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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.
DECISION
PANGANIBAN, J.:
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 forum-shopping?
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:
i

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.
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 courts [2] decision dated July 10, 1991, on the other hand, is as
follows:
ii

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;
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 owners 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 P 200,000.00 each in moral damages;
4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P 100,000.00 as
exemplary damages;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of
P400,000.00 for and by way of attorneys 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, sur-rejoinder 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.
The Parties
Petitioner First Philippine International Bank (formerly Producers Bank of the Philippines;
petitioner Bank, for 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 plaintiffs-appellees 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.
The Facts

The facts of this case are summarized in the respondent Courts Decision,

iii

[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 fora 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 Investments
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
The Producers Bank of the Philippines
Makati, Metro Manila
Attn.

Mr. Mercurio Q. Rivera


Manager, Property Management Dept.

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-106932
T-106933
T-106934
T-106935
T-106936
T-106937

113,580
70,899
52,246
96,768
187,114
481,481

sq.m.
sq.m.
sq.m.
sq.m.
sq.m.
sq.m.

My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00)


PESOS, in cash.
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
Rosario, Pasig, Metro Manila
Attention:

JOSE O. JANOLO Dear Sir:

Dear Sir:
Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa, Laguna
(formerly owned by Byme industrial Corp.). Please be informed however that the banks counteroffer 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 Riveras aforequoted reply, wrote
(Exh.
September 17, 1987
Producers Bank
Paseo de Roxas
Makati, Metro Manila
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 Janolos foregoing letter of September 17, 1987. What took place was
a meeting on September 28, 1987 between the plaintiffs and Luis Co, the Senior Vice-President
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):
The Producers Bank of the Philippines
Paseo de Roxas, Makati
Metro Manila
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 In-vestment, for a total price of PESOS: FIVE MILLION FIVE HUNDRED THOUSAND
(P5,500,000.00).
Thank you.
(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):
Attention:

Atty. Demetrio Demetria

Dear Sir:
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:
Mr. Mercurio Rivera
Manager, Producers Bank
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 101hectare 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.
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 x
x x 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
(Exhs. L and L-1), this time through the Acting Conservator, defendant Encarnacion.
Plaintiffs letter reads:
PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila
Attn.: Atty. NIDA ENCARNACION Central Bank Conservator
Gentlemen:
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.
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 defendants 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 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.
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 Banks 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 courts 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 pre-trial 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 plaintiffs 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.
iv

In their Petition

vi

[6]

and Memorandum,

vii

[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.
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
that:

viii

[8]

I.
Petitioners have engaged in forum shopping.
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.
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?
5) Did the respondent Court commit any reversible error in its findings of facts?
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 x x x
[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]
ix

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]
x

On the other hand, petitioners explain

xi

[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 the plaintiff;
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;
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
xii

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, Blacks 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.
xiii

xiv

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]
xv

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 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 x x x. [17] When does forumshopping take place?
xvi

xvii

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]
xviii

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, forumshopping 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:
xix

There thus exists between the action before this Court and RTC Case No. 86-36563 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. 86-36563, 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 constitute res 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.
xx

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-in-interest)
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:
xxi

xxii

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 letter-directive 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. (italics supplied)
In an earlier case,

xxiii

[23]

but with the same logic and vigor, we held:

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 oflcio. 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:
xxiv

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]; italics 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]
xxv

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
xxvi

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.
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:
xxvii

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, Velhagens and Kings motion to dismiss Civil Case No. 91-2069 by
no means negates the charge of forum-shopping as such did not exist in the first place. (italics
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 above-quoted Court ruling,
the defendants did not file any responsive pleading in 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.
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]
xxviii

The foregoing conclusion finding the existence of forum-shopping 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 Petitions 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 forum-shopping and not to trifle with court
proceedings and processes. They are warned that a repetition of the same will be dealt with more
severely.
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. 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 T-106937. It is likewise beyond cavil that the bank
intended to sell the property. As testified to by the Banks 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. 1920):
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 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. 27-28):
Q:
When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did you ask
him point-blank 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 weeks (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.
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 banks internal procedure in the matter of the sale of banks 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 banks 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 Riveras 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 self-serving character of these declarations, the banks 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 banks 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 banks 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, 583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370;
Prudential Bank v. Court of Appeals, G.R. No. 103957, June 14, 1993). [29]
xxix

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 counteroffer which Rivera (or Co) may have made is unauthorized. Since there was no counter-offer 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 Courts 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 Courts 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 discussed their findings. This is basic.
xxx

Be that as it may, and in addition to the foregoing disquisitions by the Court of Appeals, let us
review the question of Riveras authority to act and petitioners 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:
xxxi

Conformably, we have declared in countless decisions that the principal is liable for obligations
contracted by the agent. The agents apparent representation yields to the principals 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 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
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.
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 Banks 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 Banks 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 Riveras
statement as to the finality of the Banks 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 Banks advertisements offering for sale the
property in question (cf. Exhs. S and S-I).
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.
xxxii

To be sure, petitioners attempted to repudiate Riveras apparent authority through documents and
testimony which seek to establish Riveras actual authority. These pieces of evidence, however,
are inherently weak as they consist of Riveras 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 Courts findings, the evidence of actual authority is
immaterial insofar as the liability of a corporation is concerned. [33]
xxxiii

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 Riveras 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 Riveras 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 Demetrias and Janolos P4.25 million counter-offer in the letter
dated September 17, 1987 extinguished the Banks offer of P5.5 million. [34] They disputed the
respondent Courts 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 Riveras
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]
xxxiv

xxxv

xxxvi

xxxvii

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 Banks 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 x x x.
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.
xxxviii

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 Cos 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.
xxxix

We note that the Banks repudiation, through Conservator Encarnacion, of Riveras authority and
action, particularly the latters counter-offer of P5.5 million, as being unauthorized and illegal
came only on May 12, 1988 or more than seven (7) months after Janolos 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 Banks 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 Banks 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]
xl

xxx 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]
xli

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:
The petition alleged:

Is the Contract Enforceable?


xlii

[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:
x x x Of course, the banks 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 banks 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 Janolos 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 Banks 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

Q-

Now, what transpired during this meeting with Luis Co of the Producers Bank?

A-

Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.

Q-

What 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.
Q-

What do you mean?

A-

That is the amount they want, sir.

QWhat is the reaction of the plaintiff Demetria to Luis Cos statment (sic) that the
defendant Riveras counter-offer of 5.5 million was the defendants bank (sic) final offer?
A-

He said in a day or two, he will make final acceptance, sir.

Q-

What is the response of Mr. Luis Co?

A-

He 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.]
----0---QWhat transpired during that meeting between you and Mr. Luis Co of the defendant
Bank?
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.
Q-

What 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?
A-

Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.

Q-

By Mr. Co you are referring to?

A-

Mr. 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.]
---- 0 ---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 quasi - banking 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
quasi-banking 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 Conservators 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]
xliii

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 Banks 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
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 Secs. 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.
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 Banks 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 law. We also have no personal interest in any of the properties of the
Bank.
Please be advised accordingly.
Very truly yours,
(Sgd.) Leonida T. Encarnacion
LEONIDA T. ENCARNACION
Acting Conservator
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 post-facto 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 28A of said law?
xliv

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 banks 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:
xlv

x x x. 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. 144-145.]
Likewise, in Bernardo vs. Court of Appeals,

xlvi

[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 Courts 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. x x x
As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock Construction
and Development Corp.: [47]
xlvii

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:
xlviii

We see no valid reason to discard the factual conclusions of the appellate court. x x x (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. (italics supplied)
Petitioners, however, assailed the respondent Courts 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 Banks 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.
xlix

The first point was clearly passed upon by the Court of Appeals, [50] thus:
l

There can be no other logical conclusion than that when, on September 1, 1987, Rivera
informed plaintiffs by letter that the banks 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 x x x. Tersely put, under the established fact, the price of P5.5 Million was, as
clearly worded in Riveras letter (Exh. E), the official and definitive price at which the bank
was selling the property. (p. 11, CA Decision)
xxx

xxx

xxx

xxx. 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. 34-35) (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 banks 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.
li

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
respondents 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.
lii

Epilogue
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 Banks offer of P5.5 million and the
conservators powers to repudiate contracts entered into by the Banks 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 Courts
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 x x x as many people depend on (it) for investments, deposits and well as
employment. As of June 1987, the Banks overdraft with the Central Bank had already reached
P1.023 billion x x x and there were (other) offers to buy the subject properties for a substantial
amount of money. [53]
liii

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 forumshopping, which must be upheld under the rule of law and blind justice.
This Court cannot just gloss over private respondents 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 P 3.5 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.
liv

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 forum-shopping 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. (Chairman), Davide, Jr., Melo, and Francisco, JJ., concur.

i
ii

THIRD DIVISION
[G.R. No. 100701. March 28, 2001]
PRODUCERS BANK OF THE PHILIPPINES, petitioner, vs. NATIONAL LABOR RELATIONS
COMMISSION and PRODUCERS BANK EMPLOYEES ASSOCIATION,[1] respondents.
DECISION
GONZAGA-REYES, J.:
Before us is a special civil action for certiorari with prayer for preliminary injunction and/or
restraining order seeking the nullification of (1) the decision of public respondent in NLRC-NCR Case
No. 02-00753-88, entitled Producers Bank Employees Association v. Producers Bank of the
Philippines, promulgated on 30 April 1991, reversing the Labor Arbiters dismissal of private
respondents complaint and (2) public respondents resolution dated 18 June 1991 denying petitioners
motion for partial reconsideration.
The present petition originated from a complaint filed by private respondent on 11 February 1988 with
the Arbitration Branch, National Capital Region, National Labor Relations Commission (NLRC),
charging petitioner with diminution of benefits, non-compliance with Wage Order No. 6 and nonpayment of holiday pay. In addition, private respondent prayed for damages.[2]
On 31 March 1989, Labor Arbiter Nieves V. de Castro found private respondents claims to be
unmeritorious and dismissed its complaint.[3] In a complete reversal, however, the NLRC[4] granted all
of private respondents claims, except for damages.[5] The dispositive portion of the NLRCs decision
provides
WHEREFORE, premises considered, the appealed Decision is, as it is hereby, SET ASIDE and another
one issued ordering respondent-appellee to pay complainant-appellant:
1. The unpaid bonus (mid-year and Christmas bonus) and 13th month pay;

2. Wage differentials under Wage Order No. 6 for November 1, 1984 and the corresponding adjustment
thereof; and
3. Holiday pay under Article 94 of the Labor Code, but not to exceed three (3) years.
The rest of the claims are dismissed for lack of merit.
SO ORDERED.
Petition filed a Motion for Partial Reconsideration, which was denied by the NLRC in a Resolution
issued on 18 June 1991. Hence, recourse to this Court.
Petitioner contends that the NLRC gravely abused its discretion in ruling as it did for the succeeding
reasons stated in its Petition
1. On the alleged diminution of benefits, the NLRC gravely abused its discretion when (1) it
contravened the Supreme Court decision in Traders Royal Bank v. NLRC, et al., G.R. No. 88168,
promulgated on August 30, 1990, (2) its ruling is not justified by law and Art. 100 of the Labor Code,
(3) its ruling is contrary to the CBA, and (4) the so-called company practice invoked by it has no legal
and moral bases (p. 2, Motion for Partial Reconsideration, Annex H);
2. On the alleged non-compliance with Wage Order No. 6, the NLRC again gravely abused its
discretion when it patently and palpably erred in holding that it is more inclined to adopt the stance of
appellant (private respondent UNION) in this issue since it is more in keeping with the law and its
implementing provisions and the intendment of the parties as revealed in their CBA without giving
any reason or justification for such conclusions as the stance of appellant (private respondent UNION)
does not traverse the clear and correct finding and conclusion of the Labor Arbiter.
Furthermore, the petitioner, under conservatorship and distressed, is exempted under Wage Order No.
6.
Finally, the wage differentials under Wage Order No. 6 for November 1, 1984 and the corresponding
adjustment thereof (par. 2, dispositive portion, NLRC Decision), has prescribed (p. 12, Motion for
Partial Reconsideration, Annex H).
3. On the alleged non-payment of legal holiday pay, the NLRC again gravely abused its discretion
when it patently and palpably erred in approving and adopting the position of appellant (private
respondent UNION) without giving any reason or justification therefor which position does not
squarely traverse or refute the Labor Arbiters correct finding and ruling (p. 18, Motion for Partial
Reconsideration, Annex H).[6]
On 29 July 1991, the Court granted petitioners prayer for a temporary restraining order enjoining
respondents from executing the 30 April 1991 Decision and 18 June 1991 Resolution of the NLRC.[7]
Coming now to the merits of the petition, the Court shall discuss the issues ad seriatim.
Bonuses

As to the bonuses, private respondent declared in its position paper[8] filed with the NLRC that
1. Producers Bank of the Philippines, a banking institution, has been providing several benefits to its
employees since 1971 when it started its operation. Among the benefits it had been regularly giving is
a mid-year bonus equivalent to an employees one-month basic pay and a Christmas bonus equivalent
to an employees one whole month salary (basic pay plus allowance);
2. When P.D. 851, the law granting a 13th month pay, took effect, the basic pay previously being given
as part of the Christmas bonus was applied as compliance to it (P.D. 851), the allowances remained as
Christmas bonus;
3. From 1981 up to 1983, the bank continued giving one month basic pay as mid-year bonus, one
month basic pay as 13th month pay but the Christmas bonus was no longer based on the allowance but
on the basic pay of the employees which is higher;
4. In the early part of 1984, the bank was placed under conservatorship but it still provided the
traditional mid-year bonus;
5. By virtue of an alleged Monetary Board Resolution No. 1566, the bank only gave a one-half (1/2)
month basic pay as compliance of the 13th month pay and none for the Christmas bonus. In a tabular
form, here are the banks violations:
YEARMID-YEAR BONUSCHRISTMAS BONUS13 MO. PAYprevious yearsone mo. basicone mo.
basicone mo. basic1984[one mo. basic]- none -one-half mo. basic1985one-half mo. basic- none -onehalf mo. basic1986one-half mo. basicone-half mo. basicone mo. basic1987one-half mo. basicone-half
mo. basic one mo. basic Private respondent argues that the mid-year and Christmas bonuses, by reason
of their having been given for thirteen consecutive years, have ripened into a vested right and, as such,
can no longer be unilaterally withdrawn by petitioner without violating Article 100 of Presidential
Decree No. 442[9] which prohibits the diminution or elimination of benefits already being enjoyed by
the employees. Although private respondent concedes that the grant of a bonus is discretionary on the
part of the employer, it argues that, by reason of its long and regular concession, it may become part of
the employees regular compensation.[10]
TH

On the other hand, petitioner asserts that it cannot be compelled to pay the alleged bonus differentials
due to its depressed financial condition, as evidenced by the fact that in 1984 it was placed under
conservatorship by the Monetary Board. According to petitioner, it sustained losses in the millions of
pesos from 1984 to 1988, an assertion which was affirmed by the labor arbiter. Moreover, petitioner
points out that the collective bargaining agreement of the parties does not provide for the payment of
any mid-year or Christmas bonus. On the contrary, section 4 of the collective bargaining agreement
states that
Acts of Grace. Any other benefits or privileges which are not expressly provided in this Agreement,
even if now accorded or hereafter accorded to the employees, shall be deemed purely acts of grace
dependent upon the sole judgment and discretion of the BANK to grant, modify or withdraw.[11]
A bonus is an amount granted and paid to an employee for his industry and loyalty which contributed to
the success of the employers business and made possible the realization of profits. It is an act of
generosity granted by an enlightened employer to spur the employee to greater efforts for the success of

the business and realization of bigger profits.[12] The granting of a bonus is a management prerogative,
something given in addition to what is ordinarily received by or strictly due the recipient.[13] Thus, a
bonus is not a demandable and enforceable obligation,[14] except when it is made part of the wage,
salary or compensation of the employee.[15]
However, an employer cannot be forced to distribute bonuses which it can no longer afford to pay. To
hold otherwise would be to penalize the employer for his past generosity. Thus, in Traders Royal Bank
v. NLRC,[16] we held that
It is clear x x x that the petitioner may not be obliged to pay bonuses to its employees. The matter of
giving them bonuses over and above their lawful salaries and allowances is entirely dependent on the
profits, if any, realized by the Bank from its operations during the past year.
From 1979-1985, the bonuses were less because the income of the Bank had decreased. In 1986, the
income of the Bank was only 20.2 million pesos, but the Bank still gave out the usual two (2) months
basic mid-year and two months gross year-end bonuses. The petitioner pointed out, however, that the
Bank weakened considerably after 1986 on account of political developments in the country.
Suspected to be a Marcos-owned or controlled bank, it was placed under sequestration by the present
administration and is now managed by the Presidential Commission on Good Government (PCGG).
In light of these submissions of the petitioner, the contention of the Union that the granting of bonuses
to the employees had ripened into a company practice that may not be adjusted to the prevailing
financial condition of the Bank has no legal and moral bases. Its fiscal condition having declined, the
Bank may not be forced to distribute bonuses which it can no longer afford to pay and, in effect, be
penalized for its past generosity to its employees.
Private respondents contention, that the decrease in the mid-year and year-end bonuses constituted a
diminution of the employees salaries, is not correct, for bonuses are not part of labor standards in the
same class as salaries, cost of living allowances, holiday pay, and leave benefits, which are provided by
the Labor Code.
This doctrine was reiterated in the more recent case of Manila Banking Corporation v. NLRC[17]
wherein the Court made the following pronouncements
By definition, a bonus is a gratuity or act of liberality of the giver which the recipient has no right to
demand as a matter of right. It is something given in addition to what is ordinarily received by or
strictly due the recipient. The granting of a bonus is basically a management prerogative which cannot
be forced upon the employer who may not be obliged to assume the onerous burden of granting
bonuses or other benefits aside from the employees basic salaries or wages, especially so if it is
incapable of doing so.
xxx

xxx

xxx

Clearly then, a bonus is an amount given ex gratia to an employee by an employer on account of


success in business or realization of profits. How then can an employer be made liable to pay
additional benefits in the nature of bonuses to its employees when it has been operating on considerable
net losses for a given period of time?

Records bear out that petitioner Manilabank was already in dire financial straits in the mid-80s. As
early as 1984, the Central Bank found that Manilabank had been suffering financial losses.
Presumably, the problems commenced even before their discovery in 1984. As earlier chronicled, the
Central Bank placed petitioner bank under comptrollership in 1984 because of liquidity problems and
excessive interbank borrowings. In 1987, it was placed under receivership and ordered to close
operation. In 1988, it was ordered liquidated.
It is evident, therefore, that petitioner bank was operating on net losses from the years 1984, 1985 and
1986, thus, resulting to its eventual closure in 1987 and liquidation in 1988. Clearly, there was no
success in business or realization of profits to speak of that would warrant the conferment of additional
benefits sought by private respondents. No company should be compelled to act liberally and confer
upon its employees additional benefits over and above those mandated by law when it is plagued by
economic difficulties and financial losses. No act of enlightened generosity and self-interest can be
exacted from near empty, if not empty coffers.
It was established by the labor arbiter[18] and the NLRC[19] and admitted by both parties[20] that
petitioner was placed under conservatorship by the Monetary Board, pursuant to its authority under
Section 28-A of Republic Act No. 265,[21] as amended by Presidential Decree No. 72,[22] which
provides
Sec. 28-A.
Appointment of conservator. - Whenever, on the basis of a report submitted by the
appropriate supervising and examining department, the Monetary Board finds that a bank is in a state
of continuing inability or unwillingness to maintain a condition of solvency and 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 banking institution,
collect all monies and debts due said bank and exercise all powers necessary to preserve the assets of
the bank, 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, any
provision of law to the contrary notwithstanding, and such other powers as the Monetary Board shall
deem necessary.
xxx

xxx

xxx

Under Section 28-A, the Monetary Board may place a bank under the control of a conservator when it
finds that the bank is continuously unable or unwilling to maintain a condition of solvency or liquidity.
In Central Bank of the Philippines v. Court of Appeals,[23] the Court declared that the order placing
petitioner herein under conservatorship had long become final and its validity could no longer be
litigated upon. Also, in the same case, the Court found that sometime in August, 1983, some news
items triggered a bank-run in petitioner which resulted in continuous over-drawings on petitioners
demand deposit account with the Central Bank; the over-drawings reached P143.955 million by 17
January 1984; and as of 13 February 1990, petitioner had over-drawings of up to P1.233 billion, which
evidences petitioners continuing inability to maintain a condition of solvency and liquidity, thus
justifying the conservatorship. Our findings in the Central Bank case coincide with petitioners claims
that it continuously suffered losses from 1984 to 1988 as follows YEAR
1984

NET LOSSES IN MILLIONS OF PESOS


P 144.418

1985

P 144.940

1986

P 132.940

1987

P 84.182

January-February 1988

9.271

These losses do not include the interest expenses on the overdraft loan of the petitioner to the Central
Bank, which interest as of July 31, 1987, amounted to P610.065 Million, and penalties on reserve
deficiencies which amounted to P89.029 Million. The principal balance of the overdraft amounted to
P971.632 Million as of March 16, 1988.[24]
Petitioner was not only experiencing a decline in its profits, but was reeling from tremendous losses
triggered by a bank-run which began in 1983. In such a depressed financial condition, petitioner
cannot be legally compelled to continue paying the same amount of bonuses to its employees. Thus,
the conservator was justified in reducing the mid-year and Christmas bonuses of petitioners
employees. To hold otherwise would be to defeat the reason for the conservatorship which is to
preserve the assets and restore the viability of the financially precarious bank. Ultimately, it is to the
employees advantage that the conservatorship achieve its purposes for the alternative would be
petitioners closure whereby employees would lose not only their benefits, but their jobs as well.
13 Month Pay
th

With regard to the 13 month pay, the NLRC adopted the position taken by private respondent and held
that the conservator was not justified in diminishing or not paying the 13 month pay and that petitioner
should have instead applied for an exemption, in accordance with section 7 of Presidential Decree No.
851 (PD 851), as amended by Presidential Decree No. 1364, but that it did not do so.[25] The NLRC
held that the actions of the conservator ran counter to the provisions of PD 851.
th

th

In its position paper,[26] private respondent claimed that petitioner made the following payments to its
members
YEARMID-YEAR BONUS13 MONTH PAYCHRISTMAS BONUS 1984 1 month basic month
basic None1985 month basic month basicNone1986 month basic1 month basic month
basic1987 month basic1 month basic month basicHowever, in its Memorandum[27] filed before this
Court, private respondent revised its claims as follows
YEAR MID-YEAR BONUS 13 MONTH PAY CHRISTMAS BONUS 1984 1 month basicNone
month basic1985 month basicNone month basic1986 month basic month basic1 month basic
1987 month basic month basic1 month basic1988 month basic month basic1 month basic
Petitioner argues that it is not covered by PD 851 since the mid-year and Christmas bonuses it has been
giving its employees from 1984 to 1988 exceeds the basic salary for one month (except for 1985 where
a total of one month basic salary was given). Hence, this amount should be applied towards the
satisfaction of the 13 month pay, pursuant to Section 2 of PD 851.[28]
th

th

th

PD 851, which was issued by President Marcos on 16 December 1975, requires all employers to pay
their employees receiving a basic salary of not more than P1,000 a month,[29] regardless of the nature of
the employment, a 13 month pay, not later than December 24 of every year.[30] However, employers
th

already paying their employees a 13 month pay or its equivalent are not covered by the law. Under the
Revised Guidelines on the Implementation of the 13 -Month Pay Law,[31] the term equivalent shall be
construed to include Christmas bonus, mid-year bonus, cash bonuses and other payments amounting to
not less than 1/12 of the basic salary. The intention of the law was to grant some relief not to all
workers but only to those not actually paid a 13 month salary or what amounts to it, by whatever
name called. It was not envisioned that a double burden would be imposed on the employer already
paying his employees a 13 month pay or its equivalent whether out of pure generosity or on the basis
of a binding agreement. To impose upon an employer already giving his employees the equivalent of a
13 month pay would be to penalize him for his liberality and in all probability, the employer would
react by withdrawing the bonuses or resist further voluntary grants for fear that if and when a law is
passed giving the same benefits, his prior concessions might not be given due credit.[32]
th

th

th

th

th

In the case at bar, even assuming the truth of private respondents claims as contained in its position
paper or Memorandum regarding the payments received by its members in the form of 13 month pay,
mid-year bonus and Christmas bonus, it is noted that, for each and every year involved, the total
amount given by petitioner would still exceed, or at least be equal to, one month basic salary and thus,
may be considered as an equivalent of the 13 month pay mandated by PD 851. Thus, petitioner is
justified in crediting the mid-year bonus and Christmas bonus as part of the 13 month pay.
th

th

th

Wage Order No. 6


Wage Order No. 6, which came into effect on 1 November 1984, increased the statutory minimum
wage of workers, with different increases being specified for agricultural plantation and nonagricultural workers. The bone of contention, however, involves Section 4 thereof which reads All wage increase in wage and/or allowance granted by employers between June 17, 1984 and the
effectivity of this Order shall be credited as compliance with the minimum wage and allowance
adjustments prescribed herein provided that where the increases are less than the applicable amount
provided in this Order, the employer shall pay the difference. Such increases shall not include
anniversary wage increases provided in collective bargaining agreements unless the agreement
expressly provide otherwise.
On 16 November 1984, the parties entered into a collective bargaining agreement providing for the
following salary adjustments
Article VIII. Section 1. Salary Adjustments. Cognizant of the effects of, among others, price increases
of oil and other commodities on the employees wages and earnings, and the certainty of continued
governmental or statutory actions adjusting employees minimum wages, earnings, allowances,
bonuses and other fringe benefits, the parties have formulated and agreed on the following highly
substantial packaged increases in salary and allowance which take into account and cover (a) any
deflation in income of employees because of such price increases and inflation and (b) the expected
governmental response thereto in the form of statutory adjustments in wages, allowances and benefits,
during the next three (3) years of this Agreement:
(i) Effective March 1, 1984 P225.00 per month as salary increase plus P100.00 per month as increase
in allowance to employees within the bargaining unit on March 1, 1984.

(ii) Effective March 1, 1985 P125.00 per month as salary increase plus P100.00 per month as increase
in allowance to employees within the bargaining unit on March 1, 1985.
(iii) Effective March 1, 1986 P125.00 per month as salary increase plus P100.00 per month as
increase in allowance to employees within the bargaining unit on March 1, 1986.
In addition, the collective bargaining agreement of the parties also included a provision on the
chargeability of such salary or allowance increases against government-ordered or legislated income
adjustments
Section 2. Pursuant to the MOLE Decision dated October 2, 1984 and Order dated October 24, 1984,
the first-year salary and allowance increases shall be chargeable against adjustments under Wage Order
No. 5, which took effect on June 16, 1984. The chargeability of the foregoing salary increases against
government-ordered or legislated income adjustments subsequent to Wage Order No. 5 shall be
determined on the basis of the provisions of such government orders or legislation.
Petitioner argues that it complied with Wage Order No. 6 because the first year salary and allowance
increase provided for under the collective bargaining agreement can be credited against the wage and
allowance increase mandated by such wage order. Under Wage Order No. 6, all increases in wages or
allowances granted by the employer between 17 June 1984 and 1 November 1984 shall be credited as
compliance with the wage and allowance adjustments prescribed therein. Petitioner asserts that
although the collective bargaining agreement was signed by the parties on 16 November 1984, the first
year salary and allowance increase was made to take effect retroactively, beginning from 1 March 1984
until 28 February 1985. Petitioner maintains that this period encompasses the period of creditability
provided for under Wage Order No. 6 and that, therefore, the balance remaining after applying the first
year salary and allowance increase in the collective bargaining agreement to the increase mandated by
Wage Order No. 5, in the amount of P125.00, should be made chargeable against the increase
prescribed by Wage Order No. 6, and if not sufficient, petitioner is willing to pay the difference.[33]
On the other hand, private respondent contends that the first year salary and allowance increases under
the collective bargaining agreement cannot be applied towards the satisfaction of the increases
prescribed by Wage Order No. 6 because the former were not granted within the period of creditability
provided for in such wage order. According to private respondent, the significant dates with regard to
the granting of the first year increases are 9 November 1984 the date of issuance of the MOLE
Resolution, 16 November 1984 the date when the collective bargaining agreement was signed by the
parties and 1 March 1984 the retroactive date of effectivity of the first year increases. Private
respondent points out that none of these dates fall within the period of creditability under Wage Order
No. 6 which is from 17 June 1984 to 1 November 1984. Thus, petitioner has not complied with Wage
Order No. 6.[34]
The creditability provision in Wage Order No. 6 is based on important public policy, that is, the
encouragement of employers to grant wage and allowance increases to their employees higher than the
minimum rates of increases prescribed by statute or administrative regulation. Thus, we held in Apex
Mining Company, Inc. v. NLRC[35] that
[t]o obliterate the creditability provisions in the Wage Orders through interpretation or otherwise,
and to compel employers simply to add on legislated increases in salaries or allowances without
regard to what is already being paid, would be to penalize employers who grant their workers

more than the statutorily prescribed minimum rates of increases. Clearly, this would be counterproductive so far as securing the interest of labor is concerned. The creditability provisions in the
Wage Orders prevent the penalizing of employers who are industry leaders and who do not wait
for statutorily prescribed increases in salary or allowances and pay their workers more than what
the law or regulations require.
Section 1 of Article VIII of the collective bargaining agreement of the parties states that the parties
have formulated and agreed on the following highly substantial packaged increases in salary and
allowance which take into account and cover (a) any deflation in income of employees because of such
price increases and inflation and (b) the expected governmental response thereto in the form of
statutory adjustments in wages, allowances and benefits, during the next three (3) years of this
Agreement The unequivocal wording of this provision manifests the clear intent of the parties to
apply the wage and allowance increases stipulated in the collective bargaining agreement to any
statutory wage and allowance adjustments issued during the effectivity of such agreement - from 1
March 1984 to 28 February 1987. Furthermore, contrary to private respondents contentions, there is
nothing in the wording of Section 2 of Article VIII of the collective bargaining agreement that would
prevent petitioner from crediting the first year salary and allowance increases against the increases
prescribed by Wage Order No. 6.
It would be inconsistent with the abovestated rationale underlying the creditability provision of Wage
Order No. 6 if, after applying the first year increase to Wage Order No. 5, the balance was not made
chargeable to the increases under Wage Order No. 6 for the fact remains that petitioner actually granted
wage and allowance increases sufficient to cover the increases mandated by Wage Order No. 5 and part
of the increases mandated by Wage Order No. 6.
Holiday Pay
Article 94 of the Labor Code provides that every worker shall be paid his regular daily wage during
regular holidays[36] and that the employer may require an employee to work on any holiday but such
employee shall be paid a compensation equivalent to twice his regular rate. In this case, the Labor
Arbiter found that the divisor used by petitioner in arriving at the employees daily rate for the purpose
of computing salary-related benefits is 314.[37] This finding was not disputed by the NLRC.[38]
However, the divisor was reduced to 303 by virtue of an inter-office memorandum issued on 13 August
1986, to wit To increase the rate of overtime pay for rank and filers, we are pleased to inform that effective August
18, 1986, the acting Conservator approved the use of 303 days as divisor in the computation of
Overtime pay. The present Policy of 314 days as divisor used in the computation for cash conversion
and determination of daily rate, among others, still remain, Saturdays, therefore, are still considered
paid rest days.
Corollarily, the Acting Convservator also approved the increase of meal allowance from P25.00 to
P30.00 for a minimum of four (4) hours of work for Saturdays.
Proceeding from the unambiguous terms of the above quoted memorandum, the Labor Arbiter observed
that the reduction of the divisor to 303 was for the sole purpose of increasing the employees overtime
pay and was not meant to replace the use of 314 as the divisor in the computation of the daily rate for
salary-related benefits.[39]

Private respondent admits that, prior to 18 August 1986, petitioner used a divisor of 314 in arriving at
the daily wage rate of monthly-salaried employees. Private respondent also concedes that the divisor
was changed to 303 for purposes of computing overtime pay only. In its Memorandum, private
respondent states that
49. The facts germane to this issue are not debatable. The Memorandum Circular issued by the Acting
Conservator is clear. Prior to August 18, 1986, the petitioner bank used a divisor of 314 days in
arriving at the daily wage rate of the monthly-salaried employees. Effective August 18, 1986, this was
changed. It adopted the following formula:
Basic salary x 12 months = Daily Wage Rate
303 days
50. By utilizing this formula even up to the present, the conclusion is inescapable that the petitioner
bank is not actually paying its employees the regular holiday pay mandated by law. Consequently, it is
bound to pay the salary differential of its employees effective November 1, 1974 up to the present.
xxx

xxx

xxx

54. Since it is a question of fact, the Inter-office Memorandum dated August 13, 1986 (Annex E)
provides for a divisor of 303 days in computing overtime pay. The clear import of this document is that
from the 365 days in a year, we deduct 52 rest days which gives a total of 313 days. Now, if 313 days
is the number of working days of the employees then, there is a disputable presumption that the
employees are paid their holiday pay. However, this is not so in the case at bar. The bank uses 303 days
as its divisor. Hence, it is not paying its employees their corresponding holiday pay.[40]
In Union of Filipro Employees v. Vivar, Jr.[41] the Court held that [t]he divisor assumes an important
role in determining whether or not holiday pay is already included in the monthly paid employees
salary and in the computation of his daily rate. This was also our ruling in Chartered Bank Employees
Association v. Ople,[42] as follows
It is argued that even without the presumption found in the rules and in the policy instruction, the
company practice indicates that the monthly salaries of the employees are so computed as to include
the holiday pay provided by law. The petitioner contends otherwise.
One strong argument in favor of the petitioners stand is the fact that the Chartered Bank, in computing
overtime compensation for its employees, employs a divisor of 251 days. The 251 working days
divisor is the result of subtracting all Saturdays, Sundays and the ten (10) legal holidays form the total
number of calendar days in a year. If the employees are already paid for all non-working days, the
divisor should be 365 and not 251.
Apparently, the divisor of 314 is arrived at by subtracting all Sundays from the total number of calendar
days in a year, since Saturdays are considered paid rest days, as stated in the inter-office memorandum.
Thus, the use of 314 as a divisor leads to the inevitable conclusion that the ten legal holidays are
already included therein.
We agree with the labor arbiter that the reduction of the divisor to 303 was done for the sole purpose of
increasing the employees overtime pay, and was not meant to exclude holiday pay from the monthly

salary of petitioners employees. In fact, it was expressly stated in the inter-office memorandum - also
referred to by private respondent in its pleadings - that the divisor of 314 will still be used in the
computation for cash conversion and in the determination of the daily rate. Thus, based on the records
of this case and the parties own admissions, the Court holds that petitioner has complied with the
requirements of Article 94 of the Labor Code.
Damages
As to private respondents claim for damages, the NLRC was correct in ruling that there is no basis to
support the same.
WHEREFORE, for the reasons above stated, the 30 April 1991 Decision of public respondent in
NLRC-NCR Case No. 02-00753-88, entitled Producers Bank Employees Association v. Producers
Bank of the Philippines, and its 18 June 1991 Resolution issued in the same case are hereby SET
ASIDE, with the exception of public respondents ruling on damages.
SO ORDERED.
Melo, (Chairman), Vitug, Panganiban, and Sandoval-Gutierrez, JJ., concur.

iii
iv
v

viFIRST DIVISION

IN RE: PETITION FOR ASSISTANCE IN THE LIQUIDATION OF THE RURAL


BANK OF BOKOD (BENGUET), INC., PHILIPPINE DEPOSIT INSURANCE
CORPORATION,
Petitioner,

- versus -

BUREAU OF INTERNAL REVENUE,


Respondent. G.R. No. 158261

Present:

PANGANIBAN, C.J.*
YNARES-SANTIAGO,
(Working Chairperson)
AUSTRIA-MARTINEZ,
CALLEJO, SR., and
CHICO-NAZARIO, JJ.

Promulgated:

December 18, 2006x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari[1] under Rule 45 of the revised Rules
of Court, praying that this Court set aside the Orders, dated 17 January 2003[2] and 13
May 2003,[3] of the Regional Trial Court (RTC) of La Trinidad, Benguet, sitting as the
Liquidation Court of the closed Rural Bank of Bokod (Benguet), Inc. (RBBI), in Spec.
Proc. No. 91-SP-0060.
There is no dispute as to the antecedent facts of the case, recounted as follows:
In 1986, a special examination of RBBI was conducted by the Supervision and
Examination Sector (SES) Department III of what is now the Bangko Sentral ng
Pilipinas (BSP),[4] wherein various loan irregularities were uncovered. In a letter, dated
20 May 1986, the SES Department III required the RBBI management to infuse fresh
capital into the bank, within 30 days from date of the advice, and to correct all the
exceptions noted. However, up to the termination of the subsequent general
examination conducted by the SES Department III, no concrete action was taken by the
RBBI management. In view of the irregularities noted and the insolvent condition of
RBBI, the members of the RBBI Board of Directors were called for a conference at the
BSP on 4 August 1986. Only one RBBI Director, a certain Mr. Wakit, attended the
conference, and the examination findings and related recommendations were discussed
with him. In a letter, dated 4 August 1986, receipt of which was acknowledged by Mr.
Wakit, the SES Department III warned the RBBI Board of Directors that, unless
substantial remedial measures are taken to rehabilitate the bank, it will recommend that
the bank be placed under receivership. In a subsequent letter, dated 17 November 1986,

a copy of which was sent to every member of the RBBI Board of Directors via
registered mail, the SES Department III reiterated its warning that it would recommend
the closure of the bank, unless the needed fresh capital was immediately infused.
Despite these notices, the SES Department III received no word from RBBI or from any
of its Directors as of 28 November 1986.[5]
In a meeting held on 9 January 1987, the Monetary Board of the BSP decided to
take the following action
Rural Bank of Bokod (Benguet), Inc. Report on its examination as of June 16, 1986,
its placement under receivership
ACTION TAKEN
Finding to be true the statements of the Special Assistant to the Governor and
Head, Supervision and Examination Sector (SES) Department III, in her memorandum
dated 28 November 1986 submitting a report on the general examination of the Rural
Bank of Bokod (Benguet), Inc. as of 16 June 1986, that the financial condition of the
rural bank is one of insolvency and its continuance in business would involve further
losses to its depositors and creditors, x x x
xxxx
[T]he Board decided as follows:
a. To forbid the bank to do business in the Philippines and place
its assets and affairs under receivership in accordance with Section 29 of
R.A. No. 265, as amended.
b. To designate the Special Assistant to the Governor and Head,
SES Department III, as Receiver of the bank;
c. To refer the cases of irregularities/frauds to the Office of
Special Investigation for further investigation and possible filing of
appropriate charges against the following present/former officers and
employees of the bank:
xxxx
d. To include the names of the above-mentioned present and
former officers and employees of the bank in the list of persons barred
from employment in any financial institution under the supervision of the

Central Bank without prior clearance from the Central Bank.[6]

A memorandum and report, dated 28 August 1990, were submitted by the Director
of the SES Department III concluding that the RBBI remained in insolvent financial
condition and it can no longer safely resume business with the depositors, creditors, and
the general public. On 7 September 1990, the Monetary Board, after determining and
confirming the said memorandum and report, ordered the liquidation of the bank and
designated the Director of the SES Department III as liquidator.[7]
On 10 April 1991, the designated BSP liquidator of RBBI caused the filing with
the RTC of a Petition for Assistance in the Liquidation of RBBI, docketed as Spec. Proc.
No. 91-SP-0060.[8] Subsequently, on 2 June 1992, the Monetary Board transferred to
herein petitioner Philippine Deposit Insurance Corporation (PDIC) the
receivership/liquidation of RBBI.[9]
PDIC then filed, on 11 September 2002, a Motion for Approval of Project of
Distribution[10] of the assets of RBBI, in accordance with Section 31, in relation to
Section 30, of Republic Act No. 7653, otherwise known as the New Central Bank Act.
During the hearing held on 17 January 2003, the respondent Bureau of Internal Revenue
(BIR), through Atty. Justo Reginaldo, manifested that PDIC should secure a tax
clearance certificate from the appropriate BIR Regional Office, pursuant to Section
52(C) of Republic Act No. 8424, or the Tax Code of 1997, before it could proceed with
the dissolution of RBBI. On even date, the RTC issued one of the assailed Orders,[11]
directing PDIC to comply with Section 52(C) of the Tax Code of 1997 within 30 days
from receipt of a copy of the said order. Pending compliance therewith, the RTC held in
abeyance the Motion for Approval of Project of Distribution. On 13 May 2003, the
second assailed Order[12] was issued, in which the RTC, in resolving the Motion for
Reconsideration filed by PDIC, ruled as follows

ORDER
Submitted for resolution is petitioners motion for reconsideration of the order of
this court dated January 17, 2003 holding in abeyance the motion for approval of the
project of distribution pending their compliance with a tax clearance from the Bureau of
Internal Revenue.
Petitioner in their motion state that Section 52-C of Republic Act 8424 does not
cover closed banking institutions like the Rural Bank of Bokod as the law that covers
liquidation of closed banks is Section 30 of Republic Act No. 7653 otherwise known as
the new Central Bank Law.
Commenting on the motion for reconsideration the Bureau of Internal Revenue
states that the only logic why the Bureau is requesting for a tax clearance is to determine
how much taxes, if there be any, is due the government.
The court believes and so holds that petitioner should still secure the necessary
tax clearance in order for it to be cleared of all its tax liabilities as regardless of what law
covers the liquidation of closed banks, still these banks are subject to payment of taxes
mandated by law. Also in its motion for approval of the project of distribution,
paragraph 2, item 2.2 states that there are unremitted withholding taxes in the amount of
P8,767.32.
This shows that indeed there are still taxes to be paid. In order therefore that all
taxes due the government should be paid, petitioner should secure a tax clearance from
the Bureau of Internal Revenue.
Wherefore, based on the foregoing premises, the motion for reconsideration filed
by petitioner is hereby DENIED for lack of merit.[13]

Hence, PDIC filed the present Petition for Review on Certiorari, under Rule 45 of
the revised Rules of Court, raising pure questions of law. It made a lone assignment of
error, alleging that
THE COURT A QUO ERRED IN APPLYING THE PROVISION OF SECTION 52-C
OF REPUBLIC ACT NO. 8424 DIRECTING THE SUBMISSION OF TAX
CLEARANCE FOR CORPORATIONS CONTEMPLATING DISSOLUTION ON A
BANK ORDERED CLOSED AND PLACED UNDER RECEIVERSHIP AND,
THEREAFTER, UNDER LIQUIDATION, BY THE MONETARY BOARD
PURSUANT TO SECTION 30 OF REPUBLIC ACT NO. 7653.[14]

PDIC argues that the closure of banks under Section 30 of the New Central Bank Act is
summary in nature and procurement of tax clearance as required under Section 52(C) of
the Tax Code of 1997 is not a condition precedent thereto; that under Section 30, in
relation to Section 31, of the New Central Bank Act, asset distribution of a closed bank
requires only the approval of the liquidation court; and that the BIR is not without
recourse since, subject to the applicable provisions of the Tax Code of 1997, it may
therefore assess the closed RBBI for tax liabilities, if any.
In its Comment, the BIR countered with the following arguments: that the present
Petition for Review on Certiorari under Rule 45 of the revised Rules of Court is not the
proper remedy to question the Order, dated 17 January 2003, of the RTC because said
order is interlocutory and cannot be the subject of an appeal; that Section 52(C) of the
Tax Code of 1997 applies to all corporations, including banks ordered closed by the
Monetary Board pursuant to Section 30 of the New Central Bank Act; that the RTC may
order the PDIC to obtain a tax clearance before proceeding to rule on the Motion for
Approval of Project of Distribution of the assets of RBBI; and that the present
controversy should not have been elevated to this Court since the parties are both
government agencies who should have administratively settled the dispute.
This Court finds that there are only two primary issues for the resolution of the
Petition at bar, one being procedural, and the other substantive. The procedural issue
involves the question of whether the Petition for Review on Certiorari under Rule 45 of
the revised Rules of Court is the proper remedy from the assailed Orders of the RTC.
The substantive issue deals with the determination of whether a bank ordered closed and
placed under receivership by the Monetary Board of the BSP still needs to secure a tax
clearance certificate from the BIR before the liquidation court approves the project of
distribution of the assets of the bank.

I
This Court shall first proceed with the procedural issue on the appropriateness of
the remedy taken by PDIC from the assailed RTC Orders.
The differences between an appeal by certiorari under Rule 45[15] of the revised
Rules of Court and an original action for certiorari under Rule 65[16] of the same Rules
have been laid down by this Court in the case of Atty. Paa v. Court of Appeals,[17] to wit

a. In appeal by certiorari, the petition is based on questions of law which the


appellant desires the appellate court to resolve. In certiorari as an original action, the
petition raises the issue as to whether the lower court acted without or in excess of
jurisdiction or with grave abuse of discretion.
b. Certiorari, as a mode of appeal, involves the review of the judgment, award
or final order on the merits. The original action for certiorari may be directed against an
interlocutory order of the court prior to appeal from the judgment or where there is no
appeal or any other plain, speedy or adequate remedy.
c. Appeal by certiorari must be made within the reglementary period for
appeal. An original action for certiorari may be filed not later than sixty (60) days from
notice of the judgment, order or resolution sought to be assailed.
d. Appeal by certiorari stays the judgment, award or order appealed from. An
original action for certiorari, unless a writ of preliminary injunction or a temporary
restraining order shall have been issued, does not stay the challenged proceeding.
e. In appeal by certiorari, the petitioner and respondent are the original parties
to the action, and the lower court or quasi-judicial agency is not to be impleaded. In
certiorari as an original action, the parties are the aggrieved party against the lower
court or quasi-judicial agency and the prevailing parties, who thereby respectively
become the petitioner and respondents.
f. In certiorari for purposes of appeal, the prior filing of a motion for
reconsideration is not required (Sec. 1, Rule 45); while in certiorari as an original
action, a motion for reconsideration is a condition precedent (Villa-Rey Transit vs. Bello,
L-18957, April 23, 1963), subject to certain exceptions.
g. In appeal by certiorari, the appellate court is in the exercise of its appellate
jurisdiction and power of review, while in certiorari as an original action, the higher
court exercises original jurisdiction under its power of control and supervision over the

proccedings of lower courts.

Guided by the foregoing distinctions, this Court, in perusing the assailed RTC
Orders, dated 17 January 2003 and 13 May 2003, reaches the conclusion that these are
merely interlocutory in nature and are not the proper subjects of an appeal by certiorari
under Rule 45 of the revised Rules of Court.
This Court has repeatedly and uniformly held that a judgment or order may be
appealed only when it is final, meaning that it completely disposes of the case and
definitively adjudicates the respective rights of the parties, leaving thereafter no
substantial proceeding to be had in connection with the case except the proper execution
of the judgment or order. Conversely, an interlocutory order or judgment is not
appealable for it does not decide the action with finality and leaves substantial
proceedings still to be had.[18]
The RTC Orders presently questioned before this Court has not disposed of the
case nor has it adjudicated definitively the rights of the parties in Spec. Proc. No. 91-SP0060. They only held in abeyance the approval of the Project of Distribution of the
assets of RBBI until PDIC, as liquidator, acquires a tax clearance from the BIR.
Indubitably, there are still substantial proceedings to be had after PDIC presents the
required tax clearance to the trial court, since the Project of Distribution of assets still
has to be finalized and approved.
PDIC avers that the RTC Orders of 17 January 2003 and 13 May 2003 are final
because, as this Court pronounced in the case of Pacific Banking Corporation
Employees Organization (PaBCEO) v. Court of Appeals,[19] an order of the liquidation
court allowing or disallowing a claim is a final order and may be the subject of an
appeal. It further asserts that the legal issue of whether RBBI should secure a tax

clearance is a disputed claim, which was already allowed by the RTC in its assailed
Orders, thus, making the latter final.
This Court is unconvinced. The foregoing arguments of PDIC result from a
strained interpretation of law and jurisprudence, and are raised in an apparent attempt to
justify a very obvious faux pas on its part. While it is true that in liquidation
proceedings, the settlement of disputed or contentious claims may require a full-dress
hearing and the resolution of legal issues,[20] it does not follow that all legal issues
resolved in the course of the liquidation proceedings would automatically be tantamount
to an allowance or disallowance of a disputed or contentious claim. In Spec. Proc. No.
91-SP-0060 pending before the RTC, there can be no doubt that the claim of the BIR
against RBBI consists of the unpaid tax liabilities of the latter. The BIR contends that it
could only determine the existence and correct amount of the tax liabilities of RBBI if
PDIC, as liquidator of the bank, secures a tax clearance from the appropriate BIR
Regional Office. The acquirement of a tax clearance is not the claim of the BIR against
RBBI, it is only the means by which to ascertain such claim. Whatever tax liabilities the
BIR may claim against RBBI can still be disputed before the RTC by the PDIC, as
liquidator of the bank, whether as to the existence or computation of the said tax
liabilities, and it is the ruling of the RTC on such matters that may constitute a final
order which definitively settles the claim of the BIR. The mere grant by the RTC of the
motion requiring PDIC, as liquidator of RBBI, to secure a tax clearance, does not yet
constitute an adjudication of the claim of the BIR. Hence, the assailed RTC Orders,
dated 17 January 2003 and 13 May 2003, are clearly interlocutory in nature.
As a general rule, an interlocutory order is not appealable until after the rendition
of the judgment on the merits, given that a contrary rule would delay the administration
of justice and unduly burden the courts. This Court, however, has also held that an
original action for certiorari under Rule 65 of the revised Rules of Court is an

appropriate remedy to assail an interlocutory order when (1) the tribunal issued such
order without or in excess of jurisdiction or with grave abuse of discretion, and (2) the
assailed interlocutory order is patently erroneous and the remedy of appeal would not
afford adequate and expeditious relief.[21] Thus, despite this Courts finding that PDIC,
as the liquidator of RBBI, availed itself of the wrong remedy by filing an appeal by
certiorari under Rule 45 of the revised Rules of Court, We shall adopt a positive and
pragmatic approach, and, instead of dismissing the instant Petition outright, it shall treat
the same as an original action for certiorari under Rule 65 of the same Rules, in
consideration of the crucial issues and substantial arguments already presented by the
concerned parties before this Court.[22]
II
Having disposed of the procedural issue, this Court now addresses the substantive
issue of whether RBBI, as represented by its liquidator, PDIC, still needs to secure a tax
clearance from the BIR before the RTC could approve the Project of Distribution of the
assets of RBBI.
The BIR anchors its position that a tax clearance is necessary on Section 52(C) of
the Tax Code of 1997, which provides
SEC. 52. Corporation Returns.
xxxx
(C) Return of Corporation Contemplating Dissolution or Reorganization.
Every corporation shall, within thirty days (30) after the adoption by the corporation of a
resolution or plan for its dissolution, or for the liquidation of the whole or any part of its
capital stock, including a corporation which has been notified of possible involuntary
dissolution by the Securities and Exchange Commission, or for its reorganization, render
a correct return to the Commissioner, verified under oath, setting forth the terms of such
resolution or plan and such other information as the Secretary of Finance, upon
recommendation of the Commissioner, shall, by rules and regulations, prescribe.

The dissolving or reorganizing corporation shall, prior to the issuance by the


Securities and Exchange Commission of the Certificate of Dissolution or
Reorganization, as may be defined by rules and regulations prescribed by the Secretary
of Finance, upon recommendation of the Commissioner, secure a certificate of tax
clearance from the Bureau of Internal Revenue which certificate shall be submitted to
the Securities and Exchange Commission.

To implement the foregoing provision, the BIR still relies on the regulations it
jointly issued with the Securities and Exchange Commission (SEC) in 1985, when the
Tax Code of 1977 was still in effect and a similar provision could be found in Section
46(C) thereof. The full text of the regulations is reproduced below

BIR-SEC REGULATIONS NO. 1


SUBJECT:
Regulations to Implement the Provisions of Executive Order No.
1026, Amending Section 46(c) of the National Internal Revenue Code of 1977, as
amended, Requiring Dissolving Corporations to File Information Returns and Secure
Tax Clearance from the Commissioner of Internal Revenue, and Providing Adequate
Penalties for Violations Thereof.
TO:

All Internal Revenue Officers and Others Concerned.

Pursuant to the provisions of Section 277, in relation to Section 4 of the National


Revenue Code of 1977, as amended, the following regulations are hereby promulgated.
Section 1. Scope. These regulations shall govern the procedure for the issuance
of tax clearance certificates to dissolving corporations. This shall include corporations
intending to dissolve or liquidate the whole or any part of its capital stocks, as well as,
corporations which have been notified of possible involuntary dissolution by the
Securities and Exchange Commission.
Section 2. Requirements in case of dissolution. a) Every Corporation shall,
within thirty (30) days after
-

the adoption by the corporation of a resolution or plan for the dissolution of the
corporation, or for the liquidation of the whole or any part of its capital stock, or

the receipt of an order of suspension by the Securities and Exchange Commission in


case of involuntary dissolution,

file their income tax returns covering the income earned by them from the beginning of
the taxable year up to date of such dissolution.
In addition thereto, they shall submit within the same period and verified under
oath, the following documents:
1. a copy of the articles of incorporation and by-laws;

2. a copy of the resolution authorizing dissolution; and


3. balance sheet as of the date of dissolution and a profit and loss statement
covering the period from the beginning of the taxable year to the date of
dissolution.
b) The Securities and Exchange Commission whenever it issues an order of
involuntary dissolution or suspension of the primary franchise or certificate of
registration of a corporation, shall at the same time furnish the Commissioner of Internal
Revenue a copy of such order.
Section 3. Tax clearance certificate. a) Within thirty (30) days from receipt of
the documents mentioned in the preceding Section, the Commissioner of Internal
Revenue, or his duly authorized representative, shall issue the corresponding tax
clearance certificate (BIR Form No. 17.61) for the corporation which will be dissolved.
b) The Securities and Exchange Commission shall issue the final order of
dissolution only after a certificate of tax clearance has been submitted by the dissolving
corporation: Provided, that in case of involuntary dissolution, the Securities and
Exchange Commission may nevertheless proceed with the dissolution if thirty (30) days
after receipt of the suspension order no tax clearance has yet been issued.
Section 4. Penalty. Failure to render the return and secure the certificate of tax
clearance as above-mentioned shall subject the officer(s) of the corporation required by
law to file the return under Section 46(a) of the National Internal Revenue Code of
1977, as amended, to a fine of not less than P5,000.00 or imprisonment of not less than
two (2) years, and shall make them liable for all outstanding or unpaid tax liabilities of
the dissolving corporation.
Section 5. Effectivity. These regulations shall apply to all corporate dissolution
taking place on or after May 14, 1985.
Section 6. Repealing Clause. All revenue regulations, orders and circulars
which are inconsistent herewith are hereby modified accordingly.

The afore-quoted Tax Code provision and regulations refer to a voluntary


dissolution and/or liquidation of a corporation through its adoption of a resolution or
plan to that effect, or an involuntary dissolution of a corporation by order of the SEC.
They make no reference at all to a situation similar to the one at bar in which a banking
corporation is ordered closed and placed under receivership by the BSP and its assets
judicially liquidated. Now, the determining question is, whether Section 52(C) of the
Tax Code of 1997 and BIR-SEC Regulations No. 1 could be made to apply to the
present case.

This Court rules in the negative.


First, Section 52(C) of the Tax Code of 1997 and the BIR-SEC Regulations No. 1
regulate the relations only as between the SEC and the BIR, making a certificate of tax
clearance a prior requirement before the SEC could approve the dissolution of a
corporation. In Spec. Proc. No. 91-SP-0060 pending before the RTC, RBBI was placed
under receivership and ordered liquidated by the BSP, not the SEC; and the SEC is not
even a party in the said case, although the BIR is. This Court cannot find any basis to
extend the SEC requirements for dissolution of a corporation to the liquidation
proceedings of RBBI before the RTC when the SEC is not even involved therein.
It is conceded that the SEC has the authority to order the dissolution of a
corporation pursuant to Section 121 of Batas Pambansa Blg. 68, otherwise known as the
Corporation Code of the Philippines, which reads
Sec. 121. Involuntary dissolution. A corporation may be dissolved by the
Securities and Exchange Commission upon filing of a verified complaint and after
proper notice and hearing on the grounds provided by existing laws, rules and
regulations.

The Corporation Code, however, is a general law applying to all types of


corporations, while the New Central Bank Act regulates specifically banks and other
financial institutions, including the dissolution and liquidation thereof. As between a
general and special law, the latter shall prevail generalia specialibus non derogant.[23]
The liquidation of RBBI is undertaken according to Sections 30 of the New
Central Bank Act, viz
Sec. 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 Bangko Sentral, to
meet its liabilities; or
(c) cannot continue in business without involving probable losses to its
depositors or creditors; or
(d) has wilfully violated a cease and desist order under Section 37 that has
become 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.
For a quasi-bank, any person of recognized competence in banking or finance
may be designated as receiver.
The 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: Provided, That the
receiver may deposit or place the funds of the institution in non-speculative investments.
The receiver shall determine as soon as possible, but not later than ninety (90) days from
take over, whether the institution may be rehabilitated or otherwise placed in such a
condition that it may be permitted to resume business with safety to its depositors and
creditors and the general public: Provided, That any determination for the resumption of
business of the institution shall be subject to prior approval of the Monetary Board.
If the receiver determines that the institution cannot be rehabilitated or permitted
to resume business in accordance with the next preceding paragraph, the Monetary
Board shall notify in writing the board of directors of its findings and direct the receiver
to proceed with the liquidation of the institution. The receiver shall:
(1) file ex parte with the proper regional trial court, and without requirement of
prior notice or any other action, a petition for assistance in the liquidation of the
institution pursuant to a liquidation plan adopted by the Philippine Deposit Insurance
Corporation for general application to all closed banks. In case of quasi-banks, the
liquidation plan shall be adopted by the Monetary Board. Upon acquiring jurisdiction,
the court shall, upon motion by the receiver after due notice, adjudicate disputed claims
against the institution, assist the enforcement of individual liabilities of the stockholders,
directors and officers, and decide on other issues as may be material to implement the
liquidation plan adopted. The receiver shall pay the cost of the proceedings from the
assets of the institution.
(2) convert the assets of the institution to money, dispose of the same to creditors
and other parties, for the purpose of paying the debts of such institution in accordance
with the rules on concurrence and preference of credit under the Civil Code of the
Philippines and he may, in the name of the institution, and with the assistance of counsel

as he may retain, institute such actions as may be necessary to collect and recover
accounts and assets of, or defend any action against, the institution. The assets of an
institution under receivership or liquidation shall be deemed in custodia legis in the
hands of the receiver and shall, from the moment the institution was placed under such
receivership or liquidation, be exempt from any order of garnishment, levy, attachment,
or execution.
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.
The designation of a conservator under Section 29 of this Act or the appointment
of a receiver under this section shall be vested exclusively with the Monetary Board.
Furthermore, the designation of a conservator is not a precondition to the designation of
a receiver.

Section 30 of the New Central Bank Act lays down the proceedings for
receivership and liquidation of a bank. The said provision is silent as regards the
securing of a tax clearance from the BIR. The omission, nonetheless, cannot compel
this Court to apply by analogy the tax clearance requirement of the SEC, as stated in
Section 52(C) of the Tax Code of 1997 and BIR-SEC Regulations No. 1, since, again,
the dissolution of a corporation by the SEC is a totally different proceeding from the
receivership and liquidation of a bank by the BSP. This Court cannot simply replace any
reference by Section 52(C) of the Tax Code of 1997 and the provisions of the BIR-SEC
Regulations No. 1 to the SEC with the BSP. To do so would be to read into the law
and the regulations something that is simply not there, and would be tantamount to
judicial legislation.
It should be noted that there are substantial differences in the procedure for
involuntary dissolution and liquidation of a corporation under the Corporation Code, and
that of a banking corporation under the New Central Bank Act, so that the requirements
in one cannot simply be imposed in the other.

Under the Corporation Code, the SEC may dissolve a corporation, upon the filing
of a verified complaint and after proper notice and hearing, on grounds provided by
existing laws, rules, and regulations.[24] Upon receipt by the corporation of the order
of suspension from the SEC, it is required to notify and submit a copy of the said order,
together with its final tax return, to the BIR. The SEC is also required to furnish the BIR
a copy of its order of suspension. The BIR is supposed to issue a tax clearance to the
corporation within 30 days from receipt of the foregoing documentary requirements.
The SEC shall issue the final order of dissolution only after the corporation has
submitted its tax clearance; or in case of involuntary dissolution, the SEC may proceed
with the dissolution after 30 days from receipt by the BIR of the documentary
requirements without a tax clearance having been issued.[25] The corporation is
allowed to continue as a body corporate for three years after its dissolution, for the
purpose of prosecuting and defending suits by or against it, to settle and close its affairs,
and to dispose of and convey its property and distribute its assets, but not for the purpose
of continuing its business. The corporation may undertake its own liquidation, or at any
time during the said three years, it may convey all of its property to trustees for the
benefit of its stockholders, members, creditors, and other persons in interest.[26]
In contrast, the Monetary Board may summarily and without need for prior
hearing, forbid the banking corporation from doing business in the Philippines, for
causes enumerated in Section 30 of the New Central Bank Act; and appoint the PDIC as
receiver of the bank. PDIC shall immediately gather and take charge of all the assets
and liabilities of the closed bank and administer the same for the benefit of its creditors.
The summary nature of the procedure for the involuntary closure of a bank is especially
stressed in Section 30 of the New Central Bank Act, which explicitly states that the
actions of the Monetary Board under the said Section or Section 29 shall be final and
executory, and may not be restrained or set aside by the court except on a Petition for

Certiorari filed by the stockholders of record of the bank representing a majority of the
capital stock. PDIC, as the appointed receiver, shall file ex parte with the proper RTC,
and without requirement of prior notice or any other action, a petition for assistance in
the liquidation of the bank. The bank is not given the option to undertake its own
liquidation.
Second, the alleged purpose of the BIR in requiring the liquidator PDIC to secure
a tax clearance is to enable it to determine the tax liabilities of the closed bank. It raised
the point that since the PDIC, as receiver and liquidator, failed to file the final return of
RBBI for the year its operations were stopped, the BIR had no way of determining
whether the bank still had outstanding tax liabilities.
To our mind, what the BIR should have requested from the RTC, and what was
within the discretion of the RTC to grant, is not an order for PDIC, as liquidator of
RBBI, to secure a tax clearance; but, rather, for it to submit the final return of RBBI.
The first paragraph of Section 30(C) of the Tax Code of 1997, read in conjunction with
Section 54 of the same Code, clearly imposes upon PDIC, as the receiver and liquidator
of RBBI, the duty to file such a return. The pertinent provisions are reproduced below
for reference
SEC. 52. Corporation Returns.
xxxx
(C) Return of Corporation Contemplating Dissolution or Reorganization.
Every corporation shall, within thirty days (30) after the adoption by the corporation of a
resolution or plan for its dissolution, or for the liquidation of the whole or any part of its
capital stock, including a corporation which has been notified of possible involuntary
dissolution by the Securities and Exchange Commission, or for its reorganization, render
a correct return to the Commissioner, verified under oath, setting forth the terms of such
resolution or plan and such other information as the Secretary of Finance, upon
recommendation of the Commissioner, shall, by rules and regulations, prescribe.
xxxx

SEC. 54. Returns of receivers, Trustees in Bankruptcy or Assignees. In cases


wherein receivers, trustees in bankruptcy or assignees are operating the property or
business of a corporation, subject to the tax imposed by this Title, such receivers,
trustees or assignees shall make returns of net income as and for such corporation, in the
same manner and form as such an organization is hereinbefore required to make returns,
and any tax due on the income as returned by receivers, trustees or assignees shall be
assessed and collected in the same manner as if assessed directly against the
organizations of whose businesses or properties they have custody or control.

Section 54 of the Tax Code of 1997 imposes a general duty on all receivers,
trustees in bankruptcy, and assignees, who operate and preserve the assets of a
corporation, regardless of the circumstances or the law by which they came to hold their
positions, to file the necessary returns on behalf of the corporation under their care.
The filing by PDIC of a final tax return, on behalf of RBBI, should already
address the supposed concern of the BIR and would already enable the latter to
determine if RBBI still had outstanding tax liabilities.
The unreasonableness and impossibility of requiring a tax clearance before the
approval by the RTC of the Project of Distribution of the assets of the RBBI becomes
apparent when the timeline of the proceedings is considered.
The BIR can only issue a certificate of tax clearance when the taxpayer had
completely paid off his tax liabilities. The certificate of tax clearance attests that the
taxpayer no longer has any outstanding tax obligations to the Government.
Should the BIR find that RBBI still had outstanding tax liabilities, PDIC will not
be able to pay the same because the Project of Distribution of the assets of RBBI
remains unapproved by the RTC; and, if RBBI still had outstanding tax liabilities, the
BIR will not issue a tax clearance; but, without the tax clearance, the Project of
Distribution of assets, which allocates the payment for the tax liabilities, will not be

approved by the RTC. It will be a chicken-and-egg dilemma.


The Government, in this case, cannot generally claim preference of credit, and
receive payment ahead of the other creditors of RBBI. Duties, taxes, and fees due the
Government enjoy priority only when they are with reference to a specific movable
property, under Article 2241(1) of the Civil Code, or immovable property, under Article
2242(1) of the same Code. However, with reference to the other real and personal
property of the debtor, sometimes referred to as free property, the taxes and
assessments due the National Government, other than those in Articles 2241(1) and
2242(1) of the Civil Code, will come only in ninth place in the order of preference.[27]
Thus, the recourse of the BIR, after assessing the final return and examining all
other pertinent documents of RBBI, and making a determination of the latters
outstanding tax liabilities, is to present its claim, on behalf of the National Government,
before the RTC during the liquidation proceedings. The BIR is expected to prove and
substantiate its claim, in the same manner as the other creditors. It is only after the RTC
allows the claim of the BIR, together with the claims of the other creditors, can a Project
for Distribution of the assets of RBBI be finalized and approved. PDIC, then, as
liquidator, may proceed with the disposition of the assets of RBBI and pay the latters
financial obligations, including its outstanding tax liabilities. And, finally, only after
such payment, can the BIR issue a certificate of tax clearance in the name of RBBI.
Third, the evident void in current statutes and regulations as to the relations
among the BIR, as tax collector of the National Government; the BSP, as regulator of the
banks; and the PDIC, as the receiver and liquidator of banks ordered closed by the BSP,
is not for this Court to fill in. It is up to the legislature to address the matter through
appropriate legislation, and to the executive to provide the regulations for its
implementation.

It is for these reasons that the RTC committed grave abuse of discretion, and
committed patent error, in ordering the PDIC, as the liquidator of RBBI, to first secure a
tax clearance from the appropriate BIR Regional Office, and holding in abeyance the
approval of the Project of Distribution of the assets of the RBBI by virtue thereof.
Although this Court rules in favor of PDIC, in the sense that a tax clearance is not
a prerequisite to the approval of the Project of Distribution of the assets of RBBI, it
cannot uphold its argument that the Spec. Proc. No. 91-SP-0060 is summary in nature.
Section 30(d) of the New Central Bank Act gives the Monetary Board of the BSP
the power to, summarily and without need for prior hearing, forbid a bank or quasi-bank
from doing business in the Philippines and designating the PDIC as receiver of the
banking institution. It bears to emphasize that: (1) the power is granted to the Monetary
Board of the BSP; and (2) what is summary in nature is the power of the Monetary
Board of the BSP to forbid or stop a bank or quasi-bank from doing further business.
Once liquidation proceedings are instituted before the appropriate trial court, and
the trial court assumes jurisdiction over the Petition, then the proceedings take a
different character. Spec. Proc. No. 91-SP-0600 is the liquidation proceedings initiated
by the PDIC before the RTC. Liquidation proceedings have been described in detail in
the case of Pacific Banking Corporation Employees Organization (PaBCEO) v. Court
of Appeals,[28] to wit
[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


xxxx
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.
xxxx
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. x x x [Emphases supplied.]

Irrefragably, liquidation proceedings cannot be summary in nature. It requires the


holding of hearings and presentation of evidence of the parties concerned, i.e., creditors
who must prove and substantiate their claims, and the liquidator disputing the same. It
also allows for multiple appeals, so that each creditor may appeal a final order rendered
against its claim. Hence, liquidation proceedings may very well be highly-contested and
drawn-out, because, at the end of it all, all claims against the corporation undergoing
litigation must be settled definitively and its assets properly disposed off.

WHEREFORE, in view of the foregoing, this Court rules as follows


(a) The instant Petition is GRANTED and the Orders, dated 17 January 2003 and
13 May 2003, of the RTC, sitting as the Liquidation Court of the closed RBBI, in Spec.
Proc. No. 91-SP-0060, are NULLIFIED and SET ASIDE for having been rendered
with grave abuse of discretion;
(b) The PDIC, as liquidator, is ORDERED to submit to the BIR the final tax
return of RBBI, in accordance with the first paragraph of Section 52(C), in connection
with Section 54, of the Tax Code of 1997; and
(c) The RTC is ORDERED to resume the liquidation proceedings in Spec. Proc.
No. 91-SP-0060 in order to determine all the claims of the creditors, including that of
the National Government, as determined and presented by the BIR; and, pursuant to
such determination, and guided accordingly by the provisions of the Civil Code on
preference of credit, to review and approve the Project of Distribution of the assets of
RBBI.
SO ORDERED.

vii
viii
ix
x
xi

xii

xiiiRepublic 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
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.

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 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 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 Ex-Officio 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 ex-officio 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 CA-G.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 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 Ex-officio
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 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, T109027, T-132897, T-148377, 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 ex-officio
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.

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 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- 61-62, 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 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
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 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 pre-planned
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 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 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.
The Central Bank filed a supplemental motion to dismiss which was denied. Hence, the latter
filed a petition for certiorari 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 CB-appointed 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 surrejoinder;
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 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, L-26990,
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 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 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'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 nonbank financial intermediary performing quasi-banking functions 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 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 quasi-banking 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 quasi-banking 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 28-A, 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 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 non-bank 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 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 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. 3313-3314, 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 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 examiner-in-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-in-charge.
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. L-50031-32, 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 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 non-bank financial
intermediary performing quasi-banking functions as determined by the 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 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 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 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 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.

Republic of the Philippines


SUPREME COURT
Manila
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 Bankof San Miguel, Inc., Petitioners,
vs.
MONETARY BOARD, BANGKO SENTRAL NG PILIPINAS and PHILIPPINE DEPOSIT
INSURANCE CORPORATION, Respondents.
DECISION
CORONA, J.:
This is a petition for review on certiorari1 of a decision2 and resolution3 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 accordance with Section 30 of [RA 7653];
2. To designate the [PDIC] as receiver of the bank;
xxx xxx xxx6
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 CAs findings of facts were as follows.
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 RBSMs checks in view of the latters 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 RBSMs 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, xxx P12.6 million xxx was not used to service withdrawals [and]
remains unaccounted for as admitted by [RBSMs 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.
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, RBSMs 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.
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, 1999Total obligations/
Liabilities P1,076,863,000.00 1,009,898,000.00Realizable Assets 898,588,000.00
796,930,000.00Deficit 178,275,000.00 212,968,000.00Cash on Hand 101,441.547.00
8,266,450.00Required Capital Infusion P252,120,000.00
Capital Infusion P5,000,000.00
(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 RBSMs assets and
affairs.
In their petition12 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.
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 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.


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
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 Philippines19 wherein 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 cited22 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 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 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 quasi-banking functions. (Emphasis supplied)
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. 105.1awphi1.net
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 RBSMs 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.
SO ORDERED.

SECOND DIVISION
[G.R. No. 135706. October 1, 2004]
SPS. CESAR A. LARROBIS, JR. and VIRGINIA S. LARROBIS, petitioners, vs. PHILIPPINE
VETERANS BANK, respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a petition for review of the decision of the Regional Trial Court (RTC), Cebu City, Branch
24, dated April 17, 1998,[1] and the order denying petitioners motion for reconsideration dated August
25, 1998, raising pure questions of law.[2]
The following facts are uncontroverted:
On March 3, 1980, petitioner spouses contracted a monetary loan with respondent Philippine Veterans
Bank in the amount of P135,000.00, evidenced by a promissory note, due and demandable on February
27, 1981, and secured by a Real Estate Mortgage executed on their lot together with the improvements
thereon.
On March 23, 1985, the respondent bank went bankrupt and was placed under receivership/liquidation
by the Central Bank from April 25, 1985 until August 1992.[3]
On August 23, 1985, the bank, through Francisco Go, sent the spouses a demand letter for accounts
receivable in the total amount of P6,345.00 as of August 15, 1984,[4] which pertains to the insurance
premiums advanced by respondent bank over the mortgaged property of petitioners.[5]

On August 23, 1995, more than fourteen years from the time the loan became due and demandable,
respondent bank filed a petition for extrajudicial foreclosure of mortgage of petitioners property.[6] On
October 18, 1995, the property was sold in a public auction by Sheriff Arthur Cabigon with Philippine
Veterans Bank as the lone bidder.
On April 26, 1996, petitioners filed a complaint with the RTC, Cebu City, to declare the extra-judicial
foreclosure and the subsequent sale thereof to respondent bank null and void.[7]
In the pre-trial conference, the parties agreed to limit the issue to whether or not the period within
which the bank was placed under receivership and liquidation was a fortuitous event which suspended
the running of the ten-year prescriptive period in bringing actions.[8]
On April 17, 1998, the RTC rendered its decision, the fallo of which reads:
WHEREFORE, premises considered judgment is hereby rendered dismissing the complaint for lack of
merit. Likewise the compulsory counterclaim of defendant is dismissed for being unmeritorious.[9]
It reasoned that:
defendant bank was placed under receivership by the Central Bank from April 1985 until 1992. The
defendant bank was given authority by the Central Bank to operate as a private commercial bank and
became fully operational only on August 3, 1992. From April 1985 until July 1992, defendant bank
was restrained from doing its business. Doing business as construed by Justice Laurel in 222 SCRA
131 refers to:
.a continuity of commercial dealings and arrangements and contemplates to that extent, the
performance of acts or words or the exercise of some of the functions normally incident to and in
progressive prosecution of the purpose and object of its organization.
The defendant banks right to foreclose the mortgaged property prescribes in ten (10) years but such
period was interrupted when it was placed under receivership. Article 1154 of the New Civil Code to
this effect provides:
The period during which the obligee was prevented by a fortuitous event from enforcing his right is
not reckoned against him.
In the case of Provident Savings Bank vs. Court of Appeals, 222 SCRA 131, the Supreme Court said.
Having arrived at the conclusion that a foreclosure is part of a banks activity which could not have
been pursued by the receiver then because of the circumstances discussed in the Central Bank case, we
are thus convinced that the prescriptive period was legally interrupted by fuerza mayor in 1972 on
account of the prohibition imposed by the Monetary Board against petitioner from transacting business,
until the directive of the Board was nullified in 1981. Indeed, the period during which the obligee was
prevented by a caso fortuito from enforcing his right is not reckoned against him. (Art. 1154, NCC)
When prescription is interrupted, all the benefits acquired so far from the possession cease and when
prescription starts anew, it will be entirely a new one. This concept should not be equated with
suspension where the past period is included in the computation being added to the period after the
prescription is presumed (4 Tolentino, Commentaries and Jurisprudence on the Civil Code of the

Philippines 1991 ed. pp. 18-19), consequently, when the closure of the petitioner was set aside in 1981,
the period of ten years within which to foreclose under Art. 1142 of the N.C.C. began to run and,
therefore, the action filed on August 21, 1986 to compel petitioner to release the mortgage carried with
it the mistaken notion that petitioners own suit for foreclosure has prescribed.
Even assuming that the liquidation of defendant bank did not affect its right to foreclose the plaintiffs
mortgaged property, the questioned extrajudicial foreclosure was well within the ten (10) year
prescriptive period. It is noteworthy to mention at this point in time, that defendant bank through
authorized Deputy Francisco Go made the first extrajudicial demand to the plaintiffs on August 1985.
Then on March 24, 1995 defendant bank through its officer-in-charge Llanto made the second
extrajudicial demand. And we all know that a written extrajudicial demand wipes out the period that
has already elapsed and starts anew the prescriptive period. (Ledesma vs. C.A., 224 SCRA 175.)[10]
Petitioners filed a motion for reconsideration which the RTC denied on August 25, 1998.[11] Thus, the
present petition for review where petitioners claim that the RTC erred:
I
IN RULING THAT THE PERIOD WITHIN WHICH RESPONDENT BANK WAS PUT UNDER
RECEIVERSHIP AND LIQUIDATION WAS A FORTUITOUS EVENT THAT INTERRUPTED THE
RUNNING OF THE PRESCRIPTIVE PERIOD.
II
IN RULING THAT THE WRITTEN EXTRA-JUDICIAL DEMAND MADE BY RESPONDENT
ON PETITIONERS WIPED OUT THE PERIOD THAT HAD ALREADY ELAPSED.
III
IN DENYING PETITIONERS MOTION FOR RECONSIDERATION OF ITS HEREIN
ASSAILED DECISION.[12]
Petitioners argue that: since the extra-judicial foreclosure of the real estate mortgage was effected by
the bank on October 18, 1995, which was fourteen years from the date the obligation became due on
February 27, 1981, said foreclosure and the subsequent sale at public auction should be set aside and
declared null and void ab initio since they are already barred by prescription; the court a quo erred in
sustaining the respondents theory that its having been placed under receivership by the Central Bank
between April 1985 and August 1992 was a fortuitous event that interrupted the running of the
prescriptive period;[13] the court a quos reliance on the case of Provident Savings Bank vs. Court of
Appeals[14] is misplaced since they have different sets of facts; in the present case, a liquidator was duly
appointed for respondent bank and there was no judgment or court order that would legally or
physically hinder or prohibit it from foreclosing petitioners property; despite the absence of such legal
or physical hindrance, respondent banks receiver or liquidator failed to foreclose petitioners property
and therefore such inaction should bind respondent bank;[15] foreclosure of mortgages is part of the
receivers/liquidators duty of administering the banks assets for the benefit of its depositors and
creditors, thus, the ten-year prescriptive period which started on February 27, 1981, was not interrupted
by the time during which the respondent bank was placed under receivership; and the Monetary
Boards prohibition from doing business should not be construed as barring any and all business

dealings and transactions by the bank, otherwise, the specific mandate to foreclose mortgages under
Sec. 29 of R.A. No. 265 as amended by Executive Order No. 65 would be rendered nugatory.[16] Said
provision reads:
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 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 the official of the
Central Bank or a person of recognized competence in banking or finance, as receiver to immediately
take charge its 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.
Petitioners further contend that: the demand letter, dated March 24, 1995, was sent after the ten-year
prescriptive period, thus it cannot be deemed to have revived a period that has already elapsed; it is also
not one of the instances enumerated by Art. 1115 of the Civil Code when prescription is interrupted;[17]
and the August 23, 1985 letter by Francisco Go demanding P6,345.00, refers to the insurance premium
on the house of petitioners, advanced by respondent bank, thus such demand letter referred to another
obligation and could not have the effect of interrupting the running of the prescriptive period in favor
of herein petitioners insofar as foreclosure of the mortgage is concerned.[18]
Petitioners then prayed that respondent bank be ordered to pay them P100,000.00 as moral damages,
P50,000.00 as exemplary damages and P100,000.00 as attorneys fees.[19]
Respondent for its part asserts that: the period within which it was placed under receivership and
liquidation was a fortuitous event that interrupted the running of the prescriptive period for the
foreclosure of petitioners mortgaged property; within such period, it was specifically restrained and
immobilized from doing business which includes foreclosure proceedings; the extra-judicial demand it
made on March 24, 1995 wiped out the period that has already lapsed and started anew the prescriptive
period; respondent through its authorized deputy Francisco Go made the first extra-judicial demand on
the petitioners on August 23, 1985; while it is true that the first demand letter of August 1985 pertained
to the insurance premium advanced by it over the mortgaged property of petitioners, the same however
formed part of the latters total loan obligation with respondent under the mortgage instrument and
therefore constitutes a valid extra-judicial demand made within the prescriptive period.[20]
In their Reply, petitioners reiterate their earlier arguments and add that it was respondent that insured
the mortgaged property thus it should not pass the obligation to petitioners through the letter dated
August 1985.[21]
To resolve this petition, two questions need to be answered: (1) Whether or not the period within
which the respondent bank was placed under receivership and liquidation proceedings may be
considered a fortuitous event which interrupted the running of the prescriptive period in bringing
actions; and (2) Whether or not the demand letter sent by respondent banks representative on August

23, 1985 is sufficient to interrupt the running of the prescriptive period.


Anent the first issue, we answer in the negative.
One characteristic of a fortuitous event, in a legal sense and consequently in relations to contract, is that
its occurrence must be such as to render it impossible for a party to fulfill his obligation in a normal
manner.[22]
Respondents claims that because of a fortuitous event, it was not able to exercise its right to foreclose
the mortgage on petitioners property; and that since it was banned from pursuing its business and was
placed under receivership from April 25, 1985 until August 1992, it could not foreclose the mortgage
on petitioners property within such period since foreclosure is embraced in the phrase doing
business, are without merit.
While it is true that foreclosure falls within the broad definition of doing business, that is:
a continuity of commercial dealings and arrangements and contemplates to that extent, the
performance of acts or words or the exercise of some of the functions normally incident to and in
progressive prosecution of the purpose and object of its organization.[23]
it should not be considered included, however, in the acts prohibited whenever banks are prohibited
from doing business during receivership and liquidation proceedings.
This we made clear in Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines[24] where we explained that:
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 banks 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.[25]
This is consistent with the purpose of receivership proceedings, i.e., to receive collectibles and preserve
the assets of the bank in substitution of its former management, and prevent the dissipation of its assets
to the detriment of the creditors of the bank.[26]
When a bank is declared insolvent and placed under receivership, the Central Bank, through the
Monetary Board, determines whether to proceed with the liquidation or reorganization of the
financially distressed bank. A receiver, who concurrently represents the bank, then takes control and
possession of its assets for the benefit of the banks creditors. A liquidator meanwhile assumes the role
of the receiver upon the determination by the Monetary Board that the bank can no longer resume
business. His task is to dispose of all the assets of the bank and effect partial payments of the banks
obligations in accordance with legal priority. In both receivership and liquidation proceedings, the
bank retains its juridical personality notwithstanding the closure of its business and may even be sued
as its corporate existence is assumed by the receiver or liquidator. The receiver or liquidator
meanwhile acts not only for the benefit of the bank, but for its creditors as well.[27]

In Provident Savings Bank vs. Court of Appeals,[28] we further stated that:


When a bank is prohibited from continuing to do business by the Central Bank and a receiver is
appointed for such bank, that bank would not be able to do new business, i.e., to grant new loans or to
accept new deposits. However, the receiver of the bank is in fact obliged to collect debts owing to
the bank, which debts form part of the assets of the bank. The receiver must assemble the assets
and pay the obligation of the bank under receivership, and take steps to prevent dissipation of
such assets. Accordingly, the receiver of the bank is obliged to collect pre-existing debts due to
the bank, and in connection therewith, to foreclose mortgages securing such debts.[29] (Emphasis
supplied.)
It is true that we also held in said case that the period during which the bank was placed under
receivership was deemed fuerza mayor which validly interrupted the prescriptive period.[30] This is
being invoked by the respondent and was used as basis by the trial court in its decision. Contrary to the
position of the respondent and court a quo however, such ruling does not find application in the case at
bar.
A close scrutiny of the Provident case, shows that the Court arrived at said conclusion, which is an
exception to the general rule, due to the peculiar circumstances of Provident Savings Bank at the time.
In said case, we stated that:
Having arrived at the conclusion that a foreclosure is part of a banks business activity which could not
have been pursued by the receiver then because of the circumstances discussed in the Central
Bank case, we are thus convinced that the prescriptive period was legally interrupted by fuerza mayor
in 1972 on account of the prohibition imposed by the Monetary Board against petitioner from
transacting business, until the directive of the Board was nullified in 1981.[31] (Emphasis supplied.)
Further examination of the Central Bank case reveals that the circumstances of Provident Savings Bank
at the time were peculiar because after the Monetary Board issued MB Resolution No. 1766 on
September 15, 1972, prohibiting it from doing business in the Philippines, the banks majority
stockholders immediately went to the Court of First Instance of Manila, which prompted the trial court
to issue its judgment dated February 20, 1974, declaring null and void the resolution and ordering the
Central Bank to desist from liquidating Provident. The decision was appealed to and affirmed by this
Court in 1981. Thus, the Superintendent of Banks, which was instructed to take charge of the assets of
the bank in the name of the Monetary Board, had no power to act as a receiver of the bank and carry
out the obligations specified in Sec. 29 of the Central Bank Act.[32]
In this case, it is not disputed that Philippine Veterans Bank was placed under receivership by the
Monetary Board of the Central Bank by virtue of Resolution No. 364 on April 25, 1985, pursuant to
Section 29 of the Central Bank Act on insolvency of banks. [33]
Unlike Provident Savings Bank, there was no legal prohibition imposed upon herein respondent to
deter its receiver and liquidator from performing their obligations under the law. Thus, the ruling laid
down in the Provident case cannot apply in the case at bar.
There is also no truth to respondents claim that it could not continue doing business from the period of
April 1985 to August 1992, the time it was under receivership. As correctly pointed out by petitioner,
respondent was even able to send petitioners a demand letter, through Francisco Go, on August 23,

1985 for accounts receivable in the total amount of P6,345.00 as of August 15, 1984 for the insurance
premiums advanced by respondent bank over the mortgaged property of petitioners. How it could send
a demand letter on unpaid insurance premiums and not foreclose the mortgage during the time it was
prohibited from doing business was not adequately explained by respondent.
Settled is the principle that a bank is bound by the acts, or failure to act of its receiver.[34] As we held in
Philippine Veterans Bank vs. NLRC,[35] a labor case which also involved respondent bank,
all the acts of the receiver and liquidator pertain to petitioner, both having assumed petitioners
corporate existence. Petitioner cannot disclaim liability by arguing that the non-payment of MOLINAs
just wages was committed by the liquidators during the liquidation period.[36]
However, the bank may go after the receiver who is liable to it for any culpable or negligent failure to
collect the assets of such bank and to safeguard its assets.[37]
Having reached the conclusion that the period within which respondent bank was placed under
receivership and liquidation proceedings does not constitute a fortuitous event which interrupted the
prescriptive period in bringing actions, we now turn to the second issue on whether or not the extrajudicial demand made by respondent bank, through Francisco Go, on August 23, 1985 for the amount
of P6,345.00, which pertained to the insurance premiums advanced by the bank over the mortgaged
property, constitutes a valid extra-judicial demand which interrupted the running of the prescriptive
period. Again, we answer this question in the negative.
Prescription of actions is interrupted when they are filed before the court, when there is a written extrajudicial demand by the creditors, and when there is any written acknowledgment of the debt by the
debtor.[38]
Respondents claim that while its first demand letter dated August 23, 1985 pertained to the insurance
premium it advanced over the mortgaged property of petitioners, the same formed part of the latters
total loan obligation with respondent under the mortgage instrument, and therefore, constitutes a valid
extra-judicial demand which interrupted the running of the prescriptive period, is not plausible.
The real estate mortgage signed by the petitioners expressly states that:
This mortgage is constituted by the Mortgagor to secure the payment of the loan and/or credit
accommodation granted to the spouses Cesar A. Larrobis, Jr. and Virginia S. Larrobis in the amount of
ONE HUNDRED THIRTY FIVE THOUSAND (P135,000.00) PESOS ONLY Philippine Currency in
favor of the herein Mortgagee.[39]
The promissory note, executed by the petitioners, also states that:
FOR VALUE RECEIVED, I/WE, JOINTLY AND SEVERALLY, PROMISE TO PAY THE
PHILIPPINE VETERANS BANK, OR ORDER, AT ITS OFFICE AT CEBU CITY THE SUM OF
ONE HUNDRED THIRTY FIVE THOUSAND PESOS (P135,000.00), PHILIPPINE CURRENCY
WITH INTEREST AT THE RATE OF FOURTEEN PER CENT (14%) PER ANNUM FROM THIS
DATE UNTIL FULLY PAID.[40]

Considering that the mortgage contract and the promissory note refer only to the loan of petitioners in
the amount of P135,000.00, we have no reason to hold that the insurance premiums, in the amount of
P6,345.00, which was the subject of the August 1985 demand letter, should be considered as pertaining
to the entire obligation of petitioners.
In Quirino Gonzales Logging Concessionaire vs. Court of Appeals,[41] we held that the notices of
foreclosure sent by the mortgagee to the mortgagor cannot be considered tantamount to written
extrajudicial demands, which may validly interrupt the running of the prescriptive period, where it does
not appear from the records that the notes are covered by the mortgage contract.[42]
In this case, it is clear that the advanced payment of the insurance premiums is not part of the mortgage
contract and the promissory note signed by petitioners. They pertain only to the amount of
P135,000.00 which is the principal loan of petitioners plus interest. The arguments of respondent bank
on this point must therefore fail.
As to petitioners claim for damages, however, we find no sufficient basis to award the same. For
moral damages to be awarded, the claimant must satisfactorily prove the existence of the factual basis
of the damage and its causal relation to defendants acts.[43] Exemplary damages meanwhile, which are
imposed as a deterrent against or as a negative incentive to curb socially deleterious actions, may be
awarded only after the claimant has proven that he is entitled to moral, temperate or compensatory
damages.[44] Finally, as to attorneys fees, it is demanded that there be factual, legal and equitable
justification for its award.[45] Since the bases for these claims were not adequately proven by the
petitioners, we find no reason to grant the same.
WHEREFORE, the decision of the Regional Trial Court, Cebu City, Branch 24, dated April 17, 1998,
and the order denying petitioners motion for reconsideration dated August 25, 1998 are hereby
REVERSED and SET ASIDE. The extra-judicial foreclosure of the real estate mortgage on October
18, 1995, is hereby declared null and void and respondent is ordered to return to petitioners their
owners duplicate certificate of title.
Costs against respondent.
SO ORDERED.
Puno, (Chairman), Callejo, Sr., and Tinga, JJ., concur.
Chico-Nazario, J., on leave.

Republic of the Philippines


SUPREME COURT
Manila
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.
Sycip, Salazar, Hernandez & Gatmaitan for petitioners.
Quisumbing, Torres & Evangelista for Triumph Savings Bank.

BELLOSILLO, J.:
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. S.P. 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 1 denying
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. Q-45139, against Central Bank and Ramon V. Tiaoqui to annul
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 bad 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 and made 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
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 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.
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.R. 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 R.A. 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?
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 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 after 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. Arca [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 be 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 not require a previous
hearing before the Monetary Board can implement its resolution closing a bank, since its
action 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 utmost fidelity the accounts of
those who have reposed their trust and confidence in them (Simex International [Manila], Inc., v.
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. In 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; corollarily, 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 institution 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 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 not continue to be dissipated or plundered by those entrusted with their
management.

Section 29 of R.A. 265 should be 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 can 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 be properly nullified
and the receivership lifted as the trial court may determine.
The heavy reliance of respondents on 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 that 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 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 unimpaired capital and surplus; it
did not reflect the total financial condition 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 Central 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 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 a valid ground to annul a Monetary Board resolution
placing a bank under receivership. The absence of prior notice and hearing cannot be
deemed acts of arbitrariness and bad faith. Thus, an MB 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 the 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 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
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 that 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.
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 and Melo, JJ., took no part.

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-61689 June 20, 1988
RURAL BANK OF BUHI, INC., and HONORABLE JUDGE CARLOS R. BUENVIAJE,
petitioners,
vs.
HONORABLE 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 Pacifica T. Torres for respondents.

PARAS, J.:
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.
The decretal portion of the appealed decision reads:
DAHIL DITO, ang utos ng pinasasagot sa Hukom noong ika-9 ng Marso, 1982, ay isinasangtabi. 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 P 1,704,782.00 was 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 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 Buhi was
already pending with the same Court (Rollo, p. 69).

On October 16, 1981, petitioners herein filed their amended complaint in Civil Case No. IR428 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. 78-80).
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 Ex-Parte
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 Ex-Parte
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' 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.
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 ACG.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 null and 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.
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 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 not withstanding.

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:
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]).

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:
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]).
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 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.

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xlviiiRepublic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-61689 June 20, 1988
RURAL BANK OF BUHI, INC., and HONORABLE JUDGE CARLOS R. BUENVIAJE,
petitioners,
vs.
HONORABLE 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 Pacifica T. Torres for respondents.

PARAS, J.:
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.

The decretal portion of the appealed decision reads:


DAHIL DITO, ang utos ng pinasasagot sa Hukom noong ika-9 ng Marso, 1982, ay isinasangtabi. 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 P 1,704,782.00 was 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 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 Buhi was
already pending with the same Court (Rollo, p. 69).
On October 16, 1981, petitioners herein filed their amended complaint in Civil Case No. IR428 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. 78-80).
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 Ex-Parte
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 Ex-Parte
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' 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.

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 ACG.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 null and 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.
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 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 not withstanding.

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:
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]).
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:
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]).
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 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.

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