First Phil. International Bank v. CA, G.R. No.

115849, January, 24 1996

FACTS:
The Bank has been under conservatorship since 1984. It is the owner of 6 parcels of land. The
Bank had an agreement with Demetria to purchase the parcels of land. The said agreement was made by
Demetria with the Bank’s manager, Rivera. Thereafter, they had a series of letters consisting of offers,
counter-offers and acceptance of the counter-offer by Demetria. Later however, the Bank, through its
conservator, Encarnacion, sought the repudiation of the agreement as it alleged that Rivera was not
authorized to enter into such an agreement. Hence there was no valid contract of sale. Subsequently,
Demetria sued the Bank. The RTC ruled in favor of Demetria. The Bank filed an appeal with the CA.
Meanwhile, Henry Co, who holds 80% shares of stocks with the said Bank, filed a motion for
intervention with the trial court which was denied since the trial has been concluded already and the case
is now pending appeal. Subsequently, Henry Co, filed a separate civil case against Ejercito as successor-
in-interest (assignee) of Demetria seeking to have the purported contract of sale be declared
unenforceable against the Bank. Ejercito argued that the second case constitutes forum shopping since it
was barred by litis pendentia by virtue of the case then pending in the Court of Appeals. But petitioners
explain that there is no forum-shopping because in the “First Case” from which this proceeding arose, the
Bank was impleaded as a defendant, whereas in the “Second Case” it was the plaintiff.
The Bank also argued the following: (1) that there contract of sale was not yet perfected since it
lacks consent since the Bank did not make a counter-offer; (2) that the contract is unenforceable since
there is no note, memorandum or writing subscribed by the Bank to evidence such contract; (3) that the
conservator has the power to revoke or overrule actions of the management or the board of directors of a
bank under Section 28-A of Republic Act No. 265 hence the conservator can revoke the said contract
between the Bank and Demetria; and (4) that respondent Court's Decision as "fraught with findings and
conclusions which were not only contrary to the evidence on record but have no bases at all" hence
questions of fact must be reviewed by SC.

ISSUE(S):
WON the conservator may revoke a perfected and enforceable contract.

RULING:
NO.
Sec. 28-A of R.A. No. 265 (otherwise known as the Central Bank Act) provides that, “…..the
Monetary Board may appoint a conservator to take charge of the assets, liabilities, and the management of
that institution, collect all monies and debts due said institution and exercise all powers necessary to
preserve the assets of the institution, reorganize the management thereof, and restore its viability.  He shall
have the power to overrule or revoke the actions of the previous management and board of directors of
the bank or non-bank financial intermediary performing quasi-banking functions, any provision of law to
the contrary notwithstanding, and such other powers as the Monetary Board shall deem necessary.”
While admittedly, the Central Bank law gives vast and far-reaching powers to the conservator of
a bank, it must be pointed out that such powers must be related to the "(preservation of) the assets of the
bank, (the reorganization of) the management thereof and (the restoration of) its viability." Such powers,
enormous and extensive as they are, cannot extend to the post-facto repudiation of perfected transactions,
otherwise they would infringe against the non-impairment clause of the Constitution.
Section 28-A merely gives the conservator power to revoke contracts that are, under existing law,
deemed to be defective. Hence, the conservator merely takes the place of a bank's board of directors; so
what the board cannot do, the conservator cannot do either. His power is however, not unilateral as he
cannot simply repudiate valid obligations of the Bank. His authority would be only to bring court actions
to assail such contracts.
In the case, it is not disputed that the bank was under a conservator placed by the Central Bank of
the Philippines during the time that the negotiation and perfection of the contract of sale took place.
Moreover, there was absolutely no evidence that the Conservator, at the time the contract was perfected,
actually repudiated or overruled said contract of sale. The bank never objected to the sale, what it
unilaterally repudiated was—not the contract —but the authority of Rivera to make a binding offer —and
which unarguably came months after the perfection of the contract.
The conservator’s authority would be only to bring court actions to assail such contracts —as he
has already done so in the instant case. A contrary understanding of the law would simply not be
permitted by the Constitution. To rule otherwise would be to enable a failing bank to become solvent, at
the expense of third parties, by simply getting the conservator to unilaterally revoke all previous dealings
which had one way or another or come to be considered unfavorable to the Bank, yielding nothing to
perfected contractual rights nor vested interests of the third parties who had dealt with the Bank.