EN BANC [G.R. No. 88435. January 16, 2002.] DEVELOPMENT BANK OF THE PHILIPPINES, JESUS P. ESTANISLAO, DOLORES A.

SANTIAGO, LYNN H. CATUNCAN, NORMA O. TERREL, MA. ANTONIA G. REBUENO, petitioners, vs. COMMISSION ON AUDIT, respondent.

issued by the Central Bank pursuant to its supervisory and regulatory powers have the force and effect of law. The hiring by DBP of a private auditor was not only necessary based on the government's loan covenant with the World Bank; it was also necessary because it was mandated by Central Bank Circular 1124 under pain of administrative and penal sanctions.

SYLLABUS 1.STATUTORY CONSTRUCTION; INTERPRETATION OF STATUTES; INTENT IS THE CONTROLLING FACTOR THEREIN; CASE AT BAR. The deliberations of the Constitutional Commission reveal eloquently the intent of Section 2, Article IX-D of the Constitution. As this Court has ruled repeatedly, the intent of the law is the controlling factor in the interpretation of the law. If a law needs interpretation, the most dominant influence is the intent of the law. The intent of the law is that which is expressed in the words of the law, which should be discovered within its four corners aided, if necessary, by its legislative history. In the case of Section 2, Article IX-D of the Constitution, the intent of the framers of the Constitution is evident from the bare language of Section 2 itself. The deliberations of the Constitutional Commission confirm expressly and even elucidate further this intent beyond any doubt whatsoever. 2.CONSTITUTIONAL LAW; COMMISSION ON AUDIT; POWER THEREOF TO EXAMINE AND AUDIT IS NON-EXCLUSIVE. The clear and unmistakable conclusion from a reading of the entire Section 2, Article IX-D of the 1987 Constitution, is that the COA's power to examine and audit is non-exclusive. On the other hand, the COA's authority to define the scope of its audit, promulgate auditing rules and regulations, and disallow unnecessary expenditures is exclusive. Moreover, as the constitutionally mandated auditor of all government agencies, the COA's findings and conclusions necessarily prevail over those of private auditors, at least insofar as government agencies and officials are concerned. The superiority or preponderance of the COA audit over private audit can be gleaned from the records of the Constitutional Commission. . . . The findings and conclusions of the private auditor may guide private investors or creditors who require such private audit. Government agencies and officials, however, remain bound by the findings and conclusions of the COA, whether the matter falls under the first or second paragraph of Section 2, unless of course such findings and conclusions are modified or reversed by the courts. The power of the COA to examine and audit government agencies, while non-exclusive, cannot be taken away from the COA. Section 3, Article IX-D of the Constitution mandates that: "Sec. 3. No law shall be passed exempting any entity of the Government or its subsidiary in any guise whatsoever, or any investment of public funds, from the jurisdiction of the Commission on Audit." The mere fact that private auditors may audit government agencies does not divest the COA of its power to examine and audit the same government agencies. The COA is neither by-passed nor ignored since even with a private audit the COA will still conduct its usual examination and audit, and its findings and conclusions will still bind government agencies and their officials. A concurrent private audit poses no danger whatsoever of public funds or assets escaping the usual scrutiny of a COA audit. Manifestly, the express language of the Constitution, and the clear intent of its framers, point to only one indubitable conclusion the COA does not have the exclusive power to examine and audit government agencies. The framers of the Constitution were fully aware of the needs to allow independent private audit of certain government

Office of the Legal Counsel for petitioners. The Solicitor General and Ricardo G. Nepomuceno for respondent. SYNOPSIS The Philippine government obtained from the World Bank an Economic Recovery Loan ("ERL") in the amount of US$310 million. As a condition for granting the loan, the World Bank required the Philippine government to rehabilitate the Development Bank of the Philippines (DBP). The Monetary Board adopted a resolution amending the Central Bank's Manual of Regulations for Banks and Other Financial Intermediaries to require a private external auditor for DBP. The DBP chairman wrote the Commission on Audit (COA), which seeks approval of the engagement of a private external auditor. The former COA chairman informed Central Bank that COA interposed no objection to the proposed scope of audit services to be undertaken by the private external auditors to be engaged by the DBP. Hence, the DBP Board of Directors approved the hiring of Joaquin Cunanan & Co. as its private external auditor for the calendar year 1986. However, a change in the leadership of the COA suddenly reversed the course of events. The new COA chairman wrote the Central Bank Governor protesting the issuance of the circular requiring government banks to engage private auditors in addition to that conducted by the COA as an encroachment upon the COA's constitutional and statutory power to audit government agencies. The DBP paid the billings of the private auditor despite the objection of COA; hence, the COA chairman issued a memorandum disallowing the payment and held the petitioners personally liable for the payment. The consideration sought by the DBP chairman was denied by COA. Hence, the DBP chairman appealed to the COA en banc. The COA en banc, in a letterdecision, denied the DBP's appeal. Hence, this petition for review. The prime issue in this case is whether or not COA has the sole and exclusive power to examine and audit government banks. The petition by DBP was granted by the Supreme Court, it being meritorious. According to the Court, the clear and unmistakable conclusion from the reading of the entire Section 2, Article IX-D of the 1987 Constitution is that the power to examine and audit is non-exclusive. On the other hand, the COA's authority to define the scope of its audit, promulgate auditing rules and regulations, and disallow unnecessary expenditures is exclusive. Clearly, under existing laws, the COA does not have the sole and exclusive power to examine and audit government banks. The rules and regulations

agencies in addition to the COA audit, as when there is a private investment in a government-controlled corporation, or when a government corporation is privatized or publicly listed, or as in the case at bar when the government borrows money from abroad. aTADCE 3.ID.; ID.; ID.; RATIONALIZED. Section 26 of PD No. 1445, otherwise known as the Government Auditing Code of the Philippines, defines the extent and scope of the powers of the COA. Considering the comprehensive definition in Section 26, the COA's jurisdiction covers all government agencies, offices, bureaus and units, including government-owned or controlled corporations, and even non-government entities enjoying subsidy from the government. However, there is nothing in Section 26 that states, expressly or impliedly, that the COA's power to examine and audit government banks is exclusive, thereby preventing private audit of government agencies concurrently with the COA audit. Section 26 is a definition of the COA's "general jurisdiction." Jurisdiction may be exclusive or concurrent. Section 26 of PD No. 1445 does not state that the COA's jurisdiction is exclusive, and there are other laws providing for concurrent jurisdiction. Thus, Section 26 must be applied in harmony with Section 58 of the General Banking Law of 2000 (RA No. 8791) which authorizes unequivocally the Monetary Board to require banks to hire independent auditors. Moreover, Section 26 must also be applied in conformity with Sections 25 and 28 of the New Central Bank Act (RA No. 7653) which authorize expressly the Monetary Board to conduct periodic or special examination of all banks. The power vested in the Monetary Board under Section 58 of the General Banking Law of 2000, and Sections 25 and 28 of the New Central Bank Act, emanates from the Central Bank's explicit constitutional mandate to exercise "supervision over the operations of banks." Clearly, under existing laws, the COA does not have the sole and exclusive power to examine and audit government banks. The Central Bank has concurrent jurisdiction to examine and audit, or cause the examination and audit, of government banks. Section 31 of P.D. No. 1445, is bereft of any language that prohibits, expressly or impliedly, the hiring of private auditors by government agencies. This provision of law merely grants authority to the COA to hire and deputize private auditors to assist the COA in the auditing of government agencies. Such private auditors operate under the authority of the COA. By no stretch of statutory construction can this provision be interpreted as an absolute statutory ban on the hiring of private auditors by government agencies. Section 32 refers to contracts for studies and services "relating to government auditing" which the COA may or may not want to undertake itself for a government agency. Stated another way, Section 32 speaks of studies and services that the COA may choose not to render to a government agency. Obviously, the subject of these contracts is not the audit itself of a government agency because the COA is compelled to undertake such audit and cannot choose not to conduct such audit. The Constitution and existing law mandate the COA to audit all government agencies. Section 2, Article IX-D of the Constitution commands that the COA "shall have the . . . dutyto examine, audit, and settle all accounts" of government agencies. Similarly, the Revised Administrative Code of 1987 directs that the "Commission on Audit shall have the . . . duty to examine, audit, and settle all accounts" of government agencies. Hence, the COA cannot refuse to audit government agencies under any circumstance. The subject of the contracts referred to in Section 32 is

necessarily limited to studies, seminars, workshops, researches and other services on government auditing which the COA may or may not undertake at its discretion, thereby excluding the audit itself of government agencies. Since the COA personnel have the experience on government auditing and are in fact the experts on this subject, it is only proper for the COA to be granted the right of first refusal to undertake such services if required by government agencies. This is what Section 32 is all about and nothing more. Plainly, there is nothing in Section 32 which prohibits the hiring of private auditors to audit government agencies concurrently with the COA audit.

4.COMMERCIAL LAW; CENTRAL BANK; CONCURRENT JURISDICTION THEREOF WITH COMMISSION ON AUDIT TO EXAMINE AND AUDIT GOVERNMENT BANKS; EFFECT. Historically, the Central Bank has been conducting periodic and special examination and audit of banks to determine the soundness of their operations and the safety of the deposits of the public. Undeniably, the Central Bank's power of "supervision" includes the power to examine and audit banks, as the banking laws have always recognized this power of the Central Bank. Hence, the COA's power to examine and audit government banks must be reconciled with the Central Bank's power to supervise the same banks. The inevitable conclusion is that the COA and the Central Bank have concurrent jurisdiction, under the Constitution, to examine and audit government banks. However, despite the Central Bank's concurrent jurisdiction over government banks, the COA's audit still prevails over that of the Central Bank since the COA is the constitutionally mandated auditor of government banks. And in matters falling under the second paragraph of Section 2, Article IX-D of the Constitution, the COA's jurisdiction is exclusive. Thus, the Central Bank is devoid of authority to allow or disallow expenditures of government banks since this function belongs exclusively to the COA. 5.ID.; ID.; RULES AND REGULATIONS ISSUED PURSUANT TO SUPERVISORY AND REGULATORY POWERS THEREOF HAS THE FORCE AND EFFECT OF LAW. Circular No. 1124 has the force and effect of law. In a long line of decisions, this Court has held consistently that the rules and regulations issued by the Central Bank pursuant to its supervisory and regulatory powers have the force and effect of law. The DBP, being a bank under the constitutional and statutory supervision of the Central Bank, was under a clear legal obligation to comply with the requirement of Circular No. 1124 on the private audit of banks. Refusal by the DBP to comply with the Circular would have rendered the DBP and its officers liable to the penal provisions of the General Banking Act, as well as the administrative and penal sanctions under the Central Bank Act.

DECISION

CARPIO, J p: The Case This is a petition for review on certiorari 1 of the letterdecision of the Chairman of the Commission on Audit 2 ("COA" for brevity) and the letter-decision of the

COA en banc 3 , prohibiting the Development Bank of the Philippines ("DBP" for brevity) from hiring a private external auditor. This petition raises a question of first impression, whether or not the constitutional power of the COA to examine and audit the DBP is exclusive and precludes a concurrent audit of the DBP by a private external auditor. The Antecedent Facts In 1986, the Philippine government, under the administration of then President Corazon C. Aquino, obtained from the World Bank an Economic Recovery Loan ("ERL" for brevity) in the amount of US$310 million. The ERL was intended to support the recovery of the Philippine economy, at the time suffering severely from the financial crisis that hit the country during the latter part of the Marcos regime. As a condition for granting the loan, the World Bank required the Philippine government to rehabilitate the DBP which was then saddled with huge non-performing loans. Accordingly, the government committed to rehabilitate the DBP to make it a viable and self-sustaining financial institution in recognition of its developmental role in the economy. The DBP was expected to continue "providing principally medium and longterm financing to projects with risks higher than the private sector may be willing to accept under reasonable terms." 4 The government's commitment was embodied in thePolicy Statement for the Development Bank of the Philippines which stated in part: "4.Furthermore, like all financial institutions under Central Bank supervision, DBP will now be required to have a private external audit, and its Board of Directors will now be opened to adequate private sector representation. It is hoped that with these commitments, DBP can avoid the difficulties of the past and can function as a competitive and viable financial institution within the Philippine financial system." 5 (Italics supplied) On November 28, 1986, the Monetary Board adopted Resolution No. 1079 amending the Central Bank's Manual of Regulations for Banks and other Financial Intermediaries, in line with the government's commitment to the World Bank to require a private external auditor for DBP. Thus, on December 5, 1986, the Central Bank Governor issued Central Bank Circular No. 1124, providing that: "SECTION 1.Subsection 1165.5 (Book I) is amended to read as follows: 1165.5Financial Audit. Each Bank, whether Governmentowned or controlled or private, shall cause an annual financial audit to be conducted by an external independent auditor not later than thirty (30) days after the close of the calendar year or the fiscal year adopted by the bank. . . .. . . . The Audit of a Governmentowned or controlled bank by an

external independent auditor shall be in addition to and without prejudice to that conducted by the Commission on Audit in the discharge of its mandate under existing law. . . .. xxx xxx xxx "SECTION 3.The requirements for an annual financial audit by an external independent auditor shall extend to specialized and unique government banks such as the Land Bank of the Philippines and the Development Bank of the Philippines." 6 On December 12, 1986, pursuant to Central Bank Circular No. 1124 and the government's commitment to the World Bank, DBP Chairman Jesus Estanislao wrote the COA seeking approval of the DBP's engagement of a private external auditor in addition to the COA. 7 On January 2, 1987, to formalize its request for the ERL, the Philippine government sent the World Bank a letter assuring the World Bank that pursuant to Central Bank Circular No. 1124, "all Banks, including government banks, shall be fully audited by external independent auditors . . . in addition to that provided by the Commission on Audit." The letter was signed by the Central Bank Governor and the Ministers of Finance, Trade and Industry, and Economic Planning of the Philippine government. 8 On January 8, 1987, the Philippine government and World Bank negotiating panels reached final agreement on the private audit of the DBP, as follows: "13.With respect to the draft Policy Statement, it was agreed that Sections 4, 7 and 11 would be amended as follows: . . . (iii) Section 11 should in line with the letter of Development Policy, confirm that the external independent audits would commence with a balance sheet audit as of December 31, 1986 and a full financial audit, including income statements, starting with the period July 1 to December 31, 1986. A copy of COA's letter (referred to in par. 1, a draft of which is attached as Annex VIII) regarding DBP's appointment of a private external auditor will be sent to the Bank before the distribution of the loan documents to the Bank's Board,

along with a copy of the scope of audit as approved by COA and satisfactory to the Bank. STHAID With regard to the scope of the audit to be undertaken by the private external auditors, the terms of reference which will be issued to the selected auditors should be generally consistent with the attached model terms of reference for financial audits (Annex IX). These general terms of reference were discussed during negotiations and form a part of the World Bank's guidelines for financial information on financial institutions." 9 On January 20, 1987, the COA Chairman Teofisto Guingona, Jr. replied to the December 12, 1986 letter of the DBP Chairman. The COA Chairman's reply stated that: ". . . the Commission on Audit (COA) will interpose no objection to your engagement of a private external auditor as required by the Economic Recovery Program Loan Agreements of 1987 provided that the terms for said audit are first reviewed and approved by the Commission." 10 The following day, the COA Chairman also informed the Consultant of the Central Bank that the COA interposed no objection to the proposed scope of audit services to be undertaken by the private external auditors to be engaged by the DBP. 11 On February 18, 1987, the Board of Directors of the DBP approved the hiring of Joaquin Cunanan & Co. as the DBP's private external auditor for calendar year 1986 as required by Central Bank Circular No. 1224 and the World Bank. The DBP Board of Directors placed a ceiling on the amount of reimbursable out-of-pocket expenses that could be charged by the private auditor. 12 On February 23, 1987, the World Bank President, in his Report to the Bank's Executive Directors on the Philippine government's application for the ERL, certified that the Philippine government was complying with the requirement of a private external auditor. The World Bank President's certification stated that: "74.Accounting and Auditing. All banks both government and private are now subject to accounting and auditing standards as established by the Central Bank. To ensure full public accountability, the Monetary Board now requires that all government banks be subject to annual audits by independent private auditing firms, in addition to those normally undertaken by the Government's Commission on Audit. DBP and PNB have already selected private auditors, and audited accounts for 1986 and 1987 will be a requirement for the releases of the second and third tranches, respectively, of the ERL." 13

However, a change in the leadership of the COA suddenly reversed the course of events. On April 27, 1987, the new COA Chairman, Eufemio Domingo, wrote the Central Bank Governor protesting the Central Bank's issuance of Circular No. 1124 which allegedly encroached upon the COA's constitutional and statutory power to audit government agencies. The COA Chairman's letter informed the Governor that: "This Commission hereby registers its strong objection to that portion of the CBP Circular No. 1124 which requires government banks to engage private auditors in addition to that conducted by the Commission on Audit, and urges the immediate amendment thereof. It is the position of the Commission that the said requirement: (a) infringes on Article IX-D of the Philippine Constitution; (b) violates Section 26 and 32 of the Government Auditing Code of the Philippines; (c) exposes the financial programs and strategies of the Philippine Government to high security risks; (d) allows the unnecessary and unconscionable expenditure of government funds; and (e) encourages unethical encroachment among professionals." 14

On May 13, 1987, after learning that the DBP had signed a contract with a private auditing firm for calendar year 1986, the new COA Chairman wrote the DBP Chairman that the COA resident auditors were under instructions to disallow any payment to the private auditor whose services were unconstitutional, illegal and unnecessary. 15 On July 1, 1987, the DBP Chairman sent to the COA Chairman a copy of the DBP's contract with Joaquin Cunanan & Co., signed four months earlier on March 5, 1987. The DBP Chairman's covering handwritten note sought the COA's concurrence to the contract. 16 During the pendency of the DBP Chairman's note-request for concurrence, the DBP paid the billings of the private auditor in the total amount of P487,321.14 17 despite the objection of the COA. On October 30, 1987, the COA Chairman issued a Memorandum disallowing the payments, and holding the following persons personally liable for such payment: "SVP Fajardo who approved the voucher for payment; VP Santiago who certified that the expenditure was authorized, necessary and lawful; SM Terrel, Catuncan and Rebueno who signed the checks; and the head of office who signed the contract and who is immediately and primarily responsible for the funds of the Bank." 18 On January 19, 1988, the DBP Chairman wrote the COA Chairman seeking reconsideration of the COA Chairman's Memorandum. 19 However, the DBP received no response until August 29, 1988 when the COA Chairman issued a letter-decision denying petitioner's July 1, 1987 note-request for concurrence. The letter-decision, one of the two COA decisions assailed in this petition, declared in part as follows:

"(a)In the letter to the Central Bank Governor . . ., this Commission clearly stated its non-negotiable stand on the issue in the following terms: '. . . the very essence of the Commission on Audit as an independent constitutional commission in the total scheme of Government, is its singular function to '[E]xamine, audit, and settle . . . all accounts pertaining to . . . the Government, or any of its subdivisions, . . . including government-owned or controlled corporations.' To allow private firms to interfere in this governmental audit domain would be to derogate the Constitutional supremacy of State audit as the Government's guardian of the people's treasury, and as the prime advocate of economy in the use of government resources.' xxx xxx xxx "(c)In the letter to the Secretary of Finance dated January 28, 1988 . . ., this Commission maintains: 1.'COA is in no way prepared to permit 'use of private auditors' except insofar as the law allows, which is 'to deputize and retain in the name of the Commission such certified public accountants and other licensed professionals not in the public service as it may deem necessary to assist the government auditors in undertaking specialized audit engagements' (Sec. 31, PD No. 1445). Outside of this, the Commission does not consider the matter of hiring private auditing firms a negotiable matter, and this we want to emphasize to avoid future embarrassment to the Government. The Commission on Audit is a constitutionallycreated independent and separate body, and neither Congress nor the Executive Department has the power to detract from its mandated duties, functions, and powers. 2.'Since the proceeds of the proposed loan accrue to the Republic of the Philippines as borrower, it follows that its accounting and audit must comply with the laws of this country. To specify in the Loan Agreement that the loan account, once released to the Government, shall be 'audited by independent auditors acceptable to the Bank' is not only to entirely by-pass this Commission but to ignore as well the

Constitution and the laws of this country which vests in this Commission the 'power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property . . . pertaining to the Government.' (Sec. 2, Art. IX-D, Phil. Const.). 'Such brazen disregard of the fundamental law of this country cannot be countenanced by this Commission.' "In view of all the foregoing, you are hereby advised: "1.To desist from proceeding with the audit of Joaquin Cunanan & Co. of the Bank's financial statements for the year ending December 31, 1987. "2.To refrain from making any payments out of the funds of the Development Bank of the Philippines, in the event that such audit services have already been rendered, attention being invited to the following provisions of the Government Auditing Code of the Philippines: 'Sec. 108.General liability for unlawful expenditures. Expenditures of government funds or uses of government property in violation of law or regulations shall be a personal liability of the official or employee found to be directly responsible therefore.' "3.To restitute, within thirty (30) days from receipt hereof, the total amount of P513,549.24 under CV Nos. 9136, 5014, 6201 and 4082 for professional services rendered in the audit of the 1986 financial operations of the Bank. Pursuant to the aforequoted provisions of law, such unlawful expenditure is the personal liability of the official directly responsible therefore. Please be guided accordingly." 20 On September 26, 1988, the DBP Chairman appealed the letter- decision to the COA en banc. On May 20, 1989, the COAen banc, in a letter-decision, denied the DBP's appeal. This letter-decision, now also assailed by the DBP, held that:

"Upon a circumspect evaluation of the grounds upon which your instant request is predicated, this Commission finds the same to be devoid of merit. As hereunder demonstrated, the justifications offered do not inspire rational belief in the mind of this Commission. "First, it bears stress that CB Circular No. 1124, series of 1986, which has earlier been shown to be constitutionally and legally infirm, cannot by any means possess any binding and conclusive effect upon this Commission and, hence, may not be properly invoked in support of the instant appeal. "Secondly, it was not the International Bank for Reconstruction and Development which required the audit of government banks by private auditing firm, but the Central Bank itself. "Thirdly, insofar as this Commission is concerned, PD 2029 is an anachronism of sorts if viewed in the light of the present Constitution recognizing this Commission as the supreme and exclusive audit institution of the government. This is necessarily implicit from the bare language of Section 2(1), Article IX-D thereof which, despite the absence of the qualifying adjective "exclusive" that anyway would be a surplusage, ought to be reasonably construed as vesting in this Commission the "power, authority, and duty" to audit all government accounts to the exclusion of any other person or entity, whether in the public or the private sector. Expressio unius est exclusio alterius. A contrary interpretation, such as that being pressed upon this Commission, would reduce this constitutional ordinance to an absurdity (reductio ad absurdum) as it thereby would give rise to the rather confusing spectacle, as it were, of a government agency or corporation being audited not only by this Commission but also and in addition thereto by one or two or several private accounting firms certainly a situation never intended by the framers of the Constitution. "Lastly, while this Commission has not lost sight of the letter of then COA Chairman Guingona, Jr. to the DBP Chairman, dated January 20, 1987, it has opted to be guided and influenced by the more persuasive and controlling COA Circular No. 860254 dated March 24, 1986, which in categorical and precise terms ordained that: 'Accordingly, by way of reassertion and reaffirmation of its primary audit jurisdiction, as herein

above defined, the Commission on Audit hereby issues the following directives: 1.Any ongoing audit of a governmentowned and/or controlled corporation or any of its subsidiaries or corporate offsprings being conducted by a private auditor or accounting firm shall cease and terminate on April 15, 1986. Henceforth, from and after said date, the audit of said corporate entity shall be undertaken solely and exclusively by the Commission on Audit. . . ..' "Premises considered, it is regretted that your instant request for reconsideration has to be, as it is hereby, denied." 21 Hence, on June 14, 1989 the DBP filed this petition for review with prayer for a temporary restraining order, assailing the two COA letter-decisions for being contrary to the Constitution and existing laws. On June 15, 1989 this Court issued a temporary restraining order directing the COA to cease and desist from enforcing its challenged letterdecisions. The Office of the Solicitor General, in a Manifestation dated October 18, 1989, declined to appear on behalf of the COA on the ground that the Solicitor General was "taking a position adverse to that of the COA." Consequently, a private counsel onpro bono basis represented the COA. The Issues The DBP's petition raises the following issues: 1.Does the Constitution vest in the COA the sole and exclusive power to examine and audit government banks so as to prohibit concurrent audit by private external auditors under any circumstance? 2.Is there an existing statute that prohibits government banks from hiring private auditors in addition to the COA? If there is none, is there an existing statute that authorizes government banks to hire private auditors in addition to the COA?

3.If there is no legal impediment to the hiring by government banks of a private auditor, was the hiring by the DBP of a private auditor in the case at bar necessary, and were the fees paid by DBP to the private auditor reasonable, under the circumstances? The Court's Ruling The DBP's petition is meritorious. First Issue: Power of COA to Audit under the Constitution The resolution of the primordial issue of whether or not the COA has the sole and exclusive power to examine and audit government banks involves an interpretation of Section 2, Article IX-D of the 1987 Constitution. This Section provides as follows:

and audit all government agencies. However, the Constitutional Commission rejected the addition of the word "exclusive" in the first paragraph of Section 2 and Guingona was forced to withdraw his proposal. Commissioner Christian Monsod explained the rejection in this manner: "MR. MONSOD. Earlier Commissioner Guingona, in withdrawing his amendment to add "EXCLUSIVE" made a statement about the preponderant right of COA. "For the record, we would like to clarify the reason for not including the word. First, we do not want an Article that would constitute a disincentive or an obstacle to private investment. There are government institutions with private investments in them, and some of these investors Filipinos, as well as in some cases, foreigners require the presence of private auditing firms, not exclusively, but concurrently. So this does not take away the power of the Commission on Audit. Second, there are certain instances where private auditing may be required, like the listing in the stock exchange. In other words, we do not want this provision to be an unnecessary obstacle to privatization of these companies or attraction of investments." 22 (italics supplied) Shortly thereafter, Commissioner Guingona attempted to resurrect his amendment by proposing the following provision: "Private auditing firms may not examine or audit accounts pertaining to the revenue receipts of, and expenditures or uses of funds and property owned or held in trust by or pertaining to the Government or any of its subdivisions, agencies or instrumentalities." 23 Guingona argued that a private audit in addition to the COA audit would be a useless duplication and an unnecessary expense on the part of government. The Constitutional Commission also rejected this proposed provision, after Commissioner Monsod made the following explanation: "MR. MONSOD. . . . But it is also a fact that even government agencies, instrumentalities and subdivisions sometimes borrow money from abroad. And if we are at all going to preclude the possibility of any concurrent auditing, if that is required, and insist that it is only exclusively the government which can audit, we may be unnecessarily tying their hands without really accomplishing much more than what we want. As long as the COA is there, and the COA's power cannot be eliminated by law, by decree or anything of that sort, then the government funds are protected.

"Sec. 2. (1)The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned and held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including governmentowned or controlled corporations with original charters, . . .. "(2)The Commission shall have the exclusive authority, subject to the limitations in this Article, to define the scope of its audit and examination, establish the techniques and methods required therefore, and promulgate accounting and auditing rules and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of government funds and properties." (Italics supplied) caHASI The COA vigorously asserts that under the first paragraph of Section 2, the COA enjoys the sole and exclusive power to examine and audit all government agencies, including the DBP. The COA contends this is similar to its sole and exclusive authority, under the second paragraph of the same Section, to define the scope of its audit, promulgate auditing rules and regulations, including rules on the disallowance of unnecessary expenditures of government agencies. The bare language of Section 2, however, shows that the COA's power under the first paragraph is not declared exclusive, while its authority under the second paragraph is expressly declared "exclusive." There is a significant reason for this marked difference in language. During the deliberations of the Constitutional Commission, Commissioner Serafin Guingona proposed the addition of the word "exclusive" in the first paragraph of Section 2, thereby granting the COA the sole and exclusive power to examine

As far as the question of fees is concerned, this is always negotiable. Besides, if one talks about auditing fees, these are governed by certain regulations within the auditing profession beyond which auditing firms cannot go. Furthermore, the government can always refuse to pay unconscionable fees. So, that matter really is not that relevant. But I think what we want to insist on is that there should be some flexibility so that a procedural requirement does not impede a substantive transaction as long as COA is there." 24 (Italics supplied) The rejection of Guingona's second proposal put an end to all efforts to grant the COA the sole and exclusive power to examine and audit government agencies. In sharp contrast, the Constitutional Commission placed the word "exclusive" to qualify the authority of the COA under the second paragraph of the same Section 2. The word "exclusive" did not appear in the counterpart provisions of Section 2 in the 1935 and 1973 Constitutions. 25 There is no dispute that the COA's authority under the second paragraph of Section 2 is exclusive as the language of the Constitution admits of no other meaning. Thus, the COA has the exclusive authority to decide on disallowance of unnecessary government expenditures. Other government agencies and their officials, as well as private auditors engaged by them, cannot in any way intrude into this exclusive function of the COA. The qualifying word "exclusive" in the second paragraph of Section 2 cannot be applied to the first paragraph which is another sub-section of Section 2. A qualifying word is intended to refer only to the phrase to which it is immediately associated, and not to a phrase distantly located in another paragraph or sub-section. 26 Thus, the first paragraph of Section 2 must be read the way it appears, without the word "exclusive", signifying that non-COA auditors can also examine and audit government agencies. Besides, the framers of the Constitution intentionally omitted the word "exclusive" in the first paragraph of Section 2 precisely to allow concurrent audit by private external auditors. The clear and unmistakable conclusion from a reading of the entire Section 2 is that the COA's power to examine and audit is non-exclusive. On the other hand, the COA's authority to define the scope of its audit, promulgate auditing rules and regulations, and disallow unnecessary expenditures is exclusive. Moreover, as the constitutionally mandated auditor of all government agencies, the COA's findings and conclusions necessarily prevail over those of private auditors, at least insofar as government agencies and officials are concerned. The superiority or preponderance of the COA audit over private audit can be gleaned from the records of the Constitutional Commission, as follows: "MR. GUINGONA. Madam President, after consultation with the honorable members of the Committee, I have amended my proposed amendment by deleting the word EXCLUSIVE because I was made to understand that the Commission on Audit will still have the preponderant power and

authority to examine, audit and settle." 27(Italics supplied) The findings and conclusions of the private auditor may guide private investors or creditors who require such private audit. Government agencies and officials, however, remain bound by the findings and conclusions of the COA, whether the matter falls under the first or second paragraph of Section 2, unless of course such findings and conclusions are modified or reversed by the courts. The power of the COA to examine and audit government agencies, while non-exclusive, cannot be taken away from the COA. Section 3, Article IX-D of the Constitution mandates that: "Sec. 3.Now law shall be passed exempting any entity of the Government or its subsidiary in any guise whatsoever, or any investment of public funds, from the jurisdiction of the Commission on Audit." The mere fact that private auditors may audit government agencies does not divest the COA of its power to examine and audit the same government agencies. The COA is neither by-passed nor ignored since even with a private audit the COA will still conduct its usual examination and audit, and its findings and conclusions will still bind government agencies and their officials. A concurrent private audit poses no danger whatsoever of public funds or assets escaping the usual scrutiny of a COA audit. Manifestly, the express language of the Constitution, and the clear intent of its framers, point to only one indubitable conclusion the COA does not have the exclusive power to examine and audit government agencies. The framers of the Constitution were fully aware of the need to allow independent private audit of certain government agencies in addition to the COA audit, as when there is a private investment in a government-controlled corporation, or when a government corporation is privatized or publicly listed, or as in the case at bar when the government borrows money from abroad. In these instances the government enters the marketplace and competes with the rest of the world in attracting investments or loans. To succeed, the government must abide with the reasonable business practices of the marketplace. Otherwise no investor or creditor will do business with the government, frustrating government efforts to attract investments or secure loans that may be critical to stimulate moribund industries or resuscitate a badly shattered national economy as in the case at bar. By design the Constitution is flexible enough to meet these exigencies. Any attempt to nullify this flexibility in the instances mentioned, or in similar instances, will be ultra vires, in the absence of a statute limiting or removing such flexibility.

The deliberations of the Constitutional Commission reveal eloquently the intent of Section 2, Article IX-D of the Constitution. As this Court has ruled repeatedly, the intent of the law is the controlling factor in the interpretation of the

law. 28 If a law needs interpretation, the most dominant influence is the intent of the law. 29 The intent of the law is that which is expressed in the words of the law, which should be discovered within its four corners aided, if necessary, by its legislative history. 30 In the case of Section 2, Article IX-D of the Constitution, the intent of the framers of the Constitution is evident from the bare language of Section 2 itself. The deliberations of the Constitutional Commission confirm expressly and even elucidate further this intent beyond any doubt whatsoever. There is another constitutional barrier to the COA's insistence of exclusive power to examine and audit all government agencies. The COA's claim clashes directly with the Central Bank's constitutional power of "supervision" over banks under Section 20, Article VII of the Constitution. This provision states as follows: "Sec. 20.The Congress shall establish an independent central monetary authority, the members of whose governing board must be natural-born Filipino citizens, of known probity, integrity, and patriotism, the majority of whom shall come from the private sector. They shall also be subject to such other qualifications and disabilities as may be prescribed by law. The authority shall provide policy direction in the areas of money, banking, and credit. It shall have supervision over the operations of banks and exercise such regulatory powers as may be provided by law over the operations of finance companies and other institutions performing similar functions." (Italics supplied) Historically, the Central Bank has been conducting periodic and special examination and audit of banks to determine the soundness of their operations and the safety of the deposits of the public. Undeniably, the Central Bank's power of "supervision" includes the power to examine and audit banks, as the banking laws have always recognized this power of the Central Bank. 31 Hence, the COA's power to examine and audit government banks must be reconciled with the Central Bank's power to supervise the same banks. The inevitable conclusion is that the COA and the Central Bank have concurrent jurisdiction, under the Constitution, to examine and audit government banks. However, despite the Central Bank's concurrent jurisdiction over government banks, the COA's audit still prevails over that of the Central Bank since the COA is the constitutionally mandated auditor of government banks. And in matters falling under the second paragraph of Section 2, Article IX-D of the Constitution, the COA's jurisdiction is exclusive. Thus, the Central Bank is devoid of authority to allow or disallow expenditures of government banks since this function belongs exclusively to the COA. Second Issue: Statutes Prohibiting or Authorizing Private Auditors THE COA argues that Sections 26, 31 and 32 of PD No. 1445, otherwise known as the Government Auditing Code of the Philippines, prohibit the hiring of private auditors by government agencies. Section 26 of PD No. 1445 provides that:

"Section 26.General Jurisdiction. The authority and powers of the Commission shall extend to and comprehend all matters relating to auditing procedures, systems and controls, the keeping of the general accounts of the Government, the preservation of vouchers pertaining thereto for a period of ten years, the examination and inspection of the books, records, and papers relating to those accounts; and the audit and settlement of the accounts of all persons respecting funds or property received or held by them in an accountable capacity, as well as the examination, audit, and settlement of all debts and claims of any sort due or owing to the Government or any of its subdivisions, agencies or instrumentalities. The said jurisdiction extends to all government-owned or controlled corporations, including their subsidiaries, and other self-governing boards, commissions, or agencies of the Government, and as herein prescribed, including non-governmental entities subsidized by the government, those funded by donations through the government, those required to pay levies or government share, and those for which the government has put up a counterpart fund or those partly funded by the government." Section 26 defines the extent and scope of the powers of the COA. Considering the comprehensive definition in Section 26, the COA's jurisdiction covers all government agencies, offices, bureaus and units, including government-owned or controlled corporations, and even non-governmental entities enjoying subsidy from the government. However, there is nothing in Section 26 that states, expressly or impliedly, that the COA's power to examine and audit government banks is exclusive, thereby preventing private audit of government agencies concurrently with the COA audit. Section 26 is a definition of the COA's "general jurisdiction." Jurisdiction may be exclusive or concurrent. Section 26 of PD No. 1445 does not state that the COA's jurisdiction is exclusive, and there are other laws providing for concurrent jurisdiction. Thus, Section 26 must be applied in harmony with Section 58 32 of the General Banking Law of 2000 (RA No. 8791) which authorizes unequivocally the Monetary Board to require banks to hire independent auditors. Section 58 of the General Banking Law of 2000 states as follows: "Section 58.Independent Auditor. The Monetary Board may require a bank, quasi-bank or trust entity to engage the services of an independent auditor to be chosen by the bank, quasi-bank or trust entity concerned from a list of certified public accountants acceptable to the Monetary Board. The term of the engagement shall be as prescribed by the Monetary Board which may either be on a continuing basis where the auditor shall act as resident examiner, or on the basis of special engagements; but in any case, the independent auditor shall be responsible to the bank's, quasi-bank's or

trust entity's board of directors. A copy of the report shall be furnished to the Monetary Board. . . .." (Italics supplied) Moreover, Section 26 must also be applied in conformity with Sections 25 and 28 33 of the New Central Bank Act (RA No. 7653) which authorize expressly the Monetary Board to conduct periodic or special examination of all banks. Sections 25 and 28 of the New Central Bank Act state as follows: "Sec. 25.Supervision and Examination. The Bangko Sentral shall have supervision over, and conduct periodic or special examinations of, banking institutions . . .. (Italics supplied) xxx xxx xxx "Sec. 28.Examination and Fees. The supervising and examining department head, personally or by deputy, shall examine the books of every banking institution once in every twelve (12) months, and at such other time as the Monetary Board by an affirmative vote of five (5) members may deem expedient and to make a report on the same to the Monetary Board: . . .." (Italics supplied) The power vested in the Monetary Board under Section 58 of the General Banking Law of 2000, and Sections 25 and 28 of the New Central Bank Act, emanates from the Central Bank's explicit constitutional mandate to exercise "supervision over the operations of banks." Under Section 4 of the General Banking Law of 2000, the term "supervision" 34 is defined as follows: "Section 4.Supervisory Powers. The operations and activities of banks shall be subject to supervision of the Bangko Sentral. "Supervision" shall include the following: xxx xxx xxx 4.2.The conduct of examination to determine compliance with laws and regulations if the circumstances so warrant as determined by the Monetary Board; xxx xxx xxx 4.4Regular investigation which shall not be oftener than once a year from the last date of examination to determine whether an institution is conducting its business on a safe or sound basis: Provided, That the deficiencies/irregularities found by or discovered by an audit shall immediately be addressed; xxx xxx xxx." (Italics supplied) Clearly, under existing laws, the COA does not have the sole and exclusive power to examine and audit government banks.

The Central Bank has concurrent jurisdiction to examine and audit, or cause the examination and audit, of government banks. Section 31 of PD No. 1445, another provision of law claimed by the COA to prohibit the hiring of private auditors by government agencies, provides as follows: "Section 31.Deputization of private licensed professionals to assist government auditors. (1) The Commission may, when the exigencies of the service so require, deputize and retain in the name of the Commission such certified public accountants and other licensed professionals not in the public service as it may deem necessary to assist government auditors in undertaking specialized audit engagements. "(2)The deputized professionals shall be entitled to such compensation and allowances as may be stipulated, subject to pertinent rules and regulations on compensation and fees." According to the COA, Section 31 is the maximum extent that private auditors can participate in auditing government agencies and anything beyond this is without legal basis. Hence, the COA maintains that the hiring of private auditors who act in their own name and operate independently of the COA is unlawful. Section 31 is bereft of any language that prohibits, expressly or impliedly, the hiring of private auditors by government agencies. This provision of law merely grants authority to the COA to hire and deputize private auditors to assist the COA in the auditing of government agencies. Such private auditors operate under the authority of the COA. By no stretch of statutory construction can this provision be interpreted as an absolute statutory ban on the hiring of private auditors by government agencies. Evidently, the language of the law does not support the COA's claim.

Moreover, the COA further contends that Section 32 of PD No. 1445 is another provision of law that prohibits the hiring of private auditors by government agencies. Section 32 provides as follows: "Section 32.Government contracts for auditing, accounting, and related services. (1) No government agency shall enter into any contract with any private person or firm for services to undertake studies and services relating to government auditing, including services to conduct, for a fee, seminars or workshops for government personnel on these topics, unless the proposed contract is first submitted to the Commission to enable it to determine if it has the resources to undertake such studies or services. The Commission may engage the services of experts from the public or

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private sector in the conduct of these studies. "(2)Should the Commission decide not to undertake the study or service, it shall nonetheless have the power to review the contract in order to determine the reasonableness of its costs." (Italics supplied) Section 32 refers to contract for studies and services "relating to government auditing" which the COA may or may not want to undertake itself for a government agency. Stated another way, Section 32 speaks of studies and services that the COA may choose not to render to a government agency. Obviously, the subject of these contracts is not the audit itself of a government agency because the COA is compelled to undertake such audit and cannot choose not to conduct such audit. The Constitution and existing law mandate the COA to audit all government agencies. Section 2, Article IX-D of the Constitution commands that the COA "shall have the . . . duty to examine, audit, and settle all accounts" of government agencies (Italics supplied). Similarly, the Revised Administrative Code of 1987 directs that the "Commission on Audit shall have the . . . duty to examine, audit, and settle all accounts" 35 of government agencies (Italics supplied.) Hence, the COA cannot refuse to audit government agencies under any circumstance. HDIATS The subject of the contracts referred to in Section 32 is necessarily limited to studies, seminars, workshops, researches and other services on government auditing which the COA may or may not undertake at its discretion, thereby excluding the audit itself of government agencies. Since the COA personnel have the experience on government auditing and are in fact the experts on this subject, it is only proper for the COA to be granted the right of first refusal to undertake such services if required by government agencies. This is what Section 32 is all about and nothing more. Plainly, there is nothing in Section 32 which prohibits the hiring of private auditors to audit government agencies concurrently with the COA audit. On the other hand, the DBP cites Central Bank Circular No. 1124 36 as legal basis for hiring a private auditor. This Circular amended Subsection 1165.5 (Book I) of the Manual of Regulations for Banks and other Financial Intermediariesto require "[E]ach bank, whether government-owned or controlled or private, . . . (to) cause an annual financial audit to be conducted by an external auditor . . .." Moreover, the Circular states that the "audit of government-owned or controlled bank by an external independent auditor shall be in addition to and without prejudice to that conducted by the Commission on Audit in the discharge of its mandate under existing law." Furthermore, the Circular provides that the "requirement for an annual audit by an external independent auditor shall extend to specialized and unique government banks such as the Land Bank of the Philippines and the Development Bank of the Philippines." The Central Bank promulgated Circular No. 1124 on December 5, 1986 pursuant to its power under the Freedom Constitution, the fundamental law then in force, as well as pursuant to its general rule making authority under the General Banking Act (RA No. 337), the banking law in effect at the time. Under the Freedom Constitution, the Central Bank exercised supervisory authority over the banking system. Section 14, Article XV of the 1973 Constitution, which

was re-adopted in the Freedom Constitution, provided as follows: "SEC. 14.The Batasang Pambansa shall establish a central monetary authority which shall provide policy direction in the areas of money, banking and credit. It shall be supervisory authority over the operations of banks and exercise such regulatory authority as may be provided by law over the operations of finance companies and other institutions performing similar functions. Until the Batasang Pambansa shall otherwise provide, the Central Bank of the Philippines, operating under existing laws, shall function as the central monetary authority." (Italics supplied) Section 6-D of the General Banking Act (RA No. 337) vested the Monetary Board with the specific power to "require a bank to engage the services of an independent auditor to be chosen by the bank concerned from a list of certified public accountants acceptable to the Monetary Board." The 1987 Constitution created an independent central monetary authority with substantially the same powers as the Central Bank under the 1973 Constitution and the Freedom Constitution. Section 20, Article XII of the 1987 Constitution provides that the Monetary Board "shall have supervision over the operations of banks." The specific power of the Central Bank under the General Banking Act (RA No. 337) to require an independent audit of banks was re-enacted in Section 58 of the General Banking Law of 2000 (RA No. 8791). Indubitably, the Central Bank had the express constitutional and statutory power to promulgate Circular No. 1124 on December 5, 1986. The power granted to the Central Bank to issue Circular No. 1124 with respect to the independent audit of banks is direct, unambiguous, and beyond dispute. The Bangko Sentral ng Pilipinas, which succeeded the Central Bank, retained under the 1987 Constitution and the General Banking Law of 2000 (RA No. 8791) the same constitutional and statutory power the Central Bank had under the Freedom Constitution and the General Banking Act (RA No. 337) with respect to the independent audit of banks. Circular No. 1124 has the force and effect of law. In a long line of decisions, 37 this Court has held consistently that the rules and regulations issued by the Central Bank pursuant to its supervisory and regulatory powers have the force and effect of law. The DBP, being a bank under the constitutional and statutory supervision of the Central Bank, was under a clear legal obligation to comply with the requirement of Circular No. 1124 on the private audit of banks. Refusal by the DBP to comply with the Circular would have rendered the DBP and its officers liable to the penal provisions of the General Banking Act, 38 as well as the administrative and penal sanctions under the Central Bank Act. 39 The DBP also relies on Section 8 of PD No. 2029 as its statutory basis for hiring a private auditor. This Section states in part as follows: "The audit of government corporations by the Commission on Audit shall not preclude government corporations from

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engaging the services of private auditing firms: Provided, however, that even if the services of the latter are availed of, the audit report of the Commission on Audit shall serve as the report for purposes of compliance with audit requirements as required of government corporations under applicable law." Section 8 of PD No. 2029, however, also provides that the "policy of withdrawal of resident auditors shall be fully implemented . . .." Section 2 of the same decree also excludes from the term "government-owned or controlled corporation" two classes of corporations. The first are originally private corporations the majority of the shares of stock of which are acquired by government financial institutions through foreclosure or dacion en pago. The second are subsidiary corporations of government corporations, which subsidiaries are organized exclusively to own, manage or lease physical assets acquired by government financial institutions through foreclosure or dacion en pago. Claiming that PD No. 2029 operates to exempt certain government-owned corporations from the COA's jurisdiction in violation of Section 3 Article IX-D of the Constitution, the COA is questioning the constitutionality of PD No. 2029. There is, however, no compelling need to pass upon the constitutionality of PD No. 2029 because the Constitution and existing banking laws allow such hiring. The issues raised in this case can be resolved adequately without resolving the constitutionality of PD No. 2029. This Court will leave the issue of the constitutionality of PD No. 2029 to be settled in another case where its resolution is an absolute necessity. 40 Third Issue: Necessity of Private Auditor and Reasonableness of the Fees The remaining issue to be resolved is whether or not the DBP's hiring of a private auditor was necessary and the fees it paid reasonable under the circumstances. The hiring by the DBP of a private auditor was a condition imposed by the World Bank for the grant to the Philippine government in early 1987 of a US$310 million Economic Recovery Loan, at a time when the government desperately needed funds to revive a badly battered economy. One of the salient objectives of the US$310 million loan was the rehabilitation of the DBP which was then burdened with enormous bad loans. The rehabilitation of the DBP was important in the overall recovery of the national economy. On February 23, 1986, the World Bank President reported to the Bank's Executive Directors that the privately audited accounts of the DBP for 1986 and 1987 "will be a requirement for the releases of the second and third tranches, respectively of the ERL" (Italics supplied). Moreover, the Agreed Minutes of Negotiations on the Philippine Economic Recovery Program 41 signed by the Philippine government and World Bank negotiating panels on January 8, 1987, required that "a copy of COA's letter . . . regarding DBP's appointment of a private external auditor will be sent to the (World) Bank before the distribution of the loan documents to the Bank's Board, along with a copy of the scope of audit as approved by COA and satisfactory to the Bank" (Italics supplied).

As a creditor, the World Bank needed the private audit for its own information to monitor the progress of the DBP's rehabilitation. This is apparent from the said Agreed Minutes which provided that the "general terms of reference (for the hiring of private external audit) were discussed during the negotiations and form part of the World Bank's guidelines for financial information on financial institutions" 42 (Italics supplied). The hiring of a private auditor being an express condition for the grant of the US$310 million Economic Recovery Loan, a major objective of which was the DBP's rehabilitation, the same was a necessary corporate act on the part of the DBP. The national government, represented by the Central Bank Governor, as well as the Ministers of Finance, Trade, and Economic Planning, had already committed to the hiring by all government banks for private auditors in addition to the COA. For the DBP to refuse to hire a private auditor would have aborted the vital loan and derailed the national economic recovery, resulting in grave consequences to the entire nation. The hiring of a private auditor was not only necessary based on the government's loan covenant with the World Bank, it was also necessary because it was mandated by Central Bank Circular No. 1124 under pain of administrative and penal sanctions. The last matter to determine is the reasonableness of the fees charged by Joaquin C. Cunanan & Co., the private auditor hired by the DBP. The COA describes the private auditor's fees as an "excessive, extravagant or unconscionable expenditure" of government funds. For the audit of the DBP's financial statements in 1986, the private auditor billed the DBP the amount of P487,321.14. 43 In 1987, the private auditor billed the DBP the amount of P529,947.00. 44 In comparison, the COA billed the DBP an audit fee of P27,015,963.00 45 in 1988, and P15,421,662.00 46 in 1989. Even granting that the COA's scope of audit services was broader, 47 still it could not be said that the private auditor's fees are excessive, extravagant or unconscionable compared to the COA's billings. The hiring of a private auditor by the DBP being a condition of the US$310 million World Bank loan to the Philippine government, the fees of such private auditor are in reality part of the government's cost of borrowing from the World Bank. The audit report of the private auditor is primarily intended for the World Bank's information 48 on the financial status of the DBP whose rehabilitation was one of the objectives of the loan. An annual private audit fee of about half a million pesos added to the interest on a US$310 million loan would hardly make the cost borrowing excessive, extravagant or unconscionable. Besides, the condition imposed by a lender, whose money is at risk, requiring the borrower or its majority-owned subsidiaries to submit to audit by an independent public accountant, is a reasonable and normal business practice. WHEREFORE, the petition is hereby GRANTED. The letterdecision of the Chairman of the Commission on Audit dated August 29, 1988, and the letter-decision promulgated by the Commission on Audit en banc dated May 20, 1989, are hereby SET ASIDE, and the temporary restraining order issued by the court enjoining respondent Commission on Audit from enforcing the said decision is hereby made PERMANENT. SO ORDERED.

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SECOND DIVISION [G.R. Nos. 154470-71. September 24, 2012.] BANK OF COMMERCE, petitioner, vs. PLANTERS DEVELOPMENT BANK and BANGKO SENTRAL NG PILIPINAS, respondents.

On April 20, 1994, according to the BOC, it "sold back" 11 to the PDB three of the seven CB bills. In turn, the PDB transferred these three CB bills to Bancapital Development Corporation (Bancap). On April 25, 1994, the BOC bought the three CB bills from Bancap so, ultimately, the BOC reacquired these three CB bills, 12 particularly described as follows: Serial No.: Quantity: Denomination: Total Face Value: 2BB XM 045351 2BB XM 045352 2BB XM 045353 Three (3) Php10 million Php30 million

[G.R. Nos. 154589-90. September 24, 2012.] BANGKO SENTRAL NG PILIPINAS, petitioner, vs. PLANTERS DEVELOPMENT BANK, respondent.

ii.CB bill nos. 45347-50 On April 20, 1994, the BOC sold the remaining four (4) CB bills to Capital One Equities Corporation 13 which transferred them to All-Asia Capital and Trust Corporation (All Asia). On September 30, 1994, All Asia further transferred the four CB bills back to the RCBC. 14 On November 16, 1994, the RCBC sold back to All Asia one of these 4 CB bills. When the BSP refused to release the amount of this CB bill on maturity, the BOC purchased from All Asia this lone CB bill, 15 particularly described as follows:16 Serial No.: Quantity: Denomination: Total Face Value: 2BB XM 045348 One (1) Php10 million Php10 million

DECISION

BRION, J p: Before the Court are two consolidated petitions for review on certiorari under Rule 45, 1 on pure questions of law, filed by the petitioners Bank of Commerce (BOC) and the Bangko Sentral ng Pilipinas (BSP). They assail the January 10, 2002 and July 23, 2002 Orders (assailed orders) of the Regional Trial Court (RTC) of Makati City, Branch 143, in Civil Case Nos. 94-3233 and 94-3254. These orders dismissed (i) the petition filed by the Planters Development Bank (PDB), (ii) the "counterclaim" filed by the BOC, and (iii) the countercomplaint/cross-claim for interpleader filed by the BSP; and denied the BOC's and the BSP's motions for reconsideration. THE ANTECEDENTS The Central Bank bills I.First set of CB bills

As the registered owner of the remaining three CB bills, the RCBC sold them to IVI Capital and Insular Savings Bank. Again, when the BSP refused to release the amount of this CB bill on maturity, the RCBC paid back its transferees, reacquired these three CB bills and sold them to the BOC ultimately, the BOC acquired these three CB bills. All in all, the BOC acquired the first set of seven CB bills. II.Second set of CB bills

The Rizal Commercial Banking Corporation (RCBC) was the registered owner of seven Central Bank (CB) bills with a total face value of P70 million, issued on January 2, 1994 and would mature on January 2, 1995. 2 As evidenced by a "Detached Assignment" dated April 8, 1994, 3 the RCBC sold these CB bills to the BOC. 4 As evidenced by another "Detached Assignment" 5 of even date, the BOC, in turn, sold these CB bills to the PDB. 6 The BOC delivered the Detached Assignments to the PDB. 7 On April 15, 1994 (April 15 transaction), the PDB, in turn, sold to the BOC Treasury Bills worth P70 million, with maturity date of June 29, 1994, as evidenced by a Trading Order 8 and a Confirmation of Sale. 9 However, instead of delivering the Treasury Bills, the PDB delivered the seven CB bills to the BOC, as evidenced by a PDB Security Delivery Receipt, bearing a "note: ** substitution in lieu of 06-29-94" referring to the Treasury Bills. 10 Nevertheless, the PDB retained possession of the Detached Assignments. It is basically the nature of this April 15 transaction that the PDB and the BOC cannot agree on. DEScaT The transfer of the first set of seven CB bills i.CB bill nos. 45351-53

On April 19, 1994, the RCBC, as registered owner, (i) sold two CB bills with a total face value of P20 million to the PDB and (ii) delivered to the PDB the corresponding Detached Assignment. 17 The two CB bills were particularly described as follows: Serial No.: Issue date: Maturity date: Denomination: Total Face value: BB XM 045373 BB XM 045374 January 3, 1994 January 2, 1995 Php10 million Php20 million

On even date, the PDB delivered to Bancap the two CB bills 18 (April 19 transaction). In turn, Bancap sold the CB bills to Al-Amanah Islamic Investment Bank of the Philippines, which in turn sold it to the BOC. 19 PDB's move against the transfer of the first and second sets of CB bills On June 30, 1994, upon learning of the transfers involving the CB bills, the PDB informed 20 the Officer-in-Charge of the BSP's Government Securities Department, 21 Lagrimas

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Nuqui, of the PDB's claim over these CB bills, based on the Detached Assignments in its possession. The PDB requested the BSP 22 to record its claim in the BSP's books, explaining that its non-possession of the CB bills is "on account of imperfect negotiations thereof and/or subsequent setoff or transfer." 23 Nuqui denied the request, invoking Section 8 of CB Circular No. 28 (Regulations Governing Open Market Operations, Stabilization of the Securities Market, Issue, Servicing and Redemption of the Public Debt) 24 which requires the presentation of the bond before a registered bond may be transferred on the books of the BSP. 25 In a July 25, 1994 letter, the PDB clarified to Nuqui that it was not "asking for the transfer of the CB Bills . . . . [rather] it [intends] to put the [BSP] on formal notice that whoever is in possession of said bills is not a holder in due course," and, therefore the BSP should not make payment upon the presentation of the CB bills on maturity. 26 Nuqui responded that the BSP was "not in a position at [that] point in time to determine who is and who is not the holder in due course [since it] is not privy to all acts and time involving the transfers or negotiation" of the CB bills. Nuqui added that the BSP's action shall be governed by CB Circular No. 28, as amended. 27 On November 17, 1994, the PDB also asked BSP Deputy Governor Edgardo Zialcita that (i) a notation in the BSP's books be made against the transfer, exchange, or payment of the bonds and the payment of interest thereon; and (ii) the presenter of the bonds upon maturity be required to submit proof as a holder in due course (of the first set of CB bills). The PDB relied on Section 10 (d) 4 of CB Circular No. 28. 28 This provision reads: ACIEaH (4)Assignments effected by fraud Where the assignment of a registered bond is secured by fraudulent representations, the Central Bank can grant no relief if the assignment has been honored without notice of fraud. Otherwise, the Central Bank, upon receipt of notice that the assignment is claimed to have been secured by fraudulent representations, or payment of the bond the payment of interest thereon, and when the bond is presented, will call upon the owner and the person presenting the bond to substantiate their respective claims. If it then appears that the person presenting the bond stands in the position of bonafide holder for value, the Central Bank, after giving the owner an opportunity to assert his claim, will pass the bond for transfer, exchange or payments, as the case may be, without further question. In a December 29, 1994 letter, Nuqui again denied the request, reiterating the BSP's previous stand. In light of these BSP responses and the impending maturity of the CB bills, the PDB filed 29 with the RTC two separate petitions for Mandamus, Prohibition and Injunction with prayer for Preliminary Injunction and Temporary Restraining Order, docketed as Civil Case No. 94-3233 (covering the first

set of CB bills) and Civil Case 94-3254 (covering the second set of CB bills) against Nuqui, the BSP and the RCBC. 30 The PDB essentially claims that in both the April 15 transaction (involving the first set of CB bills) and the April 19 transaction (involving the second set of CB bills), there was no intent on its part to transfer title of the CB bills, as shown by its non-issuance of a detached assignment in favor of the BOC and Bancap, respectively. The PDB particularly alleges that it merely "warehoused" 31 the first set of CB bills with the BOC, as security collateral. cTSDAH On December 28, 1994, the RTC temporarily enjoined Nuqui and the BSP from paying the face value of the CB bills on maturity. 32 On January 10, 1995, the PDB filed an Amended Petition, additionally impleading the BOC and All Asia. 33 In a January 13, 1995 Order, the cases were consolidated. 34 On January 17, 1995, the RTC granted the PDB's application for a writ of preliminary prohibitory injunction. 35 In both petitions, the PDB identically prayed: WHEREFORE, it is respectfully prayed . . . that, after due notice and hearing, the Writs of Mandamus, Prohibition and Injunction, be issued; (i) commanding the [BSP] and [Nuqui], or whoever may take her place (a)to record forthwith in the books of BSP the claim of . . . PDB on the [two sets of] CB Bills in accordance with Section 10 (d) (4) of revised C.B. Circular No. 28; and (b)also pursuant thereto, when the bills are presented on maturity date for payment, to call (i) . . . PDB[,] (ii) . . . RCBC . . ., (iii) . . . BOC . . ., and (iv) . . . ALL-ASIA . . .; or whoever will present the [first and second sets of] CB Bills for payment, to submit proof as to who stands as the holder in due course of said bills, and, thereafter, act accordingly; and (ii) [ordering the BSP and Nuqui] to pay jointly and severally to . . . PDB the following: (a)the sum of P100,000.00, as and for exemplary damages; (b)the sum of at least P500,000.00, or such amount as shall be proved at the trial, as and for attorney's fees; ESAHca (c)the legal rate of interest from the filing of this Petition until full payment of the sums mentioned in this Petition; and (d)the costs of suit. 36

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After the petitions were filed, the BOC acquired/reacquired all the nine CB bills the first and second sets of CB bills(collectively, subject CB bills). Defenses of the BSP and of the BOC 37 The BOC filed its Answer, praying for the dismissal of the petition. It argued that the PDB has no cause of action against it since the PDB is no longer the owner of the CB bills. Contrary to the PDB's "warehousing theory," 38 the BOC asserted that the (i) April 15 transaction and the (ii) April 19 transaction covering both sets of CB bills were valid contracts of sale, followed by a transfer of title (i) to the BOC (in the April 15 transaction) upon the PDB's delivery of the 1st set of CB bills in substitution of the Treasury Bills the PDB originally intended to sell, and (ii) to Bancap (in the April 19 transaction) upon the PDB 's delivery of the 2nd set of CB bills to Bancap, likewise by way of substitution. The BOC adds that Section 10 (d) 4 of CB Circular No. 28 cannot apply to the PDB's case because (i) the PDB is not in possession of the CB bills and (ii) the BOC acquired these bills from the PDB, as to the 1st set of CB bills, and from Bancap, as to the 2nd set of CB bills, in good faith and for value. The BOC also asserted a compulsory counterclaim for damages and attorney's fees. On the other hand, the BSP countered that the PDB cannot invoke Section 10 (d) 4 of CB Circular No. 28 because this section applies only to an "owner" and a "person presenting the bond," of which the PDB is neither. The PDB has not presented to the BSP any assignment of the subject CB bills, duly recorded in the BSP's books, in its favor to clothe it with the status of an "owner." 39 According to the BSP Section 10 d. (4) applies only to a registered bond which is assigned. And the issuance of CB Bills . . . are required to be recorded/registered in BSP's books. In this regard, Section 4 a. (1) of CB Circular 28 provides that registered bonds "may be transferred only by an assignment thereon duly executed by the registered owner or his duly authorized representative . . . and duly recorded on the books of the Central Bank." DTEAHI xxx xxx xxx The alleged assignment of subject CB Bills in PDB's favor is not recorded/registered in BSP's books. 40(underscoring supplied) Consequently, when Nuqui and the BSP refused the PDB's request (to record its claim), they were merely performing their duties in accordance with CB Circular No. 28. Alternatively, the BSP asked that an interpleader suit be allowed between and among the claimants to the subject CB bills on the position that while it is able and willing to pay the subject CB bills' face value, it is duty bound to ensure that payment is made to the rightful owner. The BSP prayed that judgment be rendered:

a.Ordering the dismissal of the [PDB's petition] for lack of merit; b.Determining which between/among [PDB] and the other claimants is/are lawfully entitled to the ownership of the subject CB bills and the proceeds thereof; c.. . .; d.Ordering PDB to pay BSP and Nuqui such actual/compensatory and exemplary damages . . . as [the RTC] may deem warranted; and e.Ordering PDB to pay Nuqui moral damages . . . and to pay the costs of the suit. 41 Subsequent events The PDB agreed with the BSP's alternative response for an interpleader TcDHSI 4.PDB agrees that the various claimants should now interplead and substantiate their respective claims on the subject CB bills. However, the total face value of the subject CB bills should be deposited in escrow with a private bank to be disposed of only upon order [of the RTC]. 42 Accordingly, on June 9, 1995 43 and August 4, 1995, 44 the BOC and the PDB entered into two separate Escrow Agreements. 45 The first agreement covered the first set of CB bills, while the second agreement covered the second set of CB bills. The parties agreed to jointly collect from the BSP the maturity proceeds of these CB bills and to deposit said amount in escrow, "pending final determination by Court judgment, or amicable settlement as to who shall be eventually entitled thereto." 46 The BOC and the PDB filed a Joint Motion, 47 submitting these Escrow Agreements for court approval. The RTC gave its approval to the parties' Joint Motion. 48 Accordingly, the BSP released the maturity proceeds of the CB bills by crediting the Demand Deposit Account of the PDB and of the BOC with 50% each of the maturity proceeds of the amount in escrow. 49 In view of the BOC's acquisition of all the CB bills, All Asia 50 moved to be dropped as a respondent (with the PDB's conformity), 51 which the RTC granted. 52 The RCBC subsequently followed suit. 53 In light of the developments, on May 4, 1998, the RTC required the parties to manifest their intention regarding the case and to inform the court of any amicable settlement; "otherwise, th[e] case shall be dismissed for lack of interest." 54Complying with the RTC's order, the BOC moved (i) that the case be set for pre-trial and (ii) for further proceeding to resolve the remaining issues between the BOC and the PDB, particularly on "who has a better right over the subject CB bills." 55 The PDB joined the BOC in its motion. 56

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On September 28, 2000, the RTC granted the BSP's motion to interplead and, accordingly, required the BOC to amend its Answer and for the conflicting claimants to comment thereon. 57 In October 2000, the BOC filed itsAmended Consolidated Answer with Compulsory Counterclaim, reiterating its earlier arguments asserting ownership over the subject CB bills. 58 In the alternative, the BOC added that even assuming that there was no effective transfer of the nine CB bills ultimately to the BOC, the PDB remains obligated to deliver to the BOC, as buyer in the April 15 transaction and ultimate successorin-interest of the buyer (Bancap) in the April 19 transaction, either the original subjects of the sales or the value thereof, plus whatever income that may have been earned during the pendency of the case. 59 That BOC prayed: 1.To declare BOC as the rightful owner of the nine (9) CB bills and as the party entitled to the proceeds thereof as well as all income earned pursuant to the two (2) Escrow Agreements entered into by BOC and PDB. AEIHaS 2.In the alternative, ordering PDB to deliver the original subject of the sales transactions or the value thereof and whatever income earned by way of interest at prevailing rate. Without any opposition or objection from the PDB, on February 23, 2001, the RTC admitted 60 the BOC's Amended Consolidated Answer with Compulsory Counterclaims. In May 2001, the PDB filed an Omnibus Motion, 61 questioning the RTC's jurisdiction over the BOC's "additional counterclaims." The PDB argues that its petitions pray for the BSP (not the RTC) to determine who among the conflicting claimants to the CB bills stands in the position of the bona fide holder for value. The RTC cannot entertain the BOC's counterclaim, regardless of its nature, because it is the BSP which has jurisdiction to determine who is entitled to receive the proceeds of the CB bills. The BOC opposed 62 the PDB's Omnibus Motion. The PDB filed its Reply. 63 In a January 10, 2002 Order, the RTC dismissed the PDB's petition, the BOC's counterclaim and the BSP's countercomplaint/cross-claim for interpleader, holding that under CB Circular No. 28, it has no jurisdiction (i) over the BOC's "counterclaims" and (ii) to resolve the issue of ownership of the CB bills. 64 With the denial of their separate motions for reconsideration, 65 the BOC and the BSP separately filed the present petitions for review on certiorari. 66 THE BOC'S and THE BSP'S PETITIONS The BOC argues that the present cases do not fall within the limited provision of Section 10 (d) 4 of CB Circular No. 28, which contemplates only of three situations: first, where the fraudulent assignment is not coupled with a notice to the BSP, it can grant no relief; second, where the fraudulent assignment is coupled with a notice of fraud to the BSP, it will

make a notation against the assignment and require the owner and the holder to substantiate their claims; and third,where the case does not fall on either of the first two situations, the BSP will have to await action on the assignment pending settlement of the case, whether by agreement or by court order. DSEIcT The PDB's case cannot fall under the first two situations. With particular regard to the second situation, CB Circular No. 28 requires that the conflict must be between an "owner" and a "holder," for the BSP to exercise its limited jurisdiction to resolve conflicting claims; and the word "owner" here refers to the registered owner giving notice of the fraud to the BSP. The PDB, however, is not the registered owner nor is it in possession (holder) of the CB bills. 67 Consequently, the PDB's case can only falls under the third situation which leaves the RTC, as a court of general jurisdiction, with the authority to resolve the issue of ownership of a registered bond (the CB bills) not falling in either of the first two situations. The BOC asserts that the policy consideration supportive of its interpretation of CB Circular No. 28 is to have a reliable system to protect the registered owner; should he file a notice with the BSP about a fraudulent assignment of certain CB bills, the BSP simply has to look at its books to determine who is the owner of the CB bills fraudulently assigned. Since it is only the registered owner who complied with the BSP's requirement of recording an assignment in the BSP's books, then "the protective mantle of administrative proceedings" should necessarily benefit him only, without extending the same benefit to those who chose to ignore the Circular's requirement, like the PDB. 68 Assuming arguendo that the PDB's case falls under the second situation i.e., the BSP has jurisdiction to resolve the issue of ownership of the CB bills the more recent CB Circular No. 769-80 (Rules and Regulations Governing Central Bank Certificates of Indebtedness) already superseded CB Circular No. 28, and, in particular, effectively amended Section 10 (d) 4 of CB Circular No. 28. The pertinent provisions of CB Circular No. 769-80 read: ScAHTI Assignment Affected by Fraud. Any assignment for transfer of ownership of registered certificate obtained through fraudulent representation if honored by the Central Bank or any of its authorized service agencies shall not make the Central Bank or agency liable therefore unless it has previous formal notice of the fraud. The Central Bank, upon notice under oath that the assignment was secured through fraudulent means, shall immediately issue and circularize a "stop order" against the transfer, exchange, redemption of the Certificate including the payment of interest coupons. The Central Bank or service agency concerned shall continue to withhold action on the certificate until such time that the conflicting claims have been finally settled either by amicable settlement between the parties or by order of the Court. Unlike CB Circular No. 28, CB Circular No. 769-80 limited the BSP's authority to the mere issuance and circularization of a "stop order" against the transfer, exchange and redemption upon sworn notice of a

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fraudulent assignment. Under this Circular, the BSP shall only continue to withhold action until the dispute is ended by an amicable settlement or by judicial determination. Given the more passive stance of the BSP the very agency tasked to enforce the circulars involved under CB Circular No. 769-80, the RTC's dismissal of the BOC's counterclaims is palpably erroneous. Lastly, since Nuqui's office (Government Securities Department) had already been abolished, 69 it can no longer adjudicate the dispute under the second situation covered by CB Circular No. 28. The abolition of Nuqui's office is not only consistent with the BSP's Charter but, more importantly, with CB Circular No. 769-80, which removed the BSP's adjudicative authority over fraudulent assignments. THE PDB'S COMMENT The PDB claims that jurisdiction is determined by the allegations in the complaint/petition and not by the defenses set up in the answer. 70 In filing the petition with the RTC, the PDB merely seeks to compel the BSP to determine, pursuant to CB Circular No. 28, the party legally entitled to the proceeds of the subject CB bills, which, as the PDB alleged, have been transferred through fraudulent representations an allegation which properly recognized the BSP's jurisdiction to resolve conflicting claims of ownership over the CB bills. HCITcA The PDB adds that under the doctrine of primary jurisdiction, courts should refrain from determining a controversy involving a question whose resolution demands the exercise of sound administrative discretion. In the present case, the BSP's special knowledge and experience in resolving disputes on securities, whose assignment and trading are governed by the BSP's rules, should be upheld. The PDB counters that the BOC's tri-fold interpretation of Section 10 (d) 4 of CB Circular No. 28 sanctions split jurisdiction which is not favored; but even this tri-fold interpretation which, in the second situation, limits the meaning of the "owner" to the registered owner is flawed. Section 10 (d) 4 aims to protect not just the registered owner but anyone who has been deprived of his bond by fraudulent representation in order to deter fraud in the secondary trading of government securities. The PDB asserts that the existence of CB Circular No. 769-80 or the abolition of Nuqui's office does not result in depriving the BSP of its jurisdiction: first, CB Circular No. 769-80 expressly provides that CB Circular No. 28 shall have suppletory application to CB Circular No. 769-80; and second, the BSP can always designate an office to resolve the PDB's claim over the CB bills. Lastly, the PDB argues that even assuming that the RTC has jurisdiction to resolve the issue of ownership of the CB bills, the RTC has not acquired jurisdiction over the BOC's so-called "compulsory" counterclaims (which in truth is merely "permissive") because of the BOC's failure to pay the appropriate docket fees. These counterclaims should, therefore, be dismissed and expunged from the record. THE COURT'S RULING We grant the petitions.

At the outset, we note that the parties have not raised the validity of either CB Circular No. 28 or CB Circular No. 769-80 as an issue. What the parties largely contest is the applicable circular in case of an allegedly fraudulently assigned CB bill. The applicable circular, in turn, is determinative of the proper remedy available to the PDB and/or the BOC as claimants to the proceeds of the subject CB bills. AEcTCD Indisputably, at the time the PDB supposedly invoked the jurisdiction of the BSP in 1994 (by requesting for the annotation of its claim over the subject CB bills in the BSP's books), CB Circular No. 769-80 has long been in effect. Therefore, the parties' respective interpretations of the provision of Section 10 (d) 4 of CB Circular No. 28 do not have any significance unless it is first established that that Circular governs the resolution of their conflicting claims of ownership. This conclusion is important, given the supposed repeal or modification of Section 10 (d) 4 of CB Circular No. 28 by the following provisions of CB Circular No. 769-80: ARTICLE XI SUPPLEMENTAL RULES Section 1.Central Bank Circular No. 28. The provisions of Central Bank Circular No. 28 shall havesuppletory application to matters not specially covered by these Rules. ARTICLE XII EFFECTIVITY Effectivity The rules and regulations herein prescribed shall take effect upon approval by the Monetary Board, Central Bank of the Philippines, and all circulars, memoranda, or office orders inconsistent herewith are revoked or modified accordingly. (Emphases added) We agree with the PDB that in view of CB Circular No. 28's suppletory application, an attempt to harmonize the apparently conflicting provisions is a prerequisite before one may possibly conclude that an amendment or a repeal exists. 71 Interestingly, however, even the PDB itself failed to submit an interpretation based on its own position of harmonization. The repealing clause of CB Circular No. 769-80 obviously did not expressly repeal CB Circular No. 28; in fact, it even provided for the suppletory application of CB Circular No. 28 on "matters not specially covered by" CB Circular No. 769-80. While no express repeal exists, the intent of CB Circular No. 769-80 to operate as an implied repeal, 72 or at least to amend earlier CB circulars, is supported by its text "revok[i]ng]" or "modif[y]ing" "all circulars" which are inconsistent with its terms. EcDATH At the outset, we stress that none of the parties disputes that the subject CB bills fall within the category of a certificate or evidence of indebtedness and that these were issued by the Central Bank, now the BSP. Thus, even without resorting to statutory construction aids, matters involving the subject CB

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bills should necessarily be governed by CB Circular No. 76980. Even granting, however, that reliance on CB Circular No. 769-80 alone is not enough, we find that CB Circular No. 76980 impliedly repeals CB Circular No. 28. An implied repeal transpires when a substantial conflict exists between the new and the prior laws. In the absence of an express repeal, a subsequent law cannot be construed as repealing a prior law unless an irreconcilable inconsistency and repugnancy exist in the terms of the new and the old laws. 73 Repeal by implication is not favored, unless manifestly intended by the legislature, or unless it is convincingly and unambiguously demonstrated, that the laws or orders are clearly repugnant and patently inconsistent with one another so that they cannot co-exist; the legislature is presumed to know the existing law and would express a repeal if one is intended. 74 There are two instances of implied repeal. One takes place when the provisions in the two acts on the same subject matter are irreconcilably contradictory, in which case, the later act, to the extent of the conflict, constitutes an implied repeal of the earlier one. The other occurs when the later act covers the whole subject of the earlier one and is clearly intended as a substitute; thus, it will operate to repeal the earlier law. 75 A general reading of the two circulars shows that the second instance of implied repeal is present in this case. CB Circular No. 28, entitled "Regulations Governing Open Market Operations, Stabilization of Securities Market, Issue, Servicing and Redemption of Public Debt," is a regulation governing the servicing and redemption of public debt, including the issue, inscription, registration, transfer, payment and replacement of bonds and securities representing the public debt. 76 On the other hand, CB Circular No. 769-80, entitled "Rules and Regulations Governing Central Bank Certificate of Indebtedness," is the governing regulation on matters 77 (i) involving certificate of indebtedness 78 issued by the Central Bank itself and (ii) which are similarly covered by CB Circular No. 28. cITaCS The CB Monetary Board issued CB Circular No. 28 to regulate the servicing and redemption of public debt, pursuant to Section 124 (now Section 119 of Republic Act [R.A.] No. 7653) of the old Central Bank law 79 which provides that "the servicing and redemption of the public debt shall also be effected through the [Bangko Sentral]." However, even as R.A. No. 7653 continued to recognize this role by the BSP, the law required a phase-out of all fiscal agency functions by the BSP, including Section 119 of R.A. No. 7653. In other words, even if CB Circular No. 28 applies broadly to both government-issued bonds and securities and Central Bank-issued evidence of indebtedness, given the present state of law, CB Circular No. 28 and CB Circular No. 769-80 now operate on the same subject Central Bank-issued evidence of indebtedness. Under Section 1, Article XI of CB Circular No. 769-80, the continued relevance and application of CB Circular No. 28 would depend on the need to supplement any deficiency or silence in CB Circular No. 76980 on a particular matter. In the present case, both CB Circular No. 28 and CB Circular No. 769-80 provide the BSP with a course of action in case of an allegedly fraudulently assigned certificate of indebtedness. Under CB Circular No. 28, in case of fraudulent assignments, the BSP would have to "call upon the owner and the person

presenting the bond to substantiate their respective claims" and, from there, determine who has a better right over the registered bond. On the other hand, under CB Circular No. 769-80, the BSP shall merely "issue and circularize a 'stop order' against the transfer, exchange, redemption of the [registered] certificate" without any adjudicative function (which is the precise root of the present controversy). As the two circulars stand, the patent irreconcilability of these two provisions does not require elaboration. Section 5, Article V of CB Circular No. 769-80 inescapably repealed Section 10 (d) 4 of CB Circular No. 28. The issue of BSP's jurisdiction, lay hidden cSaCDT On that note, the Court could have written finis to the present controversy by simply sustaining the BSP's hands-off approach to the PDB's problem under CB Circular No. 769-80. However, the jurisdictional provision of CB Circular No. 76980 itself, in relation to CB Circular No. 28, on the matter of fraudulent assignment, has given rise to a question of jurisdiction the core question of law involved in these petitions which the Court cannot just treat sub-silencio. Broadly speaking, jurisdiction is the legal power or authority to hear and determine a cause. 80 In the exercise of judicial or quasi-judicial power, it refers to the authority of a court to hear and decide a case. 81 In the context of these petitions, we hark back to the basic principles governing the question of jurisdiction over the subject matter. First, jurisdiction over the subject matter is determined only by the Constitution and by law. 82 As a matter of substantive law, procedural rules alone can confer no jurisdiction to courts or administrative agencies. 83 In fact, an administrative agency, acting in its quasi-judicial capacity, is a tribunal of limited jurisdiction and, as such, could wield only such powers that are specifically granted to it by the enabling statutes. In contrast, an RTC is a court of general jurisdiction, i.e., it has jurisdiction over cases whose subject matter does not fall within the exclusive original jurisdiction of any court, tribunal or body exercising judicial or quasi-judicial functions. 84 Second, jurisdiction over the subject matter is determined not by the pleas set up by the defendant in his answer 85 but by the allegations in the complaint, 86 irrespective of whether the plaintiff is entitled to favorable judgment on the basis of his assertions. 87 The reason is that the complaint is supposed to contain a concise statement of the ultimate facts constituting the plaintiff's causes of action. 88 Third, jurisdiction is determined by the law in force at the time of the filing of the complaint. 89 Parenthetically, the Court observes that none of the parties ever raised the issue of whether the BSP can simply disown its jurisdiction, assuming it has, by the simple expedient of promulgating a new circular (specially applicable to a certificate of indebtedness issued by the BSP itself), inconsistent with an old circular, assertive of its limited jurisdiction over ownership issues arising from fraudulent assignments of a certificate of indebtedness. The PDB, in particular, relied solely and heavily on CB Circular No. 28. TAEcSC In light of the above principles pointing to jurisdiction as a matter of substantive law, the provisions of the law itself that

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gave CB Circular 769-80 its life and jurisdiction must be examined. The Philippine Central Bank On January 3, 1949, Congress created the Central Bank of the Philippines (Central Bank) as a corporate body with the primary objective of (i) maintaining the internal and external monetary stability in the Philippines; and (ii) preserving the international value and the convertibility of the peso. 90 In line with these broad objectives, the Central Bank was empowered to issue rules and regulations "necessary for the effective discharge of the responsibilities and exercise of the powers assigned to the Monetary Board and to the Central Bank." 91 Specifically, the Central Bank is authorized to organize (other) departments for the efficient conduct of its business and whose powers and duties "shall be determined by the Monetary Board, within the authority granted to the Board and the Central Bank" 92 under its original charter. With the 1973 Constitution, the then Central Bank was constitutionally made as the country's central monetary authority until such time that Congress 93 shall have established a central bank. The 1987 Constitution continued to recognize this function of the then Central Bank until Congress, pursuant to the Constitution, created a new central monetary authority which later came to be known as the Bangko Sentral ng Pilipinas. Under the New Central Bank Act (R.A. No. 7653), 94 the BSP is given the responsibility of providing policy directions in the areas of money, banking and credit; it is given, too, the primary objective of maintaining price stability, conducive to a balanced and sustainable growth of the economy, and of promoting and maintaining monetary stability and convertibility of the peso. 95 The Constitution expressly grants the BSP, as the country's central monetary authority, the power of supervision over the operation of banks, while leaving with Congress the authority to define the BSP's regulatory powers over the operations of finance companies and other institutions performing similar functions. Under R.A. No. 7653, the BSP's powers and functions include (i) supervision over the operation of banks; (ii) regulation of operations of finance companies and nonbank financial institutions performing quasi banking functions; (iii) sole power and authority to issue currency within the Philippine territory; (iv) engaging in foreign exchange transactions; (v) making rediscounts, discounts, loans and advances to banking and other financial institutions to influence the volume of credit consistent with the objective of achieving price stability; (vi) engaging in open market operations; and (vii) acting as banker and financial advisor of the government. IDASHa On the BSP's power of supervision over the operation of banks, Section 4 of R.A. No. 8791 (The General Banking Law of 2000) elaborates as follows: CHAPTER II AUTHORITY OF THE BANGKO SENTRAL SECTION 4.Supervisory Powers. The operations and activities of banks shall be subject to supervision of the Bangko

Sentral. "Supervision" shall include the following: 4.1.The issuance of rules of conduct or the establishment of standards of operation for uniform application to all institutions or functions covered, taking into consideration the distinctive character of the operations of institutions and the substantive similarities of specific functions to which such rules, modes or standards are to be applied; 4.2.The conduct of examination to determine compliance with laws and regulations if the circumstances so warrant as determined by the Monetary Board; 4.3.Overseeing to ascertain that laws and regulations are complied with; 4.4.Regular investigation which shall not be oftener than once a year from the last date of examination to determine whether an institution is conducting its business on a safe or sound basis: Provided, That the deficiencies/irregularities found by or discovered by an audit shall be immediately addressed; 4.5.Inquiring into the solvency and liquidity of the institution (2-D); or 4.6.Enforcing prompt corrective action. (n) CDHacE The Bangko Sentral shall also have supervision over the operations of and exercise regulatory powers over quasibanks, trust entities and other financial institutions which under special laws are subject to Bangko Sentral supervision. (2-Ca) For the purposes of this Act, "quasibanks" shall refer to entities engaged in the borrowing of funds through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes as defined in Section 95 of Republic Act No. 7653 (hereafter the "New Central Bank Act") for purposes of relending or purchasing of receivables and other obligations. [emphasis ours] While this provision empowers the BSP to oversee the operations and activities of banks to "ascertain that laws and regulations are complied with," the existence of the BSP's jurisdiction in the present dispute cannot rely on this provision. The fact remains that the BSP already made known to the PDB its unfavorable position on the latter's claim of

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fraudulent assignment due to the latter's own failure to comply 96 with existing regulations: In this connection, Section 10 (b) 2 also requires that a "Detached assignment will be recognized or accepted only upon previous notice to the Central Bank . . . ." In fact, in a memo dated September 23, 1991 . . . then CB Governor [Jose L.] Cuisia advised all banks (including PDB) . . . as follows: In view recurring incidents ostensibly disregarding certain provisions of CB circular No. 28 (as amended) covering assignments of registered bonds, all banks and all concerned are enjoined to observe strictly the pertinent provisions of said CB Circular as hereunder quoted: xxx xxx xxx Under Section 10.b. (2) ... Detached assignment will be recognized or accepted onl y upon previous notice to the Central Bank and its use is authorized only under the following circumstance s: CTEacH (a). . . (b). . . (c)assignme nts of treasury notes and certificates of indebtedness in registered form which are not provided at the back thereof with assignment form.

(d)Assignme nt of securities which have changed ownership several times. (e). . . Noncompliance herewith will constitute a basis for non-action or withholding of action on redemption/ payment of interest coupons/tran sfer transactions or denominatio nal exchange that may be directly affected thereby. [Boldfacing supplied] Again, the books of the BSP do not show that the supposed assignment of subject CB Bills was ever recorded in the BSP's books. [Boldfacing supplied] However, the PDB faults the BSP for not recording the assignment of the CB bills in the PDB's favor despite the fact that the PDB already requested the BSP to record its assignment in the BSP's books as early as June 30, 1994. 97 The PDB's claim is not accurate. What the PDB requested the BSP on that date was not the recording of the assignmentof the CB bills in its favor but the annotation of its claim over the CB bills at the time when (i) it was no longer in possession of the CB bills, having been transferred from one entity to another and (ii) all it has are the detached assignments, which the PDB has not shown to be compliant with Section 10 (b) 2 above-quoted. Obviously, the PDB cannot insist that the BSP take cognizance of its plaint when the basis of the BSP's refusal under existing regulation, which the PDB is bound to observe, is the PDB's own failure to comply therewith. ACIEaH True, the BSP exercises supervisory powers (and regulatory powers) over banks (and quasi banks). The issue presented before the Court, however, does not concern the BSP's supervisory power over banks as this power is understood under the General Banking Law. In fact, there is nothing in the PDB's petition (even including the letters it sent to the

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BSP) that would support the BSP's jurisdiction outside of CB Circular No. 28, under its power of supervision, over conflicting claims to the proceeds of the CB bills. BSP has quasi-judicial powers over a class of cases which does not include the adjudication of ownership of the CB bills in question In United Coconut Planters Bank v. E. Ganzon, Inc., 98 the Court considered the BSP as an administrative agency, 99exercising quasi-judicial functions through its Monetary Board. It held: A quasi-judicial agency or body is an organ of government other than a court and other than a legislature, which affects the rights of private parties through either adjudication or rule-making. The very definition of an administrative agency includes its being vested with quasijudicial powers. The ever increasing variety of powers and functions given to administrative agencies recognizes the need for the active intervention of administrative agencies in matters calling for technical knowledge and speed in countless controversies which cannot possibly be handled by regular courts. A "quasi-judicial function" is a term which applies to the action, discretion, etc., of public administrative officers or bodies, who are required to investigate facts, or ascertain the existence of facts, hold hearings, and draw conclusions from them, as a basis for their official action and to exercise discretion of a judicial nature. Undoubtedly, the BSP Monetary Board is a quasi-judicial agency exercising quasijudicial powers or functions. As aptly observed by the Court of Appeals, the BSP Monetary Board is an independent central monetary authority and a body corporate with fiscal and administrative autonomy, mandated to provide policy directions in the areas of money, banking and credit. It has power to issue subpoena, to sue for contempt those refusing to obey the subpoena without justifiable reason, to administer oaths and compel presentation of books, records and others, needed in its examination, to impose fines and other sanctions and to issue cease and desist order. Section 37 of Republic Act No. 7653, in particular, explicitly provides that the BSP Monetary Board shall exercise its discretion in determining whether administrative sanctions should be imposed on banks and quasi-banks, which necessarily implies that the BSP Monetary Board must conduct some form of investigation or hearing regarding the same. [citations omitted] ICTacD The BSP is not simply a corporate entity but qualifies as an administrative agency created, pursuant to constitutional

mandate, 100 to carry out a particular governmental function. 101 To be able to perform its role as central monetary authority, the Constitution granted it fiscal and administrative autonomy. In general, administrative agencies exercise powers and/or functions which may be characterized as administrative, investigatory, regulatory, quasi-legislative, or quasi judicial, or a mix of these five, as may be conferred by the Constitution or by statute. 102 While the very nature of an administrative agency and the raison d'tre for its creation 103 and proliferation dictate a grant of quasi-judicial power to it, the matters over which it may exercise this power must find sufficient anchorage on its enabling law, either by express provision or by necessary implication. Once found, the quasi-judicial power partakes of the nature of a limited and special jurisdiction, that is, to hear and determine a class of cases within its peculiar competence and expertise. In other words, the provisions of the enabling statute are the yardsticks by which the Court would measure the quantum of quasi-judicial powers an administrative agency may exercise, as defined in the enabling act of such agency. 104 Scattered provisions in R.A. No. 7653 and R.A. No. 8791, inter alia, exist, conferring jurisdiction on the BSP on certain matters. 105 For instance, under the situations contemplated under Section 36, par. 2 106 (where a bank or quasi bank persists in carrying on its business in an unlawful or unsafe manner) and Section 37 107 (where the bank or its officers willfully violate the bank's charter or by-laws, or the rules and regulations issued by the Monetary Board) of R.A. No. 7653, the BSP may place an entity under receivership and/or liquidation or impose administrative sanctions upon the entity or its officers or directors. Among its several functions under R.A. No. 7653, the BSP is authorized to engage in open market operations and thereby "issue, place, buy and sell freely negotiable evidences of indebtedness of the Bangko Sentral" in the following manner. SEC. 90.Principles of Open Market Operations. The open market purchases and sales of securities by the Bangko Sentral shall be made exclusively in accordance with its primary objective of achieving price stability. cDCaTH xxx xxx xxx SEC. 92.Issue and Negotiation of Bangko Sentral Obligations. In order to provide the Bangko Sentral with effective instruments for open market operations, the Bangko Sentral may, subject to such rules and regulations as the Monetary Board may prescribe and in accordance with the principles stated in Section 90 of this Act, issue, place, buy and sell freely negotiable evidences of indebtedness of the Bangko Sentral: Provided, That issuance of such certificates of indebtedness shall be made only in cases of extraordinary movement in price levels. Said evidences of indebtedness may be issued directly against the international reserve of the Bangko Sentral or against the securities which it has acquired under the provisions

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of Section 91 of this Act, or may be issued without relation to specific types of assets of the Bangko Sentral. The Monetary Board shall determine the interest rates, maturities and other characteristics of said obligations of the Bangko Sentral, and may, if it deems it advisable, denominate the obligations in gold or foreign currencies. Subject to the principles stated in Section 90 of this Act, the evidences of indebtedness of the Bangko Sentral to which this section refers may be acquired by the Bangko Sentral before their maturity, either through purchases in the open market or through redemptions at par and by lot if the Bangko Sentral has reserved the right to make such redemptions. The evidences of indebtedness acquired or redeemed by the Bangko Sentral shall not be included among its assets, and shall be immediately retired and cancelled. 108 (italics supplied; emphases ours) The primary objective of the BSP is to maintain price stability. 109 The BSP has a number of monetary policy instruments at its disposal to promote price stability. To increase or reduce liquidity in the financial system, the BSP uses open market operations, among others. 110 Open market operation is a monetary tool where the BSP publicly buys or sells government securities 111 from (or to) banks and financial institutions in order to expand or contract the supply of money. By controlling the money supply, the BSP is able to exert some influence on the prices of goods and services and achieve its inflation objectives. 112 Once the issue and/or sale of a security is made, the BSP would necessarily make a determination, in accordance with its own rules, of the entity entitled to receive the proceeds of the security upon its maturity. This determination by the BSP is an exercise of its administrative powers 113 under the law as an incident to its power to prescribe rules and regulations governing open market operations to achieve the "primary objective of achieving price stability." 114 As a matter of necessity, too, the same rules and regulations facilitate transaction with the BSP by providing for an orderly manner of, among others, issuing, transferring, exchanging and paying securities representing public debt. TEAaDC Significantly, when competing claims of ownership over the proceeds of the securities it has issued are brought before it, the law has not given the BSP the quasi-judicial power to resolve these competing claims as part of its power to engage in open market operations. Nothing in the BSP's charter confers on the BSP the jurisdiction or authority to determine this kind of claims, arising out of a subsequent transfer or assignment of evidence of indebtedness a matter that appropriately falls within the competence of courts of general jurisdiction. That the statute withholds this power from the BSP is only consistent with the fundamental reasons for the creation of a Philippine central bank, that is, to lay down stable monetary policy and exercise bank supervisory functions. Thus, the BSP's assumption of jurisdiction over competing claims cannot find even a stretched-out

justification under its corporate powers "to do and perform any and all things that may be necessary or proper to carry out the purposes" of R.A. No. 7653. 115 To reiterate, open market operation is a monetary policy instrument that the BSP employs, among others, to regulate the supply of money in the economy to influence the timing, cost and availability of money and credit, as well as other financial factors, for the purpose of stabilizing the price level. 116 What the law grants the BSP is a continuing role to shape and carry out the country's monetary policy not the authority to adjudicate competing claims of ownership over the securities it has issued since this authority would not fall under the BSP's purposes under its charter. While R.A. No. 7653 117 empowers the BSP to conduct administrative hearings and render judgment for or against an entity under its supervisory and regulatory powers and even authorizes the BSP Governor to "render decisions, or rulings . . . on matters regarding application or enforcement of laws pertaining to institutions supervised by the [BSP] and laws pertaining to quasibanks, as well as regulations, policies or instructions issued by the Monetary Board," it is precisely the text of the BSP's own regulation (whose validity is not here raised as an issue) that points to the BSP's limited role in case of an allegedly fraudulent assignment to simply (i) issuing and circularizing a "'stop order" against the transfer, exchange, redemption of the certificate of indebtedness, including the payment of interest coupons, and (ii) withholding action on the certificate. cAHITS A similar conclusion can be drawn from the BSP's administrative adjudicatory power in cases of "willful failure or refusal to comply with, or violation of, any banking law or any order, instruction or regulation issued by the Monetary Board, or any order, instruction or ruling by the Governor." 118 The non-compliance with the pertinent requirements under CB Circular No. 28, as amended, deprives a party from any right to demand payment from the BSP. In other words, the grant of quasi-judicial authority to the BSP cannot possibly extend to situations which do not call for the exercise by the BSP of its supervisory or regulatory functions over entities within its jurisdiction. 119 The fact alone that the parties involved are banking institutions does not necessarily call for the exercise by the BSP of its quasijudicial powers under the law. 120 The doctrine of primary jurisdiction argues against BSP's purported authority to adjudicate ownership issues over the disputed CB bills Given the preceding discussions, even the PDB's invocation of the doctrine of primary jurisdiction is misplaced. In the exercise of its plenary legislative power, Congress may create administrative agencies endowed with quasi-legislative and quasi-judicial powers. Necessarily, Congress likewise defines the limits of an agency's jurisdiction in the same manner as it defines the jurisdiction of courts. 121 As a result, it may happen that either a court or an administrative agency has exclusive jurisdiction over a specific matter or both have concurrent jurisdiction on the same. It may happen, too, that courts and agencies may willingly relinquish adjudicatory power that is rightfully theirs in favor of the

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other. One of the instances when a court may properly defer to the adjudicatory authority of an agency is the applicability of the doctrine of primary jurisdiction. 122 As early as 1954, the Court applied the doctrine of primary jurisdiction under the following terms: cHSIDa 6.In the fifties, the Court taking cognizance of the move to vest jurisdiction in administrative commissions and boards the power to resolve specialized disputes . . . ruled that Congress in requiring the Industrial Court's intervention in the resolution of labor-management controversies . . . meant such jurisdiction to be exclusive, although it did not so expressly state in the law. The Court held that under the "sense-making and expeditious doctrine of primary jurisdiction . . . the courts cannot or will not determine a controversy involving a question which is within the jurisdiction of an administrative tribunal, where the question demands the exercise ofsound administrative discretion requiring the special knowledge, experience, and services of the administrative tribunal to determine technical and intricate matters of fact, and a uniformity of ruling is essential to comply with the purposes of the regulatory statute administered." 123 (emphasis ours) In Industrial Enterprises, Inc. v. Court of Appeals, 124 the Court ruled that while an action for rescission of a contract between coal developers appears to be an action cognizable by regular courts, the trial court remains to be without jurisdiction to entertain the suit since the contract sought to be rescinded is "inextricably tied up with the right to develop coal-bearing lands and the determination of whether or not the reversion of the coal operating contract over the subject coal blocks to [the plaintiff] would be in line with the [country's national program and objective on coaldevelopment and] over-all coal-supply-demand balance." It then applied the doctrine of primary jurisdiction In recent years, it has been the jurisprudential trend to apply the doctrine of primary jurisdiction in many cases involving matters that demand the special competence of administrative agencies. It may occur that the Court has jurisdiction to take cognizance of a particular case, which means that the matter involved is also judicial in character. However, if the case is such that its determination requires the expertise, specialized skills and knowledge of the proper administrative bodies because technical matters or intricate questions of facts are involved, then relief must first be obtained in an administrative proceeding before a remedy will be supplied by the courts even though the matter is within the proper jurisdiction of a court. This is the doctrine of primary jurisdiction. It applies "where a claim is originally cognizable in

the courts, andcomes into play whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body[.]" aIAEcD Clearly, the doctrine of primary jurisdiction finds application in this case since the question of what coal areas should be exploited and developed and which entity should be granted coal operating contracts over said areas involves a technical determination by the [Bureau of Energy Development] as the administrative agency in possession of the specialized expertise to act on the matter. The Trial Court does not have the competence to decide matters concerning activities relative to the exploration, exploitation, development and extraction of mineral resources like coal. These issues preclude an initial judicial determination. [emphases ours] The absence of any express or implied statutory power to adjudicate conflicting claims of ownership or entitlement to the proceeds of its certificates of indebtedness finds complement in the similar absence of any technical matter that would call for the BSP's special expertise or competence. 125 In fact, what the PDB's petitions bear out is essentially the nature of the transaction it had with the subsequent transferees of the subject CB bills (BOC and Bancap) and not any matter more appropriate for special determination by the BSP or any administrative agency. In a similar vein, it is well-settled that the interpretation given to a rule or regulation by those charged with its execution is entitled to the greatest weight by the courts construing such rule or regulation. 126 While there are exceptions 127 to this rule, the PDB has not convinced us that a departure is warranted in this case. Given the non-applicability of the doctrine of primary jurisdiction, the BSP's own position, in light of Circular No. 769-80, deserves respect from the Court. Ordinarily, cases involving the application of doctrine of primary jurisdiction are initiated by an action invoking the jurisdiction of a court or administrative agency to resolve the substantive legal conflict between the parties. In this sense, the present case is quite unique since the court's jurisdiction was, originally, invoked to compel an administrative agency (the BSP) to resolve the legal conflict of ownership over the CB bills instead of obtaining a judicial determination of the same dispute. SCaDAE The remedy of interpleader Based on the unique factual premise of the present case, the RTC acted correctly in initially assuming jurisdiction over the PDB's petition for mandamus, prohibition and injunction. 128 While the RTC agreed (albeit erroneously) with the PDB's view (that the BSP has jurisdiction), it, however, dismissed not only the BOC's/the BSP's counterclaims but the PDB's petition itself as well, on the ground that it lacks jurisdiction. This is plain error.

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Not only the parties themselves, but more so the courts, are bound by the rule on non-waiver of jurisdiction. 129 Even indulging the RTC, if it believes that jurisdiction over the BOC's counterclaims and the BSP's counterclaim/crossclaim for interpleader calls for the application of the doctrine of primary jurisdiction, the allowance of the PDB's petition even becomes imperative because courts may raise the issue of primary jurisdiction sua sponte. 130 Of the three possible options available to the RTC, the adoption of either of these two would lead the trial court into serious legal error: first, if it granted the PDB's petition, its decision would have to be set aside on appeal because the BSP has no jurisdiction as previously discussed; and second when it dismissed the PDB's petitions and the BOC's counterclaims on the ground that it lacks jurisdiction, the trial court seriously erred because precisely, the resolution of the conflicting claims over the CB bills falls within its general jurisdiction. Without emasculating its jurisdiction, the RTC could have properly dismissed the PDB's petition but on the ground thatmandamusdoes not lie against the BSP; but even this correct alternative is no longer plausible since the BSP, as a respondent below, already properly brought before the RTC the remaining conflicting claims over the subject CB bills by way of a counterclaim/crossclaim for interpleader. Section 1, Rule 62 of the Rules of Court provides when an interpleader is proper: cDCIHT SECTION 1. When interpleader proper. Whenever conflicting claims upon the same subject matter are or may be made against a person who claims no interest whatever in the subject matter, or an interest which in whole or in part is not disputed by the claimants, he may bring an action against the conflicting claimants to compel them to interplead and litigate their several claims among themselves. The remedy of an action of interpleader 131 is designed to protect a person against double vexation in respect of a single liability. 7 It requires, as an indispensable requisite, that conflicting claims upon the same subject matter are or may be made against the stakeholder (the possessor of the subject matter) who claims no interest whatever in the subject matter or an interest which in whole or in part is not disputed by the claimants. 132 Through this remedy, the stakeholder can join all competing claimants in a single proceeding to determine conflicting claims without exposing the stakeholder to the possibility of having to pay more than once on a single liability. 133 When the court orders that the claimants litigate among themselves, in reality a new action arises, 134where the claims of the interpleaders themselves are brought to the fore, the stakeholder as plaintiff is relegated merely to the role of initiating the suit. In short, the remedy of interpleader, when proper, merely provides an avenue for the conflicting claims on the same subject matter to be threshed out in an action. Section 2 of Rule 62 provides: SEC. 2.Order. Upon the filing of the complaint, the court shall issue an order requiring the conflicting claimants to interplead with one another. If the

interests of justice so require, the court may direct in such order that the subject matter be paid or delivered to the court. This is precisely what the RTC did by granting the BSP's motion to interplead. The PDB itself "agree[d] that the various claimants should now interplead." Thus, the PDB and the BOC subsequently entered into two separate escrow agreements, covering the CB bills, and submitted them to the RTC for approval. ICASEH In granting the BSP's motion, the RTC acted on the correct premise that it has jurisdiction to resolve the parties' conflicting claims over the CB bills consistent with the rules and the parties' conduct and accordingly required the BOC to amend its answer and for the PDB to comment thereon. Suddenly, however, the PDB made an about-face and questioned the jurisdiction of the RTC. Swayed by the PDB's argument, the RTC dismissed even the PDB's petition which means that it did not actually compel the BSP to resolve the BOC's and the PDB's claims. Without the motion to interplead and the order granting it, the RTC could only dismiss the PDB's petition since it is the RTC which has jurisdiction to resolve the parties' conflicting claims not the BSP. Given that the motion to interplead has been actually filed, the RTC could not have really granted the relief originally sought in the PDB's petition since the RTC's order granting the BSP's motion to interplead to which the PDB in fact acquiesced into effectively resulted in the dismissal of the PDB's petition. This is not altered by the fact that the PDB additionally prayed in its petition for damages, attorney's fees and costs of suit "against the public respondents" because the grant of the order to interplead effectively sustained the propriety of the BSP's resort to this procedural device. Interpleader 1.as a special civil action What is quite unique in this case is that the BSP did not initiate the interpleader suit through an original complaint but through its Answer. This circumstance becomes understandable if it is considered that insofar as the BSP is concerned, the PDB does not possess any right to have its claim recorded in the BSP's books; consequently, the PDB cannot properly be considered even as a potential claimant to the proceeds of the CB bills upon maturity. Thus, the interpleader was only an alternative position, made only in the BSP's Answer. 135 The remedy of interpleader, as a special civil action, is primarily governed by the specific provisions in Rule 62 of the Rules of Court and secondarily by the provisions applicable to ordinary civil actions. 136 Indeed, Rule 62 does not expressly authorize the filing of a complaint-in-interpleader as part of, although separate and independent from, the answer. Similarly, Section 5, Rule 6, in relation to Section 1, Rule 9 of the Rules of Court 137 does not include a complaint-ininterpleader as a claim, 138 a form of defense, 139 or as an objection that a defendant may be allowed to put up in his answer or in a motion to dismiss. This does not mean, however, that the BSP's "counter-complaint/cross-claim for interpleader" runs counter to general procedures. ICacDE Apart from a pleading, 140 the rules 141 allow a party to seek an affirmative relief from the court through the

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procedural device of a motion. While captioned "Answer with counter-complaint/cross-claim for interpleader," the RTC understood this as in the nature of a motion, 142 seeking relief which essentially consists in an order for the conflicting claimants to litigate with each other so that "payment is made to the rightful or legitimate owner" 143 of the subject CB bills. The rules define a "civil action" as "one by which a party sues another for the enforcement or protection of a right, or theprevention or redress of a wrong." Interpleader may be considered as a stakeholder's remedy to prevent a wrong, that is, from making payment to one not entitled to it, thereby rendering itself vulnerable to lawsuit/s from those legally entitled to payment. Interpleader is a civil action made special by the existence of particular rules to govern the uniqueness of its application and operation. Under Section 2, Rule 6 of the Rules of Court, governing ordinary civil actions, a party's claim is asserted "in a complaint, counterclaim, cross-claim, third (fourth, etc.)party complaint, or complaint-in-intervention." In an interpleader suit, however, a claim is not required to be contained in any of these pleadings but in the answer-(of the conflicting claimants)-in-interpleader. This claim is different from the counter-claim (or cross-claim, third party-complaint) which is separately allowed under Section 5, par. 2 of Rule 62. 2.the payment of docket fees covering BOC's counterclaim The PDB argues that, even assuming that the RTC has jurisdiction over the issue of ownership of the CB bills, the BOC's failure to pay the appropriate docket fees prevents the RTC from acquiring jurisdiction over the BOC's "counterclaims." We disagree with the PDB. To reiterate and recall, the order granting the "PDB's motion to interplead," already resulted in the dismissal of the PDB's petition. The same order required the BOC to amend its answer and for the conflicting claimants to comment, presumably to conform to the nature of an answer-ininterpleader. Perhaps, by reason of the BOC's denomination of its claim as a "compulsory-counterclaim" and the PDB's failure to fully appreciate the RTC's order granting the "BSP's motion for interpleader" (with the PDB's conformity), the PDB mistakenly treated the BOC's claim as a "permissive counterclaim" which necessitates the payment of docket fees. aHIEcS As the preceding discussions would show, however, the BOC's "claim" i.e., its assertion of ownership over the CB bills is in reality just that, a "claim" against the stakeholder and not as a "counterclaim," 144 whether compulsory 145 or permissive. It is only the BOC's alternative prayer (for the PDB to deliver to the BOC, as the buyer in the April 15 transaction and the ultimate successor-in-interest of the buyer in the April 19 transaction, either the original subjects of the sales or the value thereof plus whatever income that may have been earned pendente lite) and its prayer for damages that are obviously compulsory counterclaims against the PDB and, therefore, does not require payment of docket fees. 146

The PDB takes a contrary position through its insistence that a compulsory counterclaim should be one where the presence of third parties, of whom the court cannot acquire jurisdiction, is not required. It reasons out that since the RCBC and All Asia (the intervening holders of the CB bills) have already been dropped from the case, then the BOC's counterclaim must only be permissive in nature and the BOC should have paid the correct docket fees. We see no reason to belabor this claim. Even if we gloss over the PDB's own conformity to the dropping of these entities as parties, the BOC correctly argues that a remedy is provided under the Rules. Section 12, Rule 6 of the Rules of Court reads: SEC. 12.Bringing new parties. When the presence of parties other than those to the original action is required for the granting of complete relief in the determination of a counterclaim or crossclaim, the court shall order them to be brought in as defendants, if jurisdiction over them can be obtained. Even then, the strict characterization of the BOC's counterclaim is no longer material in disposing of the PDB's argument based on non-payment of docket fees. When an action is filed in court, the complaint must be accompanied by the payment of the requisite docket and filing fees by the party seeking affirmative relief from the court. It is the filing of the complaint or appropriate initiatory pleading, accompanied by the payment of the prescribed docket fee, that vests a trial court with jurisdiction over the claim or the nature of the action. 147 However, the nonpayment of the docket fee at the time of filing does not automatically cause the dismissal of the case, so long as the fee is paid within the applicable prescriptive or reglementary period, especially when the claimant demonstrates a willingness to abide by the rules prescribing such payment. 148 In the present case, considering the lack of a clear guideline on the payment of docket fee by the claimants in an interpleader suit, compounded by the unusual manner in which the interpleader suit was initiated and the circumstances surrounding it, we surely cannot deduce from the BOC's mere failure to specify in its prayer the total amount of the CB bills it lays claim to (or the value of the subjects of the sales in the April 15 and April 19 transactions, in its alternative prayer) an intention to defraud the government that would warrant the dismissal of its claim. 149 At any rate, regardless of the nature of the BOC's "counterclaims," for purposes of payment of filing fees, both the BOC and the PDB, properly as defendantsin-interpleader, must be assessed the payment of the correct docket fee arising from their respective claims. The seminal case of Sun Insurance Office, Ltd. v. Judge Asuncion 150 provides us guidance in the payment of docket fees, to wit: 1.. . . Where the filing of the initiatory pleading is not accompanied by payment of the docket fee, the court may allow payment of the fee within a reasonable time but in no case beyond the applicable

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prescriptive or reglementary period. ScAHTI 2.The same rule applies to permissive counterclaims, third-party claims and similar pleadings, which shall not be considered filed until and unless the filing fee prescribed therefor is paid. The court may also allow payment of said fee within a reasonable time but also in no case beyond its applicable prescriptive or reglementary period. [underscoring ours] This must be the rule considering that Section 7, Rule 62 of which reads: SEC. 7.Docket and other lawful fees, costs and litigation expenses as liens. The docket and other lawful fees paid by the party who filed a complaint under this Rule, as well as the costs and litigation expenses, shall constitute a lien or charge upon the subject matter of the action, unless the court shall order otherwise. AHDacC only pertain to the docket and lawful fees to be paid by the one who initiated the interpleader suit, and who, under the Rules, actually "claims no interest whatever in the subject matter." By constituting a lien on the subject matter of the action, Section 7 in effect only aims to actually compensate the complainant-in-interpleader, who happens to be the stakeholder unfortunate enough to get caught in a legal crossfire between two or more conflicting claimants, for the faultless trouble it found itself into. Since the defendants-in-interpleader are actually the ones who make a claim only that it was extraordinarily done through the procedural device of interpleader then to them devolves the duty to pay the docket fees prescribed under Rule 141 of the Rules of Court, as amended. 151 The importance of paying the correct amount of docket fee cannot be overemphasized: The matter of payment of docket fees is not a mere triviality. These fees are necessary to defray court expenses in the handling of cases. Consequently, in order to avoid tremendous losses to the judiciary, and to the government as well, the payment of docket fees cannot be made dependent on the outcome of the case, except when the claimant is a pauper-litigant. 152 WHEREFORE, premises considered the consolidated PETITIONS are GRANTED. The Planters Development Bank is hereby REQUIRED to file with the Regional Trial Court its comment or answer-in-interpleader to Bank of Commerce'sAmended Consolidated Answer with Compulsory Counterclaim, as previously ordered by the Regional Trial Court. The Regional Trial Court of Makati City, Branch 143, is hereby ORDERED to assess the docket fees due from Planters Development Bank and Bank of Commerce and order their payment, and to resolve with DELIBERATE DISPATCH the parties' conflicting claims of ownership over the proceeds of the Central Bank bills.

The Clerk of Court of the Regional Trial Court of Makati City, Branch 143, or his duly authorized representative is herebyORDERED to assess and collect the appropriate amount of docket fees separately due the Bank of Commerce and Planters Development Bank as conflicting claimants in Bangko Sentral ng Pilipinas' interpleader suit, in accordance with this decision. DAESTI SO ORDERED.

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THIRD DIVISION [G.R. No. 168859. June 30, 2009.] UNITED COCONUT PLANTERS BANK, JERONIMO U. KILAYKO, LORENZO V. TAN, ENRIQUE L. GANA, JAIME W. JACINTO and EMILY R. LAZARO, petitioners, vs. E. GANZON, INC., respondent.

The factual antecedents of these consolidated petitions are as follows: Beginning 1995 to 1998, EGI availed itself of credit facilities from UCPB to finance its business expansion. To secure said credit facilities, EGI mortgaged to UCPB its condominium unit inventories in EGI Rufino Plaza, located at the intersection of Buendia and Taft Avenues, Manila. Initially, EGI was able to make periodic amortization payments of its loans to UCPB. When the negative effects of the Asian economic crisis on the property development sector finally caught up with the corporation in the middle of 1998, EGI started defaulting in its payment of amortizations, thus, making all of its obligations due and demandable. Subsequently, EGI was declared in default by UCPB in its letters dated 2 October 1998 5 and 16 February 1999. 6Thereafter, UCPB stopped sending EGI monthly statements of its accounts. In 1999, EGI and UCPB explored the possibility of using the mortgaged condominium unit inventories of EGI in EGI Rufino Plaza as payment for the loans of EGI to UCPB. Upon agreeing on the valuation of said mortgaged properties, EGI and UCPB entered into a Memorandum of Agreement (MOA) 7 on 28 December 1998 in settlement of the loans of EGI from UCPB. Based on this MOA, the outstanding loan obligations of EGI with UCPB amounted to P915,838,822.50, inclusive of all interest, charges and fees. UCPB, through its corporate officers, assured EGI that the said amount already represented the total loan obligations of EGI to UCPB. On 18 January 2000, EGI and UCPB executed an Amendment of Agreement 8 to reflect the true and correct valuation of the properties of EGI listed in the MOA that would be transferred to UCPB in settlement of the total loan obligations of the former with the latter. The properties of EGI to be used in paying for its debt with UCPB were valued atP904,491,052.00. According to the MOA and its amendments, titles to the properties of EGI shall be transferred to UCPB by the following modes: (1) foreclosure of mortgage; (2) dacion en pago; (3) creation of a holding company; and (4) use of other alternatives as may be deemed appropriate by UCPB. UCPB proceeded to foreclose some of the properties of EGI listed in the MOA. Per the Certificate of Sale 9 dated 13 April 2000, the foreclosure proceeds of said properties amounted only to P723,592,000.00, less than the value of the properties of EGI stipulated in its amended MOA with UCPB. HSaEAD UCPB applied the entire foreclosure proceeds of P723,592,000.00 to the principal amount of the loan obligations of EGI, pursuant to BSP Circular No. 239, 10 which provided that partial property payments shall first be applied to the principal. After deducting the said amount from the total loan obligations of EGI, there was still an unpaid balance ofP192,246,822.50. On 8 May 2001, some of the other properties of EGI at EGI Rufino Plaza, valued at P166,127,369.50, were transferred by way of dacion en pago to UCPB. However, during the signing of the transaction papers for the dacion en pago, EGI Senior Vice-President, Architect Grace S. Layug (Layug), noticed that said papers stated that the remaining loan

[G.R. No. 168897. June 30, 2009.] E. GANZON, INC., petitioner, vs. UNITED COCONUT PLANTERS BANK, JAIME W. JACINTO and EMILY R. LAZARO, respondents.

DECISION

CHICO-NAZARIO, J p: These are two consolidated 1 Petitions for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure. United Coconut Planters Bank (UCPB) is a universal bank duly organized and existing under Philippine Laws. In G.R. No.168859, UCPB and its corporate officers, i.e., Jeronimo U. Kilayko, Lorenzo V. Tan, Enrique L. Gana, Jaime W. Jacinto and Emily R. Lazaro (UCPB, et al.) seek the reversal and setting aside of the Decision 2 dated 14 October 2004 and Resolution 3 dated 7 July 2005 of the Court of Appeals in CAG.R. SP No. 81385 and the affirmation, instead, of the letterdecision 4 dated 16 September 2003 of the Monetary Board of the Bangko Sentral ng Pilipinas (BSP). The Court of Appeals, in its assailed Decision, set aside the aforesaid letter-decision of the BSP Monetary Board and remanded the case to the latter for further proceedings; and in its questioned Resolution, denied for lack of merit the Motion for Reconsideration of UCPB, et al., as well as the Partial Motion for Reconsideration of E. Ganzon, Inc. (EGI). On the other hand, EGI is a corporation duly organized and existing under Philippine laws and engaged in real estate construction and development business. In G.R. No. 168897, EGI prays for this Court to review the same Decision dated 14 October 2004 and Resolution dated 7 July 2005 of the Court of Appeals in CA-G.R. SP No. 81385, and to order the appellate court to (1) act on its findings in the case instead of remanding the same to the BSP Monetary Board for further proceedings; (2) direct the BSP Monetary Board to impose the applicable administrative sanctions upon UCPB, et al.; and (3) to amend its assailed Decision and Resolution by deleting therefrom the statements requiring the BSP Monetary Board to scrutinize and dig deeper into the acts of UCPB, et al., and to determine if, indeed, there were irregular and unsound practices in its business dealings with EGI. CcEHaI

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balance of EGI in the amount of P192,246,822.50 had increased to P226,963,905.50. The increase was allegedly due to the addition of the transaction costs amounting to P34,717,083.00. EGI complained to UCPB about the increase, yet UCPB did not take any action on the matter. ADETca This prompted EGI President Engineer Eulalio Ganzon (Ganzon) and Senior Vice-President Layug to review their files to verify the figures on the loan obligations of EGI as computed by UCPB. In the process, they discovered the UCPB Internal Memorandum dated 22 February 2001, 11 signed by UCPB corporate officers. The said Internal Memorandum presented two columns, one with the heading "ACTUAL" and the other "DISCLOSED TO EGI". The figures in the two columns were conflicting. The figures in the "DISCLOSED TO EGI" column computed the unpaid balance of the loan obligations of EGI to be P226,967,194.80, the amount which UCPB actually made known to and demanded from EGI. The figures in the "ACTUAL" column calculated the remaining loan obligations of EGI to be only P146,849,412.58. Consequently, EGI wrote UCPB a letter dated 21 May 2001, 12 which included, among other demands, the refund by UCPB to EGI of the over-payment of P83,000,000.00; 13 return to EGI of all the remaining Transfer Certificates of Title (TCTs)/Condominium Certificates of Title (CCTs) in the possession of UCPB; and cost of damage to EGI for the delay in the release of its certificates of title. TcaAID In response, UCPB explained 14 that the "ACTUAL" column in its Internal Memorandum dated 22 February 2001 contained the same amounts reflected or recorded in its financial statements, in accordance with the Manual of Accounts for Banks, Manual of Regulations for Banks 15 and BSP Circular No. 202, 16 Series of 1999. In contrast, the "DISCLOSED TO EGI" column showed the total amount still due from EGI, including the total principal, interests, transaction and other costs after the foreclosure, whether reflected in the financial books of UCPB or not. Further, UCPB maintained that the difference in the figures in the two columns was because BSP Circular No. 202 and Section X305.4 of the Manual of Regulations for Bank disallowed banks from accruing in its books interest on loans which had become nonperforming. DACaTI Despite the explanation of UCPB, EGI insisted that the figures appearing in the "ACTUAL" column of the former's Internal Memorandum dated 22 February 2001 revealed the true and actual amount of its loan obligations to UCPB,P146,849,412.58. EGI Senior Vice-President Layug met with UCPB VicePresident, Jaime W. Jacinto (Jacinto) to discuss the demand of EGI for the return of its overpayment. UCPB Vice-President Jacinto, however, refused to concede that UCPB had any obligation to make a refund to EGI and, instead, insisted that EGI Senior Vice-President Layug disclose who gave her a copy of the UCPB Internal Memorandum dated 22 February 2001. Based on the possession by EGI of the UCPB Internal Memorandum dated 22 February 2001, UCPB filed a criminal case for theft and/or discovery of secrets against EGI President Ganzon and Senior Vice-President Layug, but the said case was dismissed. 17 On 5 November 2002, EGI, also on the basis of the UCPB Internal Memorandum dated 22 February 2001, EGI filed with

the BSP an administrative complaint 18 against UCPB, et al., for violation of Sections 36 19 and 37, 20 Article IV of Republic Act No. 7653, 21 in relation to Section 55.1 (a) 22 of Republic Act No. 8791; 23 and for the commission of irregularities and conducting business in an unsafe or unsound manner. In a letter-decision 24 dated 16 September 2003, the BSP Monetary Board dismissed the administrative complaint of EGI, holding as follows: Please be informed that the Monetary Board decided to dismiss the complaint based on the evaluation conducted by the Supervision and Examination Department I and the Office of the General Counsel and Legal Services to the effect that: 1.UCPB computed interest on the loans based on BSP rules and regulations which prohibit banks from accruing interest on loans that have become non-performing (BSP Circular No. 202). This is different from interest which may have run and accrued based on the promissory notes/loan documents from the date of default up to settlement date. TAcCDI

2.Fair market value of assets to be foreclosed is different from the bid price submitted during foreclosure and there is no statutory obligation for the latter to be equivalent to the former. 3.Regarding the alleged P145,163,000.00 fabricated loan, the documents showed that there were the EGI Board Resolution to borrow, promissory note signed by Mr. Eulalio Ganzon, and Loan Agreement stating that the proceeds shall be used to pay outstanding availments and interest servicing. 4.There is no finding by Supervision and Examination Department I on the alleged double charging and/or padding of transaction costs. 25 EGI filed a Motion for Reconsideration and a Supplemental Motion for Reconsideration of the aforequoted letter-decision of the BSP Monetary Board. The BSP Monetary Board denied both motions in its letter 26 dated 8 December 2003 as there was no sufficient basis to grant the same. EGI then filed a Petition for Review under Rule 43 of the 1997 Revised Rules of Civil Procedure with the Court of Appeals raising the sole issue of "whether the Bangko Sentral ng Pilipinas erred in dismissing the administrative complaint filed by EGI against UCPB, et al." The case was docketed as CAG.R. SP No. 81385. On 14 October 2004, the Court of Appeals rendered its assailed Decision granting the Petition for Review of EGI, thus, setting aside the BSP letter-decision dated 16

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September 2003 and remanding the case to the BSP Monetary Board for further proceedings. UCPB, et al., moved for the reconsideration of the 14 October 2004 Decision of the appellate court, praying for a new judgment dismissing the appeal of EGI for lack of jurisdiction and/or lack of merit. EGI also filed a Partial Motion for Reconsideration of the same Court of Appeals Decision, with the prayer that the appellate court, instead of still remanding the case to the BSP Monetary Board for further proceedings, already direct the latter to impose the applicable administrative sanctions upon UCPB, et al. In a Resolution dated 7 July 2005, the Court of Appeals denied for lack of merit both the Motion for Reconsideration of UCPB, et al. and the Motion for Partial Reconsideration of EGI. THSaEC G.R. No. 168859 Aggrieved by the 14 October 2004 Decision and 7 July 2005 Resolution of the Court of Appeals, UCPB, et al. comes before this Court, via a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure, based on the following assignment of errors: I.THE HONORABLE COURT OF APPEALS ACTED WITHOUT JURISDICTION AND GRAVELY ERRED IN HOLDING THAT IT HAS APPELLATE JURISDICTION OVER DECISIONS OF THE BSP/MONETARY BOARD. caIEAD II.THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE BANGKO SENTRAL SUMMARILY DISMISSED THE COMPLAINT OF [EGI]. III.THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN DISREGARDING THE FINDINGS OF FACT OF THE BANGKO SENTRAL AND IN HOLDING THAT [UCPB, et al.] COMMITTED IRREGULAR AND UNSOUND BANKING PRACTICES IN THE SUBJECT TRANSACTIONS. 27 The Petition is docketed as G.R. No. 168859. UCPB, et al., aver that the Court of Appeals has no appellate jurisdiction over decisions, orders and/or resolutions of the BSP Monetary Board on administrative matters. The BSP Monetary Board is not among the quasi-judicial agencies enumerated under Rule 43 of the 1997 Revised Rules of Civil Procedure, over which the Court of Appeals has appellate jurisdiction. Further, there is nothing in Republic Act No. 7653 or in Republic Act No. 8791 which explicitly allows an appeal of the decisions or orders of the BSP Monetary Board to the Court of Appeals. Resultantly, the Court of Appeals has no power to review, much less set aside, the findings of fact of the BSP Monetary Board as contained in its letter-decision dated 16 September 2003.

UCPB, et al. also claim that, contrary to the ruling of the Court of Appeals, the letter-decision dated 16 September 2003 of the BSP Monetary Board plainly reveals that the administrative complaint of EGI against UCPB, et al. was not summarily dismissed. The charges of EGI against UCPB, et al. was resolved only after the BSP Monetary Board thoroughly reviewed pertinent bank records and studied the arguments raised by EGI in its complaint and Motion for Partial Reconsideration. In its letter-decision dated 16 September 2003, the BSP Monetary Board stated in no uncertain terms that the dismissal of the complaint of EGI was based on the evaluation conducted by its Supervision and Examination Department I and the Office of the General Counsel and Legal Services. Also, in its letter dated 8 December 2003, the BSP Monetary Board denied the Motion for Reconsideration and Supplemental Motion for Reconsideration of EGI because the latter did not present any new evidence in support of its motions. Hence, there is no basis for the claim of EGI that the BSP Monetary Board overlooked and completely ignored its accusations of irregular and unsound banking practice against UCPB, et al. Finally, UCPB, et al., maintain that the findings of fact of administrative bodies like the BSP Monetary Board are accorded great respect, if not finality, especially if supported by substantial evidence. Such findings are to be respected by the courts, especially in the absence of grave abuse of discretion or grave errors by the BSP Monetary Board. No other office, much less an appellate tribunal, can substitute its own findings of fact over that of the concerned administrative agency in view of the expertise and specialized knowledge acquired by it on matters falling within its areas of concern. UCPB, et al. insist that it is the BSP which has the necessary expertise to draft guidelines for the evaluation of the performance and conduct of banks. Thus, the Court of Appeals committed grave error in disregarding the findings of fact of the BSP Monetary Board which justified the latter's dismissal of the administrative complaint of EGI against UCPB, et al. The issue of jurisdiction of the Court of Appeals over appeals of decisions, orders and/or resolutions of the BSP Monetary Board on administrative matters must first be resolved, before the other issues raised herein by UCPB, et al. Truly, there is nothing in Republic Act No. 7653 or in Republic Act No. 8791 which explicitly allows an appeal of the decisions of the BSP Monetary Board to the Court of Appeals. However, this shall not mean that said decisions are beyond judicial review. STIcaE Section 9 (3) of Batas Pambansa Blg. 129, otherwise known as The Judiciary Reorganization Act of 1980, as amended, reads: SEC. 9.Jurisdiction. The Court of Appeals shall exercise: xxx xxx xxx (3)Exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or awards of Regional Trial Courts and quasi-judicial agencies, instrumentalities, boards or commissions, including the Securities and Exchange Commission, the Social Security Commission, the Employees

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Compensation Commission and the Civil Service Commission, except those falling within the appellate jurisdiction of the Supreme Court in accordance with the Constitution, the Labor Code of the Philippines under Presidential Decree No. 442, as amended, the provisions of this Act, and of subparagraph (1) of the third paragraph and subparagraph 4 of the fourth paragraph of Section 17 of the Judiciary Act of 1948. (Emphasis ours.) In accordance with the afore-quoted provision, Rule 43 of the 1997 Revised Rules of Civil Procedure, on Appeals from the Court of Tax Appeals and Quasi-Judicial Agencies to the Court of Appeals, defines its scope as follows: SEC. 1.Scope. This Rule shall apply to appeals from judgments or final orders of the Court of Tax Appeals and from awards, judgments, final orders or resolutions of or authorized by any quasi-judicial agency in the exercise of its quasi-judicial functions. Among these agencies are the Civil Service Commission, Central Board of Assessment Appeals, Securities and Exchange Commission, Office of the President, Land Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of Patents, Trademarks and Technology Transfer, National Electrification Administration, Energy Regulatory Board, National Telecommunications Commission, Department of Agrarian Reform under Republic Act No. 6657, Government Service Insurance System, Employees Compensation Commission, Agricultural Inventions Board, Insurance Commission, Philippine Atomic Energy Commission, Board of Investments, Construction Industry Arbitration Commission, and voluntary arbitrators authorized by law. (Emphasis ours.) A perusal of Section 9 (3) of Batas Pambansa Blg. 129, as amended, and Section 1, Rule 43 of the 1997 Revised Rules of Civil Procedure reveals that the BSP Monetary Board is not included among the quasi-judicial agencies explicitly named therein, whose final judgments, orders, resolutions or awards are appealable to the Court of Appeals. Such omission, however, does not necessarily mean that the Court of Appeals has no appellate jurisdiction over the judgments, orders, resolutions or awards of the BSP Monetary Board. TcCSIa It bears stressing that Section 9 (3) of Batas Pambansa Blg. 129, as amended, on the appellate jurisdiction of the Court of Appeals, generally refers to quasi-judicial agencies, instrumentalities, boards, or commissions. The use of the word "including" in the said provision, prior to the naming of several quasi-judicial agencies, necessarily conveys the very idea of non-exclusivity of the enumeration. The principle of expressio unius est exclusio alterius does not apply where other circumstances indicate that the enumeration was not intended to be exclusive, or where the enumeration is by way of example only. 28

Similarly, Section 1, Rule 43 of the 1997 Revised Rules of Civil Procedure merely mentions several quasi-judicial agencieswithout exclusivity in its phraseology. 29 The enumeration of the agencies therein mentioned is not exclusive. 30The introductory phrase "[a]mong these agencies are" preceding the enumeration of specific quasijudicial agencies only highlights the fact that the list is not meant to be exclusive or conclusive. Further, the overture stresses and acknowledges the existence of other quasijudicial agencies not included in the enumeration but should be deemed included. 31

A quasi-judicial agency or body is an organ of government other than a court and other than a legislature, which affects the rights of private parties through either adjudication or rule-making. 32 The very definition of an administrative agency includes its being vested with quasi-judicial powers. The ever increasing variety of powers and functions given to administrative agencies recognizes the need for the active intervention of administrative agencies in matters calling for technical knowledge and speed in countless controversies which cannot possibly be handled by regular courts. 33 A "quasi-judicial function" is a term which applies to the action, discretion, etc., of public administrative officers or bodies, who are required to investigate facts, or ascertain the existence of facts, hold hearings, and draw conclusions from them, as a basis for their official action and to exercise discretion of a judicial nature. 34 Undoubtedly, the BSP Monetary Board is a quasi-judicial agency exercising quasi-judicial powers or functions. As aptly observed by the Court of Appeals, the BSP Monetary Board is an independent central monetary authority and a body corporate with fiscal and administrative autonomy, mandated to provide policy directions in the areas of money, banking and credit. 35 It has power to issue subpoena, to sue for contempt those refusing to obey the subpoena without justifiable reason, 36 to administer oaths and compel presentation of books, records and others, needed in its examination, 37 to impose fines and other sanctions and to issue cease and desist order. 38 Section 37 of Republic Act No. 7653, 39 in particular, explicitly provides that the BSP Monetary Board shall exercise its discretion in determining whether administrative sanctions should be imposed on banks and quasi-banks, which necessarily implies that the BSP Monetary Board must conduct some form of investigation or hearing regarding the same. Having established that the BSP Monetary Board is indeed a quasi-judicial body exercising quasi-judicial functions; then as such, it is one of those quasi-judicial agencies, though not specifically mentioned in Section 9 (3) of Batas Pambansa Blg. 129, as amended, and Section 1, Rule 43 of the 1997 Revised Rules of Civil Procedure, are deemed included therein. Therefore, the Court of Appeals has appellate jurisdiction over final judgments, orders, resolutions or awards of the BSP Monetary Board on administrative complaints against banks and quasi-banks, which the former acquires through the filing by the aggrieved party of a Petition for Review under Rule 43 of the 1997 Revised Rules of Civil Procedure. DIcTEC As a futile effort of UCPB, et al. to convince this Court that the Court of Appeals has no appellate jurisdiction over the final judgments, orders, resolutions or awards of the BSP Monetary Board, it cited Salud v. Central Bank of the Philippines. 40

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The invocation of UCPB, et al. of Salud is evidently misplaced. The present case involves a decision of the BSP Monetary Board as regards an administrative complaint against a bank and its corporate officers for the alleged violation of Sections 36 and 37, Article IV of Republic Act No. 7653, in relation to Section 55.1 (a) of Republic Act No. 8791, and for the commission of irregularity and unsafe or unsound banking practice. There is nothing in the aforesaid laws which state that the final judgments, orders, resolutions or awards of the BSP Monetary Board on administrative complaints against banks or quasi-banks shall be final and executory and beyond the subject of judicial review. Without being explicitly excepted or exempted, the final judgments, orders, resolutions or awards of the BSP Monetary Board are among those appealable to the Court of Appeals by way of Petition for Review, as provided in Section 9 (3) of Batas Pambansa Blg. 129, as amended, and Section 1, Rule 43 of the 1997 Revised Rules of Civil Procedure. Although in Salud, this Court declared that the Intermediate Appellate Court (now Court of Appeals) has no appellate jurisdiction over resolutions or orders of the Monetary Board of the Central Bank of the Philippines (CBP, now BSP), because no law prescribes any mode of appeal therefrom, the factual settings of the said case are totally different from the one presently before us. Salud involved a resolution issued by the Monetary Board, pursuant to Section 29 ofRepublic Act No. 265, otherwise known as the old Central Bank Act, forbidding banking institutions to do business on account of a "condition of insolvency" or because "its continuance in business would involve probable loss to depositors or creditors"; or appointing a receiver to take charge of the assets and liabilities of the bank; or determining whether the banking institutions should be rehabilitated or liquidated, and if in the latter case, appointing a liquidator towards this end. The said Section 29 of the old Central Bank Act was explicit that the determination by the Monetary Board of whether a banking institution is insolvent, or should be rehabilitated or liquidated, is final and executory. However, said determination could be set aside by the trial court if there was convincing proof that the Monetary Board acted arbitrarily or in bad faith. Under the circumstances obtaining in Salud, it is apparent that our ruling therein is limited to cases of insolvency, and not to all cases cognizable by the Monetary Board. At any rate, under the new law, i.e., Section 30 of Republic Act No. 7653, otherwise known as The New Central Bank Act, which took effect on 3 July 1993, the order of the BSP Monetary Board, even regarding the liquidation of a bank, can be questioned via a Petition for Certiorari before a court when the same was issued in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction. The court referred to therein can be construed to mean the Court of Appeals because it is in the said court where a Petition for Certiorari can be filed following the hierarchy of courts. HESIcT Moreover, the appellate jurisdiction of the Court of Appeals over the final judgments, orders, resolutions or awards of the BSP Monetary Board in administrative cases involving directors and officers of banks, quasi-banks, and trust entities, is affirmed in BSP Circular No. 477, Series of 2005. The said BSP Circular expressly provides that the resolution rendered by the BSP Monetary Board in administrative cases may be appealed to the Court of Appeals within the period and the manner provided under Rule 43 of the 1997 Revised Rules of Civil Procedure.

With all the foregoing, it cannot now be questioned that the Court of Appeals has appellate jurisdiction over the final judgments, orders, resolutions or awards rendered by the BSP Monetary Board in administrative cases against banks and their directors and officers, such as UCPB, et al. The Court then proceeds to resolve the issue of whether the Court of Appeals erred in holding that the BSP Monetary Board summarily dismissed the administrative complaint of EGI against UCPB, et al. After a meticulous scrutiny of the 16 September 2003 letterdecision of the BSP Monetary Board, this Court rules in the negative and affirms the finding of the Court of Appeals that the BSP Monetary Board did, indeed, summarily dismiss administrative complaint of EGI against UCPB, et al., for violation of Sections 36 and 37, Article IV of Republic Act No. 7653, in relation to Section 55.1 (a) of Republic Act No. 8791, and for the commission of irregularity and unsafe or unsound banking practice. Given the gravity and seriousness of the charges of EGI against UCPB, et al., the sweeping statement of the BSP Monetary Board that it was inclined to dismiss the complaint of EGI based on the evaluation made by its Supervision and Examination Department I and Office of the General Counsel and Legal Services, is simply insufficient and unsatisfactory. Worse, the BSP Monetary Board merely presented the following conclusions without bothering to explain its bases for the same: (1) UCPB computed interest on loans based on BSP rules and regulations which prohibit banks from accruing interest on loans that have become non-performing (BSP Circular No. 202); (2) fair market value of assets to be foreclosed is different from the bid price submitted during foreclosure and there is no statutory obligation for the latter to be equivalent to the former; (3) regarding the alleged P145,163,000.00 fabricated loan, the documents showed that there were the EGI Board resolution to borrow, promissory note signed by Mr. Eulalio Ganzon, and Loan Agreement stating the proceeds shall be used to pay outstanding availments and interest servicing; and (4) there is no finding by Supervision and Examination Department I on the alleged double charging and/or padding of transaction costs. ECDAcS Further, in resolving the matter before it, the BSP Monetary Board never considered the UCPB Internal Memorandum dated 22 February 2001, which was the heart of the administrative complaint of EGI against UCPB, et al. The BSP Monetary Board did not even attempt to establish whether it was regular or sound practice for a bank to keep a record of its borrower's loan obligations with two different sets of figures, one higher than the other; and to disclose to the borrower only the higher figures. The explanation of UCPB, et al., adopted by the BSP Monetary Board that the figures in the "ACTUAL" column were lower than those in the "DISCLOSED TO EGI" column because the former was computed in accordance with BSP rules and regulations prohibiting the accrual of interest on loans that have become non-performing gives rise to more questions than answers. Examples of some of these questions would be whether the loan obligations of EGI have become non-performing; whether the differences between the figures in the "ACTUAL" and "DISCLOSED TO EGI" columns indeed corresponded to the interest that should be excluded from the figures in the first column per BSP rules and regulations; and whether the computations of the figures in both columns should have been freely disclosed and sufficiently explained to EGI in the name of transparency.

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the MOA and its amendments and the UCPB Internal Memorandum dated 22 February 2001). The BSP Monetary Board similarly failed to clarify whether UCPB can foreclose the mortgaged properties of EGI in amounts that were less than the values of the said properties as determined and stipulated by EGI and UCPB in their amended MOA. The Court once more agrees in the ruling of the Court of Appeals that the MOA entered into by EGI and UCPB serves as a contract between them, and it is the law that should govern their relationship, which neither of the parties can simply abrogate, violate, or disregard. Unfortunately, the BSP Monetary Board never even referred to the MOA executed by the parties in its letter-decision dated 16 September 2003. Moreover, the BSP Monetary Board found that the P145,163,000.00 loan of EGI from UCPB was not fabricated based on several documents. However, there is absolute lack of explanation by the BSP Monetary Board as to why said documents deserved more weight vis--vis evidence of EGI of suspicious circumstances surrounding the said loan, such as UCPB granting EGI said loan even when the latter was already in default on its prior loan obligations, and without requiring additional security, detailed business plan, and financial projections from EGI. The disregard by BSP Monetary Board of all the foregoing facts and issues in its letter-decision dated 16 September 2003 leads this Court to declare that it summarily dismissed the administrative complaint of EGI against UCPB, et al. There can be no complete resolution of the administrative complaint of EGI without consideration of these facts and judgment on said issues. DACcIH Finally, there is no merit in the assertion of UCPB, et al. that the Court of Appeals erred in disregarding the findings of fact of the BSP Monetary Board in the absence of grave abuse of discretion or lack of basis for the same. Although, as a general rule, findings of facts of an administrative agency, which has acquired expertise in the particular field of its endeavor, are accorded great weight on appeal, such rule cannot be applied with respect to the assailed findings of the BSP Monetary Board in this case. Rather, what applies is the recognized exception that if such findings are not supported by substantial evidence, the Court can make its own independent evaluation of the facts. 41 The standard of substantial evidence required in administrative proceedings is more than a mere scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. While rules of evidence prevailing in courts of law and equity shall not be controlling, the obvious purpose being to free administrative boards from the compulsion of technical rules so that the mere admission of matter which would be deemed incompetent in judicial proceedings would not invalidate the administrative order, this assurance of a desirable flexibility in administrative procedure does not go so far as to justify orders without basis in evidence having rational probative force.42 It cannot be convincingly said herein that the factual findings of the BSP Monetary Board in its letter-decision dated 16 September 2003 was supported by substantial evidence since (1) most of the findings were not supported by references to specific evidence; and (2) the findings were made without consideration of the primary evidence presented by EGI (i.e., Even then, the Court of Appeals stopped short of categorically ruling that UCPB, et al. committed irregularities, or unsound or unsafe banking practice in its transactions with EGI. What the Court of Appeals positively pronounced was that the BSP Monetary Board failed to give the necessary consideration to the administrative complaint of EGI, summarily dismissing the same in its 16 September 2003 letter-decision. The 14 October 2004 Decision of the Court of Appeals clearly remanded the case to the BSP for further proceedings since the BSP, with its specialized knowledge and expertise on banking matters, is more up to task to receive evidence, hold hearings, and thereafter resolve the issues based on its findings of fact and law. cSTCDA G.R. No. 168897 Also unsatisfied with the Decision dated 14 October 2004 and Resolution dated 7 July 2005 of the Court of Appeals, EGI filed with this Court its own Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure, raising the following issues: I.The Honorable Court of Appeals does have appellate jurisdiction over decisions, orders, and resolutions of the BSP/Monetary Board. II.The Honorable Court of Appeals was correct in FINDING that the [BSP] summarily dismissed the complaint of EGI. III.Whether or not the Honorable Court of Appeals committed patent, grave, and reversible error when it remanded the case to the [BSP] for further proceedings instead of acting upon its findings as narrated in its Decision. IV.Whether or not the Honorable Court of Appeals committed patent, grave, and reversible error in not directing the [BSP] to impose the appropriate penalties against [UCPB, et al.]. 43 ASDTEa The Petition is docketed as G.R. No. 168897. Since the first two "issues" have already been addressed by this Court in its previous discussion herein on G.R. No.168859, we now proceed to resolve the next two issues raised by EGI in its Petition in G.R. No. 168897. EGI avers that the Court of Appeals committed reversible error when it remanded the case to the BSP for further proceedings instead of directing the BSP to impose the applicable sanctions on UCPB, et al. EGI reasons that the appellate court, in its Decision dated 14 October 2004, already found that UCPB had committed several acts of serious irregularity and conducted business in an unsafe and

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unsound manner. By reason thereof, there was no more need for the Court of Appeals to remand this case to the BSP for a further determination of whether there were irregular and unsound practices by UCPB, et al. in its dealings with EGI. Should this case be remanded to the BSP, there would be nothing to prevent the BSP from ruling again that UCPB, et al., did not commit any irregularity and unsafe or unsound business practice. To require that this case be reviewed by the BSP would only lead to multiplicity of suits, promote unnecessary delay and negate the constitutional rights of all persons to a speedy disposition of their cases before all judicial, quasi-judicial or administrative bodies. The Court reiterates that the Court of Appeals did not yet make conclusive findings in its Decision dated 14 October 2004, that UCPB, et al., committed irregularities and unsound or unsafe banking practices in their business dealings with EGI. The appellate court only adjudged that the BSP Monetary Board summarily dismissed the administrative complaint of EGI, without fully appreciating the facts and evidence presented by the latter. Given the seriousness of the charges of EGI against UCPB, et al., the BSP Monetary Board should have conducted a more intensive inquiry and rendered a more comprehensive decision. By remanding the case to the BSP Monetary Board, the Court of Appeals only acted in accordance with Republic Act No. 7653 and Republic Act No. 8791, which tasked the BSP, through the Monetary Board, to determine whether a particular act or omission, which is not otherwise prohibited by any law, rule or regulation affecting banks, quasi-banks or trust entities, may be deemed as conducting business in an unsafe or unsound manner. Also, the BSP Monetary Board is the proper body to impose the necessary administrative sanctions for the erring bank and its directors or officers. The Court of Appeals did not deem it appropriate, on appeal, to outright reverse the judgment of the BSP Monetary Board. The Court of Appeals held that the BSP Monetary Board did not have sufficient basis for dismissing the administrative complaint of EGI in its 16 September 2003 letter-decision; yet, the appellate court likewise did not find enough evidence on record to already resolve the administrative complaint in favor of EGI and against UCPB, et al., precisely the reason why it still remanded the case to the BSP Monetary Board for further proceedings. The Court of Appeals never meant to give EGI an assurance of a favorable judgment; it only ensured that the BSP Monetary Board shall accord all parties concerned to equal opportunity for presentation and consideration of their allegations, arguments, and evidence. While the speedy disposition of cases is a constitutionally mandated right, the paramount duty of the courts, as well as quasi-judicial bodies, is to render justice by following the basic rules and principles of due process and fair play. WHEREFORE, premises considered, the Petition for Review on Certiorari of United Coconut Planters Bank, Jeronimo U. Kilayko, Lorenzo V. Tan, Enrique L. Gana, Jaime W. Jacinto and Emily R. Lazaro, in G.R. No. 168859; as well as the Petition for Review on Certiorari of E. Ganzon, Inc. in G.R. No. 168897, are hereby DENIED. The Decision dated 14 October 2004 and Resolution dated 7 July 2005 of the Court of Appeals in CA-G.R. SP No. 81385 are hereby AFFIRMEDin toto. No costs. HIaTCc SO ORDERED.

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THIRD DIVISION [G.R. No. 115849. January 24, 1996.] FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and MERCURIO RIVERA, petitioners, vs. COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and JOSE JANOLO, respondents.

Ongkiko, Dizon, Ongkiko & Panga Law Office and Domingo and Dizon for petitioners. Castillo, Laman, Tan, Pantalleon & San Jose for Carlos Ejercito. cdta

SYLLABUS 1.CIVIL LAW; PRIVATE INTERNATIONAL LAW; ORIGIN OF FORUM-SHOPPING. Forum-shopping originated as a concept in private international law, where non-resident litigants are given the option to choose the forum or place wherein to bring their suit for various reasons or excuses, including to secure procedural advantages, to annoy and harass the defendant, to avoid overcrowded dockets, or to select a more friendly venue. To combat these less than honorable excuses, the principle of forum non conveniens was developed whereby a court, in conflict of law cases, may refuse impositions on its jurisdiction where it is not the most "convenient" or available forum and the parties are not precluded from seeking remedies elsewhere. Hence, according to Words and Phrases, "a litigant is open to the charge of 'forum shopping' whenever he chooses a forum with the slight connection to factual circumstances surrounding his suit, and litigants should be encouraged to attempt to settle their differences without imposing undue expense and vexatious situations on the courts." cdasia 2.REMEDIAL LAW; CIVIL PROCEDURE; FORUM-SHOPPING; AS A CHOICE OF VENUE AND AS A CHOICE OF REMEDY; CONSTRUED. In the Philippines, forum shopping has acquired a connotation encompassing not only a choice of venues, as it was originally understood in conflicts of law, but also to a choice of remedies. As to the first (choice of venues), the Rules of Court, for example, allow a plaintiff to commence personal actions "where the defendant or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff" (Rule 4, Sec. 2 [b]). As to remedies, aggrieved parties, for example, are given a choice of pursuing civil liabilities independently of the criminal, arising from the same set of facts. A passenger of a public utility vehicle involved in a vehicular accident may sue on culpa contractual, culpa aquiliana or culpa criminal each remedy being available independently of the others although he cannot recover more than once. "In either of these situations (choice of venue or choice of remedy), the litigant actually shops for a forum of his action. This was the original concept of the term forum-shopping. 3.ID.; ID.; ID.; AS AN UNETHICAL PRACTICE; WHEN PRESENT. What originally started both in conflicts of laws

and in our domestic law as a legitimate device for solving problems has been abused and mis-used to assure scheming litigants of dubious reliefs. To avoid or minimize this unethical practice of subverting justice, the Supreme Court, as already mentioned, promulgated Circular 28-91. And even before that, the Court had proscribed it in the Interim Rules and Guidelines issued on January 11, 1983 and had struck down in several cases the inveterate use of this insidious malpractice. Forum-shopping as "the filing of repetitious suits in different courts" has been condemned by Justice Andres R. Narvasa (now Chief Justice) in Minister of Natural Resources, et al., vs. Heirs of Orval Hughes, et al., "as a reprehensible manipulation of court processes and proceedings . . .." When does forum shopping take place? "There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable opinion (other than by appeal or certiorari) in another. The principle applies not only with respect to suits filed in the courts but also in connection with litigations commenced in the courts while an administrative proceeding is pending, as in this case, in order to defeat administrative processes and in anticipation of an unfavorable administrative ruling and a favorable court ruling. This is specially so, as in this case, where the court in which the second suit was brought, has no jurisdiction." cdasia 4.ID; ID.; ID.; AS A GROUND FOR SUMMARY DISMISSAL. The test for determining whether a party violated the rule against forum shopping has been laid down in the 1986 case of Buan vs. Lopez, 145 SCRA 34 (October 13, 1986), also by Chief Justice Narvasa, and that is, forum shopping exists where the elements of litis pendentia are present or where a final judgment in one case will amount to res judicata in the other. Consequently, where a litigant (or one representing the same interest or person) sues the same party against whom another action or actions for the alleged violation of the same right and the enforcement of the same relief is/are still pending, the defense of litis pendencia in one case is a bar to the others; and, a final judgment in one would constitute res judicata and this would cause the dismissal of the rest. In either case, forum-shopping could be cited by the other party as a ground to ask for summary dismissal of the two (or more) complaints or petitions, and for the imposition of the other sanctions, which are direct contempt of court, criminal prosecution, and disciplinary action against the erring lawyer. What is truly important to consider in determining whether forum-shopping exists or not is the vexation caused the courts and parties-litigant by a party who asks different courts and/or administrative agencies to rule on the same or related causes and/or to grant the same or substantially the same reliefs, in the process creating the possibility of conflicting decisions being rendered by the different fora upon the same issue. 5. D.; ID.; ID.; ID.; APPLICATION OF PRINCIPLE IN CASE AT BAR. Applying the foregoing principles in the present case and comparing it with the Second Case, it is obvious that there exist identity of parties or interests represented, identity of rights or causes and identity of reliefs sought. Very simply stated, the original complaint in the court a quo which gave rise to the instant petition was filed by the buyer to enforce the alleged perfected sale of real estate. On the other hand, the complaint in the Second Case seeks to declare such purported sale involving the same real property "as unenforceable as against the Bank," which is the petitioner herein. In other words, in the Second Case, the majority stockholders, in representation of the Bank, are seeking to accomplish what the Bank itself failed to do in the original case in the trial court. In brief, the objective or the relief being sought, though worded differently, is the same, namely, to enable the petitioner Bank to escape from the

34

obligation to sell the property to respondent. In this case, a decision recognizing the perfection and directing the enforcement of the contract of sale will directly conflict with a possible decision in the Second Case barring the parties from enforcing or implementing the said sale. Indeed, a final decision in one would constitute res judicata in the other. 6.COMMERCIAL LAW; CORPORATION CODE; DERIVATIVE SUIT, CONSTRUED. "An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest (Gamboa v. Victoriano, 90 SCRA 40, 47 [1979]). cdasia 7.ID.; ID.; WHEN THE VEIL OF CORPORATE FICTION MAY BE LIFTED. Petitioner also tried to seek refuge in the corporate fiction that the personality of the Bank is separate and distinct from its shareholders. But the rulings of this Court are consistent: "When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals." In addition to the many cases where the corporate fiction has been disregarded, we now add the instant case, and declare herewith that the corporate veil cannot be used to shield an otherwise blatant violation of the prohibition against forum-shopping. Shareholders, whether suing as the majority in direct action or as the minority in a derivative suit, cannot be allowed to trifle with court processes, particularly where, as in this case, the corporation itself has not been remiss in vigorously prosecuting or defending corporate causes and in using and applying remedies available to it. To rule otherwise would be to encourage corporate litigants to use their shareholders as fronts to circumvent the stringent rules against forum shopping. 8.CIVIL LAW; CONTRACT; REQUISITES. Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as follows: "(1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established." 9.COMMERCIAL LAW; CORPORATION CODE; BANKS; DOCTRINE OF APPARENT AUTHORITY; CONSTRUED. The authority of a corporate officer in dealing with third persons may be actual or apparent. The doctrine of "apparent authority," with special reference to banks, was laid out in Prudential Bank vs. Court of Appeals, 223 SCRA 350 (June 14, 1993), where it was held that: "Conformably, we have declared in countless decisions that the principal is liable for obligations contracted by the agent. The agent's apparent representation yields to the principal's true representation and the contract is considered as entered into between the principal and the third person (citing National Food Authority vs. Intermediate Appellate Court, 184 SCRA 166)." A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealing of the officers in their representative capacity but not for acts outside the scope of their authority (9 C.J.S., P. 417). A bank holding out its officers and agents as worthy of confidence will not be

permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021). "Application of these principles is especially necessary because banks have a fiduciary relationship with the public and their stability depends on the confidence of the people in their honesty and efficiency. Such faith will be eroded where banks do not exercise strict care in the selection and supervision of its employees, resulting in prejudice to their depositors."

10.CIVIL LAW; CONTRACTS; WHEN DEFECTS THEREOF UNDER STATUTE OF FRAUD DEEMED WAIVED. The statute of frauds will not apply by reason of the failure of petitioners to object to oral testimony proving petitioner Bank's counteroffer of P5.5 million. Hence, petitioners by such utter failure to object are deemed to have waived any defects of the contracts under the statute of frauds, pursuant to Article 1405 of the Civil Code. As private respondent pointed out in his Memorandum, oral testimony on the reaffirmation of the counter-offer of P5.5 million is aplenty and the silence of petitioners all throughout the presentation makes the evidence binding on them. 11.REMEDIAL LAW; PETITION FOR REVIEW; FINDINGS OF FACTS BY THE COURT OF APPEALS; NOT REVIEWABLE BY THE SUPREME COURT; RULE AND EXCEPTION. Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court, findings of fact by the Court of Appeals are not reviewable by the Supreme Court. However, there are settled exceptions where the Supreme Court may disregard findings of fact by the Court of Appeals. Indeed, conclusions of fact of a trial judge as affirmed by the Court of Appeals are conclusive upon this Court, absent any serious abuse or evident lack of basis or capriciousness of any kind, because the trial court is in a better position to observe the demeanor of all the witnesses and their courtroom manner as well as to examine the real evidence presented . 12.POWERS OF THE CONSERVATOR. While admittedly, the Central Bank law gives vast and far-reaching powers to the conservator of a bank, it must be pointed out that such powers must be related to the "(preservation of) the assets of the bank (the reorganization of) the management thereof and (the restoration of) its viability." Such powers, enormous and extensive as they are, cannot extend to the post-facto repudiation of perfected transactions, otherwise they would infringe against the non-impairment clause of the Constitution. If the legislature itself cannot revoke an existing valid contract, how can it delegate such non-existent powers to the conservator under Section 28-A of said law? Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are, under existing law, deemed to be defective i.e., void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the place of a bank's board of directors. What the said board cannot do such as repudiating a contract validly entered into under the doctrine of implied authority the conservator cannot do

35

either. Ineluctably, his power is not unilateral and he cannot simply repudiate valid obligations of the Bank. His authority would be only to bring court actions to assail such contracts as he has already done so in the instant case. A contrary understanding of the law would simply not be permitted by the Constitution. Neither by common sense. To rule otherwise would be to enable a failing bank to become solvent, at the expense of third parties, by simply getting the conservator to unilaterally revoke all previous dealings which had one way or another come to be considered unfavorable to the Bank, yielding nothing to perfected contractual rights nor vested interests of the third parties who had dealt with the Bank.

"WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the defendants as follows: "1.Declaring the existence of a perfected contract to buy and sell over the six (6) parcels of land situated at Don Jose, Sta. Rosa, Laguna with an area of 101 hectares, more or less, covered by and embraced in Transfer Certificates of Title Nos. T-106932 to T-106937, inclusive, of the Land Records of Laguna, between the plaintiffs as buyers and the defendant Producers Bank for an agreed price of Five and One Half Million (P5,500,000.00) Pesos; cdta "2.Ordering defendant Producers Bank of the Philippines, upon finality of this decision and receipt from the plaintiffs the amount of P5.5 Million, to execute in favor of said plaintiffs a deed of absolute sale over the aforementioned six (6) parcels of land, and to immediately deliver to the plaintiffs the owner's copies of T.C.T. Nos. T-106932 to T-106937, inclusive, for purposes of registration of the same deed and transfer of the six (6) titles in the names of the plaintiffs; "3.Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and Demetrio Demetria the sums of P200,000.00 each in moral damages; "4.Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P100,000.00 as exemplary damages; cdta "5.Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of P400,000.00 for and by way of attorney's fees; "6.Ordering the defendants to pay the plaintiffs, jointly and severally, actual and moderate damages in the amount of P20,000.00; "With costs against the defendants." After the parties filed their comment, reply, rejoinder, surrejoinder and reply to sur-rejoinder, the petition was given due course in a Resolution dated January 18, 1995. Thence, the parties filed their respective memoranda and reply memoranda. The First Division transferred this case to the Third Division per resolution dated October 23, 1995. After carefully deliberating on the aforesaid submissions, the Court assigned the case to the undersigned ponente for the writing of this Decision. cdta The Parties Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines; petitioner Bank, for

DECISION

PANGANIBAN, J p: In the absence of a formal deed of sale, may commitments given by bank officers in an exchange of letters and/or in a meeting with the buyers constitute a perfected and enforceable contract of sale over 101 hectares of land in Sta. Rosa, Laguna? Does the doctrine of "apparent authority" apply in this case? If so, may the Central Bank-appointed conservator of Producers Bank (now First Philippine International Bank) repudiate such "apparent authority" after said contract has been deemed perfected? During the pendency of a suit for specific performance, does the filing of a "derivative suit" by the majority shareholders and directors of the distressed bank to prevent the enforcement or implementation of the sale violate the ban against forumshopping? Simply stated, these are the major questions brought before this Court in the instant Petition for review on certiorari under Rule 45 of the Rules of Court, to set aside the Decision promulgated January 14, 1994 of the respondent Court of Appeals 1 in CA-G.R. CV No. 35756 and the Resolution promulgated June 14, 1994 denying the motion for reconsideration. The dispositive portion of the said Decision reads: "WHEREFORE, the decision of the lower court is MODIFIED by the elimination of the damages awarded under paragraphs 3, 4 and 6 of its dispositive portion and the reduction of the award in paragraph 5 thereof to P75,000.00, to be assessed against defendant bank. In all other aspects, said decision is hereby AFFIRMED. cdta "All references to the original plaintiffs in the decision and its dispositive portion are deemed, herein and hereafter, to legally refer to the plaintiff-appellee Carlos C. Ejercito. "Costs against appellant bank." The dispositive portion of the trial court's 2 decision dated July 10, 1991, on the other hand, is as follows:

36

brevity) is a banking institution organized and existing under the laws of the Republic of the Philippines. Petitioner Mercurio Rivera (petitioner Rivera, for brevity) is of legal age and was, at all times material to this case, Head Manager of the Property Management Department of the petitioner Bank. Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the assignee of original plaintiffsappellees Demetrio Demetria and Jose Janolo. Respondent Court of Appeals is the court which issued the Decision and Resolution sought to be set aside through this petition. cdta The Facts The facts of this case are summarized in the respondent Court's Decision 3 , as follows: "(1)In the course of its banking operations, the defendant Producer Bank of the Philippines acquired six parcels of land with a total area of 101 hectares located at Don Jose, Sta. Rosa, Laguna, and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. The property used to be owned by BYME Investment and Development Corporation which had them mortgaged with the bank as collateral for a loan. The original plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted to purchase the property and thus initiated negotiations for that purpose. "(2)In the early part of August 1987 said plaintiffs, upon the suggestion of BYME Investment's legal counsel, Jose Fajardo, met with defendant Mercurio Rivera, Manager of the Property Management Department of the defendant bank. The meeting was held pursuant to plaintiffs' plan to buy the property (TSN of Jan. 16, 1990, pp. 7-10). After the meeting, plaintiff Janolo, following the advice of defendant Rivera, made a formal purchase offer to the bank through a letter dated August 30, 1987 (Exh. "B"), as follows: August 30, 1987

Gentlemen: I have the honor to submit my formal offer to purchase your properties covered by titles listed hereunder located at Sta. Rosa, Laguna, with a total area of 101 hectares, more or less. TCT No.AREA T-106932113,580 sq.m. T-10693370,899 sq.m. T-10693452,246 sq.m. T-10693596,768 sq.m. T-106936187,114 sq.m. T-106937481,481 sq.m.

My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00) PESOS, in cash. cdta Kindly contact me at Telephone Number 921-1344. "(3)On September 1, 1987, defendant Rivera made on behalf of the bank a formal reply by letter which is hereunder quoted (Exh. "C"):

September 1, 1987

J-P M-P GUTIERREZ ENTERPRISES 142 Charisma St., Doa Andres II The Producers Bank of the Philippines cdta Makati, Metro Manila Attention:JOSE O. JANOLO Attn.Mr. Mercurio Q. Rivera Manager, Property Management Dept. Dear Sir: cdta Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa, Laguna (formerly owned by Byme Rosario, Pasig, Metro Manila

37

Industrial Corp.). Please be informed however that the bank's counter-offer is at P5.5 million for more than 101 hectares on lot basis. We shall be very glad to hear your position on the matter. Best regards. "(4)On September 17, 1987, plaintiff Janolo, responding to Rivera's aforequoted reply, wrote (Exh. "D"): September 17, 1987

Attention:Mr. Mercurio Rivera Re:101 Hectares of Land in Sta. Rosa, Laguna Gentlemen: Pursuant to our discussion last 28 September 1987, we are pleased to inform you that we are accepting your offer for us to purchase the property at Sta. Rosa, Laguna, formerly owned by Byme Investment, for a total price of PESOS: FIVE MILLION FIVE HUNDRED THOUSAND (P5,500,000.00). Thank you.

Producers Bank Paseo de Roxas Makati, Metro Manila cdta

"(6)On October 12, 1987, the conservator of the bank (which has been placed under conservatorship by the Central Bank since 1984) was replaced by an Acting Conservator in the person of defendant Leonida T. Encarnacion. On November 4, 1987, defendant Rivera wrote plaintiff Demetria the following letter (Exh. "F"): cdta Attention:Atty. Demetrio Demetria Dear Sir:

Attention:Mr. Mercurio Rivera Gentlemen: In reply to your letter regarding my proposal to purchase your 101-hectare lot located at Sta. Rosa, Laguna, I would like to amend my previous offer and I now propose to buy the said lot at P4.250 million in CASH. Hoping that this proposal meets your satisfaction. "(5)There was no reply to Janolo's foregoing letter of September 17, 1987. What took place was a meeting on September 28, 1987 between the plaintiffs and Luis Co, the Senior VicePresident of defendant bank. Rivera as well as Fajardo, the BYME lawyer, attended the meeting. Two days later, or on September 30, 1987, plaintiff Janolo sent to the bank, through Rivera, the following letter (Exh. "E"): cdta

Your proposal to buy the properties the bank foreclosed from Byme Investment Corp. located at Sta. Rosa, Laguna is under study yet as of this time by the newly created committee for submission to the newly designated Acting Conservator of the bank. For your information. "(7)What thereafter transpired was a series of demands by the plaintiffs for compliance by the bank with what plaintiff considered as a perfected contract of sale, which demands were in one form or another refused by the bank. As detailed by the trial court in its decision, on November 17, 1987, plaintiffs through a letter to defendant Rivera (Exhibit "G") tendered payment of the amount of P5.5 million "pursuant to (our) perfected sale agreement." Defendants refused to receive both the payment and the letter. Instead, the parcels of land involved in the transaction were advertised by the bank for sale to any interested buyer (Exhs. "H" and "H-1"). Plaintiffs demanded the execution by the bank of the documents on what was considered as a "perfected agreement." Thus: cdta

The Producers Bank of the Philippines Paseo de Roxas, Makati Metro Manila

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Mr. Mercurio Rivera Manager, Producers Bank Paseo de Roxas, Makati Metro Manila

PRODUCERS BANK OF THE PHILIPPINES Paseo de Roxas, Makati, Metro Manila

Dear Mr. Rivera: This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your 101-hectare lot located in Sta. Rosa, Laguna, and which are covered by TCT No. T-106932 to 106937. From the documents at hand, it appears that your counter-offer dated September 1, 1987 of this same lot in the amount of P5.5 million was accepted by our client thru a letter dated September 30, 1987 and was received by you on October 5, 1987. In view of the above circumstances, we believe that an agreement has been perfected. We were also informed that despite repeated follow-up to consummate the purchase, you now refuse to honor your commitment. Instead, you have advertised for sale the same lot to others. cdta In behalf of our client, therefore, we are making this formal demand upon you to consummate and execute the necessary actions/documentation within three (3) days from your receipt hereof. We are ready to remit the agreed amount of P5.5 million at your advice. Otherwise, we shall be constrained to file the necessary court action to protect the interest of our client. We trust that you will be guided accordingly. "(8)Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing letter and stated, in its communication of December 2, 1987 (Exh. "I"), that said letter has been "referred . . . to the office of our Conservator for proper disposition". However, no response came from the Acting Conservator. On December 14, 1987, the plaintiffs made a second tender of payment (Exh. "L" and "L-1"), this time through the Acting Conservator, defendant Encarnacion. Plaintiffs' letter reads: cdta Gentlemen:

Attn.:Atty. NIDA ENCARNACION Central Bank Conservator

We are sending you herewith, in-behalf of our client, Mr. JOSE O. JANOLO, MBTC Check No. 258387 in the amount of P5.5 million as our agreed purchase price of the 101-hectare lot covered by TCT Nos. 106932, 106933, 106934, 106935 106936 and 106937 and registered under Producers Bank. This is in connection with the perfected agreement consequent from your offer of P5.5 Million as the purchase price of the said lots. Please inform us of the date of documentation of the sale immediately. cdasia Kindly acknowledge receipt of our payment. "(9)The foregoing letter drew no response for more than four months. Then, on May 3, 1988, plaintiff, through counsel, made a final demand for compliance by the bank with its obligations under the considered perfected contract of sale (Exhibit "N"). As recounted by the trial court (Original Record, p. 656), in a reply letter dated May 12, 1988 (Annex "4" of defendant's answer to amended complaint), the defendants through Acting Conservator Encarnacion repudiated the authority of defendant Rivera and claimed that his dealings with the plaintiffs, particularly his counter-offer of P5.5 Million are unauthorized or illegal. On that basis, the defendants justified the refusal of the tenders of payment and the non-compliance with the obligations under what the plaintiffs considered to be a perfected contract of sale. "(10)On May 16, 1988, plaintiffs filed a suit for specific performance with damages against the bank, its Manager Rivera and Acting Conservator

39

Encarnacion. The basis of the suit was that the transaction had with the bank resulted in a perfected contract of sale. The defendants took the position that there was no such perfected sale because the defendant Rivera is not authorized to sell the property, and that there was no meeting of the minds as to the price." cdasia On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar Hernandez and Gatmaitan, filed a motion to intervene in the trial court, alleging that as owner of 80% of the Bank's outstanding shares of stock, he had a substantial interest in resisting the complaint. On July 8, 1991, the trial court issued an order denying the motion to intervene on the ground that it was filed after trial had already been concluded. It also denied a motion for reconsideration filed thereafter. From the trial court's decision, the Bank, petitioner Rivera and conservator Encarnacion appealed to the Court of Appeals which subsequently affirmed with modification the said judgment. Henry Co did not appeal the denial of his motion for intervention. In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted in place of Demetria and Janolo, in view of the assignment of the latters' rights in the matter in litigation to said private respondent. On July 11, 1992, during the pendency of the proceedings in the Court of Appeals, Henry Co and several other stockholders of the Bank, through counsel Angara Abello Concepcion Regala and Cruz, filed an action (hereafter, the "Second Case") purportedly a "derivative suit" with the Regional Trial Court of Makati, Branch 134, docketed as Civil Case No. 92-1606, against Encarnacion, Demetria and Janolo "to declare any perfected sale of the property as unenforceable and to stop Ejercito from enforcing or implementing the sale". 4 In his answer, Janolo argued that the Second Case was barred by litis pendentia by virtue of the case then pending in the Court of Appeals. During the pretrial conference in the Second Case, plaintiffs filed a Motion for Leave of Court to Dismiss the Case Without Prejudice. "Private respondent opposed this motion on the ground, among others, that plaintiff's act of forum shopping justifies the dismissal of both cases, with prejudice." 5 Private respondent, in his memorandum, averred that this motion is still pending in the Makati RTC. cdasia In their Petition 6 and Memorandum, 7 petitioners summarized their position as follows: I. "The Court of Appeals erred in declaring that a contract of sale was perfected between Ejercito (in substitution of Demetria and Janolo) and the bank. II. "The Court of Appeals erred in declaring the existence of an enforceable contract of sale between the parties. III.

"The Court of Appeals erred in declaring that the conservator does not have the power to overrule or revoke acts of previous management. cdasia IV. "The findings and conclusions of the Court of Appeals do not conform to the evidence on record." On the other hand, private respondents prayed for dismissal of the instant suit on the ground 8 that: I. "Petitioners have engaged in forum shopping. cdasia II. "The factual findings and conclusions of the Court of Appeals are supported by the evidence on record and may no longer be questioned in this case. III. "The Court of Appeals correctly held that there was a perfected contract between Demetria and Janolo (substituted by respondent Ejercito) and the bank.

IV. "The Court of Appeals has correctly held that the conservator, apart from being estopped from repudiating the agency and the contract, has no authority to revoke the contract of sale." cdasia The Issues From the foregoing positions of the parties, the issues in this case may be summed up as follows: 1)Was there forum-shopping on the part of petitioner Bank? 2)Was there a perfected contract of sale between the parties? 3)Assuming there was, was the said contract enforceable under the statute of frauds? 4)Did the bank conservator have the unilateral power to repudiate the authority of the bank officers and/or to revoke the said contract? cdasia 5)Did the respondent Court commit any reversible error in its findings of facts?

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The First Issue: Was There Forum-Shopping? In order to prevent the vexations of multiple petitions and actions, the Supreme Court promulgated Revised Circular No. 28-91 requiring that a party "must certify under oath . . . [that] (a) he has not (t)heretofore commenced any other action or proceeding involving the same issues in the Supreme Court, the Court of Appeals, or any other tribunal or agency; (b) to the best of his knowledge, no such action or proceeding is pending" in said courts or agencies. A violation of the said circular entails sanctions that include the summary dismissal of the multiple petitions or complaints. To be sure, petitioners have included a VERIFICATION/CERTIFICATION in their Petition stating "for the record(,) the pendency of Civil Case No. 92-1606 before the Regional Trial Court of Makati, Branch 134, involving a derivative suit filed by stockholders of petitioner Bank against the conservator and other defendants but which is the subject of a pending Motion to Dismiss Without Prejudice." 9 Private respondent Ejercito vigorously argues that in spite of this verification, petitioners are guilty of actual forum shopping because the instant petition pending before this Court involves "identical parties or interests represented, rights asserted and reliefs sought (as that) currently pending before the Regional Trial Court, Makati Branch 134 in the Second Case. In fact, the issues in the two cases are so intertwined that a judgment or resolution in either case will constitute res judicata in the other." 10 cdasia On the other hand, petitioners explain 11 that there is no forum-shopping because: 1)In the earlier or "First Case" from which this proceeding arose, the Bank was impleaded as a defendant, whereas in the "Second Case" (assuming the Bank is the real party in interest in a derivative suit), it was theplaintiff; 2)"The derivative suit is not properly a suit for and in behalf of the corporation under the circumstances"; 3)Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president and attached to the Petition identifies the action as a "derivative suit," it "does not mean that it is one" and "(t)hat is a legal question for the courts to decide; cdasia 4)Petitioners did not hide the Second Case as they mentioned it in the said VERIFICATION/CERTIFICATION. We rule for private respondent. To begin with, forum-shopping originated as a concept in private international law 12 , where non-resident litigants are given the option to choose the forum or place wherein to bring their suit for various reasons or excuses, including to secure procedural advantages, to annoy and harass the defendant, to avoid overcrowded dockets, or to select a more friendly venue. To combat these less than honorable excuses, the principle of forum non conveniens was developed whereby a court, in conflicts of law cases, may refuse impositions on

its jurisdiction where it is not the most "convenient" or available forum and the parties are not precluded from seeking remedies elsewhere. In this light, Black's Law Dictionary 13 says that forum shopping "occurs when a party attempts to have his action tried in a particular court or jurisdiction where he feels he will receive the most favorable judgment or verdict." Hence, according to Words and Phrases 14 , "a litigant is open to the charge of 'forum shopping' whenever he chooses a forum with slight connection to factual circumstances surrounding his suit, and litigants should be encouraged to attempt to settle their differences without imposing undue expense and vexatious situations on the courts". cdasia In the Philippines, forum shopping has acquired a connotation encompassing not only a choice of venues, as it was originally understood in conflicts of laws, but also to a choice of remedies. As to the first (choice of venues), the Rules of Court, for example, allow a plaintiff to commence personal actions "where the defendant or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff" (Rule 4, Sec. 2 [b]). As to remedies, aggrieved parties, for example, are given a choice of pursuing civil liabilities independently of the criminal, arising from the same set of facts. A passenger of a public utility vehicle involved in a vehicular accident may sue on culpa contractual, culpa aquiliana or culpa criminal each remedy being available independently of the others although he cannot recover more than once. "In either of these situations (choice of venue or choice of remedy), the litigant actually shops for a forum of his action. This was the original concept of the term forum shopping. "Eventually, however, instead of actually making a choice of the forum of their actions, litigants, through the encouragement of their lawyers, file their actions in all available courts, or invoke all relevant remedies simultaneously. This practice had not only resulted to (sic) conflicting adjudications among different courts and consequent confusion enimical (sic) to an orderly administration of justice. It had created extreme inconvenience to some of the parties to the action. "Thus, 'forum shopping' had acquired a different concept which is unethical professional legal practice. And this necessitated or had given rise to the formulation of rules and canons discouraging or altogether prohibiting the practice." 15 cdasia What therefore originally started both in conflicts of laws and in our domestic law as a legitimate device for solving problems has been abused and misused to assure scheming litigants of dubious reliefs. To avoid or minimize this unethical practice of subverting justice, the Supreme Court, as already mentioned, promulgated Circular 28-91. And even before that, the Court had proscribed it in the Interim Rules and Guidelines issued

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on January 11, 1983 and had struck down in several cases 16 the inveterate use of this insidious malpractice. Forum shopping as "the filing of repetitious suits in different courts" has been condemned by Justice Andres R. Narvasa (now Chief Justice) in Minister of Natural Resources, et al. vs. Heirs of Orval Hughes, et al., "as a reprehensible manipulation of court processes and proceedings. . . ." 17 When does forum shopping take place? "There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable opinion (other than by appeal or certiorari) in another. The principle applies not only with respect to suits filed in the courts but also in connection with litigations commenced in the courts while an administrative proceeding is pending, as in this case, in order to defeat administrative processes and in anticipation of an unfavorable administrative ruling and a favorable court ruling. This is specially so, as in this case, where the court in which the second suit was brought, has no jurisdiction." 18 The test for determining whether a party violated the rule against forum-shopping has been laid down in the 1986 case of Buan vs. Lopez 19 , also by Chief Justice Narvasa, and that is, forum-shopping exists where the elements of litis pendentia are present or where a final judgment in one case will amount to res judicata in the other, as follows: cdasia "There thus exists between the action before this Court and RTC Case No. 8636563 identity of parties, or at least such parties as represent the same interests in both actions, as well as identity of rights asserted and relief prayed for, the relief being founded on the same facts, and the identity on the two preceding particulars is such that any judgment rendered in the other action, will, regardless of which party is successful, amount to res adjudicata in the action under consideration: all the requisites, in fine, of auter action pendant." xxx xxx xxx "As already observed, there is between the action at bar and RTC Case No. 8636563, an identity as regards parties, or interests represented, rights asserted and relief sought, as well as basis thereof, to a degree sufficient to give rise to the ground for dismissal known as auter action pendant or lis pendens. That same identity puts into operation the sanction of twin dismissals just mentioned. The application of this sanction will prevent any further delay in the settlement of the controversy which might ensue from attempts to seek reconsideration of or to appeal from the Order of the Regional Trial Court in Civil Case No. 86-36563 promulgated on July 15, 1986, which dismissed the petition upon grounds which appear persuasive."

Consequently, where a litigant (or one representing the same interest or person) sues the same party against whom another action or actions for the alleged violation of the same right and the enforcement of the same relief is/are still pending, the defense of litis pendencia in one case is a bar to the others; and, a final judgment in one would constituteres judicata and thus would cause the dismissal of the rest. In either case, forum shopping could be cited by the other party as a ground to ask for summary dismissal of the two 20 (or more) complaints or petitions, and for the imposition of the other sanctions, which are direct contempt of court, criminal prosecution, and disciplinary action against the erring lawyer. cdasia

Applying the foregoing principles in the case before us and comparing it with the Second Case, it is obvious that there exist identity of parties or interests represented, identity of rights or causes and identity of reliefs sought. Very simply stated, the original complaint in the court a quo which gave rise to the instant petition was filed by the buyer (herein private respondent and his predecessors-ininterest) against the seller (herein petitioners) to enforce the alleged perfected sale of real estate. On the other hand, the complaint 21 in the Second Case seeks to declare such purported sale involving the same real property "as unenforceable as against the Bank", which is the petitioner herein. In other words, in the Second Case, the majority stockholders, in representation of the Bank, are seeking to accomplish what the Bank itself failed to do in the original case in the trial court. In brief, the objective or the relief being sought, though worded differently, is the same, namely, to enable the petitioner Bank to escape from the obligation to sell the property to respondent. In Danville Maritime, Inc. vs. Commission on Audit 22 , this Court ruled that the filing by a party of two apparently different actions, but with the same objective, constituted forum shopping: "In the attempt to make the two actions appear to be different, petitioner impleaded different respondents therein PNOC in the case before the lower court and the COA in the case before this Court and sought what seems to be different reliefs. Petitioner asks this Court to set aside the questioned letterdirective of the COA dated October 10, 1988 and to direct said body to approve the Memorandum of Agreement entered into by and between the PNOC and petitioner, while in the complaint before the lower court petitioner seeks to enjoin the PNOC from conducting a rebidding and from selling to other parties the vessel "T/T Andres Bonifacio", and for an extension of time for it to comply with the paragraph 1 of the memorandum of agreement and damages.One can see that although the relief prayed for in the two (2) actions are ostensibly different, the ultimate objective in both actions is the same, that is, the approval of the sale of vessel in favor of Petitioner, and to overturn the letter-directive of the COA of October 10, 1988 disapproving the sale." (Emphasis supplied)

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In an earlier case 23 , but with the same logic and vigor, we held: cdasia "In other words, the filing by the petitioners of the instant special civil action for certiorari and prohibition in this Court despite the pendency of their action in the Makati Regional Trial Court, is a species of forum-shopping. Both actions unquestionably involve the same transactions, the same essential facts and circumstances. The petitioners' claim of absence of identity simply because the PCGG had not been impleaded in the RTC suit, and the suit did not involve certain acts which transpired after its commencement, is specious. In the RTC action, as in the action before this Court, the validity of the contract to purchase and sell of September 1, 1986, i.e., whether or not it had been efficaciously rescinded, and the propriety of implementing the same (by paying the pledgee banks the amount of their loans, obtaining the release of the pledged shares, etc.) were the basic issues. So, too, the relief was the same: the prevention of such implementation and/or the restoration of the status quo ante. When the acts sought to be restrained took place anyway despite the issuance by the Trial Court of a temporary restraining order, the RTC suit did not become functus oficio. It remained an effective vehicle for obtention of relief; and petitioners' remedy in the premises was plain and patent: the filing of an amended and supplemental pleading in the RTC suit, so as to include the PCGG as defendant and seek nullification of the acts sought to be enjoined but nonetheless done. The remedy was certainly not the institution of another action in another forum based on essentially the same facts. The adoption of this latter recourse renders the petitioners amenable to disciplinary action and both their actions, in this Court as well as in the Court a quo, dismissible." In the instant case before us, there is also identity of parties, or at least, of interests represented. Although the plaintiffs in the Second Case (Henry L. Co, et al.) are not name parties in the First Case, they represent the same interest and entity, namely, petitioner Bank, because: Firstly, they are not suing in their personal capacities, for they have no direct personal interest in the matter in controversy. They are not principally or even subsidiarily liable; much less are they direct parties in the assailed contract of sale; and Secondly, the allegations of the complaint in the Second Case show that the stockholders are bringing a "derivative suit". In the caption itself, petitioners claim to have brought suit "for and in behalf of the Producers Bank of the Philippines" 24. Indeed, this is the very essence of a derivative suit: cdasia "An individual stockholder is permitted to institute a derivative suit on behalf of the

corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest. (Gamboa v. Victoriano, 90 SCRA 40, 47 [1979]; Emphasis supplied). In the face of the damaging admissions taken from the complaint in the Second Case, petitioners, quite strangely, sought to deny that the Second Case was a derivative suit, reasoning that it was brought, not by the minority shareholders, but by Henry Co et al., who not only own, hold or control over 80% of the outstanding capital stock, but also constitute the majority in the Board of Directors of petitioner Bank. That being so, then they really represent the Bank. So, whether they sued "derivatively" or directly, there is undeniably an identity of interests/entity represented. Petitioner also tried to seek refuge in the corporate fiction that the personality of the Bank is separate and distinct from its shareholders. But the rulings of this Court are consistent: "When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals." 25 In addition to the many cases 26 where the corporate fiction has been disregarded, we now add the instant case, and declare herewith that the corporate veil cannot be used to shield an otherwise blatant violation of the prohibition against forum-shopping. Shareholders, whether suing as the majority in direct actions or as the minority in a derivative suit, cannot be allowed to trifle with court processes, particularly where, as in this case, the corporation itself has not been remiss in vigorously prosecuting or defending corporate causes and in using and applying remedies available to it. To rule otherwise would be to encourage corporate litigants to use their shareholders as fronts to circumvent the stringent rules against forum shopping. cdasia Finally, petitioner Bank argued that there cannot be any forum shopping, even assuming arguendo that there is identity of parties, causes of action and reliefs sought, "because it (the Bank) was the defendant in the (first) case while it was the plaintiff in the other (Second Case)", citing as authority Victronics Computers, Inc. vs. Regional Trial Court, Branch 63, Makati, etc. et al., 27 where the Court held: "The rule has not been extended to a defendant who, for reasons known only to him, commences a new action against the plaintiff instead of filing a responsive pleading in the other case setting forth therein, as causes of action, specific denials, special and affirmative defenses or even counterclaims. Thus, Velhagen's and King's motion to dismiss Civil Case No. 91-2069 by no means negates the charge of forum-shopping as such did not

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exist in the first place." (Emphasis supplied) Petitioner pointed out that since it was merely the defendant in the original case, it could not have chosen the forum in said case. Respondent, on the other hand, replied that there is a difference in factual setting between Victronics and the present suit. In the former, as underscored in the abovequoted Court ruling, the defendants did not file any responsive pleadingin the first case. In other words, they did not make any denial or raise any defense or counter-claim therein. In the case before us however, petitioners filed a responsive pleading to the complaint as a result of which, the issues were joined. cdasia Indeed, by praying for affirmative reliefs and interposing counter-claims in their responsive pleadings, the petitioners became plaintiffs themselves in the original case, giving unto themselves the very remedies they repeated in the Second Case. Ultimately, what is truly important to consider in determining whether forum-shopping exists or not is the vexation caused the courts and parties-litigant by a party who asks different courts and/or administrative agencies to rule on the same or related causes and/or to grant the same or substantially the same reliefs, in the process creating the possibility of conflicting decisions being rendered by the different fora upon the same issue. In this case, this is exactly the problem: a decision recognizing the perfection and directing the enforcement of the contract of sale will directly conflict with a possible decision in the Second Case barring the parties from enforcing or implementing the said sale. Indeed, a final decision in one would constitute res judicata in the other. 28

Holding that a valid contract has been established, respondent Court stated: "There is no dispute that the object of the transaction is that property owned by the defendant bank as acquired assets consisting of six (6) parcels of land specifically identified under Transfer Certificates of Title Nos. T-106932 to T106937. It is likewise beyond cavil that the bank intended to sell the property. As testified to by the Bank's Deputy Conservator, Jose Entereso, the bank was looking for buyers of the property. It is definite that the plaintiffs wanted to purchase the property and it was precisely for this purpose that they met with defendant Rivera, Manager of the Property Management Department of the defendant bank, in early August 1987. The procedure in the sale of acquired assets as well as the nature and scope of the authority of Rivera on the matter is clearly delineated in the testimony of Rivera himself, which testimony was relied upon by both the bank and by Rivera in their appeal briefs. Thus (TSN of July 30, 1990. pp. 19-20): cdasia A:The procedure runs this way: Acquired assets was turned over to me and then I published it in the form of an inter-office memorandum distributed to all branches that these are acquired assets for sale. I was instructed to advertise acquired assets for sale so on that basis, I have to entertain offer; to accept offer, formal offer and upon having been offered, I present it to the Committee. I provide the Committee with necessary information about the property such as original loan of the borrower, bid price during the foreclosure, total claim of the bank, the appraised value at the time the property is being offered for sale and then the information which are relative to the evaluation of the bank to buy which the Committee considers and it is the Committee that evaluate as against the exposure of the bank and it is also the Committee that submit to the Conservator for final approval and once approved, we have to execute the deed of sale and it is the Conservator that sign the deed of sale, sir. "The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of buying the property, dealt with and talked to the right person. Necessarily, the agenda was the price of the property, and plaintiffs were dealing with the bank official authorized to entertain offers, to accept offers and to present the offer to the Committee before which the said official is authorized to discuss information relative to price determination. Necessarily, too, it being inherent in his authority, Rivera is the

The foregoing conclusion finding the existence of forumshopping notwithstanding, the only sanction possible now is the dismissal of both cases with prejudice, as the other sanctions cannot be imposed because petitioners' present counsel entered their appearance only during the proceedings in this Court, and the Petition's VERIFICATION/CERTIFICATION contained sufficient allegations as to the pendency of the Second Case to show good faith in observing Circular 28-91. The lawyers who filed the Second Case are not before us; thus the rudiments of due process prevent us from motu propio imposing disciplinary measures against them in this Decision. However, petitioners themselves (and particularly Henry Co, et al.) as litigants are admonished to strictly follow the rules against forumshopping and not to trifle with court proceedings and processes. They are warned that a repetition of the same will be dealt with more severely. cdasia Having said that, let it be emphasized that this petition should be dismissed not merely because of forum-shopping but also because of the substantive issues raised, as will be discussed shortly. The Second Issue: Was The Contract Perfected? The respondent Court correctly treated the question of whether or not there was, on the basis of the facts established, a perfected contract of sale as the ultimate issue.

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officer from whom official information regarding the price, as determined by the Committee and approved by the Conservator, can be had. And Rivera confirmed his authority when he talked with the plaintiff in August 1987. The testimony of plaintiff Demetria is clear on this point (TSN of May 31, 1990, pp. 2728): Q:When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did you ask him pointblank his authority to sell any property? A:No, sir. Not point blank although it came from him. (W)hen I asked him how long it would take because he was saying that the matter of pricing will be passed upon by the committee. And when I asked him how long it will take for the committee to decide and he said the committee meets every week. If I am not mistaken Wednesday and in about two week's (sic) time, in effect what he was saying he was not the one who was to decide. But he would refer it to the committee and he would relay the decision of the committee to me. cdasia Q:Please answer the question. A:He did not say that he had the authority(.) But he said he would refer the matter to the committee and he would relay the decision to me and he did just like that. "Parenthetically, the Committee referred to was the Past Due Committee of which Luis Co was the Head, with Jose Entereso as one of the members. "What transpired after the meeting of early August 1987 are consistent with the authority and the duties of Rivera and the bank's internal procedure in the matter of the sale of bank's assets. As advised by Rivera, the plaintiffs made a formal offer by a letter dated August 20, 1987 stating that they would buy at the price of P3.5 Million in cash. The letter was for the attention of Mercurio Rivera who was tasked to convey and accept such offers. Considering an aspect of the official duty of Rivera as some sort of intermediary between the plaintiffs-buyers with their proposed buying price on one hand, and the bank Committee, the Conservator and ultimately the bank itself with the set price on the other, and considering further the discussion of price at the meeting of August resulting in a formal offer of P3.5 Million in cash, there can be no other logical conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by letter that "the bank's counter-offer is at P5.5 Million for

more than 101 hectares on lot basis," such counter-offer price had been determined by the Past Due Committee and approved by the Conservator after Rivera had duly presented plaintiffs' offer for discussion by the Committee of such matters as original loan of borrower, bid price during foreclosure, total claim of the bank, and market value. Tersely put, under the established facts, the price of P5.5 Million was, as clearly worded in Rivera's letter (Exh. "E"), the official and definitive price at which the bank was selling the property. "There were averments by defendants below, as well as before this Court, that the P5.5 Million price was not discussed by the Committee and that it was merely quoted to start negotiations regarding the price. As correctly characterized by the trial court, this is not credible. The testimonies of Luis Co and Jose Entereso on this point are at best equivocal and considering the gratuitous and selfserving character of these declarations, the bank's submission on this point does not inspire belief. Both Co and Entereso, as members of the Past Due Committee of the bank, claim that the offer of the plaintiff was never discussed by the Committee. In the same vein, both Co and Entereso openly admit that they seldom attend the meetings of the Committee. It is important to note that negotiations on the price had started in early August and the plaintiffs had already offered an amount as purchase price, having been made to understand by Rivera, the official in charge of the negotiation, that the price will be submitted for approval by the bank and that the bank's decision will be relayed to plaintiffs. From the facts, the amount of P5.5 Million has a definite significance. It is the official bank price. At any rate, the bank placed its official, Rivera, in a position of authority to accept offers to buy and negotiate the sale by having the offer officially acted upon by the bank. The bank cannot turn around and later say, as it now does, that what Rivera states as the bank's action on the matter is not in fact so. It is a familiar doctrine, the doctrine of ostensible authority, that if a corporation knowingly permits one of its officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public as possessing power to do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through such agent, he estopped from denying his authority (Francisco v. GSIS, 7 SCRA 577, 583584; PNB v. Court of Appeals, 94 SCRA 357, 369-370; Prudential Bank v. Court of Appeals, G.R. No. 103957, June 14, 1993)." 29

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Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as follows: "(1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established." There is no dispute on requisite no. 2. The object of the questioned contract consists of the six (6) parcels of land in Sta. Rosa, Laguna with an aggregate area of about 101 hectares, more or less, and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. There is, however, a dispute on the first and third requisites. Petitioners allege that "there is no counter-offer made by the Bank, and any supposed counter-offer which Rivera (or Co) may have made is unauthorized. Since there was no counteroffer by the Bank, there was nothing for Ejercito (in substitution of Demetria and Janolo) to accept." 30 They disputed the factual basis of the respondent Court's findings that there was an offer made by Janolo for P3.5 million, to which the Bank counter-offered P5.5 million. We have perused the evidence but cannot find fault with the said Court's findings of fact. Verily, in a petition under Rule 45 such as this, errors of fact if there be any are, as a rule, not reviewable. The mere fact that respondent Court (and the trial court as well) chose to believe the evidence presented by respondent more than that presented by petitioners is not by itself a reversible error. In fact, such findings merit serious consideration by this Court, particularly where, as in this case, said courts carefully and meticulously dismissed their findings. This is basic.

confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom (10 Am Jur 2, p. 114) Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021). "Application of these principles is especially necessary because banks have a fiduciary relationship with the public and their stability depends on the confidence of the people in their honesty and efficiency. Such faith will be eroded where banks do not exercise strict care in the selection and supervision of its employees, resulting in prejudice to their depositors. " From the evidence found by respondent Court, it is obvious that petitioner Rivera has apparent or implied authority to act for the Bank in the matter of selling its acquired assets. This evidence includes the following: (a)The petition itself in par. II-1 (p. 3) states that Rivera was "at all times material to this case, Manager of the Property Management Department of the Bank." By his own admission, Rivera was already the person in charge of the Bank's acquired assets (TSN, August 6, 1990, pp. 8-9); (b)As observed by respondent Court, the land was definitely being sold by the Bank. And during the initial meeting between the buyers and Rivera, the latter suggested that the buyers' offer should be no less than P3.3 million (TSN, April 26, 1990, pp. 16-17); (c)Rivera received the buyers' letter dated August 30, 1987 offering P3.5 million (TSN, 30 July 1990, p. 11 ); (d)Rivera signed the letter dated September 1, 1987 offering to sell the property for P5.5 million (TSN, July 30, p. 11); (e)Rivera received the letter dated September 17, 1987 containing the buyers' proposal to buy the property for P4.25 million (TSN, July 30, 1990, p. 12); (f)Rivera, in a telephone conversation, confirmed that the P5.5 million was the final price of the Bank (TSN, January 16, 1990, p. 18); (g)Rivera arranged the meeting between the buyers and Luis Co on September 28, 1987, during which the Bank's offer of P5.5 million was confirmed by Rivera (TSN, April 26, 1990, pp. 34-35). At said meeting, Co, a major shareholder and officer of the Bank, confirmed Rivera's statement as to the

Be that as it may, and in addition to the foregoing disquisitions by the Court of Appeals, let us review the question of Rivera's authority to act and petitioner's allegations that the P5.5 million counter-offer was extinguished by the P4.25 million revised offer of Janolo. Here, there are questions of law which could be drawn from the factual findings of the respondent Court. They also delve into the contractual elements of consent and cause. The authority of a corporate officer in dealing with third persons may be actual or apparent. The doctrine of "apparent authority", with special reference to banks, was laid out in Prudential Bank vs. Court of Appeals 31 , where it was held that: "Conformably, we have declared in countless decisions that the principal is liable for obligations contracted by the agent. The agent's apparent representation yields to the principal's true representation and the contract is considered as entered into between the principal and the third person (citing National Food Authority vs. Intermediate Appellate Court, 184 SCRA 166). "A bank is liable for wrongful acts of its officers done in the interest of the bank or in the course of dealings of the officers in their representative capacity but not for acts outside the scope of their authority (9 C.J.S., p. 417). A bank holding out its officers and agents as worthy of

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finality of the Bank's counter-offer of P5.5 million (TSN, January 16, 1990, p. 21; TSN, April 26, 1990, p. 35); (h)In its newspaper advertisements and announcements, the Bank referred to Rivera as the officer acting for the Bank in relation to parties interested in buying assets owned/acquired by the Bank. In fact, Rivera was the officer mentioned in the Bank's advertisements offering for sale the property in question (cf. Exhs. "S" and "S-1"). In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et al. 32 , the Court, through Justice Jose A. R. Melo, affirmed the doctrine of apparent authority as it held that the apparent authority of the officer of the Bank of P.I. in charge of acquired assets is borne out by similar circumstances surrounding his dealings with buyers. To be sure, petitioners attempted to repudiate Rivera's apparent authority through documents and testimony which seek to establish Rivera's actual authority. These pieces of evidence, however, are inherently weak as they consist of Rivera's self-serving testimony and various inter-office memoranda that purport to show his limited actual authority, of which private respondent cannot be charged with knowledge. In any event, since the issue is apparent authority, the existence of which is borne out by the respondent Court's findings, the evidence of actual authority is immaterial insofar as the liability of a corporation is concerned. 33 Petitioners also argued that since Demetria and Janolo were experienced lawyers and their "law firm" had once acted for the Bank in three criminal cases, they should be charged with actual knowledge of Rivera's limited authority. But the Court of Appeals in its Decision (p. 12) had already made a factual finding that the buyers had no notice of Rivera's actual authority prior to the sale. In fact, the Bank has not shown that they acted as its counsel in respect to any acquired assets; on the other hand, respondent has proven that Demetria and Janolo merely associated with a loose aggrupation of lawyers (not a professional partnership), one of whose members (Atty. Susana Parker) acted in said criminal cases. Petitioners also alleged that Demetria's and Janolo's P4.25 million counter-offer in the letter dated September 17, 1987extinguished the Bank's offer of P5.5 million. 34 They disputed the respondent Court's finding that "there was a meeting of minds when on 30 September 1987 Demetria and Janolo through Annex 'L' (letter dated September 30, 1987) 'accepted' Rivera's counter offer of P5.5 million under Annex 'J' (letter dated September 17, 1987)", citing the late Justice Paras 35 , Art. 1319 of the Civil Code 36 and related Supreme Court rulings starting with Beaumont vs. Prieto. 37 However, the above-cited authorities and precedents cannot apply in the instant case because, as found by the respondent Court which reviewed the testimonies on this point, what was "accepted" by Janolo in his letter dated September 30, 1987 was the Bank's offer of P5.5 million as confirmed and reiterated to Demetria and Atty. Jose Fajardo by Rivera and Co during their meeting on September 28, 1987. Note that the said letter of September 30, 1987 begins with "(p)ursuant to our discussion last 28 September 1987 . . ." Petitioners insist that the respondent Court should have believed the testimonies of Rivera and Co that the September 28, 1987 meeting "was meant to have the offerors improve

on their position of P5.5 million". 38 However, both the trial court and the Court of Appeals found petitioners' testimonial evidence "not credible", and we find no basis for changing this finding of fact. Indeed, we see no reason to disturb the lower courts' (both the RTC and the CA) common finding that private respondents' evidence is more in keeping with truth and logic that during the meeting on September 28, 1987, Luis Co and Rivera "confirmed that the P5.5 million price has been passed upon by the Committee and could no longer be lowered (TSN of April 27, 1990, pp. 34-35)". 39 Hence, assuming arguendo that the counter-offer of P4.25 million extinguished the offer of P5.5 million, Luis Co's reiteration of the said P5.5 million price during the September 28, 1987 meeting revived the said offer. And by virtue of the September 30, 1987 letter accepting this revived offer, there was a meeting of the minds, as the acceptance in said letter was absolute and unqualified. We note that the Bank's repudiation, through Conservator Encarnacion, of Rivera's authority and action, particularly the latter's counter-offer of P5.5 million, as being "unauthorized and illegal" came only on May 12, 1988 or more than seven (7) months after Janolo's acceptance. Such delay, and the absence of any circumstance which might have justifiably prevented the Bank from acting earlier, clearly characterizes the repudiation as nothing more than a last-minute attempt on the Bank's part to get out of a binding contractual obligation. Taken together, the factual findings of the respondent Court point to an implied admission on the part of the petitioners that the written offer made on September 1, 1987 was carried through during the meeting of September 28, 1987. This is the conclusion consistent with human experience, truth and good faith. It also bears noting that this issue of extinguishment of the Bank's offer of P5.5 million was raised for the first time on appeal and should thus be disregarded. "This Court in several decisions has repeatedly adhered to the principle that points of law, theories, issues of fact and arguments not adequately brought to the attention of the trial court need not be, and ordinarily will not be, considered by a reviewing court, as they cannot be raised for the first time on appeal (Santos vs. IAC, No. 74243, November 14, 1986, 145 SCRA 592)." 40 ". . . It is settled jurisprudence that an issue which was neither averred in the complaint nor raised during the trial in the court below cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process (Dihiansan vs. CA, 153 SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA 434 [1987]; Dulos Realty & Development Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs. IAC, 175 SCRA 70 [1989]; Gevero vs. IAC, G.R. 77029, August 30, 1990)." 41

47

Since the issue was not raised in the pleadings as an affirmative defense, private respondent was not given an opportunity in the trial court to controvert the same through opposing evidence. Indeed, this is a matter of due process. But we passed upon the issue anyway, if only to avoid deciding the case on purely procedural grounds, and we repeat that, on the basis of the evidence already in the record and as appreciated by the lower courts, the inevitable conclusion is simply that there was a perfected contract of sale. The Third Issue: Is the Contract Enforceable? The petition alleged: 42 "Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million during the meeting of 28 September 1987, and it was this verbal offer that Demetria and Janolo accepted with their letter of 30 September 1987, the contract produced thereby would be unenforceable by action there being no note, memorandum or writing subscribed by the Bank to evidence such contract. (Please see Article 1403[2], Civil Code.)" Upon the other hand, the respondent Court in its Decision (p. 14) stated: ". . . Of course, the bank's letter of September 1, 1987 on the official price and the plaintiffs' acceptance of the price on September 30, 1987, are not, in themselves, formal contracts of sale. They are however clear embodiments of the fact that a contract of sale was perfected between the parties, such contract being binding in whatever form it may have been entered into (case citations omitted). Stated simply, the bank's letter of September 1, 1987, taken together with plaintiffs' letter dated September 30, 1987, constitute in law a sufficient memorandum of a perfected contract of sale." The respondent Court could have added that the written communications commenced not only from September 1, 1987 but from Janolo's August 20, 1987 letter. We agree that, taken together, these letters constitute sufficient memoranda since they include the names of the parties, the terms and conditions of the contract, the price and a description of the property as the object of the contract. But let it be assumed arguendo that the counter-offer during the meeting on September 28, 1987 did constitute a "new" offer which was accepted by Janolo on September 30, 1987. Still, the statute of frauds will not apply by reason of the failure of petitioners to object to oral testimony proving petitioner Bank's counter-offer of P5.5 million. Hence, petitioners by such utter failure to object are deemed to have waived any defects of the contract under the statute of frauds, pursuant to Article 1405 of the Civil Code: "Art. 1405.Contracts infringing the Statute of Frauds, referred to in No. 2 of

Article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefits under them." As private respondent pointed out in his Memorandum, oral testimony on the reaffirmation of the counter-offer of P5.5 million is aplenty and the silence of petitioners all throughout the presentation makes the evidence binding on them thus: AYes, sir. I think it was September 28, 1987 and I was again present because Atty. Demetria told me to accompany him and we were able to meet Luis Co at the Bank. xxx xxx xxx QNow, what transpired during this meeting with Luis Co of the Producers Bank? AAtty. Demetria asked Mr. Luis Co whether the price could be reduced, sir. QWhat price? AThe 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio Rivera is the final price and that is the price they intends (sic) to have, sir. QWhat do you mean? AThat is the amount they want, sir. QWhat is the reaction of the plaintiff Demetria to Luis Co's statment (sic) that the defendant Rivera's counter-offer of 5.5 million was the defendant's bank (sic) final offer? AHe said in a day or two, he will make final acceptance, sir. QWhat is the response of Mr. Luis Co? AHe said he will wait for the position of Atty. Demetria, sir. [Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.] xxx xxx xxx QWhat transpired during that meeting between you and Mr. Luis Co of the defendant Bank?

48

AWe went straight to the point because he being a busy person, I told him if the amount of P5.5 million could still be reduced and he said that was already passed upon by the committee. What the bank expects which was contrary to what Mr. Rivera stated. And he told me that is the final offer of the bank P5.5 million and we should indicate our position as soon as possible. QWhat was your response to the answer of Mr. Luis Co? AI said that we are going to give him our answer in a few days and he said that was it. Atty. Fajardo and I and Mr. Mercurio [Rivera] was with us at the time at his office. QFor the record, your Honor please, will you tell this Court who was with Mr. Co in his office in Producers Bank Building during this meeting? AMr. Co himself, Mr. Rivera, Atty. Fajardo and I. QBy Mr. Co you are referring to? AMr. Luis Co. QAfter this meeting with Mr. Luis Co, did you and your partner accede on (sic) the counter offer by the bank? AYes, sir, we did. Two days thereafter we sent our acceptance to the bank which offer we accepted, the offer of the bank which is P5.5 million." [Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.] xxx xxx xxx QAccording to Atty. Demetrio Demetria, the amount of P5.5 million was reached by the Committee and it is not within his power to reduce this amount. What can you say to that statement that the amount of P5.5 million was reached by the Committee? AIt was not discussed by the Committee but it was discussed initially by Luis Co and the group of Atty. Demetrio Demetria and Atty. Pajardo (sic) in that September 28, 1987 meeting, sir."

[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.] The Fourth Issue: May the Conservator Revoke the Perfected and Enforceable Contract? It is not disputed that the petitioner Bank was under a conservator placed by the Central Bank of the Philippines during the time that the negotiation and perfection of the contract of sale took place. Petitioners energetically contended that the conservator has the power to revoke or overrule actions of the management or the board of directors of a bank, under Section 28-A of Republic Act No. 265 (otherwise known as the Central Bank Act) as follows: "Whenever, on the basis of a report submitted by the appropriate supervising or examining department, the Monetary Board finds that a bank or a non-bank financial intermediary performing quasibanking functions is in a state of continuing inability or unwillingness to maintain a state of liquidity deemed adequate to protect the interest of depositors and creditors, the Monetary Board may appoint a conservator to take charge of the assets, liabilities, and the management of that institution, collect all monies and debts due said institution and exercise all powers necessary to preserve the assets of the institution, reorganize the management thereof, and restore its viability. He shall have the power to overrule or revoke the actions of the previous management and board of directors of the bank or non-bank financial intermediary performing quasibanking functions, any provision of law to the contrary notwithstanding, and such other powers as the Monetary Board shall deem necessary." In the first place, this issue of the Conservator's alleged authority to revoke or repudiate the perfected contract of sale was raised for the first time in this Petition as this was not litigated in the trial court or Court of Appeals. As already stated earlier, issues not raised and/or ventilated in the trial court, let alone in the Court of Appeals, "cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process." 43 In the second place, there is absolutely no evidence that the Conservator, at the time the contract was perfected, actually repudiated or overruled said contract of sale. The Bank's acting conservator at the time, Rodolfo Romey, never objected to the sale of the property to Demetria and Janolo. What petitioners are really referring to is the letter of Conservator Encarnacion, who took over from Romey after the sale was perfected on September 30, 1987 (Annex V, petition) which unilaterally repudiated not the contract but the authority of Rivera to make a binding offer and which unarguably came months after the perfection of the contract. Said letter dated May 12, 1988 is reproduced hereunder: "May 12, 1988 "Atty. Noe C. Zarate

49

Zarate Carandang Perlas & Ass. Suite 323 Rufino Building Ayala Avenue, Makati, Metro Manila Dear Atty. Zarate: This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and Demetria regarding the six (6) parcels of land located at Sta. Rosa, Laguna. We deny that Producers Bank has ever made a legal counter-offer to any of your clients nor perfected a 'contract to sell and buy' with any of them for the following reasons. In the 'Inter-office Memorandum' dated April 25, 1986 addressed to and approved by former Acting Conservator Mr. Andres I. Rustia, Producers Bank Senior Manager Perfecto M. Pascua detailed the functions of Property Management Department (PMD) staff and officers (Annex A), you will immediately read that Manager Mr. Mercurio Rivera or any of his subordinates has no authority, power or right to make any alleged counter-offer. In short, your lawyer-clients did not deal with the authorized officers of the bank. Moreover, under Sec. 23 and 36 of the Corporation Code of the Philippines (Batas Pambansa Blg. 68) and Sec. 28-A of the Central Bank Act (Rep. Act No. 265, as amended), only the Board of Directors/Conservator may authorize the sale of any property of the corporation/bank.

law. We also have no personal interest in any of the properties of the Bank. Please be advised accordingly. V

ery truly yours,

Sgd.) Leonida T. Encarna cion

cting Conserv ator"

In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers to the conservator of a bank, it must be pointed out that such powers must be related to the "(preservation of) the assets of the bank, (the reorganization of) the management thereof and (the restoration of) its viability." Such powers, enormous and extensive as they are, cannot extend to the postfacto repudiation of perfected transactions, otherwise they would infringe against the non-impairment clause of the Constitution. 44 If the legislature itself cannot revoke an existing valid contract, how can it delegate such non-existent powers to the conservator under Section 28-A of said law? Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are, under existing law, deemed to be defective i.e., void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the place of a bank's board of directors. What the said board cannot do such as repudiating a contract validly entered into under the doctrine of implied authority the conservator cannot do either. Ineluctably, his power is not unilateral and he cannot simply repudiate valid obligations of the Bank. His authority would be only to bring court actions to assail such contracts as he has already done so in the instant case. A contrary understanding of the law would simply not be permitted by the Constitution. Neither by common sense. To rule otherwise would be to enable a failing bank to become solvent, at the expense of third parties, by simply getting the conservator to unilaterally revoke all previous dealings which had one way or another come to be considered unfavorable to the Bank, yielding nothing to perfected contractual rights nor vested interests of the third parties who had dealt with the Bank. The Fifth Issue: Were There Reversible Errors of Fact? Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court, findings of fact by the Court of Appeals are not reviewable by the Supreme Court. In Andres vs. Manufacturers Hanover & Trust Corporation, 45 we held:

Our records do not show that Mr. Rivera was authorized by the old board or by any of the bank conservators (starting January, 1984) to sell the aforesaid property to any of your clients. Apparently, what took place were just preliminary discussions/consultations between him and your clients, which everyone knows cannot bind the Bank's Board or Conservator. We are, therefore, constrained to refuse any tender of payment by your clients, as the same is patently violative of corporate and banking laws. We believe that this is more than sufficient legal justification for refusing said alleged tender. Rest assured that we have nothing personal against your clients. All our acts are official, legal and in accordance with

50

". . . . The rule regarding questions of fact being raised with this Court in a petition for certiorari under Rule 45 of the Revised Rules of Court has been stated in Remalante vs. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus: 'The rule in this jurisdiction is that only questions of law may be raised in a petition for certiorari under Rule 45 of the Revised Rules of Court.' 'The jurisdiction of the Supreme Court in cases brought to it from the Court of Appeals is limited to reviewing and revising the errors of law imputed to it, its findings of the fact being conclusive' '[Chan vs. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating a long line of decisions]. This Court has emphatically declared that' 'it is not the function of the Supreme Court to analyze or weigh such evidence all over again, its jurisdiction being limited to reviewing errors of law that might have been committed by the lower court' (Tiongco v. De la Merced, G.R. No. L-24426, July 25, 1974, 58 SCRA 89;Corona vs. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865; Baniqued vs. Court of Appeals, G.R. No. L-47531, February 20, 1984, 127 SCRA 596).' 'Barring, therefore, a showing that the findings complained of are totally devoid of support in the record, or that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings must stand, for this Court is not expected or required to examine or contrast the oral and documentary evidence submitted by the parties' [Santa Ana, Jr. vs. Hernandez, G.R. No. L-16394, December 17, 1966, 18 SCRA 973] [at pp. 144145.]' " Likewise, in Bernardo vs. Court of Appeals, 46 we held: "The resolution of this petition invites us to closely scrutinize the facts of the case, relating to the sufficiency of evidence and the credibility of witnesses presented. This Court so held that it is not the function of the Supreme Court to analyze or weigh such evidence all over again. The Supreme Court's jurisdiction is limited to reviewing errors of law that may have been committed by the lower court. The Supreme Court is not a trier of facts. . . ." As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock Construction and Development Corp.: 47 "The Court has consistently held that the factual findings of the trial court, as well as the Court of Appeals, are final and conclusive and may not be reviewed on appeal. Among the exceptional circumstances where a reassessment of

facts found by the lower courts is allowed are when the conclusion is a finding grounded entirely on speculation, surmises or conjectures; when the inference made is manifestly absurd, mistaken or impossible; when there is grave abuse of discretion in the appreciation of facts; when the judgment is premised on a misapprehension of facts; when the findings went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee. After a careful study of the case at bench, we find none of the above grounds present to justify the re-evaluation of the findings of fact made by the courts below." In the same vein, the ruling of this Court in the recent case of South Sea Surety and Insurance Company, Inc. vs. Hon. Court of Appeals, et al. 48 is equally applicable to the present case: "We see no valid reason to discard the factual conclusions of the appellate court. . . . (I)t is not the function of this Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties, particularly where, such as here, the findings of both the trial court and the appellate court on the matter coincide." (Emphasis supplied) Petitioners, however, assailed the respondent Court's Decision as "fraught with findings and conclusions which were not only contrary to the evidence on record but have no bases at all," specifically the findings that (1) the "Bank's counter-offer price of P5.5 million had been determined by the past due committee and approved by conservator Romey, after Rivera presented the same for discussion" and (2) "the meeting with Co was not to scale down the price and start negotiations anew, but a meeting on the already determined price of P5.5 million." Hence, citing Philippine National Bank vs. Court of Appeals 49 , petitioners are asking us to review and reverse such factual findings. The first point was clearly passed upon by the Court of Appeals, 50 thus: "There can be no other logical conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by letter that 'the bank's counter-offer is at P5.5 Million for more than 101 hectares on lot basis,' such counter-offer price had been determined by the Past Due Committee and approved by the Conservator after Rivera had duly presented plaintiffs' offer for discussion by the Committee. . . . Tersely put, under the established fact, the price of P5.5 Million was, as clearly worded in Rivera's letter (Exh. 'E'), the official and definitive price at which the bank was selling the property." (p. 11, CA Decision). xxx xxx xxx

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" . . . The argument deserves scant consideration. As pointed out by plaintiff, during the meeting of September 28, 1987 between the plaintiffs, Rivera and Luis Co, the senior vice-president of the bank, where the topic was the possible lowering of the price, the bank official refused it and confirmed that the P5.5 Million price had been passed upon by the Committee and could no longer be lowered (TSN of April 27, 1990, pp. 3435)" (p. 15, CA Decision). The respondent Court did not believe the evidence of the petitioners on this point, characterizing it as "not credible" and "at best equivocal and considering the gratuitous and self-serving character of these declarations, the bank's submissions on this point do not inspire belief." To become credible and unequivocal, petitioners should have presented then Conservator Rodolfo Romey to testify on their behalf, as he would have been in the best position to establish their thesis. Under the rules on evidence, 51 such suppression gives rise to the presumption that his testimony would have been adverse, if produced. The second point was squarely raised in the Court of Appeals, but petitioners' evidence was deemed insufficient by both the trial court and the respondent Court, and instead, it was respondent's submissions that were believed and became bases of the conclusions arrived at. In fine, it is quite evident that the legal conclusions arrived at from the findings of fact by the lower courts are valid and correct. But the petitioners are now asking this Court to disturb these findings to fit the conclusion they are espousing. This we cannot do. To be sure, there are settled exceptions where the Supreme Court may disregard findings of fact by the Court of Appeals. 52 We have studied both the records and the CA Decision and we find no such exceptions in this case. On the contrary, the findings of the said Court are supported by a preponderance of competent and credible evidence. The inferences and conclusions are reasonably based on evidence duly identified in the Decision. Indeed, the appellate court patiently traversed and dissected the issues presented before it, lending credibility and dependability to its findings. The best that can be said in favor of petitioners on this point is that the factual findings of respondent Court did not correspond to petitioners' claims, but were closer to the evidence as presented in the trial court by private respondent. But this alone is no reason to reverse or ignore such factual findings, particularly where, as in this case, the trial court and the appellate court were in common agreement thereon. Indeed, conclusions of fact of a trial judge as affirmed by the Court of Appeals are conclusive upon this Court, absent any serious abuse or evident lack of basis or capriciousness of any kind, because the trial court is in a better position to observe the demeanor of the witnesses and their courtroom manner as well as to examine the real evidence presented.

In summary, there are two procedural issues involved forum-shopping and the raising of issues for the first time on appeal [viz., the extinguishment of the Bank's offer of P5.5 million and the conservator's powers to repudiate contracts entered into by the Bank's officers] which per se could justify the dismissal of the present case. We did not limit ourselves thereto, but delved as well into the substantive issues the perfection of the contract of sale and its enforceability, which required the determination of questions of fact. While the Supreme Court is not a trier of facts and as a rule we are not required to look into the factual bases of respondent Court's decisions and resolutions, we did so just the same, if only to find out whether there is reason to disturb any of its factual findings, for we are only too aware of the depth, magnitude and vigor by which the parties, through their respective eloquent counsel, argued their positions before this Court. We are not unmindful of the tenacious plea that the petitioner Bank is operating abnormally under a government-appointed conservator and "there is need to rehabilitate the Bank in order to get it back on its feet . . . as many people depend on (it) for investments, deposits and well as employment. As of June 1987, the Bank's overdraft with the Central Bank had already reached P1.023 billion . . . and there were (other) offers to buy the subject properties for a substantial amount of money." 53 While we do not deny our sympathy for this distressed bank, at the same time, the Court cannot emotionally close its eyes to overriding considerations of substantive and procedural law, like respect for perfected contracts, non-impairment of obligations and sanctions against forum-shopping, which must be upheld under the rule of law and blind justice. This Court cannot just gloss over private respondent's submission that, while the subject properties may currently command a much higher price, it is equally true that at the time of the transaction in 1987, the price agreed upon of P5.5 million was reasonable, considering that the Bank acquired these properties at a foreclosure sale for no more than P3.5 million. 54 That the Bank procrastinated and refused to honor its commitment to sell cannot now be used by it to promote its own advantage, to enable it to escape its binding obligation and to reap the benefits of the increase in land values. To rule in favor of the Bank simply because the property in question has algebraically accelerated in price during the long period of litigation is to reward lawlessness and delays in the fulfillment of binding contracts. Certainly, the Court cannot stamp its imprimatur on such outrageous proposition. WHEREFORE, finding no reversible error in the questioned Decision and Resolution, the Court hereby DENIES the petition. The assailed Decision is AFFIRMED. Moreover, petitioner Bank is REPRIMANDED for engaging in forumshopping and WARNED that a repetition of the same or similar acts will be dealt with more severely. Costs against petitioners. SO ORDERED. Narvasa, C.J., Davide, Jr., Melo and Francisco, JJ., concur.

Epilogue

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FIRST DIVISION [G.R. No. 150886. February 16, 2007.] RURAL BANK OF SAN MIGUEL, INC. and HILARIO P. SORIANO, in his capacity as majority stockholder in the Rural Bank of San Miguel, Inc., petitioners, vs. MONETARY BOARD, BANGKO SENTRAL NG PILIPINAS and PHILIPPINE DEPOSIT INSURANCE CORPORATION,respondents.

accordance with Section 30 of [RA 7653]; 2.To designate the [PDIC] as receiver of the bank; xxx xxx xxx 6 On January 31, 2000, petitioners filed a petition for certiorari and prohibition in the Regional Trial Court (RTC) of Malolos, Branch 22 to nullify and set aside Resolution No. 105. 7 However, on February 7, 2000, petitioners filed a notice of withdrawal in the RTC and, on the same day, filed a special civil action for certiorari and prohibition in the CA. On February 8, 2000, the RTC dismissed the case pursuant to Section 1, Rule 17 of the Rules of Court. 8 The CA's findings of facts were as follows. TcCSIa To assist its impaired liquidity and operations, the RBSM was granted emergency loans on different occasions in the aggregate amount of P375 [million]. As early as November 18, 1998, Land Bank of the Philippines (LBP) advised RBSM that it will terminate the clearing of RBSM's checks in view of the latter's frequent clearing losses and continuing failure to replenish its Special Clearing Demand Deposit with LBP. The BSP interceded with LBP not to terminate the clearing arrangement of RBSM to protect the interests of RBSM's depositors and creditors. After a year, or on November 29, 1999, the LBP informed the BSP of the termination of the clearing facility of RBSM to take effect on December 29, 1999, in view of the clearing problems of RBSM. On December 28, 1999, the MB approved the release of P26.189 [million] which is the last tranche of the P375 million emergency loan for the sole purpose of servicing and meeting the withdrawals of its depositors. Of the P26.180 million, . . . P12.6 million . . . was not used to service withdrawals [and] remains unaccounted for as admitted by [RBSM's Treasury Officer and Officer-in-Charge of Treasury]. Instead of servicing withdrawals of depositors, RBSM paid Forcecollect Professional Solution, Inc. and Surecollect Professional, Inc., entities which are owned and controlled by Hilario P. Soriano and other RBSM officers. On January 4, 2000, RBSM declared a bank holiday. RBSM and all of its 15 branches were closed from doing business.

DECISION

CORONA, J p: This is a petition for review on certiorari 1 of a decision 2 and resolution 3 of the Court of Appeals (CA) dated March 28, 2000 and November 13, 2001, respectively, in CA-G.R. SP No. 57112. Petitioner Rural Bank of San Miguel, Inc. (RBSM) was a domestic corporation engaged in banking. It started operations in 1962 and by year 2000 had 15 branches in Bulacan. 4 Petitioner Hilario P. Soriano claims to be the majority stockholder of its outstanding shares of stock. 5 On January 21, 2000, respondent Monetary Board (MB), the governing board of respondent Bangko Sentral ng Pilipinas (BSP), issued Resolution No. 105 prohibiting RBSM from doing business in the Philippines, placing it under receivership and designating respondent Philippine Deposit Insurance Corporation (PDIC) as receiver: On the basis of the comptrollership/monitoring report as of October 31, 1999 as reported by Mr. Wilfredo B. Domo-ong, Director, Department of Rural Banks, in his memorandum dated January 20, 2000, which report showed that [RBSM] (a) is unable to pay its liabilities as they become due in the ordinary course of business; (b) cannot continue in business without involving probable losses to its depositors and creditors; that the management of the bank had been accordingly informed of the need to infuse additional capital to place the bank in a solvent financial condition and was given adequate time within which to make the required infusion and that no infusion of adequate fresh capital was made, the Board decided as follows: 1.To prohibit the bank from doing business in the Philippines and to place its assets and affairs under receivership in

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Alarmed and disturbed by the unilateral declaration of bank holiday, [BSP] wanted to examine the books and records of RBSM but encountered problems. Meanwhile, on November 10, 1999, RBSM's designated comptroller, Ms. Zenaida Cabais of the BSP, submitted to the Department of Rural Banks, BSP, a Comptrollership Report on her findings on the financial condition and operations of the bank as of October 31, 1999. Another set of findings was submitted by said comptroller [and] this second report reflected the financial status of RBSM as of December 31, 1999. HISAET The findings of the comptroller on the financial state of RBSM as of October 31, 1999 in comparison with the financial condition as of December 31, 1999 is summed up pertinently as follows: FINANCIAL CONDITION OF RBSM As of Oct. 31, 1999As of Dec. 31, 1999 Total obligations/ LiabilitiesP1,076,863,000.001,009,898,00 0.00 Realizable Assets898,588,000.00796,930,000.00 Deficit178,275,000.00212,968,000.00 Cash on Hand101,441.547.008,266,450.00 Required Capital InfusionP252,120,000.00 Capital InfusionP5,000,000.00 (On Dec. 20, 1999) Actual Breakdown of Total Obligations: 1)Deposits of 20,000 depositors P578,201,000.00 2)Borrowings from BSP P320,907,000.00 3)Unremitted withholding and gross receipt taxes P57,403,000.00. 9 Based on these comptrollership reports, the director of the Department of Rural Banks Supervision and Examination Sector, Wilfredo B. Domo-ong, made a report to the MB dated January 20, 2000. 10 The MB, after evaluating and deliberating on the findings and recommendation of the Department of Rural Banks Supervision and Examination Sector, issued Resolution No. 105 on January 21,

2000. 11 Thereafter, PDIC implemented the closure order and took over the management of RBSM's assets and affairs. In their petition 12 before the CA, petitioners claimed that respondents MB and BSP committed grave abuse of discretion in issuing Resolution No. 105. The petition was dismissed by the CA on March 28, 2000. It held, among others, that the decision of the MB to issue Resolution No. 105 was based on the findings and recommendations of the Department of Rural Banks Supervision and Examination Sector, the comptroller reports as of October 31, 1999 and December 31, 1999 and the declaration of a bank holiday. Such could be considered as substantial evidence. 13 Pertinently, on June 9, 2000, on the basis of reports prepared by PDIC stating that RBSM could not resume business with sufficient assurance of protecting the interest of its depositors, creditors and the general public, the MB passed Resolution No. 966 directing PDIC to proceed with the liquidation of RBSM under Section 30 of RA 7653. 14 Hence this petition. It is well-settled that the closure of a bank may be considered as an exercise of police power. 15 The action of the MB on this matter is final and executory. 16 Such exercise may nonetheless be subject to judicial inquiry and can be set aside if found to be in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction.17 Petitioners argue that Resolution No. 105 was bereft of any basis considering that no complete examination had been conducted before it was issued. This case essentially boils down to one core issue: whether Section 30 of RA 7653 (also known as the New Central Bank Act) and applicable jurisprudence require a current and complete examination of the bank before it can be closed and placed under receivership. caTESD Section 30 of RA 7653 provides: SECTION 30.Proceedings in Receivership and Liquidation. Whenever, upon report of the head of the supervising or examining department, the Monetary Board finds that a bank or quasi-bank: (a)is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That this shall not include inability to pay caused by extraordinary demands induced by financial panic in the banking community; (b)has insufficient realizable assets, as determined by the [BSP] to meet its liabilities; or (c)cannot continue in business without involving probable losses to its depositors or creditors; or (d)has willfully violated a cease and desist order under Section 37 that has become

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final, involving acts or transactions which amount to fraud or a dissipation of the assets of the institution; in which cases, the Monetary Board may summarily and without need for prior hearing forbid the institution from doing business in the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of the banking institution. xxx xxx xxx The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be final and executory, and may not be restrained or set aside by the court except on petition for certiorari on the ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction. The petition for certiorari may only be filed by the stockholders of record representing the majority of the capital stock within ten (10) days from receipt by the board of directors of the institution of the order directing receivership, liquidation or conservatorship. (Emphasis supplied) xxx xxx xxx Petitioners contend that there must be a current, thorough and complete examination before a bank can be closed under Section 30 of RA 7653. They argue that this section should be harmonized with Sections 25 and 28 of the same law: SECTION 25.Supervision and Examination. The [BSP] shall have supervision over, and conduct periodic or special examinations of, banking institutions and quasi-banks, including their subsidiaries and affiliates engaged in allied activities. TIaDHE

According to the petitioners, it is clear from these provisions that the "report of the supervising or examining department" required under Section 30 refers to the report on the examination of the bank which, under Section 28, must be made to the MB after the supervising or examining head conducts an examination mandated by Sections 25 and 28. 18 They cite Banco Filipino Savings & Mortgage Bank v. Monetary Board, Central Bank of the Philippines 19wherein the Court ruled: There is no question that under Section 29 of the Central Bank Act, the following are the mandatory requirements to be complied with before a bank found to be insolvent is ordered closed and forbidden to do business in the Philippines: Firstly, an examination shall be conducted by the head of the appropriate supervising or examining department or his examiners or agents into the condition of the bank; secondly, it shall be disclosed in the examination that the condition of the bank is one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors; thirdly, the department head concerned shall inform the Monetary Board in writing, of the facts; and lastly, the Monetary Board shall find the statements of the department head to be true. 20 (Emphasis supplied) Petitioners assert that an examination is necessary and not a mere report, otherwise the decision to close a bank would be arbitrary. Respondents counter that RA 7653 merely requires a report of the head of the supervising or examining department. They maintain that the term "report" under Section 30 and the word "examination" used in Section 29 of the old law are not synonymous. "Examination" connotes in-depth analysis, evaluation, inquiry or investigation while "report" connotes a simple disclosure or narration of facts for informative purposes. 21 Petitioners' contention has no merit. Banco Filipino and other cases petitioners cited 22 were decided using Section 29 of the old law (RA 265): SECTION 29.Proceedings upon insolvency. Whenever, upon examination by the head of the appropriate supervising or examining department or his examiners or agents into the conditionof any bank or non-bank financial intermediary performing quasi-banking functions, it shall be disclosed that the condition of the same is one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, it shall be the duty of the department head concerned forthwith, in writing, to inform the Monetary Board of the facts. The Board may, upon finding the statements of the department head to be true, forbid the institution to do business in the Philippines and designate

xxx xxx xxx SECTION 28.Examination and Fees. The supervising and examining department head, personally or by deputy, shall examine the books of every banking institution once in every twelve (12) months, and at such other time as the Monetary Board by an affirmative vote of five (5) members may deem expedient and to make a report on the same to the Monetary Board: Provided that there shall be an interval of at least twelve (12) months between annual examinations. (Emphasis supplied) xxx xxx xxx

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an official of the Central Bank or a person of recognized competence in banking or finance, as receiver to immediately take charge of its assets and liabilities, as expeditiously as possible collect and gather all the assets and administer the same for the benefits of its creditors, and represent the bank personally or through counsel as he may retain in all actions or proceedings for or against the institution, exercising all the powers necessary for these purposes including, but not limited to, bringing and foreclosing mortgages in the name of the bank or non-bank financial intermediary performing quasibanking functions. (Emphasis supplied) HAICET xxx xxx xxx Thus in Banco Filipino, we ruled that an "examination [conducted] by the head of the appropriate supervising or examining department or his examiners or agents into the condition of the bank" 23 is necessary before the MB can order its closure. However, RA 265, including Section 29 thereof, was expressly repealed by RA 7653 which took effect in 1993. Resolution No. 105 was issued on January 21, 2000. Hence, petitioners' reliance on Banco Filipino which was decided under RA 265 was misplaced. In RA 7653, only a "report of the head of the supervising or examining department" is necessary. It is an established rule in statutory construction that where the words of a statute are clear, plain and free from ambiguity, it must be given its literal meaning and applied without attempted interpretation: 24 This plain meaning rule or verba legis derived from the maxim index animi sermo est (speech is the index of intention) rests on the valid presumption that the words employed by the legislature in a statute correctly express its intention or will and preclude the court from construing it differently. The legislature is presumed to know the meaning of the words, to have used words advisedly, and to have expressed its intent by use of such words as are found in the statute. Verba legis non est recedendum, or from the words of a statute there should be no departure. 25 The word "report" has a definite and unambiguous meaning which is clearly different from "examination." A report, as a noun, may be defined as "something that gives information" or "a usually detailed account or statement." 26 On the other hand, an examination is "a search, investigation or scrutiny." 27 This Court cannot look for or impose another meaning on the term "report" or to construe it as synonymous with "examination." From the words used in Section 30, it is clear that RA 7653 no longer requires that an examination be made before the MB can issue a closure order. We cannot make it a requirement in the absence of legal basis.

Indeed, the court may consider the spirit and reason of the statute, where a literal meaning would lead to absurdity, contradiction, injustice, or would defeat the clear purpose of the lawmakers. 28 However, these problems are not present here. Using the literal meaning of "report" does not lead to absurdity, contradiction or injustice. Neither does it defeat the intent of the legislators. The purpose of the law is to make the closure of a bank summary and expeditious in order to protect public interest. This is also why prior notice and hearing are no longer required before a bank can be closed.29 Laying down the requisites for the closure of a bank under the law is the prerogative of the legislature and what its wisdom dictates. The lawmakers could have easily retained the word "examination" (and in the process also preserved the jurisprudence attached to it) but they did not and instead opted to use the word "report." The insistence on an examination is not sanctioned by RA 7653 and we would be guilty of judicial legislation were we to make it a requirement when such is not supported by the language of the law. What is being raised here as grave abuse of discretion on the part of the respondents was the lack of an examination and not the supposed arbitrariness with which the conclusions of the director of the Department of Rural Banks Supervision and Examination Sector had been reached in the report which became the basis of Resolution No. 105. EIASDT The absence of an examination before the closure of RBSM did not mean that there was no basis for the closure order. Needless to say, the decision of the MB and BSP, like any other administrative body, must have something to support itself and its findings of fact must be supported by substantial evidence. But it is clear under RA 7653 that the basis need not arise from an examination as required in the old law. We thus rule that the MB had sufficient basis to arrive at a sound conclusion that there were grounds that would justify RBSM's closure. It relied on the report of Mr. Domo-ong, the head of the supervising or examining department, with the findings that: (1) RBSM was unable to pay its liabilities as they became due in the ordinary course of business and (2) that it could not continue in business without incurring probable losses to its depositors and creditors. 30 The report was a 50-page memorandum detailing the facts supporting those grounds, an extensive chronology of events revealing the multitude of problems which faced RBSM and the recommendations based on those findings. In short, MB and BSP complied with all the requirements of RA 7653. By relying on a report before placing a bank under receivership, the MB and BSP did not only follow the letter of the law, they were also faithful to its spirit, which was to act expeditiously. Accordingly, the issuance of Resolution No. 105 was untainted with arbitrariness. Having dispensed with the issue decisive of this case, it becomes unnecessary to resolve the other minor issues raised.31 WHEREFORE, the petition is hereby DENIED. The March 28, 2000 decision and November 13, 2001 resolution of the Court of Appeals in CA-G.R. SP No. 57112 are AFFIRMED. Costs against petitioners.

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EN BANC

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 70054 December 11, 1991 BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner, vs. THE MONETARY BOARD, CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ, CARLOTA P. VALENZUELA, ARNULFO B. AURELLANO and RAMON V. TIAOQUI, respondents. G.R. No. 68878 December 11, 1991 BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner, vs. HON. INTERMEDIATE APPELLATE COURT and CELESTINA S. PAHIMUNTUNG, assisted by her husband,respondents. G.R. No. 77255-58 December 11, 1991 TOP MANAGEMENT PROGRAMS CORPORATION AND PILAR DEVELOPMENT CORPORATION, petitioners, vs. THE COURT OF APPEALS, The Executive Judge of the Regional Trial Court of Cavite, Ex-Officio Sheriff REGALADO E. EUSEBIO, BANCO FILIPINO SAVINGS AND MORTGAGE BANK, CARLOTA P. VALENZUELA AND SYCIP, SALAZAR, HERNANDEZ AND GATMAITAN, respondents. G.R. No. 78766 December 11, 1991

EL GRANDE CORPORATION, petitioner, vs. THE COURT OF APPEALS, THE EXECUTIVE JUDGE of The Regional Trial Court and Ex-Officio Sheriff REGALADO E. EUSEBIO, BANCO FILIPINO SAVINGS AND MORTGAGE BANK, CARLOTA P. VALENZUELA AND SYCIP, SALAZAR, FELICIANO AND HERNANDEZ, respondents. G.R. No. 78767 December 11, 1991 METROPOLIS DEVELOPMENT CORPORATION, petitioner, vs. COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ, JR., CARLOTA P. VALENZUELA, ARNULFO AURELLANO AND RAMON TIAOQUI, respondents. G.R. No. 78894 December 11, 1991 BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner vs. COURT OF APPEALS, THE CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ, JR., CARLOTA P. VALENZUELA, ARNULFO B. AURELLANO AND RAMON TIAOQUI, respondents. G.R. No. 81303 December 11, 1991 PILAR DEVELOPMENT CORPORATION, petitioner vs. COURT OF APPEALS, HON. MANUEL M. COSICO, in his capacity as Presiding Judge of Branch 136 of the Regional Trial Court of Makati, CENTRAL BANK OF THE PHILIPPINES AND CARLOTA P. VALENZUELA,respondents. G.R. No. 81304 December 11, 1991

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BF HOMES DEVELOPMENT CORPORATION, petitioner, vs. THE COURT OF APPEALS, CENTRAL BANK AND CARLOTA P. VALENZUELA, respondents. G.R. No. 90473 December 11, 1991 EL GRANDE DEVELOPMENT CORPORATION, petitioner, vs. THE COURT OF APPEALS, THE EXECUTIVE JUDGE of the Regional Trial Court of Cavite, CLERK OF COURT and Ex-Officio Sheriff ADORACION VICTA, BANCO FILIPINO SAVINGS AND MORTGAGE BANK, CARLOTA P. VALENZUELA AND SYCIP, SALAZAR, HERNANDEZ AND GATMAITAN, respondents. Panganiban, Benitez, Barinaga & Bautista Law Offices collaborating counsel for petitioner. Florencio T. Domingo, Jr. and Crisanto S. Cornejo for intervenors.

the latter is pending resolution in G.R. No. 7004. Corollary to this issue is whether the CB can be sued to fulfill financial commitments of a closed bank pursuant to Section 29 of the Central Bank Act. On the other hand, the other three (3) cases, namely, G.R. Nos. 70054, which is the main case, 78767 and 78894 all seek to annul and set aside M.B. Resolution No. 75 issued by respondents Monetary Board and Central Bank on January 25, 1985.

The antecedent facts of each of the nine (9) cases are as follows: G.R No. 68878 This is a motion for reconsideration, filed by respondent Celestina Pahimuntung, of the decision promulgated by thisCourt on April 8, 1986, granting the petition for review on certiorari and reversing the questioned decision of respondent appellate court, which annulled the writ of possession issued by the trial court in favor of petitioner. The respondent-movant contends that the petitioner has no more personality to continue prosecuting the instant case considering that petitioner bank was placed under receivership since January 25, 1985 by the Central Bank pursuant to the resolution of the Monetary Board. G.R. Nos. 77255-58 Petitioners Top Management Programs Corporation (Top Management for brevity) and Pilar Development Corporation (Pilar Development for brevity) are corporations engaged in the business of developing residential subdivisions. Top Management obtained a loan of P4,836,000 from Banco Filipino as evidenced by a promissory note dated January 7, 1982
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MEDIALDEA, J.:p This refers to nine (9) consolidated cases concerning the legality of the closure and receivership of petitioner Banco Filipino Savings and Mortgage Bank (Banco Filipino for brevity) pursuant to the order of respondent Monetary Board. Six (6) of these cases, namely, G.R. Nos. 68878, 77255-68, 78766, 81303, 81304 and 90473 involve the common issue of whether or not the liquidator appointed by the respondent Central Bank (CB for brevity) has the authority to prosecute as well as to defend suits, and to foreclose mortgages for and in behalf of the bank while the issue on the validity of the receivership and liquidation of

payable in three years from date. The loan was secured by real estate mortgage in its various properties in Cavite. Likewise, Pilar Development obtained loans from Banco Filipino between 1982 and 1983 in the principal amounts of P6,000,000, P7,370,000 and P5,300,000 with maturity dates on December 28, 1984, January 5, 1985 and February 16, 1984, respectively. To secure the loan, Pilar Development mortgaged to Banco Filipino various properties in Dasmarias, Cavite. On January 25, 1985, the Monetary Board issued a resolution finding Banco Filipino insolvent and unable to do business without loss to its creditors and depositors. It placed Banco Filipino under receivership of Carlota Valenzuela, Deputy Governor of the Central Bank. On March 22, 1985, the Monetary Board issued another resolution placing the bank under liquidation and designating Valenzuela as liquidator. By virtue of her authority as liquidator, Valenzuela appointed the law firm of Sycip, Salazar, et al. to represent Banco Filipino in all litigations. On March 26, 1985, Banco Filipino filed the petition for certiorari in G.R. No. 70054 questioning the validity of the resolutions issued by the Monetary Board authorizing the receivership and liquidation of Banco Filipino. In a resolution dated August 29, 1985, this Court in G.R. No. 70054 resolved to issue a temporary restraining order, effective during the same period of 30 days, enjoining the respondents from executing further acts of liquidation of the bank; that acts such as receiving collectibles and receivables or paying off creditors' claims and other transactions pertaining to normal operations of a bank are not enjoined. The Central Bank is ordered to designate a comptroller for Banco Filipino.

Subsequently, Top Management failed to pay its loan on the due date. Hence, the law firm of Sycip, Salazar, et al. acting as counsel for Banco Filipino under authority of Valenzuela as liquidator, applied for extra-judicial foreclosure of the mortgage over Top Management's properties. Thus, the ExOfficio Sheriff of the Regional Trial Court of Cavite issued a notice of extra-judicial foreclosure sale of the properties on December 16, 1985. On December 9, 1985, Top Management filed a petition for injunction and prohibition with the respondent appellate court docketed as CA-G.R. SP No. 07892 seeking to enjoin the Regional Trial Court of Cavite, the exofficio sheriff of said court and Sycip, Salazar, et al. from proceeding with foreclosure sale. Similarly, Pilar Development defaulted in the payment of its loans. The law firm of Sycip, Salazar, et al. filed separate applications with the ex-officio sheriff of the Regional Trial Court of Cavite for the extra-judicial foreclosure of mortgage over its properties. Hence, Pilar Development filed with the respondent appellate court a petition for prohibition with prayer for the issuance of a writ of preliminary injunction docketed as CAG.R SP Nos. 08962-64 seeking to enjoin the same respondents from enforcing the foreclosure sale of its properties. CA-G.R. SP Nos. 07892 and 08962-64 were consolidated and jointly decided. On October 30, 1986, the respondent appellate court rendered a decision dismissing the aforementioned petitions. Hence, this petition was filed by the petitioners Top Management and Pilar Development alleging that Carlota Valenzuela, who was appointed by the Monetary Board as liquidator of Banco Filipino, has no authority to proceed with the
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foreclosure sale of petitioners' properties on the ground that the resolution of the issue on the validity of the closure and liquidation of Banco Filipino is still pending with this Court in G.R. 70054. G.R. No. 78766 Petitioner El Grande Development Corporation (El Grande for brevity) is engaged in the business of developing residential subdivisions. It was extended by respondent Banco Filipino a credit accommodation to finance its housing program. Hence, petitioner was granted a loan in the amount of P8,034,130.00 secured by real estate mortgages on its various estates located in Cavite. On January 15, 1985, the Monetary Board forbade Banco Filipino to do business, placed it under receivership and designated Deputy Governor Carlota Valenzuela as receiver. On March 22, 1985, the Monetary Board confirmed Banco Filipino's insolvency and designated the receiver Carlota Valenzuela as liquidator. When petitioner El Grande failed to pay its indebtedness to Banco Filipino, the latter thru its liquidator, Carlota Valenzuela, initiated the foreclosure with the Clerk of Court and Exofficio sheriff of RTC Cavite. Subsequently, on March 31, 1986, the ex-officio sheriff issued the notice of extra-judicial sale of the mortgaged properties of El Grande scheduled on April 30, 1986. In order to stop the public auction sale, petitioner El Grande filed a petition for prohibition with the Court of Appeals alleging that respondent Carlota Valenzuela could not proceed with the foreclosure of its mortgaged properties on the ground that this Court in G.R. No. 70054 issued a resolution dated August 29, 1985, which restrained Carlota Valenzuela from acting as liquidator and allowed Banco Filipino to resume banking

operations only under a Central Bank comptroller. On March 2, 1987, the Court of Appeals rendered a decision dismissing the petition. Hence this petition for review on certiorari was filed alleging that the respondent court erred when it held in its decision that although Carlota P. Valenzuela was restrained by this Honorable Court from exercising acts in liquidation of Banco Filipino Savings & Mortgage Bank, she was not legally precluded from foreclosing the mortgage over the properties of the petitioner through counsel retained by her for the purpose. G.R. No. 81303 On November 8, 1985, petitioner Pilar Development Corporation (Pilar Development for brevity) filed an action against Banco Filipino, the Central Bank and Carlota Valenzuela for specific performance, docketed as Civil Case No. 12191. It appears that the former management of Banco Filipino appointed Quisumbing & Associates as counsel for Banco Filipino. On June 12, 1986 the said law firm filed an answer for Banco Filipino which confessed judgment against Banco Filipino. On June 17, 1986, petitioner filed a second amended complaint. The Central Bank and Carlota Valenzuela, thru the law firm Sycip, Salazar, Hernandez and Gatmaitan filed an answer to the complaint. On June 23, 1986, Sycip, et al., acting for all the defendants including Banco Filipino moved that the answer filed by Quisumbing & Associates for defendant Banco Filipino be expunged from the records. Despite opposition from Quisumbing & Associates, the trial court granted the motion to expunge in an order dated March 17, 1987. Petitioner
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Pilar Development moved to reconsider the order but the motion was denied. Petitioner Pilar Development filed with the respondent appellate court a petition for certiorari and mandamus to annul the order of the trial court. The Court of Appeals rendered a decision dismissing the petition. A petition was filed with this Court but was denied in a resolution dated March 22, 1988. Hence, this instant motion for reconsideration. G.R. No. 81304 On July 9, 1985, petitioner BF Homes Incorporated (BF Homes for brevity) filed an action with the trial court to compel the Central Bank to restore petitioner's; financing facility with Banco Filipino. The Central Bank filed a motion to dismiss the action. Petitioner BF Homes in a supplemental complaint impleaded as defendant Carlota Valenzuela as receiver of Banco Filipino Savings and Mortgage Bank. On April 8, 1985, petitioner filed a second supplemental complaint to which respondents filed a motion to dismiss. On July 9, 1985, the trial court granted the motion to dismiss the supplemental complaint on the grounds (1) that plaintiff has no contractual relation with the defendants, and (2) that the Intermediate Appellate Court in a previous decision in AC-G.R. SP. No. 04609 had stated that Banco Filipino has been ordered closed and placed under receivership pending liquidation, and thus, the continuation of the facility sued for by the plaintiff has become legally impossible and the suit has become moot. The order of dismissal was appealed by the petitioner to the Court of Appeals. On November 4, 1987, the respondent appellate

court dismissed the appeal and affirmed the order of the trial court. Hence, this petition for review on certiorari was filed, alleging that the respondent court erred when it found that the private respondents should not be the ones to respond to the cause of action asserted by the petitioner and the petitioner did not have any cause of action against the respondents Central Bank and Carlota Valenzuela. G.R. No. 90473 Petitioner El Grande Development Corporation (El Grande for brevity) obtained a loan from Banco Filipino in the amount of P8,034,130.00, secured by a mortgage over its five parcels of land located in Cavite which were covered by Transfer Certificate of Title Nos. T-82187, T-109027, T-132897, T148377, and T-79371 of the Registry of Deeds of Cavite. When Banco Filipino was ordered closed and placed under receivership in 1985, the appointed liquidator of BF, thru its counsel Sycip, Salazar, et al. applied with the exofficio sheriff of the Regional Trial Court of Cavite for the extrajudicial foreclosure of the mortgage constituted over petitioner's properties. On March 24, 1986, the ex-officio sheriff issued a notice of extrajudicial foreclosure sale of the properties of petitioner. Thus, petitioner filed with the Court of Appeals a petition for prohibition with prayer for writ of preliminary injunction to enjoin the respondents from foreclosing the mortgage and to nullify the notice of foreclosure. On June 16, 1989, respondent Court of Appeals rendered a decision dismissing the petition. Not satisfied with the decision, petitioner filed the instant petition for review on certiorari.
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G.R. No. 70054 Banco Filipino Savings and Mortgage Bank was authorized to operate as such under M.B. Resolution No. 223 dated February 14, 1963. It commenced operations on July 9, 1964. It has eighty-nine (89) operating branches, forty-six (46) of which are in Manila, with more than three (3) million depositors. As of July 31, 1984, the list of stockholders showed the major stockholders to be: Metropolis Development Corporation, Apex Mortgage and Loans Corporation, Filipino Business Consultants, Tiu Family Group, LBH Inc. and Anthony Aguirre. Petitioner Bank had an approved emergency advance of P119.7 million under M.B. Resolution No. 839 dated June 29, 1984. This was augmented with a P3 billion credit line under M.B. Resolution No. 934 dated July 27, 1984. On the same date, respondent Board issued M.B. Resolution No. 955 placing petitioner bank under conservatorship of Basilio Estanislao. He was later replaced by Gilberto Teodoro as conservator on August 10, 1984. The latter submitted a report dated January 8, 1985 to respondent Board on the conservatorship of petitioner bank, which report shall hereinafter be referred to as the Teodoro report. Subsequently, another report dated January 23, 1985 was submitted to the Monetary Board by Ramon Tiaoqui, Special Assistant to the Governor and Head, SES Department II of the Central Bank, regarding the major findings of examination on the financial condition of petitioner BF as of July 31, 1984. The report, which shall be referred to herein as the Tiaoqui Report contained the following conclusion and recommendation:

The examination findings as of July 31, 1984, as shown earlier, indicate one of insolvency and illiquidity and further confirms the above conclusion of the Conservator. All the foregoing provides sufficient justification for forbidding the bank from engaging in banking. Foregoing considered, the following are recommended: 1. Forbid the Banco Filipino Savings & Mortgage Bank to do business in the Philippines effective the beginning of office January 1985, pursuant to Sec. 29 of R.A No. 265, as amended; 2. Designate the Head of the Conservator Team at the bank, as Receiver of Banco Filipino Savings & Mortgage Bank, to immediately take charge of the assets and liabilities, as expeditiously as possible collect and gather all the assets and administer the same for the benefit of all the creditors, and exercise all the
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powers necessary for these purposes including but not limited to bringing suits and foreclosing mortgages in the name of the bank. 3. The Board of Directors and the principal officers from Senior Vice Presidents, as listed in the attached Annex "A" be included in the watchlist of the Supervision and Examination Sector until such time that they shall have cleared themselves. 4. Refer to the Central Bank's Legal Department and Office of Special Investigation the report on the findings on Banco Filipino for investigation and possible prosecution of directors, officers, and employees for activities which led to its insolvent position. (pp- 6162, Rollo) On January 25, 1985, the Monetary Board issued the assailed MB Resolution No. 75 which ordered the closure of BF and which further provides:

After considering the report dated January 8, 1985 of the Conservator for Banco Filipino Savings and Mortgage Bank that the continuance in business of the bank would involve probable loss to its depositors and creditors, and after discussing and finding to be true the statements of the Special Assistant to the Governor and Head, Supervision and Examination Sector (SES) Department II as recited in his memorandum dated January 23, 1985, that the Banco Filipino Savings & Mortgage Bank is insolvent and that its continuance in business would involve probable loss to its depositors and creditors, and in pursuance of Sec. 29 of RA 265, as amended, the Board decided: 1. To forbid Banco Filipino Savings and Mortgage Bank and all its branches to do business in the Philippines; 2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor as Receiver who is hereby directly vested with jurisdiction and authority to immediately take charge of the bank's assets and liabilities, and as expeditiously as possible collect
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and gather all the assets and administer the same for the benefit of its creditors, exercising all the powers necessary for these purposes including but not limited to, bringing suits and foreclosing mortgages in the name of the bank; 3. To designate Mr. Arnulfo B. Aurellano, Special Assistant to the Governor, and Mr. Ramon V. Tiaoqui, Special Assistant to the Governor and Head, Supervision and Examination Sector Department II, as Deputy Receivers who are likewise hereby directly vested with jurisdiction and authority to do all things necessary or proper to carry out the functions entrusted to them by the Receiver and otherwise to assist the Receiver in carrying out the functions vested in the Receiver by law or Monetary Board Resolutions;

4. To direct and authorize Management to do all other things and carry out all other measures necessary or proper to implement this Resolution and to safeguard the interests of depositors, creditors and the general public; and 5. In consequence of the foregoing, to terminate the conservatorship over Banco Filipino Savings and Mortgage Bank. (pp. 10-11, Rollo, Vol. I) On February 2, 1985, petitioner BF filed a complaint docketed as Civil Case No. 9675 with the Regional Trial Court of Makati to set aside the action of the Monetary Board placing BF under receivership. On February 28, 1985, petitioner filed with this Court the instant petition for certiorari and mandamus under Rule 65 of the Rules of Court seeking to annul the resolution of January 25, 1985 as made without or in excess of jurisdiction or with grave abuse of discretion, to order respondents to furnish petitioner with the reports of examination which led to its closure and to afford petitioner BF a hearing prior to any resolution that may be issued under Section 29 of R.A. 265, also known as Central Bank Act. On March 19, 1985, Carlota Valenzuela, as Receiver and Arnulfo Aurellano and Ramon
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Tiaoqui as Deputy Receivers of Banco Filipino submitted their report on the receivership of BF to the Monetary Board, in compliance with the mandate of Sec. 29 of R.A. 265 which provides that the Monetary Board shall determine within sixty (60) days from date of receivership of a bank whether such bank may be reorganized/permitted to resume business or ordered to be liquidated. The report contained the following recommendation: In view of the foregoing and considering that the condition of the banking institution continues to be one of insolvency, i.e., its realizable assets are insufficient to meet all its liabilities and that the bank cannot resume business with safety to its depositors, other creditors and the general public, it is recommended that: 1. Banco Filipino Savings & Mortgage Bank be liquidated pursuant to paragraph 3, Sec. 29 of RA No. 265, as amended; 2. The Legal Department, through the Solicitor General, be authorized to file in the proper court a petition for assistance in th liquidation of the Bank; 3. The Statutory Receiver be designated as the Liquidator of said bank; and 4. Management be instructed to inform the stockholders of Banco Filipino Savings & Mortgage Bank of the Monetary Board's decision liquidate the Bank. (p. 167, Rollo, Vol. I) On July 23, 1985, petitioner filed a motion before this Court praying that a restraining order or a writ of preliminary injunction be issued to enjoin respondents from causing the dismantling of BF signs in its main office and 89 branches. This Court issued a

resolution on August 8, 1985 ordering the issuance of the aforesaid temporary restraining order. On August 20, 1985, the case was submitted for resolution. In a resolution dated August 29, 1985, this Court Resolved direct the respondents Monetary Board and Central Bank hold hearings at which the petitioner should be heard, and terminate such hearings and submit its resolution within thirty (30) days. This Court further resolved to issue a temporary restraining order enjoining the respondents from executing further acts of liquidation of a bank. Acts such as receiving collectibles and receivables or paying off creditors' claims and other transactions pertaining to normal operations of a bank were no enjoined. The Central Bank was also ordered to designate comptroller for the petitioner BF. This Court also ordered th consolidation of Civil Cases Nos. 8108, 9676 and 10183 in Branch 136 of the Regional Trial Court of Makati. However, on September 12, 1985, this Court in the meantime suspended the hearing it ordered in its resolution of August 29, 1985. On October 8, 1985, this Court submitted a resolution order ing Branch 136 of the Regional Trial Court of Makati the presided over by Judge Ricardo Francisco to conduct the hear ing contemplated in the resolution of August 29, 1985 in the most expeditious manner and to submit its resolution to this Court. In the Court's resolution of February 19, 1987, the Court stated that the hearing contemplated in the resolution of August 29, 1985, which is to ascertain whether substantial administrative due process had been observed by the respondent Monetary Board, may be expedited by Judge Manuel Cosico who now presides the court vacated
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by Judge Ricardo Francisco, who was elevated to the Court of Appeals, there being no legal impediment or justifiable reason to bar the former from conducting such hearing. Hence, this Court directed Judge Manuel Cosico to expedite the hearing and submit his report to this Court. On February 20, 1988, Judge Manuel Cosico submitted his report to this Court with the recommendation that the resolutions of respondents Monetary Board and Central Bank authorizing the closure and liquidation of petitioner BP be upheld. On October 21, 1988, petitioner BF filed an urgent motion to reopen hearing to which respondents filed their comment on December 16, 1988. Petitioner filed their reply to respondent's comment of January 11, 1989. After having deliberated on the grounds raised in the pleadings, this Court in its resolution dated August 3, 1989 declared that its intention as expressed in its resolution of August 29, 1985 had not been faithfully adhered to by the herein petitioner and respondents. The aforementioned resolution had ordered a healing on the reports that led respondents to order petitioner's closure and its alleged preplanned liquidation. This Court noted that during the referral hearing however, a different scheme was followed. Respondents merely submitted to the commissioner their findings on the examinations conducted on petitioner, affidavits of the private respondents relative to the findings, their reports to the Monetary Board and several other documents in support of their position while petitioner had merely submitted objections to the findings of respondents, counter-affidavits of its officers and also documents to prove its claims. Although the records disclose that both parties had not waived cross-examination of their deponents, no such cross-examination has been conducted. The reception of evidence in the form of affidavits was followed throughout,

until the commissioner submitted his report and recommendations to the Court. This Court also held that the documents pertinent to the resolution of the instant petition are the Teodoro Report, Tiaoqui Report, Valenzuela, Aurellano and Tiaoqui Report and the supporting documents which were made as the bases by the reporters of their conclusions contained in their respective reports. This Court also Resolved in its resolution to re-open the referral hearing that was terminated after Judge Cosico had submitted his report and recommendation with the end in view of allowing petitioner to complete its presentation of evidence and also for respondents to adduce additional evidence, if so minded, and for both parties to conduct the required cross-examination of witnesses/deponents, to be done within a period of three months. To obviate all doubts on Judge Cosico's impartiality, this Court designated a new hearing commissioner in the person of former Judge Consuelo Santiago of the Regional Trial Court, Makati, Branch 149 (now Associate Justice of the Court of Appeals). Three motions for intervention were filed in this case as follows: First, in G.R. No. 70054 filed by Eduardo Rodriguez and Fortunate M. Dizon, stockholders of petitioner bank for and on behalf of other stockholders of petitioner; second, in G.R. No. 78894, filed by the same stockholders, and, third, again in G.R. No. 70054 by BF Depositors' Association and others similarly situated. This Court, on March 1, 1990, denied the aforesaid motions for intervention. On January 28, 1991, the hearing commissioner, Justice Consuelo Santiago of the Court of Appeals submitted her report and recommendation (to be hereinafter called, "Santiago Report") on the following issues stated therein as follows: l) Had the Monetary Board
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observed the procedural requirements laid down in Sec. 29 of R.A. 265, as amended to justify th closure of the Banco Filipino Savings and Mortgage Bank? 2) On the date of BF's closure (January 25, 1985) was its condition one of insolvency or would its continuance in business involve probable loss to its depositors or creditors? The commissioner after evaluation of the evidence presented found and recommended the following: 1. That the TEODORO and TIAOQUI reports did not establish in accordance with See. 29 of the R.A. 265, as amended, BF's insolvency as of July 31, 1984 or that its continuance in business thereafter would involve probable loss to its depositors or creditors. On the contrary, the evidence indicates that BF was solvent on July 31, 1984 and that on

January 25, 1985, the day it was closed, its insolvency was not clearly established; 2. That consequently, BF's closure on January 25, 1985, not having satisfied the requirements prescribed under Sec. 29 of RA 265, as amended, was null and void. 3. That accordingly, by way of correction, BF should be allowed to re-open subject to such laws, rules and regulations that apply to its situation. Respondents thereafter filed a motion for leave to file objections to the Santiago Report. In the same motion, respondents requested that the report and recommendation be set for oral argument before the Court. On February 7, 1991, this Court denied the request for oral argument of the parties. On February 25, 1991, respondents filed their objections to the Santiago Report. On March 5, 1991, respondents submitted a motion for oral argument alleging that this Court is confronted with two conflicting reports on the same subject, one upholding on all points the Monetary Board's closure of petitioner, (Cosico Report dated February 19, 1988) and the other (Santiago Report dated January 25, 1991) holding that petitioner's closure was null and void because
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petitioner's insolvency was not clearly established before its closure; and that such a hearing on oral argrument will therefore allow the parties to directly confront the issues before this Court. On March 12, 1991 petitioner filed its opposition to the motion for oral argument. On March 20, 1991, it filed its reply to respondents' objections to the Santiago Report. On June 18, 1991, a hearing was held where both parties were heard on oral argument before this Court. The parties, having submitted their respective memoranda, the case is now submitted for decision. G.R. No. 78767 On February 2, 1985, Banco Filipino filed a complaint with the trial court docketed as Civil Case No. 9675 to annul the resolution of the Monetary Board dated January 25, 1985, which ordered the closure of the bank and placed it under receivership. On February 14, 1985, the Central Bank and the receivers filed a motion to dismiss the complaint on the ground that the receivers had not authorized anyone to file the action. In a supplemental motion to dismiss, the Central Bank cited the resolution of this Court dated October 15, 1985 in G.R. No. 65723 entitled, "Central Bank et al. v. Intermediate Appellate Court" whereby We held that a complaint questioning the validity of the receivership established by the Central Bank becomes moot and academic upon the initiation of liquidation proceedings. While the motion to dismiss was pending resolution, petitioner herein Metropolis Development Corporation (Metropolis for brevity) filed a motion to intervene in the aforestated civil case on the ground that as a stockholder and creditor of Banco Filipino, it has an interest in the subject of the action.

On July 19, 1985, the trial court denied the motion to dismiss and also denied the motion for reconsideration of the order later filed by Central Bank. On June 5, 1985, the trial court allowed the motion for intervention. Hence, the Central Bank and the receivers of Banco Filipino filed a petition for certiorari with the respondent appellate court alleging that the trial court committed grave abuse of discretion in not dismissing Civil Case No. 9675. On March 17, 1986, the respondent appellate court rendered a decision annulling and setting aside the questioned orders of the trial court, and ordering the dismissal of the complaint filed by Banco Filipino with the trial court as well as the complaint in intervention of petitioner Metropolis Development Corporation. Hence this petition was filed by Metropolis Development Corporation questioning the decision of the respondent appellate court. G.R. No. 78894 On February 2, 1985, a complaint was filed with the trial court in the name of Banco Filipino to annul the resolution o the Monetary Board dated January 25, 1985 which ordered the closure of Banco Filipino and placed it under receivership. The receivers appointed by the Monetary Board were Carlota Valenzuela, Arnulfo Aurellano and Ramon Tiaoqui. On February 14, 1985, the Central Bank and the receiver filed a motion to dismiss the complaint on the ground that the receiver had not authorized anyone to file the action. On March 22, 1985, the Monetary Board placed the bank under liquidation and designated Valenzuela as liquidator and Aurellano and Tiaoqui as deputy liquidators.
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The Central Bank filed a supplemental motion to dismiss which was denied. Hence, the latter filed a petition forcertiorari with the respondent appellate court to set aside the order of the trial court denying the motion to dismiss. On March 17, 1986, the respondent appellate court granted the petition and dismissed the complaint of Banco Filipino with the trial court. Thus, this petition for certiorari was filed with the petitioner contending that a bank which has been closed and placed under receivership by the Central Bank under Section 29 of RA 265 could file suit in court in its name to contest such acts of the Central Bank, without the authorization of the CBappointed receiver. After deliberating on the pleadings in the following cases: 1. In G.R. No. 68878, the respondent's motion for reconsideration; 2. In G.R. Nos. 77255-58, the petition, comment, reply, rejoinder and sur-rejoinder; 2. In G.R. No. 78766, the petition, comment, reply and rejoinder; 3. In G.R. No. 81303, the petitioner's motion for reconsideration; 4. In G.R.No. 81304, the petition, comment and reply;

5. Finally, in G.R. No. 90473, the petition comment and reply. We find the motions for reconsideration in G.R. Nos. 68878 and 81303 and the petitions in G.R. Nos. 77255-58, 78766, 81304 and 90473 devoid of merit. Section 29 of the Republic Act No. 265, as amended known as the Central Bank Act, provides that when a bank is forbidden to do business in the Philippines and placed under receivership, the person designated as receiver shall immediately take charge of the bank's assets and liabilities, as expeditiously as possible, collect and gather all the assets and administer the same for the benefit of its creditors, and represent the bank personally or through counsel as he may retain in all actions or proceedings for or against the institution, exercising all the powers necessary for these purposes including, but not limited to, bringing and foreclosing mortgages in the name of the bank. If the Monetary Board shall later determine and confirm that banking institution is insolvent or cannot resume business safety to depositors, creditors and the general public, it shall, public interest requires, order its liquidation and appoint a liquidator who shall take over and continue the functions of receiver previously appointed by Monetary Board. The liquid for may, in the name of the bank and with the assistance counsel as he may retain, institute such actions as may necessary in the appropriate court to collect and recover a counts and assets of such institution or defend any action ft against the institution. When the issue on the validity of the closure and receivership of Banco Filipino bank was raised in G.R. No. 70054, pendency of the case did not diminish the powers and authority of the designated liquidator to effectuate and carry on the a ministration of
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the bank. In fact when We adopted a resolute on August 25, 1985 and issued a restraining order to respondents Monetary Board and Central Bank, We enjoined me further acts of liquidation. Such acts of liquidation, as explained in Sec. 29 of the Central Bank Act are those which constitute the conversion of the assets of the banking institution to money or the sale, assignment or disposition of the s to creditors and other parties for the purpose of paying debts of such institution. We did not prohibit however acts a as receiving collectibles and receivables or paying off credits claims and other transactions pertaining to normal operate of a bank. There is no doubt that the prosecution of suits collection and the foreclosure of mortgages against debtors the bank by the liquidator are among the usual and ordinary transactions pertaining to the administration of a bank. their did Our order in the same resolution dated August 25, 1985 for the designation by the Central Bank of a comptroller Banco Filipino alter the powers and functions; of the liquid insofar as the management of the assets of the bank is concerned. The mere duty of the comptroller is to supervise counts and finances undertaken by the liquidator and to d mine the propriety of the latter's expenditures incurred behalf of the bank. Notwithstanding this, the liquidator is empowered under the law to continue the functions of receiver is preserving and keeping intact the assets of the bank in substitution of its former management, and to prevent the dissipation of its assets to the detriment of the creditors of the bank. These powers and functions of the liquidator in directing the operations of the bank in place of the former management or former officials of the bank include the retaining of counsel of his choice in actions and proceedings for purposes of administration. Clearly, in G.R. Nos. 68878, 77255-58, 78766 and 90473, the liquidator by himself or through counsel has the authority to bring actions for foreclosure of mortgages

executed by debtors in favor of the bank. In G.R. No. 81303, the liquidator is likewise authorized to resist or defend suits instituted against the bank by debtors and creditors of the bank and by other private persons. Similarly, in G.R. No. 81304, due to the aforestated reasons, the Central Bank cannot be compelled to fulfill financial transactions entered into by Banco Filipino when the operations of the latter were suspended by reason of its closure. The Central Bank possesses those powers and functions only as provided for in Sec. 29 of the Central Bank Act. While We recognize the actual closure of Banco Filipino and the consequent legal effects thereof on its operations, We cannot uphold the legality of its closure and thus, find the petitions in G.R. Nos. 70054, 78767 and 78894 impressed with merit. We hold that the closure and receivership of petitioner bank, which was ordered by respondent Monetary Board on January 25, 1985, is null and void. It is a well-recognized principle that administrative and discretionary functions may not be interfered with by the courts. In general, courts have no supervising power over the proceedings and actions of the administrative departments of the government. This is generally true with respect to acts involving the exercise of judgment or discretion, and findings of fact. But when there is a grave abuse of discretion which is equivalent to a capricious and whimsical exercise of judgment or where the power is exercised in an arbitrary or despotic manner, then there is a justification for the courts to set aside the administrative determination reached (Lim, Sr. v. Secretary of Agriculture and Natural Resources, L26990, August 31, 1970, 34 SCRA 751) The jurisdiction of this Court is called upon, once again, through these petitions, to undertake the delicate task of ascertaining
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whether or not an administrative agency of the government, like the Central Bank of the Philippines and the Monetary Board, has committed grave abuse of discretion or has acted without or in excess of jurisdiction in issuing the assailed order. Coupled with this task is the duty of this Court not only to strike down acts which violate constitutional protections or to nullify administrative decisions contrary to legal mandates but also to prevent acts in excess of authority or jurisdiction, as well as to correct manifest abuses of discretion committed by the officer or tribunal involved. The law applicable in the determination of these issues is Section 29 of Republic Act No. 265, as amended, also known as the Central Bank Act, which provides: SEC. 29. Proceedings upon insolvency. Whenever, upon examination by the head of the appropriate supervising or examining department or his examiners or agents into the condition of any bank or nonbank financial intermediary performing quasi-banking functions, it shall be disclosed that the condition of the same is one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, it shall be the duty of the department head concerned forthwith, in writing, to inform the Monetary Board of the facts. The Board may, upon finding the statements of the department head to be true, forbid the institution to do business in the Philippines and designate an official of the Central Bank or a person of recognized competence in banking or finance, as receiver to

immediately take charge of its assets and liabilities, as expeditiously as possible collect and gather all the assets and administer the same for the benefit's of its creditors, and represent the bank personally or through counsel as he may retain in all actions or proceedings for or against the institution, exercising all the powers necessary for these purposes including, but not limited to, bringing and foreclosing mortgages in the name of the bank or non-bank financial intermediary performing quasi-banking functions. The Monetary Board shall thereupon determine within sixty days whether the institution may be reorganized or otherwise placed in such a condition so that it may be permitted to resume business with safety to its depositors and creditors and the general public and shall prescribe the conditions under which such resumption of business shall take place as well as the time for fulfillment of such conditions. In such case, the expenses and fees in the collection and administration of the assets of the institution shall be determined by the Board and shall be paid to the Central Bank out of the assets of such institution. If the Monetary Board shall determine and confirm within the said period that the bank or non-bank financial intermediary performing quasi-banking functions is insolvent or cannot
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resume business with safety to its depositors, creditors, and the general public, it shall, if the public interest requires, order its liquidation, indicate the manner of its liquidation and approve a liquidation plan which may, when warranted, involve disposition of any or all assets in consideration for the assumption of equivalent liabilities. The liquidator designated as hereunder provided shall, by the Solicitor General, file a petition in the regional trial court reciting the proceedings which have been taken and praying the assistance of the court in the liquidation of such institutions. The court shall have jurisdiction in the same proceedings to assist in the adjudication of the disputed claims against the bank or non-bank financial intermediary performing quasibanking functions and in the enforcement of individual liabilities of the stockholders and do all that is necessary to preserve the assets of such institutions and to implement the liquidation plan approved by the Monetary Board. The Monetary Board shall designate an official of the Central bank or a person of recognized competence in banking or finance, as liquidator who shall take over and continue the functions of the receiver previously appointed by the Monetary Board under this Section. The liquidator shall, with all convenient speed, convert the assets of the banking institutions or non-bank financial intermediary performing quasi-banking

function to money or sell, assign or otherwise dispose of the same to creditors and other parties for the purpose of paying the debts of such institution and he may, in the name of the bank or non-bank financial intermediary performing quasibanking functions and with the assistance of counsel as he may retain, institute such actions as may be necessary in the appropriate court to collect and recover accounts and assets of such institution or defend any action filed against the institution: Provided, However, That after having reasonably established all claims against the institution, the liquidator may, with the approval of the court, effect partial payments of such claims for assets of the institution in accordance with their legal priority. The assets of an institution under receivership or liquidation shall be deemed in custodia legis in the hands of the receiver or liquidator and shall from the moment of such receivership or liquidation, be exempt from any order of garnishment, levy, attachment, orexecution. The provisions of any law to the contrary notwithstanding, the actions of the Monetary Board under this Section, Section 28A, an the second paragraph of Section 34 of this Act shall be final an executory, and can be set aside by a court only if there is convince proof, after hearing, that the action is plainly arbitrary and made in bad
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faith: Provided, That the same is raised in an appropriate pleading filed by the stockholders of record representing the majority of th capital stock within ten (10) days from the date the receiver take charge of the assets and liabilities of the bank or nonbank financial intermediary performing quasi-banking functions or, in case of conservatorship or liquidation, within ten (10) days from receipt of notice by the said majority stockholders of said bank or non-bank financial intermediary of the order of its placement under conservatorship o liquidation. No restraining order or injunction shall be issued by an court enjoining the Central Bank from implementing its actions under this Section and the second paragraph of Section 34 of this Act in th absence of any convincing proof that the action of the Monetary Board is plainly arbitrary and made in bad faith and the petitioner or plaintiff files a bond, executed in favor of the Central Bank, in an amount be fixed by the court. The restraining order or injunction shall be refused or, if granted, shall be dissolved upon filing by the Central Bank of a bond, which shall be in the form of cash or Central Bank cashier's check, in an amount twice the amount of the bond of th petitioner or plaintiff conditioned that it will pay the damages which the petitioner or plaintiff may suffer by the refusal or the dissolution of the injunction. The provisions of Rule 58 of the New Rules of

Court insofar as they are applicable and not inconsistent with the provision of this Section shall govern the issuance and dissolution of the re straining order or injunction contemplated in this Section. xxx xxx xxx Based on the aforequoted provision, the Monetary Board may order the cessation of operations of a bank in the Philippine and place it under receivership upon a finding of insolvency or when its continuance in business would involve probable loss its depositors or creditors. If the Monetary Board shall determine and confirm within sixty (60) days that the bank is insolvent or can no longer resume business with safety to its depositors, creditors and the general public, it shall, if public interest will be served, order its liquidation. Specifically, the basic question to be resolved in G.R. Nos. 70054, 78767 and 78894 is whether or not the Central Bank and the Monetary Board acted arbitrarily and in bad faith in finding and thereafter concluding that petitioner bank is insolvent, and in ordering its closure on January 25, 1985. As We have stated in Our resolution dated August 3, 1989, the documents pertinent to the resolution of these petitions are the Teodoro Report, Tiaoqui Report, and the Valenzuela, Aurellano and Tiaoqui Report and the supporting documents made as bases by the supporters of their conclusions contained in their respective reports. We will focus Our study and discussion however on the Tiaoqui Report and the Valenzuela, Aurellano and Tiaoqui Report. The former recommended the closure and receivership of petitioner bank while the latter report made the recommendation to eventually place the petitioner bank under liquidation. This Court shall likewise take into consideration the
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findings contained in the reports of the two commissioners who were appointed by this Court to hold the referral hearings, namely the report by Judge Manuel Cosico submitted February 20, 1988 and the report submitted by Justice Consuelo Santiago on January 28, 1991. There is no question that under Section 29 of the Central Bank Act, the following are the mandatory requirements to be complied with before a bank found to be insolvent is ordered closed and forbidden to do business in the Philippines: Firstly, an examination shall be conducted by the head of the appropriate supervising or examining department or his examiners or agents into the condition of the bank; secondly, it shall be disclosed in the examination that the condition of the bank is one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors; thirdly, the department head concerned shall inform the Monetary Board in writing, of the facts; and lastly, the Monetary Board shall find the statements of the department head to be true. Anent the first requirement, the Tiaoqui report, submitted on January 23, 1985, revealed that the finding of insolvency of petitioner was based on the partial list of exceptions and findings on the regular examination of the bank as of July 31, 1984 conducted by the Supervision and Examination Sector II of the Central Bank of the PhilippinesCentral Bank (p. 1, Tiaoqui Report). On December 17, 1984, this list of exceptions and finding was submitted to the petitioner bank (p. 6, Tiaoqui Report) This was attached to the letter dated December 17, 1984, of examiner-in-charge Dionisio Domingo of SES Department II of the Central Bank to Teodoro Arcenas, president of petitione bank, which disclosed that the examination of the petitioner bank as to its

financial condition as of July 31, 1984 was not yet completed or finished on December 17, 1984 when the Central Bank submitted the partial list of findings of examination to th petitioner bank. The letter reads: In connection with the regular examination of your institution a of July 31, 1984, we are submitting herewith a partial list of our exceptions/findings for your comments. Please be informed that we have not yet officially terminated our examination (tentatively scheduled last December 7, 1984) and that we are still awaiting for the unsubmitted replies to our previous letters requests. Moreover, other findings/ observations are still being summarized including the classification of loans and other risk assets. These shall be submitted to you in due time (p. 810, Rollo, Vol. III; emphasis ours). It is worthy to note that a conference was held on January 21, 1985 at the Central Bank between the officials of the latter an of petitioner bank. What transpired and what was agreed upon during the conference was explained in the Tiaoqui report. ... The discussion centered on the substantial exposure of the bank to the various entities which would have a relationship with the bank; the manner by which some bank funds were made indirectly available to several entities within the group; and the unhealth financial status of these firms in which the bank was additionally exposed through new funds or
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refinancing accommodation including accrued interest. Queried in the impact of these clean loans, on the bank solvency Mr. Dizon (BF Executive Vice President) intimated that, collectively these corporations have large undeveloped real estate properties in the suburbs which can be made answerable for the unsecured loans a well as the Central Bank's credit accommodations. A formal reply of the bank would still be forthcoming. (pp. 58-59, Rollo, Vol. I; emphasis ours) Clearly, Tiaoqui based his report on an incomplete examination of petitioner bank and outrightly concluded therein that the latter's financial status was one of insolvency or illiquidity. He arrived at the said conclusion from the following facts: that as of July 31, 1984, total capital accounts consisting of paid-in capital and other capital accounts such as surplus, surplus reserves and undivided profits aggregated P351.8 million; that capital adjustments, however, wiped out the capital accounts and placed the bank with a capital deficiency amounting to P334.956 million; that the biggest adjustment which contributed to the deficit is the provision for estimated losses on accounts classified as doubtful and loss which was computed at P600.4 million pursuant to the examination. This provision is also known as valuation reserves which was set up or deducted against the capital accounts of the bank in arriving at the latter's financial condition. Tiaoqui however admits the insufficiency and unreliability of the findings of the examiner as to the setting up of recommended valuation reserves from the assets of petitioner bank. He stated:

The recommended valuation reserves as bases for determining the financial status of the bank would need to be discussed with the bank, consistent with standard examination procedure, for which the bank would in turn reply. Also, the examination has not been officially terminated. (p. 7. Tiaoqui report; p. 59, Rollo, Vol. I) In his testimony in the second referral hearing before Justice Santiago, Tiaoqui testified that on January 21, 1985, he met with officers of petitioner bank to discuss the advanced findings and exceptions made by Mr. Dionisio Domingo which covered 70%80% of the bank's loan portfolio; that at that meeting, Fortunato Dizon (BF's Executive Vice President) said that as regards the unsecured loans granted to various corporations, said corporations had large undeveloped real estate properties which could be answerable for the said unsecured loans and that a reply from BF was forthcoming, that he (Tiaoqui) however prepared his report despite the absence of such reply; that he believed, as in fact it is stated in his report, that despite the meeting on January 21, 1985, there was still a need to discuss the recommended valuation reserves of petitioner bank and; that he however, did not wait anymore for a discussion of the recommended valuation reserves and instead prepared his report two days after January 21, 1985 (pp. 33133314, Rollo). Records further show that the examination of petitioner bank was officially terminated only when Central Bank Examination-charge Dionisio Domingo submitted his final report of examination on March 4,1985. It is evident from the foregoing circumstances that the examination contemplated in Sec. 29
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of the CB Act as a mandatory requirement was not completely and fully complied with. Despite the existence of the partial list of findings in the examination of the bank, there were still highly significant items to be weighed and determined such as the matter of valuation reserves, before these can be considered in the financial condition of the bank. It would be a drastic move to conclude prematurely that a bank is insolvent if the basis for such conclusion is lacking and insufficient, especially if doubt exists as to whether such bases or findings faithfully represent the real financial status of the bank. The actuation of the Monetary Board in closing petitioner bank on January 25, 1985 barely four days after a conference with the latter on the examiners' partial findings on its financial position is also violative of what was provided in the CB Manual of Examination Procedures. Said manual provides that only after the examination is concluded, should a pre-closing conference led by the examinerin-charge be held with the officers/representatives of the institution on the findings/exception, and a copy of the summary of the findings/violations should be furnished the institution examined so that corrective action may be taken by them as soon as possible (Manual of Examination Procedures, General Instruction, p. 14). It is hard to understand how a period of four days after the conference could be a reasonable opportunity for a bank to undertake a responsive and corrective action on the partial list of findings of the examiner-incharge. We recognize the fact that it is the responsibility of the Central Bank of the Philippines to administer the monetary, banking and credit system of the country and that its powers and functions shall be exercised by the Monetary Board pursuant to Rep. Act No. 265, known as the Central Bank Act. Consequently, the power and authority

of the Monetary Board to close banks and liquidate them thereafter when public interest so requires is an exercise of the police power of the state. Police power, however, may not be done arbitratrily or unreasonably and could be set aside if it is either capricious, discriminatory, whimsical, arbitrary, unjust or is tantamount to a denial of due process and equal protection clauses of the Constitution (Central Bank v. Court of Appeals, Nos. L50031-32, July 27, 1981, 106 SCRA 143). In the instant case, the basic standards of substantial due process were not observed. Time and again, We have held in several cases, that the procedure of administrative tribunals must satisfy the fundamentals of fair play and that their judgment should express a well-supported conclusion. In the celebrated case of Ang Tibay v. Court of Industrial Relations, 69 Phil. 635, this Court laid down several cardinal primary rights which must be respected in a proceeding before an administrative body. However, as to the requirement of notice and hearing, Sec. 29 of RA 265 does not require a previous hearing before the Monetary Board implements the closure of a bank, since its action is subject to judicial scrutiny as provided for under the same law (Rural Bank of Bato v. IAC, G.R. No. 65642, October 15, 1984, Rural Bank v. Court of Appeals, G.R. 61689, June 20, 1988,162 SCRA 288). Notwithstanding the foregoing, administrative due process does not mean that the other important principles may be dispensed with, namely: the decision of the administrative body must have something to support itself and the evidence must be substantial. Substantial evidence is more than a mere scintilla. It means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion (Ang Tibay vs. CIR, supra). Hence, where the decision is
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merely based upon pieces of documentary evidence that are not sufficiently substantial and probative for the purpose and conclusion they are presented, the standard of fairness mandated in the due process clause is not met. In the case at bar, the conclusion arrived at by the respondent Board that the petitioner bank is in an illiquid financial position on January 23, 1985, as to justify its closure on January 25, 1985 cannot be given weight and finality as the report itself admits the inadequacy of its basis to support its conclusion. The second requirement provided in Section 29, R.A. 265 before a bank may be closed is that the examination should disclose that the condition of the bank is one of insolvency. As to the concept of whether the bank is solvent or not, the respondents contend that under the Central Bank Manual of Examination Procedures, Central Bank examiners must recommend valuation reserves, when warranted, to be set up or deducted against the corresponding asset account to determine the bank's true condition or net worth. In the case of loan accounts, to which practically all the questioned valuation reserves refer, the manual provides that: 1. For doubtful loans, or loans the ultimate collection of which is doubtful and in which a substantial loss is probable but not yet definitely ascertainable as to extent, valuation reserves of fifty per cent (50%) of the accounts should be recommended to be set up. 2. For loans classified as loss, or loans regarded by the examiner as absolutely uncollectible or worthless, valuation reserves of one hundred percent (100%) of the accounts should be recommended to be set up (p. 8, Objections to Santiago report).

The foregoing criteria used by respondents in determining the financial condition of the bank is based on Section 5 of RA 337, known as the General Banking Act which states: Sec. 5. The following terms shall be held to be synonymous and interchangeable: ... f. Unimpaired Capital and Surplus, "Combined capital accounts," and "Net worth," which terms shall mean for the purposes of this Act, the total of the "unimpaired paid-in capital, surplus, and undivided profits net of such valuation reserves as may be required by the Central Bank." There is no doubt that the Central Bank Act vests authority upon the Central Bank and Monetary Board to take charge and administer the monetary and banking system of the country and this authority includes the power to examine and determine the financial condition of banks for purposes provided for by law, such as for the purpose of closure on the ground of insolvency stated in Section 29 of the Central Bank Act. But express grants of power to public officers should be subjected to a strict interpretation, and will be construed as conferring those powers which are expressly imposed or necessarily implied (Floyd Mechem, Treatise on the Law of Public Offices and Officers, p. 335). In this case, there can be no clearer explanation of the concept of insolvency than what the law itself states. Sec. 29 of the Central Bank Act provides that insolvency under the Act, shall be understood to mean that "the realizable assets of a bank or a nonbank financial intermediary performing quasibanking functions as determined by the
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Central Bank are insufficient to meet its liabilities." Hence, the contention of the Central Bank that a bank's true financial condition is synonymous with the terms "unimpaired capital and surplus," "combined capital accounts" and net worth after deducting valuation reserves from the capital, surplus and unretained earnings, citing Sec. 5 of RA 337 is misplaced. Firstly, it is clear from the law that a solvent bank is one in which its assets exceed its liabilities. It is a basic accounting principle that assets are composed of liabilities and capital. The term "assets" includes capital and surplus" (Exley v. Harris, 267 p. 970, 973, 126 Kan., 302). On the other hand, the term "capital" includes common and preferred stock, surplus reserves, surplus and undivided profits. (Manual of Examination Procedures, Report of Examination on Department of Commercial and Savings Banks, p. 3-C). If valuation reserves would be deducted from these items, the result would merely be the networth or the unimpaired capital and surplus of the bank applying Sec. 5 of RA 337 but not the total financial condition of the bank. Secondly, the statement of assets and liabilities is used in balance sheets. Banks use statements of condition to reflect the amounts, nature and changes in the assets and liabilities. The Central Bank Manual of Examination Procedures provides a format or checklist of a statement of condition to be used by examiners as guide in the examination of banks. The format enumerates the items which will compose the assets and liabilities of a bank. Assets include cash and those due from banks, loans, discounts and advances, fixed assets and other property owned or acquired and other miscellaneous assets. The amount of loans, discounts and advances to be stated

in the statement of condition as provided for in the manual is computed after deducting valuation reserves when deemed necessary. On the other hand, liabilities are composed of demand deposits, time and savings deposits, cashier's, manager's and certified checks, borrowings, due to head office, branches; and agencies, other liabilities and deferred credits (Manual of Examination Procedure, p. 9). The amounts stated in the balance sheets or statements of condition including the computation of valuation reserves when justified, are based however, on the assumption that the bank or company will continue in business indefinitely, and therefore, the networth shown in the statement is in no sense an indication of the amount that might be realized if the bank or company were to be liquidated immediately (Prentice Hall Encyclopedic Dictionary of Business Finance, p. 48). Further, based on respondents' submissions, the allowance for probable losses on loans and discounts represents the amount set up against current operations to provide for possible losses arising from non-collection of loans and advances, and this account is also referred to as valuation reserve (p. 9, Objections to Santiago report). Clearly, the statement of condition which contains a provision for recommended valuation reserves should not be used as the ultimate basis to determine the solvency of an institution for the purpose of termination of its operations. Respondents acknowledge that under the said CB manual, CB examiners must recommend valuation reserves,when warranted, to be set up against the corresponding asset account (p. 8, Objections to Santiago report). Tiaoqui himself, as author of the report recommending the closure of petitioner bank admits that the valuation reserves should still be discussed with the petitioner bank in compliance with standard examination procedure. Hence, for the Monetary Board to unilaterally deduct an uncertain amount as
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valuation reserves from the assets of a bank and to conclude therefrom without sufficient basis that the bank is insolvent, would be totally unjust and unfair. The test of insolvency laid down in Section 29 of the Central Bank Act is measured by determining whether the realizable assets of a bank are leas than its liabilities. Hence, a bank is solvent if the fair cash value of all its assets, realizable within a reasonable time by a reasonable prudent person, would equal or exceed its total liabilities exclusive of stock liability; but if such fair cash value so realizable is not sufficient to pay such liabilities within a reasonable time, the bank is insolvent. (Gillian v. State, 194 N.E. 360, 363, 207 Ind. 661). Stated in other words, the insolvency of a bank occurs when the actual cash market value of its assets is insufficient to pay its liabilities, not considering capital stock and surplus which are not liabilities for such purpose (Exley v. Harris, 267 p. 970, 973,126 Kan. 302; Alexander v. Llewellyn, Mo. App., 70 S.W. 2n 115,117). In arriving at the computation of realizable assets of petitioner bank, respondents used its books which undoubtedly are not reflective of the actual cash or fair market value of its assets. This is not the proper procedure contemplated in Sec. 29 of the Central Bank Act. Even the CB Manual of Examination Procedures does not confine examination of a bank solely with the determination of the books of the bank. The latter is part of auditing which should not be confused with examination. Examination appraises the soundness of the institution's assets, the quality and character of management and determines the institution's compliance with laws, rules and regulations. Audit is a detailed inspection of the institution's books, accounts, vouchers, ledgers, etc. to determine the recording of all assets and liabilities. Hence, examination concerns itself with review and appraisal, while audit concerns itself with verification

(CB Manual of Examination Procedures, General Instructions, p. 5). This Court however, is not in the position to determine how much cash or market value shall be assigned to each of the assets and liabilities of the bank to determine their total realizable value. The proper determination of these matters by using the actual cash value criteria belongs to the field of fact-finding expertise of the Central Bank and the Monetary Board. Notwithstanding the fact that the figures arrived at by the respondent Board as to assets and liabilities do not truly indicate their realizable value as they were merely based on book value, We will however, take a look at the figures presented by the Tiaoqui Report in concluding insolvency as of July 31, 1984 and at the figures presented by the CB authorized deputy receiver and by the Valenzuela, Aurellano and Tiaoqui Report which recommended the liquidation of the bank by reason of insolvency as o January 25,1985. The Tiaoqui report dated January 23, 1985, which was based on partial examination findings on the bank's condition as of July 31, 1984, states that total liabilities of P5,282.1 million exceeds total assets of P4,947.2 million after deducting from the assets valuation reserves of P612.2 million. Since, as We have explained in our previous discussion that valuation reserves can not be legally deducted as there was no truthful and complete evaluation thereof as admitted by the Tiaoqui report itself, then an adjustment of the figures win show that the liabilities of P5,282.1 million will not exceed the total assets which will amount to P5,559.4 if the 612.2 million allotted to valuation reserves will not be deducted from the assets. There can be no basis therefore for both the conclusion of insolvency and for the decision of the respondent Board to close petitioner bank and place it under receivership. Concerning the financial position of the bank as of January 25, 1985, the date of the
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closure of the bank, the consolidated statement of condition thereof as of the aforesaid date shown in the Valenzuela, Aurellano and Tiaoqui report on the receivership of petitioner bank, dated March 19, 1985, indicates that total liabilities of 4,540.84 million does not exceed the total assets of 4,981.53 million. Likewise, the consolidated statement of condition of petitioner bank as of January 25, 1985 prepared by the Central Bank Authorized Deputy Receiver Artemio Cruz shows that total assets amounting to P4,981,522,996.22 even exceeds total liabilities amounting to P4,540,836,834.15. Based on the foregoing, there was no valid reason for the Valenzuela, Aurellano and Tiaoqui report to finally recommend the liquidation of petitioner bank instead of its rehabilitation. We take note of the exhaustive study and findings of the Cosico report on the petitioner bank's having engaged in unsafe, unsound and fraudulent banking practices by the granting of huge unsecured loans to several subsidiaries and related companies. We do not see, however, that this has any material bearing on the validity of the closure. Section 34 of the RA 265, Central Bank Act empowers the Monetary Board to take action under Section 29 of the Central Bank Act when a bank "persists in carrying on its business in an unlawful or unsafe manner." There was no showing whatsoever that the bank had persisted in committing unlawful banking practices and that the respondent Board had attempted to take effective action on the bank's alleged activities. During the period from July 27, 1984 up to January 25, 1985, when petitioner bank was under conservatorship no official of the bank was ever prosecuted, suspended or removed for any participation in unsafe and unsound banking practices, and neither was the entire management of the bank replaced or substituted. In fact, in her testimony during the second referral hearing, Carlota Valenzuela, CB Deputy Governor, testified

that the reason for petitioner bank's closure was not unsound, unsafe and fraudulent banking practices but the alleged insolvency position of the bank (TSN, August 3, 1990, p. 3316, Rollo, Vol. VIII). Finally, another circumstance which point to the solvency of petitioner bank is the granting by the Monetary Board in favor of the former a credit line in the amount of P3 billion along with the placing of petitioner bank under conservatorship by virtue of M.B. Resolution No. 955 dated July 27, 1984. This paved the way for the reopening of the bank on August 1, 1984 after a self-imposed bank holiday on July 23, 1984. On emergency loans and advances, Section 90 of RA 265 provides two types of emergency loans that can be granted by the Central Bank to a financially distressed bank: Sec. 90. ... In periods of emergency or of 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 by 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 the prior authorization of the Monetary Board. The Central Bank may, at its discretion, likewise grant advances to banking institutions, even during normal periods, for the purpose of assisting a bank in a precarious financial condition or under
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serious financial pressures brought about by unforeseen events, or events which, though foreseeable, could not be prevented by the bank concerned. Provided, however, That the Monetary Board has ascertained that the bank is not insolvent and has clearly realizable assets to secure the advances. Provided, further, That a concurrent vote of at least five members of the Monetary Board is obtained. (Emphasis ours) The first paragraph of the aforequoted provision contemplates a situation where the whole banking community is confronted with financial and economic crisis giving rise to serious and widespread confusion among the public, which may eventually threaten and gravely prejudice the stability of the banking system. Here, the emergency or financial confusion involves the whole banking community and not one bank or institution only. The second situation on the other hand, provides for a situation where the Central Bank grants a loan to a bank with uncertain financial condition but not insolvent. As alleged by the respondents, the following are the reasons of the Central Bank in approving the resolution granting the P3 billion loan to petitioner bank and the latter's reopening after a brief self-imposed banking holiday: WHEREAS, the closure by Banco Filipino Savings and Mortgage Bank of its Banking offices on its own initiative has worked serious hardships on its depositors and has affected confidence levels in the banking system resulting in a feeling of apprehension among depositors

and unnecessary deposit withdrawals; WHEREAS, the Central Bank is charged with the function of administering the banking system; WHEREAS, the reopening of Banco Filipino would require additional credit resources from the Central Bank as well as an independent management acceptable to the Central Bank; WHEREAS, it is the desire of the Central Bank to rapidly diffuse the uncertainty that presently exists; ... (M.B. Min. No. 35 dated July 27, 1984 cited in Respondents' Objections to Santiago Report, p. 26; p. 3387, Rollo, Vol. IX; Emphasis ours). A perusal of the foregoing "Whereas" clauses unmistakably show that the clear reason for the decision to grant the emergency loan to petitioner bank was that the latter was suffering from financial distress and severe bank "run" as a result of which it closed on July 23, 1984 and that the release of the said amount is in accordance with the Central Bank's full support to meet Banco Filipino's depositors' withdrawal requirements (Excerpts of minutes of meeting on MB Min. No. 35, p. 25, Rollo, Vol. IX). Nothing therein shows that an extraordinary emergency situation exists affecting most banks, not only as regards petitioner bank. This Court thereby finds that the grant of the said emergency loan was intended from the beginning to fall under the second paragraph of Section 90 of the Central Bank Act, which could not have occurred if the petitioner bank was not solvent. Where notwithstanding knowledge of the irregularities and unsafe
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banking practices allegedly committed by the petitioner bank, the Central Bank even granted financial support to the latter and placed it under conservatorship, such actuation means that petitioner bank could still be saved from its financial distress by adequate aid and management reform, which was required by Central Bank's duty to maintain the stability of the banking system and the preservation of public confidence in it (Ramos v. Central Bank, No. L-29352, October 4, 1971, 41 SCRA 565). In view of the foregoing premises, We believe that the closure of the petitioner bank was arbitrary and committed with grave abuse of discretion. Granting in gratia argumenti that the closure was based on justified grounds to protect the public, the fact that petitioner bank was suffering from serious financial problems should not automatically lead to its liquidation. Section 29 of the Central Bank provides that a closed bank may be reorganized or otherwise placed in such a condition that it may be permitted to resume business with safety to its depositors, creditors and the general public. We are aware of the Central Bank's concern for the safety of Banco Filipino's depositors as well as its creditors including itself which had granted substantial financial assistance up to the time of the latter's closure. But there are alternatives to permanent closure and liquidation to safeguard those interests as well as those of the general public for the failure of Banco Filipino or any bank for that matter may be viewed as an irreversible decline of the country's entire banking system and ultimately, it may reflect on the Central Bank's own viability. For one thing, the Central Bank and the Monetary Board should exercise strict supervision over Banco Filipino. They should take all the necessary steps not violative of the laws that will fully secure the repayment of the total financial

assistance that the Central Bank had already granted or would grant in the future. ACCORDINGLY, decision is hereby rendered as follows: 1. The motion for reconsideration in G.R. Nos. 68878 and 81303, and the petitions in G.R. Nos. 77255-58, 78766, 81304 and 90473 are DENIED; 2. The petitions in G.R. No. 70054, 78767 and 78894 are GRANTED and the assailed order of the Central Bank and the Monetary Board dated January 25, 1985 is hereby ANNULLED AND SET ASIDE. The Central Bank and the Monetary Board are ordered to reorganize petitioner Banco Filipino Savings and Mortgage Bank and allow the latter to resume business in the Philippines under the comptrollership of both the Central Bank and the Monetary Board and under such conditions as may be prescribed by the latter in connection with its reorganization until such time that petitioner bank can continue in business with safety to its creditors, depositors and the general public. SO ORDERED. Narvasa, C.J., Gutierrez, Jr., Cruz, Bidin and Regalado, JJ., concur. Paras, Feliciano, Padilla, Davide, Jr. and Nocon, JJ., took no part.

Separate Opinions

MELENCIO-HERRERA, J., dissenting: I join Mme. Justice Carolina G. Aquino in her dissent and vote to deny the prayer, in G.R.
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No. 70054, to annul Monetary Board Resolution No. 75 placing Banco Filipino (BF) under receivership. Even assuming that the BF was not, as alleged, in a literal state of insolvency at the time of the passage of said Resolution, there was a finding in the Teodoro report that, based on that Bank's illiquidity, to have allowed it to continue in operation would have meant probable loss to depositors and creditors. That is also a ground for placing the bank under receivership, as a first step, pursuant to Section 29 of the Central Bank Act (Rep. Act No. 265, as amended). The closure of BF, therefore, can not be said to have been arbitrary or made in bad faith. There was sufficient justification, considering its inability to meet the heavy withdrawals by its depositors and to pay its liabilities as they fell due, to forbid the bank from further engaging in banking. The matter of reopening, reorganization or rehabilitation of BF is not within the competence of this Court to ordain but is better addressed to the Monetary Board and the Central Bank considering the latter's enormous infusion of capital into BF to the tune of approximately P3.5 Billion in total accommodations, after a thorough assessment of whether or not BF is, indeed, possessed, as it stoutly contends, of sufficient assets and capabilities with which to repay such huge indebtedness, and can operate without loss to its many depositors and creditors.

already been decided by this Court and are only awaiting the resolution of the motions for reconsideration filed therein. Only G.R. No. 70054 "Banco Filipino Savings and Mortgage Bank (BF) vs. the Monetary Board (MB), Central Bank of the Philippines (CB), et al.," is an original action for mandamus andcertiorari filed in this Court by former officials of BF to annul the Monetary Board Resolution No. 75 dated January 25, 1985 (ordering the closure of Banco Filipino [BF] and appointing Carlota Valenzuela as receiver of the bank) on the ground that the resolution was issued "without affording BF a hearing on the reports" on which the Monetary Board based its decision to close the bank, hence, without "administrative due process.", The prayer of the petition reads: WHEREFORE, petitioner respectfully prays that a writ of mandamus be issued commanding respondents immediately to furnish it copies of the reports of examination of BF employed by respondent Monetary Board to support its Resolution of January 25, 1985 and thereafter to afford it a hearing prior to any resolution that may be issued under Section 29 of R.A. 265, meanwhile annulling said Resolution of January 25, 1985 by writ of certiorari as made without or in excess ofjurisdiction or with grave abuse of discretion. So as to expedite proceedings, petitioner prays that the assessment of the damages respondents should pay it be deferred and referred to commissioners. Petitioner prays for such other remedy as the Court may deem
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GRIO-AQUINO, J., dissenting: Although these nine (9) Banco Filipino (BF) cases have been consolidated under one ponencia, all of them except one, raise issues unrelated to the receivership and liquidation of said bank. In fact, two of these cases (G.R. No. 68878 and 81303) have

just and equitable in the premises. Quezon City for Manila, February 28, 1985. (p. 8, Rollo I-) and the prayer of the Supplement to Petition reads: WHEREFORE, in addition to its prayer for mandamus and certiorari contained in its original petition, petitioner respectfully prays that Sections 28-A and 29 of the Central Bank charter (R.A. 265) including its amendatory Presidential Decrees Nos. 72, 1771, 1827 and 1937 be annulled as unconstitutional. Quezon City for Manila, March 4, 1985. (p. 11-G, Rollo I.) The other eight (8) cases merely involve transactions of BF with third persons and certain "related" corporations which had defaulted on their loans and sought to prohibit the extrajudicial foreclosure of the mortgages on their properties by the receiver of BF. These eight (8) cases are: 1. G.R. No. 68878 "BF vs. Intermediate Appellate Court and Celestina Pahimutang" involves the repossession by BF of a house and lot which the buyer (Pahimutang) claimed to have completely paid for on the installment plan. The appellate court's judgment for the buyer was reversed by this Court. The buyer's motion for reconsideration is awaiting resolution by this Court; 2. G.R. Nos. 77255-58, "Top Management Programs Corporation and Pilar Development Corporation vs. Court of appeals, et al." (CA-G.R. SP No. 07892)

and "Pilar Development Corporation vs. Executive Judge, RTC, Cavite"(CA-G.R. SP Nos. 0896264) is a consolidated petition for review of the Court of Appeals' joint decision dismissing the petitions for prohibition in which the petitioners seek to prevent the receiver/liquidator of BF from extrajudicially foreclosing the P4.8 million mortgage on Top Management's properties and the P18-67 million mortgage on Pilar Development properties. The Court of Appeals dismissed the petitions on October 30, 1986 on the ground that "the functions of the liquidator, as receiver under Section 29 (R.A. 265), include taking charge of the insolvent's assets and administering the same for the benefit of its creditors and of bringing suits and foreclosing mortgages in the name of the bank;" 3. G.R. No. 78766, "El Grande Corporation vs. Court of Appeals, et al.," is an appeal from the Court of Appeals' decision in CAG.R. SP No. 08809 dismissing El Grande's petition for prohibition to prevent the foreclosure of BF's P8 million mortgage on El Grande's properties; 4. G.R. No. 78894, "Banco Filipino Savings and Mortgage Bank vs. Court of Appeals, et al." is an appeal of BFs old management (using the name of BF) from the decision of the Court of Appeals in CA-G.R. SP No. 07503 entitled, "Central Bank, et al. vs. Judge Zoilo Aguinaldo, et al" dismissing the complaint of "BF" to annul the receivership, for no suit may be brought or defended in the name of the bank except by its receiver; 5. G.R. No. 87867, "Metropolis Development Corporation vs. Court of Appeals" (formerly AC-G.R. No. 07503, "Central Bank, et al. vs. Honorable Zoilo Aguinaldo, et al.') is an appeal of the intervenor (Metropolis) from the same Court of Appeals' decision subject of G.R. No. 78894, which also dismissed Metropolis' complaint in intervention on the ground that a stockholder (Metropolis) may not bring suit in the name of BF while the
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latter is under receivership, without the authority of the receiver; 6. G.R. No. 81303, "Pilar Development Corporation vs. Court of Appeals, et al." is an appeal from the decision dated October 22, 1987 of the Court of Appeals in CA-G.R. SP No. 12368, "Pilar Development Corporation, et al. vs. Honorable Manuel Cosico, et al.," dismissing the petition for certiorari against Judge Manuel Cosico, Br. 136, RTC, Makati, who dismissed the complaint filed by Pilar Development Corporation against BF, for specific performance of certain developer contracts. An answer filed by Norberto Quisumbing and Associates, as BF's supposed counsel, virtually confessed judgment in favor of Pilar Development. On motion of the receiver, the answer was expunged and the complaint was dismissed. On a petition for certiorari in this Court, we held that: "As liquidator of BF by virtue of a valid appointment from the Central Bank, private respondent Carlota Valenzuela has the authority to direct the operation of the bank in substitution of the former management, which authority includes the retainer of counsel to represent it in bringing or resisting suits in connection with such liquidation and, in the case at bar, to take the proper steps to prevent collusion, to the prejudice of the legitimate creditors, between BF and the petitioners herein which appear to be owned and controlled by the same interest controlling BF" (p. 49, Rollo). The petitioners' motion for reconsideration of that decision is pending resolution. 7. G.R. No. 81304, "BF Homes Development Corporation vs. Court of Appeals, et al." is an appeal from the decision dated November 4, 1987 of the Court of Appeals in CA-G.R. CV No. 08565 affirming the trial court's order dismissing BF Homes' action to compel the Central Bank to restore the financing facilities of BF, because the plaintiff (BF Homes) has no cause of action against the CB.

8. G.R. No. 90473, "El Grande Development Corporation vs. Court of Appeals, et al.," is a petition to review the decision dated June 6, 1989 in CA-G.R. SP No. 08676 dismissing El Grande's petition for prohibition to stop foreclosure proceedings against it by the receiver of BF. As previously stated, G.R. No. 70054 "BF vs. Monetary Board, et al.," is an original special civil action for certiorariand mandamus filed in this Court by the old management of BF, through their counsel, N.J. Quisumbing & Associates, using the name of the bank and praying for the annulment of MB Resolution No. 75 which ordered the closure of BF and placed it under receivership. It is a "forumshopping" case because it was filed here on February 28, 1985 three weeks after they had filed on February 2, 1985 Civil Case No. 9675 "Banco Filipino vs. Monetary Board, et al." in the Regional Trial Court of Makati, Br. 143 (presided over by Judge Zoilo Aguinaldo) for the same purpose of securing a declaration of the nullity of MB Resolution No. 75 dated January 25, 1985. On August 25, 1985, this Court ordered the transfer and consolidation of Civil Case No. 9676 (to annul the receivership) from Br. 143 to Br. 136 (Judge Manuel Cosico) of the Makati Regional Trial Court where Civil Case No. 8108 (to annul the conservatorship) and Civil Case No. 10183 (to annul the liquidation) of BF were and are still pending. All these three (3) cases were archived on June 30, 1988 by Judge Cosico pending the resolution of G.R. No. 70054 by this Court. Because of my previous participation, as a former member of the Court of Appeals, in the disposition of AC-G.R. No. 02617 (now G.R. No. 68878) and AC-G.R. SP No. 07503 (now G.R. Nos. 78767 and 78894), I am taking no part in G.R. Nos. 68878, 78767 and 78894. It may be mentioned in this connection that neither in AC-G.R. SP No. 02617, nor in AC-G.R. SP No. 07503, did the
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Court of Appeals rule on the constitutionality of Sections 28-A and 29 of Republic Act 265 (Central Bank Act), as amended, and the validity of MB Resolution No. 75, for those issues were not raised in the Court of Appeals. I concur with the ponencia insofar as it denies the motion for reconsideration in G.R. No. 81303, and dismisses the petitions for review in G.R. Nos. 77255-58, 78766, 81304, and 90473. I respectfully dissent from the majority opinion in G.R. No. 70054 annulling and setting aside MB Resolution No. 75 and ordering the respondents, Central Bank of the Philippines and the Monetary Board to reorganize petitioner Banco Filipino Savings and Mortgage Bank, and allow the latter to resume business in the Philippines under the comptrollership of both the Central Bank and the Monetary Board and under such conditions as may be prescribed by the latter until such time that petitioner bank can continue in business with safety to its creditors, depositors and the general public. for I believe that this Court has neither the authority nor the competence to determine whether or not, and under what conditions, BF should be reorganized and reopened. That decision should be made by the Central Bank and the Monetary Board, not by this Court. All that we may determine in this case is whether the actions of the Central Bank and the Monetary Board in closing BF and placing it under receivership were "plainly arbitrary and made in bad faith.

Section 29 of Republic Act No. 265 provides: Section 29. Proceedings upon insolvency. Whenever, upon examination by the head of the appropriate supervising and examining department or his examiners or agents into the condition of any banking institution, it shall be disclosed that the condition of the same is one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, it shall be the duty of the department head concerned forthwith, in writing, to inform the Monetary Board of the facts, and the Board may, upon finding the statements of the department head to be true, forbid the institution to do business in the Philippines and shall designate an official of the Central Bank as receiver to immediately take charge of its assets and liabilities, as expeditiously as possible collect and gather all the assets and administer the same for the benefit of its creditors, exercising all the powers necessary for these purposes including, but not limited to, bringing suits and foreclosing mortgages in the name of the banking institution. The Monetary Board shall thereupon determine within sixty days whether the institution may be reorganized or otherwise placed in such a condition so that it may be permitted to resume business with safety to its depositors and creditors and the general public and shall prescribe the conditions under
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which such resumption of business shall take place as well as the time for fulfillment of such conditions. In such case, the expenses and fees in the collection and administration of the assets of the institution shall be determined by the Board and shall be paid to the Central Bank out of the assets of such banking institution. If the Monetary Board shall determine and confirm within the said period that the banking institution is insolvent or cannot resume business with safety to its depositors, creditors and the general public, it shall, if the public interest requires, order its liquidation, indicate the manner of its liquidation and approve a liquidation plan. The Central Bank shall, by the Solicitor General, file a petition in the Court of First Instance, reciting the proceedings which have been taken and praying the assistance of the court in the liquidation of the banking institutions. The court shall have jurisdiction in the same proceedings to adjudicate disputed claims against the bank and enforce individual liabilities of the stockholders and do all that is necessary to preserve the assets of the banking institution and to implement the liquidation plan approved by the Monetary Board. The Monetary Board shall designate an official of the Central Bank as liquidator who shall take over the functions of the receiver previously appointed by the Monetary Board under this section. The

liquidator shall, with all convenient speed, convert the assets of the banking institution to money or sell, assign or otherwise dispose of the same to creditors and other parties for the purpose of paying the debts of such bank and he may, in the name of the banking institution, institute such actions as may be necessary in the appropriate court to collect and recover accounts and assets of the banking institution. The provisions of any law to the contrary notwithstanding, the actions of the Monetary Board under this section and the second paragraph of Section 34 of this Act shall be final and executory, and can be set aside by the court only if there is convincing proof that theaction is plainly arbitrary and made in bad faith. No restraining order or injunction shall be issued by the court enjoining the Central Bank from implementing its actions under this section and the second paragraph of Section 34 of this Act, unless there is convincing proof that the action of the Monetary Board is plainly arbitrary and made in bad faith and the petitioner or plaintiff files with the clerk or judge of the court in which the action is pending a bond executed in favor of the Central Bank, in an amount to be fixed by the court. The restraining order or injunction shall be refused or, if granted, shall be dissolved upon filing by the Central Bank of a bond, which shall be in the form of cash or Central Bank cashier's check, in an amount
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twice the amount of the bond of the petitioner or plaintiff, conditioned that it will paythe which the petitioner or plaintiff may suffer by the refusalor the dissolution of the injunction. The provisions of Rule 58 of the new Rules of Court insofar as they are applicable and not inconsistent with the provisions of this section shall govern the issuance and dissolution of the restraining order or injunction contemplated in this section. Insolvency, under this Act, shall be understood to mean the inability of a banking institution to pay its liabilities as they fall due in the usual and ordinary course of business, provided, however, that this shall not include the inability to pay of an otherwise non-insolvent bank caused by extra-ordinary demands induced by financial panic commonly evidenced by a run on the banks in the banking community. The determinative factor in the closure, receivership, and liquidation of a bank is the finding, upon examination by the SES of the Central Bank, that its condition "is one of insolvency, or that its continuance in business would involve probable loss to its depositors and creditors." (Sec. 29, R.A. 265.) It should be pointed out that insolvency is not the only statutory ground for the closure of a bank. The other ground is when "its continuance in business would involve probable loss to its depositors and creditors. Was BF insolvent i.e., unable to pay its liabilities as they fell due in the usual and ordinary course of business, on and for some time before January 25, 1985 when the Monetary Board issued Resolution No. 75

closing the bank and placing it under receivership? Would its continued operation involve probable loss to its depositors and creditors? The answer to both questions is yes. Both the conservator Gilberts Teodoro and the head of the SES (Supervision and Examination Sector) Ramon V. Tiaoqui opined that BF's continuance in business would cause probable loss to depositors and creditors. Tiaoqui further categorically found that BF was insolvent. Why was this so? The Teodoro and Tiaoqui reports as well as the report of the receivers, Carlota Valenzuela, Arnulfo B. Aurellano and Ramon V. Tiaoqui, showed that since the end of November 1983 BF had already been incurring "chronic reserve deficiencies' and experiencing severe liquidity problems. So much so, that it had become "a substantial borrower in the call loans market" and in June 1984 it obtained a P30 million emergency loan from the Central Bank. (p. 2, Receiver's Report.) Additional emergencyt loans (a total of P119.7 millions) were extended by the Central Bank to BF that month (MB Res. No. 839 dated June 29,1984). On July 12, 1984, BFs chairman, Anthony Aguirre, offered to "turn over the administration of the affairs of the bank" to the Central Bank (Aguirre's letter to Governor Jose Fernandez, Annex 7 of Manifestation dated May 3,1991). On July 23,1984, unable to meet heavy deposit withdrawals, BF's management motu proprio, without obtaining the conformity of the Central Bank, closed the bank and declared a bank holiday. On July 27, 1984, the CB, responding to BFs pleas for additional financial assistance, granted BF a P3 billion credit line (MB Res. No. 934 of July 27, 1984) to enable it to reopen and resume business on August 1, 1984. P2.3601 billions of the credit line were availed of by the end of 1984 exclusive of an overdraft of P932.4 millions (p. 2, Tiaoqui Report). Total accommodations granted to
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BF amounted to P3.4122 billions (p. 19, Cosico Report). Presumably to assure that the financial assistance would be properly used, the MB appointed Basilio Estanislao as conservator of the bank. A conservatorship team of 78 examiners and accountants was assigned at the bank to keep track of its activities and ascertain its financial condition (p. 8, Tiaoqui Report). Estanislao resigned after two weeks for health reasons. He was succeeded by Gilberto Teodoro as conservator in August, 1984 up to January 8, 1985. Besides the conservatorship team, Teodoro hired financial consultants Messrs. Tirso G. Santillan, Jr. and Plorido P. Casuela to make an analysis of BF's financial condition. Teodoro also engaged the accounting firm of Sycip, Gorres, Velayo and Company to make an asset evaluation. The Philippine Appraisal Company (PAC) appraised BFs real estate properties, acquired assets, and collaterals held. On January 9, 1985, Teodoro submitted his Report. Three weeks later, on January 23, 1985, Tiaoqui also submitted his Report. Both reports showedthat, in violation of Section 37 of the General Banking Act (R.A.337): 2 1. BF had been continually deficient in liquidity reserves (Teodoro Report). The bank had been experiencing a severe drop in liquidity levels. The ratio of liquid assets to deposits and borrowings plunged from about 20% at end-1983, to about 8.6% by

end-May 1984, much below the statutory requirements of 24% for demand deposits/deposit substitutes and 14% for savings and time deposits. (p. 2, Tiaoqui Report.) 2. Deficiencies in average daily legal reserves rose from P63.0 million during the week of November 21-25, 1983 to a high of P435.9 million during the week of June 11-15, 1984 (pp. 2-3, Tiaoqui Report). Accumulated penalties on reserve deficiencies amounted to P37.4 million by July 31, and rose to P48 million by the end of 1984. (Tiaoqui Report.) 3. Deposit levels, which were at P3,845 million at end-May l984 (its last "normal" month), dropped to P935 million at the end of November 1984 or a loss of P2,910 million. This represented an average monthly loss of
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P485 million vs. an average monthly gain of P26 million during the first 5 months of 1984. (pp. 2-3, Tiaoqui Report.) 4. Deposits had declined at the rate of P20 million during the month of December 1984, but expenses of about P17 million per month were required to maintain the bank's operation. (p. 6, Teodoro Report.) 5. Based on the projected outlook, the Bank's average yield on assets of 16.3% p.a., was insufficient to meet the average cost of funds of 19.5% p.a. and operating expenses of 4.8% p.a. (p. 5 Teodoro Report.) 6. An imprudently large proportion of assets were locked into long-term applications. (Teodoro Report.) 7. BF overextended itself in lending to the real estate industry, committing as much as 52% of its

peso deposits to its affiliates or "related accounts" to which it continued lending even when it was already suffering from liquidity stresses. (Teodoro Report.) This was done in violation of Section 38 of the General Banking Act (R.A. 337). 3
8. During the period of marked decline in liquidity levels the loan portfolio grew by P417.3 million in the first five months of 1984 and by another P105.l million in the next two months. (pp. 2-3, Tiaoqui Report.)

9. The loan portfolio stood at P3.679 billion at the end of July 1984, 56.2% of it channeled to companies whose stockholders, directors and officers were related to the officers, directors, and some stockholders of BF. (p. 8, Tiaoqui Report.) Here again BF violated the General Banking Act (R.A. 337). 4
10. Some of the loans were used to acquire preferred stocks of BF. Between September 17, 1983 and February 10, 1984, P49.9 million of preferred nonconvertible stocks were issued. About 85% or P42.4 million was paid out of the proceeds of loans to stockholders/ borrowers with relationship to the bank (Annex D). Around P18.8 million were issued in the name of an

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entity other than the purchaser of the stocks. (Tiaoqui Report.)

11. Loans amounting to some P69.3 million were granted simply to pay-off old loans including accrued interest, as an accommodation for the direct maturing loans of some firms and as a way of paying-off loans of other borrower firms which have their own credit lines with the bank. These helped to make otherwise delinquent loans appear "current" and deceptively "improved" the quality of the loan portfolio. (Tiaoqui Report.) 12. Examination of the collaterals for the loan accounts of 63 major borrowers and 32 other selected borrowers as of July 31, 1984, showed that: (a) 2,658 TCT's which BF evalu ated to be worth P1,48

7 million were apprai sed by PAC to be worth only P1,19 6 million , hence , defici ent by P291 million . (b) Other prope rties (collat erals) suppo sedly worth P711 million could not be evalu ated by PAC becau se the detail s submi tted by the bank were
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insuffi cient; (c) While P674 million in loans were suppo sedly guara nteed by the Home Finan cing Corpo ration (HFIC ), the latter confir med only P427 million . P247 million in loans were not guara nteed by HFC. (Teod oro Repor t.) (d) Per SGV's report

, loans totalli ng P1.88 2 million includi ng accru ed intere st, were secur ed by collat eral worth only Pl.54 billion. Henc e, BFs unsec ured expos ure amou nted to P586. 2 million . BF Home s, Inc., a relate d comp any which has filed with the
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SEC a petitio n for suspe nsion of paym ents, owes P502 million to BF. 13. BF had been suffering heavy losses. a) For the eleve n (11) month s ended Nove mber 30, 1984, the estim ated net loss was P 372.6 Million ; b) For the twelve (12) month s from Nove mber 1984,

the projec ted net loss would be P3 90.7 Million and would contin ue unaba ted; (p. 2, Teodo ro Repor t) c) Aroun d 71.7% of the total acco mmod ations of P2.06 77 billion s to the relate d/link ed entitie s were adver sely classif ied. Close to
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33.7% or P697. 1 million s were clean loans or again st PNs (promi ssory notes) of these entitie s. Of the latter, 52.6% were classif ied as loss." (P. 5, Tiaoq ui Repor t.) d) The bank's financ ial condit ion as of date of exami nation , after settin g up

the additi onal valuat ion reserv es of P612. 2 million s and accu mulat ed net loss of P48.2 million s, indi cates one of insolv ency. Total liabiliti es of P5,28 2.1 million excee ds total asset s of P4,94 7.2 million by 6.8%. Total capita l accou nt of P334. 9 million ) is
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defici ent by P322. 7 million again st the minim um capita l requir ed of P657. 6 million (Anne x F). Capit al to risk asset s ratio is negati ve 10.38 %. e) Total loans and invest ment portfol io amou nted to P3,91 4.3 million s (gross ), of which P194.

0 million s or 5.0% were past due and P1,65 7.1 million s or 42.3% were adver sely classif ied (Subs tandar d P1,01 1.4 million s; Doubt ful P274. 6 million s and Loss P371. 1 million s). Accou nts adver sely classif ied includ ed unmat ured loan
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of Pl,482 .0 million to entitie s relate d with each other and to the bank, sever al of which show ed distre ssed condit ions. (p. 7, Tiaoq ui Repor t.) Teodoro's conclusion was that "the continuance of the bank in business would involve probable loss to its depositors and creditors." He recommended "that the Monetary Board take a more effective and responsible action to protect the depositors and creditors ... in the light of the bank's worsening condition." (p. 5, Teodoro Report.) On January 23, 1985, Tiaoqui submitted his report to the Monetary Board, Like Teodoro, Tiaoqui believed that the principal cause of the bank's failure was that in violation of the General Banking Law and CB rules and regulations, BF's major stockholders, directors and officers, through their "related" companies: (i.e. companies owned or controlled by them of their relatives) had been "borrowing" huge chunks of the money

of the depositors. His Conclusion and Recommendations were: The Conservator, in his report to the Monetary Board dated January 8, 1985, has stated that thecontinuance of the bank in business would involve probable loss to its depositors and creditors. It has recommended that a more effective action be taken to protect depositors and creditors. The examination findings as of July 31, 1984 as shown earlier, indicate one of insolvency and illiquidity and further confirms the above conclusion of the Conservator. All the foregoing provides sufficient justification for forbidding the bank from further engaging in banking. Foregoing considered, the following are recommended: 1. Forbid the Banco Filipin o Savin gs & Mortg age Bank to do busin ess in the Philip pines effecti ve the
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begin ning of office on Janua ry, 1985, pursu ant to Sec. 29 of R.A. No. 265, as amen ded; 2. Desig nate the Head of the Cons ervato r Team at the bank, as Recei ver of Banco Filipin o Savin gs & Mortg age Bank, to imme diatel y take charg e of

the asset s and liabiliti es, as exped itiousl y as possi ble collect and gather all the asset s and admin ister the same for the benefi t of all the credit ors, and exerci se all the power s neces sary for these purpo ses includi ng but not limite d to bringi ng suits and forecl
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osing mortg ages in the name of the bank. 3. The Board of direct ors and the princi pal officer s from Senio r Vice Presid ent, as listed in the attach ed Annex "A" be includ ed in the watchl ist of the Super vision and Exami nation Secto r until such time that they shall

have cleare d thems elves. 4. Refer to the Centr al Banle s Legal Depar tment and Office of Speci al Invest igatio n the report on the findin gs on Banco Filipin o for investi gation and possi ble prose cution of direct ors, officer s and emplo yees for activiti es
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which led to its insolv ent positi on." (pp. 9-10, Tiaoq ui Repor t.) On January 25, 1985 or two days after the submission of Tiaoqui's Report, and three weeks after it received Teodoro's Report, the Monetary Board, then composed of: Chairman: Jose B. Fernandez, Jr. CB Governor Members: 1. Cesar E.A. Virata, Prime Minister & Concurrently Minister of Finance 2. Roberto V. Ongpin, Minister of Trade & Industry & Chairman of Board of Investment 3. Vicente B. Valdepeas, Jr., Minister of Economic Planning & Director General of NEDA

4. Cesar A. Buenaventura, President of Filipinas Shell Petroleum Corp. (p. 37, Annual Report 1985) issued Resolution No. 75 closing BF and placing it under receivership. The MB Resolution reads as follows: After considering the report dated January 8, 1985 of the Conservator for Banco Filipino Savings and Mortgage Bank that the continuance in business of the bank would involve probable loss to its depositors and creditors, and after discussing and finding to be true the statements of the Special Assistant to the Governor and Head, Supervision and Examination Sector (SES) Department II, as recited in his memorandum dated January 23, 1985. that the Banco Filipino Savings and Mortgage Bank is insolvent and that its continuance in business would involve probable loss to its depositors and creditors, and in pursuance of Section 29 of R.A. No. 265, as amended, the Board decided: 1. To forbid Banco Filipin o Savin gs and Mortg age Bank
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and all its branc hes to do busin ess in the Philip pines; 2. To desig nate Mrs. Carlot a P. Valen zuela, Deput y Gover nor, as Recei ver who is hereb y directl y veste d with jurisdi ction and author ity to imme diatel y take charg e of the bank's asset s and liabiliti

es, and as exped itiousl y as possi ble collect and gather all the asset s and admin ister the same for the benefi t of its credit ors, exerci sing all thepower s neces sary for these purpo ses includi ng, but not limite d to, bringi ng suits and forecl osing mortg
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ages in the name of the bank; 3. To desig nate Mr. Arnulf o B. Aurell ano, Speci al Assist ant to the Gover nor, and Mr. Ramo n V. Tiaoq ui, Speci al Assist ant to the Gover nor and Head, Super vision and Exami nation Secto r Depar tment II. as Deput y

Recei vers who are likewi se hereb y directl y veste d with jurisdi ction and author ity to do all things neces sary or prope r to carry out the functi ons entrus ted to them by the Recei ver and other wise to assist the Recei ver in carryi ng out the functi ons
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veste d in the Recei ver by law or Monet ary Board resolu tions; 4. To direct and author ize Mana geme nt to do all other things and carry out all other meas ures neces sary or prope r to imple ment this Resol ution and to safeg uard the intere sts of depos itors/c reditio

n and the gener al public ; and 5. In conse quenc e of the forego ing, to termin ate the conse rvator ship over Banco Filipin o Savin gs and Mortg age Bank. (pp. 126127, Rollo I.) On March 19,1985, the receiver, Carlota Valenzuela, and the deputy receivers, Arnulfo B. Aurellano and Ramon V. Tiaoqui, submitted a report to the Monetary Board as required in Section 29, 2nd paragraph of R.A. 265 which provides that within sixty (60) days from date of the receivership, the Monetary Board shall determine whether the bank may be reorganized and permitted to resume business, or be liquidated. The receivers recommended that BF be placed under
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litigation. For, among other things, they found that: 1. BF had been suffering a capital deficiency of P336.5 million as of July 31, 1984 (pp. 2 and 4, Receivers' Report). 2. The bank's weekly reserve deficiencies averaged P146.67 million from November 25, 1983 up to March 16, 1984, rising to a peak of P338.09 million until July 27, 1984. Its reserve deficiencies against deposits and deposit substitutes began on the week ending June 15, 1984 up to December 7, 1984, with average daily reserve deficiencies of P2.98 million. 3. Estimated losses or "unhooked valuation reserves" for loans to entities with relationships to certain stockholder/directors and officers of the bank amounted to P600.5 million. Combined with other adjustments in the amount of P73.2 million, they will entirely wipe out the bank's entire capital account and leave a capital deficiency of P336.5 million. The bank was already insolvent on July 31, 1984. The capital deficiency increased to P908.4 million as of January 26, 1985 on account of unhooked penalties for deficiencies in legal reserves (P49.07 million), unhooked interest on overdrawings, emergency advance of P569.49 million from Central Bank, and additional valuation reserves of P124.5 million. (pp. 3-4, Receivers' Report.) The Receivers further noted that After BF was closed as of January 25, 1985, there were no collections from loans granted to firms related to each other and to BF classified as "doubtful" or "loss," there were no substantial improvements on other loans classified "doubtful"or "loss;" there was no further increase in the value of assets

owned/acquired supported by new appraisals and there was no infusion of additional capital such that the estimated realizable assets of BF remained at P3,909.23, (millions) while the total liabilities amounted to P5,159.44 (millions). Thus, BF remains insolvent with estimated deficiency to creditors of Pl,250.21 (millions). Moreover, there were no efforts on the part of the stockholders of the bank to improve its financial condition and the possibility of rehabilitation has become more remote. (P. 8, Receivers' Report.) In the light of the results of the examination of BF by the Teodoro and Tiaoqui teams, I do not find that the CB's Resolution No. 75 ordering BF to cease banking operations and placing it under receivership was "plainly arbitrary and made in bad faith." The receivership was justified because BF was insolvent and its continuance in business would cause loss to its depositors and creditors. Insolvency, as defined in Rep. Act 265, means 'the inability of a banking institution to pay its liabilities as they fall due in the usual and ordinary course of business. Since June 1984, BF had been unable to meet the heavy cash withdrawals of its depositors and pay its liabilities to its creditors, the biggest of them being the Central Bank, hence, the Monetary Board correctly found its condition to be one of insolvency. All the discussion in the Santiago Report concerning the bank's assets and liabilities as determinants of BF's solvency or insolvency is irrelevant and inconsequential, for under Section 29 of Rep. Act. 265, a bank's insolvency is not determined by its
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excess of liabilities over assets, but by its "inability to pay its liabilities as they fall due in the ordinary course of business" and it was abundantly shown that BF was unable to pay its liabilities to depositors for over a sixmonth-period before it was placed under receivership. Even if assets and liabilities were to be factored into a formula for determining whether or not BF was already insolvent on or before January 25, 1985, the result would be no different. The bank's assets as of the end of 1984 amounted to P4.891 billions (not P6 billions) according to the Report signed and submitted to the CB by BF's own president, and its total liabilities were P4.478 billions (p. 58, Cosico Report). While Aguirre's Report showed BF ahead with a net worth of P412.961 millions, said report did not make any provision for estimated valuation reserves amounting to P600.5 millions, (50% of face value of doubtful loans and 100% of face value of lossaccounts) which BF had granted to its related/linked companies. The estimated valuation reserves of P600.5 millions plus BF's admitted liabilities of P4.478 billions, put together, would wipe out BFs realizable assets of P4.891 billions and confirm its insolvent condition to the tune of P187.538 millions. BF's and Judge (now CA Justice) Consuelo Y. Santiago's argument that valuation reserves should not be considered because the matter was not discussed by Tiaoqui with BF officials is not well taken for: (1) The records of the defaulting debtors were in the possession of BF. (2) The "adversely classified" loans were in fact included in the List of Exceptions and Findings (of irregularities and violations of laws and CB rules and regulations) prepared by the SES, a copy of which was furnished BF on December 1 7, 1984;

(3) A conference on the matter washeld on January 2l, 1985 with senior officials of BF headed by EVP F. Dizon,. (pp. 14-15, Cosico Report.) BF did not formally protest against the CBs estimate of valuation reserves. The CB could not wait forever for BF to respond for the CB had to act with reasonable promptness to protect the depositors and creditors of BF because the bank continued to operate. (4) Subsequent events proved correct the SES classification of the loan accounts as "doubtful" or "loss' because as of January 25, 1985 none of the loans, except three, had been paid either partially or in full, even if they had already matured (p. 53, Cosico Report). The recommended provision for valuation reserves of P600.5 millions for "doubtful" and "loss" accounts was a proper factor to consider in the capital adjustments of BF and was in accordance with accounting rules. For, if the uncollectible loan accounts would be entered in the assets column as "receivables," without a corresponding entry in the liabilities column for estimated losses or valuation reserves arising from their uncollectability, the result would be a gravely distorted picture of the financial condition of BF. BF's strange argument that it was not insolvent for otherwise the CB would not have given it financial assistance does not merit serious consideration for precisely BF needed financial assistance because it was insolvent. Tiaoqui's admission that the examination of BF had "not yet been officially terminated" when he submitted his report on January 23, 1985 did not make the action of the Monetary Board of closing the bank and appointing receivers for it, 'plainly arbitrary and in bad faith." For what had been examined by the SES was more than enough to warrant a
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finding that the bank was "insolvent and could not continue in business without probable loss to its depositors or creditors," and what had not been examined was negligible and would not have materially altered the result. In any event, the official termination of the examination with the submission by the Chief Examiner of his report to the Monetary Board in March 1985, did not contradict, but in fact confirmed, the findings in the Tiaoqui Report. The responsibility of administering the Philippine monetary and banking systems is vested by law in the Central Bank whose duty it is to use the powers granted to it under the law to achieve the objective, among others, of maintaining monetary stability in the country (Sec. 2, Rep. Act 265). I do not think it would be proper and advisable for this Court to interfere with the CB's exercise of its prerogative and duty to discipline banks which have persistently engaged in illegal, unsafe, unsound and fraudulent banking practices causing tremendous losses and unimaginable anxiety and prejudice to depositors and creditors and generating widespread distrust and loss of confidence in the banking system. The damage to the banking system and to the depositing public is bigger when the bank, like Banco Filipino, is big. With 89 branches nationwide, 46 of them in Metro Manila alone, pumping the hard-earned savings of 3 million depositors into the bank, BF had no reason to go bankrupt if it were properly managed. The Central Bank had to infuse almost P3.5 billions into the bank in its endeavor to save it. But even this financial assistance was misused, for instead of satisfying the depositors' demands for the withdrawal of their money, BF channeled and diverted a substantial portion of the finds into the coffers of its related/linked companies. Up to this time, its officers, directors and major stockholders have neither repaid the Central Bank's P3.6 billion financial assistance, nor put up adequate collaterals

therefor, nor submitted a credible plan for the rehabilitation of the bank. What authority has this Court to require the Central Bank to reopen and rehabilitate the bank, and in effect risk more of the Government's money in the moribund bank? I respectfully submit that decision is for the Central Bank, not for this Court, to make. WHEREFORE, I vote to dismiss the petition for certiorari and mandamus in G.R. No. 70054 for lack of merit. Romero, J., concurs.

# Separate Opinions MELENCIO-HERRERA, J., dissenting: I join Mme. Justice Carolina G. Aquino in her dissent and vote to deny the prayer, in G.R. No. 70054, to annul Monetary Board Resolution No. 75 placing Banco Filipino (BF) under receivership. Even assuming that the BF was not, as alleged, in a literal state of insolvency at the time of the passage of said Resolution, there was a finding in the Teodoro report that, based on that Bank's illiquidity, to have allowed it to continue in operation would have meant probable loss to depositors and creditors. That is also a ground for placing the bank under receivership, as a first step, pursuant to Section 29 of the Central Bank Act (Rep. Act No. 265, as amended). The closure of BF, therefore, can not be said to have been arbitrary or made in bad faith. There was sufficient justification, considering its inability to meet the heavy withdrawals by its depositors and to pay its liabilities as they fell due, to forbid the bank from further engaging in banking.
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The matter of reopening, reorganization or rehabilitation of BF is not within the competence of this Court to ordain but is better addressed to the Monetary Board and the Central Bank considering the latter's enormous infusion of capital into BF to the tune of approximately P3.5 Billion in total accommodations, after a thorough assessment of whether or not BF is, indeed, possessed, as it stoutly contends, of sufficient assets and capabilities with which to repay such huge indebtedness, and can operate without loss to its many depositors and creditors.

immediately to furnish it copies of the reports of examination of BF employed by respondent Monetary Board to support its Resolution of January 25, 1985 and thereafter to afford it a hearing prior to any resolution that may be issued under Section 29 of R.A. 265, meanwhile annulling said Resolution of January 25, 1985 by writ of certiorari as made without or in excess ofjurisdiction or with grave abuse of discretion. So as to expedite proceedings, petitioner prays that the assessment of the damages respondents should pay it be deferred and referred to commissioners. Petitioner prays for such other remedy as the Court may deem just and equitable in the premises. Quezon City for Manila, February 28, 1985. (p. 8, Rollo I-) and the prayer of the Supplement to Petition reads: WHEREFORE, in addition to its prayer for mandamus and certiorari contained in its original petition, petitioner respectfully prays that Sections 28-A and 29 of the Central Bank charter (R.A. 265) including its amendatory Presidential Decrees Nos. 72, 1771, 1827 and 1937 be annulled as unconstitutional.

GRIO-AQUINO, J., dissenting: Although these nine (9) Banco Filipino (BF) cases have been consolidated under one ponencia, all of them except one, raise issues unrelated to the receivership and liquidation of said bank. In fact, two of these cases (G.R. No. 68878 and 81303) have already been decided by this Court and are only awaiting the resolution of the motions for reconsideration filed therein. Only G.R. No. 70054 "Banco Filipino Savings and Mortgage Bank (BF) vs. the Monetary Board (MB), Central Bank of the Philippines (CB), et al.," is an original action for mandamus andcertiorari filed in this Court by former officials of BF to annul the Monetary Board Resolution No. 75 dated January 25, 1985 (ordering the closure of Banco Filipino [BF] and appointing Carlota Valenzuela as receiver of the bank) on the ground that the resolution was issued "without affording BF a hearing on the reports" on which the Monetary Board based its decision to close the bank, hence, without "administrative due process.", The prayer of the petition reads: WHEREFORE, petitioner respectfully prays that a writ of mandamus be issued commanding respondents

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Quezon City for Manila, March 4, 1985. (p. 11-G, Rollo I.) The other eight (8) cases merely involve transactions of BF with third persons and certain "related" corporations which had defaulted on their loans and sought to prohibit the extrajudicial foreclosure of the mortgages on their properties by the receiver of BF. These eight (8) cases are: 1. G.R. No. 68878 "BF vs. Intermediate Appellate Court and Celestina Pahimutang" involves the repossession by BF of a house and lot which the buyer (Pahimutang) claimed to have completely paid for on the installment plan. The appellate court's judgment for the buyer was reversed by this Court. The buyer's motion for reconsideration is awaiting resolution by this Court; 2. G.R. Nos. 77255-58, "Top Management Programs Corporation and Pilar Development Corporation vs. Court of appeals, et al." (CA-G.R. SP No. 07892) and "Pilar Development Corporation vs. Executive Judge, RTC, Cavite"(CA-G.R. SP Nos. 0896264) is a consolidated petition for review of the Court of Appeals' joint decision dismissing the petitions for prohibition in which the petitioners seek to prevent the receiver/liquidator of BF from extrajudicially foreclosing the P4.8 million mortgage on Top Management's properties and the P18-67 million mortgage on Pilar Development properties. The Court of Appeals dismissed the petitions on October 30, 1986 on the ground that "the functions of the liquidator, as receiver under Section 29 (R.A. 265), include taking charge of the insolvent's assets and administering the same for the benefit of its creditors and of bringing suits and foreclosing mortgages in the name of the bank;" 3. G.R. No. 78766, "El Grande Corporation vs. Court of Appeals, et al.," is an appeal from the Court of Appeals' decision in CA-

G.R. SP No. 08809 dismissing El Grande's petition for prohibition to prevent the foreclosure of BF's P8 million mortgage on El Grande's properties; 4. G.R. No. 78894, "Banco Filipino Savings and Mortgage Bank vs. Court of Appeals, et al." is an appeal of BFs old management (using the name of BF) from the decision of the Court of Appeals in CA-G.R. SP No. 07503 entitled, "Central Bank, et al. vs. Judge Zoilo Aguinaldo, et al" dismissing the complaint of "BF" to annul the receivership, for no suit may be brought or defended in the name of the bank except by its receiver; 5. G.R. No. 87867, "Metropolis Development Corporation vs. Court of Appeals" (formerly AC-G.R. No. 07503, "Central Bank, et al. vs. Honorable Zoilo Aguinaldo, et al.') is an appeal of the intervenor (Metropolis) from the same Court of Appeals' decision subject of G.R. No. 78894, which also dismissed Metropolis' complaint in intervention on the ground that a stockholder (Metropolis) may not bring suit in the name of BF while the latter is under receivership, without the authority of the receiver; 6. G.R. No. 81303, "Pilar Development Corporation vs. Court of Appeals, et al." is an appeal from the decision dated October 22, 1987 of the Court of Appeals in CA-G.R. SP No. 12368, "Pilar Development Corporation, et al. vs. Honorable Manuel Cosico, et al.," dismissing the petition for certiorari against Judge Manuel Cosico, Br. 136, RTC, Makati, who dismissed the complaint filed by Pilar Development Corporation against BF, for specific performance of certain developer contracts. An answer filed by Norberto Quisumbing and Associates, as BF's supposed counsel, virtually confessed judgment in favor of Pilar Development. On motion of the receiver, the answer was expunged and the complaint was dismissed. On a petition for certiorari in this Court, we held that: "As liquidator of BF by virtue of a
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valid appointment from the Central Bank, private respondent Carlota Valenzuela has the authority to direct the operation of the bank in substitution of the former management, which authority includes the retainer of counsel to represent it in bringing or resisting suits in connection with such liquidation and, in the case at bar, to take the proper steps to prevent collusion, to the prejudice of the legitimate creditors, between BF and the petitioners herein which appear to be owned and controlled by the same interest controlling BF" (p. 49, Rollo). The petitioners' motion for reconsideration of that decision is pending resolution. 7. G.R. No. 81304, "BF Homes Development Corporation vs. Court of Appeals, et al." is an appeal from the decision dated November 4, 1987 of the Court of Appeals in CA-G.R. CV No. 08565 affirming the trial court's order dismissing BF Homes' action to compel the Central Bank to restore the financing facilities of BF, because the plaintiff (BF Homes) has no cause of action against the CB. 8. G.R. No. 90473, "El Grande Development Corporation vs. Court of Appeals, et al.," is a petition to review the decision dated June 6, 1989 in CA-G.R. SP No. 08676 dismissing El Grande's petition for prohibition to stop foreclosure proceedings against it by the receiver of BF. As previously stated, G.R. No. 70054 "BF vs. Monetary Board, et al.," is an original special civil action for certiorariand mandamus filed in this Court by the old management of BF, through their counsel, N.J. Quisumbing & Associates, using the name of the bank and praying for the annulment of MB Resolution No. 75 which ordered the closure of BF and placed it under receivership. It is a "forumshopping" case because it was filed here on February 28, 1985 three weeks after they had filed on February 2, 1985 Civil Case No. 9675 "Banco Filipino vs. Monetary Board, et al." in the Regional Trial Court of Makati, Br.

143 (presided over by Judge Zoilo Aguinaldo) for the same purpose of securing a declaration of the nullity of MB Resolution No. 75 dated January 25, 1985. On August 25, 1985, this Court ordered the transfer and consolidation of Civil Case No. 9676 (to annul the receivership) from Br. 143 to Br. 136 (Judge Manuel Cosico) of the Makati Regional Trial Court where Civil Case No. 8108 (to annul the conservatorship) and Civil Case No. 10183 (to annul the liquidation) of BF were and are still pending. All these three (3) cases were archived on June 30, 1988 by Judge Cosico pending the resolution of G.R. No. 70054 by this Court. Because of my previous participation, as a former member of the Court of Appeals, in the disposition of AC-G.R. No. 02617 (now G.R. No. 68878) and AC-G.R. SP No. 07503 (now G.R. Nos. 78767 and 78894), I am taking no part in G.R. Nos. 68878, 78767 and 78894. It may be mentioned in this connection that neither in AC-G.R. SP No. 02617, nor in AC-G.R. SP No. 07503, did the Court of Appeals rule on the constitutionality of Sections 28-A and 29 of Republic Act 265 (Central Bank Act), as amended, and the validity of MB Resolution No. 75, for those issues were not raised in the Court of Appeals. I concur with the ponencia insofar as it denies the motion for reconsideration in G.R. No. 81303, and dismisses the petitions for review in G.R. Nos. 77255-58, 78766, 81304, and 90473. I respectfully dissent from the majority opinion in G.R. No. 70054 annulling and setting aside MB Resolution No. 75 and ordering the respondents, Central Bank of the Philippines and the Monetary Board to reorganize petitioner Banco Filipino Savings and Mortgage Bank, and allow the latter to
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resume business in the Philippines under the comptrollership of both the Central Bank and the Monetary Board and under such conditions as may be prescribed by the latter until such time that petitioner bank can continue in business with safety to its creditors, depositors and the general public. for I believe that this Court has neither the authority nor the competence to determine whether or not, and under what conditions, BF should be reorganized and reopened. That decision should be made by the Central Bank and the Monetary Board, not by this Court. All that we may determine in this case is whether the actions of the Central Bank and the Monetary Board in closing BF and placing it under receivership were "plainly arbitrary and made in bad faith. Section 29 of Republic Act No. 265 provides: Section 29. Proceedings upon insolvency. Whenever, upon examination by the head of the appropriate supervising and examining department or his examiners or agents into the condition of any banking institution, it shall be disclosed that the condition of the same is one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, it shall be the duty of the department head concerned forthwith, in writing, to inform the Monetary Board of the facts, and the Board may, upon finding the statements of the department head to be true, forbid the

institution to do business in the Philippines and shall designate an official of the Central Bank as receiver to immediately take charge of its assets and liabilities, as expeditiously as possible collect and gather all the assets and administer the same for the benefit of its creditors, exercising all the powers necessary for these purposes including, but not limited to, bringing suits and foreclosing mortgages in the name of the banking institution. The Monetary Board shall thereupon determine within sixty days whether the institution may be reorganized or otherwise placed in such a condition so that it may be permitted to resume business with safety to its depositors and creditors and the general public and shall prescribe the conditions under which such resumption of business shall take place as well as the time for fulfillment of such conditions. In such case, the expenses and fees in the collection and administration of the assets of the institution shall be determined by the Board and shall be paid to the Central Bank out of the assets of such banking institution. If the Monetary Board shall determine and confirm within the said period that the banking institution is insolvent or cannot resume business with safety to its depositors, creditors and the general public, it shall, if the public interest requires, order its liquidation, indicate the manner of its liquidation and approve a
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liquidation plan. The Central Bank 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 of the court in the liquidation of the banking institutions. The court shall have jurisdiction in the same proceedings to adjudicate disputed claims against the bank and enforce individual liabilities of the stockholders and do all that is necessary to preserve the assets of the banking institution and to implement the liquidation plan approved by the Monetary Board. The Monetary Board shall designate an official of the Central Bank as liquidator who shall take over the functions of the receiver previously appointed by the Monetary Board under this section. The liquidator shall, with all convenient speed, convert the assets of the banking institution to money or sell, assign or otherwise dispose of the same to creditors and other parties for the purpose of paying the debts of such bank and he may, in the name of the banking institution, institute such actions as may be necessary in the appropriate court to collect and recover accounts and assets of the banking institution. The provisions of any law to the contrary notwithstanding, the actions of the Monetary Board under this section and the second paragraph of Section 34 of this Act shall be final and executory, and can be set aside

by the court only if there is convincing proof that theaction is plainly arbitrary and made in bad faith. No restraining order or injunction shall be issued by the court enjoining the Central Bank from implementing its actions under this section and the second paragraph of Section 34 of this Act, unless there is convincing proof that the action of the Monetary Board is plainly arbitrary and made in bad faith and the petitioner or plaintiff files with the clerk or judge of the court in which the action is pending a bond executed in favor of the Central Bank, in an amount to be fixed by the court. The restraining order or injunction shall be refused or, if granted, shall be dissolved upon filing by the Central Bank of a bond, which shall be in the form of cash or Central Bank cashier's check, in an amount twice the amount of the bond of the petitioner or plaintiff, conditioned that it will paythe which the petitioner or plaintiff may suffer by the refusalor the dissolution of the injunction. The provisions of Rule 58 of the new Rules of Court insofar as they are applicable and not inconsistent with the provisions of this section shall govern the issuance and dissolution of the restraining order or injunction contemplated in this section. Insolvency, under this Act, shall be understood to mean the inability of a banking institution to pay its liabilities as they fall due in the usual and ordinary course of business, provided, however, that this shall not
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include the inability to pay of an otherwise non-insolvent bank caused by extra-ordinary demands induced by financial panic commonly evidenced by a run on the banks in the banking community. The determinative factor in the closure, receivership, and liquidation of a bank is the finding, upon examination by the SES of the Central Bank, that its condition "is one of insolvency, or that its continuance in business would involve probable loss to its depositors and creditors." (Sec. 29, R.A. 265.) It should be pointed out that insolvency is not the only statutory ground for the closure of a bank. The other ground is when "its continuance in business would involve probable loss to its depositors and creditors. Was BF insolvent i.e., unable to pay its liabilities as they fell due in the usual and ordinary course of business, on and for some time before January 25, 1985 when the Monetary Board issued Resolution No. 75 closing the bank and placing it under receivership? Would its continued operation involve probable loss to its depositors and creditors? The answer to both questions is yes. Both the conservator Gilberts Teodoro and the head of the SES (Supervision and Examination Sector) Ramon V. Tiaoqui opined that BF's continuance in business would cause probable loss to depositors and creditors. Tiaoqui further categorically found that BF was insolvent. Why was this so? The Teodoro and Tiaoqui reports as well as the report of the receivers, Carlota Valenzuela, Arnulfo B. Aurellano and Ramon V. Tiaoqui, showed that since the end of November 1983 BF had already been incurring "chronic reserve deficiencies' and experiencing severe liquidity problems. So much so, that it had become "a substantial

borrower in the call loans market" and in June 1984 it obtained a P30 million emergency loan from the Central Bank. (p. 2, Receiver's Report.) Additional emergencyt loans (a total of P119.7 millions) were extended by the Central Bank to BF that month (MB Res. No. 839 dated June 29,1984). On July 12, 1984, BFs chairman, Anthony Aguirre, offered to "turn over the administration of the affairs of the bank" to the Central Bank (Aguirre's letter to Governor Jose Fernandez, Annex 7 of Manifestation dated May 3,1991). On July 23,1984, unable to meet heavy deposit withdrawals, BF's management motu proprio, without obtaining the conformity of the Central Bank, closed the bank and declared a bank holiday. On July 27, 1984, the CB, responding to BFs pleas for additional financial assistance, granted BF a P3 billion credit line (MB Res. No. 934 of July 27, 1984) to enable it to reopen and resume business on August 1, 1984. P2.3601 billions of the credit line were availed of by the end of 1984 exclusive of an overdraft of P932.4 millions (p. 2, Tiaoqui Report). Total accommodations granted to BF amounted to P3.4122 billions (p. 19, Cosico Report). Presumably to assure that the financial assistance would be properly used, the MB appointed Basilio Estanislao as conservator of the bank. A conservatorship team of 78 examiners and accountants was assigned at the bank to keep track of its activities and ascertain its financial condition (p. 8, Tiaoqui Report). Estanislao resigned after two weeks for health reasons. He was succeeded by Gilberto Teodoro as conservator in August, 1984 up to January 8, 1985. Besides the conservatorship team, Teodoro hired financial consultants Messrs. Tirso G. Santillan, Jr. and Plorido P. Casuela to make an analysis of BF's financial condition. Teodoro also engaged the accounting firm of
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Sycip, Gorres, Velayo and Company to make an asset evaluation. The Philippine Appraisal Company (PAC) appraised BFs real estate properties, acquired assets, and collaterals held. On January 9, 1985, Teodoro submitted his Report. Three weeks later, on January 23, 1985, Tiaoqui also submitted his Report. Both reports showedthat, in violation of Section 37 of the General Banking Act (R.A.337): 2 1. BF had been continually deficient in liquidity reserves (Teodoro Report). The bank had been experiencing a severe drop in liquidity levels. The ratio of liquid assets to deposits and borrowings plunged from about 20% at end-1983, to about 8.6% by end-May 1984, much below the statutory requirements of 24% for demand deposits/deposit substitutes and 14% for savings and time deposits. (p. 2, Tiaoqui Report.) 2. Deficiencies in average daily legal reserves rose from P63.0 million during the week of November 21-25, 1983 to a high of P435.9 million during the week of June 11-15, 1984

(pp. 2-3, Tiaoqui Report). Accumulated penalties on reserve deficiencies amounted to P37.4 million by July 31, and rose to P48 million by the end of 1984. (Tiaoqui Report.) 3. Deposit levels, which were at P3,845 million at end-May l984 (its last "normal" month), dropped to P935 million at the end of November 1984 or a loss of P2,910 million. This represented an average monthly loss of P485 million vs. an average monthly gain of P26 million during the first 5 months of 1984. (pp. 2-3, Tiaoqui Report.) 4. Deposits had declined at the rate of P20 million during the month of December 1984, but expenses of about P17 million per month were required to maintain the bank's operation. (p. 6, Teodoro Report.)

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5. Based on the projected outlook, the Bank's average yield on assets of 16.3% p.a., was insufficient to meet the average cost of funds of 19.5% p.a. and operating expenses of 4.8% p.a. (p. 5 Teodoro Report.) 6. An imprudently large proportion of assets were locked into long-term applications. (Teodoro Report.) 7. BF overextended itself in lending to the real estate industry, committing as much as 52% of its peso deposits to its affiliates or "related accounts" to which it continued lending even when it was already suffering from liquidity stresses. (Teodoro Report.) This was done in violation of Section 38 of the General Banking Act (R.A. 337). 3
8. During the period of marked decline in liquidity levels the loan portfolio grew by P417.3 million in the first five months of 1984 and by another P105.l million in the next two months. (pp. 2-3, Tiaoqui Report.)

P3.679 billion at the end of July 1984, 56.2% of it channeled to companies whose stockholders, directors and officers were related to the officers, directors, and some stockholders of BF. (p. 8, Tiaoqui Report.) Here again BF violated the General Banking Act (R.A. 337). 4
10. Some of the loans were used to acquire preferred stocks of BF. Between September 17, 1983 and February 10, 1984, P49.9 million of preferred nonconvertible stocks were issued. About 85% or P42.4 million was paid out of the proceeds of loans to stockholders/ borrowers with relationship to the bank (Annex D). Around P18.8 million were issued in the name of an entity other than the purchaser of the stocks. (Tiaoqui Report.)

9. The loan portfolio stood at

11. Loans amounting to some P69.3 million were granted simply to pay-off old loans including accrued interest, as an accommodation for the direct maturing loans of some firms and as a way of paying-off loans of other borrower firms which have their own credit lines with the bank. These helped to make otherwise delinquent loans
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appear "current" and deceptively "improved" the quality of the loan portfolio. (Tiaoqui Report.) 12. Examination of the collaterals for the loan accounts of 63 major borrowers and 32 other selected borrowers as of July 31, 1984, showed that: (a) 2,658 TCT's which BF evalu ated to be worth P1,48 7 million were apprai sed by PAC to be worth only P1,19 6 million , hence , defici ent by P291 million .

(b) Other prope rties (collat erals) suppo sedly worth P711 million could not be evalu ated by PAC becau se the detail s submi tted by the bank were insuffi cient; (c) While P674 million in loans were suppo sedly guara nteed by the Home Finan cing Corpo ration (HFIC ), the
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latter confir med only P427 million . P247 million in loans were not guara nteed by HFC. (Teod oro Repor t.) (d) Per SGV's report , loans totalli ng P1.88 2 million includi ng accru ed intere st, were secur ed by collat eral worth only Pl.54 billion.

Henc e, BFs unsec ured expos ure amou nted to P586. 2 million . BF Home s, Inc., a relate d comp any which has filed with the SEC a petitio n for suspe nsion of paym ents, owes P502 million to BF. 13. BF had been suffering heavy losses. a) For the eleve n (11)
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month s ended Nove mber 30, 1984, the estim ated net loss was P 372.6 Million ; b) For the twelve (12) month s from Nove mber 1984, the projec ted net loss would be P3 90.7 Million and would contin ue unaba ted; (p. 2, Teodo ro Repor t)

c) Aroun d 71.7% of the total acco mmod ations of P2.06 77 billion s to the relate d/link ed entitie s were adver sely classif ied. Close to 33.7% or P697. 1 million s were clean loans or again st PNs (promi ssory notes) of these entitie s. Of the
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latter, 52.6% were classif ied as loss." (P. 5, Tiaoq ui Repor t.) d) The bank's financ ial condit ion as of date of exami nation , after settin g up the additi onal valuat ion reserv es of P612. 2 million s and accu mulat ed net loss of P48.2 million s, indi cates one of

insolv ency. Total liabiliti es of P5,28 2.1 million excee ds total asset s of P4,94 7.2 million by 6.8%. Total capita l accou nt of P334. 9 million ) is defici ent by P322. 7 million again st the minim um capita l requir ed of P657. 6 million (Anne x F). Capit al to risk
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asset s ratio is negati ve 10.38 %. e) Total loans and invest ment portfol io amou nted to P3,91 4.3 million s (gross ), of which P194. 0 million s or 5.0% were past due and P1,65 7.1 million s or 42.3% were adver sely classif ied (Subs tandar d

P1,01 1.4 million s; Doubt ful P274. 6 million s and Loss P371. 1 million s). Accou nts adver sely classif ied includ ed unmat ured loan of Pl,482 .0 million to entitie s relate d with each other and to the bank, sever al of which show ed distre ssed
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condit ions. (p. 7, Tiaoq ui Repor t.) Teodoro's conclusion was that "the continuance of the bank in business would involve probable loss to its depositors and creditors." He recommended "that the Monetary Board take a more effective and responsible action to protect the depositors and creditors ... in the light of the bank's worsening condition." (p. 5, Teodoro Report.) On January 23, 1985, Tiaoqui submitted his report to the Monetary Board, Like Teodoro, Tiaoqui believed that the principal cause of the bank's failure was that in violation of the General Banking Law and CB rules and regulations, BF's major stockholders, directors and officers, through their "related" companies: (i.e. companies owned or controlled by them of their relatives) had been "borrowing" huge chunks of the money of the depositors. His Conclusion and Recommendations were: The Conservator, in his report to the Monetary Board dated January 8, 1985, has stated that thecontinuance of the bank in business would involve probable loss to its depositors and creditors. It has recommended that a more effective action be taken to protect depositors and creditors. The examination findings as of July 31, 1984 as shown earlier, indicate one of insolvency and illiquidity and further confirms the above conclusion of the Conservator.

All the foregoing provides sufficient justification for forbidding the bank from further engaging in banking. Foregoing considered, the following are recommended: 1. Forbid the Banco Filipin o Savin gs & Mortg age Bank to do busin ess in the Philip pines effecti ve the begin ning of office on Janua ry, 1985, pursu ant to Sec. 29 of R.A. No. 265, as amen ded; 2. Desig
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nate the Head of the Cons ervato r Team at the bank, as Recei ver of Banco Filipin o Savin gs & Mortg age Bank, to imme diatel y take charg e of the asset s and liabiliti es, as exped itiousl y as possi ble collect and gather all the asset s and admin ister the same for the

benefi t of all the credit ors, and exerci se all the power s neces sary for these purpo ses includi ng but not limite d to bringi ng suits and forecl osing mortg ages in the name of the bank. 3. The Board of direct ors and the princi pal officer s from Senio r Vice
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Presid ent, as listed in the attach ed Annex "A" be includ ed in the watchl ist of the Super vision and Exami nation Secto r until such time that they shall have cleare d thems elves. 4. Refer to the Centr al Banle s Legal Depar tment and Office of Speci al

Invest igatio n the report on the findin gs on Banco Filipin o for investi gation and possi ble prose cution of direct ors, officer s and emplo yees for activiti es which led to its insolv ent positi on." (pp. 9-10, Tiaoq ui Repor t.) On January 25, 1985 or two days after the submission of Tiaoqui's Report, and three weeks after it received Teodoro's Report, the Monetary Board, then composed of: Chairman: Jose B.
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Fernandez, Jr. CB Governor Members: 1. Cesar E.A. Virata, Prime Minister & Concurrently Minister of Finance 2. Roberto V. Ongpin, Minister of Trade & Industry & Chairman of Board of Investment 3. Vicente B. Valdepeas, Jr., Minister of Economic Planning & Director General of NEDA 4. Cesar A. Buenaventura, President of Filipinas Shell Petroleum Corp. (p. 37, Annual Report 1985) issued Resolution No. 75 closing BF and placing it under receivership. The MB Resolution reads as follows: After considering the report dated January 8, 1985 of the Conservator for Banco Filipino Savings and Mortgage Bank that the continuance in business of the bank would involve probable loss to its depositors and creditors, and after discussing and finding to be true the statements of the Special

Assistant to the Governor and Head, Supervision and Examination Sector (SES) Department II, as recited in his memorandum dated January 23, 1985. that the Banco Filipino Savings and Mortgage Bank is insolvent and that its continuance in business would involve probable loss to its depositors and creditors, and in pursuance of Section 29 of R.A. No. 265, as amended, the Board decided: 1. To forbid Banco Filipin o Savin gs and Mortg age Bank and all its branc hes to do busin ess in the Philip pines; 2. To desig nate Mrs. Carlot a P. Valen zuela, Deput y Gover
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nor, as Recei ver who is hereb y directl y veste d with jurisdi ction and author ity to imme diatel y take charg e of the bank's asset s and liabiliti es, and as exped itiousl y as possi ble collect and gather all the asset s and admin ister the same for the benefi t of its credit

ors, exerci sing all thepower s neces sary for these purpo ses includi ng, but not limite d to, bringi ng suits and forecl osing mortg ages in the name of the bank; 3. To desig nate Mr. Arnulf o B. Aurell ano, Speci al Assist ant to the Gover nor, and
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Mr. Ramo n V. Tiaoq ui, Speci al Assist ant to the Gover nor and Head, Super vision and Exami nation Secto r Depar tment II. as Deput y Recei vers who are likewi se hereb y directl y veste d with jurisdi ction and author ity to do all things neces sary or

prope r to carry out the functi ons entrus ted to them by the Recei ver and other wise to assist the Recei ver in carryi ng out the functi ons veste d in the Recei ver by law or Monet ary Board resolu tions; 4. To direct and author ize Mana geme nt to do all other
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things and carry out all other meas ures neces sary or prope r to imple ment this Resol ution and to safeg uard the intere sts of depos itors/c reditio n and the gener al public ; and 5. In conse quenc e of the forego ing, to termin ate the conse rvator ship over Banco

Filipin o Savin gs and Mortg age Bank. (pp. 126127, Rollo I.) On March 19,1985, the receiver, Carlota Valenzuela, and the deputy receivers, Arnulfo B. Aurellano and Ramon V. Tiaoqui, submitted a report to the Monetary Board as required in Section 29, 2nd paragraph of R.A. 265 which provides that within sixty (60) days from date of the receivership, the Monetary Board shall determine whether the bank may be reorganized and permitted to resume business, or be liquidated. The receivers recommended that BF be placed under litigation. For, among other things, they found that: 1. BF had been suffering a capital deficiency of P336.5 million as of July 31, 1984 (pp. 2 and 4, Receivers' Report). 2. The bank's weekly reserve deficiencies averaged P146.67 million from November 25, 1983 up to March 16, 1984, rising to a peak of P338.09 million until July 27, 1984. Its reserve deficiencies against deposits and deposit substitutes began on the week ending June 15, 1984 up to December 7, 1984, with average daily reserve deficiencies of P2.98 million. 3. Estimated losses or "unhooked valuation reserves" for loans to entities with relationships to certain stockholder/directors and officers of the bank amounted to P600.5 million. Combined with other adjustments in the amount of P73.2 million, they will entirely
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wipe out the bank's entire capital account and leave a capital deficiency of P336.5 million. The bank was already insolvent on July 31, 1984. The capital deficiency increased to P908.4 million as of January 26, 1985 on account of unhooked penalties for deficiencies in legal reserves (P49.07 million), unhooked interest on overdrawings, emergency advance of P569.49 million from Central Bank, and additional valuation reserves of P124.5 million. (pp. 3-4, Receivers' Report.) The Receivers further noted that After BF was closed as of January 25, 1985, there were no collections from loans granted to firms related to each other and to BF classified as "doubtful" or "loss," there were no substantial improvements on other loans classified "doubtful"or "loss;" there was no further increase in the value of assets owned/acquired supported by new appraisals and there was no infusion of additional capital such that the estimated realizable assets of BF remained at P3,909.23, (millions) while the total liabilities amounted to P5,159.44 (millions). Thus, BF remains insolvent with estimated deficiency to creditors of Pl,250.21 (millions). Moreover, there were no efforts on the part of the stockholders of the bank to improve its financial condition and the possibility of rehabilitation has become more remote. (P. 8, Receivers' Report.) In the light of the results of the examination of BF by the Teodoro and Tiaoqui teams, I do

not find that the CB's Resolution No. 75 ordering BF to cease banking operations and placing it under receivership was "plainly arbitrary and made in bad faith." The receivership was justified because BF was insolvent and its continuance in business would cause loss to its depositors and creditors. Insolvency, as defined in Rep. Act 265, means 'the inability of a banking institution to pay its liabilities as they fall due in the usual and ordinary course of business. Since June 1984, BF had been unable to meet the heavy cash withdrawals of its depositors and pay its liabilities to its creditors, the biggest of them being the Central Bank, hence, the Monetary Board correctly found its condition to be one of insolvency. All the discussion in the Santiago Report concerning the bank's assets and liabilities as determinants of BF's solvency or insolvency is irrelevant and inconsequential, for under Section 29 of Rep. Act. 265, a bank's insolvency is not determined by its excess of liabilities over assets, but by its "inability to pay its liabilities as they fall due in the ordinary course of business" and it was abundantly shown that BF was unable to pay its liabilities to depositors for over a sixmonth-period before it was placed under receivership. Even if assets and liabilities were to be factored into a formula for determining whether or not BF was already insolvent on or before January 25, 1985, the result would be no different. The bank's assets as of the end of 1984 amounted to P4.891 billions (not P6 billions) according to the Report signed and submitted to the CB by BF's own president, and its total liabilities were P4.478 billions (p. 58, Cosico Report). While Aguirre's Report showed BF ahead with a net worth of P412.961 millions, said report did not make any provision for estimated valuation reserves amounting to P600.5 millions, (50% of face value of doubtful loans
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and 100% of face value of lossaccounts) which BF had granted to its related/linked companies. The estimated valuation reserves of P600.5 millions plus BF's admitted liabilities of P4.478 billions, put together, would wipe out BFs realizable assets of P4.891 billions and confirm its insolvent condition to the tune of P187.538 millions. BF's and Judge (now CA Justice) Consuelo Y. Santiago's argument that valuation reserves should not be considered because the matter was not discussed by Tiaoqui with BF officials is not well taken for: (1) The records of the defaulting debtors were in the possession of BF. (2) The "adversely classified" loans were in fact included in the List of Exceptions and Findings (of irregularities and violations of laws and CB rules and regulations) prepared by the SES, a copy of which was furnished BF on December 1 7, 1984; (3) A conference on the matter washeld on January 2l, 1985 with senior officials of BF headed by EVP F. Dizon,. (pp. 14-15, Cosico Report.) BF did not formally protest against the CBs estimate of valuation reserves. The CB could not wait forever for BF to respond for the CB had to act with reasonable promptness to protect the depositors and creditors of BF because the bank continued to operate. (4) Subsequent events proved correct the SES classification of the loan accounts as "doubtful" or "loss' because as of January 25, 1985 none of the loans, except three, had been paid either partially or in full, even if they had already matured (p. 53, Cosico Report). The recommended provision for valuation reserves of P600.5 millions for "doubtful" and "loss" accounts was a proper factor to consider in the capital adjustments of BF and

was in accordance with accounting rules. For, if the uncollectible loan accounts would be entered in the assets column as "receivables," without a corresponding entry in the liabilities column for estimated losses or valuation reserves arising from their uncollectability, the result would be a gravely distorted picture of the financial condition of BF. BF's strange argument that it was not insolvent for otherwise the CB would not have given it financial assistance does not merit serious consideration for precisely BF needed financial assistance because it was insolvent. Tiaoqui's admission that the examination of BF had "not yet been officially terminated" when he submitted his report on January 23, 1985 did not make the action of the Monetary Board of closing the bank and appointing receivers for it, 'plainly arbitrary and in bad faith." For what had been examined by the SES was more than enough to warrant a finding that the bank was "insolvent and could not continue in business without probable loss to its depositors or creditors," and what had not been examined was negligible and would not have materially altered the result. In any event, the official termination of the examination with the submission by the Chief Examiner of his report to the Monetary Board in March 1985, did not contradict, but in fact confirmed, the findings in the Tiaoqui Report. The responsibility of administering the Philippine monetary and banking systems is vested by law in the Central Bank whose duty it is to use the powers granted to it under the law to achieve the objective, among others, of maintaining monetary stability in the country (Sec. 2, Rep. Act 265). I do not think it would be proper and advisable for this Court to interfere with the CB's exercise of its prerogative and duty to discipline banks which have persistently
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engaged in illegal, unsafe, unsound and fraudulent banking practices causing tremendous losses and unimaginable anxiety and prejudice to depositors and creditors and generating widespread distrust and loss of confidence in the banking system. The damage to the banking system and to the depositing public is bigger when the bank, like Banco Filipino, is big. With 89 branches nationwide, 46 of them in Metro Manila alone, pumping the hard-earned savings of 3 million depositors into the bank, BF had no reason to go bankrupt if it were properly managed. The Central Bank had to infuse almost P3.5 billions into the bank in its endeavor to save it. But even this financial assistance was misused, for instead of satisfying the depositors' demands for the withdrawal of their money, BF channeled and diverted a substantial portion of the finds into the coffers of its related/linked companies. Up to this time, its officers, directors and major stockholders have neither repaid the Central Bank's P3.6 billion financial assistance, nor put up adequate collaterals therefor, nor submitted a credible plan for the rehabilitation of the bank. What authority has this Court to require the Central Bank to reopen and rehabilitate the bank, and in effect risk more of the Government's money in the moribund bank? I respectfully submit that decision is for the Central Bank, not for this Court, to make. WHEREFORE, I vote to dismiss the petition for certiorari and mandamus in G.R. No. 70054 for lack of merit. Romero, J., concurs.

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and Arnulfo B. Aurellano, in his capacity as Liquidator of General Bank & Trust Company, Petitioners"; andTSAHIa 2. Resolution dated March 12, 2002, 2 denying petitioner's motion for reconsideration. The material facts, as stated in the appealed CA decision are, as follows: 1. From December 3 to 14, 1976, General Bank and Trust Company (Genbank) incurred overdrafts in its current account with the Central Bank [CB], starting from P478,000 on December 3, 1976 and increasing daily to reach P54.9 million on December 14, 1976. These daily overdrawings were covered up to the next banking day by check deposits, thru "daycall" borrowings, obtained from various commercial banks (7-page Aide Memoire, Exh. H). 2. A verification of the accounts showed that the overdrawings of Genbank . . . were due to the all-out financial support it extended to Filcapital Development Corporation (a related interest of the Yujuico Family Group and the directors and officers of Genbank) to meet maturing obligations. On December 14, 1976, Filcapital overdraft balance with Genbank totaled P55.8 million, in violation of existing CB regulations which was financed by overdrawings of P54.9 million from CB [Id.]. 3. The matter of overdraft accommodations to Filcapital had been the subject of several memoranda and letters of the Department of Commercial and Savings Bank [DCSB] to Genbank, the same being in violation of Section 23, R.A. 337 . . . (maximum loan limit); of Section 83, R.A. 337, as amended (requiring written Board approval); and of Memorandum To All Banks dated November 15, 1976 (prohibiting Temporary Overdrawings) [Id.]. 4. On December 14, 1976, the [CB] required Genbank to stop its unsound banking practice of incurring daily overdrawings. On December 15, 1976, Genbank returned Filcapital checks aggregating P28.7 million and sold to the [CB] government securities aggregating P49 million under a repurchase agreement, in order to cover its overdraft with the [CB]. The return of the Filcapital checks to the different collecting banks precipitated a run on the bank starting on December 16, 1976 which necessitated the release by the [CB] Governor of an initial emergency advance of P16 million [Id.].

SECOND DIVISION [G.R. No. 152551. June 15, 2006.] GENERAL BANK AND TRUST COMPANY, petitioner, vs. CENTRAL BANK OF THE PHILIPPINES and ARNULFO B. AURELLANO in his capacity as Liquidator of General Bank and Trust Company, respondents.

DECISION

GARCIA, J p: Under consideration is this petition for review under Rule 45 of the Rules of Court to nullify and set aside the following issuances of the Court of Appeals (CA) in CA-G.R. CV No. 39939, to wit: 1. Decision dated December 6, 1999, 1 reversing the Decision dated December 2, 1992 of the Regional Trial Court of Manila, Branch 37, in Special Proceedings (SP Proc.) No. 107812 entitled "Petition for Assistance in the Liquidation of General Bank & Trust Company, Central Bank of the Philippines

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5. In his letter dated December 17, 1976 [Exh. H-1], Dr. Clarencio Yujuico, Chairman of the Board and President of Genbank, reported that the bank was experiencing heavy withdrawals and its liquidity position had continuously deteriorated and will inevitably be needing immediate [CB] support. He urgently requested that Genbank be allowed to draw cash of P20 million to be spread out to its branch offices. Since it was expected that the drawdowns on deposits and deposit substitutes would continue which would necessitate further [CB] advances, and considering that the collateral submitted was insufficient, coupled with the need to give a new image to the bank, it was decided that as a condition to further [CB] advances, the stockholders of Genbank owning at least two-thirds (2/3) of the outstanding capital should execute irrevocable proxies in favor of Land Bank [Id.]. As a measure calculated to restore the liquidity of and confidence in Genbank, Dr. Yujuico . . . informed the [CB] Governor of the agreement of the principal officers and stockholders and the approval by the Genbank Board of Directors with respect to the guidelines under which Land Bank . . . was invited to participate in the equity of the bank, some salient points of which were as follows: (a) Land Bank will acquire twothirds interest in the bank; . . . [Id.; tsn, Dec. 7, 1990, pp. 41-42]. 6. On December 20, 1976, the Monetary Board in its Resolution No. 2553 [Exh. H4] decided to grant Genbank an emergency loan under Section 90 of the Central Bank Charter in an amount not exceeding P150 million and to ratify the action taken by the Governor on December 20, 1976 in releasing an emergency advance of P165 million to Genbank. It also designated Arnulfo B. Aurellano, Assistant to the Governor, to act as Comptroller [Id., tsn, December 7, 1960, pp. 23-24]. 7. On December 23, 1976, the President of Genbank executed a Deed of Assignment [Exh. H-5] of the general assets of the Bank in favor of the [CB]. As of that date, [CB] emergency advances to Genbank amounted to P116 million . . . which were not sufficiently collateralized by Genbank [Id.]. 8. On December 27, 1976, the [CB] Governor invited the Board of Directors of Genbank to a meeting . . . to discuss the affairs of the Bank with particular reference to the loans to directors, officers, stockholders and related interests (DOSRI). The Board was informed of the magnitude of DOSRI

loans which as of that date totalled P172.3 million . . . or 59.4% thereof was classified as doubtful and P0.505 million as uncollectible. P158.1 million or 91.7% of DOSRI accounts was unsecured while only 8% was secured [Id.]. 9. At the said meeting, the Governor indicated that Genbank should immediately take the following [indispensable] steps: (a) clean [DOSRI] loans . . . should be collected or collateralized; (b) pending formal execution of the collateral instruments, the borrower must undertake to execute the required mortgage and other security instruments; and (c) before full collateralization, the affected director, officer or stockholder shall assume joint and several liability with the borrower (related interest) for the payment of the loan or credit accommodation. . . . [Id, Exh. H-7], . . . . 10. Since the compliance with the directives in his letter dated December 27, 1976 had been incomplete, the [CB] Governor stressed . . . to the Genbank Board of Directors that the undertaking to collateralize the loans concerned and the sureties are merely steps to be taken prior to the full collateralization of the accounts concerned, the more important thing being the actual collateralization which must be done immediately [Id., Exh. H-9]. 11. As of year-end 1976, emergency advances totalled P154.521 million . . . . In view of the continuous drawdowns, [CB] advances reached P170.227 million on January 5, 1977 exceeding the level of P150 million previously approved. The Monetary Board in its Resolution No. 90 dated January 7, 1977 [Exh. H-8] . . . authorized Management to extend continued support to Genbank to meet further drawdowns on its deposits and deposit substitutes [Id.]. 12. On January 10, 1977, at a meeting of the Board of Directors . . ., seven nominees of Land Bank were elected members of the Board, namely . . . . The four others . . . came from the old Board. This was done to carry out the understanding that Land Bank shall participate in the management of Genbank. . . . (Id., Exh. H-10]. At said meeting, Dr. Yujuico advised that the controlling stockholders were negotiating for the sale of their stockholdings and requested that he be retained as President to give him personality and leverage during the negotiations, . . . [Id., Exh. H-10; Exh. H11]. DHcSIT

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13. In an office Order No. 12 dated January 14, 1977 [Exh. H-12], the [CB] Governor created a Special Committee . . . to act as observers and advisers in the negotiations for the proposed purchase of the outstanding shares of Genbank or all its assets and assumption of all its liabilities [tsn, Dec. 7, 1990, pp. 34-36]. All the prospective buyers were requested by the Committee to submit formal written offers to the sellers. Five (5) written offers were received from the following: a. Philippine Bank of Communications b. Paramount Finance Corporation c. Willy Co/Lucio Tan, et al. d. Gotianun Group/Family Savings Bank e. Morris Carpo Group [Id.; p. 4, Exh. E] 14. At various dates from January 26 to February 7, 1977, the Committee convoked meetings . . . with all the [interested] groups . . . primarily to advise them that the [CB] emergency advances must be amply protected and that the sellers' group must submit the final results of their negotiations on or before February 10, 1977, the deadline set by the Governor and agreed to by Dr. Yujuico and his colleagues in the old Board of Genbank [Id.; Tsn., December 7, 1990, pp. 57-58]. 15. By January 31, 1997, [CB] emergency advances to Genbank had increased . . . to P272.465 million. . . [Id.]. In his report dated February 10, 1977, on the operations of Genbank for the month of January, 1977, the [CB] Comptroller reported that the deposits and deposit substitutes decreased by P22.328 million and P125.128 million, respectively. . . . [Id.; Exh. H-15]. 16. On February 10, 1977, the deadline set for completion of the negotiations for the sale of Genbank shares, the representatives of the sellers' group reported (Exh. H-16) that the offer of the . . . Lucio Tan group, Paramount Finance Corporation and PB Communications were to be presented to the shareholders with their recommendations [Id.].

17. The Special Committee submitted its report on the evaluation of the offers to buy Genbank shares indicating that the Lucio Tan offer was the most advantageous insofar as the [CB] is concerned because it offered the best collateral for the [CB] advances [Id.]. Acting on said report, the Monetary Board, in its Resolution No. 449 dated February 25, 1977 [Exh. H-17], authorized the sellers' group to discuss further with the Lucio Tan group the price of the shares, and prescribed the minimum conditions for the approval of any sale of the controlling shares of Genbank. The representatives of the sellers' group were duly advised of the resolution . . . [Exh. H-18].

18. By February 28, 1977, [CB] advances to Genbank totaled P300.961 million . . . which showed an increase of P28.496 million compared to January 31, 1977 [Id.]. In the report of the [CB] Comptroller dated March 11, 1977 [Exh. H-19] on the operations of the bank for February 1977, it was reported that the decrease in deposits and deposit substitutes for the month was P5.124 million and P35.694 million, respectively. The loan portfolio of which 57% was in past due status or in litigation, was reduced by P19.822 million. It was also reported that from December 31, 1976 to February 28, 1977, the reduction on [DOSRI] loans . . . amounted to P6.918 million only, from P172.354 million to P165.436 million. Of this amount P127.494 million or 77% belonged to the Yujuico group; . . . . Of the loans of the Yujuico group, P126.608 million or 99.3% was unsecured or uncollateralized. Furthermore, of the Yujuico loans, 88.4% was in past due status [Id.]. 19. The Monetary Board, in its Resolution No. 502 dated March 4, 1977 [Exh. H21], . . . decided to instruct the Yujuico negotiators to inform all prospective sellers and buyers of the additional valuation reserves required to be booked in view of the pertinence of such information to the ongoing negotiations. The Chairman of the Genbank Board was duly advised of the said Resolution of the Monetary Board in a letter . . . dated March 7, 1977 [Exh. H-22]. 20. The Lucio Tan group and the sellers' representatives continued their negotiations on March 4 to 5, 1977 but could not reach an agreement, . . . . In

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view of the non-acceptance by the sellers' group of the offer of the Lucio Tan group, the Governor informed the representatives of the sellers' group that they may consider the offer of Paramount Finance Corporation and at the same time conveyed the conditions for [CB] approval of the sale [Id.]. 21. On the matter of collateralization of the [DOSRI] loans . . ., the Governor on March 10, 1977 wrote individually nine (9) members of the Yujuico family calling attention to his . . . directive to collateralize their loans and requested them to give the matter their immediate and serious attention [Id.; Exh. H-25]. 22. The sellers' representatives, in a letter dated March 14, 1977 [Exh. H-26], submitted an Agreement to Buy and Sell Genbank shares between them and Paramount Finance Corporation. . . . The Special Committee reported [Exh. H-27] that since it is unlikely that Paramount will be able to comply with the [CB] requirements and at the same time be in a position to inject fresh funds to make the bank viable, the Committee felt that the [CB] should explore alternative courses of action. In a letter dated March 20, 1977 [Exh. H28], Paramount advised that collateralizing the emergency advances with standby letters credit would be too heavy a financial burden for the bank to bear, the hold-out on the concessional loan of their foreign partner met with resistance from the investor as being unusual and onerous on them, and the proxies to be held by Land Bank was difficult to explain to prospective investors. The Governor replied on March 22, 1977 [Exh. H-29] advising that it is not the interest of the [CB] to accept a proposal which offers a security inferior to that offered by another interested buyer, . . . . 23. Central Bank advances as of March 22, 1977 totaled P305.918 million . . . [Id.]. 24. On March 23, 1977, the Governor together with other [CB] officials and Genbank directors, had a meeting with Messrs. Clarencio Yujuico, [and seven others] . . ., stockholders of Genbank who . . . represented stockholders owning at least two-thirds (2/3) of the outstanding shares. They were given copies of the aide-memoire for the meeting [Exh. H30] which outlined developments regarding Genbank particularly the [DOSRI] loans, the negotiations for the sale of Genbank shares, (the Lucio Tan

Group was willing to comply with all the conditions of the [CB] for the approval of the sale but could meet the price of the selling group; the Paramount Finance Group could not comply with all the conditions prescribed . . . to secure [CB] advances and the interest of Genbank creditors and depositors, but this group and the selling group could agree on the price), and the valuation reserves and resulting net worth of the bank after valuation reserve was less than P20 per share. The stockholders were advised by the Governor that public interest required that the [CB] should not continuously extend further credit assistance to Genbank and that a rehabilitation program instead be immediately implemented [tsn, Dec. 7, 1990, pp. 5859]. Genbank stockholders were told to submit before 10:00 a.m., Friday, March 25, 1977, either of the following: a) firm commitment to purchase the controlling shares of Genbank by a private group or to undertake a merger with another bank, which is willing and capable to comply with all the conditions of the [CB] conveyed previously to representatives of the controlling stockholders and whose price is acceptable to sellers. aTIAES b) a written decision of the stockholders owning at least two-thirds (2/3) of the outstanding shares to reduce the par value and a commitment of the Land Bank or a private group to put up the additional equity and a commitment to comply with the conditions prescribed by the [CB]. 25. As there was no compliance with either of said requirements, and finding the report of Director [Antonio Castro], Department of Commercial and Savings Banks [DCSB] that Genbank was insolvent within the meaning of Section 29 of R.A. 265 (Central Bank Act), as amended, and that Genbank's continuance in business would involve losses to its depositors and creditors . . . to be true, the Monetary Board adopted Resolution No. 675 on March 25, 1977 [Exh. I-1] forbidding Genbank to do business in the Philippines and designating Arnulfo B. Aurellano as receiver.

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In a letter dated March 25, 1977, Governor Licaros informed the Genbank Board of Directors of such action. . . . 26. On March 26, 1977, a Bid Committee met with representatives of the four interested groups . . ., and informed them that the [CB] would accept bids for the acquisition of all the assets and assumption of all the liabilities of Genbank, subject to certain conditions. The deadline for submission of sealed bids was 7:00 p.m., March 28, 1977 [Exh. E2]. As of the said deadline, the only bid received was that of the Lucio Tan group. It advised that it was prepared to acquire the assets and assumed all the liabilities of Genbank subject to the terms and conditions enumerated in the letter [Exh. E-2; Exh. E-2-a]. 27. Pursuant to the Memorandum of the Director, [DCSB], dated March 28, 1977 . . . stating that "As of March 24, 1977, the Bank's liquid assets of P28 million, together with collections from its loan portfolio, will not be enough to meet expected further withdrawal of deposits and deposit substitutes of P235.4 million. The Bank's operation may be expected to result into losses of at least P2.9 million per month and these loans will dissipate the Bank's remaining capital accounts of P10.9 million. The Bank therefore may not be permitted to resume business with safety to its depositors, creditors, and the general public" and recommending certain actions, the Monetary Board adopted Resolution No. 677 on March 29, 1977[Exh. I-2] determining and confirming that Genbank was insolvent and could not resume business with safety to its depositors, creditors and general public, and ordering the liquidation of Genbank, the designation of Arnulfo B. Aurellano as Liquidator and the approval of a liquidation plan whereby all the assets of Genbank should be purchased by the Lucio Tan Group which should also assume all the liabilities under certain terms and conditions. 28. In his letters dated March 29, 1977 to the Genbank stockholders and Dr. Yujuico . . ., Governor Licaros informed them that the Monetary Board had ordered the liquidation of Genbank [Exhs. I-15 and I15-a].

29. On May 9, 1977, the Liquidator . . .; Allied Banking Corporation ; and the individual members of the Lucio Tan Willy Co group executed a Memorandum of Agreement [Exh. I-26] in implementation of Monetary Board Resolution No. 677 dated March 27, 1977 (sic) [Exh. I-2], whereby the Liquidator sold and transferred to Allied Bank all the assets of Genbank and Allied Bank assumed all the liabilities of Genbank, subject to certain terms and conditions, among which were: (a) payment by Allied Bank to the Liquidator of an initial amount of P500,000.00; (b) . . .; (c) payment to the [CB] of its emergency advances to Genbank in the amount of P310 million within a period of two (2) years from date of opening for business of Allied Bank, with 12% interest per annum; (d) no deferment in the payment by Allied Bank of deposits and deposit substitutes in Genbank; and (e) . . . money market placements by the Lucio Tan Willy Co group in an amount not less than P100 million which placements shall remain with Allied Bank from the opening and commencement of operations until normalization of operations as determined by the [CB], so that during said period, Allied Bank shall have fresh funds of at least P200 million to meet any withdrawal contingencies. 30. Acting on the letter dated June 9, 1977 of Lucio Tan, . . . to Governor Licaros [Exh. I-4-a], the Monetary Board, in its Resolution No. 1214 dated June 17, 1977 [Exh. I-4], decided as follows: 1. To authorize the Allied Banking Corporation (ABC) to increase its paid-up capital from P100 million to P200 million, . . .; 2. To approve the deletion of Paragraph H, Page 5 of the [MOA] dated May 9, 1977 which requires the Lucio Tan and Willy Co group to make money market placements in ABC . . .; and 3. . . . .

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31. Pursuant to the recommendation of Arnulfo B. Aurellano . . . the Monetary Board, in its Resolution No. 1245 dated July 1, 1977 [Exh. I-5], decided to amend par. F, page 5 of the [MOA] dated May 9, 1977, so as:

Court a quo in its Order dated March 15, 1984. Subsequently, [CB et al., as petitioners before the CFI), instead of presenting evidence to support their petition in Sp. Proc. No. 107892, questioned the court a quo's jurisdiction to determine the validity of the liquidation of Genbank before this Court [CA], by way of a Petition for Certiorari and Prohibition with Preliminary Injunction and Restraining Order docketed as CA G.R. SP No. 03180. However, said petition became moot and academic when the court a quo rendered a Decision dated April 24, 1984, a day before it was served a copy of the [TRO] dated April 24, 1984, and when [CB et al.] appealed said decision to this Court [CA] [which] disposed of said appeal in favor of appellees-[intervenors]. However, upon [CB's] motion for reconsideration, the Court [CA] reconsidered said decision in its Resolution dated July 19, 1986, and remanded the case to the court of origin for the reception of appellants' evidence. (Underlining in the original; Words in bracket and underscoring added.) On November 5, 1992, the trial court rendered a decision, 3 the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered against the Petitioners [CB et al.] and in favor of Intervenors as follows: First: That the closure of Genbank under Monetary Board Resolution No. 675, March 25, 1977 (Petitioners' Exh. I-1) and the adoption of the Lucio Tan Group as the liquidation plan of Genbank under Monetary Board Resolution No. 677, March 29, 1977 (Intervenor's Exh. 1-2) are hereby annulled and set aside as being plainly arbitrary and made in bad faith as provided under Section 29, RA No. 265, as amended. Second: That Petitioner [CB] is hereby ordered and directed to restore the license and authorization of Genbank to operate and conduct business as a commercial bank and trust corporation and to restore Genbank's banking network of Head Office, 23 branches and 1 extension office. Third: That Petitioner [CB] is hereby ordered and directed to pay Intervenor Genbank the amount of P103,984,477.55 representing Genbank's capital account which was the excess of Genbank's assets over this liabilities as shown in the Consolidated Statement of Condition of Genbank as of March 25, 1977 (Petitioners' Exh. I-26-A) plus damages by way of unrealized earnings at 5%

1. To dispense with the requirement that Allied Bank and Lucio Tan group submit a standby irrevocable letter of credit to secure the emergency advances assumed by Allied Bank, subject to the following conditions: xxx xxx xxx 2. To extend from two (2) years to five years the period of payment of the balance of the emergency advances assumed by Allied Bank, to be paid in twenty (20) equal quarterly installments beginning October 15, 1977, with interest at twelve percent (12%) per annum and said balance to be secured by the mortgages mentioned above. 32. Allied Bank was able to comply with all the conditions laid down in Resolution No. 1245. It paid to the [CB] P100 million of the total emergency advances on July 15, 1977 [Exh. K; Exh. P], and effected full payment of [CB] emergency advances on November 28, 1980 [Exh. L], causing the discharge and release of the mortgages on the real and personal properties which served as security for the payment of said advances [Exhs. L-1, L-2, and L-3]. (Appellants' Brief, pp. 1134) On April 1, 1977, [CB and Arnulfo B. Aurellano, as Genbank Liquadator] initiated Sp. Proc. No. 107812 before the then Court of First Instance (CFI) of Manila, Branch IV, pursuant to Section 29, RA 265, as amended. On May 5, 1982, appellees Worldwide Insurance & Surety Company . . ., Midland Insurance Corporation . . ., and Standard Insurance Co., Inc. . . . filed a motion for intervention in Sp. Proc. No. 107812. Said motion alleged that the closure and liquidation of [Genbank] . . . were done arbitrarily and in bad faith. On May 7, 1982, the court a quo issued an order approving the intervention. About a couple of years later, appellee Genbank joined the intervention . . . . Said intervention was approved by the

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interest per annum of said amount of P103,984,477.55 starting from May 7, 1982 . . . until fully paid; and Fourth: That Petitioner [CB] is likewise ordered and directed to pay Intervenor Genbank costs of the suit in accordance with the Rules of Court. SO ORDERED. Therefrom, herein respondents CB and the Liquidatordesignate appealed to the CA where their recourse was docketed as CA G.R. CV No. 39939. On December 6, 1999, the appellate court rendered judgment setting aside the decision of the trial court. 4 With the denial of its motion for reconsideration by the same court in its resolution of March 12, 2002, petitioner is now with usvia the present recourse, submitting that the CA erred when 1. It ruled that Petitioner Bank was insolvent thus paving the way for its closure and eventual liquidation. 2. It ruled that the property rights of Petitioner Bank was not trampled upon despite the fact that respondent Central Bank maliciously and arbitrarily and in bad faith ordered its closure on March 25, 1977 and its liquidation and bidding three (3) days later on March 28, 1977 which is tantamount to denial of due process and equal protection clause of the Constitution. CHATcE 3. It failed to apply Sec. 29 of R.A. 265 which laid down the procedure to be followed for insolvency cases of banking institutions. The petition has no merit. The three (3) assigned errors ultimately boil down to the issue of whether or not respondent CB violated any existing procedural or substantive law when its Monetary Board (MB) issued Resolution No. 675 dated March 25, 1977 ordering the closure of Genbank, and eventually MB Resolution No. 677 dated March 29, 1977, adopting the Lucio Tan Group's bid as liquidation plan of petitioner Genbank, or otherwise committed grave abuse of discretion which will justify reversal of the assailed MB resolutions. At the outset, it bears to stress that the underlying governing law, Republic Act (RA) 265 5 , underwent several amendments. Among the amendatory laws are Presidential Decree (PD) Nos. 1007 and 1937 which took effect in September 1976 and June 1984, respectively. Petitioner Genbank claims that it was not insolvent when Resolution No. 675 was issued on March 25, 1977, its assets at that time standing at P599,743,639.00, while its total liabilities only amounted to P586,640,450.00, thus having surplus assets over liabilities in the amount of P13,103,189.00. Plodding on, it insists that the definition of insolvency in Section 29 of RA 265, as amended by PD 1937,

should have been made the tipping factor for determining on whether or not the declaration made by respondent CB, acting through the Monetary Board, that petitioner Genbank is insolvent constitutes grave abuse of discretion. In support of its contention of not being insolvent during the period material, petitioner Genbank cites Central Bank of the Philippines vs. Court of Appeals 6 and Banco Filipino Savings & Mortgage Bank vs. The Monetary Board 7 . Respondent CB, however, retorted that the above-cited cases do not apply, albeit, there, the Court struck down as null and void the closure of what CB then considered as insolvent banks, referring to Banco Filipino Savings & Mortgage Bank and Triumph Savings Bank, despite their respective total assets being more than their total liabilities. As respondent CB argued, the closure of Banco Filipino and Triumph Savings Bank on January 25, 1985 and May 31, 1985, respectively, were effected under the aegis of Section 29 of RA 265, as amended by PD 1007, after it was further amended by PD 1937 in June 1984. Under the latter amendment, a banking institution is deemed insolvent when "[its] realizable assets . . . as determined by the Central Bank are insufficient to meet its liabilities." Thus, this Court ruled that there was no valid basis for the closure of both banks on the ground of insolvency, the total assets of either bank exceeding as it were their respective liabilities. Unlike the cases referred to above, however, Genbank was ordered closed by the CB on March 25, 1977, when "insolvency" was defined under Section 29 of RA 265, as amended on September 22, 1976 by PD 1007, where and when the insolvency concept carried a slightly different but contextually significant connotation. As thus then defined, insolvency was understood to mean as "the inability of a banking institution to pay its liabilities as they fall due in the ordinary course of business." Respondent CB found Genbank undoubtedly incapable to generate liquid funds by itself in order to meet drawdowns on its deposits and deposit substitutes and to pay for other maturing obligations, as well as advances from the Central Bank. Respondent CB, therefore, concluded that Genbank was insolvent under the obtaining definition of said term, with the CA eventually sustaining the posture of respondent CB. After a review of all the arguments of the parties in the light of the laws and jurisprudence applicable thereto, this Court finds no reversible error committed by the Court of Appeals when it sustained the validity of the MB resolutions resolving the issue of insolvency against petitioner Genbank. It cannot be overemphasized that Resolution No. 675 prohibiting Genbank to do business in the Philippines and designating Arnulfo B. Aurellano as receiver was issued in March 1977, when the definition of the term "insolvency" under the last paragraph of Section 29, of RA 265, as amended by PD No. 1007, was as follows: Sec. 29. Proceedings upon insolvency. .... xxx xxx xxx Insolvency, under this Act, shall be understood to mean the inability of a banking institution to pay its liabilities as they fall due in the usual and ordinary course of business, provided, however, that this shall not

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include the inability to pay of an otherwise non-insolvent bank caused by extraordinary demands induced by financial panic commonly evidenced by a run on the bank in the banking community. (Emphasis supplied.)

completely within a period of less than five (5) months considering the average monthly operating loss of P2.868 million. In view of this, the Bank's continuance in business would involve losses to its depositors and creditors. Recommendation

And by the terms of the same Section 29 of RA 265, as amended by PD No. 1007, Resolution No. 675 is deemed final and executory, to wit: The provisions of any law to the contrary notwithstanding, the actions of the Monetary Board under this Section and the second paragraph of Section 34 of this Act shall be final and executory, and can be set aside by the court only if there is convincing proof that the action is plainly arbitrary and made in bad faith. No restraining order or injunction shall be issued by the court enjoining the Central Bank from implementing its actions under this section and the second paragraph of Section 34 of this Act, unless there is convincing proof that the action of the Monetary Board is plainly arbitrary and made in bad faith and the petitioner or plaintiff files with the clerk of court or judge of the court in which the action is pending a bond executed in favor of the Central Bank, in an amount to be fixed by the court. . . . . . (Emphasis supplied.) The burden thus rests upon petitioner Genbank to prove the mala fides of the Monetary Board in issuing Resolution No. 675. The present petition cites no concrete proof to convincingly show that the pertinent findings and recommendation of Antonio Castro, then Director of CB's DCSB whence Resolution No. 675 emanated were factually infirm. The Castro report stated thus: Summary Comments 1. As of Feb. 28, 1977, the Bank's liquid assets amounted to P33.5 million only. On the other hand, total deposit and deposit substitutes which had to be paid amounted to P269.563 million. Total advances from the CB amounted to P300.961 million, of which P252.365 million (unsecured overdrawing) is payable on demand. Considering the poor quality of the Bank's loan portfolio, the bank cannot expect to generate enough funds out of these loans to meet payment of said obligations. In view hereof, the bank is insolvent within the meaning of Sec. 29, R.A. 265, as amended. 2. As of February 28, 1977, the Bank's capital accounts after adjustment for provision for bad debts and interest on OD and CB and penalties for reserve deficiencies amounted to P14.1 million only which amount would be eaten up

In view of the foregoing, it is recommended that in accordance with the provisions of Sec. 29, R.A. 265, as amended, the General Bank and Trust Co. be forbidden to do business in the Philippines considering that it is insolvent and its continued operation would involve probable loss to its depositors and creditors and that a receiver be designated to take charge immediately of the Bank's assets and liabilities. aCcSDT Instead of directly controverting the factual basis of the MB resolutions, petitioner Genbank would simply insist on owning more realizable assets than liabilities and ergo essentially solvent per the definition of "insolvency" under the PD 1937 amendment which, to stress, took effect only in 1984. To a redundant point, the PD 1937 amendment defines "insolvency" as follows: Insolvency, under this Act shall be understood to mean that the realizable assets of a bank or a non-bank financial intermediary performing quasi-banking functions as determined by the Central Bank are insufficient to meet its liabilities. Petitioner's recourse of insisting on the meaning of insolvency other than the current definition thereof is, at the minimum, a recognition, plain and simple, that under the applicable definition of the term "insolvency" under the last paragraph of Section 29, of RA 265, as amended in 1976 by PD No. 1007, the Monetary Board could not have erred in ruling that petitioner Genbank was indeed insolvent, justifying its closure under the same Section 29, of RA 265, as amended. Petitioner Genbank cannot plausibly be allowed to adopt a statutory definition of "insolvency" which was not set forth in the law when Resolution No. 675 was issued. The Monetary Board's action could not have run counter to a legal provision inexistent at the time when it issued the resolution in question. Perhaps realizing the flaw in its argument, petitioner Genbank now cites the definition of insolvency under PD No. 1007 but this time faulting the CA for allegedly truncating the same by glossing over the proviso portion which contextually excluded from the coverage of the term "insolvency" "the inability to pay of an otherwise non-insolvent bank caused by extraordinary demands induced by financial panic commonly evidenced by a run on the bank in the banking community." While conceding that it was then not in a position to generate funds by itself in order to meet drawdowns on its deposits and deposit substitutes and to pay for other maturing obligations, as well as its advances from the Central Bank, petitioner Genbank nonetheless argues that it did not fall within the concept of insolvency contemplated in the amendatory PD No. 1007 since what it was then experiencing was a liquidity problem attributed to a bank run.

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The Court is still unconvinced. The aforementioned proviso thus relied upon by petitioner Genbank excludes from the definition of insolvency, "the inability to pay of an otherwise non-insolvent bank caused by extraordinary demands induced by financial panic commonly evidenced by a run on the bank in the banking community." As it were, the applicability of that proviso presupposes that the struggling bank, Genbank in this case, should, in the first place be "an otherwise non-insolvent bank" and the existence of a bank run is the sole and exclusive cause of its inability to pay its obligations. In other words, the existence of a bank run is not, without more, a saving grace for any bank, absolutely preventing the CB or the Monetary Board from ordering its closure due to insolvency. If the bank is not "non-insolvent" in contemplation of the definition under Section 29 of RA 265, as amended by PD No. 1007, because it cannot pay its liabilities as they fall due in the ordinary course of business, the presence or absence of a bank run is of no determinative moment on the issue of the justifiability of an order of closure. The CB had, as it were, ample basis other than the bank run to consider petitioner Genbank insolvent. Upon the issuance of an order of closure, which by express provision of law is final and executory, the burden of proving non-insolvency is upon the bank which challenges the validity of such closure. For sure, this issue of whether or not petitioner Genbank's inability to pay may be solely and exclusively attributable to the bank run necessarily requires passing upon and evaluating the evidence presented during the trial. It should be made perfectly clear, however, that the Court's jurisdiction in appellate proceedings under Rule 45 of the Rules of Court is, as a rule, limited to reviewing only errors of law, it not being a trier of facts. And it is a settled doctrine that findings of fact of the CA are basically binding and not be disturbed except for very compelling reasons, such as when: (1) the conclusion is a finding grounded entirely on speculation, surmise and conjecture; (2) the inference made is manifestly mistaken; (3) there is grave abuse of discretion; (4) the judgment is based on a misapprehension of facts; (5) the findings of fact of the CA are contrary to those of the trial court; (6) said findings of fact are conclusions without citation of specific evidence on which they are based; (7) the findings of fact of the CA are premised on the supposed absence of evidence and contradicted by the evidence on record. 8 The Court finds no cogent reason to take exception from the general rule. Even then, a review of the pleadings on record shows no signs that the CA erred in not finding that the Monetary Board violated any substantial or procedural law when it issued the two assailed resolutions. Moreover, the CA cannot also be faulted in sustaining the MB resolutions, or, to be precise, in not finding arbitrariness and capriciousness in the closure of petitioner bank. For, as the CA aptly explained: 1. Even before the Genbank President requested for emergency advances, the [CB] gave P16 million on December 16, 1976. After the request was made on December 17, 1976, additional emergency was extended to Genbank. In MB Resolution No. 90 dated January 7, 1977 [Exh. H-8], the [CB] decided to "extend continued support to Genbank to meet further drawdowns on its deposits and deposit substitutes." These advances reached P272.467 million in January 31,

1977 [Exh. H-15], . . . and P302.095,746.28 on March 25, 1977 [Exh. I-26-a]. The graph [Exh. E-1] shows steep upward climb in the amount of advances from December 17, 1976 up to March 25, 1977. 2. Aside from the emergency advances given to Genbank, the [CB] encouraged and assisted the controlling stockholders in negotiating with various groups that could put in new funds to help restore Genbank to full health. This indicates the [CB] earnest desire to find a solution to Genbank's difficulties. 3. Aside from the [CB] and Genbank, there is a third party involved here. This is one vital aspect that distinguishes this case from all other liquidation cases handled by the [CB] [tsn., Feb. 15, 1991, p. 33]. What does this mean? Since a third party has assumed all liabilities of Genbank, payment of deposits and other obligations of the bank has been guaranteed. If this had been ordinary bank liquidation where there is no assumption of liabilities by a third party, the depositors and creditors could not have retrieved the full face value of their deposits and credits. But here, all depositors and creditors have actually been paid in full by Allied Bank. 9 (Words in bracket added.) Now, as regards the supposed denial of its right to due process, petitioner Genbank relies on the following chain of events:

1. March 23, 1977: . . . the Governor together with other Central Bank officials and Genbank directors, had a meeting with Messrs. Clarencio Yujuico, [et al.], stockholders of Genbank who, according to the Corporate Secretary, represented stockholders owning at least two-thirds (2/3) of the outstanding shares. They were given copies of the aide-memoire for the meeting (Exh. H-30) which outlined developments regarding Genbank particularly the [DOSRI]loans . . ., the negotiations for the sale of Genbank shares, (the Lucio Tan Group was willing to comply with all the conditions of the [CB] for the approval of the sale but could not meet the price of the selling group; the Paramount Finance Group could not comply with all the [CB] conditions prescribed . . . to secure [CB] advances and the interest of Genbank creditors and depositors, but this group and the selling group could agree on the price), and the valuation reserves and resulting net worth of the bank after valuation reserve was

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less than P20 per share. The stockholders were advised by the Governor that public interest required that the [CB] should not continuously extend further credit assistance to Genbank and that a rehabilitation program instead be immediately implemented [tsn, Dec. 7, 1990, pp. 58-59]. Genbank stockholders were told to submit before 10:00 a.m., Friday, March 25, 1977, either of the following: a) firm commitment to purchase the controlling shares of Genbank by a private group or to undertake a merger with another bank, which is willing and capable to comply with all the conditions of the [CB] conveyed previously to representatives of the controlling stockholders and whose price is acceptable to sellers EScIAa b) a written decision of the stockholders owning at least two-thirds (2/3) of the outstanding shares to reduce the par value and a commitment of the Land Bank or a private group to put up the additional equity and a commitment to comply with the conditions prescribed by the [CB]. 2. March 25, 1977: As there was no compliance with either of said requirements, and finding the report of the Director, Department of Commercial and Savings Banks that Genbank was insolvent within the meaning of Section 29 of R.A. 265 (Central Bank Act), as amended, and that Genbank's continuance in business would involve losses to its depositors and creditors (as recited in his Memorandum dated March 24, 1977, Exh. D), to be true, the Monetary Board adopted Resolution No. 675 on March 25, 1977 [Exh. I-1] forbidding Genbank to do business in the Philippines and designating Arnulfo B. Aurellano as receiver. xxx xxx xxx 3. March 26, 1977: On March 26, 1977, a Bid Committee met with representatives of the four interested groups . . . and informed them that the [CB] would accept bids for the acquisition of all the assets and assumption of all the liabilities of Genbank, subject to certain conditions. The deadline for submission of sealed bids

was 7:00 p.m., March 28, 1977 [Exh. E2]. 5. March 29, 1977: As of the said deadline [March 28, 1977], the only bid received was that of the Lucio Tan group. It advised that it was prepared to acquire the assets and assumed all the liabilities of Genbank subject to the terms and conditions enumerated in the letter [Exh. E-2; Exh. E-2-a]. Pursuant to the Memorandum of the Director, Department of Commercial and Savings Banks, dated March 28, 1977 [Exh. E] stating that "As of March 24, 1977, the Bank's liquid assets of P28 million, together with collections from its loan portfolio, will not be enough to meet expected further withdrawal of deposits and deposit substitute of P235.4 million. The Bank's operation may be expected to result into losses of at least P2.9 million per month and these loans will dissipate the Bank's remaining capital accounts of P10.9 million. The Bank therefore may not be permitted to resume business with safety to its depositors, creditors, and the general public" and recommending certain actions, the Monetary Board adopted Resolution No. 677 on March 29, 1977 [Exh. I-2] determining and confirming that Genbank was insolvent and could not resume business with safety to its depositors, creditors and general public, and ordering the liquidation of Genbank, the designation of Arnulfo B. Aurellano as Liquidator and the approval of a liquidation plan whereby all the assets of Genbank should be purchased by the Lucio Tan Group which should also assume all the liabilities under certain terms and conditions. In his letters dated March 29, 1977 to the Genbank stockholders and Dr. Yujuico (received by the addressees on April 1, 1977), Governor Licaros informed them that the Monetary Board had ordered the liquidation of Genbank [Exhs. I-15 and I15-a]. In short, petitioner Genbank would claim that in a span of just two (2) days from the time it called a meeting with the board of directors of Genbank on March 23, 1977, or on March 25, 1977, the Monetary Board issued the resolution finding petitioner Genbank insolvent and prohibiting it from further conducting business; and only another four (4) days

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thereafter, or on March 29, 1977, it ordered its liquidation, thereby denying sufficient time for petitioner Genbank to comply with its directives. We are not persuaded. It must be stressed that petitioner Genbank's financial predicament did not crop up overnight, nor is it a product of a single financial indiscretion, so to speak. The root of its problem and eventual downfall is traceable to unsound banking practices employed by management. Mentioned in this regard may be made of the all-out financial support given to Filcapital Development Corporation (a related interest of the Yujuico Family Group and directors and officers of Genbank) and the standing practice of extending DOSRI loans which, at one point, reached a peak of P172.3 million or 26% of the total loan portfolio of P666.78 million. Of the final figure, 59.4% thereof was classified as doubtful and P0.505 million as uncollectible. And 91.7% of such DOSRI accounts were unsecured leaving only 8% thereof secured. All these unsound practices occurred way before their resulting crippling effects became manifest sometime in December 1976, further leading the bank to resort to other unsound banking practices, like incurring daily overdrafts. These problems, as earlier narrated in the assailed CA decision, were taken up by the then CB Governor with the Board of Directors of Genbank in a meeting held on December 27, 1976. Thus, when the crucial March 23, 1977 meeting was held, there can be no doubt that petitioner Genbank was totally aware of the predicament it has gotten itself into and the conditions which the CB had imposed to address the situation for the protection of the depositors and the banking public. It is not as if CB sprang a surprise on petitioner Genbank when Resolution 675 was issued on March 25, 1977 declaring Genbank insolvent. Petitioner Genbank's posture that it was given only two (2) days to remedy the situation is specious at best. Finally, as to petitioner Genbank's lament about the Monetary Board acting, under the premises, in bad faith or committing grave abuse of discretion in approving the liquidation plan of the Lucio Tan Group, suffice it to restate what the CA wrote in this regard: Indeed, that the Genbank, Now Allied Bank, was able to resume normal banking operations immediately on June 2, 1977, thereafter meeting all the demands for deposit withdrawals and paying off all CB emergency advances to Genbank (Exh. K, L, and P), is a strong indication that the Central Bank performed its duty to maintain public confidence in the banking system, . . . . Absent, in sum, of compelling proof to becloud the bona fides of the decision of the Central Bank to close and order the liquidation of Genbank pursuant to Monetary Board Resolution Nos. 675 and 677, the Court, as the CA before it, loathes to interfere with what basically is the exercise by the Central Bank of its mandate as administrator of the banking system. WHEREFORE, the petition is hereby DISMISSED for lack of merit, with costs against petitioner. ITAaCc SO ORDERED.

Sandoval-Gutierrez, Corona and Azcuna, JJ., concur. Puno, J., took no part.

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The decretal portion of the appealed decision reads: "DAHIL DITO, ang utos ng pinasasagot sa Hukom noong ika-9 ng Marso, 1982, ay isinasang-tabi. Kapalit nito, isang utos and ipinalabas na nag-uutos sa pinasasagot sa Hukom na itigil ang anumang pagpapatuloy o pagdidinig kaugnay sa usaping IR-428 na pinawawalang saysay din ng Hukumang ito. SIYANG IPINAG-UUTOS." The antecedent facts of the case are as follows: The petitioner Rural Bank of Buhi, Inc. (hereinafter referred to as Buhi) is a juridical entity existing under the laws of the Philippines. Buhi is a rural bank that started its operations only on December 26, 1975 (Rollo, p. 86) In 1980, an examination of the books and affairs of Buhi was ordered conducted by the Rural Banks and Savings and Loan Association (DRBSLA), Central Bank of the Philippines, which by law, has charge of the supervision and examination of rural banks and savings and loan associations in the Philippines. However, said petitioner refused to be examined and as a result thereof, financial assistance was suspended. On January 10, 1980, a general examination of the bank's affairs and operations was conducted and there were found by DRBSLA represented by herein respondent Consolacion V. Odra, Director of DRBSLA, among others, massive irregularities in its operations consisting of loans to unknown and fictitious borrowers, where the sum of P1,704,782.00was past due and another sum of P1,130,000.00 was also past due in favor of the Central Bank (Rollo, p. 86). The promissory notes evidencing these loans were rediscounted with the Central Bank for cash. As a result thereof, the bank became insolvent and prejudiced its depositors and creditors. Respondent, Consolacion V. Odra, submitted a report recommending to the Monetary Board of the Central Bank the placing of Buhi under receivership in accordance with Section 29 of Republic Act No. 265, as amended, the designation of the Director, DRBSLA, as receiver thereof. On March 28, 1980, the Monetary Board, finding the report to be true, adopted Resolution No. 583 placing Buhi, petitioner herein, under receivership and designated respondent, Consolacion V. Odra, as Receiver, pursuant to the provisions of Section 29 of Republic Act No. 265 as amended (Rollo, p. 111). In a letter dated April 8, 1980, respondent Consolacion V. Odra, as receiver, implemented and carried out said Monetary Board Resolution No. 583 by authorizing deputies of the receiver to take control, possession and charge of Buhi, its assets and liabilities (Rollo, p. 109). Imelda del Rosario, Manager of herein petitioner Buhi, filed a petition for injunction with Restraining Order dated April 23, 1980, docketed as Special Proceedings IR-428 against respondent Consolacion V. Odra and DRBSLA deputies in the Court of First Instance of Camarines Sur, Branch VII, Iriga City, entitled Rural Bank of Buhi vs. Central Bank, which assailed the action of herein respondent Odra in recommending the receivership over Buhi as a violation of the provisions of Sections 28 and 29 of Republic Act No. 265 as

SECOND DIVISION [G.R. No. 61689. June 20, 1988.] RURAL BANK OF BUHI, INC., and HONORABLE JUDGE CARLOS R. BUENVIAJE, petitioners, vs.HONORABL E COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES and CONSOLACION ODRA, respondents.

Manuel B. Tomacruz and Rustico Pasilavan for petitioners. I.B. Regalado, Jr. and Pacifico T. Torres for respondents.

DECISION

PARAS, J p: This is a petition for review on certiorari with preliminary mandatory injunction seeking the reversal of the orders of the Court of Appeals dated March 19, 1982 and March 24, 1982 and its decision) * (HATOL) promulgated on June 17, 1982 in CA-G.R. No. 13944 entitled "Banko Central ng Pilipinas at Consolacion Odra Laban Kina Rural Bank of Buhi (Camarines Sur), Inc." and praying for a restraining order or a preliminary mandatory injunction to restrain respondents from enforcing aforesaid orders and decision of the respondent Court, and to give due course to the petitioners' complaint in IR-428, pending before Hon. Judge Carlos R. Buenviaje of Branch VII, CFI, Camarines Sur.

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amended, and Section 10 of Republic Act No. 720 (The Rural Banks Act) and as being ultra vires and done with grave abuse of discretion and in excess of jurisdiction (Rollo, p. 120). Respondents filed their motion to dismiss dated May 27, 1980 alleging that the petition did not allege a cause of action and is not sufficient in form and substance and that it was filed in violation of Section 29, Republic Act No. 265 as amended by Presidential Decree No. 1007 (Rollo, p. 36). Petitioners, through their counsel, filed an opposition to the motion to dismiss dated June 17, 1980 averring that the petition alleged a valid cause of action and that respondents have violated the due process clause of the Constitution (Rollo, p. 49). Later, respondents filed a reply to the opposition dated July 1, 1980, claiming that the petition is not proper; that Imelda del Rosario is not the proper representative of the bank; that the petition failed to state a cause of action; and, that the provisions of Section 29 of Republic Act No. 265 had been faithfully observed (Rollo, p. 57). On August 22, 1980, the Central Bank Monetary Board issued a Resolution No. 1514 ordering the liquidation of the Rural Bank of Buhi (Rollo, p. 108). On September 1, 1981, the Office of the Solicitor General, in accordance with Republic Act No. 265, Section 29, filed in the same Court of First Instance of Camarines Sur, Branch VII, a petition for Assistance in the Liquidation of Buhi, which petition was docketed as SP-IR-553, pursuant to the Monetary Board Resolution No. 1514 (Rollo, pp. 89; 264). Meanwhile, respondent Central Bank filed on September 15, 1981, in Civil Case No. IR-428 a Supplemental Motion To Dismiss on the ground that the receivership of Buhi, in view of the issuance of the Monetary Board Resolution No. 1514 had completely become moot and academic (Rollo, p. 68) and the fact that Case SP-IR-553 for the liquidation of Buhiwas already pending with the same Court (Rollo, p. 69). On October 16, 1981, petitioners herein filed their amended complaint in Civil Case No. IR-428 alleging that the issuance of Monetary Board Resolution No. 583 was plainly arbitrary and in bad faith under aforequoted Section 29 of Republic Act No. 265 as amended, among others (Rollo, p. 28). On the same day, petitioner herein filed a rejoinder to its opposition to the motion to dismiss (Rollo, p. 145). On March 9, 1982, herein petitioner Judge Buenviaje, issued an order denying the respondents' motion to dismiss, supplemental motion to dismiss and granting a temporary restraining order enjoining respondents from further managing and administering the Rural Bank of Buhi and to deliver the possession and control thereof to the petitioner Bank under the same conditions and with the same financial status as when the same was taken over by herein respondents (defendants) on April 16, 1980 and further enjoining petitioner to post a bond in the amount of three hundred thousand pesos (P300,000.00) (Rollo, p. 72). The dispositive portion of said decision reads:

"WHEREFORE, premises considered, the motion to dismiss and supplemental motion to dismiss, in the light of petitioners' opposition, for want of sufficient merit is denied. Respondents are hereby directed to file their answer within ten (10) days from receipt of a copy of this order." (Rollo, p. 4). On March 11, 1982, petitioner Buhi through counsel, conformably with the above-mentioned order, filed a Motion to Admit Bond in the amount of P300,220.00 (Rollo, pp. 7880). On March 15, 1982, herein petitioner Judge issued the order admitting the bond of P300,220.00 filed by the petitioner, and directing the respondents to surrender the possession of the Rural Bank of Buhi, together with all its equipments, accessories, etc. to the petitioners (Rollo, p. 6). Consequently, on March 16, 1982, herein petitioner Judge issued the writ of execution directing the Acting Provincial Sheriff of Camarines Sur to implement the Court's order of March 9, 1982 (Rollo, p. 268). Complying with the said order of the Court, the Deputy Provincial Sheriff went to the Buhi premises to implement the writ of execution but the vault of the petitioner bank was locked and no inventory was made, as evidenced by the Sheriffs Report (Rollo, pp. 83-84). Thus, the petitioner herein filed with the Court an "Urgent ExParte Motion to Allow Sheriff Calope to Force Open Bank Vault" on the same day (Rollo, p. 268). Accordingly, on March 17, 1982, herein petitioner Judge granted the aforesaid ExParte Motion to Force Open the Bank Vault (Rollo, p. 269). On March 18, 1982, counsel for petitioner filed another "Urgent Ex-Parte Motion to Order Manager of City Trust to Allow Petitioner to Withdraw Rural Bank Deposits" while a separate "Urgent Ex-Parte Motion to Order Manager of Metrobank to Release Deposits of Petitioners" was filed on the same date. The motion was granted by the Court in an order directing the Manager of Metro Bank-Naga City (Rollo, p. 269) to comply as prayed for. In view thereof, herein respondents filed in the Court of Appeals a petition for certiorari and prohibition with preliminary injunction docketed as CA-G.R. No. 13944 against herein petitioners, seeking to set aside the restraining order and reiterating therein that petitioner Buhi's complaint in the lower court be dismissed (Rollo, p. 270). On March 19, 1982, the Court of Appeals issued a Resolution (KAPASIYAHAN) in tagalog, restraining the Hon. Judge Carlos R. Buenviaje, from enforcing his order of March 9, 1982 and suspending further proceedings in Sp. Proc. No. IR-428 pending before him while giving the Central Bank counsel, Atty. Ricardo Quintos, authority to carry out personally said orders and directing the "Punong Kawani" of the Court of Appeals to send telegrams to the Office of the President and the Supreme Court (Rollo, p. 168).

Herein petitioners did not comply with the Court of Appeals' order of March 19, 1982, but filed instead on March 21, 1982 a motion for reconsideration of said order of the Court of Appeals, claiming that the lower court's order of March 9, 1982 referred only to the denial of therein respondents'

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motion to dismiss and supplemental motion to dismiss and that the return of Buhi to the petitioners was already an accomplished fact. The motion was denied by the respondent court in a resolution dated June 1, 1982 (Rollo, p. 301). In view of petitioners' refusal to obey the Court of Appeals' Order of March 19, 1982, herein respondents filed with the Court of Appeals a Motion to Cite Petitioners in Contempt, dated April 22, 1982 [Rollo, p. 174). The Court of Appeals issued on May 24, 1982 an order requiring herein petitioner Rural Bank of Buhi, Inc., through its then Acting Manager, Imelda del Rosario and herein petitioner Judge Carlos Buenviaje, as well as Manuel Genova and Rodolfo Sosa, to show cause within ten (10) days from notice why they should not be held in contempt of court, and further directing the Ministry of National Defense or its representative to cause the return of possession and management of the Rural Bank to the respondents Central Bank and Consolacion Odra (Rollo, p. 180). On June 9, 1982, petitioners filed their objection to respondents' motion for contempt dated June 5, 1982 claiming that the properties, subject of the order, had already been returned to the herein petitioners who are the lawful owners thereof and that the returning could no longer be undone (Rollo, p. 181). Later, petitioners filed another motion dated June 17, 1982 for the reconsideration of the resolution of June 1, 1982 of the Court of Appeals alleging that the same contravened and departed from the rulings of the Supreme Court that consummated acts or acts already done could no longer be the subject of mandatory injunction and that the respondent Court of Appeals had no jurisdiction to issue the order unless it was in aid of its appellate jurisdiction, claiming that the case (CA-G.R. No. 13944) did not come to it on appeal (Rollo, p. 302). As aforestated, on June 17, 1982, respondent Court of Appeals rendered its decision (HATOL) setting aside the lower court's restraining order dated March 9, 1982 and ordering the dismissal of herein petitioners' amended complaint in Civil Case No. IR-428 (Rollo, p. 186). On July 9, 1982, petitioners (respondents in CA-G.R. No. 13944) filed a Motion for Reconsideration of the Decision dated June 17, 1982 insofar as the complaint with the lower court (Civil Case No. IR-428 was ordered dismissed (Rollo, p. 305). On August 23, 1982, the respondent Court of Appeals issued its Resolution denying for lack of merit, herein petitioners' motion for reconsideration of the resolution issued by the respondent Court of Appeals on June 1, 1982 and set on August 31, 1982 the hearing of the motion to cite the respondents in CA-G.R. No. SP-13944 (herein petitioner) for contempt (Rollo, p. 193). At said hearing, counsel for Rural Bank of Buhi agreed and promised in open court to restore and return to the Central Bank the possession and control of the Bank within three (3) days from August 31, 1982. However on September 3, 1982, Rosalia Guevara, Manager thereof, vigorously and adamantly refused to surrender the premises unless she received a written order from the Court.

In a subsequent hearing of the contempt incident, the Court of Appeals issued its Order dated October 13, 1982, but Rosalia Guevara still refused to obey, whereupon she was placed under arrest and the Court of Appeals ordered her to be detained until she decided to obey the Court's Order (Rollo, pp. 273-274). Earlier, on September 14, 1982 petitioners had filed this petition even while a motion for reconsideration of the decision of June 17, 1982 was still pending consideration in the Court of Appeals. In the resolution of October 20, 1982, the Second Division of this Court without giving due course to the petition required respondents to COMMENT (Rollo, p. 225). Counsel for respondents manifested (Rollo, p. 226) that they could not file the required comment because they were not given a copy of the petition. Meanwhile, they filed an urgent motion dated October 28, 1982 with the Court of Appeals to place the bank through its representatives in possession of the Rural Bank of Buhi (Camarines Sur), Inc. (Rollo, p. 237). On December 9, 1982, petitioners filed a Supplemental Petition with urgent motion for the issuance of a restraining order dated December 2, 1982 praying that the restraining order be issued against respondent court (Rollo, p. 229). In the resolution of December 15, 1982, the Court resolved to require petitioners to furnish the respondents with a copy of the petition and to require the respondents to comment on both the original and the supplemental petitions (Rollo, p. 243). In a resolution of February 21, 1983, the Court NOTED Rosalia V. Guevara's letter dated February 4, 1983 (Rollo, p. 252) addressed to Hon. Chief Justice Enrique M. Fernando, requesting that she be allowed to file a petition for the issuance of a writ of habeas corpus (Rollo, p. 256). At the hearing of the said petition on February 23, 1983 where the counsel of both parties appeared, this Court noted the Return of the Writ of Habeas Corpus as well as the release of petitioner Rosalia V. Guevara from detention by the National Bureau of Investigation. After hearing aforesaid counsel and petitioner herself, and it appearing that the latter had resigned since January 18, 1983 as Manager of the Rural Bank of Buhi, Inc. and that the Central Bank might avail of more than adequate legal measures to take over the management, possession and control of the said bank (and not through contempt proceedings and detention and confinement of petitioner), with Assistant Solicitor General Andin manifesting that respondents were not insisting on the continued detention of petitioner, the Court Resolved to SET the petitioner at liberty and to consider the contempt incident closed (Rollo, p. 339). On April 11, 1983, respondents filed their comment on the original and supplemental petitions. Meanwhile, the Court of Appeals, acting on respondents' urgent motion filed on October 28, 1982 ordered on April 13, 1983 the return to the petitioners (herein respondents) or their duly authorized representatives of the possession, management and control of subject Rural Bank (Rollo, p. 319), together with its properties.

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On April 28, 1983, petitioner filed an urgent motion: (1) to give due course to the petition and (2) for immediate issuance of a Restraining Order against the respondent court to prevent it from enforcing its aforesaid resolution dated April 13, 1983 and from further proceeding in AC-G.R. No. 13944-SP (Rollo, p. 315). On May 16, 1983, this Court resolved to deny the petition for lack of merit (Rollo, p. 321). On July 25, 1983, petitioners filed their verified Motion for Reconsideration (Rollo, p. 337) praying that the HATOL dated June 17, 1982 of the Court of Appeals be set aside as nulland void and that Special Proceedings No. IR-428 of CFI-Camarines Sur, Iriga City, Branch VII, be ordered remanded to the RTC of Camarines Sur, Iriga City, for further proceedings. LLpr A Motion for Early Resolution was filed by herein petitioners on March 12, 1984 (Rollo, p. 348). Petitioners raised the following legal issues in their motion for reconsideration: I.UNDER SEC. 29, R.A. 265, AS AMENDED, MAY THE MONETARY BOARD (MB) OF THE CENTRAL BANK (CB) PLACE A RURAL BANK UNDER RECEIVERSHIP WITHOUT PRIOR NOTICE TO SAID RURAL BANK TO ENABLE IT TO BE HEARD ON THE GROUND RELIED UPON FOR SUCH RECEIVERSHIP? II.UNDER THE SAME SECTION OF SAID LAW, WHERE THE MONETARY BOARD (MB) OF THE CENTRAL BANK (CB) HAS PLACED A RURAL BANK UNDER RECEIVERSHIP, IS SUCH ACTION OF THE MONETARY BOARD (MB) SUBJECT TO JUDICIAL REVIEW? IF SO, WHICH COURT MAY EXERCISE SUCH POWER AND WHEN MAY IT EXERCISE THE SAME? III.UNDER THE SAID SECTION OF THE LAW, SUPPOSE A CIVIL CASE IS INSTITUTED SEEKING ANNULMENT OF THE RECEIVERSHIP ON THE GROUND OF ARBITRARINESS AND BAD FAITH ON THE PART OF THE MONETARY BOARD (MB), MAY SUCH CASE BE DISMISSED BY THE IAC (THEN CA) ON THE GROUND OF INSUFFICIENCY OF EVIDENCE EVEN IF THE TRIAL COURT HAS NOT HAD A CHANCE YET TO RECEIVE EVIDENCE AND THE PARTIES HAVE NOT YET PRESENTED EVIDENCE EITHER IN THE TRIAL COURT OR IN SAID APPELLATE COURT? (Rollo, pp. 330-331). I.Petitioner Rural Bank's position is to the effect that due process was not observed by the Monetary Board before said

bank was placed under receivership. Said Rural Bank claimed that it was not given the chance to deny and disprove such claim of insolvency and/or any other ground which the Monetary Board used in justification of its action. Relative thereto, the provision of Republic Act No. 265 on the proceedings upon insolvency reads: "SEC. 29.Proceedings upon insolvency. Whenever, upon examination by the head of the appropriate supervising and examining department or his examiners or agents into the condition of any banking institution, it shall be disclosed that the condition of the same is one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, it shall be the duty of the department head concerned forthwith, in writing, to inform the Monetary Board of the facts, and the Board may, upon finding the statements of the department head to be true, forbid the institution to do business in the Philippines and shall designate an official of the Central Bank, or a person of recognized competence in banking, as receiver to immediately take charge of its assets and liabilities, as expeditiously as possible collect and gather all the assets and administer the same for the benefit of its creditors, exercising all the powers necessary for these purposes including, but not limited to, bringing suits and foreclosing mortgages in the name of the banking institution.

"The Monetary Board shall thereupon determine within sixty days whether the institution may be recognized or otherwise placed in such a condition so that it may be permitted to resume business with safety to its depositors and creditors and the general public and shall prescribe the conditions under which such redemption of business shall take place as the time for fulfillment of such conditions. In such case, the expenses and fees in the collection and administration of the assets of the institution shall be determined by the Board and shall be paid to the Central Bank out of the assets of such banking institution. "If the Monetary Board shall determine and confirm within the said period that the banking institution is insolvent or cannot resume business with safety to its depositors, creditors and the general public, it shall, if the public interest requires, order its liquidation, indicate the manner of its liquidation and approve a liquidation plan. The Central Bank shall, by the Solicitor General, file a petition in the Court of First Instance reciting the proceedings which have been taken and praying the assistance of the court in the

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liquidation of the banking institution. The Court shall have jurisdiction in the same proceedings to adjudicate disputed claims against the bank and enforce individual liabilities of the stockholders and do all that is necessary to preserve the assets of the banking institution and to implement the liquidation plan approved by the Monetary Board. The Monetary Board shall designate an official of the Central Bank or a person of recognized competence in banking, as liquidator who shall take over the functions of the receiver previously appointed by the Monetary Board under this Section. The liquidator shall, with all convenient speed, convert the assets of the banking institution to money or sell, assign or otherwise dispose of the same to creditors and other parties for the purpose of paying the debts of such bank and he may, in the name of the banking institution, institute such actions as may be necessary in the appropriate court to collect and recover accounts and assets of the banking institution. "The provisions of any law to the contrary notwithstanding the actions of the Monetary Board under this Section and the second paragraph of Section 34 of this Act shall be final and executory, and can be set aside by the court only if there is convincing proof that the action is plainly arbitrary and made in bad faith. No restraining order or injunction shall be issued by the court enjoining the Central Bank from implementing its actions under this Section and the second paragraph of Section 34 of this Act, unless there is convincing proof that the action of the Monetary Board is plainly arbitrary and made in bad faith and the petitioner or plaintiff files with the clerk or judge of the court in which the action is pending a bond executed in favor of the Central Bank, in an amount to be fixed by the court. The restraining order or injunction shall be refused or, if granted, shall be dissolved upon filing by the Central Bank of a bond, which shall be in the form of cash or Central Bank cashier's check, in an amount twice the amount of the bond of the petitioner, or plaintiff conditioned that it will pay the damages which the petitioner or plaintiff may suffer by the refusal or the dissolution of the injunction. The provisions of Rule 58 of the New Rules of Court insofar as they are applicable and not inconsistent with the provisions of this Section shall govern the issuance and dissolution of the restraining order or injunction contemplated in this Section. "Insolvency, under this Act, shall be understood to mean the inability of a banking institution to pay its liabilities as they fall due in the usual and ordinary course of business: Provided, however,

that this shall not include the inability to pay of an otherwise non-insolvent bank caused by extraordinary demands induced by financial panic commonly evidenced by a run on the banks in the banking community. "The appointment of a conservator under Section 28-A of this Act or the appointment of receiver under this Section shall be vested exclusively with the Monetary Board, the provision of any law, general or special, to the contrary notwithstanding." It will be observed from the foregoing provision of law, that there is no requirement whether express or implied, that a hearing be first conducted before a banking institution may be placed under receivership. On the contrary, the law is explicit as to the conditions prerequisite to the action of the Monetary Board to forbid the institution to do business in the Philippines and to appoint a receiver to immediately take charge of the bank's assets and liabilities. They are: (a) an examination made by the examining department of the Central Bank; (b) report by said department to the Monetary Board; and (c) prima facie showing that the bank is in a condition of insolvency or so situated that its continuance in business would involve probable loss to its depositors or creditors. Supportive of this theory is the ruling of this Court, which established the authority of the Central Bank under the foregoing circumstances, which reads: prLL "As will be noted, whenever it shall appear prima facie that a banking institution is in 'a condition of insolvency' or so situated 'that its continuance in business would involved probable loss to its depositors or creditors,' the Monetary Board has authority: First, to forbid the institution to do business and appoint a receiver therefor; and Second, to determine, within 60 days, whether or not: 1)the institution may be reorganized and rehabilitated to such an extent as to be permitted to resume business with safety to depositors, creditors and the general public; or 2)it is indeed insolvent or cannot resume business with safety to depositors, creditors and the general public, and public interest requires that it be liquidated. In this latter case (i.e., the bank can no longer resume business with safety to depositors, creditors and the public, etc.) its liquidation will be ordered and a liquidator appointed by the Monetary Board. The Central Bank shall thereafter file a petition in the Regional Trial Court praying for the Court's assistance in the liquidation of the bank." . . . (Salud vs. Central Bank, 143 SCRA 590 [1986]).

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Petitioner further argues, that there is also that constitutional guarantee that no property shall be taken without due process of law, so that Section 29, R.A. 265, as amended, could not have intended to disregard and do away with such constitutional requirement when it conferred upon the Monetary Board the power to place Rural Banks under receivership (Rollo, p. 333). The contention is without merit. It has long been established and recognized in this jurisdiction that the closure and liquidation of a bank may be considered as an exercise of police power. Such exercise may, however, be subject to judicial inquiry and could be set aside if found to be capricious, discriminatory, whimsical, arbitrary, unjust or a denial of the due process and equal protection clauses of the Constitution (Central Bank vs. Court of Appeals, 106 SCRA 155 [1981]). The evident implication of the law, therefore, is that the appointment of a receiver may be made by the Monetary Board without notice and hearing but its action is subject to judicial inquiry to insure the protection of the banking institution. Stated otherwise, due process does not necessarily require a prior hearing; a hearing or an opportunity to be heard may be subsequent to the closure. One can just imagine the dire consequences of a prior hearing: bank runs would be the order of the day, resulting in panic and hysteria. In the process, fortunes may be wiped out, and disillusionment will run the gamut of the entire banking community. In Mendiola vs. Court of Appeals, (106 SCRA 130), the Supreme Court held: cdphil "The pivotal issue raised by petitioner is whether or not the appointment of a receiver by the Court of First Instance on January 14, 1969 was in order. Respondent Court correctly stated that the appointment of a receiver pendente lite is a matter principally addressed to and resting largely on the sound discretion of the court to which the application is made. This Tribunal has so held in a number of cases. However, receivership being admittedly a harsh remedy, it should be granted with extreme caution. Sound reasons for receivership must appear of record, and there should be a clear showing of a necessity therefor. Before granting the remedy, the court is advised to consider the consequence or effects thereof in order to avoid irreparable injustice or injury to others who are entitled to as much consideration as those seeking it. xxx xxx xxx This is not to say that a hearing is an indispensable requirement for the appointment of a receiver. As petitioner correctly contends in his first assignment of error, courts may appoint receivers without prior presentation of evidence and solely on the basis of the averments of the pleadings. Rule 59 of the Revised

Rules of Court allows the appointment of a receiver upon an ex parte application." There is no question that the action of the Monetary Board in this regard may be subject to judicial review. Thus, it has been held that the courts may interfere with the Central Bank'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 (Ramos vs. Central Bank of the Philippines, 41 SCRA 567 [1971]). It has likewise been held that resolutions of the Monetary Board under Section 29 of the Central Bank Act, such as: forbidding bank institutions to do business on account of a "condition of insolvency" or because its continuance in business would involve probable loss to depositors or creditors; or appointing a receiver to take charge of the bank's assets and liabilities, or determining whether the bank may be rehabilitated or should be liquidated and appointing a liquidator for that purpose, are under the law "final and executory" and may be set aside only on one ground, that is "if there is convincing proof that the action is plainly arbitrary and made in bad faith" (Salud vs. Central Bank, supra).

There is no dispute that under the above-quoted Section 29 of the Central Bank Act, the Regional Trial Court has jurisdiction to adjudicate the question of whether or not the action of the Monetary Board directing the dissolution of the subject Rural Bank is attended by arbitrariness and bad faith. Such position has been sustained by this Court in Salud vs. Central Bank of the Philippines (supra). In the same case, the Court ruled further that a banking institution's claim that a resolution of the Monetary Board under Section 29 of the Central Bank Act should be set aside as plainly arbitrary and made in bad faith, may be asserted as an affirmative defense (Sections 1 and 4[b], Rule 6, Rules of Court) or a counterclaim (Section 6, Rule 6, Section 2, Rule 72 of the Rules of Court) in the proceedings for assistance in liquidation or as a cause of action in a separate and distinct action where the latter was filed ahead of the petition for assistance in liquidation (ibid; Central Bank vs. Court of Appeals, 106 SCRA 143 [1981]). LexLib III.It will be noted that in the issuance of the Order of the Court of First Instance of Camarines Sur, Branch VII, Iriga City, dated March 9, 1982 (Rollo, pp. 72-77), there was no trial on the merits. Based on the pleadings filed, the Court merely acted on the Central Bank's Motion to Dismiss and Supplemental Motion to Dismiss, denying both for lack of sufficient merit. Evidently, the trial court merely acted on an incident and has not as yet inquired, as mandated by Section 29 of the Central Bank Act, into the merits of the claim that the Monetary Board's action is plainly arbitrary and made in bad faith. It has not appreciated certain facts which would render the remedy of liquidation proper and rehabilitation improper, involving as it does an examination of the probative value of the evidence presented by the parties properly belonging to the trial court and not properly cognizable on appeal (Central Bank vs. Court of Appeals,supra, p. 156). Still further, without a hearing held for both parties to substantiate their allegations in their respective pleadings, there is lacking that "convincing proof" prerequisite to justify

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the temporary restraining order (mandatory injunction) issued by the trial court in its Order of March 9, 1982. PREMISES CONSIDERED, the decision of the Court of Appeals is MODIFIED; We hereby order the remand of this case to the Regional Trial Court for further proceedings, but We LIFT the temporary restraining order issued by the trial court in its Order dated March 9, 1982. SO ORDERED. Yap, C.J., Melencio-Herrera, Padilla and Sarmiento, JJ., concur.

Buhi, Inc. v. Court of Appeals, (G.R. No. 61689, 20 June 1988, 162 SCRA 288, 302) We stated that ". . . due process does not necessarily require a prior hearing; a hearing or an opportunity to be heard may be subsequent to the closure. One can just imagine the dire consequences of a prior hearing; bank runs would be the order of the day, resulting in panic and hysteria. In the process, fortunes may be wiped out and disillusionment will run the gamut of the entire banking community." Admittedly, the mere filing of a case for receivership by the Central Bank cab trigger a bank run and drain its assets in days or even hours leading to insolvency even if the bank be actually solvent. The procedure prescribed in Sec. 29 is truly designed to protect the interest of all concerned, i.e., the depositors, creditors and stockholders, the bank itself, and the general public, and the summary closure pales in comparison to the protection afforded public interest. At any rate, the bank is given full opportunity to prove arbitrariness and bad faith in placing the bank under receivership, in which event, the resolution may properly nullified and the receivership lifted as the trial court may determine. 3.REMEDIAL LAW; COURT ACTION TO DETERMINE WHETHER ISSUANCE OF MONETARY BOARD RESOLUTION WAS TAINTED WITH ARBITRARINESS MAY BE FILED WITHIN 10 DAYS FROM DATE THE RECEIVER TOOK OVER THE BANK'S ASSETS; CASE AT BAR. In the early case of Rural Bank of Lucena, Inc. v. Area [1965], (G.R. No. L-21146, 29 September 1965, 15 SCRA 67, 72 and 74, citing Sec. 29, R.A. 265; 12 Am, Jur, 305, Sec. 611; Bourjois vs. Chapman, 301 U.S. 183, 81 Law Ed. 1027, 1032; American Surety Co vs. Baldwin, 77 Law Ed. 231, 86 ALR 307; Wilson vs. Standefer, 46 Law Ed. 612). We held that a previous hearing is nowhere required in Sec. 29 nor does the constitutional requirement of due process demand that the correctness of the Monetary Board's resolution to stop operation and proceed to liquidation of first adjudged before making the resolution effective. It is enough that a subsequent judicial review be provided. It may be emphasized that Sec. 29 does not altogether divest a bank or a non-bank financial institution placed under receivership of the opportunity to be heard and present evidence on arbitrariness and bad faith because within ten (10) days from the date the receiver takes charge of the assets of the bank, resort to judicial review may be had by filing an appropriate pleading with the court. Respondent TSB did in fact avail of this remedy by filing a complaint with the RTC of Quezon City on the 8th day following the takeover by the receiver of the bank's assets on 3 June 1985. This "close now and hear later" scheme is grounded on practical and legal considerations to prevent unwarranted dissipation of the bank's assets and as a valid exercise of police power to protect the depositors, creditors, stockholders and the general public. 4.ID.; EVIDENCE; RELIANCE ON THE BANCO FILIPINO CASE, MISPLACED. The heavy reliance of respondents of the Banco Filipino case is misplaced in view of factual circumstances therein which are not attendant in the present case. We ruled in Banco Filipino that the closure of the bank was arbitrary and attendant with grave abuse of discretion, not because of the absence of prior notice and hearing, but the Monetary Board had no sufficient basis to arrive at a sound conclusion of insolvency to justify the closure. In other words, the arbitrariness, bad faith and abuse of discretion were determined only after the bank was placed under the conservatorship and evidence thereon was received by the trial court. But, this is not the case before Us. For here, what is being raised as arbitrary by private respondent is the denial of prior notice and hearing by the Monetary Board, a matter long settled in this jurisdiction, and not the arbitrariness which the conclusions of the Supervision and Examination

EN BANC [G.R. No. 76118. March 30, 1993.] THE CENTRAL BANK OF THE PHILIPPINES and RAMON V. TIAOQUI, petitioners, vs. COURT OF APPEALS and TRIUMPH SAVINGS BANK respondents.

SYLLABUS 1.BANKS & BANKING; CENTRAL BANK; EXCLUSIVE AUTHORITY UNDER SEC. 29, RA 265. Under Sec. 29 of R.A. 265, the Central Bank, through the Monetary Board, is vested with exclusive authority to assess, evaluate and determine the condition of any bank, and finding such condition to be one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, forbid the bank or non-bank financial institution to do business in the Philippines; and shall designate an official of the CB or other competent person as receiver to immediately take charge of its assets and liabilities. 2.ID.; ID.; ID.; PRIOR NOTICE AND HEARING BEFORE PLACING A BANK UNDER RECEIVERSHIP, NOT REQUIRED; RATIONALE. Sec. 29 does not contemplate prior notice and hearing before a bank may be directed to stop operations and placed under receivership. When par. 4 (now par. 5, as amended by E.O. 289) provides for the filing of a case within ten (10) days alter the receiver takes charge of the assets of the bank, it is unmistakable that the assailed actions should precede the filing of the case. Plainly, the legislature could not have intended to authorize "no prior notice and hearing" in the closure of the bank and at the same time allow a suit to annul it on the basis of absence thereof. In Rural Bank of

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Sector (SES), Department II, of the General Bank were reached. 5.ID.; RECEIVERSHIP; ONLY STOCKHOLDERS COULD FILE ACTION FOR ANNULMENT OF A MONETARY BOARD RESOLUTION PLACING A BANK UNDER RECEIVERSHIP. Only stockholders of a bank could file an action for annulment of a Monetary Board resolution placing the bank under receivership and prohibiting it from continuing operations. InCentral Bank v. Court of Appeals, We explained the purpose of the law ". . . in requiring that only the stockholders of record representing the majority of the capital stock may bring the action to set aside a resolution to a place a bank under conservatorship is to ensure that it be not frustrated or defeated by the incumbent Board of Directors or officers who may immediately resort to court action to prevent its implementation or enforcement. It is presumed that such a resolution is directed principally against acts of said Directors and officers which is directed principally against acts of said Directors and officers which place the bank in a state of continuing inability to maintain a condition of liquidity adequate to protect the interest of depositors and creditors. Indirectly, it is likewise intended to protect and safeguard the rights and interests of the stockholders. Common sense and public policy dictate then the authority to decide on whether to contest the resolution should be lodged with the stockholders owning a majority of the shares for they are expected to be more objective in determining whether the resolution is plainly arbitrary and issued in bad faith."

MB Resolution No. 596, with prayer for injunction, challenging in the process the constitutionality of Sec. 29 of R.A. 269, otherwise known as "The Central Bank Act," as amended, insofar as it authorizes the Central Bank to take over a banking institution even if it is not charged with violation of any law or regulation, much less found guilty thereof. 5 On 1 July 1985, the trial court temporarily restrained petitioners from implementing MB Resolution No. 596 "until further orders", thus prompting them to move for the quashal of the restraining order (TRO) on the ground that it did not comply with said Sec. 29, i.e., that TSB failed to show convincing proof of arbitrariness and had faith on the part of petitioners;' and, that TSB failed to post the requisite bond in favor of Central Bank. On 19 July 1985, acting on the motion to quash the restraining order, the trial court granted the relief sought and denied the application of TSB for injunction. Thereafter, Triumph Savings Bank filed with Us a petition for certiorari under Rule 65 of the Rules of Court 6 dated 25 July 1985 seeking to enjoin the continued implementation of the questioned MB resolution. Meanwhile, on 9 August 1985, Central Bank and Ramon Tiaoqui filed a motion to dismiss the complaint before the RTC for failure to state a cause of action, i.e., it did not allege ultimate facts showing that the action was plainly arbitrary andmade in bad faith, which are the only grounds for the annulment of Monetary Board resolutions placing a bank under conservatorship, and that TSB was without legal capacity to sue except through its receiver. 7

DECISION

BELLOSILLO, J p: May a Monetary Board resolution placing a private bank under receivership be annulled on the ground of lack of prior notice and hearing? This petition seeks review of the decision of the Court of Appeals in CA G.R. SP No. 07867 entitled "The Central Bank of the Philippines and Ramon V. Tiaoqui vs. Hon. Jose C. de Guzman and Triumph Savings Bank," promulgated 26 September 1986, which affirmed the twin orders of the Regional Trial Court of Quezon City issued 11 November 1985 1denying herein petitioners' motion to dismiss Civil Case No. Q-45139, and directing petitioner Ramon V. Tiaoqui to restore the private management of Triumph Savings Bank (TSB) to its elected board of directors and officers, subject to Central Bank comptrollership. 2 The antecedent facts: Based on examination reports submitted by the Supervision and Examination Sector (SES), Department II, of the Central Bank (CB) "that the financial condition of TSB is one of insolvency and its continuance in business would involve probable loss to its depositors and creditors," 3 the Monetary Board (MB) issued on 31 May 1985 Resolution No. 596 ordering the closure of TSB, forbidding it from doing business in the Philippines, placing it under receivership, and appointing Ramon V. Tiaoqui as receiver. Tiaoqui assumed office on 3 June 1985. 4 On 11 June 1985, TSB filed a complaint with the Regional Trial Court of Quezon City, docketed as Civil Case No. Q45139, against Central Bank and Ramon V. Tiaoqui to annul

On 9 September 1985, TSB filed an urgent motion in the RTC to direct receiver Ramon V. Tiaoqui to restore TSB to its private management. On 11 November 1985, the RTC in separate orders denied petitioners' motion to dismiss and ordered receiver Tiaoqui to restore the management of TSB to its elected board of directors and officers, subject to CB comptrollership. Since the orders of the trial court rendered moot the petition for certiorari then pending before this Court, Central Bank and Tiaoqui moved on 2 December 1985 for the dismissal of G.R. No. 71465 which We granted on 18 December 1985. 8 Instead of proceeding to trial, petitioners elevated the twin orders of the RTC to the Court of Appeals on a petition for certiorari and prohibition under Rule 65. 9 On 26 September 1986, the appellate court, upheld the orders of the trial court thus "Petitioners' motion to dismiss was premised on two grounds, namely, that the complaint failed to state a cause of action and that the Triumph Savings Bank was without capacity to sue except through its appointed receiver. "Concerning the first ground, petitioners themselves admit that the Monetary Board resolution placing the Triumph Savings Bank under the receivership of the officials of the Central Bank was done without prior hearing, that is, without first

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hearing the side of the bank. They further admit that said resolution can be the subject of judicial review and may be set aside should it be found that the same was issued with arbitrariness and in bad faith. "The charge of lack of due process in the complaint may be taken as constitutive of allegations of arbitrariness and bad faith. This is not of course to be taken as meaning that there must be previous hearing before the Monetary Board may exercise its powers under Section 29 of its Charter. Rather, judicial review of such action not being foreclosed, it would be best should private respondent be given the chance to show and prove arbitrariness and bad faith in the issuance of the questioned resolution, especially so in the light of the statement of private respondent that neither the bank itself nor its officials were even informed of any charge of violating banking laws. In regard to lack of capacity to sue on the part of Triumph Savings Bank we view such argument as being specious, for if we get the drift of petitioners' argument, they mean to convey the impression that only the CB appointed receiver himself may question the CB resolution appointing him as such. This may be asking for the impossible, for it cannot be expected that the master, the CB, will allow the receiver it has appointed to question that very appointment. Should the argument of petitioners be given circulation, then judicial review of actions of the CB would be effectively checked and foreclosed to the very bank officials who may feel, as in the case at bar, that the CB action ousting them from the bank deserves to be set aside. cdphil xxx xxx xxx "On the questioned restoration order, this Court must say that it finds nothing whimsical, despotic, capricious, or arbitrary in its issuance, said action only being in line and congruent to the action of the Supreme Court in the Banco Filipino Case (G.E. No. 70054) where management of the bank was restored to its duly elected directors and officers, but subject to the Central Bank comptrollership." 10 On 15 October 1986, Central Bank and its appointed receiver, Ramon V. Tiaoqui, filed this petition under Rule 45 of the Rules of Court praying that the decision of the Court of Appeals in CA-G.R. SP No. 07867 be set aside, and that the civil case pending before the RTC of Quezon City, Civil Case No. Q-45139, be dismissed. Petitioners allege that the Court of Appeals erred

(1)in affirming that an insolvent bank that had been summarily closed by the Monetary Board should be restored to its private management supposedly because such summary closure was "arbitrary and in bad faith" and a denial of "due process"; (2)in holding that the "charge of lack of due process" for "want of prior hearing" in a complaint to annul a Monetary Board receivership resolution under Sec. 29 of RA 265 "may be taken as ... allegations of arbitrariness and bad faith"; and (3)in holding that the owners and former officers of an insolvent bank may still act or sue in the name and corporate capacity of such bank, even after it had been ordered closed and placed under receivership. 11 The respondents, on the other hand, allege inter alia that in the Banco Filipino case, 12 We held that CB violated the rule on administrative due process laid down in Ang Tibay vs. CIR (69 Phil. 635) and Eastern Telecom Corp. vs. Dans, Jr.(137 SCRA 628) which requires that prior notice and hearing be afforded to all parties in administrative proceedings. Since MB Resolution No. 596 was adopted without TSB being previously notified and heard, according to respondents, the same is void for want of due process; consequently, the bank's management should be restored to its board of directors and officers. 13 Petitioners claim that it is the essence of Sec. 29 of R.A. 265 that prior notice and hearing in cases involving bank closures should not be required since in all probability a hearing would not only cause unnecessary delay but also provide bank "insiders" and stockholders the opportunity to further dissipate the bank's resources, create liabilities for the bank up to the insured amount of P40,000.00, and even destroy evidence of fraud or irregularity in the bank's operations to the prejudice of its depositors and creditors. 14 Petitioners further argue that the legislative intent of Sec. 29 is to repose in the Monetary Board exclusive power to determine the existence of statutory grounds for the closure and liquidation of banks, having the required expertise and specialized competence to do so. The first issue raised before Us is whether absence of prior notice and hearing may be considered acts of arbitrariness and bad faith sufficient to annul a Monetary Board resolution enjoining a bank from doing business and placing it under receivership. Otherwise stated, is absence of prior notice and hearing constitutive of acts of arbitrariness and bad faith?LexLib Under Sec. 29 of R.A. 265, 15 the Central Bank, through the Monetary Board, is vested with exclusive authority to assess, evaluate and determine the condition of any bank, and finding such condition to be one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, forbid the bank or non-bank financial institution to do business in the Philippines; and shall designate an official of the CB or other competent person as receiver to immediately take charge of its assets and liabilities. The fourth paragraph, 16 which was then in effect at the time the action was commenced, allows the filing of a case to set aside

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the actions of the Monetary Board which are tainted with arbitrariness and bad faith. Contrary to the notion of private respondent, Sec. 29 does not contemplate prior notice and hearing before a bank may be directed to stop operations and placed under receivership. When par. 4 (now par. 5, as amended by E.O. 289) provides for the filing of a case within ten (10) days alter the receiver takes charge of the assets of the bank, it is unmistakable that the assailed actions should precede the filing of the case. Plainly, the legislature could not have intended to authorize "no prior notice and hearing" in the closure of the bank and at the same time allow a suit to annul it on the basis of absence thereof. In the early case of Rural Bank of Lucena, Inc. v. Area [1965], 17 We held that a previous hearing is nowhere required in Sec. 29 nor does the constitutional requirement of due process demand that the correctness of the Monetary Board's resolution to stop operation and proceed to liquidation of first adjudged before making the resolution effective. It is enough that a subsequent judicial review be provided. Even in Banco Filipino, 18 We reiterated that Sec. 29 of R.A. 265 does nor require a previous hearing before the Monetary Board can implement its resolution closing a bank, since its actions is subject to judicial scrutiny as provided by law. It may be emphasized that Sec. 29 does not altogether divest a bank or a non-bank financial institution placed under receivership of the opportunity to be heard and present evidence on arbitrariness and bad faith because within ten (10) days from the date the receiver takes charge of the assets of the bank, resort to judicial review may be had by filing an appropriate pleading with the court. Respondent TSB did in fact avail of this remedy by filing a complaint with the RTC of Quezon City on the 8th day following the takeover by the receiver of the bank's assets on 3 June 1985. This "close now and hear later" scheme is grounded on practical and legal considerations to prevent unwarranted dissipation of the bank's assets and as a valid exercise of police power to protect the depositors, creditors, stockholders and the general public. In Rural Bank of Buhi, Inc. v. Court of Appeals, 19 We stated that ". . . due process does not necessarily require a prior hearing; a hearing or an opportunity to be heard may be subsequent to the closure. One can just imagine the dire consequences of a prior hearing; bank runs would be the order of the day, resulting in panic and hysteria. In the process, fortunes may be wiped out and disillusionment will run the gamut of the entire banking community." We stressed in Central Bank of the Philippines v. Court of Appeals 20 that ". . . the banking business is properly subject to reasonable regulation under the police power of the state because of its nature and relation to the fiscal affairs of the people and the revenues of the

state (9 CJS 32). Banks are affected with public interest because they receive funds from the general public in the form of deposits. Due to the nature of their transactions and functions, a fiduciary relationship is created between the banking institutions and their depositors. Therefore, banks are under the obligation to treat with meticulous care and outmost fidelity the accounts of those who have reposed their trust and confidence in them (Simex International [Manila], Inc., Court of Appeals, 183 SCRA 360 [1990]).

"It is then the Government's responsibility to see to it that the financial interests of those who deal with the banks and banking institutions, as depositors or otherwise, are protected. It this country, that task is delegated to the Central Bank which, pursuant to its Charter (R.A. 265, as amended), is authorized to administer the monetary, banking and credit system of the Philippines. Under both the 1973 and 1987 Constitutions, the Central Bank is tasked with providing policy direction in the areas of money, banking and credit; corollary, it shall have supervision over the operations of banks (Sec. 14, Art. XV, 1973 Constitution, and Sec. 20, Art. XII, 1987 Constitution). Under its charter, the CB is further authorized to take the necessary steps against any banking institutions if its continued operation would cause prejudice to its depositors, creditors and the general public as well. This power has been expressly recognized by this Court. In Philippine Veterans Bank Employees Union-NUBE v. Philippine Veterans Banks (189 SCRA 14 [1990]), this Court held that: '. . . [u]nless adequate and determined efforts are taken by the government against the distressed and mismanaged banks, public faith in the banking system is certain to deteriorate to the prejudice of the national economy itself, not to mention the losses suffered by the bank depositors, creditors and stockholders, who all deserve the protection of the government. The government cannot simply cross its arms while the assets of a bank are being depleted through mismanagement or irregularities. It is the duty of the Central Bank in such an event to step in and salvage the remaining resources of the bank so that they may continue to be dissipated or plundered by those entrusted with their management.' "

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Section 29 of R.A. 265 should viewed in this light; otherwise, We would be subscribing to a situation where the procedural rights invoked by private respondent would take precedence over the substantive interests of depositors, creditors and stockholders over the assets of the bank. Admittedly, the mere filing of a case for receivership by the Central Bank cab trigger a bank run and drain its assets in days or even hours leading to insolvency even if the bank be actually solvent. The procedure prescribed in Sec. 29 is truly designed to protect the interest of all concerned, i.e., the depositors, creditors and stockholders, the bank itself, and the general public, and the summary closure pales in comparison to the protection afforded public interest. At any rate, the bank is given full opportunity to prove arbitrariness and bad faith in placing the bank under receivership, in which event, the resolution may properly nullified and the receivership lifted as the trial court may determine. The heavy reliance of respondents of the Banco Filipino case is misplaced in view of factual circumstances therein which are not attendant in the present case. We ruled in Banco Filipino that the closure of the bank was arbitrary and attendant with grave abuse of discretion, not because of the absence of prior notice and hearing, but the Monetary Board had no sufficient basis to arrive at a sound conclusion of insolvency to justify the closure. In other words, the arbitrariness, bad faith and abuse of discretion were determined only after the bank was placed under the conservatorship and evidence thereon was received by the trial court. As this Court found in that case, the Valenzuela, Aurellano and Tiaoqui Reports contained unfounded assumptions and deductions which did not reflect the true financial condition of the bank. For instance, the subtraction of an uncertain amount as valuation reserve from the assets of the bank would merely result in its net worth or the unimpared capital and surplus; it did not reflect the total financial conditions of Banco Filipino. Furthermore, the same reports showed that the total assets of Banco Filipino far exceeded its total liabilities. Consequently, on the basis thereof, the Monetary Board had no valid reason to liquidate the bank; perhaps it could have merely ordered its reorganization or rehabilitation , if need be. Clearly, there was in that case a manifest arbitrariness, abuse of discretion and bad faith in the closure of Banco Filipino by the Monetary Board. But, this is not the case before Us. For here, what is being raised as arbitrary by private respondent is the denial of prior notice and hearing by the Monetary Board, a matter long settled in this jurisdiction, and not the arbitrariness which the conclusions of the Supervision and Examination Sector (SES), Department II, of the General Bank were reached. Once again, We refer to Rural Bank of Buhi, Inc. v. Court of Appeals, 21 and reiterate Our pronouncement therein that ". . . the law is explicit as to the conditions prerequisite to the action of the Monetary Board to forbid the institution to do business in the Philippines and to appoint a receiver to immediately take charge of the bank's assets and liabilities. They are: (a) an examination made by the examining department of the Central Bank; (b) report by said department to the Monetary Board; and (c) prima

facie showing that its continuance in the business would involve probable loss to its depositors or creditors." In sum, appeal to procedural due process cannot just outweigh the evil sought to be prevented; hence, We rule that Sec. 29 of R.A. 265 is a sound legislation promulgated in accordance with the Constitution in the exercise of police power of the state. Consequently, the absence of notice and hearing is not valid ground to annul a Monetary Board resolution placing a bank under receivership, or conservatorship for that matter, may only be annulled after a determination has been made by the trial court that its issuance was tainted with arbitrariness and bad faith. Until such determination is made, the status quo shall be maintained, i.e., the bank shall continue to be under receivership. As regards the second ground, to rule that only the receiver may bring suit in behalf of the bank is, to echo the respondent appellate court, "asking for impossible, for it cannot be expected that the master, the CB, will allow the receiver it has appointed to question that very appointment." Consequently, only stockholders of a bank could file an action for annulment of a Monetary Board resolution placing the bank under receivership and prohibiting it from continuing operations. 22 In Central Bank v. Court of Appeals, 23 We explained the purpose of the law ". . . in requiring that only the stockholders of record representing the majority of the capital stock may bring the action to set aside a resolution to a place a bank under conservatorship is to ensure that it be not frustrated or defeated by the incumbent Board of Directors or officers who may immediately resort to court action to prevent its implementation or enforcement. It is presumed that such a resolution is directed principally against acts of said Directors and officers which is directed principally against acts of said Directors and officers which place the bank in a state of continuing inability to maintain a condition of liquidity adequate to protect the interest of depositors and creditors. Indirectly, it is likewise intended to protect and safeguard the rights and interests of the stockholders. Common sense and public policy dictate then the authority to decide on whether to contest the resolution should be lodged with the stockholders owning a majority of the shares for they are expected to be more objective in determining whether the resolution is plainly arbitrary and issued in bad faith." It is observed that the complaint in this case was filed on 11 June 1985 or two (2) years prior to 25 July 1987 when E.O. 289 was issued, to be effective sixty (60) days after its approval (Sec. 5). The implication is that before E.O. 289, any party in interest could institute court proceedings to question a Monetary Board resolution placing a bank under receivership. Consequently, since the instant complaint was filed by parties representing themselves to be officers of respondent Bank (Officer-in-Charge and Vice President), the case before the trial court should now take its natural course.

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However, after the effectivity of E.O. 289, the procedure stated therein should be followed and observed. PREMISES considered, the Decision of the Court of Appeals in CA-G.R. SP No. 07867 is AFFIRMED, except insofar as it upholds the Order of the trial court of 11 November 1985 directing petitioner RAMON V. TIAOQUI to restore the management of TRIUMPH SAVINGS BANK to its elected Board of Directors and officers, which is hereby SET ASIDE. Let this case be remanded to the Regional Trial Court of Quezon City for further proceedings to determine whether the issuance of Resolution No. 596 of the Monetary Board was tainted with arbitrariness and bad faith and to decide the case accordingly. SO ORDERED Narvasa, C . J ., Cruz, Padilla, Bidin, Grio-Aquino, Regalado, Davide, Jr., Romero, Nocon, Campos, Jr. and Quiason, JJ.,concur. Feliciano, J., took no part. Melo, J., took no part.

2.Resolution of February 17, 2004, 2 denying petitioner's motion for reconsideration. The petition is cast against the following factual backdrop: Respondent Manila Banking Corporation (Manila Bank, for brevity), owns a 1,435-square meter parcel of land located along Gil Puyat Avenue Extension, Makati City and covered by Transfer Certificate of Title (TCT) No. 132935 of the Registry of Deeds of Makati. Prior to 1984, the bank began constructing on said land a 14-storey building. Not long after, however, the bank encountered financial difficulties that rendered it unable to finish construction of the building. On May 22, 1987, the Central Bank of the Philippines, now Bangko Sentral ng Pilipinas, ordered the closure of Manila Bank and placed it under receivership, with Feliciano Miranda, Jr. being initially appointed as Receiver. The legality of the closure was contested by the bank before the proper court. On November 11, 1988, the Central Bank, by virtue of Monetary Board (MB) Resolution No. 505, ordered the liquidation of Manila Bank and designated Atty. Renan V. Santos as Liquidator. The liquidation, however, was held in abeyance pending the outcome of the earlier suit filed by Manila Bank regarding the legality of its closure. Consequently, the designation of Atty. Renan V. Santos as Liquidator was amended by the Central Bank on December 22, 1988 to that of Statutory Receiver. In the interim, Manila Bank's then acting president, the late Vicente G. Puyat, in a bid to save the bank's investment, started scouting for possible investors who could finance the completion of the building earlier mentioned. On August 18, 1989, a group of investors, represented by Calixto Y. Laureano (hereafter referred to as Laureano group), wrote Vicente G. Puyat offering to lease the building for ten (10) years and to advance the cost to complete the same, with the advanced cost to be amortized and offset against rental payments during the term of the lease. Likewise, the letteroffer stated that in consideration of advancing the construction cost, the group wanted to be given the "exclusive option to purchase" the building and the lot on which it was constructed. acEHSI Since no disposition of assets could be made due to the litigation concerning Manila Bank's closure, an arrangement was thought of whereby the property would first be leased to Manila Equities Corporation (MEQCO, for brevity), a whollyowned subsidiary of Manila Bank, with MEQCO thereafter subleasing the property to the Laureano group. In a letter dated August 30, 1989, Vicente G. Puyat accepted the Laureano group's offer and granted it an "exclusive option to purchase" the lot and building for One Hundred Fifty Million Pesos (P150,000,000.00). Later, or on October 31, 1989, the building was leased to MEQCO for a period of ten (10) years pursuant to a contract of lease bearing that date. On March 1, 1990, MEQCO subleased the property to petitioner Abacus Real Estate Development Center, Inc. (Abacus, for short), a corporation formed by the Laureano group for the purpose, under identical provisions as that of the October 31, 1989 lease contract between Manila Bank and MEQCO.

THIRD DIVISION [G.R. No. 162270. April 6, 2005.] ABACUS REAL ESTATE DEVELOPMENT CENTER, INC., petitioner, vs. THE MANILA BANKING CORPORATION, respondent.

DECISION

GARCIA, J p: Thru this appeal by way of a petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Abacus Real Estate Development Center, Inc. seeks to set aside the following issuances of the Court of Appeals in CA-G.R. CV No.64877, to wit: 1.Decision dated May 26, 2003, 1 reversing an earlier decision of the Regional Trial Court at Makati City, Branch 59, in an action for specific performance and damages thereat commenced by the petitioner against the herein respondent Manila Banking Corporation; and

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The Laureano group was, however, unable to finish the building due to the economic crisis brought about by the failed December 1989 coup attempt. On account thereof, the Laureano group offered its rights in Abacus and its "exclusive option to purchase" to Benjamin Bitanga (Bitanga hereinafter), for Twenty Million Five Hundred Thousand Pesos (P20,500,000.00). Bitanga would later allege that because of the substantial amount involved, he first had to talk with Atty. Renan Santos, the Receiver appointed by the Central Bank, to discuss Abacus' offer. Bitanga further alleged that, over lunch, Atty. Santos then verbally approved his entry into Abacus and his take-over of the sublease and option to purchase. On March 30, 1990, the Laureano group transferred and assigned to Bitanga all of its rights in Abacus and the "exclusive option to purchase" the subject land and building. On September 16, 1994, Abacus sent a letter to Manila Bank informing the latter of its desire to exercise its "exclusive option to purchase". However, Manila Bank refused to honor the same. Such was the state of things when, on November 10, 1995, in the Regional Trial Court (RTC) at Makati, Abacus Real Estate Development Center, Inc. filed a complaint 3 for specific performance and damages against Manila Bank and/or the Estate of Vicente G. Puyat. In its complaint, docketed as Civil Case No. 96-1638 and raffled to Branch 59 of the court, plaintiff Abacus prayed for a judgment ordering Manila Bank, inter alia, to sell, transfer and convey unto it for P150,000,000.00 the land and building in dispute "free from all liens and encumbrances", plus payment of damages and attorney's fees. Subsequently, defendant Manila Bank, followed a month later by its co-defendant Estate of Vicente G. Puyat, filed separate motions to dismiss the complaint. In an Order dated April 15, 1996, the trial court granted the motion to dismiss filed by the Estate of Vicente G. Puyat, but denied that of Manila Bank and directed the latter to file its answer. Before plaintiff Abacus could adduce evidence but after pretrial, defendant Manila Bank filed a Motion for Partial Summary Judgment, followed by a Supplement to Motion for Partial Summary Judgment. While initially opposed, Abacus would later join Manila Bank in submitting the case for summary judgment. Eventually, in a decision dated May 27, 1999, 4 the trial court rendered judgment for Abacus in accordance with the latter's prayer in its complaint, thus: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff as follows: 1.Ordering the defendant [Manila Bank] to immediately sell to plaintiff the parcel of land and building, with an area of 1,435 square meters and covered by TCT No. 132935 of the Makati Registry of Deeds, situated along Sen. Gil J. Puyat Ave. in Makati City, at the price of One Hundred Fifty Million (P150,000,000.00)

Pesos in accordance with the said exclusive option to purchase, and to execute the appropriate deed of sale therefor in favor of plaintiff; 2.Ordering the defendant [Manila Bank] to pay plaintiff the amount of Two Million (P2,000,000.00) Pesos representing reasonable attorney's fees; 3.Ordering the DISMISSAL of defendant's counterclaim, for lack of merit; and 4.With costs against the defendant. SO ORDERED. ETIDaH Its motion for reconsideration of the aforementioned decision having been denied by the trial court in its Order of August 17, 1999, 5 Manila Bank then went on to the Court of Appeals whereat its appellate recourse was docketed as CA-G.R. CV No. 64877. As stated at the threshold hereof, the Court of Appeals, in a decision dated May 26, 2003, 6 reversed and set aside the appealed decision of the trial court, thus: WHEREFORE, finding serious reversible error, the appeal is GRANTED. The Decision dated May 27, 1999 of the Regional Trial Court of Makati City, Branch 59 is REVERSED and SET ASIDE. Cost of the appeal to be paid by the appellee. SO ORDERED. On June 25, 2003, Abacus filed a Motion for Reconsideration, followed, with leave of court, by an Amended Motion for Reconsideration. Pending resolution of its motion for reconsideration, as amended, Abacus filed a Motion to Dismiss Appeal, 7 therein praying for the dismissal of Manila Bank's appeal from the RTC decision of May 27, 1999, contending that said appeal was filed out of time. In its Resolution of February 17, 2004, 8 the appellate court denied Abacus' aforementioned motion for reconsideration. Hence, this recourse by petitioner Abacus Real Estate Development Center, Inc. As we see it, two (2) issues commend themselves for the resolution of the Court, namely: WHETHER OR NOT RESPONDENT BANK'S APPEAL TO THE COURT OF APPEALS WAS FILED ON TIME; and WHETHER OR NOT PETITIONER ABACUS HAS ACQUIRED THE RIGHT TO PURCHASE THE LOT AND BUILDING IN QUESTION.

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We rule for respondent Manila Bank on both issues. Addressing the first issue, petitioner submits that respondent bank's appeal to the Court of Appeals from the adverse decision of the trial court was belatedly filed. Elaborating thereon, petitioner alleges that respondent bank received a copy of the May 27, 1999 RTC decision on June 22, 1999, hence, petitioner had 15 days, or only up to July 7, 1999 within which to take an appeal from the same decision or move for a reconsideration thereof. Petitioner alleges that respondent furnished the trial court with a copy of its Motion for Reconsideration only on July 7, 1999, the last day for filing an appeal. Under Section 3, Rule 41 of the 1997 Rules of Civil Procedure, "the period of appeal shall be interrupted by a timely motion for new trial or reconsideration". Since, according to petitioner, respondent filed its Motion for Reconsideration on the last day of the period to appeal, it only had one (1) more day within which to file an appeal, so much so that when it received on August 23, 1999 a copy of the trial court's order denying its Motion for Reconsideration, respondent bank had only up to August 24, 1999 within which to file the corresponding appeal. As respondent bank appealed the decision of the trial court only on August 25, 1999, petitioner thus argues that respondent's appeal was filed out of time.

time and messenger to effect personal service and filing. 3.In order for this Honorable Court to be able to review defendant [Manila Bank's] Motion for Reconsideration without awaiting the mailed copy, defendant [Manila Bank] is now furnishing this Honorable Court with a copy of said motion, as well as the entry of appearance, by personal service. The aforecited reference in the manifestation to the mailing of the motion for reconsideration on July 6, 1999, in light of the handwritten annotations adverted to herein, renders beyond doubt the appellant's insistence of filing through registered mail on July 6, 1999. Thirdly, the registry return cards attached to the envelopes separately addressed and mailed to the RTC and the appellee's counsel, found in pages 728 and 729 of the rollo, indicate that the contents were the motion for reconsideration and the formal entry of appearance. Although the appellee argues that the handwritten annotations of what were contained by the envelopes at the time of mailing was easily self-serving, the fact remains that the envelope addressed to the appellee's counsel appears thereon to have been received on July 6, 1999 ("7/6/99"), which enhances the probability of the motion for reconsideration being mailed, hence filed, on July 6, 1999, as claimed by the appellant. Fourthly, the certification issued on October 2, 2003 by Atty. Jayme M. Luy, Branch Clerk of Court, Branch 59, RTC in Makati City, has no consequence because Atty. Luy based his data only on page 3 of the 1995 Civil Case Docket Book without reference to the original records which were already with the Court of Appeals. Fifthly, since the appellant received the denial of the motion for reconsideration on August 23, 1999, it had until August 25, 1999 within which to perfect its appeal from the decision of the RTC because 2 days remained in its reglementary period to appeal. It is not disputed that the appellant filed its notice of appeal and paid the appellate court docket fees on August 25, 1999. These circumstances preponderantly demonstrate that the appellant's appeal was not late by one day. (Emphasis in the original)

As a counterpoint, respondent alleges that it sent the trial court a copy of its Motion for Reconsideration on July 6, 1999, through registered mail. Having sent a copy of its Motion for Reconsideration to the trial court with still two (2) days left to appeal, respondent then claims that its filing of an appeal on August 25, 1999, two (2) days after receiving the Order of the trial court denying its Motion for Reconsideration, was within the reglementary period. Agreeing with respondent, the appellate court declared that respondent's appeal was filed on time. Explained that court in its Resolution of February 17, 2004, denying petitioner's motion for reconsideration: Firstly, the file copy of the motion for reconsideration contains the written annotations "Registry Receipt No. 1633 Makati P.O. 7-6-99" in its page 13. The presence of the annotations proves that the motion for reconsideration was truly filed by registered mail on July 6, 1999 through registry receipt no. 1633. aDHCcE Secondly, the appellant's manifestation filed in the RTC personally on July 7, 1999 contains the following self-explanatory statements, to wit: 2.Defendant [Manila Bank] also filed with this Honorable Court a Motion for Reconsideration of the Decision dated 27 May 1999 promulgated by this Honorable Court in this case, and served a copy thereof to the plaintiff, by registered mail yesterday, 6 July 1999, due to lack of material

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Petitioner would, however, contest the above findings of the appellate court, stating, among other things, that if it were true that respondent filed its Motion for Reconsideration by registered mail and then furnished the trial court with a copy of said Motion the very next day, then the rollo should have had two copies of the Motion for Reconsideration in question. Respondent, on the other hand, insists that it indeed filed a Motion for Reconsideration on July 6, 1999 through registered mail. It is evident that the issue raised by petitioner relates to the correctness of the factual finding of the Court of Appeals as to the precise date when respondent filed its motion for reconsideration before the trial court. Such issue, however, is beyond the province of this Court to review. It is not the function of the Court to analyze or weigh all over again the evidence or premises supportive of such factual determination. 9 The Court has consistently held that the findings of the Court of Appeals and other lower courts are, as a rule, accorded great weight, if not binding upon it, 10 save for the most compelling and cogent reasons. 11 As nothing in the record indicates any of such exceptions, the factual conclusion of the appellate court that respondent filed its appeal on time, supported as it is by substantial evidence, must be affirmed. Going to the second issue, petitioner insists that the option to purchase the lot and building in question granted to it by the late Vicente G. Puyat, then acting president of Manila Bank, was binding upon the latter. On the other hand, respondent has consistently maintained that the late Vicente G. Puyat had no authority to act for and represent Manila Bank, the latter having been placed under receivership by the Central Bank at the time of the granting of the "exclusive option to purchase." aEAcHI There can be no quibbling that respondent Manila Bank was under receivership, pursuant to Central Bank's MB Resolution No. 505 dated May 22, 1987, at the time the late Vicente G. Puyat granted the "exclusive option to purchase" to the Laureano group of investors. Owing to this defining reality, the appellate court was correct in declaring that Vicente G. Puyat was without authority to grant the exclusive option to purchase the lot and building in question. The invocation by the appellate court of the following pronouncement in Villanueva vs. Court of Appeals 12 was apropos, to say the least: . . . the assets of the bank pass beyond its control into the possession and control of the receiver whose duty it is to administer the assets for the benefit of the creditors of the bank. Thus, the appointment of a receiver operates to suspend the authority of the bank and of its directors and officers over its property and effects, such authority being reposed in the receiver, and in this respect, the receivership is equivalent to an injunction to restrain the bank officers from intermeddling with the property of the bank in any way. With respondent bank having been already placed under receivership, its officers, inclusive of its acting president, Vicente G. Puyat, were no longer authorized to transact business in connection with the bank's assets and property.Clearly then, the "exclusive option to purchase"

granted by Vicente G. Puyat was and still is unenforceable against Manila Bank. 13 Petitioner, however, asseverates that the "exclusive option to purchase" was ratified by Manila Bank's receiver, Atty. Renan Santos, during a lunch meeting held with Benjamin Bitanga in March 1990. Petitioner's argument is tenuous at best. Concededly, a contract unenforceable for lack of authority by one of the parties may be ratified by the person in whose name the contract was executed. However, even assuming, in gratia argumenti, that Atty. Renan Santos, Manila Bank's receiver, approved the "exclusive option to purchase" granted by Vicente G. Puyat, the same would still be of no force and effect. Section 29 of the Central Bank Act, as amended, 14 pertinently provides: Sec. 29.Proceedings upon insolvency. Whenever, upon examination by the head of the appropriate supervising and examining department or his examiners or agents into the condition of any banking institution, it shall be disclosed that the condition of the same is one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, it shall be the duty of the department head concerned forthwith, in writing, to inform the Monetary Board of the facts, and the Board may, upon finding the statements of the department head to be true, forbid the institution to do business in the Philippines and shall designate an official of the Central Bank as receiver to immediately take charge of its assets and liabilities, as expeditiously as possible collect and gather all the assets and administer the same for the benefit of its creditors, exercising all the powers necessary for these purposes including, but not limited to, bringing suits and foreclosing mortgages in the name of the banking institution. (Emphasis supplied) Clearly, the receiver appointed by the Central Bank to take charge of the properties of Manila Bank only had authority toadminister the same for the benefit of its creditors. Granting or approving an "exclusive option to purchase" is not an act of administration, but an act of strict ownership, involving, as it does, the disposition of property of the bank. Not being an act of administration, the so-called "approval" by Atty. Renan Santos amounts to no approval at all, a bank receiver not being authorized to do so on his own. For sure, Congress itself has recognized that a bank receiver only has powers of administration. Section 30 of the New Central Bank Act 15 expressly provides that "[t]he receiver shall immediately gather and take charge of all the assets and liabilities of the institution, administer the same for the benefit of its creditors, and exercise the general powers of a receiver under the Revised Rules of Court but shall not, with the exception of administrative expenditures, pay or commit any act that will involve the transfer or disposition of any asset of the institution . . ."

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In all, respondent bank's receiver was without any power to approve or ratify the "exclusive option to purchase" granted by the late Vicente G. Puyat, who, in the first place, was himself bereft of any authority, to bind the bank under such exclusive option. Respondent Manila Bank may not thus be compelled to sell the land and building in question to petitioner Abacus under the terms of the latter's "exclusive option to purchase". TcSAaH

WHEREFORE, the instant petition is DENIED and the challenged issuances of the Court of Appeals AFFIRMED. Costs against petitioner. SO ORDERED. Panganiban, Sandoval-Gutierrez, Corona and Carpio Morales, JJ., concur.

1.CIVIL LAW; CONTRACTS; WHEN OFFER BECOMES INEFFECTIVE. Under Article 1323 of the Civil Code, an offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed. The reason for this is that: [T]he contract is not perfected except by the concurrence of two wills which exist and continue until the moment that they occur. The contract is not yet perfected at any time before acceptance is conveyed; hence, the disappearance of either party or his loss of capacity before perfection prevents the contractual tie from being formed. (ARTURO M. TOLENTINO, Civil Code of the Philippines, vol. IV, 463 [1985 ed.,] citing 2-1 Ruggiero 283 and 5 Salvat 34-35) 2.COMMERCIAL LAWS; BANKS; INSOLVENCY; APPOINTMENT OF A RECEIVER; EFFECT; APPLICATION IN CASE AT BAR. It has been said that where upon the insolvency of a bank a receiver therefor is appointed, the assets of the bank pass beyond its control into the possession and control of the receiver whose duty it is to administer the assets for the benefit of the creditors of the bank. (10 Am. Jur. 2d Banks, 764 [1963]). Thus, the appointment of a receiver operates to suspend the authority of the bank and of its directors and officers over its property and effects, such authority being reposed in the receiver, and in this respect, the receivership is equivalent to an injunction to restrain the bank officers from intermeddling with the property of the bank in any way. (65 Am. Jur. 2d Receivers, 146 [1963]. In a nutshell, the insolvency of a bank and the consequent appointment of a receiver restrict the bank's capacity to act, especially in relation to its property. Applying Article 1323 of the Civil Code, Ong's offer to purchase the subject lots became ineffective because the PVB became insolvent before the bank's acceptance of the offer came to his knowledge. Hence, the purported contract of sale between them did not reach the stage of perfection.

FIRST DIVISION DECISION [G.R. No. 114870. May 26, 1995.] MIGUELA R. VILLANUEVA, RICHARD R. VILLANUEVA, and MERCEDITA VILLANUEVATIRADOS, petitioners, vs. COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES, ILDEFONSO C. ONG, and PHILIPPINE VETERANS BANK, respondents.

DAVIDE, JR., J p: Do petitioners have a better right than private respondent Ildefonso Ong to purchase from the Philippine Veterans Bank (PVB) the two parcels of land described as Lot No. 210-D-1 and Lot No. 210-D-2 situated at Muntinglupa, Metro Manila, containing an area of 529 and 300 square meters, respectively? This is the principal legal issue raised in this petition. In its decision of 27 January 1994 in CA-G.R. CV No. 35890, 1 the Court of Appeals held for Ong, while the trial court, Branch 39 of the Regional Trial Court (RTC) of Manila, ruled for the petitioners in its joint decision of 31 October 1991 in Civil Case No. 87-42550 2 and Sp. Proc. No. 85-32311. 3 The operative antecedent facts are set forth in the challenged decision as follows: The disputed lots were originally owned by the spouses Celestino Villanueva and Miguela Villanueva, acquired by the latter during her husband's sojourn in the United States since 1968. Sometime in 1975, Miguela Villanueva sought the help of one Jose Viudez, the then Officer-in-

Antonio M. Albano for petitioners. Wilfredo I. Untalan and Mariano Y. Navarro for respondent Philippine Veterans Bank. Linzag Arcilla & Associates Law Office for private respondent. Armando L. Suratos, Aloysius C. Alday, Sr., Vicente S. Aquino and Alexander L. Ang for respondent Central Bank.

SYLLABUS

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Charge of the PVB branch in Makati if she could obtain a loan from said bank. Jose Viudez told Miguela Villanueva to surrender the titles of said lots as collaterals. And to further facilitate a bigger loan, Viudez, in connivance with one Andres Sebastian, swayed Miguela Villanueva to execute a deed of sale covering the two (2) disputed lots, which she did but without the signature of her husband Celestino. Miguela Villanueva, however, never got the loan she was expecting. Subsequent attempts to contact Jose Viudez proved futile, until Miguela Villanueva thereafter found out that new titles over the two (2) lots were already issued in the name of the PVB. It appeared upon inquiry from the Registry of Deeds that the original titles of these lots were canceled and new ones were issued to Jose Viudez, which in turn were again cancelled and new titles issued in favor of Andres Sebastian, until finally new titles were issued in the name of PNB [should be PVB] after the lots were foreclosed for failure to pay the loan granted in the name of Andres Sebastian. Miguela Villanueva sought to repurchase the lots from the PVB after being informed that the lots were about to be sold at auction. The PVB told her that she can redeem the lots for the price of P110,416.00. Negotiations for the repurchase of the lots nevertheless were stalled by the filing of liquidation proceedings against the PVB on August of 1985. Plaintiff-appellant [Ong] on the other hand expounds on his claim over the disputed lots in this manner: "In October 1984, plaintiffappellant offered to purchase two pieces of land that had been acquired by PVB through foreclosure. To back-up plaintiffappellant's offer he deposited the sum of P10,000.00. In 23 November 1984, while appellant was still abroad, PVB approved his subject offer under Board Resolution No. 10901-84. Among the conditions imposed by PVB is that: 'The purchase price shall be P110,000.00 (less deposit of P10,000.00) payable in cash within fifteen (15) days from receipt of approval of the offer.' In mid-April 1985, appellant returned to the country. He immediately verified the status of his offer with the PVB, now under the control of CB, where he was informed that the same

had already been approved. On 16 April 1985, appellant formally informed CB of his desire to pay the subject balance provided the bank should execute in his favor the corresponding deed of conveyance. The letter was not answered. Plaintiff-appellant sent follow-up letters that went unheeded, the last of which was on 21 May 1987. On 26 May 1987, appellant's payment for the balance of the subject properties were accepted by CB under Official Receipt #0816. On 17 September 1987, plaintiffappellant through his counsel, sent a letter to CB demanding for the latter to execute the corresponding deed of conveyance in favor of appellant. CB did not bother to answer the same. Hence, the instant case. While appellant's action for specific performance against CB was pending, Miguela Villanueva and her children filed their claims with the liquidation court." (Appellant's Brief, pp. 3-4). 4 From the pleadings, the following additional or amplificatory facts are established: The efforts of Miguela Villanueva to reacquire the property began on 8 June 1983 when she offered to purchase the lots for P60,000.00 with a 20% downpayment and the balance payable in five years on a quarterly amortization basis. 5 Her offer not having been accepted,6 Miguela Villanueva increased her bid to P70,000.00. It was only at this time that she disclosed to the bank her private transactions with Jose Viudez. 7 After this and her subsequent offers were rejected, 8 Miguela sent her sealed bid of P110,417.00 pursuant to the written advice of the vice president of the PVB. 9 The PVB was placed under receivership pursuant to Monetary Board (MB) Resolution No. 334 dated 3 April 1985 and later, under liquidation pursuant to MB Resolution No. 612 dated 7 June 1985. Afterwards, a petition for liquidation was filed with the RTC of Manila, which was docketed as Sp. Proc. No. 85-32311 and assigned to Branch 39 of the said court. Cdpr On 26 May 1987, Ong tendered the sum of P100,000.00 representing the balance of the purchase price of the litigated lots.10 An employee of the PVB received the amount conditioned upon approval by the Central Bank liquidator.12 It was raffled to Branch 47 thereof. Upon learning that the PVB had been placed under liquidation, the presiding judge of Branch 47 ordered the transfer of the case to Branch 39, the liquidation court.13

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On 15 June 1989, then Presiding Judge Enrique B. Inting issued an order allowing the purchase of the two lots at the price of P150,000.00.14 The Central Bank liquidator of the PVB moved for the reconsideration of the order asserting that it is contrary to law as the disposal of the lots should be made through public auction.15 On 26 July 1989, Miguela Villanueva filed her claim with the liquidation court. She averred, among others, that she is the lawful and registered owner of the subject lots which were mortgaged in favor of the PVB thru the falsification committed by Jose Viudez, the manager of the PVB Makati Branch, in collusion with Andres Sebastian; that upon discovering this fraudulent transaction, she offered to purchase the property from the bank; and that she reported the matter to the PC/INP Criminal Investigation Service Command, Camp Crame, and after investigation, the CIS officer recommended the filing of a complaint for estafa through falsification of public documents against Jose Viudez and Andres Sebastian. She then asked that the lots be excluded from the assets of the PVB and be conveyed back to her. 16 Later, in view of the death of her husband, she amended her claim to include her children, herein petitioners Mercedita Villanueva-Tirados and Richard Villanueva.17 On 31 October 1991, the trial court rendered judgment 18 holding that while the board resolution approving Ong's offer may have created in his favor a vested right which may be enforced against the PVB at the time or against the liquidator after the bank was placed under liquidation proceedings, the said right was no longer enforceable, as he failed to exercise it within the prescribed 15-day period. As to Miguela's claim, the court ruled that the principle of estoppel bars from questioning the transaction with Viudez and the subsequent transactions because she was a coparticipant thereto, though only with respect to her undivided one-half (1/2) conjugal share in the disputed lots and her one-third (1/3) hereditary share in the estate of her husband. llcd Nevertheless, the trial court allowed her to purchase the lots if only to restore their status as conjugal properties. It further held that by reason of estoppel, the transactions having been perpetrated by a responsible officer of the PVB, and for reasons of equity, the PVB should not be allowed to charge interest on the price of the lots; hence, the purchase price should be the PVB's claim as of 29 August 1984 when it considered the sealed bids, i.e., P110,416.20, which should be borne by Miguela Villanueva alone. The dispositive portion of the decision of the trial court reads as follows: WHEREFORE, judgment is hereby rendered as follows: 1.Setting aside the order of this court issued on June 15, 1989 under the caption Civil Case No. 87-42550 entitled "Ildefonso Ong vs. Central Bank of the Phils., et al.; 2.Dismissing the claim of Ildefonso Ong over the

two parcels of land originally covered by TCT No. 438073 and 366364 in the names of Miguela Villanueva and Celestino Villanueva, respectively which are now covered by TCT No. 115631 and 115632 in the name of the PVB; 3.Declaring the Deed of Absolute Sale bearing the signature of Miguela Villanueva and the falsified signature of Celestino [sic] Viudez under date May 6, 1975 and all transactions and related documents executed thereafter referring to the two lots covered by the above stated titles as null and void; 4.Ordering the Register of Deeds of Makati which has jurisdiction over the two parcels of land in question to re-instate in his land records, TCT No. 438073 in the name of Miguela Villanueva and TCT No. 366364 in the name of Celestino Villanueva who were the registered owners thereof, and to cancel all subsequent titles emanating therefrom; and 5.Ordering the Liquidator to reconvey the two lots described in TCT No. 115631 and 115632 and executing the corresponding deed of conveyance of the said lots upon the payment of One Hundred Ten Thousand Four Hundred Sixteen and 20/100 (P110,416.20) Pesos without interest and less the amount deposited by the claimant, Miguela Villanueva in connection with the bidding where she had participated and conducted by the PVB on August 29, 1984. Cost against Ildefonso Ong and the PVB. SO ORDERED. 19

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Only Ong appealed the decision to the Court of Appeals. The appeal was docketed as CA-G.R. CV No. 35890. In its decision of 27 January 1994, the Court of Appeals reversed the decision of the trial court and ruled as follows: WHEREFORE, premises considered, the assailed decision is hereby REVERSED and SET ASIDE, and a new one entered ordering the disputed lots be awarded in favor of plaintiff-appellant Ildefonso Ong upon defendant-appellee Central Bank's execution of the corresponding deed of sale in his favor. 20 In support thereof, the Court of Appeals declared that Ong's failure to pay the balance within the prescribed period was excusable because the PVB neither notified him of the approval of his bid nor answered his letters manifesting his readiness to pay the balance, for which reason he could not have known when to reckon the 15day period prescribed under its resolution. It went further to suggest that the Central Bank was in estoppel because it accepted Ong's late payment of the balance. As to the petitioners' claim, the Court of Appeals stated: prLL The conclusion reached by the lower court favorable to Miguela Villanueva is, as aptly pointed out by plaintiff-appellant, indeed confusing. While the lower court's decision declared Miguela Villanueva as estopped from recovering her proportionate share and interest in the two (2) disputed lots for being a "coparticipant" in the fraudulent scheme perpetrated by Jose Viudez and Andres Sebastian a factual finding which We conform to and which Miguela Villanueva does not controvert in this appeal by not filing her appellee's brief, yet it ordered the reconveyance of the disputed lots to Miguela Villanueva as the victorious party upon her payment of P110,416.20. Would not estoppel defeat the claim of the party estopped? If so, which in fact must be so, would it not then be absurd or even defiant for the lower court to finally entitle Miguela Villanueva to the disputed lots after having been precluded from assailing their subsequent conveyance in favor of Jose Viudez by reason of her own negligence and/or complicity therein? The intended punitive effect of estoppel would merely be a dud if this Court leaves the lower court's conclusion unrectified. 21 Their motion for reconsideration22 having been denied,23 the petitioners filed this petition for review on certiorari.24 Subsequently, the respondent Central Bank apprised this Court that the PVB was no longer under receivership or liquidation and that the PVB has been back in operation since 3 August 1992. It then prayed that it be dropped from this case or at least be substituted by the PVB, which is the real party in interest. 25 In its Manifestation and Entry of Appearance, the PVB declared that it submits to the jurisdiction of this

Court and that it has no objection to its inclusion as a party respondent in this case in lieu of the Central Bank.26 The petitioners did not object to the substitution.27 Later, in its Comment dated 10 October 1994, the PVB stated that it "submits to and shall abide by whatever judgment this Honorable Supreme Tribunal may announce as to whom said lands may be awarded without any touch of preference in favor of one or the other party litigant in the instant case."28 In support of their contention that the Court of Appeals gravely erred in holding that Ong is better entitled to purchase the disputed lots, the petitioners maintain that Ong is a disqualified bidder, his bid of P110,000.00 being lower than the starting price of P110,417.00 and his deposit of P10,000.00 being less than the required 10% of the bid price; that Ong failed to pay the balance of the price within the 15-day period from notice of the approval of his bid; and that his offer of payment is ineffective since it was conditioned on PVB's execution of the deed of absolute sale in his favor. On the other hand, Ong submits that his offer, though lower than Miguela Villanueva's bid by P417.00, is much better, as the same is payable in cash, while Villanueva's bid is payable in installment; that his payment could not be said to have been made after the expiration of the 15-day period because this period has not even started to run, there being no notice yet of the approval of his offer; and that he has a legal right to compel the PVB or its liquidator to execute the corresponding deed of conveyance. LLpr There is no doubt that the approval of Ong's offer constitutes an acceptance, the effect of which is to perfect the contract of sale upon notice thereof to Ong. 29 The peculiar circumstances in this case, however, pose a legal obstacle to his claim of a better right and deny support to the conclusion of the Court of Appeals. Ong did not receive any notice of the approval of his offer. It was only sometime in mid-April 1985 when he returned from the United States and inquired about the status of his bid that he came to know of the approval. It must be recalled that the PVB was placed under receivership pursuant to the MB Resolution of 3 April 1985 after a finding that it was insolvent, illiquid, and could not operate profitably, and that its continuance in business would involve probable loss to its depositors and creditors. The PVB was then prohibited from doing business in the Philippines, and the receiver appointed was directed to "immediately take charge of its assets and liabilities, as expeditiously as possible collect and gather all the assets and administer the same for the benefit of its creditors, exercising all the powers necessary for these purposes." Under Article 1323 of the Civil Code, an offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed. The reason for this is that: [T]he contract is not perfected except by the concurrence of two wills which exist and continue until the moment that they occur. The contract is not yet perfected at any time before acceptance is conveyed; hence, the disappearance of either party or his loss of capacity before perfection

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prevents the contractual tie from being formed. 30 It has been said that where upon the insolvency of a bank a receiver therefor is appointed, the assets of the bank pass beyond its control into the possession and control of the receiver whose duty it is to administer to assets for the benefit of the creditors of the bank.31 Thus, the appointment of a receiver operates to suspend the authority of the bank and of its directors and officers over its property and effects, such authority being reposed in the receiver, and in this respect, the receivership is equivalent to an injunction to restrain the bank officers from intermeddling with the property of the bank in any way.32 Section 29 of the Central Bank Act, as amended, provides thus: SEC. 29.Proceedings upon insolvency. Whenever, upon examination by the head of the appropriate supervising or examining department or his examiners or agents into the condition of any bank or non-bank financial intermediary performing quasi-banking functions, it shall be disclosed that the condition of the same is one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, it shall be the duty of the department head concerned forthwith, in writing, to inform the Monetary Board of the facts. The Board may, upon finding the statements of the department head to be true, forbid the institution to do business in the Philippines and designate an official of the Central Bank or a person of recognized competence in banking or finance as receiver to immediately take charge of its assets and liabilities, as expeditiously as possible collect and gather all the assets and administer the same for the benefit of its creditors . . . exercising all the powers necessary for these purposes . . .

the bank approving his bid as basis for his alleged right to buy the disputed properties. Nor may the acceptance by an employee of the PVB of Ong's payment of P100,00.00 benefit him since the receipt of the payment was made subject to the approval by the Central Bank liquidator of the PVB thus: LexLib Payment for the purchase of the former property of Andres Sebastian per approved BR No. 10902-84 dated 11/13/84, subject to the approval of CB liquidator. 33 This payment was disapproved on the ground that the subject property was already in custodia legis, and hence, disposable only by public auction and subject to the approval of the liquidation court. 34 The Court of Appeals therefore erred when it held that Ong had a better right than the petitioners to the purchase of the disputed lots. Considering then that only Ong appealed the decision of the trial court, the PVB and the Central Bank, as well as the petitioners, are deemed to have fully and unqualifiedly accepted the judgment, which thus became final as to them for their failure to appeal. WHEREFORE, the instant petition is GRANTED and the challenged decision of the Court of Appeals of 27 January 1994 in CA-G.R. CV No. 35890 is hereby SET ASIDE. The decision of Branch 39 of the Regional Trial Court of Manila of 31 October 1991 in Civil Case No. 8742550 and Sp. Proc. No. 85-32311 is hereby REINSTATED. Respondent Philippine Veterans Bank is further directed to return to private respondent Ildefonso C. Ong the amount of P100,000.00. No pronouncement as to costs. SO ORDERED. Padilla, Bellosillo, and Kapunan, JJ., concur. Quiason, J., is on leave. Footnotes

xxx xxx xxx The assets of an institution under receivership or liquidation shall be deemed in custodia legis in the hands of the receiver or liquidator and shall, from the moment of such receivership or liquidation, be exempt from any order or garnishment, levy, attachment, or execution. In a nutshell, the insolvency of a bank and the consequent appointment of a receiver restrict the bank's capacity to act, especially in relation to its property. Applying Article 1323 of the Civil Code, Ong's offer to purchase the subject lots became ineffective because the PVB became insolvent before the bank's acceptance of the offer came to his knowledge. Hence, the purported contract of sale between them did not reach the stage of perfection. Corollarily, he cannot invoke the resolution of

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Marbibi Law Office for private respondent. The Solicitor General for public respondent.

SYLLABUS 1. REMEDIAL LAW; ACTIONS; DISTINCTION BETWEEN AN ORDINARY ACTION AND A SPECIAL PROCEEDING. Elucidating the crucial distinction between an ordinary action and a special proceeding, Chief Justice Moran states: Action is the act by which one sues another in a court of justice for the enforcement or protection of a right, or the prevention or redress of a wrong while special proceeding is the act by which one seeks to establish the status or right of a party, or a particular fact. Hence, action is distinguished from special proceeding in that the former is a formal demand of a right by one against another, while the latter is but a petition for a declaration of a status, right or fact. Where a party-litigant seeks to recover property from another, his remedy is to file an action. Where his purpose is to seek the appointment of a guardian for an insane, his remedy is a special proceeding to establish the fact or status of insanity calling for an appointment of guardianship. 2. ID.; ID.; ID.; PETITION FOR LIQUIDATION OF AN INSOLVENT CORPORATION UNDER REPUBLIC ACT NO. 265 (CENTRAL BANK ACT), A SPECIAL PROCEEDING. Considering this distinction, a petition for liquidation of an insolvent corporation should be classified a special proceeding and not an ordinary action. Such petition does not seek the enforcement or protection of a right nor the prevention or redress of a wrong against a party. It does not pray for affirmative relief for injury arising from a party's wrongful act or omission nor state a cause of action that can be enforced against any person. What it seeks is merely a declaration by the trial court of the corporation's insolvency so that its creditors may be able to file their claims in the settlement of the corporation's debts and obligations. Put in another way, the petition only seeks a declaration of the corporation's state of insolvency and the concomitant right of creditors and the order of payment of their claims in the disposition of the corporation's assets. 3. ID.; ID.; ID.; ID.; DOES NOT RESEMBLE PETITION FOR INTERPLEADER. Contrary to the rulings of the Court of Appeals' Fourteenth Division, liquidation proceedings do not resemble petitions for interpleader. For one, an action for interpleader involves claims on a subject matter against a person who has no interest therein. This is not the case in a liquidation proceeding where the Liquidator, as representative of the corporation, takes charge of its assets and liabilities for the benefit of the creditors. He is thus charged with insuring that the assets of the corporation are paid only to rightful claimants and in the order of payment provided by law. 4. ID.; ID.; ID.; ID.; RESEMBLES A PROCEEDING FOR SETTLEMENT OF ESTATE OF DECEASED PERSONS. Rather, a liquidation proceeding resembles the proceeding for the settlement of estate of deceased persons under Rules 73 to 91 of the Rules of Court. The two have a common purpose: the determination of all the assets and payment of all the debts and liabilities of the insolvent corporation or the estate. The Liquidator and the administrator or executor are both charged with the assets for the benefit of the claimants. The court's concern is with the declaration of

SECOND DIVISION [G.R. No. 109373. March 20, 1995.] PACIFIC BANKING CORPORATION EMPLOYEES ORGANIZATION, PAULA S. PAUG, and its officers and members, petitioners, vs. THE HONORABLE COURT OF APPEALS and VITALIANO N. NAAGAS II, as Liquidator of Pacific Banking Corporation, respondents.

[G.R. No. 112991. March 20, 1995.] THE PRESIDENT OF THE PHILIPPINE DEPOSIT INSURANCE CORPORATION, as Liquidator of the Pacific Banking Corporation, petitioner, vs. COURT OF APPEALS, HON. JUDGE REGINO T. VERIDIANO II, DEPUTY SHERIFF RAMON ENRIQUEZ and ANG ENG JOO, ANG KEONG LAN and E.J. ANG INT'L. LTD., represented by their Attorneyin-fact, GONZALO C. SY, respondents.

Puruganan Chato Tan & Geronimo for petitioner in G.R. No. 112991. Potenciano A. Flores for petitioners in G.R. No. 109373.

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creditors and their rights and the determination of their order of payment. Furthermore, as in the settlement of estates, multiple appeals are allowed in proceedings for liquidation of an insolvent corporation. 5. ID.; ID.; ID.; ID.; APPEALS; RECORD OF APPEAL, JURISDICTIONAL. In G.R. No. 112991, the Liquidator's notice of appeal was filed on time, having been filed on the 23rd day of receipt of the order granting the claims of the Stockholders/Investors. However, the Liquidator did not file a record on appeal with the result that he failed to perfect his appeal. As already stated, a record on appeal is required under the Interim Rules and Guidelines in special proceedings and for cases where multiple appeals are allowed. The reason for this is that the several claims are actually separate ones and a decision or final order with respect to any claim can be appealed. Necessarily the original record on appeal must remain in the trial court where other claims may still be pending. 6. ID.; ID.; ID.; ID.; ID.; FAILURE TO PERFECT APPEAL RENDERS ORDER GRANTING CLAIMS OF STOCKHOLDERS/INVESTORS FINAL. Because of the Liquidator's failure to perfect his appeal, the order granting the claims of the Stockholders/Investors became final. 7. ID.; ID.; ID.; ID.; ID.; FILING OF RECORD ON APPEAL WITHIN EXTENSION SOUGHT, WITHIN PERIOD. On the other hand, in G.R. No. 109373, we find that the Fifth Division correctly granted the Liquidator's Petition for Certiorari, Prohibition and Mandamus. As already noted, the Liquidator filed a notice of appeal and a motion for extension to file a record on appeal on December 10, 1991, i.e., within 30 days of his receipt of the order granting the Union's claim. Without waiting for the resolution of his motion for extension, he filed on December 20, 1991 within the extension sought a record on appeal. Respondent judge thus erred in disallowing the notice on appeal and denying the Liquidator's motion for extension to file a record on appeal. 8. ID.; ID.; ID.; ID.; FUNCTION OF THE TRIAL COURT. In liquidation proceedings, the function of the trial court is not limited to assisting in the implementation of the orders of the Monetary Board. Under the same Section (S29) of the law invoked by the Union, the court has authority to set aside the decision of the Monetary Board "if there is a convincing proof that the action is plainly arbitrary and made in bad faith." 9. MERCANTILE LAW; REPUBLIC ACT NO. 265 (CENTRAL BANK ACT); LIQUIDATION OF INSOLVENT BANK; LIQUIDATOR; NOT ONLY THE REPRESENTATIVE OF CENTRAL BANK BUT ALSO OF THE INSOLVENT BANK. In truth, the Liquidator is the representative not only of the Central Bank but also of the insolvent bank. Under Sections 28A-29 of Rep. Act No. 265 he acts in behalf of the bank "personally or through counsel as he may retain, in all actions or proceedings for or against the corporation" and he has authority "to do whatever may be necessary for these purposes." This authority includes the power to appeal from the decisions or final orders of the court which he believes to be contrary to the interest of the bank. 10. REMEDIAL LAW; SPECIAL PROCEEDINGS; LIQUIDATION OF INSOLVENT BANK; APPEAL; NOTICE OF APPEAL AND MOTION FOR ADDITIONAL TIME TO SUBMIT RECORD ON APPEAL, FILED JOINTLY BY THE OFFICE OF THE SOLICITOR GENERAL AND LAWYERS OF PDIC. Finally the Union contends that the notice of appeal and

motion for extension of time to file the record on appeal filed in behalf of the Central Bank was not filed by the Office of the Solicitor General as counsel for the Central Bank. This contention has no merit. On October 22, 1992, as Assistant Solicitor General Cecilio O. Estoesta informed the trial court on March 27, 1992, the OSG had previously authorized lawyers of the PDIC to prepare and sign pleadings in the case. Conformably thereto the Notice of Appeal and the Motion for Additional Time to Submit Record on Appeal filed were jointly signed by Solicitor Reynaldo I. Saludares in behalf of the OSG and by lawyers of the PDIC.

DECISION

MENDOZA, J p: These cases have been consolidated because the principal question involved is the same: whether a petition for liquidation under 29 of Rep. Act No. 265, otherwise known as the Central Bank Act, is a special proceeding or an ordinary civil action. The Fifth and the Fourteenth Divisions of the Court of Appeals reached opposite results on this question and consequently applied different periods for appealing. cdphil The facts are as follows: I. Proceedings in the CB and the RTC On July 5, 1985, the Pacific Banking Corporation (PaBC) was placed under receivership by the Central Bank of the Philippines pursuant to Resolution No. 699 of its Monetary Board. A few months later, it was placed under liquidation 1 and a Liquidator was appointed. 2 On April 7, 1986, the Central Bank filed with the Regional Trial Court of Manila, Branch 31, a petition entitled "Petition for Assistance in the Liquidation of Pacific Banking Corporation." 3 The petition was approved, after which creditors filed their claims with the court. On May 17, 1991, a new Liquidator, Vitaliano N. Naagas, 4 President of the Philippine Deposit Insurance Corporation (PDIC), was appointed by the Central Bank. prcd On March 13, 1989 the Pacific Banking Corporation Employees Organization (Union for short), petitioner in G.R.No. 109373, filed a complaint-inintervention seeking payment of holiday pay, 13th month pay differential, salary increase differential, Christmas bonus, and cash equivalent of Sick Leave Benefits due its members as employees of PaBC. In its order dated September 13, 1991, the trial court ordered payment of the principal claims of the Union. 5 The Liquidator received a copy of the order on September 16, 1991. On October 16, 1991, he filed a Motion for Reconsideration and Clarification of the order. In his order of December 6, 1991, the judge modified his September 13, 1991 6 but in effect denied the Liquidator's Motion for reconsideration. This order was received by the Liquidator on December 9, 1991. The following day, December 10, 1991, he filed a Notice of Appeal and a Motion for Additional Time to Submit Record on Appeal. On December 20, 1991, he filed the

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Record on Appeal. On December 23, 1991, another Notice of Appeal was filed by the Office of the Solicitor General in behalf of Naagas. In his order of February 10, 1992, respondent judge disallowed the Liquidator's Notice of Appeal on the ground that it was late, i.e., more than 15 days after receipt of the decision. The judge declared his September 13, 1991 order and subsequent orders to be final and executory and denied reconsideration. On March 27, 1992 he granted the Union's Motion for Issuance of a Writ of Execution. Ang Keong Lan and E.J. Ang Int'l., private respondents in G.R. No. 112991, likewise filed claims for the payment of investment in the PaBC allegedly in the form of shares of stocks amounting to US$2,531,632.18. The shares of stocks, consisting of 154,462 common shares, constituted 11% of the total subscribed capital stock of the PaBC. They alleged that their claim constituted foreign exchange capital investment entitled to preference in payment under the Foreign Investments Law. cdll In his order dated September 11, 1992, respondent judge of the RTC directed the Liquidator to pay private respondents the total amount of their claim as preferred creditors. 7 The Liquidator received the order on September 16, 1992. On September 30, 1992 he moved for reconsideration, but his motion was denied by the court on October 2, 1992. He received the order denying his Motion for Reconsideration on October 5, 1992. On October 14,1992 he filed a Notice of Appeal from the orders of September 16, 1992 and October 2, 1992. As in the case of the Union, however, the judge ordered the Notice of Appeal stricken off the record on the ground that it had been filed without authority of the Central Bank and beyond 15 days. In his order of October 28, 1992, the judge directed the execution of his September 11, 1992 order granting the Stockholders/Investors' claim. II. Proceedings in the Court of Appeals The Liquidator filed separate Petitions for Certiorari, Prohibition and Mandamus in the Court of Appeals to set aside the orders of the trial court denying his appeal from the orders granting the claims of Union and of the Stockholders/Investors. The two Divisions of the Court of Appeals, to which the cases were separately raffled, rendered conflicting rulings. In its decision of November 17, 1992 in CA-G.R. SP No. 27751 (now G.R. No. 109373) the Fifth Division 8 held in the case of the Union that the proceeding before the trial court was a special proceeding and, therefore, the period for appealing from any decision or final order rendered therein is 30 days. Since the notice of appeal of the Liquidator was filed on the 30th day of his receipt of the decision granting the Union's claims, the appeal was brought on time. The Fifth Division, therefore, set aside the orders of the lower court and directed the latter to give due course to the appeal of the Liquidator and set the Record on Appeal he had filed for hearing. llcd On the other hand, on December 16, 1993, the Fourteenth Division 9 ruled in CA-G.R. SP No. 29351 (now G.R.No. 112991) in the case of the Stockholders/Investors that a liquidation proceeding is an

ordinary action. Therefore, the period for appealing from any decision or final order rendered therein is 15 days and that since the Liquidator's appeal notice was filed on the 23rd day of his receipt of the order appealed from, deducting the period during which his motion for reconsideration was pending, the notice of appeal was filed late. Accordingly, the Fourteenth Division dismissed the Liquidator's petition. III. Present Proceedings The Union and the Liquidator then separately filed petitions before this Court. In G.R. No. 109373 the Union contends that: 1.The Court of Appeals acted without jurisdiction over the subject matter or nature of the suit. 2.The Court of Appeals gravely erred in taking cognizance of the petition for certiorari filed by Naagas who was without any legal authority to file it. 3.The Court of Appeals erred in concluding that the case is a special proceeding governed by Rules 72 to 109 of the Revised Rules of Court. 4.The Court of Appeals erred seriously in concluding that the notice of appeal filed by Naagas was filed on time. 5.The Court of Appeals erred seriously in declaring that the second notice of appeal filed on December 23, 1991 by the Solicitor General is a superfluity. On the other hand, in G.R. No. 112991 the Liquidator contends that: 1.The Petition for Assistance in the Liquidation of the Pacific Banking Corporation is a Special Proceeding case and/or one which allows multiple appeals, in which case the period of appeal is 30 days and not 15 days from receipt of the order/judgment appealed from. 2.Private respondents are not creditors of PaBC but are plain stockholders whose right to receive payment as such would accrue only after all the creditors of the insolvent bank have been paid. 3.The claim of private respondents in the amount of US$22,531,632.18 is not in the nature of foreign

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investment as it is understood in law. 4.The claim of private respondents has not been clearly established and proved. 5.The issuance of a writ of execution against the assets of PaBC was made with grave abuse of discretion. The petitions in these cases must be dismissed. First. As stated in the beginning, the principal question in these cases is whether a petition for liquidation under 29 of Rep. Act No. 265 is in the nature of a special proceeding. If it is, then the period of appeal is 30 days and the party appealing must, in addition to a notice of appeal, file with the trial court a record on appeal in order to perfect his appeal. Otherwise, if a liquidation proceeding is an ordinary action, the period of appeal is 15 days from notice of the decision or final order appealed from. cdphil BP Blg. 129 provides: 39.Appeals. The period for appeal from final orders, resolutions, awards, judgments, or decisions of any court in all cases shall be fifteen (15) days counted from the notice of the final order, resolution, award, judgment or decision appealed from: Provided, however, that in habeas corpus cases the period for appeal shall be forty-eight (48) hours from the notice of the judgment appealed from. No record on appeal shall be required to take an appeal. In lieu thereof, the entire record shall be transmitted with all the pages prominently numbered consecutively, together with an index of the contents thereof. This section shall not apply in appeals in special proceedings and in other cases wherein multiple appeals are allowed under applicable provisions of the Rules of Court. The Interim Rules and Guidelines to implement BP Blg. 129 provides: 19.Period of Appeals. (a)All appeals, except in habeas corpus cases and in the cases referred to in paragraph (b) hereof, must be taken within fifteen (15) days from notice of the judgment, order, resolution or award appealed from. (b)In appeals in special proceedings in accordance with Rule 109 of the Rules of Court and other cases wherein multiple appeals are allowed, the period of appeals

shall be thirty (30) days, a record on appeal being required. The Fourteenth Division of the Court of Appeals held that the proceeding is an ordinary action similar to an action for interpleader under Rule 63. 10 The Fourteenth Division stated: The petition filed is akin to an interpleader under Rule 63 of the Rules of Court where there are conflicting claimants or several claims upon the same subject matter, a person who claims no interest thereon may file an action for interpleader to compel the claimants to "interplead" and litigate their several claims among themselves. (Section 1, Rule 63). An interpleader is in the category of a special civil action under Rule 62 which, like an ordinary action, may be appealed only within fifteen (15) days from notice of the judgment or order appealed from. Under Rule 62, the preceding rules covering ordinary civil actions which are not inconsistent with or may serve to supplement the provisions of the rule relating to such civil actions are applicable to special civil actions. This embraces Rule 41 covering appeals from the regional trial court to the Court of Appeals. ... Thus, under Section 1, Rule 2 of the Rules of Court, an action is defined as "an ordinary suit in a court of justice by which one party prosecutes another for the enforcement or protection of a right or the prevention or redress of a wrong." On the other hand, Section 2 of the same Rule states that "every other remedy including one to establish the status or right of a party or a particular fact shall be by special proceeding." To our mind, from the aforequoted definitions of an action and a special proceeding, the petition for assistance of the court in the liquidation of an asset of a bank is not "one to establish the status or right of a party or a particular fact." Contrary to the submission of the petitioner, the petition is not intended to establish the fact of insolvency of the bank. The insolvency of the bank had already been previously determined by the Central Bank in accordance with Section 9 of the CB Act before the petition was filed. All that needs to be done is to liquidate the assets of the bank and thus the assistance of the respondent court is sought for that purpose. LLphil It should be pointed out that this petition filed is not among the cases categorized

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as a special proceeding under Section 1, Rule 72 of the Rules of Court, nor among the special proceedings that may be appealed under Section 1, Rule 109 of the Rules. We disagree with the foregoing view of the Fourteenth Division. Rule 2 of the Rules of Court provide: 1.Action defined. Action means an ordinary suit in a court of justice, by which one party prosecutes another for the enforcement or protection of a right, or the prevention or redress of a wrong. 2.Special proceeding distinguished. Every other remedy, including one to establish the status or right of a party or a particular fact, shall be by special proceeding. Elucidating the crucial distinction between an ordinary action and a special proceeding, Chief Justice Moran states: 11

Contrary to the rulings of the Fourteenth Division, liquidation proceedings do not resemble petitions for interpleader. For one, an action for interpleader involves claims on a subject matter against a person who has no interest therein. 12 This is not the case in a liquidation proceeding where the Liquidator, as representative of the corporation, takes charge of its assets and liabilities for the benefit of the creditors. 13 He is thus charged with insuring that the assets of the corporation are paid only to rightful claimants and in the order of payment provided by law. Rather, a liquidation proceeding resembles the proceeding for the settlement of estate of deceased persons under Rules 73 to 91 of the Rules of Court. The two have a common purpose: the determination of all the assets and the payment of all the debts and liabilities of the insolvent corporation or the estate. The Liquidator and the administrator or executor are both charged with the assets for the benefit of the claimants. In both instances, the liability of the corporation and the estate is not disputed. The court's concern is with the declaration of creditors and their rights and the determination of their order of payment. LexLib Furthermore, as in the settlement of estates, multiple appeals are allowed in proceedings for liquidation of an insolvent corporation. As the Fifth Division of the Court of Appeals, quoting the Liquidator, correctly noted: A liquidation proceeding is a single proceeding which consists of a number of cases properly classified as "claims." It is basically a two-phased proceeding. The first phase is concerned with the approval and disapproval of claims. Upon the approval of the petition seeking the assistance of the proper court in the liquidation of a closed entity, all money claims against the bank are required to be filed with the liquidation court. This phase may end with the declaration by the liquidation court that the claim is not proper or without basis. On the other hand, it may also end with the liquidation court allowing the claim. In the latter case, the claim shall be classified whether it is ordinary or preferred, and thereafter included Liquidator. In either case, the order allowing or disallowing a particular claim is final order, and may be appealed by the party aggrieved thereby. The second phase involves the approval by the Court of the distribution plan prepared by the duly appointed liquidator. The distribution plan specifies in detail the total amount available for distribution to creditors whose claim were earlier allowed. The Order finally disposes of the issue of how much property is available for disposal. Moreover, it ushers in the final phase of the liquidation proceeding payment of all allowed claims in accordance with the order of legal priority and the approved distribution plan. Verily, the import of the final character of an Order of allowance or disallowance of a

Action is the act by which one sues another in a court of justice for the enforcement or protection of a right, or the prevention or redress of a wrong while special proceeding is the act by which one seeks to establish the status or right of a party, or a particular fact. Hence, action is distinguished from special proceeding in that the former is a formal demand of a right by one against another, while the latter is but a petition for a declaration of a status, right or fact. Where a party-litigant seeks to recover property from another, his remedy is to file an action. Where his purpose is to seek the appointment of a guardian for an insane, his remedy is a special proceeding to establish the fact or status of insanity calling for an appointment of guardianship. Considering this distinction, a petition for liquidation of an insolvent corporation should be classified a special proceeding and not an ordinary action. Such petition does not seek the enforcement or protection of a right nor the prevention or redress of a wrong against a party. It does not pray for affirmative relief for injury arising from a party's wrongful act or omission nor state a cause of action that can be enforced against any person. What it seeks is merely a declaration by the trial court of the corporation's insolvency so that its creditors may be able to file their claims in the settlement of the corporation's debts and obligations. Put in another way, the petition only seeks a declaration of the corporation's debts and obligations. Put in another way, the petition only seeks a declaration of the corporation's state of insolvency and the concomitant right of creditors and the order of payment of their claims in the disposition of the corporation's assets.

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particular claim cannot be overemphasized. It is the operative fact that constitutes a liquidation proceeding a "case where multiple appeals are allowed by law." The issuance of an Order which, by its nature, affects only the particular claims involved, and which may assume finality if no appeal is made therefrom, ipso facto creates a situation where multiple appeals are allowed. A liquidation proceeding is commenced by the filing of a single petition by the Solicitor General with a court of competent jurisdiction entitled, "Petition for Assistance in the Liquidation" of e.g., Pacific Banking Corporation. All claims against the insolvent are required to be filed with the liquidation court. Although the claims are litigated in the same proceeding, the treatment is individual. Each claim is heard separately. And the Order issued relative to a particular claim applies only to said claim, leaving the other claims unaffected, as each claim is considered separate and distinct from the others. Obviously, in the event that an appeal from an Order allowing or disallowing a particular claim is made, only said claim is affected, leaving the others to proceed with their ordinary course. In such case, the original records of the proceeding are not elevated to the appellate court. They remain with the liquidation court. In lieu of the original record, a record of appeal is instead required to be prepared and transmitted to the appellate court. Inevitably, multiple appeals are allowed in liquidation proceedings. Consequently, a record on appeal is necessary in each and every appeal made. Hence, the period to appeal therefrom should be thirty (30) days, a record on appeal being required. (Record, pp. 162-164). In G.R. No. 112991 (the case of the Stockholders/Investors), the Liquidator's notice of appeal was filed on time, having been filed on the 23rd day of receipt of the order granting the claims of the Stockholders/Investors. However, the Liquidator did not file a record on appeal with the result that he failed to perfect his appeal. As already stated, a record on appeal is required under the Interim Rules and Guidelines in special proceedings and for cases where multiple appeals are allowed. The reason for this is that the several claims are actually separate ones and a decision or final order with respect to any claim can be appealed. Necessarily the original record on appeal must remain in the trial court where other claims may still be pending. Because of the Liquidator's failure to perfect his appeal, the order granting the claims of the Stockholders/Investors became final. Consequently, the Fourteenth Division's decision dismissing the Liquidator's Petition for Certiorari, Prohibition and Mandamus must be affirmed albeit for a different reason.

On the other hand, in G.R. No. 109373 (case of the Labor Union), we find that the Fifth Division correctly granted the Liquidator's Petition for Certiorari, Prohibition and Mandamus. As already noted, the Liquidator filed a notice of appeal and a motion for extension to file a record appeal on December 10, 1991, i.e., within 30 days of his receipt of the order granting the Union's claim. Without waiting for the resolution of his motion for extension, he filed on December 20, 1991 within the extension sought a record on appeal. Respondent judge thus erred in disallowing the notice on appeal and denying the Liquidator's motion for extension to file a record on appeal. Cdpr The Fifth Division of the Court of Appeals correctly granted the Liquidator's Petition for Certiorari, Prohibition and Mandamus and its decision should, therefore, be affirmed. Second. In G.R. No. 109373, The Union claims that under 29 of Rep. Act No. 265, the court merely assists in adjudicating the claims of creditors, preserves the assets of the institution, and implements the liquidation plan approved by the Monetary Board and that, therefore, as representative of the Monetary Board, the Liquidator cannot question the order of the court or appeal from it. It contends that since the Monetary Board had previously admitted PaBC's liability to the laborers by in fact setting aside the amount of P112,234,292.44 for the payment of their claims, there was nothing else for the Liquidator to do except to comply with the order of the court. The Union's contention is untenable. In liquidation proceedings, the function of the trial court is not limited to assisting in the implementation of the orders of the Monetary Board. Under the same section (29) of the law invoked by the Union, the court has authority to set aside the decision of the Monetary Board "if there is a convincing proof that the action is plainly arbitrary and made in bad faith." 14 As this Court held in Rural Bank of Buhi, Inc. v. Court of Appeals: 15 There is no question that the action of the Monetary Board in this regard may be subject to judicial review. Thus, it has been held that the Court's may interfere with the Central Bank'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 (Ramos v. Central Bank of the Philippines, 41 SCRA 567 [1971]). In truth, the Liquidator is the representative not only of the Central Bank but also of the insolvent bank. Under 28A-29 of Rep. Act No. 265 he acts in behalf of the bank "personally or through counsel as he may retain, in all actions or proceedings or against the corporation" and he has authority "to do whatever may be necessary for these purposes." This authority includes the power to appeal from the decisions or final orders of the court which he believes to be contrary to the interest of the bank. Finally the Union contends that the notice of appeal and motion for extension of time to file the record on appeal filed in behalf of the Central Bank was not filed

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by the Office of the Solicitor General as counsel for the Central Bank. This contention has no merit. On October 22, 1992, as Assistant Solicitor General Cecilio O. Estoesta informed the trial court on March 27, 1992, the OSG had previously authorized lawyers of the PDIC to prepare and sign pleadings in the case. 16 Conformably thereto the Notice of Appeal and the Motion for Additional Time to Submit Record on Appeal filed were jointly signed by Solicitor Reynaldo I. Saludares in behalf of the OSG and by lawyers of the PDIC. 17 WHEREFORE, in G.R. No. 109373 and G.R. No. 112991, the decisions appealed from are AFFIRMED. SO ORDERED. Narvasa, C.J., Bidin, Regalado and Puno, JJ., concur.

SYNOPSIS During the pendency of Case No. SP-32311, a petition for assistance in the liquidation of the Philippine Veterans Bank (PVB). Republic Act No. 7169 providing for the rehabilitation of the bank, was passed into law. It was approved by the President on January 2, 1992 and published in the Official Gazette on February 24, 1992. Meanwhile, PVB filed a motion to terminate liquidation proceedings with respondent judge in view of the passage of R.A. No. 7169. Another motion of the same character was filed by the liquidator, but respondent judge continued with the proceedings. August 3, 1992, the PVB opened its doors to the public and started regular banking operations. The enactment of Republic Act No. 7169 has rendered the liquidation court functus officio and respondent judge has been stripped of the authority to issue orders involving acts of liquidation. Liquidation connotes a winding up or settling with the creditors and debtors while rehabilitation connotes a reopening or reorganization. Both are diametrically opposed to each other, such that both cannot be undertaken at the same time.

SYLLABUS 1.COMMERCIAL LAW; PRIVATE CORPORATIONS; LIQUIDATION; CONSTRUED; CONCEPT OF LIQUIDATION IS CONTRARY TO CONCEPT OF REHABILITATION SUCH THAT BOTH CANNOT BE UNDERTAKEN AT THE SAME TIME. Liquidation, in corporation law, connotes a winding up or settling with creditors and debtors. It is the winding up of a corporation so that assets are distributed to those entitled to receive them. It is the process of reducing assets to cash, discharging liabilities and dividing surplus or loss. It is crystal clear that the concept of liquidation is diametrically opposed or contrary to the concept of rehabilitation, such that both cannot be undertaken at the same time. To allow the liquidation proceedings to continue would seriously hinder the rehabilitation of the subject rank. 2.ID.; ID.; REHABILITATION; CONSTRUED. On the opposite end of the spectrum is rehabilitation which connotes a reopening or reorganization. Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency. 3.CIVIL LAW; EFFECTIVITY OF LAWS; WHEN LAWS SHALL TAKE EFFECT; SECTION 10 OF R.A. NO. 7169 SHALL TAKE EFFECT UPON ITS APPROVAL. While as a rule, laws take effect after fifteen (15) days following the completion of their publication in the Official Gazette or in a newspaper of general circulation in the Philippines, the legislature has the authority to provide for exceptions, as indicated in the clause "unless otherwise provided." In the case at bar, Section 10 of R.A. No. 7169 provides: Sec. 10. Effectivity. This Act shall take effect upon its approval. Hence, it is clear that the legislature intended to make the law effective immediately upon its approval. It is undisputed that R.A. No. 7169 was signed into law by President Corazon C. Aquino on January 2, 1992. Therefore, said law became effective on said date. cCTIaS

FIRST DIVISION [G.R. No. 105364. June 28, 2001.] PHILIPPINE VETERANS BANK EMPLOYEES UNION-N.U.B.E. and PERFECTO V. FERNANDEZ,petitioners, vs. HONORABLE BENJAMIN VEGA, Presiding Judge of Branch 39 of the REGIONAL TRIAL COURT of Manila, the CENTRAL BANK OF THE PHILIPPINES and THE LIQUIDATOR OF THE PHILIPPINE VETERANS BANK, respondents.

Perfecto V. Fernandez for petitioner. Carpio Villaraza & Cruz for petitioner-in-intervention. Augusto del Rosario for himself as intervenor. Bonifacio A. Tavera, Jr. for intervenor VOPSDA. Emma G. Salmani for respondents.

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DECISION

KAPUNAN, J p: May a liquidation court continue with liquidation proceedings of the Philippine Veterans Bank (PVB) when Congress had mandated its rehabilitation and reopening? This is the sole issue raised in the instant Petition for Prohibition with Petition for Preliminary Injunction and application for Ex Parte Temporary Restraining Order. The antecedent facts of the case are as follows: Sometime in 1985, the Central Bank of the Philippines (Central Bank, for brevity) filed with Branch 39 of the Regional Trial Court of Manila a Petition for Assistance in the Liquidation of the Philippine Veterans Bank, the same docketed as Case No. SP-32311. Thereafter, the Philippine Veterans Bank Employees Union-N.U.B.E., herein petitioner, represented by petitioner Perfecto V. Fernandez, filed claims for accrued and unpaid employee wages and benefits with said court in SP-32311. 1 After lengthy proceedings, partial payment of the sums due to the employees were made. However, due to the piecemeal hearings on the benefits, many remain unpaid. 2 On March 8, 1991, petitioners moved to disqualify the respondent judge from hearing the above case on grounds of bias and hostility towards petitioners. 3 On January 2, 1992, the Congress enacted Republic Act No. 7169 providing for the rehabilitation of the Philippine Veterans Bank. 4 Thereafter, petitioners filed with the labor tribunals their residual claims for benefits and for reinstatement upon reopening of the bank. 5 Sometime in May 1992, the Central Bank issued a certificate of authority allowing the PVB to reopen. 6 Despite the legislative mandate for rehabilitation and reopening of PVB, respondent judge continued with the liquidation proceedings of the bank. Moreover, petitioners learned that respondents were set to order the payment and release of employee benefits upon motion of another lawyer, while petitioners' claims have been frozen to their prejudice. Hence, the instant petition. Petitioners argue that with the passage of R.A. 7169, the liquidation court became functus officio, and no longer had the authority to continue with liquidation proceedings. In a Resolution, dated June 8, 1992, the Supreme Court resolved to issue a Temporary Restraining Order enjoining the trial court from further proceeding with the case. On June 22, 1992, MOP Security & Detective Agency (VOPSDA) and its 162 security guards filed a Motion for

Intervention with prayer that they be excluded from the operation of the Temporary Restraining Order issued by the Court. They alleged that they had filed a motion before Branch 39 of the RTC of Manila, in SP-No. 32311, praying that said court order PVB to pay their backwages and salary differentials by authority of R.A. No 6727, Wage Orders No. NCR-01 and NCR-01-A and Wage Orders No. NCR-02 and NCR-02-A; and, that said court, in an Order dated June 5, 1992, approved therein movants' case and directed the bank liquidator or PVB itself to pay the backwages and differentials in accordance with the computation incorporated in the order. Said intervenors likewise manifested that there was an error in the computation of the monetary benefits due them. ASTcEa On August 18, 1992, petitioners, pursuant to the Resolution of this court, dated July 6, 1992, filed their Comment opposing the Motion for Leave to File Intervention and for exclusion from the operation of the T.R.O. on the grounds that the movants have no legal interest in the subject matter of the pending action; that allowing intervention would only cause delay in the proceedings; and that the motion to exclude the movants from the T.R.O. is without legal basis and would render moot the relief sought in the petition. On September 3, 1992, the PVB filed a Petition-InIntervention praying for the issuance of the writs of certiorari and prohibition under Rule 65 of the Rules of Court in connection with the issuance by respondent judge of several orders involving acts of liquidation of PVB even after the effectivity of R.A. No. 7169. PVB further alleges that respondent judge clearly acted in excess of or without jurisdiction when he issued the questioned orders. We find for the petitioners. Republic Act No. 7169 entitled "An Act To Rehabilitate The Philippine Veterans Bank Created Under Republic Act No. 3518, Providing The Mechanisms Therefor, And For Other Purposes," which was signed into law by President Corazon C. Aquino on January 2, 1992 and which was published in the Official Gazette on February 24, 1992, provides in part for the reopening of the Philippine Veterans Bank together with all its branches within the period of three (3) years from the date of the reopening of the head office. 7 The law likewise provides for the creation of a rehabilitation committee in order to facilitate the implementation of the provisions of the same. 8 Pursuant to said R.A. No. 7169, the Rehabilitation Committee submitted the proposed Rehabilitation Plan of the PVB to the Monetary Board for its approval. Meanwhile, PVB filed a Motion to Terminate Liquidation of Philippine Veterans Bank dated March 13, 1992 with the respondent judge praying that the liquidation proceedings be immediately terminated in view of the passage of R.A. No. 7169. On April 10, 1992, the Monetary Board issued Monetary Board Resolution No. 348 which approved the Rehabilitation Plan submitted by the Rehabilitation Committee. Thereafter, the Monetary Board issued a Certificate of Authority allowing PVB to reopen. On June 3, 1992, the liquidator filed A Motion for the Termination of the Liquidation Proceedings of the Philippine Veterans Bank with the respondent judge.

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As stated above, the Court, in a Resolution dated June 8, 1992, issued a temporary restraining order in the instant case restraining respondent judge from further proceeding with the liquidation of PVB. On August 3, 1992, the Philippine Veterans Bank opened its doors to the public and started regular banking operations. Clearly, the enactment of Republic Act No. 7169, as well as the subsequent developments has rendered the liquidation court functus officio. Consequently, respondent judge has been stripped of the authority to issue orders involving acts of liquidation. Liquidation, in corporation law, connotes a winding up or settling with creditors and debtors. 9 It is the winding up of a corporation so that assets are distributed to those entitled to receive them. It is the process of reducing assets to cash, discharging liabilities and dividing surplus or loss.

10, 1992, as erroneously claimed by respondents Central Bank and Liquidator. WHEREFORE, in view of the foregoing, the instant petition is hereby GIVEN DUE COURSE and GRANTED. Respondent Judge is hereby PERMANENTLY ENJOINED from further proceeding with Civil Case No. SP- 32311. SO ORDERED. Davide, Jr., C.J., Puno, Pardo and Ynares-Santiago, JJ., concur. Footnotes

On the opposite end of the spectrum is rehabilitation which connotes a reopening or reorganization. Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency. 10 It is crystal clear that the concept of liquidation is diametrically opposed or contrary to the concept of rehabilitation, such that both cannot be undertaken at the same time. To allow the liquidation proceedings to continue would seriously hinder the rehabilitation of the subject bank. Anent the claim of respondents Central Bank and Liquidator of PVB that R.A. No. 7169 became effective only on March 10, 1992 or fifteen (15) days after its publication in the Official Gazette; and, the contention of intervenors VOP Security,et al., that the effectivity of said law is conditioned on the approval of a rehabilitation plan by the Monetary Board, among others, the Court is of the view that both contentions are bereft of merit. While as a rule, laws take effect after fifteen (15) days following the completion of their publication in the Official Gazette or in a newspaper of general circulation in the Philippines, the legislature has the authority to provide for exceptions, as indicated in the clause "unless otherwise provided." In the case at bar, Section 10 of R.A. No. 7169 provides: CDAEHS Sec. 10.Effectivity. This Act shall take effect upon its approval. Hence, it is clear that the legislature intended to make the law effective immediately upon its approval. It is undisputed that R.A. No. 7169 was signed into law by President Corazon C. Aquino on January 2, 1992. Therefore, said law became effective on said date. Assuming for the sake of argument that publication is necessary for the effectivity of R.A. No. 7169, then it became legally effective on February 24, 1992, the date when the same was published in the Official Gazette and not on March

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liquidation court should assist the Superintendent of Banks and regulate his operations. ELC 2.ID.; ID.; ID.; LIQUIDATION COURT; HAS JURISDICTION OVER ALL CLAIMS AGAINST INSOLVENT BANK; CASE AT BENCH. The phrase "(T)he court shall have jurisdiction in the same proceedings to adjudicate disputed claimsagainst the bank" appears to have misled petitioner. He argues that to the best of his personal knowledge there is no pending action filed before any court or agency which contests his right over subject properties. Thus his petition before the Regional Trial Court of Quezon City cannot be considered a "disputed claim" as contemplated by law. It is not necessary that a claim be initially disputed in a court or agency before it is filed with the liquidation court. Petitioner must have overlooked the fact that since respondent RBO is insolvent other claimants not privy to their transaction may be involved. As far as those claimants are concerned, in the absence of certificates of title in the name of petitioner, subject lots still form part of the assets of the insolvent bank. On the basis of the Hernandez case as well as Sec. 29, par. 3, of R.A. 265 as amended by P.D. 1827, respondent Court of Appeals was correct in holding that the Regional Trial Court of Quezon City, Br. 79, did not have jurisdiction over the petition, much less in ordering the dismissal of Civil Case No. Q-91-8019, without prejudice to petitioner's right to file his claim in Sp. Proc. No. 170-0-85 before the Regional Trial Court of Olongapo City, Br. 73.

DECISION

FIRST DIVISION [G.R. No. 112830. February 1, 1996.] JERRY ONG, petitioner, vs. COURT OF APPEALS and RURAL BANK OF OLONGAPO, INC., represented by its Liquidator, GUILLERMO G. REYES, JR. and Deputy Liquidator ABEL ALLANIGUE, respondents.

BELLOSILLO, J p: The jurisdiction of a regular court over a bank undergoing liquidation is the issue in this petition for review of the decision of the Court of Appeals. 1 On 5 February 1991 Jerry Ong filed with the Regional Trial Court of Quezon City a petition for the surrender of TCT Nos. 13769 and 13770 pursuant to the provisions of Secs. 63(b) and 107 of P.D. 1529 2 against Rural Bank of Olongapo, Inc. (RBO), represented by its liquidator Guillermo G. Reyes, Jr., and deputy liquidator Abel Allanigue. 3 The petition averredinter alia that 2.The RBO was the owner in fee simple of two parcels of land including the improvements thereon situated in Tagaytay City . . . particularly described in TCT Nos. 13769 and 13770 . . . 3.Said parcels of land were duly mortgaged by RBO in favor of petitioner on December 29, 1983 to guarantee the payment of Omnibus Finance, Inc., which is likewise now undergoing liquidation proceedings of its money market obligations to petitioner in the principal amount of P863,517.02 . . . 4.Omnibus Finance, Inc., not having seasonably settled its obligations to petitioner, the latter proceeded to effect the extrajudicial foreclosure of said

Cruz Cruz & Navarro III for petitioner. Alberto Reyes and Abel Allanigue for Rural Bank of Olongapo, Inc.

SYLLABUS 1.COMMERCIAL LAW; INSOLVENCY; CENTRAL BANK ACT (R.A. 265 AS AMENDED BY P.D. 1827); JUDICIAL LIQUIDATION; PURPOSE THEREOF. Judicial liquidation is intended to prevent multiplicity of actions against the insolvent bank. It is a pragmatic arrangement designed to establish due process and orderliness in the liquidation of the bank, to obviate the proliferation of litigations and to avoid injustice and arbitrariness. The lawmaking body contemplated that for convenience only one court, if possible, should pass upon the claims against the insolvent bank and that the

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mortgages, such that on March 23, 1984, the City Sheriff of Tagaytay City issued a Certificate of Sale in favor of petitioner . . . 5.Said Certificate of Sale . . . was duly registered with the Registry of Deeds of Tagaytay City on July 16, 1985, as shown in the certified true copies of the aforementioned titles . . . 6.Respondents failed to seasonably redeem said parcels of land, for which reason, petitioner has executed an Affidavit of Consolidation of Ownership which, to date, has not been submitted to the Registry of Deeds of Tagaytay City, in view of the fact that possession of the aforesaid titles or owner's duplicate certificates of title remains with the RBO. RBR 7.To date, petitioner has not been able to effect the registration of said parcels of land in his name in view of the persistent refusal of respondents, despite demand, to surrender RBO's copies of its owner's certificates of title for the parcels of land covered by TCT Nos. 13769 and 13770. 4 Respondent RBO filed a motion to dismiss on the ground of res judicata alleging that petitioner had earlier sought a similar relief from Br. 18 of the Regional Trial Court of Tagaytay City, which case was dismissed with finality on appeal before the Court of Appeals. In a supplemental motion to dismiss, respondent RBO contended that it was undergoing liquidation and, pursuant to prevailing jurisprudence, it is the liquidation court which has exclusive jurisdiction to take cognizance of petitioner's claim. On 7 May 1991 the trial court denied the motion to dismiss because it found that the causes of action in the previous and present cases were different although it was silent on the jurisdictional issue. Accordingly, respondent RBO filed a motion for reconsideration but the same was similarly rejected in the order of June 11, 1991 holding that: (a) subject parcels of land were sold to petitioner through public bidding on 23 March 1984 and, consequently, said pieces of realty were no longer part of the assets of respondent RBO; and, (b) in the same token, subject lots were no longer considered assets of respondent RBO when its liquidation was commenced by the Central Bank on 9 November 1984 and when the petition for assistance in its liquidation was approved by the Regional Trial Court of Olongapo City on 30 May 1985. On 5 July 1991 respondent RBO filed a manifestation and urgent motion for reconsideration arguing that the validity of the certificate of sale issued to petitioner was still at issue in another case between them and therefore the properties covered by said certificate were still part and parcel of its assets. Still unpersuaded by respondent RBO's arguments, the trial court denied reconsideration in its order of 18 September 1991 prompting the bank to elevate the case to respondent

Court of Appeals by way of a petition for certiorari and prohibition. On 12 February 1992 respondent court rendered a decision annulling the challenged order of the court a quodated 19 June 1991 which sustained the jurisdiction of the trial court as well as the order of 18 September 1991 denying reconsideration thereof. Moreover, the trial judge was ordered to dismiss Civil Case No. Q-91-8019 without prejudice to the right of petitioner to file his claim in the liquidation proceedings (Sp. Proc. No. 170-0-85) pending before Br. 73 of the Regional Trial Court of Olongapo City. 5 In reversing the trial court the appellate court noted that Sec. 29, par. 3, of R.A. 265 as amended by P.D. 1827 6 does not limit the jurisdiction of the liquidation court to claims against the assets of the insolvent bank. The provision is general in that it clearly and unqualifiedly states that the liquidation court shall have jurisdiction to adjudicate disputed claims against the bank. "Disputed claims" refer to all claims, whether they be against the assets of the insolvent bank, for specific performance, breach of contract, damages, or whatever. To limit the jurisdiction of the liquidation court to those claims against the assets of the bank is to remove significantly and without basis the cases that may be brought against a bank in case of insolvency. LGM Respondent court also noted that the certificates of title are still in the name of respondent RBO. As far as third persons are concerned (and these include claimants in the liquidation court), registration is the operative act which would convey title to the property. Petitioner submits that Civil Case No. Q-91-8019 may proceed independently of Sp. Proc. No. 170-0-85. He argues that the disputed parcels of land have been extrajudicially foreclosed and the corresponding certificate of sale issued in his favor; that considering that respondent RBO failed to redeem said properties he should now be allowed to consolidate his title thereto; that respondent RBO's mortgage of TCT Nos. 13769 and 13770 in favor of petitioner and its subsequent foreclosure are presumed valid and regular; and, that the liquidation court has no jurisdiction over subject parcels of land since they are no longer assets of respondent RBO. We find no merit in the petition. Section 29, par. 3, of R.A. 265 as amended by P.D. 1827 provides If the Monetary Board shall determine and confirm within (sixty days) that the bank . . . is insolvent or cannot resume business with safety to its depositors, creditors and the general public, it shall, if the public interest requires, order its liquidation, indicate the manner of its liquidation and approve a liquidation plan. The Central Bank shall, by the Solicitor General, file a petition in the Court of First Instance 7 reciting the proceedings which have been taken and praying the assistance of the court in the liquidation of such institution. The court shall have jurisdiction in the same proceedings to adjudicate disputed claims against the bank . . . and enforce individual liabilities of the stockholders and do all that is necessary to preserve the assets of such institution and to implement the liquidation plan approved by the Monetary Board (italics supplied).

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Applying the aforequoted provision in Hernandez v. Rural Bank of Lucena, Inc., 8 this Court ruled The fact that the insolvent bank is forbidden to do business, that its assets are turned over to the Superintendent of Banks, as a receiver, for conversion into cash, and that its liquidation is undertaken with judicial intervention means that, as far as lawful and practicable, all claims against the insolvent bank should be filed in the liquidation proceeding (italics supplied).

claim in Sp. Proc. No. 170-0-85 before the Regional Trial Court of Olongapo City, Br. 73. WHEREFORE, the petition is DENIED. The decision of respondent Court of Appeals dated 12 February 1992 is AFFIRMED. Costs against petitioner. SO ORDERED. Padilla, Vitug, Kapunan, and Hermosisima, Jr., JJ., concur.

We explained therein the rationale behind the provision, i.e., the judicial liquidation is intended to prevent multiplicity of actions against the insolvent bank. It is a pragmatic arrangement designed to establish due process and orderliness in the liquidation of the bank, to obviate the proliferation of litigations and to avoid injustice and arbitrariness. The lawmaking body contemplated that for convenience only one court, if possible, should pass upon the claims against the insolvent bank and that the liquidation court should assist the Superintendent of Banks and regulate his operations. The phrase "(T)he court shall have jurisdiction in the same proceedings to adjudicate disputed claims against the bank" appears to have misled petitioner. He argues that to the best of his personal knowledge there is no pending action filed before any court or agency which contests his right over subject properties. Thus his petition before the Regional Trial Court of Quezon City cannot be considered a "disputed claim" as contemplated by law. It is not necessary that a claim be initially disputed in a court or agency before it is filed with the liquidation court. As may be gleaned in the Hernandez case, the term "disputed claim" in the provision simply connotes that [i]n the course of the liquidation, contentious cases might arise wherein a full-dress hearing would be required and legal issues would have to be resolved. Hence, it would be necessary in justice to all concerned that a Court of First Instance (now Regional Trial Court) . . . assist and supervise the liquidation and . . . act as umpire or arbitrator in the allowance and disallowance of claims. Petitioner must have overlooked the fact that since respondent RBO is insolvent other claimants not privy to their transaction may be involved. As far as those claimants are concerned, in the absence of certificates of title in the name of petitioner, subject lots still form part of the assets of the insolvent bank. On the basis of the Hernandez case as well as Sec. 29, par. 3, of R.A. 265 as amended by P.D. 1827, respondent Court of Appeals was correct in holding that the Regional Trial Court of Quezon City, Br. 79, did not have jurisdiction over the petition, much less in ordering the dismissal of Civil Case No. Q-91-8019, without prejudice to petitioner's right to file his

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DECISION

VELASCO, JR., J p: The Case This is a Petition for Review on Certiorari under Rule 45 with Prayer for Issuance of a Temporary Restraining Order (TRO)/Writ of Preliminary Injunction, questioning the Decision dated September 30, 2008 1 of the Court of Appeals (CA) in CA-G.R. SP No. 103935. The CA Decision upheld the Order 2 dated June 4, 2008 of the Regional Trial Court (RTC), Branch 28 in Manila, issuing writs of preliminary injunction in Civil Case Nos. 08-119243, 08-119244, 08-119245, 08119246, 08-119247, 08-119248, 08-119249, 08-119250, 08119251, and 08-119273, and the Order dated May 21, 2008 that consolidated the civil cases. IcCEDA The Facts In September of 2007, the Supervision and Examination Department (SED) of the Bangko Sentral ng Pilipinas (BSP) conducted examinations of the books of the following banks: Rural Bank of Paraaque, Inc. (RBPI), Rural Bank of San Jose (Batangas), Inc., Rural Bank of Carmen (Cebu), Inc., Pilipino Rural Bank, Inc., Philippine Countryside Rural Bank, Inc., Rural Bank of Calatagan (Batangas), Inc. (now Dynamic Rural Bank), Rural Bank of Darbci, Inc., Rural Bank of Kananga (Leyte), Inc. (now First Interstate Rural Bank), Rural Bank de Bisayas Minglanilla (now Bank of East Asia), and San Pablo City Development Bank, Inc. After the examinations, exit conferences were held with the officers or representatives of the banks wherein the SED examiners provided them with copies of Lists of Findings/Exceptions containing the deficiencies discovered during the examinations. These banks were then required to comment and to undertake the remedial measures stated in these lists within 30 days from their receipt of the lists, which remedial measures included the infusion of additional capital. Though the banks claimed that they made the additional capital infusions, petitioner Chuchi Fonacier, officer-in-charge of the SED, sent separate letters to the Board of Directors of each bank, informing them that the SED found that the banks failed to carry out the required remedial measures. In response, the banks requested that they be given time to obtain BSP approval to amend their Articles of Incorporation, that they have an opportunity to seek investors. They requested as well that the basis for the capital infusion figures be disclosed, and noted that none of them had received the Report of Examination (ROE) which finalizes the audit findings. They also requested meetings with the BSP audit teams to reconcile audit figures. In response, Fonacier reiterated the banks' failure to comply with the directive for additional capital infusions. On May 12, 2008, the RBPI filed a complaint for nullification of the BSP ROE with application for a TRO and writ of preliminary injunction before the RTC docketed as Civil Case No. 08-119243 against Fonacier, the BSP, Amado M. Tetangco, Jr., Romulo L. Neri, Vicente B. Valdepenas, Jr., Raul A. Boncan, Juanita D. Amatong, Alfredo C. Antonio, and Nelly F. Villafuerte. RBPI prayed that Fonacier, her subordinates, agents, or any other person acting in her behalf be enjoined from submitting the ROE or any similar report to the Monetary Board (MB), or if the ROE had already been

THIRD DIVISION [G.R. No. 184778. October 2, 2009.] BANGKO SENTRAL NG PILIPINAS MONETARY BOARD and CHUCHI FONACIER, petitioners, vs. HON. NINA G. ANTONIO-VALENZUELA, in her capacity as Regional Trial Court Judge of Manila, Branch 28; RURAL BANK OF PARAAQUE, INC.; RURAL BANK OF SAN JOSE (BATANGAS), INC.; RURAL BANK OF CARMEN (CEBU), INC.; PILIPINO RURAL BANK, INC.; PHILIPPINE COUNTRYSIDE RURAL BANK, INC.; RURAL BANK OF CALATAGAN (BATANGAS), INC. (now DYNAMIC RURAL BANK); RURAL BANK OF DARBCI, INC.; RURAL BANK OF KANANGA (LEYTE), INC. (now FIRST INTERSTATE RURAL BANK); RURAL BANK OF BISAYAS MINGLANILLA (now BANK OF EAST ASIA); and SAN PABLO CITY DEVELOPMENT BANK, INC.,respondents.

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submitted, the MB be enjoined from acting on the basis of said ROE, on the allegation that the failure to furnish the bank with a copy of the ROE violated its right to due process. The Rural Bank of San Jose (Batangas), Inc., Rural Bank of Carmen (Cebu), Inc., Pilipino Rural Bank, Inc., Philippine Countryside Rural Bank, Inc., Rural Bank of Calatagan (Batangas), Inc., Rural Bank of Darbci, Inc., Rural Bank of Kananga (Leyte), Inc., and Rural Bank de Bisayas Minglanilla followed suit, filing complaints with the RTC substantially similar to that of RBPI, including the reliefs prayed for, which were raffled to different branches and docketed as Civil Cases Nos. 08-119244, 08-119245, 08-119246, 08-119247, 08119248, 08-119249, 08-119250, and 08-119251, respectively. On May 13, 2008, the RTC denied the prayer for a TRO of Pilipino Rural Bank, Inc. The bank filed a motion for reconsideration the next day. On May 14, 2008, Fonacier and the BSP filed their opposition to the application for a TRO and writ of preliminary injunction in Civil Case No. 08-119243 with the RTC. Respondent Judge Nina Antonio-Valenzuela of Branch 28 granted RBPI's prayer for the issuance of a TRO. ATaDHC The other banks separately filed motions for consolidation of their cases in Branch 28, which motions were granted. Judge Valenzuela set the complaint of Rural Bank of San Jose (Batangas), Inc. for hearing on May 15, 2008. Petitioners assailed the validity of the consolidation of the nine cases before the RTC, alleging that the court had already prejudged the case by the earlier issuance of a TRO in Civil Case No. 08119243, and moved for the inhibition of respondent judge. Petitioners filed a motion for reconsideration regarding the consolidation of the subject cases. On May 16, 2008, San Pablo City Development Bank, Inc. filed a similar complaint against the same defendants with the RTC, and this was docketed as Civil Case No. 08-119273 that was later on consolidated with Civil Case No. 08-119243. Petitioners filed an Urgent Motion to Lift/Dissolve the TRO and an Opposition to the earlier motion for reconsideration of Pilipino Rural Bank, Inc. On May 19, 2008, Judge Valenzuela issued an Order granting the prayer for the issuance of TROs for the other seven cases consolidated with Civil Case No. 08-119243. On May 21, 2008, Judge Valenzuela issued an Order denying petitioners' motion for reconsideration regarding the consolidation of cases in Branch 28. On May 22, 2008, Judge Valenzuela granted the urgent motion for reconsideration of Pilipino Rural Bank, Inc. and issued a TRO similar to the ones earlier issued. On May 26, 2008, petitioners filed a Motion to Dismiss against all the complaints (except that of the San Pablo City Development Bank, Inc.), on the grounds that the complaints stated no cause of action and that a condition precedent for filing the cases had not been complied with. On May 29, 2008, a hearing was conducted on the application for a TRO and for a writ of preliminary injunction of San Pablo City Development Bank, Inc. The Ruling of the RTC After the parties filed their respective memoranda, the RTC, on June 4, 2008, ruled that the banks were entitled to the

writs of preliminary injunction prayed for. It held that it had been the practice of the SED to provide the ROEs to the banks before submission to the MB. It further held that as the banks are the subjects of examinations, they are entitled to copies of the ROEs. The denial by petitioners of the banks' requests for copies of the ROEs was held to be a denial of the banks' right to due process. The dispositive portion of the RTC's order reads: WHEREFORE, the Court rules as follows: 1)Re: Civil Case No. 08-119243. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Rural Bank of Paranaque Inc. is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued to enjoin and restrain the defendants from submitting the Report of Examination or any other similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case such a Report on Examination [sic] or any other similar report prepared in connection with the examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and its members (i.e., defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report. 2)Re: Civil Case No. 08-119244. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Rural Bank of San Jose (Batangas), Inc. is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued to enjoin and restrain the defendants from submitting the Report of Examination or any other similar report prepared in connection

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with the examination conducted on the plaintiff, to the Monetary Board. In case such a Report on Examination [sic] or any other similar report prepared in connection with the examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and its members (i.e., defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report. ESIcaC 3)Re: Civil Case No. 08-119245. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Rural Bank of Carmen (Cebu), Inc. is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued to enjoin and restrain the defendants from submitting the Report of Examination or any other similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case such a Report on Examination [sic] or any other similar report prepared in connection with the examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and its members (i.e., defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report.

thereof, let a writ of preliminary injunction be issued to enjoin and restrain the defendants from submitting the Report of Examination or any other similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case such a Report on Examination [sic] or any other similar report prepared in connection with the examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and its members (i.e., defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report. 5)Re: Civil Case No. 08-119247. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Philippine Countryside Rural Bank Inc. is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued to enjoin and restrain the defendants from submitting the Report of Examination or any other similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case such a Report on Examination [sic] or any other similar report prepared in connection with the examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and its members (i.e., defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report. 6)Re: Civil Case No. 08-119248. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Dynamic Bank Inc. (Rural Bank of Calatagan) is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they may sustain by reason of

4)Re: Civil Case No. 08-119246. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Pilipino Rural Bank Inc. is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval

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the injunction if the Court should finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued to enjoin and restrain the defendants from submitting the Report of Examination or any other similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case such a Report on Examination [sic] or any other similar report prepared in connection with the examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and its members (i.e., defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report. 7)Re: Civil Case No. 08-119249. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Rural Bank of DARBCI, Inc. is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued to enjoin and restrain the defendants from submitting the Report of Examination or any other similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case such a Report on Examination [sic] or any other similar report prepared in connection with the examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and its members (i.e., defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report. cIDHSC 8)Re: Civil Case No. 08-119250. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Rural Bank of Kananga Inc. (First Intestate Bank), is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that

the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued to enjoin and restrain the defendants from submitting the Report of Examination or any other similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case such a Report on Examination [sic] or any other similar report prepared in connection with the examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and its members (i.e., defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report. 9)Re: Civil Case No. 08-119251. Pursuant to Rule 58, Section 4(b) of the Revised Rules of Court, plaintiff Banco Rural De Bisayas Minglanilla (Cebu) Inc. (Bank of East Asia) is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued to enjoin and restrain the defendants from submitting the Report of Examination or any other similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case such a Report on Examination [sic] or any other similar report prepared in connection with the examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and its members (i.e., defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report. 10)Re: Civil Case No. 08-119273. Pursuant to Rule 58, Section 4(b) of the Revised Rules of

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Court, plaintiff San Pablo City Development Bank, Inc. is directed to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all damages which they may sustain by reason of the injunction if the Court should finally decide that the plaintiff was not entitled thereto. After posting of the bond and approval thereof, let a writ of preliminary injunction be issued to enjoin and restrain the defendants from submitting the Report of Examination or any other similar report prepared in connection with the examination conducted on the plaintiff, to the Monetary Board. In case such a Report on Examination [sic] or any other similar report prepared in connection with the examination conducted on the plaintiff has been submitted to the Monetary Board, the latter and its members (i.e., defendants Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report. 3 The Ruling of the CA Petitioners then brought the matter to the CA via a petition for certiorari under Rule 65 claiming grave abuse of discretion on the part of Judge Valenzuela when she issued the orders dated May 21, 2008 and June 4, 2008. The CA ruled that the RTC committed no grave abuse of discretion when it ordered the issuance of a writ of preliminary injunction and when it ordered the consolidation of the 10 cases. It held that petitioners should have first filed a motion for reconsideration of the assailed orders, and failed to justify why they resorted to a special civil action of certiorari instead. The CA also found that aside from the technical aspect, there was no grave abuse of discretion on the part of the RTC, and if there was a mistake in the assessment of evidence by the trial court, that should be characterized as an error of judgment, and should be correctable via appeal. HcACTE The CA held that the principles of fairness and transparency dictate that the respondent banks are entitled to copies of the ROE. Regarding the consolidation of the 10 cases, the CA found that there was a similarity of facts, reliefs sought, issues raised, defendants, and that plaintiffs and defendants were represented by the same sets of counsels. It found that the joint trial of these cases would prejudice any substantial right of petitioners.

Finding that no grave abuse of discretion attended the issuance of the orders by the RTC, the CA denied the petition. On November 24, 2008, a TRO was issued by this Court, restraining the CA, RTC, and respondents from implementing and enforcing the CA Decision dated September 30, 2008 in CA-G.R. SP No. 103935. 4 By reason of the TRO issued by this Court, the SED was able to submit their ROEs to the MB. The MB then prohibited the respondent banks from transacting business and placed them under receivership under Section 53 of Republic Act No. (RA) 8791 5 and Sec. 30 of RA 7653 6 through MB Resolution No. 1616 dated December 9, 2008; Resolution Nos. 1637 and 1638 dated December 11, 2008; Resolution Nos. 1647, 1648, and 1649 dated December 12, 2008; Resolution Nos. 1652 and 1653 dated December 16, 2008; and Resolution Nos. 1692 and 1695 dated December 19, 2008, with the Philippine Deposit Insurance Corporation as the appointed receiver.

Now we resolve the main petition. Grounds in Support of Petition I.THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT THE INJUNCTION ISSUED BY THE REGIONAL TRIAL COURT VIOLATED SECTION 25 OF THE NEW CENTRAL BANK ACT AND EFFECTIVELY HANDCUFFED THE BANGKO SENTRAL FROM DISCHARGING ITS FUNCTIONS TO THE GREAT AND IRREPARABLE DAMAGE OF THE COUNTRY'S BANKING SYSTEM; II.THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT RESPONDENTS ARE ENTITLED TO BE FURNISHED COPIES OF THEIR RESPECTIVE ROEs BEFORE THE SAME IS SUBMITTED TO THE MONETARY BOARD IN VIEW OF THE PRINCIPLES OF FAIRNESS AND TRANSPARENCY DESPITE LACK OF EXPRESS PROVISION IN THE NEW CENTRAL BANK ACT REQUIRING BSP TO DO THE SAME; III.THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN DEPARTING FROM WELL-ESTABLISHED PRECEPTS OF LAW AND JURISPRUDENCE: A.THE EXCEPTIONS CITED BY PETITIONER JUSTIFIED RESORT TO PETITION FOR CERTIORARI UNDER RULE 65 INSTEAD OF FIRST

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FILING A MOTION FOR RECONSIDERATION B.RESPONDENT BANKS' ACT OF RESORTING IMMEDIATELY TO THE COURT WAS PREMATURE SINCE IT WAS MADE IN UTTER DISREGARD OF THE PRINCIPLE OF PRIMARY JURISDICTION AND EXHAUSTION OF ADMINISTRATIVE REMEDY C.THE ISSUANCE OF A WRIT OF PRELIMINARY INJUNCTION BY THE REGIONAL TRIAL COURT WAS NOT ONLY IMPROPER BUT AMOUNTED TO GRAVE ABUSE OF DISCRETION 7 Our Ruling The petition is meritorious. In Lim v. Court of Appeals it was stated: The requisites for preliminary injunctive relief are: (a) the invasion of right sought to be protected is material and substantial; (b) the right of the complainant is clear and unmistakable; and (c) there is an urgent and paramount necessity for the writ to prevent serious damage. As such, a writ of preliminary injunction may be issued only upon clear showing of an actual existing right to be protected during the pendency of the principal action. The twin requirements of a valid injunction are the existence of a right and its actual or threatened violations. Thus, to be entitled to an injunctive writ, the right to be protected and the violation against that right must be shown. 8 These requirements are absent in the present case. In granting the writs of preliminary injunction, the trial court held that the submission of the ROEs to the MB before the respondent banks would violate the right to due process of said banks. cHDEaC This is erroneous. The respondent banks have failed to show that they are entitled to copies of the ROEs. They can point to no provision of law, no section in the procedures of the BSP that shows that the BSP is required to give them copies of the ROEs. Sec. 28 of RA 7653, or the New Central Bank Act, which governs

examinations of banking institutions, provides that the ROE shall be submitted to the MB; the bank examined is not mentioned as a recipient of the ROE. The respondent banks cannot claim a violation of their right to due process if they are not provided with copies of the ROEs. The same ROEs are based on the lists of findings/exceptions containing the deficiencies found by the SED examiners when they examined the books of the respondent banks. As found by the RTC, these lists of findings/exceptions were furnished to the officers or representatives of the respondent banks, and the respondent banks were required to comment and to undertake remedial measures stated in said lists. Despite these instructions, respondent banks failed to comply with the SED's directive. Respondent banks are already aware of what is required of them by the BSP, and cannot claim violation of their right to due process simply because they are not furnished with copies of the ROEs. Respondent banks were held by the CA to be entitled to copies of the ROEs prior to or simultaneously with their submission to the MB, on the principles of fairness and transparency. Further, the CA held that if the contents of the ROEs are essentially the same as those of the lists of findings/exceptions provided to said banks, there is no reason not to give copies of the ROEs to the banks. This is a flawed conclusion, since if the banks are already aware of the contents of the ROEs, they cannot say that fairness and transparency are not present. If sanctions are to be imposed upon the respondent banks, they are already well aware of the reasons for the sanctions, having been informed via the lists of findings/exceptions, demolishing that particular argument. The ROEs would then be superfluities to the respondent banks, and should not be the basis for a writ of preliminary injunction. Also, the reliance of the RTC on Banco Filipino v. Monetary Board 9 is misplaced. The petitioner in that case was held to be entitled to annexes of the Supervision and Examination Sector's reports, as it already had a copy of the reports themselves. It was not the subject of the case whether or not the petitioner was entitled to a copy of the reports. And the ruling was made after the petitioner bank was ordered closed, and it was allowed to be supplied with annexes of the reports in order to better prepare its defense. In this instance, at the time the respondent banks requested copies of the ROEs, no action had yet been taken by the MB with regard to imposing sanctions upon said banks. The issuance by the RTC of writs of preliminary injunction is an unwarranted interference with the powers of the MB. Secs. 29 and 30 of RA 7653 10 refer to the appointment of a conservator or a receiver for a bank, which is a power of the MB for which they need the ROEs done by the supervising or examining department. The writs of preliminary injunction issued by the trial court hinder the MB from fulfilling its function under the law. The actions of the MB under Secs. 29 and 30 of RA 7653 "may not be restrained or set aside by the court except on petition for certiorari on the ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction". The writs of preliminary injunction order are precisely what cannot be done under the law by preventing the MB from taking action under either Sec. 29 or Sec. 30 of RA 7653. As to the third requirement, the respondent banks have shown no necessity for the writ of preliminary injunction to prevent serious damage. The serious damage contemplated by the trial court was the possibility of the imposition of

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sanctions upon respondent banks, even the sanction of closure. Under the law, the sanction of closure could be imposed upon a bank by the BSP even without notice and hearing. The apparent lack of procedural due process would not result in the invalidity of action by the MB. This was the ruling in Central Bank of the Philippines v. Court of Appeals. 11 This "close now, hear later" scheme is grounded on practical and legal considerations to prevent unwarranted dissipation of the bank's assets and as a valid exercise of police power to protect the depositors, creditors, stockholders, and the general public. The writ of preliminary injunction cannot, thus, prevent the MB from taking action, by preventing the submission of the ROEs and worse, by preventing the MB from acting on such ROEs. IaDcTC The trial court required the MB to respect the respondent banks' right to due process by allowing the respondent banks to view the ROEs and act upon them to forestall any sanctions the MB might impose. Such procedure has no basis in law and does in fact violate the "close now, hear later" doctrine. We held in Rural Bank of San Miguel, Inc. v. Monetary Board, Bangko Sentral ng Pilipinas: It is well-settled that the closure of a bank may be considered as an exercise of police power. The action of the MB on this matter is final and executory. Such exercise may nonetheless be subject to judicial inquiry and can be set aside if found to be in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction. 12 The respondent banks cannot through seeking a writ of preliminary injunction by appealing to lack of due process, in a roundabout manner prevent their closure by the MB. Their remedy, as stated, is a subsequent one, which will determine whether the closure of the bank was attended by grave abuse of discretion. Judicial review enters the picture only after the MB has taken action; it cannot prevent such action by the MB. The threat of the imposition of sanctions, even that of closure, does not violate their right to due process, and cannot be the basis for a writ of preliminary injunction. The "close now, hear later" doctrine has already been justified as a measure for the protection of the public interest. Swift action is called for on the part of the BSP when it finds that a bank is in dire straits. Unless adequate and determined efforts are taken by the government against distressed and mismanaged banks, public faith in the banking system is certain to deteriorate to the prejudice of the national economy itself, not to mention the losses suffered by the bank depositors, creditors, and stockholders, who all deserve the protection of the government. 13 The respondent banks have failed to show their entitlement to the writ of preliminary injunction. It must be emphasized that an application for injunctive relief is construed strictly against the pleader. 14 The respondent banks cannot rely on a simple appeal to procedural due process to prove entitlement. The requirements for the issuance of the writ have not been proved. No invasion of the rights of respondent banks has been shown, nor is their right to copies of the ROEs clear and unmistakable. There is also no necessity for the writ to prevent serious damage. Indeed the issuance of the writ of preliminary injunction tramples upon the powers of the MB and prevents it from fulfilling its functions. There is no right

that the writ of preliminary injunction would protect in this particular case. In the absence of a clear legal right, the issuance of the injunctive writ constitutes grave abuse of discretion. 15 In the absence of proof of a legal right and the injury sustained by the plaintiff, an order for the issuance of a writ of preliminary injunction will be nullified. 16

Courts are hereby reminded to take greater care in issuing injunctive relief to litigants, that it would not violate any law. The grant of a preliminary injunction in a case rests on the sound discretion of the court with the caveat that it should be made with great caution. 17 Thus, the issuance of the writ of preliminary injunction must have basis in and be in accordance with law. All told, while the grant or denial of an injunction generally rests on the sound discretion of the lower court, this Court may and should intervene in a clear case of abuse. 18 WHEREFORE, the petition is hereby GRANTED. The assailed CA Decision dated September 30, 2008 in CA-G.R. SP No. 103935 is hereby REVERSED. The assailed order and writ of preliminary injunction of respondent Judge Valenzuela in Civil Case Nos. 08-119243, 08-119244, 08-119245, 08-119246, 08-119247, 08-119248, 08-119249, 08-119250, 08-119251, and 08-119273 are hereby declared NULL and VOID. SO ORDERED. Ynares-Santiago, Chico-Nazario, Nachura and Peralta, JJ., concur.

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