FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and

MERCURIO RIVERA, petitioners vs. COURT OF APPEALS, CARLOS EJERCITO, in substitution of

DEMETRIO DEMETRIA, and JOSE JANOLO, respondents.

G.R. No. 115849             January 24, 1996

FACTS: The Producer bank has been placed under conservatorship by the Central Bank since 1984.
The bank is the owner of 6 parcels of land with a total area of 101 hectares located at Don Jose, Sta.
Rose, Laguna. The bank had an agreement with Demetrio Demetria and Jose Janolo to purchase the
parcels of land. The said agreement was made by Demetria with the Bank’s manager Mercurio 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 repudiation of
the agreement as it alleged that Rivera was not authorized to enter into such agreement. Hence there was
no valid contract of sale. Subsequently, Demetria sued the Bank. The lower court 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. Henry Co and several other stockholders of the Bank, filed a separate civil case
(second case) against Encarnacion, Demetria and Janolo "to declare any perfected sale of the property as
unenforceable and to stop Ejercito from enforcing or implementing the sale". In his answer, Janolo argued
that the Second Case was barred by litis pendentia by virtue of the case then pending in the Court of
Appeals. But petitioners

The petitioner bank argued that the conservator has the power to revoke and overrule the actions
of the management or the board of directors of a bank under RA 265 or the Central Bank Act hence the
conservator can revoke the said contract between the Bank and Demetria.

ISSUE: Whether the Conservator can Revoke the Perfected Contract.

HELD: No.

In this case, it is clear that the petitioner Bank was already under a conservator during the time that the
negotiation and perfection of the contract of sale took place.

However, what petitioners are really referring to is the letter of Conservator Encarnacion (the 2 nd
conservator) referring to the authority of Rivera to make a binding offer — not the contract.

And so, going back to the issue, the Central Bank law gives vast powers to the conservator of a bank, but
such power however is not without limitation. Such powers must be related to the "preservation of the
assets; reorganization of the management; and the restoration of the banks sustainability." It cannot
extend to the post-facto rejection or cancellation of perfected transactions, otherwise they
would infringe against the non-impairment clause of the Constitution.

Therefore, the Central Bank Act (Section 28-A) merely gives the conservator power to revoke
contracts that are, under existing law, deemed to be defective — i.e., void, voidable,
unenforceable or rescissible.

His authority would be only to bring court actions to assail such contracts — as he has already done so in
the instant case.