CBP v CA

208 SCRA 652

Davide, Jr., J
Note: these are two consolidated cases, one concerning the conservator, and one
the CBP.
Facts: Petitioner, Central Bank discovered that certain questionable loans extended
by Producers Bank of the Philippines (PBP), totaling approximately P300 million
were fictitious as they were extended, without collateral, to certain interests related
to PBP owners themselves. Be it noted that the paid-in capital of PBP was only to P
140.544 million.
Later, in same year, several blind items about a family-owned bank in Binondo
which granted fictitious loans to its stockholders appeared in major newspapers.
This triggered a bank-run in PBP and resulted in continuous over-drawings on the
banks demand deposit account with the Central Bank. The overdraft reached P
143.955 million by January 1984. This led to the report submitted by the
Supervision and Examination Sector of the Monetary Board (MB), and on the basis
thereof, placed PBP under conservatorship.
PBP submitted a rehabilitation plan to the CB which proposing among other things
the transfer to PBP of 3 buildings owned by Producers Properties, Inc. (PPI), its
principal stockholder. The plan also proposed the subsequent mortgage of said
properties to the CB as collateral for the banks overdraft obligation. There were
certain disagreements between the parties and hence, the proposed plan was not
approved. Since no other rehabilitation program was submitted by PBP for almost 3
years, its overdrafts with the CB continued to accumulate and reached P1.023
billion. Because of this, the MB decided to approve in principle what it considered a
viable rehabilitation program for PBP. There being no response from both PBP and
PPI on the proposed rehabilitation plan, the MB issued a resolution instructing
Central Bank management to advise the bank that the conservatorship may be
lifted if PBP complies with certain conditions such as identifying the new group of
stockholders who will put in new capital in PBP (after the MB shall have considered
such new stockholders acceptable.); and that PBP stockholders have to decide
whether to accept the terms of the rehabilitation plan within one week from receipt
of notice, and if such terms arent acceptable to them, the CB will take appropriate
alternative action.
Without responding to the communications of the CB, on August 1997, PBP filed a
complaint for damages with the RTC against the petitioners saying that the
resolutions issued were arbitrary and made in bad faith. On August 1987
respondent judge of the RTC issued a temporary restraining order. On September of
the same year, respondent judge granted the writ of preliminary injunction prayed
for by PBP. After that, the RTC gave an order requiring the conservator to reinstate
PBP officers to their original positions.

CB filed a motion to dismiss and prayed for the lifting of the injunction arguing
among other things that the assailed MB resolutions were merely advisory, which
means that it does not effect impairment of plaintiffs rights nor cause it prejudice,
loss, or damage. It also noted that there was no basis for the averments on the
illegality of the conservatorship since the complaint did not seek its annulment. The
RTC however dismissed the motion to dismissed and ruled that the MB resolutions
were arbitrarily issued. CB filed a petition for certiorari before the CA but CA
affirmed the RTC decision. Hence this recourse to the SC.
Issue: Whether the RTC was correct in granting the injunction, essentially lifting the
conservatorship and declaring the MB resolutions arbitrary.
Ruling: No.
It must be noted that PBP has been under conservatorship since January 1984. If the
lifting of the conservatorship was sought for because it was arbitrarily imposed, the
RTC should have dismissed it on the ground of prescription. (Another reason given
by the SC was lack of authority as the complaint was filed without the approval of
the majority). Under the 5th paragraph of Section 29 of the Central Bank Act, as
amended, the actions of the MB may be assailed in an appropriate pleading filed by
the stockholders of record representing the majority stock within ten (10) days from
receipt of notice by the said majority stockholders of the order placing the bank
under conservatorship.
Hence, the requisites to set aside a conservatorship are:
1. The appropriate pleading must be filed by the stockholders of record
representing the majority of the capital stock of the bank in the proper court;
2. Said pleading must be filed within ten (10) days from receipt of notice by said
majority stockholders of the order placing the bank under conservatorship;
and
3. There must be convincing proof, after hearing that the action is plainly
arbitrary and made in bad faith.
These requisites are not met. It was established that the complaint was filed without
the approval of the majority. Also, the complaint was filed only in August 1987 or
three years, seven months and seven days later, long after the expiration of the 10day period prescribed.
(The court noted that even with this clear provision of law, respondents antics of
showing in the pleadings the apparent injustices successfully captured the
sympathy of the lower courts which found merit in their case.)
As to the issue of arbitrariness of the MB resolutions, it must be stressed 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 revenues of the state. Banks are affected with public interest because
they receive funds from the general public. It is the governments duty (thru the CB)
to see to it that the financial interests of those who deal with banks and banking
institutions are protected.

One important measure adopted by the government to protect the public is to

require banks to set up reserves against their deposit liabilities. The enormous
overdraft (1.233B as of February 1990) is evidence enough of PBPs inability to of
the management to keep the bank liquid. This fact alone sufficiently justifies the
remedial measures taken by the MB.
The resolutions were not promulgated to divest the present stockholders of control
over the PBP. It must be noted that the MB gave PBP ample opportunity (3 years) to
submit a viable rehabilitation plan for the bank. Respondent judge was in utter
disregard of the law when he enjoined the CB from taking appropriate actions
against the bank.