Ramos vs. Central Bank of The Philippines

VOL.
41, OCTOBER 4, 1971 565

Ramos vs. Central Bank of the Philippines
No. L-29352. October 4, 1971.
EMERITO M. RAMOS,SUSANA B. RAMOS,EMERITO B.

RAMOS,JR., JOSEFA RAMOS DE LA RAMA,HORACIO
DE LA RAMA,ANTONIO B. RAMOS,FILOMENA RAMOS
LEDESMA,RODOLFO RAMOS,VICTORIA RAMOS
TANJUATCO, and TEOFILO TANJUATCO, petitioners,
vs. CENTRAL BANK OF THE PHILIPPINES, respondent
Remedial law; Jurisdiction once acquired.—The jurisdiction

of a court once it attaches cannot be ousted by the subsequent
happening of events, although of a character which would have
prevented jurisdiction from attaching in the first instance. The
argument of the Central Bank that by the subsequent passage of
Monetary Board Resolution No. 1333 on August 13, 1968
authorizing the liquidation of the Overseas Bank, the matter
comes already within the exclusive jurisdiction of the Court of
First Instance by virtue of section 29 of R.A. 265 must be rejected
for it overlooks the fact that before the Central Bank adopted said
resolution this Court had already taken cognizance of the petition
herein, assailing Resolutions Nos. 1263 and 1290 of the Monetary
Board as “patent acts of liquidation,” violative of its alleged
commitment to rehabilitate the Overseas Bank; and the Court, in
fact, already had required the Central Bank to answer the
petition on 12 August 1962, prior to the adoption of Resolution
No. 1333. The latter resolution is clearly an act in pursuance of
the policy outlined in the previous resolutions (1263 and 1290)
enjoined by this Court.
Remedial law; Jurisdictional defects may be overlooked.—On
previous occasions, this Court has overruled the defense of
jurisdiction in the interest of public welfare and for the
advancement of public policy, where, as in this case, an
extraordinary situation existed. There is no denying that
creditors, depositors and the banking community are all
interested in a quick determination whether the Ovearseas Bank
may, under the circumstances, be closed or allowed to continue
operating at the exclusive discretion of respondent Central Bank.
Same; Corporation law.—The plea that the Ovearseas Bank
is not a party to the case at bar need not give concern. The
petitioners are the controlling stockholders of that Bank, and are
qualified to represent its interests, so that a judgment may be
enforced for or against it, although it is not impleaded by name in
the suit.
Same; Interpretation of contracts; Effect of antecedent and
subsequent circumstances.—While the trust agreement on its face
creates obligations only for the Superintendent of Banks as
trustee, his commitments were undeniably those of the Central
566
566 SUPREME COURT REPORTS ANNOTATED
Bank itself, since it was the latter that had from the very
beginning insisted upon such voting trust being executed. For the
Superintendent of Banks was an officer of the CB, the chief of its
Department of Supervision and Examination of all banking
institutions operating in the country, subject to the instructions of
the Monetary Board at all times, pursuant to Section 25 of the CB
charter, Republic Act No. 265; and it is not credible that he should
have understood that he was entering into the trust agreement in
his personal capacity. Moreover, the Central Bank subsequently
caused its own team of nominees to take over the direction and
management of the Overseas Bank through the voting of the
shares conveyed to the trustee.
Same; Same; Contracts of adhesion.—Bearing in mind that
the communications as well as the voting trust agreement had
been prepared by the CB, and the well-known rule that
ambiguities therein are to be construed against the party that
caused them, the record becomes clear that, in consideration of
the execution of the voting trust agreement by the stockholders of
the bank, and of the mortgage or assignment of their personal
properties to the CB, the CB had agreed to announce its readiness
to support the new management “in order to allay the fears of
depositors and creditors” and to “stave off liquidation” by
providing adequate funds for “the rehabilitation, normalization
and stabilization” of the bank, in a manner similar to what the
CB had previously done with the Republic Bank.
Obligations and contacts; Rule of promissory estoppel.—A
party may not reneged on its promises after the other had
complied with the former’s conditions, under the rule of
promissory estoppel. “The broad general rule to the effect that a
promise to do or not to do something in the future does not work
an estoppel must be qualified, since there are numerous cases in
which an estoppel has been predicated on promises or assurances
as to future conduct. The doctrine of ‘promissory estoppel’ is by no
means new, although the name has been adopted only in
comparatively recent years. According to that doctrine, an
estoppel may arise from the making of a promise, even though
without consideration, if it was intended that the promise should
be relied upon and in fact it was relied upon, and if a refusal to
enforce it would be virtually to sanction the perpetration of fraud
or would result in other injustice. In this respect, the reliance by
the promisee is generally by action or forbearance on his part, and
the idea has been expressed that such action or forbearance would
reasonably have been expected by the promisor. Mere omission by
the promisee to do whatever the promisor promised to do has been
held insufficient ‘forbearance’ to give rise to a promissory
estoppel.” (19 Am. Jur. 657-658).
567
VOL. 41, OCTOBER 4, 1971 567
Same; Fulfillment of contractual obligations.—Under the law,

obligations arising from contracts have the force of law between
the parties and must be complied with in good faith. The conduct
of the CB from and after January, 1968 reveals a calculated
attempt to evade rehabilitating the Ovearseas Bank despite its
promises in violation of Articles 1159 and 1315 of the new Civil
Code.
Central Bank Act.—Where notwithstanding its knowledge of
the irregularities by the officers of the bank, the CB did not
withdraw its promised support, and insisted on the execution of
the Voting Trust Agreement on 20 November 1967, such attitude
imports that, in its opinion, the irregularities disclosed were not
to be blamed on the OBM itself or its depositors and creditors, but
on the officials responsible; and further, that the bank could still
be save by adequate aid and management reform, which was
required by CB’s duty to maintain the stability of the banking
system and preservation of public confidence in it.
Obligations and contracts; Where difficulties arose from
party’s own-making.—It thus becomes apparent that (due to its
failure to take positive action to comply with its previous
commitments) most of the difficulties invoked now by the CB are
of its own making, and are not lawful excuses for its refusal to
comply with its commitments.
Administrative law; Courts may interfere with the discretion
of the Central Bank.—Where the CB engaged to support the
distressed bank in exchange for control of its management and
additional mortgages in its favor, then courts may interfere with
the CB’s exercise of discretion in determining whether or not a
distressed bank shall be supported or liquidated. Discretion has
its limits and has never been held to include arbitrariness,
discrimination or bad faith.
MAKALINTAL, J., dissenting:
Administrative law.—To my mind the acts complained of

were, if anything, a judicious exercise of discretion for the purpose
of carrying out the policies laid down by the Central Bank Act
with respect to supervision over the operation of private banking
institutions; and this Court, by issuing the writs prayed for, has
substituted its own judgment for that of the Monetary Board in a
matter that is peculiarly within the competence of the latter.
Obligations and contracts; Goals distinguished from
obligations of contracts.—It seems from a reading of the decision
of this Court, that the purpose for which the voting trust
agreement was entered into—more accurately, the goals sought to
568
be achieved—is mistaken for the obligation thereunder, and that

such obligation devolves not upon the Trustee, the
Superintendent of Banks, but upon the Central Bank itself, which
is not a party to the agreement.
Same.—When the agreement contains an optional rescission
clause expressly providing “that the Trustee, may at its option
relinquish the trust, upon approval of the Monetary Board,” the
same should be given effect.
Remedial law; Jurisdiction of the Supreme Court.—The
adoption by the Monetary Board of Resolution No. 1333
forbidding the Ovearseas Bank to do business and instructing the
Superintendent of Bank to take charge of its assets and take such
action as may be necessary pursuant to section 29 of the Central
Bank Act, should remove the present controversy from this Court
and address it to the Courts of First Instance pursuant to the said
section of the CB Charter.
Same; Extraordinary writs not proper in actions for
enforcement of contract.—The remedy sought by the petitioners is
essentially for the enforcement of an alleged contract. This is
borne out by the decision of this Court which directs the Central
Bank “to comply with its obligations under the Voting Trust
Agreement, and to desist from taking any action in violation
thereof.” It is to be noted that no “act which the law specifically
enjoins as a duty resulting from an office, trust, or station” is
ordered to be performed. Compliance with contractual obligations
is beyond the purview of mandamus, on original jurisdiction over
an action for that purpose pertains to the Courts of First Instance.
Such an action is a plain, speedy and adequate remedy in the
ordinary course of law which, being available to petitioners,
should bar the present recourse to the extraordinary writ of
mandamus, especially because certain vital facts are controverted.
Central Bank Act; Duty of the Monetary Board.—The
rehabilitation of the distressed institution is the primary goal of
the authority given to the Monetary Board, and there is nothing
so sacrosanct in a voting trust agreement, or in the use of the
word “rehabilitate” therein, that once it is executed the Central
Bank is thereby bound to see the “rehabilitation” through as an
ordinary contractual commitment, no matter how costly and
impractical it may prove. For Section 29 also provides that “if the
Monetary Board shall determine that the banking institution
cannot resume business with safety to its creditors, it shall, by the
Solicitor General, file a petition in the Court of First Instance
reciting the proceedings which have been taken and praying the
assistance and supervision of the Court in the liquidation of the
affairs of the same.”
569
VOL. 41, OCTOBER 4, 1971 569

CASTRO, J., dissenting opinion:
Central Bank Act; The Central Bank is without power to enter

into the Voting Trust Agreement in question.—Even if it were
assumed that the intention of the CB authorities relative to the
said voting trust agreement was to make the CB a party thereto,
its validity and binding effect upon the CB are not legally possible
since under the said agreement the CB would not only be
acquiring the legal title, including voting rights, over the shares of
stock of the petitioners in the OBM, but it would also be actually
directing the management and operation of the bank—powers and
prerogatives the acquisition of which by the CB is expressly
prohibited under sections 27 and 133 of the CB Charter.
Same; Political Law; Estoppel on account of mistake of
government agents.—Because of the existing constraints
contained in the CB charter the said voting trust agreement
cannot but be construed as having been entered into under a clear
misapprehension, if not disregard, of the law. On this point, it
appears to be well settled in our jurisdiction that the Government
(and CB is an instrumentality of the Government) is never
estopped by the mistake or error of its agents.
Same; Central Bank not a party to agreement.—The majority
opinion lost sight of the fact that in the matter of the regulation of
the banking and monetary systems in this country, the CB, as the
“bank of banks,” is given all-embracing powers of supervision and
superintendence. In the situation that the OBM has found itself,
it was incumbent upon the CB to exercise these powers. If the
agreement contains express reference to the Monetary Board, it is
because the OBM and the Superintendent of Banks, by
themselves alone, without any assist from the CB, would be
completely incapable of rehabilitating, normalizing and
stabilizing OBM. The agreement is much more than an ordinary
contract between two private parties; it is a covenant unavoidably
impressed with public policy: the stability of the banking and
monetary systems. It must, therefore, be regarded as one in which
the provisions of the CB Charter and other pertinent laws are
deemed perforce incorporated. It is clear that the Monetary Board
required the execution of the voting trust agreement not for the
purpose of binding the CB as a contracting party, but solely to
fulfill its statutory obligation to superintend the banking system
and forestall the occurrence of conditions that effectively lead to
financial panic or that threaten monetary and banking stability.
Same; Obligations and Contracts; Optional rescission must be
given effect. While the opening portion of the said stipulation
states that the trust agreement shall be for a 3-year period,
570
this term is, however, explicitly made subject to the condition that
the “TRUSTEE may, at its option, relinquish the trust.” If, as the
majority opinion says, the resolutions in question contradict the
“promise” of the CB that it will rehabilitate, restore and stabilize
(to stave off the liquidation of) the OBM, then I can see no other
conclusion but that the CB had thereby relinquished the said
trust.
Same; Central Bank cannot rehabilitate a bank to the extent of
violating the law.—The take-over by a new management of the
operations of the OBM to stop the bank’s assets and funds from
further being fraudulently dissipated could bring about relative
normalcy and stability and remove the immediate threat of
closure. But no trustee can be expected to surmount what is
humanly insurmountable. The CB is not expected, nor can it be
obliged, to divert its own funds for the purpose of saving a solitary
bank whose in extremis condition was, in the first place, caused by
the malfeasance, misfeasance and non-feasance of its principal
stockholders and officers. The CB was established to discharge
certain constituent functions. Its powers are necessarily
circumscribed by law. The fact that it achieves a surplus fund in
its operations does not mean that it can devote such surplus fund
to any use not specifically and clearly described by law. Section 41
of the Central Bank Act, in fact, specifies the uses to which its net
profits may be devoted. The “rehabilitation, normalization and
stabilization” of a private commercial bank are not among these.
Same; Central Bank acted in good faith.—Based upon a
review of the background facts of the facts of the case at bar, I
seriously dispute the observation of the majority that the CB did
not conscientiously and in good faith exert every effort to
rehabilitate, normalize and stabilize the OBM.
Same; Central Bank’s powers limited by law.—Assuming that
the CB is legally committed under the voting trust agreement to
rehabilitate the OBM, any action of the CB in respect thereto
must have to be particularly what it can perform within the
periphery of the law. Under the facts of the case at bar, the only
way by which the CB can succeed in rehabilitating the OBM,
under the present conditions, is to extend financial assistance
through loans of astronomical magnitude granted to the latter
that the Central Bank will be forced to violate the provisions of
section 90 of the Central Bank Act.
Same; Central Bank not obliged to rehabilitate the Overseas
Bank of Manila like it did with the Republic Bank.— The
majority’s conclusion that the CB is obliged to rehabilitate the
OBM in a manner similar to what it did with the Republic Bank
is without support in the record of this case. First:It
571
VOL. 41, OCTOBER 4, 1971 571

will be clearly seen that reference was made to the Republic Bank
merely for the purpose of describing the “instrument” to be
executed by the OBM stockholders. Second: The statement that
“when the Republic Bank previously became distressed, the CB
had advanced funds to rehabilitate it and allow it to resume
operating,” is gratuitous. There is nothing in the pleadings which
shows as a fact that the CB had advanced funds to the Republic
Bank, nor, if it did so, how much and for what specific purpose or
ends.
Same; OBM stockholders required to execute mortgages to
comply with CB Charter.—Logic cannot sustain the statement
that the OBM stockholders were induced into mortgaging their
properties for the purpose of staving off liquidation. There was a
moral and legal obligation on the part of the OBM to execute such
mortgages because of its huge overdrawings which were not
secured by sufficient and acceptable collaterals. The CB could
legally demand the execution of such mortgages without the need
of providing any enticement or inducement of the OBM
stockholders. Section 90 of the CB Charter requires that bank
overdrawings be secured by collaterals acceptable to the Monetary
Board.
Same; Estoppel.—The doctrine of “promissory estoppel” is
discussed in Corpus Juris Secundum, which, in this connection
states, “Of course, a promise cannot be the basis of an estoppel if
any other essential element is lacking . . . Justifiable reliance and
irreparable detriment to the promisee are requisite factors.” (31
C. J. S. 291)
Certainly the petitioners could not have justifiably relied

upon any “promise” of the CB to rehabilitate the OBM,
assuming that there was such promise, if in the fulfillment
thereof the CB would have to extend further financial
assistance in the form of loans without the requisite
corresponding collaterals from the OBM, or to contribute to
the capital of the said bank. For these would be in flagrant
violation of sections 90 and 133 of the CB Charter, which
are mandatorily proscriptive, and would in effect compel
the CB to dole out public funds in the hundreds of millions
of pesos in cynical contravention of the law.
ORIGINAL ACTION in the Supreme Court. Certiorari,

prohibition and mandamus with preliminary injunction.
The facts are stated in the opinion of the Court.

Francisco Carreon, Feliciano C. Tumale and Araneta,
Mendoza & Papa for petitioners.
572
Solicitor General Felix Q. Antonio and F. E. Evangelista,

Clara Cruz-Espiritu & Iñigo B. Regalado, Jr. for
respondent Bank.
REYES, J.B.L., J.:
This is a petition for Certiorari, Prohibition and Mandamus

with prayer for the issuance of a writ of preliminary
injunction to restrain respondent Central Bank of the
Philippines (hereinafter designated as the CB) from
enforcing and implementing the Monetary Board
Resolution No. 1263, adopted on 30 July 1968, excluding
the Overseas Bank of Manila (hereinafter termed the
OBM) from clearing with the Central Bank, that was
ordered implemented on 31 July 1968 (Annex “11”), and
Resolution No. 1290, adopted on 1 August 1968, granting
authority to the OBM Board of Directors to suspend
operations thereof, which was implemented on 2 August
1968 (Annex “13”).
The herein petition is based on the following grounds:
(a) That the aforesaid resolutions were not legally

issued and were promulgated by respondent CB
through the Monetary Board in excess of
jurisdiction and with grave abuse of discretion;
(b) That the said resolutions are prejudicial to the
national interest and against public policy, as they
would erode confidence in the banking system and
undermine the integrity and stability thereof,
contrary to the purpose and spirit of the Central
Bank Act;
(c) That said resolutions have caused and will cause
further irreparable losses, damages and injuries to
the depositors, creditors and stockholders of the
OBM;
(d) That said resolutions were promulgated without
due process of law, would constitute deprivation of
property likewise without due process of law, and
will amount to impairment of the obligations of
contract; and
(e) That there is no appeal nor any plain, speedy and
adequate remedy in the ordinary course of law.
From the pleadings and annexes, the following
appears:
573
VOL. 41, OCTOBER 4, 1971 573

The OBM is a commercial banking corporation duly

organized and existing under the laws of the Philippines
with principal office at Rosario Street, Manila. Petitioners
are the majority and controlling stockholders thereof. The
OBM was opened for business on 6 January 1964 with
authorized capital of P30 million, P10 million subscribed
and P8 million thereof paid, but had been suspended by
respondent from clearing with the CB and from lending
operations for various violations of the banking laws and
implementing regulations. Petitioners charged that the
OBM became financially distressed because of this
suspension and the deprivation by the CB of all the usual
credit facilities and accommodations accorded to the other
banks. The alleged exactions of onerous fines and penalties
by respondent was likewise blamed for the aggravated
situation. For its deficiencies it was made subject to
penalties of 12% interest on overdrawings and 36% per
annum on reserve deficiencies, which by 1968 amounted to
several millions.
By April, 1967, the financial situation of the OBM had
caused mounting concern in the CB. Petitioner Ramos and
the OBM management finally met with respondent CB on
the necessity and urgency of rehabilitating the OBM
through the extension of necessary financial assistance.
The upshot of these conferences appears from the
correspondence exchanged between the CB and the OBM.
On 2 May 1967, the Governor of the Central Bank, An-
dres Castillo, upon instructions of the Monetary Board,
wrote a letter (Petition, Annex “B”) stating:
“This is with reference to the conference had between Mr. Emerito

Ramos, Sr., Chairman of your Board, and the undersigned, the
Deputy Governor, the Acting Superintendent of Banks, and the
Officer-in-Charge, Accounting Department of this Bank, last
Friday evening on the present very precarious condition of the
Overseas. In the conference, we described to Mr. Ramos at length
the circumstances which led to the present precarious conditions
of the bank. We stressed the imminent danger of the bank’s being
thrown out of clearing, in accordance with existing Central Bank
regulations, on account of its continuous adverse clearing
balances, and of the immediate necessity of putting up additional
capital in the
574

amount of at least P3 million, which Mr. Ramos promised to put

up when he last appeared before the Monetary Board. I informed
Mr. Ramos that if his bank is thrown out of clearing, the Central
Bank will proceed in accordance with the existing policy under
which he and other stockholders representing a majority will have
to sign a trusteeship agreement with the Philippine National
Bank pursuant to which the Overseas Bank will be managed by
the Philippine National Bank. If the PNB takes over management
in such eventuality, the Central Bank could also announce that it
is ready to support the Philippine National Bank in order to allay
the fears of depositors and creditors.”
In view of the OEM stockholders’ reluctance to execute the

Voting Trust suggested, the Monetary Board adopted
Resolution No. 2015 dated 16 October 1967, having the
following terms (Petition, Annex “F”):
“ ‘(1) To require Mr. Emerito M. Ramos, Sr., the principal

stockholder of the Overseas Bank of Manila, to
submit a listing of his properties and to mortgage or
assign the same to the Central Bank to cover the
overdraft balance therewith of the Overseas Bank
of Manila;
“ ‘(2) To require the stockholders of the Overseas Bank of
Manila to subscribe to an appropriate voting trust
agreement so that the Central Bank may be able to
effect a complete reorganization and/or transfer the
management of the bank to a nominee of the
Monetary Board;’ ”
Further conference ensued, and on 30 October 1967

Governor Castillo of the CB wrote again (Petition, Annex
“G”):
“I wish to refer to the conference had between your good-self and

the members of the Monetary Board at Malacañang of 16 October
1967, relative to the financial condition and state of affairs of the
Overseas Bank of Manila, of which the substantial majority of
stock is owned by you and your family and corporations controlled
by you.
“Among other things, the Monetary Board, having in mind the
overdrawing in your deposit account with the Central Bank
which, on that date, stood at P22.3 million, together with the
balance of your past due emergency loan with the Central Bank
amounting to P10.3 million exclusive of accumulated interest,
decided that, as a measure to stave off liquidation, a voting trust
agreement should be executed by you and your family and the
corporations controlled by you in favor of the
575
VOL. 41, OCTOBER 4, 1971 575

Superintendent of Banks, in an instrument similar to the one

executed by stockholders of the Republic Bank in favor of the
Philippine National Bank. On 23 October 1967, the Legal Counsel
of this Bank submitted to you a draft of such “Voting Trust
Agreement” desired by the Monetary Board. However, on 25
October 1967, you handed the Legal Counsel your own draft of a
“Trust Agreement” which, in essence, is not a voting trust
agreement as desired by the Monetary Board and reiterated in its
Resolution No. 2020 dated 20 October 1967 and confirmed on 24
October 1967.”
This was followed up by another letter of 8 November 1967

(Petition, Annex “H”):
“In line with the conference this morning between your goodself
and the undersigned, the Deputy Governor, the Acting
Superintendent of Banks, and the Central Bank Legal Counsel,
and your manifestation of readiness to abide by the decisions of
the Monetary Board on all matters involving the Overseas Bank
of Manila, it is requested that the voting trust agreement
prepared by the Legal Counsel of this Bank be now signed by you
and other members of your family and by the proper officials of
the corporations which are stockholders of the bank and which
are controlled by you and your family.
“It is also requested that the execution of the mortgages on the
properties you offered as security for the obligations of the
Overseas Bank of Manila to the Central Bank be finalized, and
the shares of stock belonging to you and your family in your
corporations and enterprises be endorsed in favor of the Central
Bank and delivered to us as soon as possible.”
Finally, on 20 November 1967, the petitioners herein

executed the Voting Trust Agreement prepared by
attorneys of the CB 1(Petition, Annex “A”) with petitioners
as Cestuis Que Trust and respondent CB’s Superintendent
of Banks as the Trustee. The Trustee entered into the
agreement pursuant to the authority given by respondent’s
Monetary Board under M. B. Resolution No. 2017, dated 17
Oc-tober 1967. The salient features of the said Voting Trust
Agreement are the following:
(a) Objectives. The objectives are stated in the “Where-
_______________
1 This designation was legally erroneous, for the terms of the document
clearly show that petitioners were the Trustors with the OBM creditors
and depositors and stockholders as cestuis que trustent.
576

as Clauses”, the pertinent portions of which read: “. . . . the

abovenamed stockholders of the Overseas Bank of Ma-nila
believe that it is for and/or the interest and benefit of the
bank depositors, creditors and stockholders that this trust
agreement should be entered into by them for the
rehabilitation, normalization and stabilization of the
Overseas Bank of Manila;” and “. . . . . TRUSTEE has
likewise signified his willingness to accept such trust in
pursuance of the objectives above-mentioned;” (Italics
supplied)
(b) Term. The life of the trust shall be for three (3)
years from 20 November 1967, but the Trustee at
its option, may relinquish the trust upon approval
of the Monetary Board. It is provided further that
if, at the expiration of the three-year period the
purposes for which the trust has been constituted
have not as yet been fully achieved, the trust
agreement shall be considered automatically
extended for such period to be determined by the
Monetary Board, similarly terminable within such
further period at the discretion of the Monetary
Board;
(c) Powers and authority. The trustee is given all and
full authority, subject to the limitations set forth in
the law and other conditions in the contract to: (1)
direct the management of the affairs and accounts
and properties of the OBM; (2) vote its directors
and choose the officers and employees; (3) improve,
modify, reorganize its operation policies, standards,
systems, methods, structure, organization,
personnel, staffing pattern, etc.; (4) hold and vote
on the shares of stocks transferred to him as
trustee; (5) safeguard the interests of depositors,
creditors and stockholders; and (6) in general, to
exercise all such powers and discharge all such
functions as inherently pertain to the cestui que
trust as owers, and/or for the sound management of
a banking institution;
(d) Consideration. The cestui que trust bound them
selves, among others, to pay the trustee during the
life of the trust an annual honorarium, subject to
certain conditions.
Petitioners likewise conveyed by way of mortgage to Z

577
VOL. 41, OCTOBER 4, 1971 577

the CB all their private properties and holdings to secure

the obligations of the OBM to the CB, but there is no
agreement as to the value of these properties, petitioners
contending that they are worth over 141 million, but the
CB appraised them at around 67 million (Petition, Annexes
“B” and “C”).
But as early as 25 September 1967, Mr. Martin Oliva,
who had become president of OBM only since 13 March
1967, had written to the Superintendent of Banks that
transactions worth around P48 million, of which over P43
million were time deposits, at usurious rates of interest,
had not been incorporated in the Bank’s books2
nor reported
to the Board of Directors. It was explained that the OBM
management had resorted to these unrecorded transactions
because the suspension of its lending activities after 14
months of operation reduced OBM to virtual inactivity, and
it had to agree to pay high premiums or interests on such
deposits because this high costs is comparatively cheaper
than the Central Bank’s interests on overdrawings at the
rate of 12% per annum and a penalty of 36% per annum on
reserve deficiencies.
Oliva’s letter prompted a further investigation of OBM
records by the CB examiners that revealed allegedly
unrecorded deposits and transactions (which is disputed by
Petitioners) amounting to 48,007,211 as of 13 September
1967 (reduced to P35 million when petition was filed);
diversion of deposits to accounts controlled by certain OBM
officials (so-called COFICO and EMRACO accounts) and3
loans to the Ramos family and firms controlled by them.
Petitioners contend that these transactions were recorded
in subsidiary ledger accounts that were linked to the
general ledger accounts of the Bank under the so-called
BM-RACO and COFICO accounts, and finally incorporated
in OBM’s regular books in September, 4
1967 upon
instructions of President Martin Oliva. And as to the loans
to the Ramos family and firms, the same had been written
off
_______________
2 Annex “M”, Petitioners’ Reply Memorandum.

3 Annexes “21-A”, “22-A”, “22-C,” “23.”
4 Annexes “S”, “T”, “U”, “O” and “P”, Petition.
578

when around 31 July 1967 the Ramoses conveyed to the

OBM properties worth P54.096 million.
On 27 October 1967, the Superintendent of Banks
reported that the condition of the OBM was one of
insolvency, calling for application of Section 29 of the
Central Bank Act and liquidation of OBM. However, with
the listing of Ramos properties worth 100 million, it was
added, a new possibility
5
emerged to recapitalize the OBM
in 100 million.
“2. However, with the letter dated October 26, 1967 of Mr. Martin
R. Oliva, President of the Overseas Bank of Manila, giving a list
of the Ramos properties worth P100 million (?), a radically
different possibility has emerged.
“If the valuation of the P100 million (net of encumbrances to
the parties other than the CB and TOBM) to the properties is
true, or substantially true, then the new ‘possibility’ may be
briefly stated thus:
“A Recapitalization of the Overseas Bank of Manila on the
amount of P100 million will save the bank, because—as a general
proposition, subject of course to corroborative quantification—
such a magnitude of capital can make good the bad loans as well
as the funds that cannot be legitimately accounted for, and can
absorb the losses in bad debts, can provide it with funds for viable
operations, and thus ultimately give adequate protection to
depositors and creditors.
In the same memorandum report, considering the need for

liquid funds, the Superintendent of Banks suggested the
following alternatives:
“(1) The OBM be required to acquire the properties in

payment for frozen or bad loans or for unaccountable
funds, and then mortgage the properties to CB for
emergency advances, or
(2) The owners be required to mortgage the properties to the
CB directly, and for CB to extend loans to OBM depending
on the needs.”
Three days later, 30 October 1967, the Central Bank

governor wrote to the petitioner, Emerito Ramos,
reiterating the need for the OBM stockholders to execute a
voting trust agreement “to stave off liquidation”, which
letter
_______________
5 Annex “21”, Answer.
579
VOL. 41, OCTOBER 4, 1971 579

was followed by another of 8 November 1967, requiring the

execution of the Voting Trust Agreement by the OBM
stockholders and of the mortgage of their properties to
secure OBM obligations to the Central Bank and the
endorsement of the shares of stock held by them in their
corporations and enterprises (Petition, Annexes “G” and
“H”, quoted previously). Petitioners duly complied (Annexes
“A”, “C” and “S”) in November, 1967.
On 5 December 1967, new directors and officers drafted
from the CB itself, the PNB and DBP were elected and
installed and they took over the management and control of
the Overseas bank.
On 14 June 1968, the CB announced that only P10
million were available as emergency loan to OBM and
requested the management of the latter (appointed under
the Voting Trust Agreement to replace the old Board
elected by the stockholders) to project how it could help bail
out OBM.
OBM president, 6
Mr. Orosa, submitted a “Projected Cash
Flow Statement” , concluding—
“It is pointed out here that with the P10 million loan from the CB,
the extremely distressed financial condition of TOBM will
continue to prevail. At best, the P10 million loan will enable
TOBM to resume limited lending operations on a highly selected
basis and diminish its estimated loss by some P492.5 thousand
assuming that the loans to be extended have a high turnover rate
and a 100% repayment ratio. Thus, with the P10 million CB loan,
the annual loss has been estimated to be P8.9 million. To be able
to breakdown in operations, therefore, TOBM needs loanable
funds estimated at P196 million, placing the cost of such funds at
1½.”
In a memorandum submitted to Governor Calalang 12 days

later, 22 July, Mr. Orosa unburdened himself and deplored
CB for hemming and hawing. This caused, he said the loss
of “psychological advantage” initially gained by PNB’s take
over of the OBM management. He reminded the CB
Governor about the OBM management’s request on 6
January 1968 for a P20 million loan to enable OBM to get
on its feet. “At that time”, he said, “the
_______________
6 Annex “10-A”, Answer.
580

aid we are recommending, properly used, would have

staved off panic and restored some confidence.”
“Eight months of indecision has made depositors lose faith and as

a result, we are faced with more court suits and withdrawals
7
than
ever before and more obligations have matured.”
The next day, 23 July 1968, the Superintendent of Banks

recommended to the Monetary Board that OBM be
liquidated under Section 29, Republic Act 265, if its “capital
structure cannot be strengthened
8
to meet the requirements
of Section 22 of RA 337”, and if “massive financing cannot
be given to enable the bank to expand its risk assets.” He
concluded that:
“. . . . . . . The bank’s continuance in business under its present

extremely precarious financial condition, without the necessary
capital injection and financial aid, will involve not merely
probable, but certain further losses to its depositors and other
creditors and may have further adverse effects on the banking
system.”
Thereafter, on 13 August 1968, as heretofore stated, the CB
Monetary Board adopted Resolution No. 1333, ordering the
Superintendent of Banks to proceed to the liquidation of
the OBM, under Section 29 of the Central Bank Act. As
already noted, implementation of this resolution was
restrained by this Court.
Petitioners aver that no adequate financial assistance
was granted to the OBM after the execution of the Voting
Trust Agreement. They further claim that the said
agreement is not only bilateral, imposing reciprocal
obligations for valuable consideration, but was also entered
into by respondent CB in the performance of its duties
under the
_______________
7 Annex “X”, Reply Memorandum.

8 Which provides that “the combined capital accounts of each
commercial bank shall not be less than an amount equal to fifteen percent
(15%) of its total assets”, i.e., risk assets or investments.
The Bank superintendent estimated that OBM needed P21.7 million (to
replenish OBM’s capital account which was wiped out because of losses) to
support risk assets as of 30 June 1968; plus P18.9 million to support
expansion of risk assets in the amount of P126 million. In other words, it
needed an additional P40 million fresh capital. Annex “10”, Answer.
581
VOL. 41, OCTOBER 4, 1971 581

law; and that under said agreement the obligation of the

CB was to act and work for the “rehabilitation,
normalization and stabilization” of the OBM, through the
extension of adequate and necessary financial assistance to
stave off liquidation, is legally demandable, as well as a
duty specifically enjoined and imposed by law. And that in
violation of its obligations, the CB, “after eight months of
delay”, adopted the questioned resolutions, without notice
to or hearing the petitioners.
By resolution of this Court, the respondents were
required to answer the petition and set for hearing the
petition for a writ of injunction. However, on 13 August
1968, the CB adopted Resolution No. 1333 (Annex “12”,
Answer) forbidding the OBM from doing business and
instructing the Superintendent of Banks to take charge of
the Bank’s assets and to take action under Section 29 of the
Central Bank Act (Republic Act 265), which amounted to a
directive for the liquidation of the OBM. Implementation of
the resolution was, upon petitioners’ motion, restrained by
the Court on 14 August 1968.
Justifying Resolutions 1263 and 1290, CB in its answer
cited specific instances of OEM’s “unusual and irregular
transactions” discovered by examiners or “revealed by
OBM officials themselves”. By way of affirmative defenses,
CB averred that:
1. The CB is not a party to the Voting Trust

agreement, and therefore cannot be compelled to
implement it.
2. Assuming that CB is obliged to rehabilitate OBM, it
cannot give more loans to the latter than that
already given to it as of 30 July 1968, without
violating Section 90 of the Central Bank Act since
neither OBM nor its stockholders could put up
additional capital and additional collaterals to
secure CB’s future advances.
3. It would be illegal and contrary to public interest to
construe the voting trust agreement as imposing
upon CB the duty to rescue OBM at all cost.
4. No bank has an absolute right to take part in inter-
582

bank clearing, because Section 100, Republic Act

265, requires a bank as a condition to such
participation to keep deposit reserves, which the
OBM does not have—in fact it had overdrawn its
reserve account with the CB beyond the maximum
fixed by law.
Several petitions for intervention were denied by the Court.

The issues involved appear to be:
(a) Whether or not this Supreme Court has jurisdiction

to restrain the implementation of CB Resolution
No. 1333;
(b) Whether or not the CB had agreed to rehabilitate,
normalize and stabilize OBM;
(c) Whether or not CB Resolutions Nos. 1263, 1290 and
1333 were adopted in abuse of discretion.
On the first issue of jurisdiction, the respondent Central
Bank defines its position in its Rejoinder Memorandum,
pages 3-5, as follows:
“We respectfully maintain,” . . . . . . , “that even as this Honorable

Court had ample jurisdiction over the said petition, any action
based on the approval and implementation of the third resolution,
Res. 1333 on 13 August 1968 comes already within the exclusive
original jurisdiction of the Court of First Instance, in accordance
with the provisions itself of Section 29 of the Central Bank Act,
Rep. Act 265, under which said resolution was promulgated.
xxxxx xxxxx xxxxx
“ ‘The point . . . . . . . . is that the situation has changed entirely
because of the approval of Res. 1333 on August 13, 1968, after the
main petition had already been filed and given due course. This
resolution has made the two previous questioned resolutions
academic and the main petition pointless.”
The CB stand is that to assail Resolution 1333 of the

Monetary Board ordering the liquidation of the Overseas
Bank, an action must be filed in the Court of First Instance
of Manila by the Bank itself, and not by petitioning
stockholders, allegedly in view of the provisions of Section
29, Republic Act No. 265, paragraph 3, reading:
“At any time within ten days after the Monetary Board
583
VOL. 41, OCTOBER 4, 1971 583

has taken charge of the assets of any banking institution, such

institution may apply to the Court of First Instance for an order
requiring the Monetary Board to show cause why it should not be
enjoined from continuing such charge of its assets, and the court
may direct the Board to refrain from further proceedings and to
surrender charge of its assets.”
This argument must be rejected, for it overlooks the fact

that before the Central Bank adopted said Resolution No.
1333 on 13 August 1968 this Court had already taken
cognizance of the petition herein, assailing Resolutions
Nos. 1263 and 1290 of the Monetary Board as “patent acts
of liquidation,” violative of its alleged commitment to
rehabilitate the Overseas Bank; and the Court, in fact,
already had required the Central Bank to answer the
petition on 12 August 1962, prior to the adoption of
Resolution No. 1333. The latter resolution is clearly an act
in pursuance of the policy outlined in the previous
resolutions (1263 and 1290) enjoined by this Court. Hence,
if jurisdiction was already acquired to delve into the
validity of Resolutions 1263 and 1290 (and this the Central
Bank admits), there is no cogent reason why, after such
jurisdiction had been acquired, the Court should be
deprived thereof by the subsequent adoption of Resolution
1333, particularly because the latter, in relation to the
antecedent facts, appears to be no more than a deliberate
effort to evade the jurisdiction of this Court, and have the
case thrown back to the Court of First Instance.
In People vs. Pegarum, this Court quoted with approval
the rule that:
“. . . . . . . . . the jurisdiction of a court depends upon the state of

facts existing at the time it is invoked, and if the jurisdiction once
attaches to the person and subject matter of the litigation, the
subsequent happening of events, although they are of such a
character as would have prevented jurisdiction from attaching in
the first instance, will not operate to oust jurisdiction already
attached.”
This rule coincides

9
with well-established principles of
American law to the same effect.
_______________
9 20 Am. Jur. 2d, Courts, Section 148; 21 C.J.S., Courts, Section 93.
584

The basic guidelines in the exercise of this Court’s original

jurisdiction to issue prerogative writs were expressed in
Dimayuga vs. Fernandez, 43 Phil. 306-307, thus:
“. . . . . . . . It is true, as respondents contend, that as a general

rule, a court of equity will not restrain the authorities of either a
state or municipality from the enforcement of a criminal law, and
among the earlier decisions, there was no exception to that rule.
By the modern authorities, an exception is sometimes made, and
the writ is granted, where it is necessary for the orderly
administration of justice, or to prevent the use of the strong arm
of the law in an oppressive or vindictive manner, or a multiplicity
of actions.
“In legal effect, that was the decision of this court in Kwong
Sing vs. City of Manila. (41 Phil. 103)
“The writ of prohibition is somewhat sui generis, and is more or
less in the sound legal discretion of the court and is intended to
prevent the unlawful and oppressive exercise of legal authority,
and to bring about the orderly administration of justice.”
Nor would it serve the interest of justice to dismiss the case

at this stage and let a new petition be filed in another
court. In Bay View vs. Manila Hotel Worker’s Union (L-
21803, 17 December 1966), this Court, through Mr. Justice
Conrado V. Sanchez, pointed out the evils attending split
jurisdictions, saying:
“To draw a tenuous jurisdictional line is to undermine stability in

. . . . . . litigations. A piece meal resort to one Court and another
gives rise to multiplicity of suits. . . . The time to be lost, effort
wasted, anxiety augmented, additional expense incurred——these
are considerations which weigh heavily against split jurisdiction.
Indeed it is more in keeping with orderly administration of justice
that all the causes of action here be cognizable and heard by only
one court. . . . . .” (Cas. cit., 18 SCRA 953).
On previous occasions, this Court has overruled the defense

of jurisdiction in the interest of public welfare and for the
advancement of public policy, 10where, as in this case, an
extraordinary situation existed. There is no de-
_______________
10 Cf. Yu Cong Eng vs. Trinidad, 47 Phil. 385; People vs. Zulueta. 89
Phil. 752; Botelho Shipping Corp. vs. Leuterio, L-20420, 30 May 1963, 8
SCRA 121).
585
VOL. 41, OCTOBER 4, 1971 585

nying that creditors, depositors and the banking

community are all interested in a quick determination
whether the Overseas Bank may, under the circumstances,
be closed or allowed to continue operating at the exclusive
discretion of respondent Central Bank.
The plea that the Overseas Bank is not a party to the
case at bar need not give concern. The petitioners are the
controlling stockholders of that Bank, and are qualified to
represent its interests, so that a judgment may be enforced
for or against it, although it is not impleaded by name in
the suits (V. Albert vs. Court of First Instance, L-26361, 29
May 1968, 23 SCRA 948, 964). This is particularly true
considering that the present management of the OBM
(Overseas Bank of Manila) is at present composed of
respondent’s nominees, pursuant to the Trust Agreement,
and they can hardly be expected to resist the plans and
actions of respondent Central Bank (CB).
On the second issue, whether or not the respondent CB
agreed to rehabilitate the OBM, of which petitioner are the
majority stockholders, it is believed that a review of the
letters from the CB to the petitioners (hereinbefore quoted),
considered together with the terms of the Voting Trust
Agreement, leaves no doubt that the CB did agree and
commit itself to the continued operation of, and
rehabilitation of, the OBM. As early as 2 May 1967, the
respondent CB, through its Monetary Board, caused then
Governor Castillo to advise petitioners that—
“he and other stockholders representing a majority will have to

sign a trusteeship agreement with the Philippine National Bank
pursuant to which the Overseas Bank will be managed by the
Philippine National Bank. If the PNB takes over management in
such eventuality, the Central Bank could also announce that it is
ready to support the Philippine National Bank in order to allay
the fears of depositors and creditors.” (Pet., Annex “B”) (Italics
supplied)
CB Resolution No. 2015 of 16 October 1967 (Petition,

Annex “F”), in addition to requiring a mortgage or
assignment of petitioners’ personal properties to CB,
confirmed the quoted memorandum by requiring the
stockhold-
586

ers of OEM to subscribe to an appropriate trust agreement,

with the only difference that instead of the Philippine
National Bank, the trust would be executed in favor of the
CB as trustee “to enable it to reorganize and transfer
management to a nominee of the Monetary Board.” Two
weeks later, on 30 October 1967, after a conference at
Malacañang, the CB governor once more wrote to Ramos
that the Monetary Board—
“decided that, as a measure to stave off liquidation, a voting trust

agreement should be executed by you and your family and the
corporations controlled by you in favor of the Superintendent of
Banks, in an instrument similar to the one executed by
stockholders of the Republic Bank in favor of the Philippine
National Bank” (Petition, Annex “G”) (Italics supplied)
The reference to the case of the Republic Bank clarifies the

purpose and scope of the demand for a voting trust
agreement “as a measure to stave off liquidation”; for it is
well-known, and it is not denied, that when the Republic
Bank previously became distressed, the CB had advanced
funds to rehabilitate it and allow it to resume operating.
Accordingly, the voting trust agreement that was finally
executed (Annex “A”), and which was admittedly prepared
by the Legal Counsel of the Central Bank, recited in its
preamble as an objective of the voting trust agreement,
that:
“. . . . . . the above named stockholders of the Overseas Bank of

Manila believe that it is for and/or interest and benefit of the
bank depositors, creditors, and stockholders, that this trust
agreement should be entered into by them for the rehabilitation,
normalization and stabilization of the Overseas Bank of Manila.”
and that the Superintendent of Banks as
“. . . . . .Trustee has likewise signified his willingness to accept

such trust in pursuance of the objectives above mentioned . . . . .”
(Italics supplied)
While the trust agreement on its face creates obligations

only for the Superintendent of Banks as trustee, his
commitments were undeniably those of the Central
587
VOL. 41, OCTOBER 4, 1971 587

Bank itself, since it was the latter that had from the very
beginning insisted upon such voting trust being executed.
For the Superintendent of Banks w as an officer of the CB,
the chief of its Department of Supervision and
Examination of all banking institutions operating in the
country, subject to the instructions of the Monetary Board
at all times, pursuant to Section 25 of the CB charter,
Republic Act No. 265; and it is not credible that he should
have understood that he was entering into the trust
agreement in his personal capacity.
Bearing in mind that the communications, Annexes “B”
and “G,” as well as the voting trust agreement, Annex “A,”
had been prepared by the CB, and the well-known rule that
ambiguities therein11are to be construed against the party
that caused them, the record becomes clear that, in
consideration of the execution of the voting trust
agreement by the petitioner stockholders of OBM, and of
the mortgage or assignment of their personal properties to
the CB (Res. No. 2015, 16 October 1967, Annex “F,”
Petition), the CB had agreed to announce its readiness to
support the new management “in order to allay the fears of
depositors and creditors.” (Annex “B”), and to stave off
liquidation” by providing adequate funds for “the
rehabilitation, normalization and stabilization” of the
OBM, in a manner similar to what title CB had previously
done with the Republic Bank (Petition, Annex “G,” ante).
While no express terms in the documents refer to the
provision of funds by CB for the purpose, the same is
necessarily implied, for in no other way could it
rehabilitate, normalize and stabilize a distressed bank.
Even in the absence of contract, the record plainly shows
that the CB made express representations to petitioners
herein that it would support the OBM, and avoid its
liquidation if the petitioners would execute (a) the Voting
Trust Agreement turning over the management of OBM to
the
_______________
11 Civil Code, Article 1377; Halili vs. Lloret, 95 Phil. 78; Gonzales vs. La
Previsora Filipina, 74 Phil. 165; Asturias Sugar Central vs. Pure Cane
Molasses Co., 57 Phil. 519; Calanoc vs. Court of Appeals, 98 Phil. 79.
588

CB or its nominees, and (b) mortgage or assign their

properties to the Central Bank to cover the overdraft
balance of OBM. The petitioners having complied with
these conditions and parted with value to the profit of the
CB (which thus acquired additional security for its own
advances), the CB may not now renege on its
representations and liquidate the OBM, to the detriment of
its stockholders, depositors and other creditors, under the
rule of promissory estoppel (19 Am. Jur., pages 657-658; 28
Am. Jur. 2d, (656-657; Ed. Note, 115 ALR, 157).
“The broad general rule to the effect that a promise to do or not to

do something in the future does not work an estoppel must be
qualified, since there are numerous cases in which an estoppel
has been predicated on promises or assurances as to future
conduct. The doctrine of ‘promissory estoppel’ is by no means new,
although the name has been adopted only in comparatively recent
years. According to that doctrine, an estoppel may arise from the
making of a promise, even though without consideration, if it was
intended that the promise should be relied upon and in fact it was
relied upon, and if a refusal to enforce it would be virtually to
sanction the perpetration of fraud or would result in other
injustice. In this respect, the reliance by the promisee is generally
evidenced by action or forbearance on his part, and the idea has
been expressed that such action or forbearance would reasonably
have been expected by the promisor. Mere omission by the
promisee to do whatever the promisor promised to do has been
held insufficient “forbearance” to give rise to a promissory
estoppel.” (19 Am. Jur., loc. cit.)
Disingenuously, the CB pleaded that the Voting Trust

agreement was binding only upon the trustee, the
Superintendent of Banks. But as already pointed out, this
position is unacceptable since the trustee could have no
private interest in the matters. Not only that, but CB
subsequently caused its own team of nominees to take over
the direction and management of the OBM, through the
voting of the shares conveyed to the trustee. Even more, in
August, 1970, the CB gave notice that it would not extend
or renew the voting trust, and attempted to turn back the
shares covered by it to the petitioners, thereby recognizing
the obligations under the agreement as its own, and
repudiating its original disclaimer thereof.
589
VOL. 41, OCTOBER 4, 1971 589

How did the CB subsequently treat its commitments?

After execution of the Voting Trust Agreement, on 20
November 1967, the CB elected and installed new directors
and officers drafted from the Central Bank itself, the
Philippine National Bank and the Development Bank of
the Philippines. The new team assumed the management
and control of the OBM and elected Augusto E. Orosa as
bank president. On 6 January 1968, the new management
requested for a thirty million peso loan to enable the OBM
to get on its feet. How this request for aid was treated
appears in a memorandum to the new CB governor, dated
22 July 1968 (Petitioner’s Reply Memorandum, Annex “X,”
Record, pages 526-527). Mr. Orosa stated:
MEMORANDUM TO:
Governor Alfonso Calalang
SUBJECT: POSITION PAPER OF THE OVERSEAS BANK OF
MANILA
BACKGROUND
A selected PNB team formally took over the management of the

Overseas Bank of Manila on December 7, 1967.
On January 16, 1968 we completed a report on the financial
standing of the Bank, the original of which is in your possession.
In that report, we recommended that the balance of the unpaid
capital stock of P11 million be fully paid and P20 million be
advanced by the Central Bank to enable the Bank to resume
normal operations. At that time, we gathered from the books of
account that the Bank faced obligations to be immediately met
amounting to about P30 million as against liquid assets of more
than P12 million or an immediate cash requirement of about P17
million. Nevertheless, and this is a very important point, our
feeling was that at that time the aid we are recommending,
properly used, would have staved off panic and restored some
confidence.
The entrance of the PNB team actually was a great initial
psychological advantage; we have used that advantage to full
extent: the advantage has faded.
PRESENT POSITION
Eight months of indecision has made depositors lose faithand as a

result, we are faced with more court suits and withdrawals than
ever before and more obligations have matured.
590

We are made to understand that an advance of P19 million has

been approved for the Bank and that an initial release of P10
million is under study. Last July 10, 1968, we wrote the
Superintendent of Banks complying with his request to render a
projection of what we can do with P10 million.
There is a great leeway with what we can do with P10 million
depending on the conditions which will accompany its grant. Even
under the most liberal conditions that we can imagine, P10
million will not save the Bank. We are, however, not aware
whether this proposed P10 million will be the start of a series of
advances nor as to how much ultimately the Central Bank will be
willing to finance the rehabilitation.
We are faced with both internal and external problems that are
daily increasing in difficulty. If we are requested to make a
projection which we believe is a reasonable request, the present
management should be made privy to the following:
(1) What is the real policy of the Central Bank regarding the
future of TOBM;
(2) What is the policy of the Central Bank regarding present
rates of interest and penalties on prevailing deficiencies;
(3) What is the rate of interest to be charged on the fresh
advances;
(4) What are the conditions to be meted out regarding leeway
and operations of TOBM;
(5) Any other strings that may be attached.
(6) What is the policy of Central Banking regarding
unrecorded time deposits.
All these points will greatly affect any projection.
REQUEST:
That the PNB management team be withdrawn from
TOBM.
It is obvious from this memorandum that far from heeding

the request of its own team for an advance of P30 million
(or P17 million in cash) to enable the OBM to resume
normal operations, the Central Bank did nothing to
support the OBM between 6 January to 14 June, for almost
six months, and kept even its own management team
largely in the dark as to what to expect. On 14 June, CB
advised that only P10 million were to be made available
(i.e., one third of the requirements estimated nec-
591
VOL. 41, OCTOBER 4, 1971 591

essary by its own representatives). This amount was

naturally considered insufficient to normalize, much less
rehabilitate, the OBM. And yet all this while, the CB was
holding petitioners’ mortgages on their private properties
worth at least P67 million in 1967 by the CB’s own
appraisal Petitioners claimed they were worth P100
million, which can not be very far from the truth,
considering the continual rise in real estate values.
Not content with procrastinating for 6 months, without
taking positive steps to normalize OBM as it had agreed to
do, nor even announcing its support of its own management
team or disclosing its policy regarding the future of OBM,
the CB finally adopted the resolutions now attacked by
herein petitioner stockholders. On 30 July 1968, it excluded
the OBM from clearing with the CB (Resol. No. 1263) the
contingency that the Voting Trust and the mortgage of the
petitioners’ private properties were to guard against On 1
August 1968, CB authorized (and virtually directed) its
nominee Board of Directors to suspend operations (Resol.
No. 1290); and thirteen days thereafter (13 August 1968),
the CB directed its Superintendent of Banks to proceed to
liquidate OBM (Resol. No. 1333) under Section 29 of
Republic Act No. 265 (Central Bank Charter), providing
that—
“SEC. 29. Proceedings upon insolvency.—Whenever, upon

examination by the Superintendent 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 Superintendent
forthwith, in writing, to inform the Monetary Board of the facts,
and the Board, upon finding the statements of the Superintendent
to be true, shall forthwith forbid the institution to do business in
the Philippines and shall take charge of its assets and proceeds
according to law.
“If the Monetary Board shall determine that the banking
institution cannot resume business with safety to its creditors, it
shall, by the Solicitor General, file a petition in the Court of First
Instance reciting the proceedings which have been taken and
praying the assistance and supervision of the court in the
liquidation of the affairs of the same. The Superinten-
592

dent shall thereafter, upon order of the Monetary Board and

under the supervision of the court and with all convenient speed,
convert the assets of the banking institution to money.”
We are constrained to agree with petitioners that the

conduct of the CB from and after January, 1968, reveals a
calculated attempt to evade rehabilitating OBM despite its
promises. What is more aggravating is that by the ordered
liquidation, depositors and other creditors would have to
share in the assets of the OBM, while the CB’s own credits
for advances were secured by the new mortgages it had
obtained from the petitioners, thereby gaining for it what
amounts to an illegal preference. To cap it all, the CB
disregarded its representations and promises to
rehabilitate and normalize the financial condition of OBM,
as it had previously done with the Republic Bank, without
even offering to discharge the mortgages, given by
petitioners in consideration for its promises, or notifying
petitioners that it desired to rescind its contract, or
bringing action in court for the purpose. And all the while
CB knew that the situation of the OBM was deteriorating
daily, with penalties at 3% per month continually
accummulating, while its creditors, depositors and
stockholders awaited the promised aid that never came,
and which apparently CB never intended to give.
The deception practiced by the Central Bank, not only
on petitioners but on its own management team, was in
violation of Articles 1159 and 1315 of the Civil Code of the
Philippines:
“ART. 1159. Obligations arising from contracts have the force of

law between the contracting parties and should be complied with
in good faith.”
“ART. 1315. Contracts are perfected by mere consent, and from
that moment the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping
with good faith, usage and law.” (Italics supplied)
The Supreme Court expounded the import of these legal

provisions in Abelarde vs. Lopez, 74 Phil. 344, 348, stating:
593
VOL. 41, OCTOBER 4, 1971 593

Cleverness should never take the place of the loyal, upright

and straightforward observance of plighted undertakings.”
The CB excuses itself by pleading that the OBM officers
had resorted to non-recording of time deposits in the
Bank’s books and diverting such deposits to accounts
controlled by certain bank officials, and other
irregularities. It is well to note, however, that these
“unrecorded” deposits were revealed to the CB as early as
25 September 1967 by the then President of the OBM, Mr.
Martin Oliva, who had no hand in such irregularities and
who informed the Superintendent of Banks that time
deposits worth P43,188,-009.29 had not been carried in12the
books and had not been reported to the OBM directors. In
fact, on 29 September 1967, the CB had already ordered its
examiners to investigate 13the Bank’s records and determine
the parties respon-sible. Notwithstanding knowledge of
these irregularities, the CB did not withdraw its promised
support, and insisted on the execution of the Voting Trust
Agreement on 20 November 1967. Such attitude imports
that, in its opinion, the irregularities disclosed were not to
be blamed on the OBM itself or its depositors and creditors,
but on the officials responsible; and further, that the OBM
could still be saved by adequate aid and management
reform, which was required by CB’s duty to maintain the
stability of the banking system and the preservation of
public confidence in it.
Respondent CB likewise urges in its defense that the
rehabilitation of the OBM has become impossible, and
points out to the reports of the Superintendent of Banks
and of Mr. Augusto Orosa (the President of OBM elected by
the CB nominees under the Voting Trust) that the Bank’s
loanable
14
funds had to be expanded to P136 million to break
even. It is to be borne in mind, however, that these reports
were made in July, 1968, after six months of inaction on
the part of the CB, without positive action on its part to
comply with its previous commitments. Furthermore,
_______________
12 Reply Memo, Annex “L”, page 483, Record; Annex “20”, page 248.
13 Answer, Annex “5”.
14 Annex “10” and “10-A”.
594

while the stabilization of the OBM required injections of

capital, it would be erroneous to assume that such capital
would have to reach P130 million, or that it would have to
be advanced all at once. For had the CB furnished the
original aid of 30 million asked by the Orosa team early in
January, 1968, and the OBM allowed to resume operations
with CB support, the restored confidence would have
stimulated new deposits, which, as is well-known, become
in turn a source of loanable funds. It thus becomes
apparent that most of the difficulties invoked now by the
CB are of its own making, and are not a lawful excuse for
its refusal to comply with its commitments. Finally, in the
computations by the CB examiners, there are included a
total of P16.994
15
million for estimated losses, interests and
penalties that did not represent amounts to be disbursed.
More concretely, even in July, 1968, after six months of CB
dilly-dallying, the actual amount needed to be loaned to the
OBM for capital requirements “to support the necessary
expansion in risk assets of P126.334 million in order to
break even in its operations” was estimated by the16
Superintendent of Banks at no more than P40.730 million.
This amount tallies with Mr. A. Orosa’s estimate that an
advance17
of P30 million in January, 1968 would have saved
OBM. There is no showing that18 these amounts were
beyond the capacity of CB to make, nor is it proved that
they exceeded the amounts supplied for the rehabilitation
of the Republic Bank (the CB, for reasons of its own,
refused to disclose the latter amounts despite requests
from the court). Certainly, the ten million increase in
advance capital requirements between January and July of
1968 can not be blamed on the petitioners herein, and was
not of their own making.
The respondent CB cites American cases to the effect
_______________
15 Report of Superintendent of Banks Ignacio, 23 July 1968. Answer,

Annex “10”, page 4 (Record, page 150).
16 Ibid.
17 Annex “X”, Reply Memo, previously quoted.
18 The CB’s assets in 1968 were reported by it at P4,516,-469,275.97
with surplus of P269,712,295.59 (20th Annual Report) .
595
VOL. 41, OCTOBER 4, 1971 595

that the courts can not interfere with CB’s discretion in

determining whether or not a distressed bank should be
supported or liquidated. In none of the cases cited,
however, does it appear that the CB engaged to support the
distressed bank in exchange for control of its management
and additional mortgages in its favor, and, therefore, the
authorities cited are not in point. Discretion has its limits
and has never been held to include arbitrariness,
discrimination or bad faith.
We conclude that having induced the petitioners to part
with additional security in reliance upon its (CB’s)
premises and commitments to avert liquidation and to
support, normalize and rehabilitate the OBM, the
respondent CB is duty bound to comply in good faith with
such promises. Consequently, being contrary thereto, CB
Resolutions Nos. 1263, 1290 and 1333 should be annulled
and set aside for having been adopted in abuse of
discretion, equivalent to excess of jurisdiction. And never
having attempted to comply, nor even to begin compliance,
with its commitments and promises, the respondent CB is
precluded to invoke the expiration of the period specified
for the duration of its obligations under the Voting Trust
Agreement. Such period should, in justice and equity, be
deemed to start running from and after the CB begins due
performance of its commitments, promises and
representations in good faith.
WHEREFORE, the writs prayed for in the petition are
hereby granted, and respondent Central Bank’s resolutions
Nos. 1263, 1290 and 1333 (that prohibit the Overseas Bank
of Manila to participate in clearing, direct the suspension of
its operations, and ordering liquidation of said bank) are
hereby annulled and set aside; and said respondent Central
Bank of the Philippines is directed to comply with its
obligations under the Voting Trust Agreement, and to de-
sist from taking action in violation thereof. Costs against
respondent Central Bank of the Philippines.
Dizon, Teehankee, and Villamor, JJ., concur.

Concepcion, C.J., took no part.
Makalintal. J., dissents in separate opinion.
596

Zaldivar, J., concurs in the result.

Castro, J., reserves his right to file a dissenting
opinion, and concurs fully in the dissenting opinion of
Justice Q.C. Makalintal.
Fernando, J., concurs in the result primarily on the
ground that respondent’s arbitrary and improvident
exercise of its asserted power in the premises is violative of
due process.
Barredo and Makasiar, JJ., did not take part.
MAKALINTAL, J.: dissenting:
I fail to see, either from the record of this case or from the
opinion of the majority, just how and where respondent
Central Bank acted without or in excess of jurisdiction or
with grave abuse of discretion so as to justify the writs of
certiorari and prohibition granted by this Court; and just
how and where said respondent neglected to perform a
duty specifically enjoined by law so as to justify the writ of
mandamus. To my mind the acts complained of in the
petition, namely, Resolutions Nos. 1263 and 1290, passed
by the Monetary Board on. July 31 and August 1, 1968,
respectively, were, if anything, a judicious exercise of
discretion for the purpose of carrying out the policies laid
down by the Central Bank Act with respect to supervision
over the operation of private banking institutions and this
Court, by issuing the writs prayed for, has substituted its
own judgment for that of the Monetary Board in a matter
that is peculiarly within the competence of the latter.
The thrust of the decision, as far as I can make out, is
that the Voting Trust Agreement of November 20, 1967
created contractual obligations, with which “respondent
Central Bank of the Philippines is directed to comply . . .”
The directive does not specify what those obligations are.
The principal stipulation in the agreement is simply what
its title indicates: petitioners here, referred to as the
Cestuis Que Trust, assign to the Trustee “for such purpose”
the voting rights to all their shares of stock in the Overseas
Bank of Manila, subject to certain conditions thereafter
stated. The purpose envisaged is expressed in
597
VOL. 41, OCTOBER 4, 1971 597

the first of the two “WHEREAS” clauses of the agreement,

to wit: “the abovenamed stockholders (petitioners here)
believe that it is for and/or in the interest and benefit of the
bank’s depositors, creditors and stockholders that this trust
agreement should be entered into by them for the
rehabilitation, normalization and stabilization of the
Overseas Bank of Manila.”
It seems, from a reading of the decision of this Court,
that the purpose for which the Voting Trust Agreement
was entered into—more accurately, the goal sought to be
achieved—is mistaken for the obligation thereunder, and
that such obligation devolves not upon the Trustee, the
Superintendent of Banks, but upon the Central Bank itself,
which is not a party to the agreement. Be that as it may,
the agreement contains an optional rescission clause,
which is only logical, since the feasibility of rehabilitating,
normalizing and stabilizing the Overseas Bank, which was
then in extremely distressed circumstances, would depend
upon many factors which could not be predicted with
mathematical certitude, but only upon a reasonably
considered projection of future probabilities. Thus while the
life of the agreement would be for three years from the date
of its execution, it was provided expressly “that the Trustee
may, at its option, relinquish the trust, upon approval of
the Monetary Board.”
Resolution No. 1263, adopted July 31, 1968, excluded
the Overseas Bank, then under trusteeship, from clearing
with the Central Bank, effective immediately. Resolution
No. 1290, adopted the next day, granted authority to the
Board of Directors of the Overseas Bank to suspend
operations pending final action by the Monetary Board.
Such final action was evidently meant to be in connection
with the recommendation submitted by the Superintendent
of Banks to the Monetary Board on June 23, 1968, which
reads in part as follows:
“After considering (1) the Examiners’ provisions for estimated

losses on the recorded loans and receivables of P13.766 million
(exclusive of estimated losses of P13.243 million on ‘unrecorded’
loans and receivables), plus 2(a) the accrued interest on the
emergency loans by, and overdrawings with, the Central
598

Bank, and 2(b) penalties payable on deposit reserve deficiencies

aggregating P3.228 million, or a total of P16.994 million, all of
these not yet taken up in the books, the bank’s capital accounts
per books of P14.356 million as of June 30, 1968, would be wiped
out resulting in an estimated deficiency to creditors of P2.638
million. Since the minimum capital required under Section 22 of
Republic Act No. 337 as of June 30, 1968 is P19.142 million, the
amount of fresh capital needed to be put up to comply with the
minimum capital requirement as of June 30, 1968 would be
P21.780 million. In addition, P18.950 million of new capital must
be put up by the Bank to support the necessary expansion in risk
assets of P126.334 million in order to break even in its operations.
Therefore, the total fresh capital which the Bank must put up to
meet the requirements of Section 22 of R.A. No. 337, after
considering the estimated losses on loans and other expenses not
yet taken up in the books, as well as the necessary expansion in
risk assets so as to break even in its operations, would be P40.730
million.
x x x x
“If the capital structure cannot be strengthened to meet the
requirements of Section 22 of R.A. No. 337, and massive financing
cannot be given to enable the Bank to expand its risk assets to the
level at which it can break even in operations, then there seems to
be no other alternative except to liquidate the Bank under Section
29 of R.A. No. 265. The Bank’s continuance in business under its
present extremely precarious financial condition, without the
necessary capital injection and financial aid, will involve not
merely probable, but certain, further losses to its depositors and
other creditors and may have further adverse effects on the
banking system.”
In the situation depicted by the Superintendent of Banks,

which in his opinion presented no other alternative except
to liquidate the Overseas Bank pursuant to Section 29 of
Republic Act No. 265 (Charter of the Central Bank), the
adoption of Resolutions Nos. 1263 and 1290 was not, in my
opinion, a violation of the Voting Trust Agreement, much
less an abuse of discretion on the part of the Monetary
Board.
In a sense the issue with respect to the aforesaid
resolutions has become moot and academic in view of the
fact that on August 13, 1968, after the instant petition was
filed, the Monetary Board adopted Resolution No. 1333,
wherein it decided as follows:
“(1) To forbid the Overseas Bank of Manila to do

business
599
VOL. 41, OCTOBER 4, 1971 599

in the Philippines;
“(2) To instruct the Superintendent of Banks to take
charge, in the name of the Monetary Board of the
bank’s assets;
“(3) To instruct the Superintendent of Banks to take
such further action as may be necessary pursuant
to Section 29 of Republic Act No. 265; and
To refer the said memorandum report of the
“(4) Superintendent of Banks as well as previous
pertinent reports of the examiners of the
Department of Supervision and Examination,
particularly those pertaining to unrecorded
certificates of time deposits bearing the signatures
of former officers of the bank, to the Central Bank
Legal Counsel for appropriate legal action.”
The adoption of Resolution No. 1333, it seems to me, should

remove the present controversy from this Court—if it was
properly here at all in the first place, which I doubt—and
address it to the Court of First Instance pursuant to
Section 29 of the Central Bank Charter, which provides:
“SEC. 29. Proceeding upon insolvency.—Whenever, upon

examination by the Superintendent 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 less to its
depositors or creditors, it shall be the duty of the Superintendent
forthwith, in writing, to inform the Monetary Board of the facts,
and the Board, upon finding the statement of the Superintendent
to be true, shall forthwith forbid the institution to do business in
the Philippines and shall take charge of its assets and proceeds
according to law.
The Monetary Board shall thereupon determine no within
thirty 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 creditors and shall prescribe
the conditions under which such resumption of business shall
take place. In such case the expenses and fees in the
administration 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.
At any time within tea days after the Monetary Board has
taken charge of the assets of any banking institution, such
institution may apply to the Court of First Instance for all order
requiring the Monetary Board to show cause why it should not be
enjoined from continuing suck charge of its assets, and the court
may direct the Board to refrain from further proceedings and to
surrender charge of its assets.
600

If the Monetary Board shall determine that the banking
institution cannot resume business with safety to its creditors, it
shall, by the Solicitor General, file a petition in the Court of First
Instance reciting the proceedings which have been taken and
praying the assistance and supervision of the court in the
liquidation of the affairs of the same. The Superintendent shall
thereafter, upon order of the Monetary Board and under the
supervision of the court and with all convenient speed, convert the
assets of the banking institution to money.”
My misgiving as to the propriety of the remedy sought by

petitioners is that it is essentially for the enforcement of an
alleged contract, presented in the guise of a petition for
certiorari, prohibition and mandamus. This is borne out by
the decision of this Court, which directs the Central Bank
“to comply with its obligations under the Voting Trust
Agreement, and to desist from taking any action in
violation thereof.” It is to be noted that no “act which the
law specifically enjoins as a duty resulting from an office,
trust, or station” is ordered to be performed. Compliance
with contractual obligations is beyond the purview of
mandamus, and original jurisdiction over an action for that
purpose pertains to the Courts of First Instance. Such an
action is a plain, speedy and adequate remedy in the
ordinary course of law which, being available to petitioners,
should bar the present recourse to the extraordinary writ of
mandamus, especially because certain vital facts are
controverted by the parties, such as the outstanding
liabilities which can not be paid by the Overseas Bank, the
value of the properties mortgaged to the Central Bank by
petitioners, the extent of the loans secured by the
mortgage, and the amount of money which the Central
Bank is supposed to advance in order to comply with its
supposed undertaking to rehabilitate, normalize and
stabilize Overseas Bank. Curiously enough, as already
noted, the decision of this Court merely directs compliance
with the Voting Trust Agreement without specifying—if
indeed what is implied is the rehabilitation of the Overseas
Bank—just what should be done to achieve that goal, or
just how many millions of pesos the Central Bank must
continue to pump into the Overseas Bank in order to put it
its feet again. It is no idle speculation to say that the writs
601
VOL. 41, OCTOBER 4, 1971 601

granted by this Court may raise more questions than they
answer.
With particular reference to the mortgages executed by
petitioners, they say the same were a consideration of the
Voting Trust Agreement. Respondent Central Bank denies
this and maintains that the mortgages were constituted as
security for “the huge amounts of emergency loans and
overdrawings advanced in the clearing house to the OBM
by the Central Bank.” The Voting Trust Agreement itself Is
silent on the point. My own reading of the record convinces
me of the correctness of the position of the Central Bank.
In any case, considering the existence of a substantial
disagreement on this point, not only between the parties
but also among the members of this Court, the issue could
best be resolved in an ordinary action, either for specific
performance as hereinbefore indicated or for rescission of
the mortgages and the reconveyance of the mortgaged
properties to petitioners. For the resolution of this issue I
believe that this Court is not the proper forum in the first
instance, nor the present petition the proper vehicle.
Going back to Section 29 of Republic Act No. 265, it may
be noted that what the Central Bank did, including its
suggestion that a Voting Trust Agreement be executed, was
in accordance with its powers and duties under the said
section. Whenever a banking institution is in a state of
insolvency the Monetary Board shall determine whether it
“may be reorganized or otherwise placed in such a
condition so that it may be permitted to resume business
with safety.” A Voting Trust, such as that which was
entered into in the case of the Overseas Bank, is certainly
one of the measures which may be adopted for that
purpose. The rehabilitation of the distressed institution is
the primary goal of the authority given to the Monetary
Board, and there is nothing so sacrosanct in a voting trust
agreement, or in the use of the word “rehabilitate” therein,
that once it is executed the Central Bank is thereby bound
to see the “rehabilitation” through as an ordinary
contractual commitment, no matter how costly and
impractical it may prove. For Section 29 also provides that
“if the Monetary
602

Board shall determine that the banking institution cannot

resume business with safety to its creditors, it shall, by the
Solicitor General, file a petition in the Court of First
Instance reciting the proceedings which have been taken
and praying the assistance and supervision of the Court in
the liquidation of the affairs of the same.” This was
precisely the step contemplated by the Monetary Board
when it passed Resolution No. 1333 on August 1968, and
any questions concerning its validity, in my opinion, should
be raised in a proper case as authorized in the said
provision.
In view of the foregoing considerations, I vote to deny
the writs prayed for and to dismiss the instant petition.
SEPARATE DISSENTING OPINION
CASTRO, J.:
Like Mr. Justice Querube C. Makalintal, in whose dissent I

concur fully, I am in sharp disagreement with the
conclusions reached by the majority of the Court.
Before I state my reasons, which will be extensively
discussed in seriatim farther below, it is well that we get a
general picture of (a) the overdrawings incurred by the
Overseas Bank of Manila in its clearing account with the
Central Bank up to August 13, 1968 when the liquidation
of the Overseas Bank was ordered by the Central Bank,
and (b) the fraudulent transactions perpetrated in the
operations and management of the Overseas Bank. These
are summarized by the Superintendent of Banks, as
follows:
“1. Advances granted to TOBM by way of overdrawings in

1967 thru 1968
“The Overseas Bank of Manila had been chronically overdrawn in

its current account since 1967 thru 1968. However, these
overdrawings were made good before clearing time by means of
cash deposit, call money or sale of dollar drafts. It was sometime
in September, 1967 that it failed to cover the overdrawings. [The
overdraft which amounted to P16,116,890.-06 as of September 29,
1967 increased to P51,925,381.90 as of August 13, 1968.]
“On September 29, 1967, the Monetary Board in its Resolution
No. 1890 enjoined TOBM not to allow overdrawings amounting to
P16.4 million to deteriorate any further.
603
VOL. 41, OCTOBER 4, 1971 603

“On October 16, 1967, the Monetary Board in its Resolution
No. 2015, among others, required Mr. Ramos, Sr. to submit a
listing of his properties and to mortgage or assign the same to
cover the overdraft balance therewith of TOBM and not to exclude
TOBM from clearing. On October 16, 1967, date the listing of the
alleged P100 million collateral was submitted, TOBM’s
overdrawings of its clearing account with CB totalled P22.333
million.
“On November 20, 1967, date the Voting Trust Agreement was
executed between the Superintendent of Banks and Emerito M.
Ramos, Sr. et al., the bank’s overdrawings amounted to
P33,624,743.68. During this period [from November 20, 1967 to
July 26, 1968] it will be noted that the collateral position of the
Central Bank on loans granted to TOBM by way of overdrawings,
showed consistent net collateral deficiency, taking into
consideration, appraised value of collateral documents and even
at the higher of PNB or DBP appraised values. When finally the
registration of the mortgages was almost complete, on July 23,
1968, the Monetary Board decided to consider a liberal loan value
of 90% on the average of PNB and DBP market values.
“2. Monetary Board decisions showing real intention in

requiring collateral from M. E. M. Ramos, Sr. et. al.
“From the various Monetary Board decisions and reports, there

was no doubt that the requirement for Mr. Emerito M. Ramos, Sr.
et al. to put up the collateral was for the purpose of securing the
unsecured obligation of TOBM with the Central Bank, by way of
overdrawings in the clearing account. Records show that Central
Bank made this known to TOBM and Mr. Ramos, Sr. all along
from the very beginning.
“a) No. 1735 dated September 8, 1967—To require TOBM to

mortgage the Padre Faura property to the Central Bank to secure
the unsecured advances given thereto especially by way of
overdrawings. (Transmitted to TOBM per DSE letter dated
September 14, 1967.)
“b) No. 1890 dated September 29, 1967—After noting the report on
the disclosure of transactions at TOBM which had neither been
incorporated in the books of said bank nor reported to its board of
directors, the Monetary Board enjoined TOBM not to allow the
over-drawings of its clearing account with CB amounting then to
P16.4 million, to deteriorate any further; and required the TOBM
to immediately mortgage to CB all other available properties of
Mr. E. M. Ramos and family in order to secure the unsecured
advances given to said bank especially by way of overdrawings.
604
(Transmitted to TOBM per DSE letter dated October 1967.)

“c) No. 1918 dated October 3, 1967—Monetary Board instructed
management to exert every effort to obtain collateral to secure the
unsecured liabilities of TOBM to CB.
“d) No. 1975 dated October 10, 1967—Monetary Board instructed
management to continue with its efforts to obtain additional
collateral to secure the unsecured liabilities and for the protection
of other creditors/ depositors thereof.
“e) No. 2014 dated October 14, 1967—To effect the registration of the
second mortgage on Xavierville Estate.
“f) No. 2015 dated October 16, 1967—To require Mr. Emerito M.
Ramos, Sr., to submit a listing of his property and to mortgage
and assign the same to the Central Bank to cover the overdraft
balance of TOBM. (Transmitted to TOBM per DSE letter dated
October 19, 1967.)
“g) No. 2017 dated October 17, 1967—Instruction to the Central
Bank Legal Counsel to proceed immediately with the registration
of the second mortgage on the Xavierville Estate in favor of the
Central Bank; and thereafter, to obtain the consent of the
majority of the stockholders of the Xavierville Estate, Inc. to a
second mortgage in appropriate resolution approved at a
regularly called stockholders’ meeting; and to assign one or more
lawyers for the particular purpose of (a) seeing to it that the
Central Bank obtain a lien on as many properties (real or
personal), including shares of stock (the corresponding certificate
of which be delivered to the Central Bank) and other assets in the
name of Mr. Emerito M. Ramos, Sr. and members of his family, as
can be obtained, amounting to at least P100 million as
represented by Mr. Ramos; and (b) drawing up and registering
with the Register of Deeds of the necessary documents
establishing the liens of the Central Bank on such properties.
“To the Acting Superintendent of Banks—To obtain information on as

many more properties as possible (including shares of stocks) in the name
of Mr. Ramos and members of his family as are not included in a list
submitted by Mr. Ramos on October
605
VOL. 41, OCTOBER 4, 1971 605

16, 1967, so that the Central Bank can obtain a lien thereon.
“h) No. 2132 dated November 3, 1967—Monetary Board instructed
management to write a letter to TOBM to reiterate CB’s demand
for additional collateral to secure the unsecured liabilities of the
TOBM to CB and for the protection of the other creditors and
depositors. (Letter of Governor dated November 6, 1967 sent.)
“i) Memorandum to Monetary Board of Acting Superintendent of
Banks on the matters taken up in the conference held with Mr. E.
M. Ramos, Sr. and Mr. M. Oliva on October 23, 1967 disclosed
that the Governor impressed upon Mr. Ramos the imperativeness
of his putting up of adequate collaterals to fully secure present CB
advances and before the CB can even consider the extension of
additional advances to TOBM.
“One specific resolution to this effect was M. B. Resolution No.

2210 dated November 17, 1967 wherein the Board instructed
management to acknowledge the letter dated November 17, 1967
of the Auditor of the Central Bank inviting attention to the
increasing trend in the overdraft of TOBM with the CB
amounting to P32,210,242.21 as of November 16, 1967; to advise
the Auditor General and the CB Auditor that documentation is
now being undertaken of the mortgages covering the properties
(allegedly worth P100 million) offered by Mr. Emerito M. Ramos,
Sr. to secure the unsecured liabilities of TOBM to the CB; and to
transmit copies of the aforesaid 1st Indorsement of the Auditor
General and the letter of the CB Auditor to the Board of Directors
of TOBM and to require the said bank to explain why it should
not be excluded from CB clearing.
“3. Fraudulent transactions
“a) Extent of the fraudulent transactions made known to the Central

Bank
“In a letter dated September 25, 1967, Mr. Martin R. Oliva, then TOBM
President, made a disclosure to the Acting Superintendent of Banks,
certain transactions amounting to P48 million which have not been
incorporated in the books of TOBM and not reported to its Board of
Directors.
“In addition to these transactions, a number of regular accounts were
manipulated by top officers of TOBM whereby bank funds amounting to
about P38 million (net) were channeled to various interests. These
manipulated accounts were reinstated in the
606

books of the bank through a series of adjustments and accounting entries
passed upon by the bank in September 1967.
“The consolidated trial balance of these two sets of transactions as
prepared by TOBM Acting Assistant Accountant follows:
“Consolidated Trial Balance

As of September 22, 1967
Debits Credits
Accounts Receivable P25,235,721.34
Bills Discounted 419,989.27
Time Loans 4,764,968.59
Special Overdrafts 12,502,521.38
Expenses 4,492,498.47
Suspense Account in Liquidation 38,858,797.87
Time Deposits P44,110,563.45
Accounts Payable 1,086,566.03
Cashier’s Checks 2,020,000.00
Acceptances Payable 1,100,000.00
Earnings 644,587.00
Overdrawings C/A #1198 2,933,646.78
Demand Deposits 12,107,517.78
Savings Deposits 10,005,080.54
Bills Payable 1,500,000.00
Due to Branches 3,584,004.28
Domestic Bills Purchased (Payable) 6,177,451.44
Accrued Interest Receivable 1,005,079.62
P86,274,496.92 P86,274,496.92
“The loans and other receivable accounts shown in the above trial
balance were without any loan papers and collaterals, thus their
collections would be extremely difficult and hopeless to pursue. On the
other hand, the liabilities, including the ‘unrecorded’ time deposits which
were ruled as liabilities of the bank, in an opinion rendered by the
Secretary of Justice, were properly documented and therefore actual
liabilities of the bank.
“The bulk of the loans and other receivable accounts were in the name
of Ramoses and their various business interests. The Suspense Account
in Liquidation amounting to P38.8 million, however, could not be
accounted for, but verification of the fraudulent transactions, based on
available documents/records
607
VOL. 41, OCTOBER 4, 1971 607

tends to show that said account represents funds channeled to the benefit
of the, Ramoses and their business interests. However, there was no
acknowledgment on their part to this effect.
“b) Extent of verification
“Verification of the above transactions has been temporarily

suspended in view of lack of bank examiners. However, even with the
resumption of verification, a complete reconstruction and documentation
thereof are highly improbable because so many bank records are missing
in the bank’s files. Besides, it will take a considerable length of time,
considering that the manipulations involved thousands of transactions
and verification requires the tracing of every single transaction to a
number of records. Moreover, verification is made doubly difficult by the
fact that so many entries in the deposit/withdrawal sheets were fictitious,
along-side with the genuine ones, and the examiners had to follow the
trial and error method in tracing the entries. One type of manipulation
alone was done daily, with so many deposit accounts involved on a single
day and this covered a period of two (2) years more or less.
“c) Modus Operandi for the fraudulent transactions
“The ‘modus operandi’ or mode of operation employed the opening of

current or checking accounts with the bank, the signatories of which were
Emerito B. Ramos, Jr. and a few selected officers.
“1) Current Account No. —EMRACO with the following

1198 authorized signatures:
“(a) Emerito B. —Executive Vice President &
Ramos, Jr. Treasurer
“(b) Rodrigo Recto —Assistant Vice President & Cashier
“(c) Rodolfo R. —Vice President & Chief Accountant
Sunico
“(d) Manuel Moje —with the Office of the Executive Vice
President
“2) Current Account No. —General Fund with no known
1198-A authorized signatures.
608

“3) Current —COFICO SPECIAL ACCOUNT NO. 2

Account No. with the following authorized signatures:
1920
“(a) Emerito B. —Executive Vice President & Treasurer
Ramos, Jr.
“(b) Rodolfo R. —Vice President & Chief Accountant
Sunico
“These fraudulent and highly devious operations involving a staggering

amount of P86 million were perpetrated under two general schemes:
“1) Moneys of depositors received by the bank as time deposits or in

exchange for banker’s acceptances and cashier’s checks were not
recorded in the books of the bank as money owned or liability of
the bank to the depositors/creditors. Instead, the money received
were recorded as deposits to Current Account No. 1920. As
mentioned above, these transactions, known as ‘unrecorded
transactions’, involved P48 million.
“2) The second scheme involving about P38 million as of September
30, 1967 is subdivided into three operations, namely:
“(a) ‘Segregated accounts’—Ledger cards showing the balances of the deposits

of either current, time or savings account depositors, usually with large
balances, were removed from the respective files of depositors.
Withdrawals were effected on these ledger cards without the knowledge
or consent of the depositors. The aggregate amount illegally withdrawn
was then shown as deposits to Current Account No. 1920, 1198, or 1198-
A.
“(b) ‘Diverted accounts’—Funds properly belonging to the bank were credited
or shown as deposits to Current Account No. 1198 or 1198-A. Examples:
(1) Payments made by La Suerte Cigar and Cigarette Co. of P6.25 million
on its loan with the bank was recorded as deposit to Current Account No.
1198, instead of crediting the account of the debtor. The amount paid
properly belong to the bank. (2) Call loans obtained from other banks
were also credited to the cur-
609
VOL. 41, OCTOBER 4, 1971 609

rent accounts controlled by the officers of TOBM. (3) Remittances from

other banks for the account of a TOBM branch were likewise not shown in
the books as such but instead credited to the current accounts
owned/controlled by the officers.
“(c) ‘Fictitious/simulated entries’—Books were made to show that funds were
transferred from branches to Head Office (no actual fund transfer) and
credited to current accounts owned/controlled by officers of TOBM. Checks
were drawn by Ramos corporations against their unfunded current
accounts. These checks were held up as asset accounts of TOBM and
credited again to the current accounts owned/controlled by officers of
TOBM.
“As fast as funds were received under either the ‘unrecorded transactions’
or ‘segregated/diverted’ schemes, loans were surreptitiously granted to
the various firms/corporations, owned or controlled by Mr. Emerito M.
Ramos, Sr., and members of his family, numbering twenty-seven (27),
twelve (12) of which were established from 1964 to 1967, and also to
other borrowers.
“As a means of control and accounting of this clandestine financing
operations, Messrs. Emerito B. Ramos, Jr. and Rodolfo R. Sunico, ably
assisted by trusted employees, designed and maintained a separate book
of accounts accessible only to them and to nobody else.
“Since the nucleus of the anomalous transactions was linked to the
deposit accounts, Mr. Emerito B. Ramos, Jr. and his men availed fully of
the protective mantle of the provisions of R.A. No. 1405 which prohibits
the disclosure of any information on deposit accounts even to bank
examiners, and thus the perpetrators were able to amass an enormous
amount of P86.129 million as of September 30, 1967 which they
appropriated for their various firms/corporations and partially to other
borrowers, in wanton disregard of banking laws, rules, regulations and
orders legally issued by the Central Bank, never before recorded in the
annals of banking in the Philippines.
“In addition to the above, Emerito B. Ramos, Jr., Executive Vice
President and Treasurer, during the
610

time that he was on an indefinite leave of absence from May 1967, and
therefore no longer authorized to sign for the bank, still received funds
and issued TOBM certificates of time deposit and banker’s acceptances in
the aggregate amount of P2.02 million. Naturally, these amounts were
not recorded in the regular books of the bank nor in the separate set of
books, and the proceeds thereof were pocketed by Mr. Ramos, Jr.
“4. Loans to the Ramoses
“As of July 31, 1967 (date of latest regular examination of

TOBM), the total outstanding loans and advances to the
Ramos/family/enterprises aggregated P29.086 million,
representing 41.18% of the total loan portfolio (recorded or
regular loans) of P70.633 million.
“On September 25, 1967, Mr. Martin R. Oliva, then TOBM
President, disclosed the so-called unrecorded transactions. He
first reported that as per tentative trial balance as of Septem-ber
13, 1967, the total unrecorded transactions totalled P48.-007
million. However, as of September 30, 1967, after certain
adjustments/entries have been passed, the total amount of un-
recorded/diverted/segregated accounts totalled P86.129 million.
From discussions of manipulation above, these funds were
channeled to current accounts controlled by the E. M. Ramoses
and were withdrawn or spent according to their pleasure.
“Certain properties of the Ramoses were offered to the bank on
a ‘dacion en pago’ arrangement in the total amount of P30.6
million and were applied to the outstanding loans and obligations
(both recorded and unrecorded loans) of the Ra-moses. However,
even with the application of the proceeds of these properties
offered to TOBM, the outstanding loans of the
Ramoses/family/enterprises still stood at an enormous amount of
P72.150 million (both recorded and unrecorded) or 58.90% of the
total loans of P122.502 million (both recorded and unrecorded) as
of June 30, 1968 summarized below:
“Outstanding Loans and Advances (Recorded & Unrecorded)
(As of June 30, 1968)

(In Millions
Recorded Unrecorded T ot a l
% to % to % to
“SUMMARY: Amount Total Amount Total Amount Total
“Total loans
and advances
and other
611
VOL. 41, OCTOBER 4, 1971 611

amounts to be

accounted for by
E. M. Ramos, Sr./
family/enterprises
P19.100 37.95% P53.050 73.50% P72.100 58.90%
“Loans and
advances
to parties
other
than

the Ramos
family/

enterprises 31.230 62.05% 19.122* 26.50% 550.352 41.10%
“Total
Outstanding
Loans &
Advances P50.330 100.00% P72.172 100.00% P122.502 100.00%
“*While these were shown as having been lent to third parties,

promissory notes were not presented to indicate indebtedness of
third parties. Considering that these amounts were derived from
funds channeled to the current accounts of the Ramoses and were
granted by them to third parties, these amounts could very well
be amounts that will also have to be accounted for by E.M. Ramos,
et al.”
My fundamental purpose in quoting in full the above narration
is to project the importance of certain facets of this case which
were accorded only scant attention or consideration in the
majority opinion, and with reference to which I entertain a
perspective different from that of the majority.
On the basis thereof and of other facts which I will ad-vert to in
the course of my discussion, I now proceed to explain the reasons
for my dissent, as well as refute certain arguments advanced and
specific conclusions reached in the main opinion.
Briefly stated, my reasons are as follows:
1. The Central Bank (hereinafter referred to as the CB) is

without power, under the law, to enter into the voting
trust agreement in question, as this agreement is
construed by the majority.
2. Even assuming that the CB is legally a party there-to, (a)
the said agreement expressly gave the Monetary Board
authority to terminate the same at any time; (b) no
express and definite commitment was therein made that
the CB will extend further extraordinary financial
assistance to the Overseas Bank of Manila (hereinafter
referred to as the OBM); (c) contrary to the assertion that
the CB has reneged on its “promise” under the said agree-
612

ment, the CB has taken the necessary steps, consistent

with law, to rehabilitate the OBM; and (d) the CB cannot
be expected, legally and morally, to continue supporting
the OBM at any and all cost.
The basic assumptions of the majority opinion, vis-a-vis the

CB’s being a privy to the voting trust agreement, are as follows:
(a) The CB rather than the Superintendent of Banks is the

real party thereto because the latter is a mere officer of
the CB acting under its orders.
(b) The CB had executed certain acts which indicate that it is
the real party to the said agreement. Thus, it is said that
the CB, from the very start? had insisted upon the
execution of the said agreement; had caused the
nomination of the team that took over the management of
the OBM; had given, notice that the agreement in
question will no longer be renewed or extended, which,
consequently, led to the promulgation of Resolution No.
1333 on August 13, 1968 ordering the Superintendent of
Banks to proceed to liquidate the OBM under section 29 of
the Central Bank Act.
(c) By “promising” to work for the rehabilitation,
normalization and stabilization of the OBM to stave off its
liquidation, the CB, in effect, impliedly obligated itself to
finance the funding requirements of the OBM until these
objectives are attained within the term stated in the
voting trust agreement.
In my view, even if it were assumed that the intention of the

CB authorities relative to the said voting trust agreement was to
make the CB a party thereto, its validity and binding effect upon
the CB are not legally possible since under the said agreement the
CB would not only be acquiring the legal title, including voting
rights, over the shares of stock of the petitioners in the OBM, but
it would also be actually directing the management and operation
of the bank-powers and prerogatives the acquisition of which by
the CB is expressly prohibited by law. Section 133 of the Central
Bank Act states:
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VOL. 41, OCTOBER 4, 1971 613

“Sec. 133. Prohibitions.—The Central Bank shall not acquire shares of

any kind or accept them as collateral, and shall not participate in the
ownership or management of any enterprise, either directly or
indirectly.”
Section 27 of the Central Bank Act explicitly prohibits the

Superintendent of Banks from exercising the powers granted
under the said voting trust agreement. Thus:
“Sec. 27. Prohibition.—The Superintendent and all employees of the

Department of Supervision and Examination are hereby prohibited from:
“(a) Being an officer, director, employee or stockholder, directly or
indirectly, of any institution subject to supervision or examination by the
department.”
Obviously, by virtue of the clear and unmistakable constraints

described in the foregoing provisions of the CB Charter, the
alleged intent of the CB authorities to be bound by the terms of
the said voting trust agreement cannot but be interpreted as
having been pursued under a clear misapprehension, if not direct
disregard, of the law. On this point, it appears to me to be well
settled in our jurisdiction that the Government (and the CB is an
instrumentality of the Government) is never estopped by the
mistake or error of its agents. And since estoppel cannot give
validity to an act that is prohibited by law or contrary to public
policy, the CB cannot consequently be bound by any action—
diametrically contrary to what the law prohibits (such as those
found in sections 27 and 133 of the CB Charter)—which may be
executed on its behalf by its agents, such as the Monetary Board.
(See Eugenio vs. Perdido, L-7083, May 19, 1955; Benguet
Consolidated Mining Co. vs. Pineda, L-7231, March 28, 1956;
Bachrach Motor Co. vs. Unson, 50 Phil. 981; San Diego vs.
Municipality of Naujan, Oriental Mindoro, L-9920, February 29,
1960; also 10 Am. Jur. 802).
Because the voting trust agreement ascribes to the Monetary
Board certain duties and grants it certain powers, the majority
opinion used this as one of the reasons to support the conclusion
that the CB is a real contractual party to the agreement. I view
the matter differently. As I see it, the agreement is between the
OBM and the Superintendent
614

of Banks only. Nowhere within the four corners thereof do I find

any statement that the CB is a contractual party thereto. The
majority opinion loses sight of the fact that in the matter of the
regulation of the banking and monetary systems of this country,
the CB, as the “bank of banks,” is given-all-embracing powers of
supervision and superintendence. In the situation that the OBM
has found itself, it was incumbent upon the CB to exercise these
powers. If the agreement contains express reference to the
Monetary Board, it is because the OBM and the Superintendent
of Banks, by themselves alone, without any assist from the CB,
would be completely incapable of rehabilitating, normalizing and
stabilizing the OBM. The agreement is much more than an
ordinary contract between two private parties; it is a covenant
unavoidably impressed with public policy: the stability of the
banking and monetary systems. It must therefore be regarded,
properly speaking, as one in which the provisions of the CB
Charter and other pertinent laws are deemed perforce
incorporated. As a matter of fact, even if there were no mention at
all of the Monetary Board in the agreement, still the execution
thereof would, by compulsion of the provisions of the Central
Bank Charter, require direct supervision and superintendence by
the CB.
Whether the Monetary Board, in requiring the execution of the
trust agreement, had in mind section 29 of the Central Bank Act
or any of the general corporate powers vested in it by section 4 of
the same Act, or what it honestly felt was its duty under the law
“to maintain monetary stability in the Philippines” (section 2,
CBA), and, in the discharge thereof, to make available its credit
facilities “to regulate the volume, costs, availability and character
of bank credit and to provide the banking system with liquid
funds in times of need” (section 86, CBA), and “ensure that the
supply, availability and cost of money are in accord with the
needs of the Philippine economy and that bank credit is not
granted for speculative purposes prejudicial to the national
interests” (Section 108, CBA), still the inescapable conclusion
remains, by virtue of the stat-ute’s prescribing the principles that
should guide, and the
615
VOL. 41, OCTOBER 4, 1971 615

objectives that should be pursued by, the CB, that the Monetary
Board required the execution of the voting trust agreement not for
the purpose of binding the CB as a contrading party, but solely to
fulfill its statutory obligation to superintend the banking system
and forestall the occurrence of conditions that effectively lead to
financial panic or that threaten monetary and banking stability.
The law as well as the situation in extremis of the OBM by
1967, therefore, called for the monetary authorities to act, and act
they did, by conscientiously attempting to eliminate the reported
(at least, what they believed to be) causes of the bank’s
deterioration, by requiring the management of the bank to be
passed onto new and trusted hands. But the said action, as I have
slated earlier, was exercised for no other reason than to comply
with the CB’s statutory duty to manage and administer the
banking and monetary systems of the country.
I now proceed to discuss my second fundamental reason for
this dissent. Assuming that the CB is legally a contracting party
to the voting trust agreement, (a) the said agreement expressly
gave the Monetary Board authority to terminate the same at any
time; (b) no express and definite commitment was therein made
that the CB would extend further extraordinary financial
assistance to the OBM; (c) contrary to the assertion that the CB
has taken the necessary steps, consistent with law, to rehabilitate
the OBM; and (d) the CB cannot be expected, legally and morally,
to continue supporting the OBM at any and all cost. Although I
have divided this reason into four parts, I will discuss all of these
parts together as they are inextricably intertwined.
By its very terms, the agreement could be terminated at any
time at the option of the Monetary Board.
The stipulated life span of the said agreement is stated in the
following words:
“1. That the life of this trust agreement shall be for a period
of three years commencing from the date of the execution
of this contract, provided, however, that the TRUSTEE
616

may, at its option, relinquish the trust, upon approval of

the Monetary Board, and provided, further that if, at the
expiration of the three-year period, the purposes for which
this trust agreement has been constituted have not, as yet,
been fully achieved, this trust agreement shall then be
considered automatically extended for such further period
to be determined by the Monetary Board, similarly
terminable within such further period also at the
discretion of the Monetary Board. It is further agreed that
if the condition of the Overseas Bank of Manila so
warrant, the CESTUIS QUE TRUST may request the
Monetary Board for the earlier termination of this
agreement.”
Without having to turn the mentioned stipulation inside out, it

is unmistakably clear that under the unambiguous specific
language used, the CB was not absolutely bound thereunder to
any specific period during which it must restore the OBM to its
feet. For, while the opening portion of the said stipulation states
that the trust agreement shall be for a 3-year period, this term is,
however, explicitly made subject to the condition that the
“TRUSTEE may, at its option, relinquish the trust.” If, as the
majority opinion says, the resolutions in question contradict the
“promise” of the CB that it will rehabilitate, restore and stabilize
(to stave off the liquidation of) the OBM, then I can see no other
conclusion but that the CB had thereby relinquished the said
trust. The said trust agreement having been thus rescinded, I
cannot see how the CB, in adopting the said resolutions, can be
accused of having acted in “abuse of discretion equivalent to
excess of jurisdiction.”
Undue emphasis and reliance are placed by the majority
opinion upon the argument that under the voting trust agreement
in question the CB was obligated “to act and work for the
‘rehabilitation, normalization and stabilization’ of the Overseas
Batik of Manila, through the extension of adequate and necessary
financial assistance to stave off liquidation”—an argument which,
in my view, entirely fails to consider that there are contractual
and statutory, if not administrative as well as market, constraints
to what the CB can do in the matter of assisting banks in
extremis.
A reading of the scope of the powers and authority
617
VOL. 41, OCTOBER 4, 1971 617

granted to the CB under the voting trust agreement provides the

first step in an analysis of the contractual and legal constraints
under which the OB must operate. The relevant stipulation of the
said agreement recites:
“3. During the life of this trust agreement the trustee shall
have all and full authority, subject only to the limitations
set by law and other conditions set forth therein: to direct
the management of the affairs and accounts and
properties of the Overseas Bank of Manila; to vote its
directors and to choose the officers and employees giving
due consideration to the suggestions of the cestui que trust
for the employment and retention of qualified, competent
and reputable persons who enjoy their confidence; to
improve, modify, reorganize its operation, policies,
standards, systems, methods, structure, organization,
personnel, staffing, pattern, etc.; to hold and vote on the
shares of stocks transferred to him as trustee; to
safeguard the interests of depositors, creditors and
stockholders; and in general to exercise all such powers
and discharge all such functions as inherently pertain to
the cestui que trust as owners, and/or for the sound
management of a banking institution.”
The aforementioned stipulation sets forth with definiteness

and specificity the scope and reach of the alleged obligation of the
CB to work for the “rehabilitation, normalization and stabilization
of the Overseas Bank of Manila” under the voting trust
agreement. By virtue of the said stipulation, the trustee’s only
duty and authority is to manage the affairs of the OBM in a
manner beneficial to the bank, its equity owners, depositors and
creditors. Nowhere does it appear in the said stipulation nor in
any portion of the said voting trust agreement (which the majority
opinion considers as the law between the parties) that the CB
must pump money into the coffers of the OBM for its
“rehabilitation, normalization and stabilization.” Indeed,
considering the precarious position of the OBM, the subsequent
take-over by the CB (through its nominess) of its operations
constitutes full compliance with its duty under the said
agreement For, it must be noted that the take-over of the OEM’s
operations was induced by the CB’s considered belief, through
reports submitted by its examiners, that the principal
stockholders of the bank were misusing and fraudulently
diverting for per-
618

sonal purposes the funds and assets of the bank to the detriment
of its other stockholders and its creditors and depositors—a belief
which is not unfounded. The majority opinion itself states that the
OBM (a) had overdrawn its clearing account with the CB beyond
permissible limits, (b) had chronic reserve deficiency, and (c) had
deficiency in the required liquidity floor against government
deposits as early as 1965, all of which, by 1967, caused such a
mounting concern at the CB that the latter.
“ordered the closing of all deposit accounts of Mr. Emerito Ramos and
members of his family within the third degree, and firms and
corporations in which they had interest; for the stockholders to put in an
addition of P6.8 million, to remove Ramos and other key officials of the
bank found to be responsible for irregular or anomalous transactions
from their positions, to install an internal comptroller appointed by the
Central Bank, and to place collection efforts of the bank under a special
team headed by the Central Bank Legal Council.”
Undoubtedly, the take-over by a new management of the

operations of the OBM to step the bank’s assets and funds from
further being fraudulently dissipated could bring about relative
normalcy and stability and remove the immediate threat of
closure. But no trustee can be expected to surmount what is
humanly insurmountable. The CB is not expected, nor can, it be
obliged, to divert its own funds for the purpose of saving a solitary
bank whose in extremis condition was, in the first place, caused by
the malfeasance, misfeasance and non-feasance of its principal
stockholders and officers. The CB was established to discharge
certain constituent functions. Its powers are necessarily
circumscribed by law. The fact that it achieves a surplus fund in
its operations does not mean that it can devote such surplus fund
to any use not specifically and clearly described by law. Section 41
of the Central Bank Act, in fact, specifies the uses to which its net
profits may be devoted. The “rehabilitation, normalization and
stabilization” of a private commercial bank are not among these.
And even if it be construed that the management function
which the CB had supposedly assumed includes the
619
VOL. 41, OCTOBER 4, 1971 619

giving of extraordinary financial assistance, I seriously dispute

the observation of the majority that the CB did not
conscientiously and in good faith exert every effort to rehabilitate,
normalize and stabilize the OBM.
The pertinent facts, narrated in chronological perspective
below, conclusively rebut this observation of the majority.
1. During the five years of the existence of the OBM, the CB

granted it a total of P76.11 million in the form of
emergency loans (P24,185,193.74) and overdrawings in its
clearing account (P51,925,381.90). (For purposes of clarity,
a banking institution, by law and as ruled by the
Monetary Board, is required to hold reserves against its
deposit liabilities partly in the form of deposits with the
CB. If this deposit account is overdrawn, which results
from the clearing of checks, the bank incurs an overdraft.
An overdraft in the clearing account of a bank is regarded
as a loan in the books of the CB.)
2. The OBM, since early 1967, had been chronically
overdrawn in its clearing account with the CB, but
somehow, was able to make sufficient deposits to cover the
daily overdrawings before the start of the clearing every
day. It was sometime in September 1967 that it failed to
cover the overdrawings. On September 25, 1967, Martin
Oliva, then OBM President, informed the CB of
transactions which were not recorded in the books of the
OBM in the amount of 48.007 million. There were other
manipulations made in the books which caused funds
derived from depositors and clients of the bank to be
credited to current accounts of certain OBM officers for
their personal use and/or for the benefit of corporations
and other interests of the Ramos family. The disclosed
amount of P48.007 million was later determined to reach
P86.129 million as of September 30, 1967.
3. Alarmed by this development and by the sudden increase
in the overdrawings, the Monetary Board issued a series
of directives, requiring, among other things, the bank and
Emerito M. Ramos, Sr., et al., the majority stockholders of
the bank, to put up collateral to secure the un-
620

secured obligations of the OBM with the CB, especially

the overdrawing. The CB account was apparently being
used to fund the operations of the OBM and the
withdrawals of the depositors, since the funds originally
deposited and collected to the extent of the manipulations
were not invested for the benefit of the bank but were
instead withdrawn for the use and benefit of the Ramos
corporations.
(a) Resolution No. 1735 dated September 8, 1967 required the

OBM to mortgage its Padre Faura property to the CB to
secure the unsecured advances given, especially by way of
overdrawings.
(b) Resolution No. 1890 dated September 29, 1967 required
the Xavierville Estate, Inc. to mortgage to the CB its
Xavierville property situated in Quezon City to partly
secure whatever liabilities the OBM had with the CB, and
required the OBM to immediately mortgage to the CB all
other available properties of the Ramoses (Em-erito M.
Ramos and family) in order to secure the unsecured
advances given to the OBM especially by way of
overdrawings, and place the advances so secured in a
separate account.
(c) Resolution No. 1918 dated October 3, 1967 instructed the
CB management to exert every effort to obtain collateral
to secure the unsecured liabilities of the OBM to the CB.
(d) Resolution No. 1975 dated October 10, 1967 instructed the
CB management to continue with its efforts to obtain
additional collateral to secure the unsecured liabilities of
the OBM to the CB and for the protection of other
creditors/depositors thereof.
(e) Resolution No. 2014 dated October 14, 1967 instructed the
CB management to effect the registration of the second
mortgage on the Xavierville Estate.
(f) Resolution No. 2015 dated October 16, 1967 required
Emerito M. Ramos, Sr., to submit a listing of his property
and to mortgage and assign the same to the CB to cover
the overdraft balance of the OBM.
(g) Resolution No. 2017 dated October 17, 1967 instructed the
CB Legal Counsel to proceed immediately with the
registration of the second mortgage on the Xavierville
Estate in favor of the CB, and thereafter to obtain the
consent of the majority of the stockholders of the
621
VOL. 41, OCTOBER 4, 1971 621

Xavierville Estate, Inc. to a second mortgage in an

appropriate resolution approved at a regularly called
stockholders’ meeting; to assign one or more lawyers for
the particular purposes of (1) seeing to it that the CB
obtained a lien on as many properties (real or personal),
including shares of stock (the corresponding certificate of
which should be delivered to the CB) and other assets in
the name of Emerito M. Ramos, Sr. and members of his
family, as could be obtained, amounting to at least P100
million as represented by Emerito Ramos, and (2) drawing
up and registering with the Register of Deeds the
necessary documents establishing the liens of the CB on
such properties. This resolution also instructed the Acting
Superintendent of Banks to obtain information on as
many more properties as possible (including shares of
stocks) in the names of Emerito Ramos and members of
his family as were not included in the list submitted by
Emerito Ramos on October 16, 1967, so that the CB could
obtain a lien thereon.
(h) Resolution No. 2132 dated November 3, 1967 reiterated
the CB’s demand for additional collateral to secure the
unsecured liabilities of the OBM to the CB and for the
protection of the other creditors and/or depositors thereof.
(i) Resolution No. 2185 dated November 7, 1967 noted a
letter dated November 6, 1967 of the CB Governor to the
OBM, which stated among other things, as follows: “As
previously requested and agreed to by your principal
stockholder, Mr. Emerito Ramos, Sr., immediately have
Mr. Emerito M. Ramos, Sr., his associates or controlled
corporations execute the necessary documentation to
mortgage real properties to the Central Bank to secure the
unsecured liabilities of The Overseas Bank of Manila to
the Central Bank, and for the protection of the other
creditors and/or depositors thereof. In this connection, it is
reiterated that Mr. Ramos deliver to the Central Bank the
endorsed certificates of stock of corporations in which he
or his family has equity.”
(j) Resolution No. 2210 dated November 17, 1967 instructed
the CB management to acknowledge the letter dated
November 17, 1967 of the Auditor of the CB, inviting
attention to the increasing trend in the overdraft of the
OBM with the CB amounting to P32,210,242.21 as of
November 16, 1967; to advise the Auditor General and the
CB Auditor that documentation was then be-
622

ing undertaken of the mortgages covering the properties

(allegedly worth P100 million) offered by Emerito M.
Ramos, Sr. to secure the unsecured liabilities of the OBM
to the CB; to transmit copies of the aforesaid 1st
Indorsement of the Auditor General and the letter of the
CB Auditor to the Board of Directors of the OBM; and to
require the OBM to explain why it should not be excluded
from CB clearing.
As can be deduced from the foregoing resolutions, bad faith

cannot be imputed to the CB when the voting trust agreement was
executed on November 20, 1967, since all along, Emerito M.
Ramos, Sr. knew, as he was informed from the very beginning,
that the properties he had offered, allegedly worth P100 million,
were to secure all the unsecured liabilities of the OBM with the CB.
4. In a conference held with E. M. Ramos, Sr. and M. Oliva on
October 23, 1967, the CB Governor impressed upon Ramos tile
imperativeness of his putting up adequate cotlateral to fully secure
the CB advances before the CB could even consider the extension of
additional advances to the OBM. Moreover, the intention of the
CB in the execution of the voting trust agreement may be found in
Resolution No. 2015 dated October 16, 1967 wherein the
Monetary Board decided, among other things.
“To require the stockholders of The Overseas Bank of Manila to subscribe

to an appropriate voting trust agreement so that the Central Bank may be
able to effect a complete reorganization and/or transfer management of
the bank to a nominee of the Monetary Board.”
In point of fact, the voting trust agreement was broached to the

OBM or the Ramoses for the first time, not on October 16, 1967,
but on December 23, 1966, when the Monetary Board, per its
Resolution No. 2072, expressed the sense that if the OBM tailed
to elect a permanent President by January 31, 1967, acceptable to
the Monetary Board, the bank should transfer the management of
its affairs to the PNB under an appropriate voting trust
agreement.
5. The CB was alarmed by the uncontrolled increase of the
overdrawings in the OBM’s clearing account, which
623
VOL. 41, OCTOBER 4, 1971 623

continued to deteriorate despite admonitions from the CB. The

CB sought a change in the management of the OBM because the
anomalies and fraudulent transactions in the OBM were being
perpetrated by a son of E. M. Ramos, Sr., and funds derived from
the manipulation of accounts were being channeled to the
corporations and interests of the Ramos family. These are borne
out by the following:
(a) Resolution No. 1890 dated September 29, 1967 enjoined

the OBM not to allow the state of the overdrawings in its
clearing account with the CB, amounting to P16.4 million
as of September 29, 1967, to deteriorate any further.
(b) Resolution No. 2014 dated October 14, 1967 ordered
(1) the return to clearing of OEM’s Manager’s and Cashiers’

checks debited to clearing on Friday, October 13, 1967;
(2) the listing and taking possession of outstanding
Manager’s, Cashier’s and Treasurer’s checks to be
presented in the afternoon clearing on Monday, October
16, 1967; and
(3) the OBM to refrain from issuing Manager’s and Cashier’s
checks.
(c) Resolution No. 2015 dated October 16, 1967 suspended, in

the meantime, the implementation of the instructions
embodied in Resolution No. 2014 dated October 14, 1967
for the return of the bank’s Manager’s, Cashier’s, and
Treasurer’s checks received thru the clearing to the banks
which honored them, and the exclusion of the OBM from
clearing, pending implementation of the requirements
under paragraphs (1) re: submission of list of properties
and (2) re: voting trust agreement, provided that the
overdraft balance of the OBM as a result of clearing
operations did not significantly increase above the level
thereof of P21.2 million as of October 13, 1967.
(d) Resolution No. 2017 dated October 17, 1967 instructed the
Acting Superintendent of Banks to see to it that the
accounts with the OBM of the enterpriser owned by
Ramos and members of his family were either closed or
frozen in order to prevent the farther deterioration of the
OBM’s clearing balance with the CB, and to see to it that
the OBM did not issue Manager’s and Cashier’s checks.
(e) Resolution No. 2132 dated November 3, 1967 instructed
the CB management to Immediately write a letter to the
OBM
624

demanding payment, within five (5) days from receipt of

such demand, of whatever amount was necessary so as to
reduce the OBM’s overdraft balance with the CB to the
level thereof of P21.2 million as of October 13, 1967, and
the OBM not to permit drawings by its clients on their
overdraft accounts until after completion of the review of
such accounts by CB examiners, and to immediately
advise the clients concerned accordingly.
(f) Resolution No. 2188 dated November 7, 1967 stated, in
connection with the report of the Acting Superintendent of
Banks dated October 27, 1967 on the financial condition of
the OBM as of August 31, 1967, that the general
principle/policy to be carried out/applied on the OBM was
to prevent the further increase of its overdrawings with
the CB. Toward this end, the Board:
(1) Expressed the sense that the unrecorded transactions of

the OBM should not be recognized by the OBM pending
study and verification thereof; and
(2) Directed the CB management to require the OBM:
(a) Not to convert deposits from one type to another:

(b) To return all incoming checks and items from clearing
which were drawn against accounts in the unrecorded
transactions, against demand deposits which were
converted from time or savings deposits, and, as already
instructed, against overdraft lines and against accounts
with insufficient balances; and
(c) To take all precautions, measures and steps necessary to
prevent further deterioration of the overdrawn clearing
balance with the CB which as of November 7, 1967
amounted to P28.437 million.
(g) Emerito M. Ramos, Sr. procrastinated in the final execu-
tion of the voting trust agreement. In the meantime, the
overdrawings increased from P21.2 million on October 13,
1967 to P33.62 million on November 20, 1967.
Finally, on November 17, 1967, the Monetary Board, in its Resolution No.
2190, instructed the CB management:
(1) To require the stockholders of the OBM representing a

substantial majority of the stock thereof to sign, not later
than Monday morning, November 20, 1967, a voting trust
agreement in favor of the Superintendent of Banks, as
called for under Resolution No. 2020 dated October 20,
1967;
625
VOL. 41, OCTOBER 4, 1971 625

(2) To deny to the OBM access to CB clearing beginning

Monday afternoon, November 20, 1967, should such voting
trust agreement not be signed by that time; and
(3) To return all incoming checks and items from clearing
which were drawn against accounts in the unrecorded or
falsely recorded transactions in the OBM.
(h) Resolution No. 2252 dated November 23, 1967 instructed

the CB management to take immediate action so that
increases in overdrawings in the CB would be reflected in
corresponding decrease in “recorded” deposit liabilities,
impressing upon all those concerned that the unrecorded
or falsely recorded transactions in the OBM were not to be
recognized or honored, although evidence purporting to
establish the legitimacy of such supposed transactions
could be received by the CB. All transactions were to be
passed upon by the Comptroller designated by the CB.
6. On November 20, 1967, the voting trust agreement

between Emerito M. Ramos, Sr., et al., as trustor, and the
Superintendent of Banks, as trustee, was executed.
7. It took a considerable length of time, or up to July 23,
1968, before all the properties deemed acceptable as
collateral by the Monetary Board were
mortgaged/assigned in favor of the CB. Contrary to the
belief that the CB withheld funds from the OBM, the
advances by way of overdrawings on any one date were
always more than the appraised value of collateral
mortgaged/assigned on the same day. The CB later
liberally changed the basis of valuation to be able to
extend more advances by way of overdrawings to the
OBM.
8. As of July 2, 1968, the balance of the overdrawings in the
OBM’s clearing account amounted to P51,661,774.90.
whereas the loan value of the collaterals put up by
Emerito M. Ramos, Sr., et al., computed liberally at 90% of
the average PNB and DBP market values, amounted to
P51,-127,290, with a resulting collateral deficiency of
P534,484.-90. Having been apprised that no further
acceptable collateral of appreciable value had been offered
by the controlling stockholders and no additional fresh
capital funds of the magnitude necessary to bail out the
very distressed
626

condition of the OBM was expected from the controlling

stockholders, the Monetary Board was constrained to take
drastic action, and on July 30, 1968, under its Resolution
No. 1263, decided to exclude the OBM from clearing with
the CB, effective immediately. Two days later, the
Monetary Board, under its Resolution No. 1290 dated
August 1, 1968, further decided to authorize the Board of
Directors of the OBM to suspend the operations of the
OBM.
9. At the time of the execution of the voting agreement on

November 20, 1967, the overdrawing in the OBM’s
clearing account amounted to P33,624,743.68; as of
August 13, 1968, they amounted to P51,925,381.90, or an
increase of P18,300,638.22.
All the above demonstrates that the CB extended P18.3 million

additional financial assistance to the OBM from November 21,
1967 to August 13, 1968, or during the period of almost nine (9)
months following the date of the execution of the voting trust
agreement.
The crucial portion of the decision relative to the alleged
obligation of the CB to “rehabilitate, normalize and stabilize” the
OBM is found on p. 16 thereof, the pertinent portion of which
reads as follows:
“x x x the record becomes clear that, in consideration of the execution of
the voting trust agreement by the petitioner stockholders of OBM, and of
the mortgage or assignment of their personal properties to the CB (Res.
No. 2015, 16 October 1967, Annex ‘F’, Petition), the CB had agreed to
announce its readiness to support the new management ‘in order to allay
the fears of depositors and creditors’ (Annex ‘B’), and to ‘stave off
liquidation’ by providing adequate funds for ‘the rehabilitation,
normalization and stabilization’ of the OBM, in a manner similar to what
the CB had previously done with the Republic Bank (Petition, Annex ‘G’,
ante).
While no express terms in the documents refer to the provision of
funds by CB for the purpose, the same is necessarily implied, for in no
other way could it rehabilitate, normalize and stabilize a distressed
bank.” (Italics supplied)
As I have already stressed, the CB did not commit itself to

rehabilitate, normalize and stabilize the OBM. But even
627
VOL. 41, OCTOBER 4, 1971 627

assuming that there was in fact such a commitment, it is obvious

to me that the same cannot be unqualified. The limits thereof
must be ascertained in the light of existing statutes, more
particularly, the pertinent provisions of the Civil Code of the
Philippines, in relation to the pertinent provisions of the Central
Bank Charter.
In this connection, Article 1306 of the Civil Code provides as
follows:
“ART. 1306. The contracting parties may establish such stipulations,

clauses, terms and conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs, public order, or public
policy.” (Italics supplied)
Thus, assuming that the CB is legally committed under the

voting trust agreement to rehabilitate the OBM, any action, of the
CB in respect thereto must have to be particularly what it can
perform within the periphery of the law.
The only way by which the CB can succeed in rehabilitating
the OBM, under present conditions, is to extend financial
assistance through loans of astronomical magnitude granted to
the latter. In this respect, section 90 of the Central Bank Charter
provides as follows:
“SEC. 90. Emergency loans and advances. In periods of emergency or

imminent financial panic which directly threaten monetary and banking
stability, the Central Bank may grant banking institutions extraordinary
advances secured by any assets which are defined as acceptable security
by a concurrent vote of at least five 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 prior authorization of
the Monetary Board.” (Italics supplied)
It would be in palpable violation of the provisions of section 90

if the CB were to grant the OBM further loans and advances,
considering that neither the OBM nor its stockholders can put in
the required additional capital nor submit collaterals acceptable
to at least five (5) members of the Monetary Board. Nowhere in
the voting trust agreement is it provided that the CB bound itself
to bring
628

about the rehabilitation, normalization and stabilization of the

OBM at all cost.
The decision of this Court further states that the CB should
rehabilitate the OBM in a manner similar to what the CB had
previously done with the Republic Bank. The rationale of this
statement, found on p. 15 of the decision, reads:
“CB Resolution No. 2015 of 16 October 1967 (Petition, Annex ‘F’), in

addition to requiring a mortgage or assignment of petitioner’s personal
properties to CB, confirmed the quoted memorandum by requiring the
stockholders of OBM to subscribe to an appropriate trust agreement,
with the only difference that instead of the Philippine National Bank, the
trust would be executed in favor of the CB as trustee ‘to enable it to
reorganize and transfer management to a nominee of the Monetary
Board.’ Two weeks later, on 30 October 1967, after a conference at
Malacañang, the CB governor once more wrote to Ramos that the
Monetary Board—
decided that, as a measure to stave off liquidation, a voting trust agreement

should be executed by you and your family and the corporations controlled by you
in favor of the Superintendent of Banks, in an instrument similar to the one
executed by stockholders of the Republic Bank in favor of the Philippine, National
Bank.”
“The reference to the case of the Republic Bank clarifies the purpose
and scope of the demand for a voting trust agreement ‘as a measure to
slave, off liquidation’; for it is wellknown, and it is not denied, that when
the Republic Bank previously became distressed, the CB had advanced
funds to rehabilitate it and allow it to resume operating.”
The above statements are without support in the record of this
case, First: It will be clearly seen that reference was made to the
Republic Rank merely for the purpose of describing the
“instrument” to be executed by the OBM stockholders (which
must be “similar to the one executed by the stockholders of the
Republic Bank.”) On the basis of such reference, one cannot,
logically and immediately reach the conclusion that because the
instrument (form) may be similar, the obligations (substance)
would necessarily be similar, such that if the CB had indeed
advanced funds to the Republic Bank, it is likewise obligated to
advance funds to the OBM. Second: The statement
629
VOL. 41, OCTOBER 4, 1971 629

that “when the Republic Bank previously become distressed, the

CB had advanced funds to rehabilitate it and allow it to resume
operating,” appears to me to be gratuitous. There is nothing in the
pleadings which shows as a fact that the CB had advanced funds
to the Republic Bank, nor, if it did so, how much and for what
specific purposes or ends.
I have earlier stated that the mortgages or assignments of
properties to the CB by the OBM stockholders were not a
consideration of their entering into the voting trust agreement.
However, the decision appears to imply that the said mortgages
were executed by the OBM stockholders because they were
“induced” by the CB and “misled” into believing that such
conveyances would “stave off liquidation.”
The pleadings of the respondent CB have uniformly
maintained that the OBM stockholders were required to effect the
mortgages in question precisely and solely because of the
requirements of section 90 of the Central Bank Charter. The OBM
had incurred, long before the execution of the voting trust
agreement, overdrawings amounting to tens of millions of pesos;
section 90 of the Central Bank Charter requires that these
overdrawings be secured by collaterals acceptable to the Monetary
Board. On November 20, 1967, the date the voting trust
agreement was entered into, the OBM’s overdrawings in its
clearing amount with the CB amounted to P33,624,743.68.
Emerito Ramos had been promising the Monetary Board that
fresh capital would be put into the bank, but these promises
remained unfulfilled, notwithstanding repeated demands made on
him by the CB, such that with the revelation of the unrecorded
huge deposits in the OBM, it became obvious that Ramos could
never fulfill his promises.
Logic cannot sustain the statement that the OBM stockholders
were induced into mortgaging their properties for the purpose of
staving off liquidation. There was a moral and legal obligation on
the part of the OBM to execute such mortgage because of its huge
overdrawings which
630

were not secured by sufficient and acceptable collaterals. The CB

could legally demand the execution of such mortgages without
need of providing any enticement or inducement to the OBM
stockholders. It is, therefore, grossly erroneous to state that the
execution of such mortgages was the consideration of the voting
trust agreement.
The decision further states that the CB is now reneging on its
commitments and, on page 22 thereof, observes that the CB
excuses itself by pleading that the OBM officers had resorted to
non-recording of time deposits in the Bank’s books and diverting
such deposits to accounts controlled by certain bank officials, and
other irregularities.”
True it is that, in its pleadings, the CB dwelt lengthily on the
irregularities and anomalies, committed by the OBM
management. This was done, however, not for the purpose of
“excusing” itself from rehabilitating the OBM, but to show the
imperativeness of the execution of the voting trust agreement as
engendered by the critical condition of the OBM.
I find it difficult to understand, therefore, why the majority of
the Court would brush aside as being inconsequential the serious
irregularities and anomalies committed by the OBM officials and
stockholders, and instead “censure” the CB in deciding to
liquidate the OBM.
The decision further observes that “the CB made express
representations to petitioners herein that it would support the
OBM, and avoid its liquidation if the petitioners would execute (a)
the Voting Trust Agreement turning ever the management of
OBM to the CB or its nominees, and (b) mortgage or assign their
properties to the Central Bank to cover the overdraft balance of
OBM. The petitioners having complied with these conditions and
parted with value to profit of the CB (which thus acquired
additional security for its own advances), the CB may not now
renege on its representations and liquidate the OBM, to the
detriment of its stockholders, depositors and other creditors,
under the rule of promissory estoppel.”
631
VOL. 41, OCTOBER 4, 1971 631
As may be seen, however, the real situation is widely

disparate. The CB required a change of management of the OBM
by means of the voting agreement, because it had lost its
confidence in the former one; and it required the owners of the
bank to collateralize all its obligations to the CB because that is
what line law ordains. With the putting up of additional capital
by the owners of the OBM and the financial assistance extended
by the CB in the form of overdrawings in the OEM’s clearing
account, it was hoped that the OBM would be able to rehabilitate,
normalize and stabilize itself. Unfortunately these tations did not
materialize partly because the owners of the OBM failed to
produce the needed additional capital and the necessary
collaterals for further loans from the CB. As already repeatedly
stated, the conveyances of properties made by the petitioners
were required by the CB in order to secure the huge amounts of
loans and overdrawings which had been advanced to the OBM
long before the voting trust agreement was executed.
Under these circumstances, how can it be asserted that the CB
is now “estopped” from “reneging” on its promise to rehabilitate,
normalize and stabilize the OBM?
The doctrine of “promissory estoppel” is discussed in Corpus
Juris Secundum, which, in this connection, states,
“Of coarse, a promise cannot be the basis of an estoppel if any other

essential element is lacking . . . Justifiable reliance and irreparable
detriment to the promisee are requisite factors.” (31 C.J.S. 291)
Certainly the petitioners could not have justifiably relied upon

any “promise” of the CB to rehabilitate the OBM, assuming that
there was such promise, if in the fulfillment thereof the CB would
have to extend: further financial assistance in the form of loans
without the requisite corresponding collaterals from the OBM, or
to contribute to the capital of the said bank. For these would be in
flagrant violation of section 90 and 133 of the Central Bank
Charter, which are mandatory proscriptive, and would in effect
compel the CB to dole out public funds
632

in the hundreds of millions of pesos in cynical contravention of the

law.
It is, therefore, incomprehensible to me how the doctrine of
“promissory estoppel” can be made to apply.
Bad faith and abuse of discretion are imputed by the majority
of the Court to the CB for ordering the liquidation of the OBM, in
obedience to the mandate of section 29 of the Central Bank
Charter. To demonstrate that this charge is groundless, I quote
excerpts (which are self-explanatory) from the memorandum
dated July 23, 1968 of the Superintendent of Banks to the
Monetary Board. Thus:
“ . . . The Bank cannot be rehabilitated unless its operational losses are

stopped. As of June 30, 1968, the accumulated losses of the Bank per its
books stood at P6.9 million exclusive of estimated losses on loans. In
order to at least break even in its operations (that is, that there be no net
profit or net loss), the Bank must be able to lend in such a magnitude as
to be able to cover the large operational expenses, particularly interest on
deposits and borrowings.
“. . . However . . . the Bank must put up additional capital in order to
meet the requirements of Section 22 of Republic Act No. 337 and to
support the necessary expansion in risk assets. Therefore, the fresh funds
needed in order to break even in operations must consist not only of
borrowed funds but also of additional capital contribution. On this basis,
the Bank will need a total of P126.334 million of loanable funds, which
must be composed of P40.730 million additional capital (P21.780 million
needed for risk assets as of June 30, 1968 plus P18.950 million to support
the expansion in risk assets of P126.-334 million) and P85.604 million of
borrowed funds . . . .
“x x x x x x x x x
“And even granting that the Bank can obtain the required loanable
funds in order to break even in its operations, it cannot legally invest all
the funds unless its capital structure is also increased to support the
necessary expansion in risk assets. Section 22 of Republic Act No. 337
requires that the combined capital accounts of a commercial bank shall
not be less than 15% of its total risk assets. As of June 30, 1968, the
required minimum capital of the bank was P19.142 million while its
combined capital accounts per books were only P14.356 million thus
showing a capital deficiency of P4.786 million.
633
VOL. 41, OCTOBER 4, 1971 633

“After considering (1) the Examiners’ provision for estimated losses on

the recorded loans and receivables of P13.766 million (exclusive of
estimated losses of P13.243 million on ‘unrecorded’ loans and
receivables), plus 2(a) the accrued interest on the emergency loans by,
and overdrawings with, the Central Bank, and 2(b) penalties payable on
deposit reserve deficiencies aggregating P3.228 million, or a total of
P16.994 million, all of these not yet taken up in the books, the bank’s
capital accounts per books of P14.356 million as of June 30, 1968, would
be wiped out resulting in an estimated deficiency to creditors of P2.638
million. Since the minimum capital required under Section 22 of Republic
Act No. 337 as of June 30, 1968 is P19.142 million, the amount of fresh
capital needed to be put up to comply with the minimum capital
requirement as of June 30, 1968 would be P21.780 million. In addition,
P18.950 million of new capital must be put up by the Bank to support the
necessary expansion in risk assets of P126.334 million in order to break
even in its operations. Therefore, the total fresh capital which the Bank
must put up to meet the requirements of Section 22 of RA No. 337, after
considering the estimated losses on loans and other expenses not yet
taken up in the books, as well as the necessary expansion in risk assets
so as to break even in its operations, would be P40.730 million.
“x x x x x x x x x
“If the capital structure cannot be strengthened to meet the
requirements of Section 22 of RA No. 337, and massive financing cannot
be given to enable the Bank to expand its risk assets to the level at which
it can break even in operations, then there seems to be no other
alternative except to liquidate the Bank under Section 29 of RA No. 265.”
Unlike the majority of the Court, I recognize the existence of

numerous shifting imponderables always attendant to the
superintendence of the banking and monetary systems, the
solutions to or resolutions of which lie peculiarly within the
expertise of the CB, but assuredly beyond the ken, beyond the
competence, of any member of this Tribunal or of even the entire
judicial collegium that is the Supreme Court. For my part, I
refuse to be simplistic; I dare not substitute my own personal
judgments or predilections for the judicious exercise by the CB of
the specialized discretion vested in it by law.
It is thus that I cannot discern what act done or step
634

taken by the CB in relation to the OBM, when tested against the

postulates of the law and of public morality, can be condemned as
deceptive or oppressive, or as amount ing to bad faith or abuse of
discretion.
Reference was made in our deliberations on the case at bar to
an offer supposedly made by a number of depositors as a partial
solution to alleviate the grave situation that now besets the OBM,
which in general outline is to the effect that their deposits be
converted into shares of stock of the OBM. But I am not told, nor
does the record anywhere disclose, the names of these
venturesome depositors, or the amounts of their respective
deposits, or the precise meaning and details of such offer. Verily,
everything about this “proposition” is a disembodied blur.
I well understand the overriding concern of the majority of the
Court for the plight of the innocent depositors and creditors of the
OBM. I share that concern, I, too, want to see all of them retrieve
the full face value of their deposits and credits. As it is, the
prejudice that they have already suffered is nigh incalculable. The
deposits were made and the credits were extended at a time when
the foreign exchange rate was four pesos to one US dollar. When
these shall be returned, if at all, the rate of exchange will
probably have risen to more than the present floating rate of
about six and one half pesos to one US dollar, and the purchasing
power of the pesos will have been considerably watered down. In
the meantime, these depositors and creditors have been, and will
continue to be, effectively prevented from investing their OBM
money (which has not earned nor is now earning interest) in
profitable ventures or stocks. If, on some future but highly
uncertain day, fifty percent of such deposits and credits will foe
returned, the depositors and creditors of the OBM might well
regarded what they will get as veritable manna from heaven.
At all events, I should think that if and when the OBM, by the
grace of the majority opinion, shall have resumed operations, even
under the protective solicitude of the CB,
635
VOL. 41, OCTOBER 4, 1971 635

the be-all and end-all concern of most of the OBM depositors and
creditors will be to extricate from the OBM, soonest possible and
to the last centavo, all their deposits and credits. More likely than
not, they will not thereafter—like many perceptive observers on
the outside looking in-touch the OBM again, not even with the
proverbial ten-foot pole.
Finally, I must articulate a query which, as far as 1 am able to
perceive, the Central Bank has not explored in depth, but which
the majority of the Court have apparently confidently answered in
the affirmative: In the face of the well-known constraints of public
policy and high public morality, is it the real intendment of the
Central Bank Charter and other pertinent laws that the Central
Bank must run to the total rescue of any and every private
banking institution which is in extremis due to causes other than
inept but bona fide managements?
Writs granted.
Notes.—(a) Trustor, trustee, and cestui que trust.—A person

who establishes the trust is called the trustor; one in whom
confidence is reposed as regards property for the benefit of
another person is known as the trustee; and the person for whose
benefit the trust has been created is referred to as the beneficiary
or cestui que trust (Art. 1440, Civil Code; Barreto vs. Tuazon, 50
Phil. 888).
(b) Jurisdiction once acquired cannot be divested.—Jurisdiction
of a court to try a case is determined by the law in force at the
time the action is instituted. A subsequent statute removing
jurisdiction will not operate to oust that jurisdiction. It is a
subversion of the judicial power to take a cause from a court
having jurisdiction before its final decision is given (Government
vs. Gale, 24 Phil. 95, 100; Rilloraza vs. Arciaga, L-23848, Oct. 31,
1967, 21 SCRA 717).
The rule is more completely stated in Iburan vs. Labes, 87 Phil.
284, 238, as follows: ‘Where a court originally obtains and
exercises jurisdiction, jurisdiction will not be
636

Rice and Corn Administration vs. Ong Ante
overturned and impaired by any legislative enactment unless

express prohibitory words are used, and jurisdiction duly acquired
under an existing statute is not taken away by a subsequent
statute prescribing a different method of commencing an action.
_______________
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Ramos vs. Central Bank of The Philippines

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VOL.

41, OCTOBER 4, 1971 565

No. L-29352. October 4, 1971.

EMERITO M. RAMOS,SUSANA B. RAMOS,EMERITO B.

Remedial law; Jurisdiction once acquired.—The jurisdiction

566 SUPREME COURT REPORTS ANNOTATED

Ramos vs. Central Bank of the Philippines

VOL. 41, OCTOBER 4, 1971 567

Ramos vs. Central Bank of the Philippines

Same; Fulfillment of contractual obligations.—Under the law,

MAKALINTAL, J., dissenting:

Administrative law.—To my mind the acts complained of

568 SUPREME COURT REPORTS ANNOTATED

Ramos vs. Central Bank of the Philippines

be achieved—is mistaken for the obligation thereunder, and that

VOL. 41, OCTOBER 4, 1971 569

CASTRO, J., dissenting opinion:

Central Bank Act; The Central Bank is without power to enter

570 SUPREME COURT REPORTS ANNOTATED

Ramos vs. Central Bank of the Philippines

VOL. 41, OCTOBER 4, 1971 571

Ramos vs. Central Bank of the Philippines

Certainly the petitioners could not have justifiably relied

ORIGINAL ACTION in the Supreme Court. Certiorari,

The facts are stated in the opinion of the Court.

Solicitor General Felix Q. Antonio and F. E. Evangelista,

REYES, J.B.L., J.:

This is a petition for Certiorari, Prohibition and Mandamus

(a) That the aforesaid resolutions were not legally

VOL. 41, OCTOBER 4, 1971 573

The OBM is a commercial banking corporation duly

“This is with reference to the conference had between Mr. Emerito

574 SUPREME COURT REPORTS ANNOTATED

amount of at least P3 million, which Mr. Ramos promised to put

In view of the OEM stockholders’ reluctance to execute the

“ ‘(1) To require Mr. Emerito M. Ramos, Sr., the principal

Further conference ensued, and on 30 October 1967

“I wish to refer to the conference had between your good-self and

VOL. 41, OCTOBER 4, 1971 575

Superintendent of Banks, in an instrument similar to the one

This was followed up by another letter of 8 November 1967

Finally, on 20 November 1967, the petitioners herein

576 SUPREME COURT REPORTS ANNOTATED

as Clauses”, the pertinent portions of which read: “. . . . the

Petitioners likewise conveyed by way of mortgage to Z

VOL. 41, OCTOBER 4, 1971 577

the CB all their private properties and holdings to secure

2 Annex “M”, Petitioners’ Reply Memorandum.

578 SUPREME COURT REPORTS ANNOTATED

when around 31 July 1967 the Ramoses conveyed to the

In the same memorandum report, considering the need for

“(1) The OBM be required to acquire the properties in

Three days later, 30 October 1967, the Central Bank

5 Annex “21”, Answer.

VOL. 41, OCTOBER 4, 1971 579

was followed by another of 8 November 1967, requiring the

In a memorandum submitted to Governor Calalang 12 days

6 Annex “10-A”, Answer.

580 SUPREME COURT REPORTS ANNOTATED

aid we are recommending, properly used, would have

“Eight months of indecision has made depositors lose faith and as

The next day, 23 July 1968, the Superintendent of Banks

“. . . . . . . The bank’s continuance in business under its present