Banco Filipino Savings and Mortgage Bank v. Monetary Board, G.R. No.

70054, December 11, 1991

FACTS:
Top Management Programs Corporation and Pilar Development Corporation are corporations
engaged in the business of developing residential subdivisions. Top Management and Pilar Development
obtained several loans from Banco Filipino all secured by real estate mortgages in their various properties
in Cavite.
The Monetary Board by Ramon Tiaoqui, Special Assistant to the Governor and Head, SES
Department III submitted a report finding that the bank is insolvent and recommending the appointment
of a receiver.  The Monetary Board, based on the Tiaoqui report, issued a resolution finding Banco
Filipino insolvent and placing it under receivership. Subsequently, the Monetary Board issued another
resolution placing the bank under liquidation and designated a liquidator. By virtue of her authority as
liquidator, Valenzuela appointed the law firm of Sycip, Salazar, et al. to represent Banco Filipino in all
litigations.
Banco Filipino filed the petition for certiorari questioning the validity of the resolutions issued by
the Monetary Board authorizing the receivership and liquidation of Banco Filipino. A temporary
restraining order was issued enjoining the respondents from executing further acts of liquidation of the
bank. However, acts and other transactions pertaining to normal operations of a bank are not enjoined.
Subsequently, Top Management and Pilar Development failed to pay their loans on the due date. Hence,
the law firm of Sycip, Salazar, et al., acting as counsel for Banco Filipino under authority of the
liquidator, applied for extra-judicial foreclosure of the mortgage over Top Management and Pilar
Development’s properties. Thus, the Ex-Officio Sheriff of the Regional Trial Court of Cavite issued a
notice of extra-judicial foreclosure sale of the properties. Top Management and Pilar Development filed 2
separate petitions for injunction and prohibition with the respondent appellate court seeking to enjoin the
Regional Trial Court of Cavite, the ex-officio sheriff of said court and Sycip, Salazar, et al. from
proceeding with foreclosure sale which were subsequently dismissed by the court. Hence this petition.

ISSUE(S):
1. WON the liquidator has the authority to prosecute as well as to defend suits and to foreclose
mortgages for and behalf of the bank while the issue on the validity of the receivership and liquidation
is still pending resolution.
2. WON the closure of the bank based on the Tiaoqui report is correct.

RULING:
1. YES.
Section 29 of the Republic Act No. 265, as amended known as the Central Bank Act, provides
that when a bank is forbidden to do business in the Philippines and placed under receivership, the person
designated as receiver shall immediately take charge of the bank’s assets and liabilities, as expeditiously
as possible, collect and gather all the assets and administer the same for the benefit of its creditors, and
represent the bank personally or through counsel as he may retain in all actions or proceedings for or
against the institution, exercising all the powers necessary for these purposes including, but not limited
to, bringing and foreclosing mortgages in the name of the bank. If the Monetary Board shall later
determine and confirm that banking institution is insolvent or cannot resume business safety to depositors,
creditors and the general public, it shall, if public interest requires, order its liquidation and appoint
a liquidator who shall take over and continue the functions of receiver previously appointed by Monetary
Board. The liquidator may, in the name of the bank and with the assistance counsel as he may retain,
institute such actions as may necessary in the appropriate court to collect and recover a counts and assets
of such institution or defend any actions against the institution.
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. The Court did not prohibit however acts as
receiving collectibles and receivables or paying off credits claims and other transactions pertaining to
normal operations of a bank. There is no doubt that the prosecution of suits, collection, and the
foreclosure of mortgages against the debtors of the bank by the liquidator is among the usual and ordinary
transactions pertaining to the administration of a bank.

2. NO, Tiaoqui based his report on an incomplete examination of petitioner bank and outrightly
concluded therein that the latter’s financial status was one of insolvency or illiquidity. 
In the instant case, the basic standards of substantial due process were not observed. Time and
time again, the Court has 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. The test
of insolvency laid down in Section 29 of the Central Bank Act is measured by determining whether the
realizable assets of a bank are less than its liabilities. Hence, a bank is solvent if the fair cash value of all
its assets, realizable within a reasonable time by a reasonable prudent person, would equal or exceed its
total liabilities exclusive of stock liability; but if such fair cash value so realizable is not sufficient to pay
such liabilities within a reasonable time, the bank is insolvent.
Examination apprises 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 verification.