAN , respondents.
Panganiban, Benitez, Barinaga & Bautista Law O ces collaborating counsel for
petitioner.
Florencio T. Domingo, Jr. and Crisanto S. Cornejo for intervenors.
DECISION
MEDIALDEA , J : p
This refers to nine (9) consolidated cases concerning the legality of the closure
and receivership of petitioner Banco Filipino Savings and Mortgage Bank (Banco
Filipino for brevity) pursuant to the order of respondent Monetary Board. Six (6) of
these cases, namely, G.R. Nos. 68878, 77255-58, 78766, 81303, 81304 and 90473
involve the common issue of whether or not 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 while the issue on the validity
of the receivership and liquidation of the latter is pending resolution in G.R. No. 70054.
Corollary to this issue is whether the CB can be sued to ful ll nancial commitments of
a closed bank pursuant to Section 29 of the Central Bank Act. On the other hand, the
other three (3) cases, namely, G.R. Nos. 70054, which is the main case, 78767 and
78894 all seek to annul and set aside M.B. Resolution No. 75 issued by respondents
Monetary Board and Central Bank on January 25, 1985.
The antecedent facts of each of the nine (9) cases are as follows:

G.R. No. 68878
This is a motion for reconsideration, led by respondent Celestina Pahimuntung,
of the decision promulgated by this Court on April 8, 1986, granting the petition for
review on certiorari and reversing the questioned decision of respondent appellate
court, which annulled the writ of possession issued by the trial court in favor of
petitioner.
The respondent-movant contends that the petitioner has no more personality to
continue prosecuting the instant case considering that petitioner bank was placed
under receivership since January 25, 1985 by the Central Bank pursuant to the
resolution of the Monetary Board.
G.R. Nos. 77255-58
Petitioners Top Management Programs Corporation (Top Management for
brevity) and Pilar Development Corporation (Pilar Development for brevity) are
corporations engaged in the business of developing residential subdivisions.
Top Management obtained a loan of P4,836,000 from Banco Filipino as
evidenced by a promissory note dated January 7, 1982 payable in three years from
date. The loan was secured by real estate mortgage in its various properties in Cavite.
Likewise, Pilar Development obtained loans from Banco Filipino between 1982 and
1983 in the principal amounts of P6,000,000, P7,370,000 and P5,300,000 with maturity
dates on December 28, 1984, January 5, 1985 and February 16, 1984, respectively. To
secure the loan, Pilar Development mortgaged to Banco Filipino various properties in
Dasmariñas, Cavite. LLpr
On January 25, 1985, the Monetary Board issued a resolution nding 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.
On March 22, 1985, the Monetary Board issued another resolution placing the
bank under liquidation and designating Valenzuela as liquidator. By virtue of her
authority as liquidator, Valenzuela appointed the law rm of Sycip, Salazar, et al. to
represent Banco Filipino in all litigations.
On March 26, 1985, Banco Filipino led the petition for certiorari in G.R. No.
70054 questioning the validity of the resolutions issued by the Monetary Board
authorizing the receivership and liquidation of Banco Filipino.
In a resolution dated August 29, 1985, this Court in G.R. No. 70054 resolved to
issue a temporary restraining order, effective during the same period of 30 days,
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. The
Central Bank is ordered to designate a comptroller for Banco Filipino.
Subsequently, Top Management failed to pay its loan on the due date. Hence, the
law rm of Sycip, Salazar, et al. acting as counsel for Banco Filipino under authority of
Valenzuela as liquidator, applied for extra-judicial foreclosure of the mortgage over Top
Management's properties. Thus, the Ex-O cio Sheriff of the Regional Trial Court of
Cavite issued a notice of extra-judicial foreclosure sale of the properties on December
16, 1985.
On December 9, 1985, Top Management led a petition for injunction and
prohibition with the respondent appellate court docketed as CA-G.R. SP No. 07892
seeking to enjoin the Regional Trial Court of Cavite, the ex-o cio sheriff of said court
and Sycip, Salazar, et al. from proceeding with foreclosure sale.
Similarly, Pilar Development defaulted in the payment of its loans. The law rm of
Sycip, Salazar, et al. filed separate applications with the ex-officio sheriff of the Regional
Trial Court of Cavite for the extra-judicial foreclosure of mortgage over its properties.
Hence, Pilar Development led with the respondent appellate court a petition for
prohibition with prayer for the issuance of a writ of preliminary injunction docketed as
CA-G.R. SP Nos. 08962-64 seeking to enjoin the same respondents from enforcing the
foreclosure sale of its properties. CA-G.R. SP Nos. 07892 and 08962-64 were
consolidated and jointly decided.
On October 30, 1986, the respondent appellate court rendered a decision
dismissing the aforementioned petitions.
Hence, this petition was led by the petitioners Top Management and Pilar
Development alleging that Carlota Valenzuela, who was appointed by the Monetary
Board as liquidator of Banco Filipino, has no authority to proceed with the foreclosure
sale of petitioners' properties or the ground that the resolution of the issue on the
validity of the closure and liquidation of Banco Filipino is still pending with this Court in
G.R. 70054.
G.R. No. 78766
Petitioner El Grande Development Corporation (El Grande for brevity) is engaged
in the business of developing residential subdivisions. It was extended by respondent
Banco Filipino a credit accommodation to nance its housing program. Hence,
petitioner was granted a loan in the amount of P8,034,130.00 secured by real estate
mortgages on its various estates located in Cavite. cdphil
On January 15, 1985, the Monetary Board forbade Banco Filipino to do business,
placed it under receivership and designated Deputy Governor Carlota Valenzuela as
receiver. On March 22, 19869 the Monetary Board con rmed Banco Filipino's
insolvency and designated the receiver Carlota Valenzuela as liquidator.
When petitioner El Grande failed to pay its indebtedness to Banco Filipino, the
latter thru its liquidator, Carlota Valenzuela, initiated the foreclosure with the Clerk of
Court and Ex-o cio sheriff of RTC Cavite. Subsequently, on March 31, 1986, the ex-
o cio sheriff issued the notice of extra-judicial sale of the mortgaged properties of El
Grande scheduled or April 30, 1986.
In order to stop the public auction sale, petitioner El Grande led a petition for
prohibition with the Court of Appeals alleging that respondent Carlota Valenzuela could
not proceed with the foreclosure of its mortgaged properties on the ground that this
Court in G.R. No. 70054 issued a resolution dated August 29, 1985, which restrained
Carlota Valenzuela from acting as liquidator and allowed Banco Filipino to resume
banking operations only under a Central Bank comptroller.
On March 2, 1987, the Court of Appeals rendered a decision dismissing the
petition.
Hence this petition for review on certiorari was led alleging that the respondent
court erred when it held in its decision that although Carlota P. Valenzuela was
restrained by this Honorable Court from exercising acts in liquidation of Banco Filipino
Savings & Mortgage Bank, she was not legally precluded from foreclosing the
mortgage over the properties of the petitioner through counsel retained by her for the
purpose.
G.R. No. 81303
On November 8, 1985, petitioner Pilar Development Corporation (Pilar
Development for brevity) led an action against Banco Filipino, the Central Bank and
Carlota Valenzuela for speci c performance, docketed as Civil Case No. 12191. It
appears that the former management of Banco Filipino appointed Quisumbing &
Associates as counsel for Banco Filipino. On June 12, 1986 the said law rm led an
answer for Banco Filipino which confessed judgment against Banco Filipino.
On June 17, 1986, petitioner led a second amended complaint. The Central
Bank and Carlota Valenzuela, thru the law rm Sycip, Salazar, Hernandez and Gatmaitan
filed an answer to the complaint.
On June 23, 1986, Sycip, et al., acting for all the defendants including Banco
Filipino moved that the answer led by Quisumbing & Associates for defendant Banco
Filipino be expunged from the records. Despite opposition from Quisumbing &
Associates, the trial court granted the motion to expunge in an order dated March 17,
1987. Petitioner Pilar Development moved to reconsider the order but the motion was
denied.
Petitioner Pilar Development led with the respondent appellate court a petition
for certiorari and mandamus to annul the order of the trial court. The Court of Appeals
rendered a decision dismissing the petition. A petition was led with this Court but was
denied in a resolution dated March 22, 1988. Hence, this instant motion for
reconsideration.
G.R. No. 81304
On July 9, 1985, petitioner BF Homes Incorporated (BF Homes for brevity) led
an action with the trial court to compel the Central Bank to restore petitioner's financing
facility with Banco Filipino.
The Central Bank led a motion to dismiss the action. Petitioner BF Homes in a
supplemental complaint impleaded as defendant Carlota Valenzuela as receiver of
Banco Filipino Savings and Mortgage Bank.
On April 8, 1985, petitioner led a second supplemental complaint to which
respondents filed a motion to dismiss.
On July 9, 1985, the trial court granted the motion to dismiss the supplemental
complaint on the grounds (1) that plaintiff has no contractual relation with the
defendants, and (2) that the Intermediate Appellate Court in a previous decision in AC-
G.R. SP. No. 04609 had stated that Banco Filipino has been ordered closed and placed
under receivership pending liquidation, and thus, the continuation of the facility sued for
by the plaintiff has become legally impossible and the suit has become moot. LLjur
The order of dismissal was appealed by the petitioner to the Court of Appeals.
On November 4, 1987, the respondent appellate court dismissed the appeal and
affirmed the order of the trial court.
Hence, this petition for review on certiorari was led, alleging that the respondent
court erred when it found that the private respondents should not be the ones to
respond to the cause of action asserted by the petitioner and the petitioner did not
have any cause of action against the respondents Central Bank and Carlota Valenzuela.

G.R. No. 90473
Petitioner El Grande Development Corporation (El Grande for brevity) obtained a
loan from Banco Filipino in the amount of P8,034,130.00, secured by a mortgage over
its ve parcels of land located in Cavite which were covered by Transfer Certi cate of
Title Nos. T-82187, T-109027, T-132897, T-148377, and T-79371 of the Registry of
Deeds of Cavite.
When Banco Filipino was ordered closed and placed under receivership in 1985,
the appointed liquidator of BF, thru its counsel Sycip, Salazar, et al. applied with the ex-
o cio sheriff of the Regional Trial Court of Cavite for the extrajudicial foreclosure of
the mortgage constituted over petitioner's properties. on March 24, 1986, the ex-o cio
sheriff issued a notice of extrajudicial foreclosure sale of the properties of petitioner.
Thus, petitioner led with the Court of Appeals a petition for prohibition with
prayer for writ of preliminary injunction to enjoin the respondents from foreclosing the
mortgage and to nullify the notice of foreclosure.
On June 16, 1989, respondent Court of Appeals rendered a decision dismissing
the petition.
Not satis ed with the decision, petitioner led the instant petition for review on
certiorari.
G.R. No. 70054
Banco Filipino Savings and Mortgage Bank was authorized to operate as such
under M.B. Resolution No. 223 dated February 14, 1963. It commenced operations on
July 9, 1964. It has eighty-nine (89) operating branches, forty-six (46) of which are in
Manila, with more than three (3) million depositors.
As of July 31, 1984, the list of stockholders showed the major stockholders to
be Metropolis Development Corporation, Apex Mortgage and Loans Corporation,
Filipino Business Consultants, Tiu Family Group, LBH Inc. and Anthony Aguirre.
Petitioner Bank had an approved emergency advance of P119.7 million under
M.B. Resolution No. 839 dated June 29, 1984. This was augmented with a P3 billion
credit line under M.B. Resolution No. 934 dated July 27, 1984.
On the same date, respondent Board issued M.B. Resolution No. 955 placing
petitioner bank under conservatorship of Basilio Estanislao. He was later replaced by
Gilberto Teodoro as conservator on August 10, 1984. The latter submitted a report
dated January 8, 1985 to respondent Board on the conservatorship of petitioner bank,
which report shall hereinafter be referred to as the Teodoro report.
Subsequently, another report dated January 23, 1985 was submitted to the
Monetary Board by Ramon Tiaoqui, Special Assistant to the Governor and Head, SES
Department II of the Central Bank, regarding the major ndings of examination on the
nancial condition of petitioner BF as of July 31, 1984. The report, which shall be
referred to herein as the Tiaoqui Report contained the following conclusion and
recommendation:
"The examination ndings as of July 31, 1984, as shown earlier, indicate one of
insolvency and illiquidity and further con rms the above conclusion of the
Conservator.
"All the foregoing provides su cient justi cation for forbidding the bank from
engaging in banking.
"Foregoing considered, the following are recommended:
1. Forbid the Banco Filipino Savings & Mortgage Bank to do

business in the Philippines effective the beginning of o ce January 1985,
pursuant to Sec. 29 of RA. No. 265, as amended;
2. Designate the Head of the Conservator Team at the bank, as
Receiver of Banco Filipino Savings & Mortgage Bank, to immediately take
charge of the assets and liabilities, as expeditiously as possible collect and
gather all the assets and administer the same for the bene t of all the
creditors, and exercise all the powers necessary for these purposes
including but not limited to bringing suits and foreclosing mortgages in the
name of the bank.
3. The Board of Directors and the principal o cers from Senior
Vice Presidents, as listed in the attached Annex 'A' be included in the watch
list of the Supervision and Examination Sector until such time that they
shall have cleared themselves.
4. Refer to the Central Bank's Legal Department and O ce of
Special Investigation the report on the ndings on Banco Filipino for
investigation and possible prosecution of directors, o cers, and
employees for activities which led to its insolvent position." (pp. 61-62,
Rollo). LLpr
On January 25, 1985, the Monetary Board issued the assailed MB Resolution No.
75 which ordered the closure of BF and which further provides:
"After considering the report dated January 8, 1985 of the Conservator for Banco
Filipino Savings and Mortgage Bank that the continuance in business of the bank
would involve probable loss to its depositors and creditors, and after discussing
and nding to be true the statements of the Special Assistant to the Governor and
Head, Supervision and Examination Sector (SES) Department II as recited in his
memorandum dated January 23, 1985, that the Banco Filipino Savings &
Mortgage Bank is insolvent and that its continuance in business would involve
probable loss to its depositors and creditors, and in pursuance of Sec. 29 of R.A.
265, as amended, the Board decided:
1. To forbid Banco Filipino Savings and Mortgage Bank and all its branches
to do business in the Philippines;
2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor as Receiver who
is hereby directly vested with jurisdiction and authority to immediately take
charge of the bank's assets and liabilities, and as expeditiously as possible
collect and gather all the assets and administer the same for the bene t of its
creditors, exercising all the powers necessary for these purposes including but not
limited to, bringing suits and foreclosing mortgages in the name of the bank;
3. To designate Mr. Arnulfo B. Aurellano, Special Assistant to the Governor,
and Mr. Ramon V. Tiaoqui, Special Assistant to the Governor and Head,
Supervision and Examination Sector Department II, as Deputy Receivers who are
likewise hereby directly vested with jurisdiction and authority to do all things
necessary or proper to carry out the functions entrusted to them by the Receiver
and otherwise to assist the Receiver in carrying out the functions vested in the
Receiver by law or Monetary Board Resolutions;

4. To direct and authorize Management to do all other things and carry out all
other measures necessary or proper to implement this Resolution and to
safeguard the interests of depositors, creditors and the general public; and
5. In consequence of the foregoing, to terminate the conservatorship over
Banco Filipino Savings and Mortgage Bank." (pp. 10-11, Rollo, Vol. I).
On February 2, 1985, petitioner BF led a complaint docketed as Civil Case No.

9675 with the Regional Trial Court of Makati to set aside the action of the Monetary
Board placing BF under receivership.
On February 28, 1985, petitioner led with this Court the instant petition for
certiorari and mandamus under Rule 65 of the Rules of Court seeking to annul the
resolution of January 25, 1985 as made without or in excess of jurisdiction or with
grave abuse of discretion, to order respondents to furnish petitioner with the reports of
examination which led to its closure and to afford petitioner BF a hearing prior to any
resolution that may be issued under Section 29 of R.A. 265, also known as Central Bank
Act.
On March 19, 1985, Carlota Valenzuela, as Receiver and Arnulfo Aurellano and
Ramon Tiaoqui as Deputy Receivers of Banco Filipino submitted their report on the
receivership of BF to the Monetary Board, in compliance with the mandate of Sec. 29 of
R.A. 265 which provides that the Monetary Board shall determine within sixty (60) days
from date of receivership of a bank whether such bank may be reorganized/permitted
to resume business or ordered to be liquidated. The report contained the following
recommendation:
"In view of the foregoing and considering that the condition of the banking
institution continues to be one of insolvency, i.e., its realizable assets are
insu cient to meet all its liabilities and that the bank cannot resume business
with safety to its depositors, other creditors and the general public, it is
recommended that:
1. Banco Filipino Savings & Mortgage Bank be liquidated pursuant to
paragraph 3, Sec. 29 of RA No. 265, as amended;
2. The Legal Department, through the Solicitor General, be authorized to file in
the proper court a petition for assistance in the liquidation of the Bank;
3. The Statutory Receiver be designated as the Liquidator of said bank; and
4. Management be instructed to inform the stockholders of Banco Filipino
Savings & Mortgage Bark of the Monetary Board's decision to liquidate the Bank.
(p. 167, Rollo, Vol. I)
On July 23, 1985, petitioner led a motion before this Court praying that a
restraining order or a writ of preliminary injunction be issued to enjoin respondents
from causing the dismantling of BF signs in its main o ce and 89 branches. This Court
issued a resolution on August 8, 1985 ordering the issuance of the aforesaid temporary
restraining order.
On August 20, 1985, the case was submitted for resolution.
In a resolution dated August 29, 1985, this Court Resolved to direct the
respondents Monetary Board and Central Bank to hold hearings at which the petitioner
should be heard, and to terminate such hearings and submit its resolution within thirty
(30) days. This Court further resolved to issue a temporary restraining order enjoining
the respondents from executing further acts of liquidation of a bank. Acts such as
receiving collectibles and receivables or paying off creditors' claims and other
transactions pertaining to normal operations of a bank were not enjoined. The Central
Bank was also ordered to designate a comptroller for the petitioner BF. This Court also
ordered the consolidation of Civil Cases Nos. 8108, 9676 and 10183 in Branch 136 of
the Regional Trial Court of Makati.llcd
However, on September 12, 1985, this Court in the meantime suspended the
hearing it ordered in its resolution of August 29, 1985.
On October 8, 1985, this Court submitted a resolution ordering Branch 136 of the
Regional Trial Court of Makati then presided over by Judge Ricardo Francisco to
conduct the hearing contemplated in the resolution of August 29, 1985 in the most
expeditious manner and to submit its resolution to this Court.
In the Court's resolution of February 19, 1987, the Court stated that the hearing
contemplated in the resolution of August 29, 1985, which is to ascertain whether
substantial administrative due process had been observed by the respondent Monetary
Board, may be expedited by Judge Manuel Cosico who now presides the court vacated
by Judge Ricardo Francisco, who was elevated to the Court of Appeals, there being no
legal impediment or justi able reason to bar the former from conducting such hearing.
Hence, this Court directed Judge Manuel Cosico to expedite the hearing and submit his
report to this Court.
On February 20, 1988, Judge Manuel Cosico submitted his report to this Court
with the recommendation that the resolutions of respondents Monetary Board and
Central Bank authorizing the closure and liquidation of petitioner BF be upheld.
On October 21, 1988, petitioner BF led an urgent motion to reopen hearing to
which respondents led their comment on December 16, 1988. Petitioner led their
reply to respondent's comment of January 11, 1989. After having deliberated on the
grounds raised in the pleadings, this Court in its resolution dated August 3, 1989
declared that its intention as expressed in its resolution of August 29, 1985 had not
been faithfully adhered to by the herein petitioner and respondents. The
aforementioned resolution had ordered a hearing on the reports that led respondents
to order petitioner's closure and its alleged preplanned liquidation. This Court noted
that during the referral hearing however, a different scheme was followed. Respondents
merely submitted to the commissioner their ndings on the examinations conducted
on petitioner, a davits of the private respondents relative to the ndings, their reports
to the Monetary Board and several other documents in support of their position while
petitioner had merely submitted objections to the ndings of respondents, counter-
a davits of its o cers and also documents to prove its claims. Although the records
disclose that both parties had not waived cross-examination of their deponents, no
such cross-examination has been conducted. The reception of evidence in the form of
a davits was followed throughout, until the commissioner submitted his report and
recommendations to the Court. This Court also held that the documents pertinent to
the resolution of the instant petition are the Teodoro Report, Tiaoqui Report, Valenzuela,
Aurellano and Tiaoqui Report and the supporting documents which were made as the
bases by the reporters of their conclusions contained in their respective reports. This
Court also Resolved in its resolution to re-open the referral hearing that was terminated
after Judge Cosico had submitted his report and recommendation with the end in view
of allowing petitioner to complete its presentation of evidence and also for
respondents to adduce additional evidence, if so minded, and for both parties to
conduct the required cross-examination of witnesses/deponents, to be done within a
period of three months. To obviate all doubts on Judge Cosico's impartiality, this Court
designated a new hearing commissioner in the person of former Judge Consuelo
Santiago of the Regional Trial Court, Makati, Branch 149 (now Associate Justice of the
Court of Appeals).
Three motions for intervention were led in this case as follows: First, in G.R. No.
70054 led by Eduardo Rodriguez and Fortunato M. Dizon, stockholders of petitioner
bank for and on behalf of other stockholders of petitioner; second, in G.R. No. 78894,
led by the same stockholders, and, third, again in G.R. No. 70054 by BF Depositors'
Association and others similarly situated. This Court, on March 1, 1990, denied the
aforesaid motions for intervention.
On January 28, 1991, the hearing commissioner, Justice Consuelo Santiago of
the Court of Appeals submitted her report and recommendation (to be hereinafter
called, "Santiago Report") on the following issues stated therein as follows:
"1) Had the Monetary Board observed the procedural requirements laid down
in Sec. 29 of R.A. 265, as amended to justify the closure of the Banco Filipino
Savings and Mortgage Bank?
"2) On the date of BF's closure (January 25, 1985) was its condition one of
insolvency or would its continuance in business involve probable loss to its
depositors or creditors?"
The commissioner after evaluation of the evidence presented, found and

recommended the following:
"1. That the TEODORO and TIAOQUI reports did not establish, in accordance
with Sec. 29 of the R.A. 265, as amended, BF's insolvency as of July 31, 1984 or
that its continuance in business thereafter would involve probable loss to its
depositors or creditors. On the contrary, the evidence indicates that BF was
solvent on July 31, 1984 and that on January 25, 1985, the day it was closed, its
insolvency was not clearly established;
"2. That consequently, BF's closure on January 25, 1985, not having satis ed
the requirements prescribed under Sec. 29 of RA 265, as amended, was null and
void. prcd
"3. That accordingly, by way of correction, BF should be allowed to re-open

subject to such laws, rules and regulations that apply to its situation.".
Respondents thereafter led a motion for leave to le objections to the Santiago

Report. In the same motion, respondents requested that the report and
recommendation be set for oral argument before the Court. On February 7, 1991, this
Court denied the request for oral argument of the parties.
On February 25, 1991, respondents led their objections to the Santiago Report.
On March 5, 1991, respondents submitted a motion for oral argument alleging that this
Court is confronted with two con icting reports on the same subject, one upholding on
all points the Monetary Board's closure of petitioner, (Cosico Report dated February 19,
1988) and the other (Santiago Report dated January 25, 1991) holding that petitioner's
closure was null and void because petitioner's insolvency was not clearly established
before its closure; and that such a hearing on oral argument will therefore allow the
parties to directly confront the issues before this Court.
On March 12, 1991 petitioner led its opposition to the motion for oral
argument. On March 20, 1991, it led its reply to respondents' objections to the
Santiago Report.
On June 18, 1991, a hearing was held where both parties were heard on oral
argument before this Court. The parties, having submitted their respective memoranda,
the case is now submitted for decision.
G.R. No. 78767
On February 2, 1985, Banco Filipino filed a complaint with the trial court docketed
as Civil Case No. 9675 to annul the resolution of the Monetary Board dated January 25,
1985, which ordered the closure of the bank and placed it under receivership.
On February 14, 1985, the Central Bank and the receivers led a motion to
dismiss the complaint on the ground that the receivers had not authorized anyone to
le the action. In a supplemental motion to dismiss, the Central Bank cited the
resolution of this Court dated October 15, 1985 in G.R No. 65723 entitled, "Central Bank
et al. v. Intermediate Appellate Court" whereby We held that a complaint questioning the
validity of the receivership established by the Central Bank becomes moot and
academic upon the initiation of liquidation proceedings.
While the motion to dismiss was pending resolution, petitioner herein Metropolis
Development Corporation (Metropolis for brevity) led a motion to intervene in the
aforestated civil case on the ground that as a stockholder and creditor of Banco
Filipino, it has an interest in the subject of the action.
On July 19, 1985, the trial court denied the motion to dismiss and also denied the
motion for reconsideration of the order later led by Central Bank. On June 5, 1985, the
trial court allowed the motion for intervention.
Hence, the Central Bank and the receivers of Banco Filipino led a petition for
certiorari with the respondent appellate court alleging that the trial court committed
grave abuse of discretion in not dismissing Civil Case No. 9675.
On March 17, 1986, the respondent appellate court rendered a decision annulling
and setting aside the questioned orders of the trial court, and ordering the dismissal of
the complaint led by Banco Filipino with the trial court as well as the complaint in
intervention of petitioner Metropolis Development Corporation.
Hence this petition was led by Metropolis Development Corporation
questioning the decision of the respondent appellate court.
G.R. No. 78894
On February 2, 1985, a complaint was led with the trial court in the name of
Banco Filipino to annul the resolution of the Monetary Board dated January 25, 1985
which ordered the closure of Banco Filipino and placed it under receivership. The
receivers appointed by the Monetary Board were Carlota Valenzuela, Arnulfo Aurellano
and Ramon Tiaoqui.
On February 14, 1985, the Central Bank and the receivers led a motion to
dismiss the complaint on the ground that the receiver had not authorized anyone to le
the action.
On March 22, 1985, the Monetary Board placed the bank under liquidation and
designated Valenzuela as liquidator and Aurellano and Tiaoqui as deputy liquidators. cdphil
The Central Bank led a supplemental motion to dismiss which was denied.
Hence, the latter led a petition for certiorari with the respondent appellate court to set
aside the order of the trial court denying the motion to dismiss. On March 17, 1986, the
respondent appellate court granted the petition and dismissed the complaint of Banco
Filipino with the trial court.
Thus, this petition for certiorari was led 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 le suit in court in its name to contest such acts of the
Central Bank, without the authorization of the CB-appointed receiver.
After deliberating on the pleadings in the following cases:
1. In G.R. No. 68878, the respondent's motion for reconsideration;
2. In G.R. Nos. 77255-58, the petition, comment, reply, rejoinder and sur-
rejoinder;
3. In G.R. No. 78766, the petition, comment, reply and rejoinder;
4. In G.R. No. 81303, the petitioner's motion for reconsideration;
5. In G.R. No. 81304, the petition, comment and reply;

6. Finally, in G.R. No. 90473, the petition, comment and reply,.
We nd the motions for reconsideration in G.R. Nos. 68878 and 81303 and the
petitions in G.R. Nos. 77255-58, 78766, 81304 and 90473 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 bene t 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 con rm that the banking
institution is insolvent or cannot resume business with safety to depositors, creditors
and the general public, it shall, if public interest requires, order its liquidation and
appoint a liquidator who shall take over and continue the functions of the receiver
previously appointed by Monetary Board. The liquidator may, in the name of the bank
and with the assistance of counsel as he may retain, institute such actions as may be
necessary in the appropriate court to collect and recover accounts and assets of such
institution or defend any action filed 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, the pendency of the case did not diminish the
powers and authority of the designated liquidator to effectuate and carry on the
administration of the bank. In fact when We adopted a resolution on August 25, 1985
and issued a restraining order to respondents Monetary Board and Central Bank, We
enjoined merely further acts of liquidation. Such acts of liquidation, as explained in Sec.
29 of the Central Bank Act are those which constitute the conversion of the assets of
the banking institution to money or the sale, assignment or disposition of the same to
creditors and other parties for the purpose of paying the debts of such institution. We
did not prohibit however acts such as receiving collectibles and receivables or paying
off creditors' claims and other transactions pertaining to normal operations of a bank.
There is no doubt that the prosecution of suits for collection and the foreclosure of
mortgages against debtors of the bank by the liquidator are among the usual and
ordinary transactions pertaining to the administration of a bank. Neither did Our order
in the same resolution dated August 25, 1985 for the designation by the Central Bank
of a comptroller for Banco Filipino alter the powers and functions of the liquidator
insofar as the management of the assets of the bank is concerned. The mere duty of
the comptroller is to supervise accounts and nances undertaken by the liquidator and
to determine the propriety of the latter's expenditures incurred in behalf of the bank.
Notwithstanding this, the liquidator is still empowered under the law to continue the
functions of the receiver in preserving and keeping intact the assets of the bank in
substitution of its former management, and to prevent the dissipation of its assets to
the detriment of the creditors of the bank. These powers and functions of the liquidator
in directing the operations of the bank in place of the former management or former
o cials of the bank include the retaining of counsel of his choice in actions and
proceedings for purposes of administration. prLL
Clearly, in G.R. Nos. 68878, 77255-58, 78766 and 90473, 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. In G.R. No. 81303, 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, due to
the aforestated reasons, the Central Bank cannot be compelled to ful ll nancial
transactions entered into by Banco Filipino when the operations of the latter were
suspended by reason of its closure. The Central Bank possesses those powers and
functions only as provided for in Sec. 29 of the Central Bank Act.
While We recognize the actual closure of Banco Filipino and the consequent legal
effects thereof on its operations, We cannot uphold the legality of its closure and thus,
nd the petitions in G.R. Nos. 70054, 78767 and 78894 impressed with merit. 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.
It is a well-recognized principle that administrative and discretionary functions
may not be interfered with by the courts. In general, courts have no supervising power
over the proceedings and actions of the administrative departments of the
government. This is generally true with respect to acts involving the exercise of
judgment or discretion, and ndings of fact. But when there is a grave abuse of
discretion which is equivalent to a capricious and whimsical exercise of judgment or
where the power is exercised in an arbitrary or despotic manner, then there is a
justi cation for the courts to set aside the administrative determination reached ( Lim,
Sr. v. Secretary of Agriculture and Natural Resources , L-26990, August 31, 1970, 34
SCRA 751).
The jurisdiction of this Court is called upon, once again, through these petitions,
to undertake the delicate task of ascertaining whether or not an administrative agency
of the government, like the Central Bank of the Philippines and the Monetary Board, has
committed grave abuse of discretion or has acted without or in excess of jurisdiction in
issuing the assailed order. Coupled with this task is the duty of this Court not only to
strike down acts which violate constitutional protections or to nullify administrative
decisions contrary to legal mandates but also to prevent acts in excess of authority or
jurisdiction, as well as to correct manifest abuses of discretion committed by the
officer or tribunal involved.
The law applicable in the determination of these issues is Section 29 of Republic
Act No. 265, as amended, also known as the Central Bank Act, which provides:
"SECTION 29. Proceedings upon insolvency. — Whenever, upon examination
by the head of the appropriate supervising or examining department or his
examiners or agents into the condition of any bank or non-bank nancial
intermediary performing quasi-banking functions, it shall be disclosed that the
condition of the same is one of insolvency, or that its continuance in business
would involve probable loss to its depositors or creditors, it shall be the duty of
the department head concerned forthwith, in writing, to inform the Monetary
Board of the facts. The Board may, upon nding the statements of the
department head to be true, forbid the institution to do business in the Philippines
and designate an o cial of the Central Bank or a person of recognized
competence in banking or nance, as receiver to immediately take charge of its
assets and liabilities, as expeditiously as possible collect and gather all the assets
and administer the same for the bene ts 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 or non-bank financial intermediary performing quasi-banking functions.
"The Monetary Board shall thereupon determine within sixty days whether the
institution may be reorganized or otherwise placed in such a condition so that it
may be permitted to resume business with safety to its depositors and creditors
and the general public and shall prescribe the conditions under which such
resumption of business shall take place as well as the time for ful llment of such
conditions. In such case, the expenses and fees in the collection and
administration of the assets of the institution shall be determined by the Board
and shall be paid to the Central Bank out of the assets of such institution.
"If the Monetary Board shall determine and con rm within the said period that the
bank or non-bank nancial intermediary performing quasi-banking functions is
insolvent or cannot resume business with safety to its depositors, creditors, and
the general public, it shall, if the public interest requires, order its liquidation,
indicate the manner of its liquidation and approve a liquidation plan which may,
when warranted, involve disposition of any or all assets in consideration for the
assumption of equivalent liabilities. The liquidator designated as hereunder
provided shall, by the Solicitor General, le a petition in the regional trial court
reciting the proceedings which have been taken and praying the assistance of the
court in the liquidation of such institutions. The court shall have jurisdiction in the
same proceedings to assist in the adjudication of the disputed claims against the
bank or non-bank nancial intermediary performing quasi-banking functions and
in the enforcement of individual liabilities of the stockholders and do all that is
necessary to preserve the assets of such institutions and to implement the
liquidation plan approved by the Monetary Board. The Monetary Board shall
designate an o cial of the Central bank or a person of recognized competence in
banking or finance as liquidator who shall take over and continue the functions of
the receiver previously appointed by the Monetary Board under this Section. The
liquidator shall, with all convenient speed, convert the assets of the banking
institutions or non-bank nancial intermediary performing quasi-banking
functions to money or sell, assign or otherwise dispose of the same to creditors
and other parties for the purpose of paying the debts of such institution and he
may, in the name of the bank or non-bank nancial intermediary performing
quasi-banking functions and with the assistance of counsel as he may retain,
institute such actions as may be necessary in the appropriate court to collect and
recover accounts and assets of such institution or defend any action led against
the institution: Provided, However, That after having reasonably established all
claims against the institution, the liquidator may, with the approval of the court,
effect partial payments of such claims for assets of the institution in accordance
with their legal priority.
"The assets of an institution under receivership or liquidation shall be deemed in

custodia legis in the hands of the receiver or liquidator and shall from the
moment of such receivership or liquidation, be exempt from any order of
garnishment, levy, attachment, or execution. LLpr
"The provisions of any law to the contrary notwithstanding, the actions of the
Monetary Board under this Section, Section 28-A, and the second paragraph of
Section 34 of this Act shall be final and executory, and can be set abide by a court
only if there is convincing proof, after hearing, that the action is plainly arbitrary
and made in bad faith: Provided, That the same is raised in an appropriate
pleading led by the stockholders of record representing the majority of the
capital stock within ten (10) days from the date the receiver taxes charge of the
assets and liabilities of the bank or non-bank nancial intermediary performing
quasi-banking functions or, in case of conservator ship or liquidation, within ten
(10) days from receipt of notice by the said majority stockholders of said bark or
non-bank nancial intermediary of the order of its placement under conservator
ship or liquidation. No restraining order or injunction shall be issued by any court
enjoining the Central Bank from implementing its actions under this Section and
the second paragraph of Section 34 of this Act in the absence of any convincing
proof that the action of the Monetary Board is plainly arbitrary and made in bad
faith and the petitioner or plaintiff les a bond, executed in favor of the Central
Bank, in an amount to be xed by the court. The restraining order or injunction
shall be refused or, if granted, shall be dissolved upon ling by the Central Bank
of a bond, which shall be in the form of cash or Central Bank cashier's check, in
an amount twice the amount of the bond of the petitioner or plaintiff conditioned
that it will pay the damages which the petitioner or plaintiff may suffer by the
refusal or the dissolution of the injunction. The provisions of Rule 58 of the New
Rules of Court insofar as they are applicable and not inconsistent with the
provisions of this Section shall govern the issuance and dissolution of the
restraining order or injunction contemplated in this Section.
"xxx xxx xxx."
Based on the aforequoted provision, the Monetary Board may order the
cessation of operations of a bank in the Philippines and place it under receivership
upon a finding of insolvency or when its continuance in business would involve probable
loss to its depositors or creditors. If the Monetary Board shall determine and con rm
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.
Speci cally, the basic question to be resolved in G.R. Nos. 70054, 78767 and
78894 is whether or not the Central Bank and the Monetary Board acted arbitrarily and
in bad faith in nding and thereafter concluding that petitioner bank is insolvent, and in
ordering its closure on January 25, 1985.
As We have stated in Our resolution dated August 3, 1989, the documents
pertinent to the resolution of these petitions are the Teodoro Report, Tiaoqui Report,
and the Valenzuela, Aurellano and Tiaoqui Report and the supporting documents made
as bases by the supporters of their conclusions contained in their respective reports.
We will focus Our study and discussion however on the Tiaoqui Report and the
Valenzuela, Aurellano and Tiaoqui Report. The former recommended the closure and
receivership of petitioner bank while the latter report made the recommendation to
eventually place the petitioner bank under liquidation. This Court shall likewise take into
consideration the ndings contained in the reports of the two commissioners who
were appointed by this Court to hold the referral hearings, namely the report by Judge
Manuel Cosico submitted February 20, 1988 and the report submitted by Justice
Consuelo Santiago on January 28, 1991.
There is no question that 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; and lastly, the Monetary Board shall nd the
statements of the department head to be true.
Anent the rst requirement, the Tiaoqui report, submitted on January 23, 1985,
revealed that the nding of insolvency of petitioner was based on the partial list of
exceptions and ndings on the regular examination of the bank as of July 31, 1984
conducted by the Supervision and Examination Sector II of the Central Bank (p. 1,
Tiaoqui Report).
On December 17, 1984, this list of exceptions and ndings was submitted to the
petitioner bank (p. 6, Tiaoqui Report). This was attached to the letter dated December
17, 1984, of examiner-in-charge Dionisio Domingo of SES Department II of the Central
Bank to Teodoro Arcenas, president of petitioner bank, which disclosed that the
examination of the petitioner bank as to its nancial condition as of July 31, 1984 was
not yet completed or nished on December 17, 1984 when the Central Bank submitted
the partial list of findings of examination to the petitioner bank. The letter reads:
"In connection with the regular examination of your institution as of July 31, 1984,
we are submitting herewith a partial list of our exceptions/ ndings for your
comments.
"Please be informed that we have not yet o cially terminated our examination
(tentatively scheduled last December 7, 1984) and that we are still awaiting for
the unsubmitted replies to our previous letters/requests. Moreover, other
ndings/observations are still being summarized including the classi cation of
loans and other risk assets. These shall be submitted to you in due time" (p. 810,
Rollo, Vol. III; emphasis ours)
It is worthy to note that a conference was held on January 21, 1985 at the Central
Bank between the o cials of the latter and of petitioner bank. What transpired and
what was agreed upon during the conference was explained in the Tiaoqui report. LexLib
". . . The discussion centered on the substantial exposure of the bank to the
various entities which would have a relationship with the bank; the manner by
which some bank funds were made indirectly available to several entities within
the group; and the unhealthy nancial status of these rms in which the bank
was additionally exposed through new funds or re nancing accommodation
including accrued interest.

"Queried in the impact of these clean loans, on the bank solvency, Mr. Dizon (BF
Executive Vice President) intimated that, collectively, these corporations have
large undeveloped real estate properties in the suburbs which can be made
answerable for the unsecured loans as well as the Central Bank's credit
accommodations. A formal reply of the bank would still be forthcoming." (pp. 58-
59, Rollo, Vol. I; emphasis ours)
Clearly, Tiaoqui based his report on an incomplete examination of petitioner bank

and outrightly concluded therein that the latter's nancial status was one of insolvency
or illiquidity. He arrived at the said conclusion from the following facts: that as of July
31, 1984, total capital accounts consisting of paid-in capital and other capital accounts
such as surplus, surplus reserves and undivided pro ts aggregated P351.8 million; that
capital adjustments, however, wiped out the capital accounts and placed the bank with
a capital de ciency amounting to P334.956 million; that the biggest adjustment which
contributed to the de cit is the provision for estimated losses on accounts classi ed
as doubtful and loss which was computed at P600.4 million pursuant to the
examination. This provision is also known as valuation reserves which was set up or
deducted against the capital accounts of the bank in arriving at the latter's nancial
condition.
Tiaoqui however admits the insu ciency and unreliability of the ndings of the
examiner as to the setting up of recommended valuation reserves from the assets of
petitioner bank. He stated:
"The recommended valuation reserves as bases for determining the nancial
status of the bank would need to be discussed with the bank, consistent with
standard examination procedure, for which the bank would in turn reply. Also, the
examination has not been o cially terminated . (p. 7. Tiaoqui report; p. 59, Rollo,
Vol. I).
In his testimony in the second referral hearing before Justice Santiago, Tiaoqui
testi ed that on January 21, 1985, he met with o cers of petitioner bank to discuss
the advanced ndings and exceptions made by Mr. Dionisio Domingo which covered
70%-80% of the bank's loan portfolio; that at that meeting, Fortunato Dizon (BF's
Executive Vice President) said that as regards the unsecured loans granted to various
corporations, said corporations had large undeveloped real estate properties which
could be answerable for the said unsecured loans and that a reply from BF was
forthcoming; that he (Tiaoqui) however prepared his report despite the absence of
such reply; that he believed, as in fact it is stated in his report, that despite the meeting
on January 21, 1985, there was still a need to discuss the recommended valuation
reserves of petitioner bank and; that he however, did not wait anymore for a discussion
of the recommended valuation reserves and instead prepared his report two days after
January 21, 1985 (pp. 3313-3314, Rollo).
Records further show that the examination of petitioner bank was o cially
terminated only when Central Bank Examiner-in-charge Dionisio Domingo submitted his
final report of examination on March 4, 1985.
It is evident from the foregoing circumstances that the examination
contemplated in Sec. 29 of the CB Act as a mandatory requirement was not completely
and fully complied with. Despite the existence of the partial list of ndings in the
examination of the bank, there were still highly signi cant items to be weighed and
determined such as the matter of valuation reserves, before these can be considered in
the nancial 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 insu cient,
especially if doubt exists as to whether such bases or ndings faithfully represent the
real financial status of the bank.
The actuation of the Monetary Board in closing petitioner bank on January 25,
1985 barely four days after a conference with the latter on the examiners' partial
ndings on its nancial position is also violative of what was provided in the CB Manual
of Examination Procedures. Said manual provides that only after the examination is
concluded, should a pre-closing conference led by the examiner-in-charge be held with
the o cers/representatives of the institution on the ndings/exception, and a copy of
the summary of the ndings/violations should be furnished the institution examined so
that corrective action may be taken by them as soon as possible (Manual of
Examination Procedures, General Instruction, p. 14). It is hard to understand how a
period of four days after the conference could be a reasonable opportunity for a bank
to undertake a responsive and corrective action on the partial list of ndings of the
examiner-in-charge.
We recognize the fact that it is the responsibility of the Central Bank of the
Philippines to administer the monetary, banking and credit system of the country and
that its powers and functions shall be exercised by the Monetary Board pursuant to
Rep. Act No. 265, known as the Central Bank Act. Consequently, the power and
authority of the Monetary Board to close banks and liquidate them thereafter when
public interest so requires is an exercise of the police power of the state. Police power,
however, may not be done arbitrarily or unreasonably and could be set aside if it is
either capricious, discriminatory, whimsical, arbitrary, unjust or is tantamount to a denial
of due process and equal protection clauses of the Constitution (Central Bank v. Court
of Appeals, Nos. L-50031-32, July 27, 1981, 106 SCRA 143).
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.
In the celebrated case of Ang Tibay v. Court of Industrial Relations , 69 Phil. 635,
this Court laid down several cardinal primary rights which must be respected in a
proceeding before an administrative body. prLL
However, as to the requirement of notice and hearing, Sec. 29 of RA 265 does not
require a previous hearing before the Monetary Board implements the closure of a
bank, since its action is subject to judicial scrutiny as provided for under the same law
(Rural Bank of Bato v. IAC , G.R. No. 65642, October 15, 1984, Rural Bank v. Court of
Appeals, G.R. 61689, June 20, 1988, 162 SCRA 288).
Notwithstanding the foregoing, administrative due process does not mean that
the other important principles may be dispensed with, namely: the decision of the
administrative body must have something to support itself and the evidence must be
substantial. Substantial evidence is more than a mere scintilla. It means such relevant
evidence as a reasonable mind might except as adequate to support a conclusion (Ang
Tibay vs. CIR, supra). Hence, where the decision is merely based upon pieces of
documentary evidence that are not su ciently substantial and probative for the
purpose and conclusion they are presented, the standard of fairness mandated in the
due process clause is not met. In the case at bar, the conclusion arrived at by the
respondent Board that the petitioner bank is in an illiquid nancial position on January
23, 1985, as to justify its closure on January 25, 1985 cannot be given weight and
finality as the report itself admits the inadequacy of its basis to support its conclusion.
The second requirement provided in Section 29, R.A. 265 before a bank may be
closed is that the examination should disclose that the condition of the bank is one of
insolvency.
As to the concept of whether the bank is solvent or not, the respondents contend
that under the Central Bank Manual of Examination Procedures, Central Bank examiners
must recommend valuation reserves, when warranted, to be set up or deducted against
the corresponding asset account to determine the bank's true condition or net worth. In
the case of loan accounts, to which practically all the questioned valuation reserves
refer, the manual provides that:
1. For doubtful loans, or loans the ultimate collection of which is doubtful and
in which a substantial loss is probable but not yet de nitely ascertainable as to extent,
valuation reserves of fty per cent (50%) of the accounts should be recommended to
be set up.
2. For loans classi ed as loss, or loans regarded by the examiner as
absolutely uncollectible or worthless, valuation reserves of one hundred percent (100%)
of the accounts should be recommended to be set up (p. 8, Objections to Santiago
report).
The foregoing criteria used by respondents in determining the nancial condition
of the bank is based on Section 5 of RA 337, known as the General Banking Act which
states:
"SECTION 5. The following terms shall be held to be synonymous and
interchangeable:
xxx xxx xxx
f. 'Unimpaired Capital and Surplus,' 'Combined capital accounts,' and 'Net

worth,' which terms shall mean for the purposes of this Act, the total of the
'unimpaired paid-in capital, surplus, and undivided pro ts net of such valuation
reserves as may be required by the Central Bank."
There is no doubt that the Central Bank Act vests authority upon the Central Bank
and Monetary Board to take charge and administer the monetary and banking system
of the country and this authority includes the power to examine and determine the
nancial condition of banks for purposes provided for by law, such as for the purpose
of closure on the ground of insolvency stated in Section 29 of the Central Bank Act. But
express grants of power to public o cers should be subjected to a strict
interpretation, and will be construed as conferring those powers which are expressly
imposed or necessarily implied (Floyd Mechem, Treatise on the Law of Public O ces
and Officers, p. 335).
In this case, there can be no clearer explanation of the concept of insolvency than
what the law itself states. Sec. 29 of the Central Bank Act provides that insolvency
under the Act, shall be understood to mean that "the realizable assets of a bank or a
non-bank nancial intermediary performing quasi-banking functions as determined by
the Central Bank are insufficient to meet its liabilities."
Hence, the contention of the Central Bank that a bank's true nancial condition is
synonymous with the terms "unimpaired capital and surplus," "combined capital
accounts" and net worth after deducting valuation reserves from the capital, surplus
and unretained earnings, citing Sec. 5 of RA 337 is misplaced.
Firstly, it is clear from the law that a solvent bank is one in which its assets
exceed its liabilities. It is a basic accounting principle that assets are composed of
liabilities and capital. The term "assets" includes capital and surplus (Exley v. Harris,
267 p. 970, 973, 126 Kan., 302). On the other hand, the term "capital" includes common
and preferred stock, surplus reserves, surplus and undivided pro ts. (Manual of
Examination Procedures, Report of Examination on Department of Commercial and
Savings Banks, p. 3-C). If valuation reserves would be deducted from these items, the
result would merely be the net worth or the unimpaired capital and surplus of the bank
applying Sec. 5 of RA 337 but not the total financial condition of the bank.
Secondly, the statement of assets and liabilities is used in balance sheets. Banks
use statements of condition to re ect the amounts, nature and changes in the assets
and liabilities. The Central Bank Manual of Examination Procedures provides a format
or checklist of a statement of condition to be used by examiners as guide in the
examination of banks. The format enumerates the items which will compose the assets
and liabilities of a bank. Assets include cash and those due from banks, loans,
discounts and advances, xed assets and other property owned or acquired and other
miscellaneous assets. The amount of loans, discounts and advances to be stated in the
statement of condition as provided for in the manual is computed after deducting
valuation reserves when deemed necessary. On the other hand, liabilities are composed
of demand deposits, time and savings deposits, cashier's, manager's and certi ed
checks, borrowings, due to head o ce, branches and agencies, other liabilities and
deferred credits (Manual of Examination Procedure, p. 9). The amounts stated in the
balance sheets or statements of condition including the computation of valuation
reserves when justi ed, are based however, on the assumption that the bank or
company will continue in business inde nitely, and therefore, the net worth shown in the
statement is in no sense an indication of the amount that might be realized if the bank
or company were to be liquidated immediately (Prentice Hall Encyclopedic Dictionary
of Business Finance, p. 48). Further, based on respondents' submissions, the allowance
for probable losses on loans and discounts represents the amount set up against
current operations to provide for possible losses arising from non-collection of loans
and advances, and this account is also referred to as valuation reserve (p. 9, Objections
to Santiago report). Clearly, the statement of condition which contains a provision for
recommended valuation reserves should not be used as the ultimate basis to
determine the solvency of an institution for the purpose of termination of its
operations. cdrep
Respondents acknowledge that under the said CB manual, CB examiners must

recommend valuation reserves, when warranted, to be set up against the
corresponding asset account (p. 8, Objections to Santiago report). Tiaoqui himself, as
author of the report recommending the closure of petitioner bank admits that the
valuation reserves should still be discussed with the petitioner bank in compliance with
standard examination procedure. Hence, for the Monetary Board to unilaterally deduct
an uncertain amount as valuation reserves from the assets of a bank and to conclude
therefrom without su cient basis that the bank is insolvent, would be totally unjust and
unfair.
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
su cient to pay such liabilities within a reasonable time, the bank is insolvent. (Gillian v.
State, 194 N.E. 360, 363, 207 Ind. 661). Stated in other words, the insolvency of a bank
occurs when the actual cash market value of its assets is insu cient to pay its
liabilities, not considering capital stock and surplus which are not liabilities for such
purpose (Exley v. Harris, 267 p. 970, 973, 126 Kan. 302; Alexander v. Llewellyn, Mo.
App., 70 S.W. 2n 115, 117).
In arriving at the computation of realizable assets of petitioner bank,
respondents used its books which undoubtedly are not re ective of the actual cash or
fair market value of its assets. This is not the proper procedure contemplated in Sec.
29 of the Central Bank Act. Even the CB Manual of Examination Procedures does not
con ne examination of a bank solely with the determination of the books of the bank.
The latter is part of auditing which should not be confused with examination.
Examination appraises the soundness of the institution's assets, the quality and
character of management and determines the institution's compliance with laws, rules
and regulations. Audit is a detailed inspection of the institution's 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
veri cation (CB Manual of Examination Procedures, General Instructions, p. 5). This
Court however, is not in the position to determine how much cash or market value shall
be assigned to each of the assets and liabilities of the bank to determine their total
realizable value. The proper determination of these matters by using the actual cash
value criteria belongs to the eld of fact- nding expertise of the Central Bank and the
Monetary Board. Notwithstanding the fact that the gures arrived at by the respondent
Board as to assets and liabilities do not truly indicate their realizable value as they were
merely based on book value, We will however, take a look at the gures presented by
the Tiaoqui Report in concluding insolvency as of July 31, 1984 and at the gures
presented by the CB authorized deputy receiver and by the Valenzuela, Aurellano and
Tiaoqui Report which recommended the liquidation of the bank by reason of insolvency
as of January 25, 1985.
The Tiaoqui report dated January 23, 1985, which was based on partial
examination ndings on the bank's condition as of July 31, 1984, states that total
liabilities of P5,282.1 million exceeds total assets of P4,947.2 million after deducting
from the assets valuation reserves of P612.2 million. Since, as We have explained in our
previous discussion that valuation reserves can not be legally deducted as there was no
truthful and complete evaluation thereof as admitted by the Tiaoqui report itself, then
an adjustment of the gures will show that the liabilities of P5,282.1 million will not
exceed the total assets which will amount to P5,559.4 if the 612.2 million allotted to
valuation reserves will not, be deducted from the assets. There can be no basis
therefore for both the conclusion of insolvency and for the decision of the respondent
Board to close petitioner bank and place it under receivership.
Concerning the nancial position of the bank as of January 25, 1985, the date of
the closure of the bank, the consolidated statement of condition thereof as of the
aforesaid date shown in the Valenzuela, Aurellano and Tiaoqui report on the
receivership of petitioner bank, dated March 19, 1985, indicates that total liabilities of
4,540.84 million does not exceed the total assets of 4,981.53 million. Likewise, the
consolidated statement of condition of petitioner bank as of January 25, 1985
prepared by the Central Bank Authorized Deputy Receiver Artemio Cruz shows that total
assets amounting to P4,981,522,996.22 even exceeds total liabilities amounting to
P4,540,836,834.15. Based on the foregoing, there was no valid reason for the
Valenzuela, Aurellano and Tiaoqui report to nally recommend the liquidation of
petitioner bank instead of its rehabilitation.
We take note of the exhaustive study and ndings of the Cosico report on the
petitioner bank's having engaged in unsafe, unsound and fraudulent banking practices
by the granting of huge unsecured loans to several subsidiaries and related companies.
We do not see, however, that this has any material bearing on the validity of the closure.
Section 34 of the RA 265, Central Bank Act empowers the Monetary Board to take
action under Section 29 of the Central Bank Act when a bank "persists in carrying on its
business in an unlawful or unsafe manner." There was no showing whatsoever that the
bank had persisted in committing unlawful banking practices and that the respondent
Board had attempted to take effective action on the bank's alleged activities. During the
period from July 27, 1984 up to January 25, 1985, when petitioner bank was under
conservator ship no o cial of the bank was ever prosecuted, suspended or removed
for any participation in unsafe and unsound banking practices, and neither was the
entire management of the bank replaced or substituted. In fact, in her testimony during
the second referral hearing, Carlota Valenzuela, CB Deputy Governor, testi ed that the
reason for petitioner bank's closure was not unsound, unsafe and fraudulent banking
practices but the alleged insolvency position of the bank (TSN, August 3, 1990, p. 3315,
Rollo, Vol. VIII).
Finally, another circumstance which point to the solvency of petitioner bank is the
granting by the Monetary Board in favor of the former a credit line in the amount of P3
billion along with the placing of petitioner bank under conservator ship by virtue of M.B.
Resolution No. 955 dated July 27, 1984. This paved the way for the reopening of the
bank on August 1, 1984 after a self-imposed bank holiday on July 23, 1984. cdll
On emergency loans and advances, Section 90 of RA 265 provides two types of

emergency loans that can be granted by the Central Bank to a nancially distressed
bank:
"SECTION 90. . . . In periods of emergency or of imminent nancial panic
which directly threaten monetary and banking stability, the Central Bank may
grant banking institutions extraordinary advances secured by any assets which
are de ned as acceptable security by a concurrent vote of at least ve members
of the Monetary Board. While such advances are outstanding, the debtor
institution may not expand the total volume of its loans or investments without
the prior authorization of the Monetary Board."
"The Central Bank may, at its discretion, likewise grant advances to banking
institutions, even during normal periods, for the purpose of assisting a bank in a
precarious nancial condition or under serious nancial pressures brought about
by unforeseen events, or events which, though foreseeable, could not be
prevented by the bank concerned. Provided, however, That the Monetary Board
has ascertained that the bank is not insolvent and has clearly realizable assets to
secure the advances. Provided, further, That a concurrent vote of at least ve
members of the Monetary Board is obtained." (Emphasis ours)
The rst paragraph of the aforequoted provision contemplates a situation where

the whole banking community is confronted with nancial and economic crisis giving
rise to serious and widespread confusion among the public, which may eventually
threaten and gravely prejudice the stability of the banking system. Here, the emergency
or nancial confusion involves the whole banking community and not one bank or
institution only. The second situation on the other hand, provides for a situation where
the Central Bank grants a loan to a bank with uncertain nancial condition but not
insolvent.
As alleged by the respondents, the following are the reasons of the Central Bank
in approving the resolution granting the P3 billion loan to petitioner bank and the latter's
reopening after a brief self-imposed banking holiday:
"WHEREAS, the closure by Banco Filipino Savings and Mortgage Bank of its
Banking o ces on its own initiative has worked serious hardships on its
depositors and has affected con dence levels in the banking system resulting in
a feeling of apprehension among depositors and unnecessary deposit
withdrawals;
"WHEREAS, the Central Bank is charged with the function of administering the
banking system;
"WHEREAS, the reopening of Banco Filipino would require additional credit
resources from the Central Bank as well as an independent management
acceptable to the Central Bank;
"WHEREAS, it is the desire of the Central Bank to rapidly diffuse the uncertainty
that presently exists;
". . ." (M.B. Min. No. 35 dated July 27, 1984 cited in Respondents' Objections to
Santiago Report, p. 26; p. 3387, Rollo, Vol. IX; Emphasis ours).
A perusal of the foregoing "Whereas" clauses unmistakably show that the clear
reason for the decision to grant the emergency loan to petitioner bank was that the
latter was suffering from nancial distress and severe bank "run" as a result of which it
closed on July 23, 1984 and that the release of the said amount is in accordance with
the Central Bank's full support to meet Banco Filipino's depositors' withdrawal
requirements (Excerpts of minutes of meeting on MB Min. No. 35, p. 25, Rollo, Vol. IX).
Nothing therein shows that an extraordinary emergency situation exists affecting most
banks, not only as regards petitioner bank. This Court thereby nds that the grant of the
said emergency loan was intended from the beginning to fall under the second
paragraph of Section 90 of the Central Bank Act, which could not have occurred if the
petitioner bank was not solvent. Where notwithstanding knowledge of the irregularities
and unsafe banking practices allegedly committed by the petitioner bank, the Central
Bank even granted nancial support to the latter and placed it under conservator ship,
such actuation means that petitioner bank could still be saved from its nancial
distress by adequate aid and management reform, which was required by Central
Bank's duty to maintain the stability of the banking system and the preservation of
public con dence in it ( Ramos v. Central Bank , No. L-29352, October 4, 1971, 41 SCRA
565).
In view of the foregoing premises, We believe that the closure of the petitioner
bank was arbitrary and committed with grave abuse of discretion. Granting in gratia
argumenti that the closure was based on justi ed grounds to protect the public, the
fact that petitioner bank was suffering from serious nancial 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.
We are aware of the Central Bank's concern for the safety of Banco Filipino's
depositors as well as its creditors including itself which had granted substantial
nancial assistance up to the time of the latter's closure. But there are alternatives to
permanent closure and liquidation to safeguard those interests as well as those of the
general public for the failure of Banco Filipino or any bank for that matter may be
viewed as an irreversible decline of the country's entire banking system and ultimately,
it may re ect on the Central Bank's own viability. For one thing, the Central Bank and the
Monetary Board should exercise strict supervision over Banco Filipino. They should
take all the necessary steps not violative of the laws that will fully secure the repayment
of the total nancial assistance that the Central Bank had already granted or would
grant in the future.
ACCORDINGLY, decision is hereby rendered as follows:
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. The Central Bank and the Monetary Board are
ordered to reorganize petitioner Banco Filipino Savings and Mortgage Bank and allow
the latter to resume business in the Philippines under the comptroller ship of both the
Central Bank and the Monetary Board and under such conditions as may be prescribed
by the latter in connection with its reorganization until such time that petitioner bank
can continue in business with safety to its creditors, depositors and the general public.
SO ORDERED.
Narvasa, C.J., Gutierrez, Jr., Cruz, Bidin and Regalado, JJ., concur.
Paras, Feliciano, Padilla, Davide, Jr. and Nocon, JJ., took no part.
Separate Opinions
MELENCIO-HERRERA, J ., dissenting :
I join Mme. Justice Carolina G. Aquino in her dissent and vote to deny the prayer,
in G.R. No. 70054, to annul Monetary Board Resolution No. 75 placing Banco Filipino
(BF) under receivership.
Even assuming that the BF was not, as alleged, in a literal state of insolvency at
the time of the passage of said Resolution, there was a nding in the Teodoro report
that, based on that Bank's illiquidity, to have allowed it to continue in operation would
have meant probable loss to depositors and creditors. That is also a ground for placing
the bank under receivership, as a rst step, pursuant to Section 29 of the Central Bank
Act (Rep. Act No. 265, as amended). The closure of BF, therefore, can not be said to
have been arbitrary or made in bad faith. There was su cient justi cation, considering
its inability to meet the heavy withdrawals by its depositors and to pay its liabilities as
they fell due, to forbid the bank from further engaging in banking.
The matter of reopening, reorganization or rehabilitation of BF is not within the
competence of this Court to ordain but is better addressed to the Monetary Board and
the Central Bank considering the latter's enormous infusion of capital into BF to the
tune of approximately P3.5 Billion in total accommodations, after a thorough
assessment of whether or not BF is, indeed, possessed, as it stoutly contends, of
su cient assets and capabilities with which to repay such huge indebtedness, and can
operate without loss to its many depositors and creditors.
GRIÑO-AQUINO, J ., dissenting in part.
Although these nine (9) Banco Filipino (BF) cases have been consolidated under
one ponencia, all of them except one, raise issues unrelated to the receivership and
liquidation of said bank. In fact, two of these cases (G.R. No. 68878 and 81303) have
already been decided by this Court and are only awaiting the resolution of the motions
for reconsideration led therein. Only G.R. No. 70054 "Banco Filipino Savings and
Mortgage Bank (BF) vs. the Monetary Board (MB), Central Bank of the Philippines (CB),
et al.," is an original action for mandamus and certiorari led in this Court by former
o cials of BF to annul the Monetary Board Resolution No. 75 dated January 25, 1985
(ordering the closure of Banco Filipino [BF] and appointing Carlota Valenzuela as
receiver of the bank) on the ground that the resolution was issued "without affording BF
a hearing on the reports" on which the Monetary Board based its decision to close the
bank, hence, without "administrative due process." 1 The prayer of the petition reads:
"WHEREFORE, petitioner respectfully prays that a writ of mandamus be issued
commanding respondents immediately to furnish it copies of the reports of
examination of BF employed by respondent Monetary Board to support its
Resolution of January 25, 1985 and thereafter to afford it a hearing prior to any
resolution that may be issued under Section 29 of R.A. 265, meanwhile annulling
said Resolution of January 25, 1985 by writ of certiorari as made without or in
excess of jurisdiction or with grave abuse of discretion.
"So as to expedite proceedings, petitioner prays that the assessment of the
damages respondents should pay it be deferred and referred to commissioners.
"Petitioner prays for such other remedy as the Court may deem just and equitable
in the premises.
"Quezon City for Manila, February 28, 1985." (p. 8, Rollo I.)
and the prayer of the Supplement to Petition reads:

"WHEREFORE, in addition to its prayer for mandamus and certiorari contained in
its original petition, petitioner respectfully prays that Sections 28-A and 29 of the
Central Bank charter (R.A. 265) including its amendatory Presidential Decrees
Nos. 72, 1771, 1827 and 1937 be annulled as unconstitutional. prcd
"Quezon City for Manila, March 4, 1985." (p. 11-G, Rollo I.)
The other eight (8) cases merely involve transactions of BF with third persons
and certain "related" corporations which had defaulted on their loans and sought to
prohibit the extrajudicial foreclosure of the mortgages on their properties by the
receiver of BF. These eight (8) cases are:
1. G.R. No. 68878 "BF vs. Intermediate Appellate Court and Celestina
Pahimutang" involves the repossession by BF of a house and lot which the buyer
(Pahimutang) claimed to have completely paid for on the installment plan. The
appellate court's judgment for the buyer was reversed by this Court. The buyer's motion
for reconsideration is awaiting resolution by this Court;
2. G.R. Nos. 77255-58, "Top Management Programs Corporation and Pilar
Development Corporation vs. Court of Appeals, et al." (CA-G.R. SP No. 07892) and "Pilar
Development Corporation vs. Executive Judge, RTC, Cavite" (CA-G.R. SP Nos. 08962-64)
is a consolidated petition for review of the Court of Appeals' joint decision dismissing
the petitions for prohibition in which the petitioners seek to prevent the
receiver/liquidator of BF from extrajudicially foreclosing the P4.8 million mortgage on
Top Management's properties and the P18.67 million mortgage on Pilar Development
properties. The Court of Appeals dismissed the petitions on October 30, 1986 on the
ground that "the functions of the liquidator, as receiver under Section 29 (R.A. 265),
include taking charge of the insolvent's assets and administering the same for the
bene t of its creditors and of bringing suits and foreclosing mortgages in the name of
the bank; "
3. G.R. No. 78766, "El Grande Corporation vs. Court of Appeals, et al.," is an
appeal from the Court of Appeals' decision in CA-G.R. SP No. 08809 dismissing El
Grande's petition for prohibition to prevent the foreclosure of BF's P8 million mortgage
on El Grande's properties;
4. G.R. No. 78894, "Banco Filipino Savings and Mortgage Bank vs. Court of
Appeals, et al." is an appeal of BF's old management (using the name of BF) from the
decision of the Court of Appeals in CA-G.R. SP No. 07503 entitled, "Central Bank, et al.
vs. Judge Zoilo Aguinaldo, et al." dismissing the complaint of "BF" to annul the
receivership, for no suit may be brought or defended in the name of the bank except by
its receiver;
5. G.R. No. 87867, "Metropolis Development Corporation vs. Court of
Appeals" (formerly AC-G.R. No. 07503, "Central Bank, et al. vs. Honorable Zoilo
Aguinaldo, et al.") is an appeal of the intervenor (Metropolis) from the same Court of
Appeals' decision subject of G.R. No. 78894, which also dismissed Metropolis'
complaint in intervention on the ground that a stockholder (Metropolis) may not bring
suit in the name of BF while the latter is under receivership, without the authority of the
receiver;
6. G.R. No. 81303, "Pilar Development Corporation vs. Court of Appeals, et al."
is an appeal from the decision dated October 22, 1987 of the Court of Appeals in CA-
G.R. SP No. 12368, "Pilar Development Corporation, et al. vs. Honorable Manuel Cosico,
et al.," dismissing the petition for certiorari against Judge Manuel Cosico, Br. 136, RTC,
Makati, who dismissed the complaint led by Pilar Development Corporation against
BF, for speci c performance of certain developer contracts. An answer led by
Norberto Quisumbing and Associates, as BF's supposed counsel, virtually confessed
judgment in favor of Pilar Development. On motion of the receiver, the answer was
expunged and the complaint was dismissed. On a petition for certiorari in this Court, we
held that: "As liquidator of BF by virtue of a valid appointment from the Central Bank,
private respondent Carlota Valenzuela has the authority to direct the operation of the
bank in substitution of the former management, which authority includes the retainer of
counsel to represent it in bringing or resisting suits in connection with such liquidation
and, in the case at bar, to take the proper steps to prevent collusion, to the prejudice of
the legitimate creditors, between BF and the petitioners herein which appear to be
owned and controlled by the same interest controlling BF" (p. 49, Rollo). The petitioners'
motion for reconsideration of that decision is pending resolution. prcd
7. G.R. No. 81304, "BF Homes Development Corporation vs. Court of Appeals,
et al." is an appeal from the decision dated November 4, 1987 of the Court of Appeals
in CA-G.R. CV No. 08565 a rming the trial court's order dismissing BF Homes' action
to compel the Central Bank to restore the nancing facilities of BF, because the plaintiff
(BF Homes) has no cause of action against the CB.
8. G.R. No. 90473, "El Grande Development Corporation vs. Court of Appeals,
et al.," is a petition to review the decision dated June 6, 1989 in CA-G.R. SP No. 08676
dismissing El Grande's petition for prohibition to stop foreclosure proceedings against
it by the receiver of BF.
As previously stated, G.R. No. 70054 "BF vs. Monetary Board, et al.," is an original
special civil action for certiorari and mandamus led in this Court by the old
management of BF, through their counsel, N.J. Quisumbing & Associates, using the
name of the bank and praying for the annulment of MB Resolution No. 75 which ordered
the closure of BF and placed it under receivership. It is a "forum-shopping" case
because it was led here or February 28, 1985 three weeks after they had led on
February 2, 1985 Civil Case No. 9675 "Banco Filipino vs. Monetary Board, et al." in the
Regional Trial Court of Makati, Br. 143 (presided over by Judge Zoilo Aguinaldo) for the
same purpose of securing a declaration of the nullity of MB Resolution No. 75 dated
January 25, 1985.
On August 25, 1985, this Court ordered the transfer and consolidation of Civil
Case No. 9675 (to annul the receivership) from Br. 143 to Br. 136 (Judge Manuel
Cosico) of the Makati Regional Trial Court where Civil Case No. 8108 (to annul the
conservator ship) and Civil Case No. 10183 (to annul the liquidation) of BF were and are
still pending. All these three (3) cases were archived on June 30, 1988 by Judge Cosico
pending the resolution of G.R. No. 70054 by this Court.
Because of my previous participation, as a former member of the Court of
Appeals, in the disposition of AC-G.R. No. 02617 (now G.R. No. 68378) and AC-G.R. SP
No. 07503 (now G.R. Nos. 78767 and 78894), I am taking no part in G.R. Nos. 68878,
78767 and 78894. It may be mentioned in this connection that neither in AC-G.R. SP No.
02617, nor in AC-G.R. SP No. 07503, did the Court of Appeals rule on the
constitutionality of Sections 28-A and 29 of Republic Act 265 (Central Bank Act), as
amended, and the validity of MB Resolution No. 75, for those issues were not raised in
the Court of Appeals.
I concur with the ponencia insofar as it denies the motion for reconsideration in
G.R. No. 81303, and dismisses the petitions for review in G.R. Nos. 77255-58, 78766,
81304, and 90473.
I respectfully dissent from the majority opinion in G.R. No. 70054 annulling and
setting aside MB Resolution No. 75 and ordering the respondents, Central Bank of the
Philippines and the Monetary Board —
"to reorganize petitioner Banco Filipino Savings and Mortgage Bank, and allow
the latter to resume business in the Philippines under the comptroller ship of both
the Central Bank and the Monetary Board and under such conditions as may be
prescribed by the latter until such time that petitioner bank can continue in
business with safety to its creditors, depositors and the general public."
for I believe that this Court has neither the authority nor the competence to determine
whether or not, and under what conditions, BF should be reorganized and reopened.
That decision should be made by the Central Bank and the Monetary Board, not by this
Court. prLL
All that we may determine in this case is whether the actions of the Central Bank
and the Monetary Board in closing BF and placing it under receivership were "plainly
arbitrary and made in bad faith."
Section 29 of Republic Act No. 265 provides:
"SECTION 29. Proceedings upon insolvency. — Whenever, upon examination
by the head of the appropriate supervising and examining department or his
examiners or agents into the condition of any banking institution, it shall be
disclosed that the condition of the same is one of insolvency, or that its
continuance in business would involve probable loss to its depositors or creditors,
it shall be the duty of the department head concerned forthwith, in writing, to
inform the Monetary Board of the facts, and the Board may, upon nding the
statements of the department head to be true, forbid the institution to do business
in the Philippines and shall designate an o cial of the Central Bank as receiver to
immediately take charge of its assets and liabilities, as expeditiously as possible
collect and gather all the assets and administer the same for the bene t of its
creditors, exercising all the powers necessary for these purposes including, but
not limited to, bringing suits and foreclosing mortgages in the name of the
banking institution.
"The Monetary Board shall thereupon determine within sixty days whether the
institution may be reorganized or otherwise placed in such a condition so that it
may be permitted to resume business with safety to its depositors and creditors
and the general public and shall prescribe the conditions under which such
resumption of business shall take place as well as the time for ful llment of such
conditions. In such case, the expenses and fees in the collection and
administration of the assets of the institution shall be determined by the Board
and shall be paid to the Central Bank out of the assets of such banking
institution.
"If the Monetary Board shall determine and con rm within the said period that the
banking institution is insolvent or cannot resume business with safety to its
depositors, creditors and the general public, it shall, if the public interest requires,
order its liquidation, indicate the manner of its liquidation and approve a
liquidation plan. The Central Bank shall, by the Solicitor General, le a petition in
the Court of First Instance, reciting the proceedings which have been taken and
praying the assistance of the court in the liquidation of the banking institutions.
The court shall have jurisdiction in the same proceedings to adjudicate disputed
claims against the bank and enforce individual liabilities of the stockholders and
do all that is necessary to preserve the assets of the banking institution and to
implement the liquidation plan approved by the Monetary Board. The Monetary
Board shall designate an o cial of the Central Bank as liquidator who shall take
over the functions of the receiver previously appointed by the Monetary Board
under this section. The liquidator shall, with all convenient speed, convert the
assets of the banking institution to money or sell, assign or otherwise dispose of
the same to creditors and other parties for the purpose of paying the debts of
such bank and he may, in the name of the banking institution, institute such
actions as may be necessary in the appropriate court to collect and recover
accounts and assets of the banking institution.
"The provisions of any law to the contrary notwithstanding, the actions of the
Monetary Board under this section and the second paragraph of Section 34 of
this Act shall be nal and executory, and can be set aside by the court only if
there is convincing proof that the action is plainly arbitrary and made in bad faith.
No restraining order or injunction shall be issued by the court enjoining the Central
Bank from implementing its actions under this section and the second paragraph
of Section 34 of this Act, unless there is convincing proof that the action of the
Monetary Board is plainly arbitrary and made in bad faith and the petitioner or
plaintiff les with the clerk or judge of the court in which the action is pending a
bond executed in favor of the Central Bank, in an amount to be xed by the court.
The restraining order or injunction shall be refused or, if granted, shall be
dissolved upon ling by the Central Bank of a bond, which shall be in the form of
cash or Central Bank cashier's check, in an amount twice the amount of the bond
of the petitioner or plaintiff, conditioned that it will pay the damages which the
petitioner or plaintiff may suffer by the refusal or the dissolution of the injunction.
The provisions of Rule 58 of the new Rules of Court insofar as they are applicable
and not inconsistent with the provisions of this section shall govern the issuance
and dissolution of the restraining order or injunction contemplated in this section.
Insolvency, under this Act, shall be understood to mean the inability of a banking
institution to pay its liabilities as they fall due in the usual and ordinary course of
business, provided, however, that this shall not include the inability to pay of an
otherwise non-insolvent bank caused by extra-ordinary demands induced by
nancial panic commonly evidenced by a run on the banks in the banking
community." LLjur
The determinative factor in the closure, receivership, and liquidation of a bank is

the nding, upon examination by the SES of the Central Bank, that its condition "is one
of insolvency, or that its continuance in business would involve probable loss to its
depositors and creditors." (Sec. 29, R.A. 265.) It should be pointed out that insolvency
is not the only statutory ground for the closure of a bank. The other ground is when "its
continuance in business would involve probable loss to its depositors and creditors."
Was BF insolvent i.e., unable to pay its liabilities as they fell due in the usual and
ordinary course of business, on and for some time before January 25, 1985 when the
Monetary Board issued Resolution No. 75 closing the bank and placing it under
receivership? Would its continued operation involve probable loss to its depositors and
creditors?
The answer to both questions is yes. Both the conservator Gilberto Teodoro and
the head of the SES (Supervision and Examination Sector) Ramon V. Tiaoqui opined that
BF's continuance in business would cause probable loss to depositors and creditors.
Tiaoqui further categorically found that BF was insolvent. Why was this so?
The Teodoro and Tiaoqui reports as well as the report of the receivers, Carlota
Valenzuela, Arnulfo B. Aurellano and Ramon V. Tiaoqui, showed that since the end of
November 1983 BF had already been incurring "chronic reserve de ciencies" and
experiencing severe liquidity problems. So much so, that it had become "a substantial
borrower in the call loans market" and in June 1984 it obtained a P30 million
emergency loan from the Central Bank. (p. 2, Receiver's Report.) Additional emergency
loans (a total of P119.7 millions) were extended by the Central Bank to BF that month
(MB Res. No. 839 dated June 29, 1984). On July 12, 1984, BF's chairman, Anthony
Aguirre, offered to "turn over the administration of the affairs of the bank" to the Central
Bank (Aguirre's letter to Governor Jose Fernandez, Annex 7 of Manifestation dated May
3, 1991). On July 23, 1984, unable to meet heavy deposit withdrawals, BF's
management motu proprio, without obtaining the conformity of the Central Bank,
closed the bank and declared a bank holiday. On July 27, 1984, the CB, responding to
BF's pleas for additional nancial assistance, granted BF a P3 billion credit line (MB
Res. No. 934 of July 27, 1984) to enable it to reopen and resume business on August 1,
1984. P2.3601 billions of the credit line were availed of by the end of 1984 exclusive of
an overdraft of P932.4 millions (p. 2, Tiaoqui Report). Total accommodations granted
to BF amounted to P3.4122 billions (p. 19, Cosico Report).

Presumably to assure that the nancial assistance would be properly used, the
MB appointed Basilio Estanislao as conservator of the bank. A conservatorship team of
78 examiners and accountants was assigned at the bank to keep track of its activities
and ascertain its financial condition (p. 8, Tiaoqui Report).
Estanislao resigned after two weeks for health reasons. He was succeeded by
Gilberto Teodoro as conservator in August, 1984 up to January 8, 1985.
Besides the conservatorship team, Teodoro hired nancial consultants Messrs.
Tirso G. Santillan, Jr. and Plorido P. Casuela to make an analysis of BF's nancial
condition. Teodoro also engaged the accounting rm of Sycip, Gorres, Velayo and
Company to make an asset evaluation. The Philippine Appraisal Company (PAC)
appraised BF's real estate properties, acquired assets, and collaterals held. On January
9, 1985, Teodoro submitted his Report. Three weeks later, on January 23, 1985, Tiaoqui
also submitted his Report. Both reports showed that, in violation of Section 37 of the
General Banking Act (R.A. 337): 2
1. BF had been continually de cient in liquidity reserves (Teodoro Report).
The bank had been experiencing a severe drop in liquidity levels. The ratio of
liquid assets to deposits and borrowings plunged from about 20% at end-1983, to
about 8.6% by end-May 1984, much below the statutory requirements of 24% for
demand deposits/deposit substitutes and 14% for savings and time deposits. (p.
2, Tiaoqui Report.)
2. De ciencies in average daily legal reserves rose from P63.0 million during
the week of November 21-25, 1983 to a high of P435.9 million during the week of
June 11-15, 1984 (pp. 2-3, Tiaoqui Report). Accumulated penalties on reserve
de ciencies amounted to P37.4 million by July 31, and rose to P48 million by the
end of 1984. (Tiaoqui Report.)
3. Deposit levels, which were at P3,845 million at end-May 1984 (its last
"normal" month), dropped to P935 million at the end of November 1984 or a loss
of P2,910 million. This represented an average monthly loss of P485 million vs.
an average monthly gain of P26 million during the rst 5 months of 1984. (pp. 2-
3, Tiaoqui Report.)
4. Deposits had declined at the rate of P20 million during the month of
December 1984, but expenses of about P17 million per month were required to
maintain the bank's operations. (p. 5, Teodoro Report.)
5. Based on the projected outlook, the Bank's average yield on assets of
16.3% p.a., was insu cient to meet the average cost of funds of 19.5% p.a. and
operating expenses of 4.8% p.a. (p. 5 Teodoro Report.)
6. An imprudently large proportion of assets were locked into long-term
applications. (Teodoro Report.)LLpr
7. BF overextended itself in lending to the real estate industry, committing as

much as 52% of its peso deposits to its a liates or "related accounts" to which it
continued lending even when it was already suffering from liquidity stresses.
(Teodoro Report.) This was done in violation of Section 38 of the General Banking
Act (R.A. 337). 3
8. During the period of marked decline in liquidity levels the loan portfolio
grew by P417.3 million in the rst ve months of 1984 — and by another P105.1
million in the next two months. (pp. 2-3, Tiaoqui Report.)
9. The loan portfolio stood at P3.679 billion at the end of July 1984, 56.2% of
it channeled to companies whose stockholders, directors and officers were related
to the o cers, directors, and some stockholders of BF. (p. 8, Tiaoqui Report.) Here
again BF violated the General Banking Act (R.A. 337). 4
10. Some of the loans were used to acquire preferred stocks of BF. Between
September 17, 1983 and February 10, 1984, P49.9 million of preferred non-
convertible stocks were issued. About 85% or P42.4 million was paid out of the
proceeds of loans to stockholders/borrowers with relationship to the bank (Annex
D). Around P18.8 million were issued in the name of an entity other than the
purchaser of the stocks. (Tiaoqui Report.)
11. Loans amounting to some P69.3 million were granted simply to pay-off
old loans including accrued interest, as an accommodation for the direct
maturing loans of some rms and as a way of paying-off loans of other borrower
rms which have their own credit lines with the bank. These helped to make
otherwise delinquent loans appear "current" and deceptively "improved" the
quality of the loan portfolio. (Tiaoqui Report.)
12. Examination of the collaterals for the loan accounts of 63 major
borrowers and 32 other selected borrowers as of July 31, 1984, showed that:
(a) 2,658 TCT's which BF evaluated to be worth P1,487 million
were appraised by PAC to be worth only P1,196 million, hence, de cient by
P291 million.
(b) Other properties (collaterals) supposedly worth P711 million
could not be evaluated by PAC because the details submitted by the bank
were insufficient;
(c) While P674 million in loans were supposedly guaranteed by
the Home Financing Corporation (HFC), the latter con rmed only P427
million. P247 million in loans were not guaranteed by HFC. (Teodoro
Report.)
(d) Per SGV's report, loans totalling P1.882 million including

accrued interest, were secured by collateral worth only P1.54 billion. Hence,
BF's unsecured exposure amounted to P586.2 million. BF Homes, Inc., a
related company which has led with the SEC a petition for suspension of
payments, owes P502 million to BF.
13. BF had been suffering heavy losses. —

a) For the eleven (11) months ended November 30, 1984, the
estimated net loss was P372.6 Million;
b) For the twelve (12) months from November 1984, the projected net
loss would be P390.7 Million and would continue unabated; (p. 2, Teodoro
Report)
c) Around 71.7% of the total accommodations of P2.0677
billions to the related/linked entities were adversely classi ed. Close to
33.7% or P697.1 millions were clean loans or against PNs (promissory
notes) of these entities. Of the latter, 52.6% were classi ed as loss." (p. 5,
Tiaoqui Report.)
d) The bank's nancial condition as of date of examination,
after setting up the additional valuation reserves of P612.2 millions and
accumulated net loss of P48.2 millions, indicates one of insolvency. Total
liabilities of P5,282.1 million exceeds total assets of P4,947.2 million by
6.8%. Total capital account of P334.9 million) is de cient by P322.7
million against the minimum capital required of P657.6 million (Annex F).
Capital to risk assets ratio is negative 10.33%.
e) Total loans and investment portfolio amounted to P3,914.3
millions (gross), of which P194.0 millions or 5.0% were past due and
P1,657.1 millions or 42.3% were adversely classi ed (Substandard —
P1,011.4 millions; Doubtful — P274.6 millions and Loss — P371.1
millions). Accounts adversely classi ed included unmatured loan of
P1,482.0 million to entities related with each other and to the bank, several
of which showed distressed conditions." (p. 7, Tiaoqui Report.).
Teodoro's conclusion was that "the continuance of the bank in business would
involve probable loss to its depositors and creditors." He recommended "that the
Monetary Board take a more effective and responsible action to protect the depositors
and creditors . . . in the light of the bank's worsening condition." (p. 5, Teodoro Report.)
LLpr
On January 23, 1985, Tiaoqui submitted his report to the Monetary Board. Like
Teodoro, Tiaoqui believed that the principal cause of the bank's failure was that in
violation of the General Banking Law and CB rules and regulations, BF's major
stockholders, directors and o cers, through their "related" companies: (i.e. companies
owned or controlled by them of their relatives) had been "borrowing" huge chunks of
the money of the depositors. His Conclusion and Recommendations were:
"The Conservator, in his report to the Monetary Board dated January 8, 1985, has
stated that the continuance of the bank in business would involve probable loss
to its depositors and creditors. It has recommended that a more effective action
be taken to protect depositors and creditors.
"The examination ndings as of July 31, 1984 as shown earlier, indicate one of
insolvency and illiquidity and further con rms the above conclusion of the
Conservator.
"All the foregoing provides su cient justi cation for forbidding the bank from
further engaging in banking.
"Foregoing considered, the following are recommended:
"1. Forbid the Banco Filipino Savings & Mortgage Bank to do

business in the Philippines effective the beginning of o ce on January,
1985, pursuant to Sec. 29 of R.A. No. 265, as amended;
"2. Designate the Head of the Conservator Team at the bank, as

Receiver of Banco Filipino Savings & Mortgage Bank, to immediately take
charge of the assets and liabilities, as expeditiously as possible collect and
gather all the assets and administer the same for the bene t of all the
creditors, and exercise all the powers necessary for these purposes
including but not limited to bringing suits and foreclosing mortgages in the
name of the bank.
"3. The Board of directors and the principal o cers from Senior
Vice President, as listed in the attached Annex 'A' be included in the watch
list of the Supervision and Examination Sector until such time that they
shall have cleared themselves.
"4. Refer to the Central Bank's Legal Department and O ce of

Special Investigation the report on the ndings on Banco Filipino for
investigation and possible prosecution of directors, officers and employees
for activities which led to its insolvent position." (pp. 9-10, Tiaoqui Report.).
On January 25, 1985 or two days after the submission of Tiaoqui's Report, and
three weeks after it received Teodoro's Report, the Monetary Board, then composed of:
Chairman: Jose B. Fernandez, Jr.
CB Governor.
Members:
1. Cesar E.A. Virata, Prime Minister & Concurrently Minister of Finance
2. Roberto V. Ongpin, Minister of Trade & Industry & Chairman of Board of
Investment
3. Vicente B. Valdepeñas, Jr., Minister of Economic Planning & Director

General of NEDA
4. Cesar A. Buenaventura, President of Filipinas Shell Petroleum Corp. (p. 37,

Annual Report 1985).
issued Resolution No. 75 closing BF and placing it under receivership. The MB

Resolution reads as follows:
"After considering the report dated January 8, 1985 of the Conservator for Banco
Filipino Savings and Mortgage Bank that the continuance in business of the bank
would involve probable loss to its depositors and creditors, and after discussing
and nding to be true the statements of the Special Assistant to the Governor and
Head, Supervision and Examination Sector (SES) Department II, as recited in his
memorandum dated January 23, 1985, that the Banco Filipino Savings and
Mortgage Bank is insolvent and that its continuance in business would involve
probable loss to its depositors and creditors, and in pursuance of Section 29 of
R.A. No. 265, as amended, the Board decided: cdll
"1. To forbid Banco Filipino Savings and Mortgage Bank and all
its branches to do business in the Philippines;
"2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor,

as Receiver who is hereby directly vested with jurisdiction and authority to
immediately take charge of the bank's assets and liabilities, and as
expeditiously as possible collect and gather all the assets and administer
the same for the benefit of its creditors, exercising all the powers necessary
for these purposes including, but not limited to, bringing suits and
foreclosing mortgagee in the name of the bank;
"3. To designate Mr. Arnulfo B. Aurellano, Special Assistant to

the Governor, and Mr. Ramon V. Tiaoqui, Special Assistant to the Governor
and Head, Supervision and Examination Sector Department II, as Deputy
Receivers who are likewise hereby directly vested with jurisdiction and
authority to do all things necessary or proper to carry out the functions
entrusted to them by the Receiver and otherwise to assist the Receiver in
carrying out the functions vested in the Receiver by law or Monetary Board
resolutions;
"4. To direct and authorize Management to do all other things

and carry out all other measures necessary or proper to implement this
Resolution and to safeguard the interests of depositors/creditors and the
general public; and
"5. In consequence of the foregoing, to terminate the
conservator ship over Banco Filipino Savings and Mortgage Bank." (pp.
126-127, Rollo I.)
On March 19, 1985, the receiver, Carlota Valenzuela, and the deputy receivers,
Arnulfo B. Aurellano and Ramon V. Tiaoqui, submitted a report to the Monetary Board
as required in Section 29, 2nd paragraph of R.A 265 which provides that within sixty
(60) days from date of the receivership, the Monetary Board shall determine whether
the bank may be reorganized and permitted to resume business, or be liquidated. The
receivers recommended that BF be placed under litigation. For, among other things,
they found that:
1. BF had been suffering a capital de ciency of P336.5 million as of July 31,
1984 (pp. 2 and 4, Receivers' Report).
2. The bank's weekly reserve de ciencies averaged P146.67 million from
November 25, 1983 up to March 16, 1984, rising to a peak of P338.09 million until July
27, 1984. Its reserve de ciencies against deposits and deposit substitutes began on
the week ending June 15, 1984 up to December 7, 1984, with average daily reserve
deficiencies of P2.98 million.
3. Estimated losses or "unbooked valuation reserves" for loans to entities
with relationships to certain stockholders/directors and o cers of the bank amounted
to P600.5 million. Combined with other adjustments in the amount of P73.2 million,
they will entirely wipe out the bank's entire capital account and leave a capital
de ciency of P336.5 million. The bank was already insolvent on July 31, 1984. The
capital de ciency increased to P908.4 million as of January 25, 1985 on account of
unbooked penalties for de ciencies in legal reserves (P49.07 million), unbooked
interest on overdrawings, emergency advance of P569.49 million from Central Bank,
and additional valuation reserves of P124.5 million. (pp. 3-4, Receivers' Report.)
The Receivers further noted that —
"After BF was closed as of January 25, 1985, there were no collections from loans
granted to rms related to each other and to BF classi ed as 'doubtful' or 'loss,'
there were no substantial improvements on other loans classi ed 'doubtful' or
'loss;' there was no further increase in the value of assets owned acquired
supported by new appraisals and there was no infusion of additional capital such
that the estimated realizable assets of BF remained at P3,909.23, (millions) while
the total liabilities amounted to P5,159.44 (millions). Thus, BF remains insolvent
with estimated deficiency to creditors of P1,250.21 (millions).
"Moreover, there were no efforts on the part of the stockholders of the bank to
improve its nancial condition and the possibility of rehabilitation has become
more remote." (p. 8, Receivers' Report.)
In the light of the results of the examination of BF by the Teodoro and Tiaoqui
teams, I do not nd that the CB's Resolution No. 75 ordering BF to cease banking
operations and placing it under receivership was "plainly arbitrary and made in bad
faith." The receivership was justi ed because BF was insolvent and its continuance in
business would cause loss to its depositors and creditors. Insolvency, as de ned in
Rep. Act 265, means "the inability of a banking institution to pay its liabilities as they fall
due in the usual and ordinary course of business. Since June 1984, BF had been unable
to meet the heavy cash withdrawals of its depositors and pay its liabilities to its
creditors, the biggest of them being the Central Bank, hence, the Monetary Board
correctly found its condition to be one of insolvency. prcd
All the discussion in the Santiago Report concerning the bank's assets and
liabilities as determinants of BF's solvency or insolvency is irrelevant and
inconsequential, for under Section 29 of Rep. Act. 265, a bank's insolvency is not
determined by its excess of liabilities over assets, but by its "inability to pay its
liabilities as they fall due in the ordinary course of business" and it was abundantly
shown that BF was unable to pay its liabilities to depositors for over a six-month-period
before it was placed under receivership.
Even if assets and liabilities were to be factored into a formula for determining
whether or not BF was already insolvent on or before January 25, 1985, the result would
be no different. The bank's assets as of the end of 1984 amounted to P4.891 billions
(not P6 billions) according to the Report signed and submitted to the CB by BF's own
president, and its total liabilities were P4.478 billions (p. 58, Cosico Report). While
Aguirre's Report showed BF ahead with a net worth of P412.961 millions, said report
did not make any provision for estimated valuation reserves amounting to P600.5
millions, (50% of face value of doubtful loans and 100% of face value of loss accounts)
which BF had granted to its related/linked companies. The estimated valuation
reserves of P600.5 millions plus BF's admitted liabilities of P4.478 billions, put
together, would wipe out BF's realizable assets of P4.891 billions and con rm its
insolvent condition to the tune of P187.538 millions.
BF's and Judge (now CA Justice) Consuelo Y. Santiago's argument that valuation
reserves should not be considered because the matter was not discussed by Tiaoqui
with BF officials is not well taken for:
(1) The records of the defaulting debtors were in the possession of BF.
(2) The "adversely classi ed" loans were in fact included in the List of
Exceptions and Findings (of irregularities and violations of laws and CB rules and
regulations) prepared by the SES, a copy of which was furnished BF on December 17,
1984;
(3) A conference on the matter was held on January 21, 1985 with senior
o cials of BF headed by EVP F. Dizon,. (pp. 14-15, Cosico Report.) BF did not formally
protest against the CB's estimate of valuation reserves. The CB could not wait forever
for BF to respond for the CB had to act with reasonable promptness to protect the
depositors and creditors of BF because the bank continued to operate.
(4) Subsequent events proved correct the SES classi cation of the loan
accounts as "doubtful" or "loss" because as of January 25, 1985 none of the loans,
except three, had been paid either partially or in full, even if they had already matured (p.
53, Cosico Report).
The recommended provision for valuation reserves of P600.5 millions for
"doubtful" and "loss" accounts was a proper factor to consider in the capital
adjustments of BF and was in accordance with accounting rules. For, if the uncollectible
loan accounts would be entered in the assets column as "receivables," without a
corresponding entry in the liabilities column for estimated losses or valuation reserves
arising from their uncollectability, the result would be a gravely distorted picture of the
financial condition of BF.
BF's strange argument that it was not insolvent for otherwise the CB would not
have given it nancial assistance does not merit serious consideration for precisely BF
needed financial assistance because it was insolvent.
Tiaoqui's admission that the examination of BF had "not yet been o cially
terminated" when he submitted his report on January 23, 1985 did not make the action
of the Monetary Board of closing the bank and appointing receivers for it, "plainly
arbitrary and in bad faith." For what had been examined by the SES was more than
enough to warrant a nding that the bank was "insolvent and could not continue in
business without probable loss to its depositors or creditors," and what had not been
examined was negligible and would not have materially altered the result. In any event,
the o cial termination of the examination with the submission by the Chief Examiner of
his report to the Monetary Board in March 1985, did not contradict, but in fact
confirmed, the findings in the Tiaoqui Report. LLphil
The responsibility of administering the Philippine monetary and banking systems

is vested by law in the Central Bank whose duty it is to use the powers granted to it
under the law to achieve the objective, among others, of maintaining monetary stability
in the country (Sec. 2, Rep. Act 265). I do not think it would be proper and advisable for
this Court to interfere with the CB's exercise of its prerogative and duty to discipline
banks which have persistently engaged in illegal, unsafe, unsound and fraudulent
banking practices causing tremendous losses and unimaginable anxiety and prejudice
to depositors and creditors and generating widespread distrust and loss of con dence
in the banking system. The damage to the banking system and to the depositing public
is bigger when the bank, like Banco Filipino, is big. With 89 branches nationwide, 46 of
them in Metro Manila alone, pumping the hard-earned savings of 3 million depositors
into the bank, BF had no reason to go bankrupt if it were properly managed. The Central
Bank had to infuse almost P3.5 billions into the bank in its endeavor to save it. But even
this nancial assistance was misused, for instead of satisfying the depositors'
demands for the withdrawal of their money, BF channeled and diverted a substantial
portion of the funds into the coffers of its related/linked companies. Up to this time, its
o cers, directors and major stockholders have neither repaid the Central Bank's P3.5
billion nancial assistance, nor put up adequate collaterals therefor, nor submitted a
credible plan for the rehabilitation of the bank. What authority has this Court to require
the Central Bank to reopen and rehabilitate the bank, and in effect risk more of the
Government's money in the moribund bank? I respectfully submit that decision is for
the Central Bank, not for this Court, to make.
WHEREFORE, I vote to dismiss the petition for certiorari and mandamus in G.R.
No. 70054 for lack of merit.
Footnotes
GRIÑO-AQUINO, J.:
1. p. 3, Petition.
2. Sec. 37. All savings and mortgage banks shall maintain on deposit with the Central Bank
of the Philippines such reserves against their deposit liabilities as the Monetary Board
shall determine in accordance with the pertinent provisions of the Central Bank Act.
3. Sec. 38. Whenever there is a call by depositors of a savings bank for repayment of their
deposits and the call so made shall result in reducing its legal reserves below the
amount required by the Monetary Board, such bank shall not make any new loans or
investment of the funds of depositors or earnings of such funds until the call of the
depositors has been satis ed and its legal reserves have been restored to the required
minimum.
4. Sec. 83. No director or o cer of any banking institution shall, either directly or indirectly,
for himself or as the representative or agent of others, borrow any of the deposits of
funds of such bank . . .

Banco Filipino V Monetary Board

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EN BANC

[G.R. No. 70054. December 11, 1991.]

BANCO FILIPINO SAVINGS AND MORTGAGE BANK , petitioner, vs.

[G.R. No. 68878. December 11, 1991.]

BANCO FILIPINO SAVINGS AND MORTGAGE BANK , petitioner, vs.

[G.R. Nos. 77255-58. December 11, 1991.]

TOP MANAGEMENT PROGRAMS CORPORATION AND PILAR

[G.R. No. 78766. December 11, 1991.]

EL GRANDE CORPORATION , petitioner, vs. THE COURT OF APPEALS,

[G.R. No. 78767. December 11, 1991.]

METROPOLIS DEVELOPMENT CORPORATION , petitioner, vs. COURT

[G.R. No. 78894. December 11, 1991.]

BANCO FILIPINO SAVINGS AND MORTGAGE BANK , petitioner, vs.

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PILAR DEVELOPMENT CORPORATION , petitioner, vs. COURT OF

[G.R. No. 81304. December 11, 1991.]

BF HOMES DEVELOPMENT CORPORATION , petitioner, vs. THE COURT

[G.R. No. 90473. December 11, 1991.]

EL GRANDE DEVELOPMENT CORPORATION , petitioner, vs. THE

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1. Forbid the Banco Filipino Savings & Mortgage Bank to do

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On February 2, 1985, petitioner BF led a complaint docketed as Civil Case No.

The commissioner after evaluation of the evidence presented, found and

"3. That accordingly, by way of correction, BF should be allowed to re-open

Respondents thereafter led a motion for leave to le objections to the Santiago

4. In G.R. No. 81303, the petitioner's motion for reconsideration;

5. In G.R. No. 81304, the petition, comment and reply;

"The assets of an institution under receivership or liquidation shall be deemed in

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Clearly, Tiaoqui based his report on an incomplete examination of petitioner bank

xxx xxx xxx

f. 'Unimpaired Capital and Surplus,' 'Combined capital accounts,' and 'Net

Respondents acknowledge that under the said CB manual, CB examiners must

On emergency loans and advances, Section 90 of RA 265 provides two types of

The rst paragraph of the aforequoted provision contemplates a situation where

and the prayer of the Supplement to Petition reads:

The determinative factor in the closure, receivership, and liquidation of a bank is

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7. BF overextended itself in lending to the real estate industry, committing as

(d) Per SGV's report, loans totalling P1.882 million including

13. BF had been suffering heavy losses. —

"1. Forbid the Banco Filipino Savings & Mortgage Bank to do

"2. Designate the Head of the Conservator Team at the bank, as

"4. Refer to the Central Bank's Legal Department and O ce of

3. Vicente B. Valdepeñas, Jr., Minister of Economic Planning & Director

4. Cesar A. Buenaventura, President of Filipinas Shell Petroleum Corp. (p. 37,

issued Resolution No. 75 closing BF and placing it under receivership. The MB

"2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor,

"3. To designate Mr. Arnulfo B. Aurellano, Special Assistant to

"4. To direct and authorize Management to do all other things

The responsibility of administering the Philippine monetary and banking systems

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