SpecCom Cases - Central Bank Act

BUSUEGO V.
CA
G.R. No. 95326 March 11, 1999
ROMEO P. BUSUEGO, CATALINO F. BANEZ and RENATO F. LIM, petitioners,

vs.
THE HONORABLE COURT OF APPEALS and THE MONETARY BOARD OF THE CENTRAL BANK OF
THE PHILIPPINES, respondents.
PURISIMA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking a
reversal of the Decision, 1 dated September 14, 1990, of the Court of Appeals in CA-G.R. CV
No. 23656.
As culled from the records; the facts of the case are as follows:
The 16th regular examination of the books and records of the PAL Employees Savings and
Loan Association, Inc. ("PESALA") was conducted from March 14 to April 16, 1988 by a team
of CB examiners headed by Belinda Rodriguez. Following the said examination, several
anomalies and irregularities committed by the herein petitioners; PESALA's directors and
officers, were uncovered, among which are:
1. Questionable investment in a multi-million peso real estate project (Pesalaville).
2. Conflict of interest in the conduct of business.
3. Unwarranted declaration and payment of dividends.
4. Commission of unsound and unsafe business practices.
On July 19, 1988, Central Bank ("CB") Supervision and Examination Section ("SES")
Department IV Director Ricardo F. Lirio sent a letter to the Board of Directors of PESALA
inviting them to a conference on July 21, 1988 to discuss subject findings noted in the said
16th regular examination, but petitioners did not attend such conference.
On July 28, 1988, petitioner Renato Lim wrote the PESALA's Board of Directors explaining his
side on the said examination of PESALA's records and requesting that a copy .of his letter be
furnished the CB, which was forthwith made by the Board. 2
On July 29, 1988, PESALA's Board of Directors sent to Director Lirio a letter concerning the
16th regular examination of PESALA's records.
On September 9, 1988, the Monetary Board adopted and issued MB Resolution No. 805 the
pertinent provisions of which are as follows:
1. To note the report on the examination of the PAL Employees' Savings and Loan
Association, Inc. (PESALA) as of December 31, 1987, as submitted in a memorandum of the
Director, Supervision and Examination Section (SES) Department IV, dated August 19, 1988;
2. To require the board of directors of PESALA to immediately inform the members of

PESALA of the results of the "Central Bank examination. and their effects on the financial
condition of the Association;
xxx xxx xxx
5. To include the names of Mr. Catalino Banez, Mr. Romeo Busuego and Mr. Renato Lim
in the Sector's watchlist to prevent them from holding responsible positions in any institution
under Central Bank supervision;
6. To require PESALA to enforce collection of the overpayment to the Vista Grande

Management and Development Corporation and to require the accounting of P12.28 million
unaccounted and unremitted bank loan proceeds and P3.9 million other unsupported cash
disbursements from the responsible directors and officers; or to properly charge these
against their respective accounts, if necessary;
7. To require the board of directors of PESALA to file civil and criminal cases against
Messrs. Catalino Banez, Romeo Busuego and Renato Lim for all the misfeasance and
malfeasance committed by them, as warranted by the evidence;
8. To require the board of directors of PESALA to improve the operations of the

Association; correct all violations noted, and adopt internal control measures to prevent the
recurrence of similar incidents as shown in Annex E of the subject memorandum of the
Director, SES Department IV; 3
xxx xxx xxx
On January 23, 1989, petitioners filed a Petition for Injunction with Prayer for the Immediate
Issuance of a Temporary Restraining Order 4 docketed as Civil Case No. Q-89-1617 before
Branch 104 of the Regional Trial Court of Quezon City.
On January 26, 1989, the said court issued. a temporary restraining

order 5 enjoining the defendant, the Monetary Board of the Central Bank, (now Banko
Sentral ng Pilipinas) from including the names of petitioners in the watchlist.
On February 10, 1989, the same trial Court issued a writ of preliminary injunction, 6
conditioned upon the filing by petitioners of a bond in the amount of Ten Thousand
(P10,000.00) Pesos each. The Monetary Board presented a Motion for Reconsideration 7 of
the said Order, but the same was denied.
On September 11, 1999, the trial court handed down its Decision, 8 disposing thus:
WHEREFORE, judgment is hereby rendered declaring Monetary Board Resolution No. 805 as
void and in existent. The writ of preliminary prohibitory injunctions issued on February 10,
1989 is deemed permanent. Costs against respondent.
The Monetary Board appealed the aforesaid Decision to the Court of Appeals which came out
with a Decision 9 of reversal on September 14, 1990, the decretal portion of which is to the
following effect:
WHEREFORE, the decision appealed from is hereby reversed and another one entered
dismissing the petition for injunction.
Dissatisfied with the said Decision of the Court of Appeals, petitioners have come to this
Court via the present petition for review on certiorari.
On June 5, 1992, petitioners filed an "Urgent Motion for the Immediate Issuance of a
Temporary Restraining Order and/or Writ of Preliminary Injunction against the Secretary of
Justice and the City Prosecutor of Pasay" 10 stating that several complaints were lodged
against the petitioners before the Office of the City Prosecutor of Pasay City pursuant to
Monetary Board Resolution No. 805; that the said complaints were dismissed, by the City
Prosecutor and the dismissals were appealed to the Secretary of Justice for review, some of
which have been reversed already. Petitioners prayed that Temporary Restraining Order
and/or Writ of Preliminary Injunction issue "restraining and enjoining the Secretary of Justice
and the City Prosecutor of Pasay City from proceeding and taking further actions, and more
specially from filing Information's in I.S. Nos. 90-1836; 90- 1831; 90-1835; 90-1832; 90-1248;
90-1249; 90-3031; 90-3032; 90- 1837; 90-1834, pending the final resolution of the case at
bar . . ." However, in the Resolution 11 dated September 9, 1992, the court denied the said
motion.
The petition poses as issues for resolution:
WHETHER OR NOT THE PETITIONERS WERE DEPRIVED OF THEIR RIGHT TO A NOTICE AND
THE OPPORTUNITY TO BE HEARD BY THE MONETARY BOARD PRIOR TO ITS ISSUANCE OF
MONETARY BOARD RESOLUTION NO. 805.
II
WHETHER OR NOT THE RESPONDENT BOARD IS LEGALLY BOUND TO OBSERVE THE

ESSENTIAL REQUIREMENTS OF DUE PROCESS OF A VALID CHARGE, NOTICE AND
OPPORTUNITY TO BE HEARD INSOFAR AS THE PETITIONERS SUBJECT CASE IS CONCERNED.
III
WHETHER OR NOT MONETARY BOARD RESOLUTION NO. 805 IS NULL AND VOID FOR BEING
VIOLATIVE OF PETITIONERS' RIGHTS TO DUE PROCESS.
With respect to the first issue, the trial court said:
The evidence submitted Preponderates in favor of petitioners. The deprivation of petitioners'

rights in the Resolution undermines the constitutional guarantee of due process. Petitioners
were never notified that they were being investigated, much so, they were not informed of
any charges against them and were not afforded the opportunity to adduce countervailing
evidence so as to deserve the punitive measures promulgated in Resolution No. 805 of the
Monetary Board . . . 12
The foregoing disquisition by the trial court is untenable under the facts and circumstances
of the case. Petitioners were duly afforded their right to due process by the Monetary Board,
it appearing that:
1. Petitioners were invited by Director Lirio to a conference scheduled for July 21, 1988
to discuss the findings made in the 16th regular examination of PESALA's records.
Petitioners did not attend said conference;
2. Petitioner Renato Lim's letter of July 28, 1988 to PESALA.'s Board of Directors,
explaining his side of the controversy, was forwarded to the Monetary Board which the latter
considered in adopting Monetary Board Resolution No. 805; and
3. PESALA's Board of Director's letter, dated July 29, 1988, to Monetary Board,
explaining the Board's side of the controversy was properly considered in the adoption of
Monetary Board Resolution No. 805.
Petitioners therefore cannot complain of deprivation of their right to due process, as they
were given ample opportunity by the Monetary Board to air their submission and defenses
as to the findings of irregularity during the said 16th regular examination. The essence of
due process is to be afforded a reasonable opportunity to be heard and to submit any
evidence one may have in support of his defense 13 What is offensive to due process is the
denial of the opportunity to be heard. 14 Petitioner having availed of their opportunity to
present their position to the Monetary Board by their letters-explanation, they were not
denied due process. 15
Petitioners cite Ang Tibay v. CIR 16 and assert that the following requisites of procedural due
process were not observed by the Monetary Board:
1. The right to a hearing, which includes the right to present one's case and submit
evidence in support thereof;
2. The tribunal must consider the evidence presented;
3. The decision must have something to support itself;
4. The evidence must be substantial;
5. The decision must be rendered on the evidence presented at the hearing, or at least
contained in the record and disclosed to the parties affected;
6. The tribunal or body or any of its judges must act on its or his own independent
consideration of the law and facts of the controversy and not simply accept the view of a
subordinate in arriving at a decision;
7. The board or body should, in all controversial question, renders its decision in such
manner that the parties to the proceedings can know the various issues involved and the
reason for the decision rendered.
Contrary to petitioners' allegation, it appears that the requisites of procedural due process
were complied with by the Monetary Board before it issued the questioned Monetary Board
Resolution No. 805. Firstly, the petitioner were invited to a conference to discuss the findings
gathered during the 16th regular examination of PESALA's records. (The requirement of a
hearing is complied with as long as there was an opportunity to be heard, and not
necessarily that an actual hearing was conducted. 17) Secondly, the Monetary Board
considered the evidence presented. Thirdly, fourthly, and fifthly, Monetary Board Resolution
No. 805 was adopted on the basis of said findings unearthed during the 16th regular
examination of PESALA's records and derived from the letter-comments submitted by the
parties. Sixthly, the members of the Monetary Board acted independently on their own in
issuing subject Resolution, placing reliance on the said findings made during the 16th
regular examination. Lastly, the reason for the issuance of Monetary Board Resolution No.
805 is readily apparent, which is to prevent further irregularities from being committed and
to prosecute the officials responsible therefor.
With respect to the second issue, there is tenability in petitioners' contention that the
Monetary Board, as an administrative agency, is legally bound to observe due process,
although they are free from the rigidity of certain procedural requirements. As held in
Adamson and Adamson, Inc. v. Amores. 18
While administrative tribunals exercising quasi-judicial functions are free from the rigidity of
certain procedural requirements they are bound by law and practice to observe the
fundamental and essential requirements of due process in justiciable cases presented before
them. However, the standard of due process that must be met in administrative tribunals
allows a certain latitude as long as the element of fairness is not ignored. Hence, there is no
denial of due process where records show that hearings were held with prior notice to
adverse parties. But even in the absence of previous notice, there is no denial of procedural
due process as long as the parties are given the opportunity to be heard.
Even Section 28, (c) and (d), of Republic Act No. 3779 ("RA 1779") delineating the powers of
the Monetary Board over savings and loan associations, require observance of due process
in the exercise of its powers:
xxx xxx xxx
(c) To conduct at least once every year, and whenever necessary, any inspection,
examination or investigation of the books and records, business affairs, administration, and
financial condition of any savings and loan association with or without prior notice but
always with fairness and reasonable opportunity for the association or any of its officials to
give their side of the case. . .
(d) After proper notice and hearing, to suspend a savings and loan association for
violation of law, for unsafe and unsound practices or for reason of insolvency. . .
xxx xxx xxx
(f) To decide, after appropriate notice and hearings any controversy as to the rights or
obligations of the savings and loan association, its directors, officers, stockholders and
members under its charter, and, by order, to enforce the same;
xxx xxx xxx (emphasis supplied)
Anent the third issue, petitioners theorize that Monetary Board Resolution No. 805 is null and
void for being violative of petitioners' right to due process. To support their stance, they cite
the trial court's ruling, to wit:
A reading of Monetary Board Resolution No. 805 discloses that it imposes administrative
sanctions against petitioners. In fact, it does not only penalize petitioners by including them
in the "watchlist to prevent them from holding responsible positions in any institution under
Central Bank supervision," it mandates the PESALA Board of Directors as well to file Civil and
Criminal charges against them 'for all the misfeasance and malfeasance committed by
them, as warranted by the evidence.' Monetary Board Resolution No. 805 virtually deprives
petitioners their respective gainful employment, and at the same time marks them for
judicial prosecution. The crucial question here is that were petitioners afforded due process
in the investigations conducted which prompted the issuance of Monetary Board Resolution
No. 805?
. . . Although the Monetary Board is free from the rigidity of certain procedural requirements,
it failed "to observe the essential requirement of due process" (Adamson and Adamson, Inc.
v. Amores, 152 SCRA 237) specifically its failure to afford petitioners the opportunity to be
heard. In short, there is a clear showing of arbitrariness resulting in an irreparable injury
against petitioners as the Resolution certainly affects their "life, liberty and property.
Monetary Board Resolution No. 805 violates basic and essential requirements. It must
therefore be, as it is hereby, declared, as void and inexistent because among other things, it
openly derogates the fundamental rights of petitioners.
Petitioners opine that with the issuance of Monetary Board Resolution No. 805, "they are
now barred from being elected or designated as officers again of PESALA, and are likewise
prevented from future engagements or employments in all institutions under the supervision
of the Central Bank thereby virtually depriving them of the opportunity to seek employments
in the field which they can excel and are best fitted." According to them, the Monetary Board
is not vested with "the authority to disqualify persons from occupying positions in
institutions under the supervision of the Central Bank without proper notice and hearing" nor
is it vested with authority "to file civil and criminal cases against its officers directors for
suspected fraudulent acts."
Petitioners' contentions are untenable. It must be remembered that the Central Bank of the
Philippines (now Bangko Sentral ng Pilipinas), through the Monetary Board, is the
government agency charged with the responsibility of administering the monetary, banking
and credit system of the country 19 and is granted the power of supervision and
examination over banks and non-bank financial institutions performing quasi-banking
functions of which savings and loan associations, such as PESALA, from part of. 20
The special law governing savings and loan associations is Republic Act No. 3779, as
amended, otherwise known as the "Savings and Loan Association Act." Said law authorizes
the Monetary Board to conduct regular yearly examinations of the books and records of
savings and loans associations, to suspend a savings and loan association for violation of
law, to decide any controversy over the obligations and duties of directors and officers, and
to take remedial measures, among others. Section 28 of Rep. Act No. 3779, reads;
Sec. 28. Supervisory powers over savings and loan associations. In addition to
whatever powers have been conferred by the foregoing provisions, the Monetary Board shall
have the power to exercise the following.
xxx xxx xxx
(c) To conduct atleast once every year, and whenever necessary, any inspection,
examination or investigation of the books and records, business affairs, administration, and
financial condition of any savings and loan association with or without prior notice but
always with fairness and reasonable opportunity for the association or any of its official to
give their side of the case. Whenever an inspection, examination or investigation is
conducted under this grant power, the person authorized to do so may seize books and
records and keep them under his custody after giving proper receipts therefor; may make
any marking or notation on any paper, record, document or book to show that it has been
examined and verified; and may padlock or seal shelves, vaults, safes, receptacles or similar
container and prohibit the opening thereof without first securing authority therefor, for as
long as may be necessary in connection with the investigation or examination being
conducted. The official of the Central Bank in charge of savings and loan associations and
his deputies are hereby authorized to administer oaths to any directors, officer or employee
of any association under the supervision of the Monetary Board;
xxx xxx xxx
(d) After proper notice and hearing, to suspend a savings and loan association for
violation of law, for unsafe and unsound practices or for reason of insolvency. The Monetary
Board may likewise, upon the proof that a savings and loan association or its board or
directors or officers are conducting and managing its affairs in a manner contrary to laws,
orders, instruction, rules and regulations promulgated by the Monetary Board or in a manner
substantially prejudicial to the interest of the government, depositors or creditors, take over
the management of the savings and loan association after due hearing, until a new board of
directors and officers are elected and qualified without prejudice to the prosecution of the
persons responsible for such violations. The management by the Monetary Board shall be
without expense to the savings and loan association, except such as is actually necessary
for its operation, pending the election and qualification of a new board of directors and
officers to take the place of those responsible for the violation or acts contrary to the
interest of the government, depositors or creditors;
xxx xxx xxx
(f) To decide, after appropriate notice and hearings any controversy as to the rights or
obligations of the savings and loan association, its directors, officers, stockholders and
members under its charter, and, by order, to enforce the same;
xxx xxx xxx
(I) To conduct such investigations, take such remedial measures, exercise all powers
which are now or may hereafter be conferred upon it by Republic Act Numbered Two
Hundred sixty-five in the enforcement of this legislation, and impose upon associations,
whether stock or non-stock their directors and/or officers administrative sanctions under
Sections 34-A or 34-B of Republic Act Two Hundred sixty-five, as amended.
From the foregoing, it is gleanable that the Central Bank, through the Monetary Board, is
empowered to conduct investigations and examine the records of savings and loan
associations. If any irregularity is discovered in the process, the Monetary Board may impose
appropriate sanctions, such as suspending the offender from holding office or from being
employed with the Central Bank, or placing the names of the offenders in a watchlist.
The requirement of prior notice is also relaxed under Section 28 (c) of RA 3779 as
investigations or examinations may be conducted with or without prior notice "but always
with fairness and reasonable opportunity for the association or any of its officials to give
their side." As may be gathered from the records, the said requirement was properly
complied with by the respondent Monetary Board.
We sustain the ruling of the Court of Appeals that petitioners' suspension was only
preventive in nature and therefore, no notice or hearing was necessary. Until such time that
the petitioners have proved their innocence, they may be preventively suspended from
holding office so as not to influence the conduct of investigation, and to prevent the
commission of further irregularities.
Neither were petitioners deprived of their lawful calling as they are free to look for another
employment so long as the agency or company involved is not subject to Central Bank
control and supervision. Petitioners can still practise their profession or engage in business
as long as these are not within the ambit of Monetary Board Resolution No. 805.
All thing studiedly considered, the court upholds the validity of Monetary Board Resolution
No. 805 and affirms the decision of the respondent court.
WHEREFORE, the petition is DENIED, and the assailed Decision dated September 14, 1996 of
the AFFIRMED. No pronouncement as to costs.
SO ORDERED.
Romero, Vitug, Panganiban and Gonzaga-Reyes, JJ., concur.

G.R. No. 169053
Present:
YNARES-SANTIAGO, J.,
Chairperson,
CARPIO,*
CORONA,**
NACHURA, and
PERALTA, JJ.
Promulgated:
June 19, 2009
Before this Court are two petitions that originated from a Complaint filed by Ana Maria A.
Koruga (Koruga) before the Regional Trial Court (RTC) of Makati City against the Board of
Directors of Banco Filipino and the Members of the Monetary Board of the Bangko Sentral ng
Pilipinas (BSP) for violation of the Corporation Code, for inspection of records of a
corporation by a stockholder, for receivership, and for the creation of a management
committee.
G.R. No. 168332
The first is a Petition for Certiorari under Rule 65 of the Rules of Court, docketed as G.R. No.
168332, praying for the annulment of the Court of Appeals (CA) Resolution[1] in CA-G.R. SP
No. 88422 dated April 18, 2005 granting the prayer for a Writ of Preliminary Injunction of
therein petitioners Teodoro O. Arcenas, Jr., Albert C. Aguirre, Cesar S. Paguio, and Francisco
A. Rivera (Arcenas, et al.).
Koruga is a minority stockholder of Banco Filipino Savings and Mortgage Bank. On August
20, 2003, she filed a complaint before the Makati RTC which was raffled to Branch 138,
presided over by Judge Sixto Marella, Jr.[2] Korugas complaint alleged:
10. 1 Violation of Sections 31 to 34 of the Corporation Code (Code) which prohibit self-
dealing and conflicts of interest of directors and officers, thus:
(a) For engaging in unsafe, unsound, and fraudulent banking practices that have
jeopardized the welfare of the Bank, its shareholders, who includes among others, the
Petitioner, and depositors. (sic)
(b) For granting and approving loans and/or loaned sums of money to six (6)
dummy borrower corporations (Borrower Corporations) which, at the time of loan approval,
had no financial capacity to justify the loans. (sic)
(c) For approving and accepting a dacion en pago, or payment of loans with
property instead of cash, resulting to a diminished future cumulative interest income by the
Bank and a decline in its liquidity position. (sic)
(d) For knowingly giving favorable treatment to the Borrower Corporations in which
some or most of them have interests, i.e. interlocking directors/officers thereof, interlocking
ownerships. (sic)
(e) For employing their respective offices and functions as the Banks officers and
directors, or omitting to perform their functions and duties, with negligence, unfaithfulness
or abuse of confidence of fiduciary duty, misappropriated or misapplied or ratified by
inaction the misappropriation or misappropriations, of (sic) almost P1.6 Billion Pesos (sic)
constituting the Banks funds placed under their trust and administration, by unlawfully
releasing loans to the Borrower Corporations or refusing or failing to impugn these, knowing
before the loans were released or thereafter that the Banks cash resources would be
dissipated thereby, to the prejudice of the Petitioner, other Banco Filipino depositors, and the
public.
10.2 Right of a stockholder to inspect the records of a corporation (including financial
statements) under Sections 74 and 75 of the Code, as implemented by the Interim Rules;
(a) Unlawful refusal to allow the Petitioner from inspecting or otherwise accessing
the corporate records of the bank despite repeated demand in writing, where she is a
stockholder. (sic)
10.3 Receivership and Creation of a Management Committee pursuant to:
(a) Rule 59 of the 1997 Rules of Civil Procedure (Rules);
(b) Section 5.2 of R.A. No. 8799;
(c) Rule 1, Section 1(a)(1) of the Interim Rules;
(d) Rule 1, Section 1(a)(2) of the Interim Rules;
(e) Rule 7 of the Interim Rules;
(f) Rule 9 of the Interim Rules; and
(g) The General Banking Law of 2000 and the New Central Bank Act.[3]
On September 12, 2003, Arcenas, et al. filed their Answer raising, among others, the trial
courts lack of jurisdiction to take cognizance of the case. They also filed a Manifestation and
Motion seeking the dismissal of the case on the following grounds: (a) lack of jurisdiction
over the subject matter; (b) lack of jurisdiction over the persons of the defendants; (c)
forum-shopping; and (d) for being a nuisance/harassment suit. They then moved that the
trial court rule on their affirmative defenses, dismiss the intra-corporate case, and set the
case for preliminary hearing.
In an Order dated October 18, 2004, the trial court denied the Manifestation and Motion,
ruling thus:
The result of the procedure sought by defendants Arcenas, et al. (sic) is for the Court to
conduct a preliminary hearing on the affirmative defenses raised by them in their Answer.
This [is] proscribed by the Interim Rules of Procedure on Intracorporate (sic) Controversies
because when a preliminary hearing is conducted it is as if a Motion to Dismiss was filed
(Rule 16, Section 6, 1997 Rules of Civil Procedure). A Motion to Dismiss is a prohibited
pleading under the Interim Rules, for which reason, no favorable consideration can be given
to the Manifestation and Motion of defendants, Arcenas, et al.
The Court finds no merit to (sic) the claim that the instant case is a nuisance or harassment
suit.
WHEREFORE, the Court defers resolution of the affirmative defenses raised by the
defendants Arcenas, et al.[4]
Arcenas, et al. moved for reconsideration[5] but, on January 18, 2005, the RTC denied the
motion.[6] This prompted Arcenas, et al. to file before the CA a Petition for Certiorari and
Prohibition under Rule 65 of the Rules of Court with a prayer for the issuance of a writ of
preliminary injunction and a temporary retraining order (TRO).[7]
On February 9, 2005, the CA issued a 60-day TRO enjoining Judge Marella from conducting
further proceedings in the case.[8]
On February 22, 2005, the RTC issued a Notice of Pre-trial[9] setting the case for pre-trial on
June 2 and 9, 2005. Arcenas, et al. filed a Manifestation and Motion[10] before the CA,
reiterating their application for a writ of preliminary injunction. Thus, on April 18, 2005, the
CA issued the assailed Resolution, which reads in part:
(C)onsidering that the Temporary Restraining Order issued by this Court on February 9, 2005
expired on April 10, 2005, it is necessary that a writ of preliminary injunction be issued in
order not to render ineffectual whatever final resolution this Court may render in this case,
after the petitioners shall have posted a bond in the amount of FIVE HUNDRED THOUSAND
(P500,000.00) PESOS.
SO ORDERED.[11]
Dissatisfied, Koruga filed this Petition for Certiorari under Rule 65 of the Rules of Court.
Koruga alleged that the CA effectively gave due course to Arcenas, et al.s petition when it
issued a writ of preliminary injunction without factual or legal basis, either in the April 18,
2005 Resolution itself or in the records of the case. She prayed that this Court restrain the
CA from implementing the writ of preliminary injunction and, after due proceedings, make
the injunction against the assailed CA Resolution permanent.[12]
In their Comment, Arcenas, et al. raised several procedural and substantive issues. They
alleged that the Verification and Certification against Forum-Shopping attached to the
Petition was not executed in the manner prescribed by Philippine law since, as admitted by
Korugas counsel himself, the same was only a facsimile.
They also averred that Koruga had admitted in the Petition that she never asked for
reconsideration of the CAs April 18, 2005 Resolution, contending that the Petition did not
raise pure questions of law as to constitute an exception to the requirement of filing a
Motion for Reconsideration before a Petition for Certiorari is filed.
They, likewise, alleged that the Petition may have already been rendered moot and
academic by the July 20, 2005 CA Decision,[13] which denied their Petition, and held that
the RTC did not commit grave abuse of discretion in issuing the assailed orders, and thus
ordered the RTC to proceed with the trial of the case.
Meanwhile, on March 13, 2006, this Court issued a Resolution granting the prayer for a TRO
and enjoining the Presiding Judge of Makati RTC, Branch 138, from proceeding with the
hearing of the case upon the filing by Arcenas, et al. of a P50,000.00 bond. Koruga filed a
motion to lift the TRO, which this Court denied on July 5, 2006.
On the other hand, respondents Dr. Conrado P. Banzon and Gen. Ramon Montao also filed
their Comment on Korugas Petition, raising substantially the same arguments as Arcenas, et
al.
G.R. No. 169053

G.R. No. 169053 is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,
with prayer for the issuance of a TRO and a writ of preliminary injunction filed by Arcenas, et
al.
In their Petition, Arcenas, et al. asked the Court to set aside the Decision[14] dated July 20,
2005 of the CA in CA-G.R. SP No. 88422, which denied their petition, having found no grave
abuse of discretion on the part of the Makati RTC. The CA said that the RTC Orders were
interlocutory in nature and, thus, may be assailed by certiorari or prohibition only when it is
shown that the court acted without or in excess of jurisdiction or with grave abuse of
discretion. It added that the Supreme Court frowns upon resort to remedial measures
against interlocutory orders.
Arcenas, et al. anchored their prayer on the following grounds: that, in their Answer before
the RTC, they had raised the issue of failure of the court to acquire jurisdiction over them
due to improper service of summons; that the Koruga action is a nuisance or harassment
suit; that there is another case involving the same parties for the same cause pending
before the Monetary Board of the BSP, and this constituted forum-shopping; and that
jurisdiction over the subject matter of the case is vested by law in the BSP.[15]
Arcenas, et al. assign the following errors:
I. THE COURT OF APPEALS, IN FINDING NO GRAVE ABUSE OF DISCRETION

COMMITTED BY PUBLIC RESPONDENT REGIONAL TRIAL COURT OF MAKATI, BRANCH 138, IN
ISSUING THE ASSAILED ORDERS, FAILED TO CONSIDER AND MERELY GLOSSED OVER THE
MORE TRANSCENDENT ISSUES OF THE LACK OF JURISDICTION ON THE PART OF SAID PUBLIC
RESPONDENT OVER THE SUBJECT MATTER OF THE CASE BEFORE IT, LITIS PENDENTIA AND
FORUM SHOPPING, AND THE CASE BELOW BEING A NUISANCE OR HARASSMENT SUIT,
EITHER ONE AND ALL OF WHICH GOES/GO TO RENDER THE ISSUANCE BY PUBLIC
RESPONDENT OF THE ASSAILED ORDERS A GRAVE ABUSE OF DISCRETION.
II. THE FINDING OF THE COURT OF APPEALS OF NO GRAVE ABUSE OF DISCRETION

COMMITTED BY PUBLIC RESPONDENT REGIONAL TRIAL COURT OF MAKATI, BRANCH 138, IN
ISSUING THE ASSAILED ORDERS, IS NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE
DECISIONS OF THIS HONORABLE COURT.[16]
Meanwhile, in a Manifestation and Motion filed on August 31, 2005, Koruga prayed for,
among others, the consolidation of her Petition with the Petition for Review on Certiorari
under Rule 45 filed by Arcenas, et al., docketed as G.R. No. 169053. The motion was granted
by this Court in a Resolution dated September 26, 2005.
Our Ruling
Initially, we will discuss the procedural issue.
Arcenas, et al. argue that Korugas petition should be dismissed for its defective Verification
and Certification Against Forum-Shopping, since only a facsimile of the same was attached
to the Petition. They also claim that the Verification and Certification Against Forum-
Shopping, allegedly executed in Seattle, Washington, was not authenticated in the manner
prescribed by Philippine law and not certified by the Philippine Consulate in the United
States.
This contention deserves scant consideration.

On the last page of the Petition in G.R. No. 168332, Korugas counsel executed an
Undertaking, which reads as follows:
In view of that fact that the Petitioner is currently in the United States, undersigned counsel
is attaching a facsimile copy of the Verification and Certification Against Forum-Shopping
duly signed by the Petitioner and notarized by Stephanie N. Goggin, a Notary Public for the
Sate (sic) of Washington. Upon arrival of the original copy of the Verification and Certification
as certified by the Office of the Philippine Consul, the undersigned counsel shall immediately
provide duplicate copies thereof to the Honorable Court.[17]
Thus, in a Compliance[18] filed with the Court on September 5, 2005, petitioner submitted
the original copy of the duly notarized and authenticated Verification and Certification
Against Forum-Shopping she had executed.[19] This Court noted and considered the
Compliance satisfactory in its Resolution dated November 16, 2005. There is, therefore, no
need to further belabor this issue.
We now discuss the substantive issues in this case.
First, we resolve the prayer to nullify the CAs April 18, 2005 Resolution.
We hold that the Petition in G.R. No. 168332 has become moot and academic. The writ of
preliminary injunction being questioned had effectively been dissolved by the CAs July 20,
2005 Decision. The dispositive portion of the Decision reads in part:
The case is REMANDED to the court a quo for further proceedings and to resolve with
deliberate dispatch the intra-corporate controversies and determine whether there was
actually a valid service of summons. If, after hearing, such service is found to have been
improper, then new summons should be served forthwith.[20]
Accordingly, there is no necessity to restrain the implementation of the writ of preliminary

injunction issued by the CA on April 18, 2005, since it no longer exists.
However, this Court finds that the CA erred in upholding the jurisdiction of, and remanding
the case to, the RTC.
The resolution of these petitions rests mainly on the determination of one fundamental
issue: Which body has jurisdiction over the Koruga Complaint, the RTC or the BSP?
We hold that it is the BSP that has jurisdiction over the case.
A reexamination of the Complaint is in order.
Korugas Complaint charged defendants with violation of Sections 31 to 34 of the Corporation

Code, prohibiting self-dealing and conflict of interest of directors and officers; invoked her
right to inspect the corporations records under Sections 74 and 75 of the Corporation Code;
and prayed for Receivership and Creation of a Management Committee, pursuant to Rule 59
of the Rules of Civil Procedure, the Securities Regulation Code, the Interim Rules of
Procedure Governing Intra-Corporate Controversies, the General Banking Law of 2000, and
the New Central Bank Act. She accused the directors and officers of Banco Filipino of
engaging in unsafe, unsound, and fraudulent banking practices, more particularly, acts that
violate the prohibition on self-dealing.
It is clear that the acts complained of pertain to the conduct of Banco Filipinos banking
business. A bank, as defined in the General Banking Law,[21] refers to an entity engaged in
the lending of funds obtained in the form of deposits.[22] 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. Banks are
affected with public interest because they receive funds from the general public in the form
of deposits. It is the Governments responsibility to see to it that the financial interests of
those who deal with banks and banking institutions, as depositors or otherwise, are
protected. In this country, that task is delegated to the BSP, which pursuant to its Charter, is
authorized to administer the monetary, banking, and credit system of the Philippines. It 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.[23]
The law vests in the BSP the supervision over operations and activities of banks. The New
Central Bank Act provides:
Section 25. Supervision and Examination. - The Bangko Sentral 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.[24]
Specifically, the BSPs supervisory and regulatory powers include:
4.1 The issuance of rules of conduct or the establishment of standards of operation for
uniform application to all institutions or functions covered, taking into consideration the
distinctive character of the operations of institutions and the substantive similarities of
specific functions to which such rules, modes or standards are to be applied;
4.2 The conduct of examination to determine compliance with laws and regulations if the
circumstances so warrant as determined by the Monetary Board;
4.3 Overseeing to ascertain that laws and Regulations are complied with;
4.4 Regular investigation which shall not be oftener than once a year from the last date of
examination to determine whether an institution is conducting its business on a safe or
sound basis: Provided, That the deficiencies/irregularities found by or discovered by an audit
shall be immediately addressed;
4.5 Inquiring into the solvency and liquidity of the institution (2-D); or
4.6 Enforcing prompt corrective action.[25]
Koruga alleges that the dispute in the trial court involves the manner with which the
Directors (sic) have handled the Banks affairs, specifically the fraudulent loans and dacion
en pago authorized by the Directors in favor of several dummy corporations known to have
close ties and are indirectly controlled by the Directors.[26] Her allegations, then, call for the
examination of the allegedly questionable loans. Whether these loans are covered by the
prohibition on self-dealing is a matter for the BSP to determine. These are not ordinary intra-
corporate matters; rather, they involve banking activities which are, by law, regulated and
supervised by the BSP. As the Court has previously held:
It is well-settled in both law and jurisprudence that the Central Monetary Authority, 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 a probable loss to its depositors or creditors, forbid
bank or non-bank financial institution to do business in the Philippines; and shall designate
an official of the BSP or other competent person as receiver to immediately take charge of
its assets and liabilities.[27]
Correlatively, the General Banking Law of 2000 specifically deals with loans contracted by
bank directors or officers, thus:
SECTION 36. Restriction on Bank Exposure to Directors, Officers, Stockholders and Their
Related Interests. No director or officer of any bank shall, directly or indirectly, for himself or
as the representative or agent of others, borrow from such bank nor shall he become a
guarantor, indorser or surety for loans from such bank to others, or in any manner be an
obligor or incur any contractual liability to the bank except with the written approval of the
majority of all the directors of the bank, excluding the director concerned: Provided, That
such written approval shall not be required for loans, other credit accommodations and
advances granted to officers under a fringe benefit plan approved by the Bangko Sentral.
The required approval shall be entered upon the records of the bank and a copy of such
entry shall be transmitted forthwith to the appropriate supervising and examining
department of the Bangko Sentral.
Dealings of a bank with any of its directors, officers or stockholders and their related
interests shall be upon terms not less favorable to the bank than those offered to others.
After due notice to the board of directors of the bank, the office of any bank director or
officer who violates the provisions of this Section may be declared vacant and the director or
officer shall be subject to the penal provisions of the New Central Bank Act.
The Monetary Board may regulate the amount of loans, credit accommodations and
guarantees that may be extended, directly or indirectly, by a bank to its directors, officers,
stockholders and their related interests, as well as investments of such bank in enterprises
owned or controlled by said directors, officers, stockholders and their related interests.
However, the outstanding loans, credit accommodations and guarantees which a bank may
extend to each of its stockholders, directors, or officers and their related interests, shall be
limited to an amount equivalent to their respective unencumbered deposits and book value
of their paid-in capital contribution in the bank: Provided, however, That loans, credit
accommodations and guarantees secured by assets considered as non-risk by the Monetary
Board shall be excluded from such limit: Provided, further, That loans, credit
accommodations and advances to officers in the form of fringe benefits granted in
accordance with rules as may be prescribed by the Monetary Board shall not be subject to
the individual limit.
The Monetary Board shall define the term related interests.
The limit on loans, credit accommodations and guarantees prescribed herein shall not apply
to loans, credit accommodations and guarantees extended by a cooperative bank to its
cooperative shareholders.[28]
Furthermore, the authority to determine whether a bank is conducting business in an unsafe

or unsound manner is also vested in the Monetary Board. The General Banking Law of 2000
provides:
SECTION 56. Conducting Business in an Unsafe or Unsound Manner. In determining whether

a particular act or omission, which is not otherwise prohibited by any law, rule or regulation
affecting banks, quasi-banks or trust entities, may be deemed as conducting business in an
unsafe or unsound manner for purposes of this Section, the Monetary Board shall consider
any of the following circumstances:
56.1. The act or omission has resulted or may result in material loss or damage, or abnormal
risk or danger to the safety, stability, liquidity or solvency of the institution;
56.2. The act or omission has resulted or may result in material loss or damage or abnormal
risk to the institution's depositors, creditors, investors, stockholders or to the Bangko Sentral
or to the public in general;
56.3. The act or omission has caused any undue injury, or has given any unwarranted
benefits, advantage or preference to the bank or any party in the discharge by the director
or officer of his duties and responsibilities through manifest partiality, evident bad faith or
gross inexcusable negligence; or
56.4. The act or omission involves entering into any contract or transaction manifestly and
grossly disadvantageous to the bank, quasi-bank or trust entity, whether or not the director
or officer profited or will profit thereby.
Whenever a bank, quasi-bank or trust entity persists in conducting its business in an unsafe
or unsound manner, the Monetary Board may, without prejudice to the administrative
sanctions provided in Section 37 of the New Central Bank Act, take action under Section 30
of the same Act and/or immediately exclude the erring bank from clearing, the provisions of
law to the contrary notwithstanding.
Finally, the New Central Bank Act grants the Monetary Board the power to impose
administrative sanctions on the erring bank:
Section 37. Administrative Sanctions on Banks and Quasi-banks. - Without prejudice to the
criminal sanctions against the culpable persons provided in Sections 34, 35, and 36 of this
Act, the Monetary Board may, at its discretion, impose upon any bank or quasi-bank, their
directors and/or officers, for any willful violation of its charter or by-laws, willful delay in the
submission of reports or publications thereof as required by law, rules and regulations; any
refusal to permit examination into the affairs of the institution; any willful making of a false
or misleading statement to the Board or the appropriate supervising and examining
department or its examiners; any willful failure or refusal to comply with, or violation of, any
banking law or any order, instruction or regulation issued by the Monetary Board, or any
order, instruction or ruling by the Governor; or any commission of irregularities, and/or
conducting business in an unsafe or unsound manner as may be determined by the
Monetary Board, the following administrative sanctions, whenever applicable:
(a) fines in amounts as may be determined by the Monetary Board to be appropriate, but in
no case to exceed Thirty thousand pesos (P30,000) a day for each violation, taking into
consideration the attendant circumstances, such as the nature and gravity of the violation or
irregularity and the size of the bank or quasi-bank;
(b) suspension of rediscounting privileges or access to Bangko Sentral credit facilities;
(c) suspension of lending or foreign exchange operations or authority to accept new deposits
or make new investments;
(d) suspension of interbank clearing privileges; and/or
(e) revocation of quasi-banking license.

Resignation or termination from office shall not exempt such director or officer from
administrative or criminal sanctions.
The Monetary Board may, whenever warranted by circumstances, preventively suspend any
director or officer of a bank or quasi-bank pending an investigation: Provided, That should
the case be not finally decided by the Bangko Sentral within a period of one hundred twenty
(120) days after the date of suspension, said director or officer shall be reinstated in his
position: Provided, further, That when the delay in the disposition of the case is due to the
fault, negligence or petition of the director or officer, the period of delay shall not be counted
in computing the period of suspension herein provided.
The above administrative sanctions need not be applied in the order of their severity.
Whether or not there is an administrative proceeding, if the institution and/or the directors
and/or officers concerned continue with or otherwise persist in the commission of the
indicated practice or violation, the Monetary Board may issue an order requiring the
institution and/or the directors and/or officers concerned to cease and desist from the
indicated practice or violation, and may further order that immediate action be taken to
correct the conditions resulting from such practice or violation. The cease and desist order
shall be immediately effective upon service on the respondents.
The respondents shall be afforded an opportunity to defend their action in a hearing before
the Monetary Board or any committee chaired by any Monetary Board member created for
the purpose, upon request made by the respondents within five (5) days from their receipt of
the order. If no such hearing is requested within said period, the order shall be final. If a
hearing is conducted, all issues shall be determined on the basis of records, after which the
Monetary Board may either reconsider or make final its order.
The Governor is hereby authorized, at his discretion, to impose upon banking institutions, for
any failure to comply with the requirements of law, Monetary Board regulations and policies,
and/or instructions issued by the Monetary Board or by the Governor, fines not in excess of
Ten thousand pesos (P10,000) a day for each violation, the imposition of which shall be final
and executory until reversed, modified or lifted by the Monetary Board on appeal.[29]
Koruga also accused Arcenas, et al. of violation of the Corporation Codes provisions on self-
dealing and conflict of interest. She invoked Section 31 of the Corporation Code, which
defines the liability of directors, trustees, or officers of a corporation for, among others,
acquiring any personal or pecuniary interest in conflict with their duty as directors or
trustees, and Section 32, which prescribes the conditions under which a contract of the
corporation with one or more of its directors or trustees the so-called self-dealing
directors[30] would be valid. She also alleged that Banco Filipinos directors violated Sections
33 and 34 in approving the loans of corporations with interlocking ownerships, i.e., owned,
directed, or managed by close associates of Albert C. Aguirre.
Sections 31 to 34 of the Corporation Code provide:
Section 31. Liability of directors, trustees or officers. - Directors or trustees who wilfully and
knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty of
gross negligence or bad faith in directing the affairs of the corporation or acquire any
personal or pecuniary interest in conflict with their duty as such directors or trustees shall be
liable jointly and severally for all damages resulting therefrom suffered by the corporation,
its stockholders or members and other persons.
When a director, trustee or officer attempts to acquire or acquires, in violation of his duty,
any interest adverse to the corporation in respect of any matter which has been reposed in
him in confidence, as to which equity imposes a disability upon him to deal in his own
behalf, he shall be liable as a trustee for the corporation and must account for the profits
which otherwise would have accrued to the corporation.
Section 32. Dealings of directors, trustees or officers with the corporation. - A contract of the
corporation with one or more of its directors or trustees or officers is voidable, at the option
of such corporation, unless all the following conditions are present:
1. That the presence of such director or trustee in the board meeting in which the contract
was approved was not necessary to constitute a quorum for such meeting;
2. That the vote of such director or trustee was not necessary for the approval of the
contract;
3. That the contract is fair and reasonable under the circumstances; and
4. That in case of an officer, the contract has been previously authorized by the board of
directors.
Where any of the first two conditions set forth in the preceding paragraph is absent, in the
case of a contract with a director or trustee, such contract may be ratified by the vote of the
stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of at
least two-thirds (2/3) of the members in a meeting called for the purpose: Provided, That full
disclosure of the adverse interest of the directors or trustees involved is made at such
meeting: Provided, however, That the contract is fair and reasonable under the
circumstances.
Section 33. Contracts between corporations with interlocking directors. - Except in cases of
fraud, and provided the contract is fair and reasonable under the circumstances, a contract
between two or more corporations having interlocking directors shall not be invalidated on
that ground alone: Provided, That if the interest of the interlocking director in one
corporation is substantial and his interest in the other corporation or corporations is merely
nominal, he shall be subject to the provisions of the preceding section insofar as the latter
corporation or corporations are concerned.
Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be
considered substantial for purposes of interlocking directors.
Section 34. Disloyalty of a director. - Where a director, by virtue of his office, acquires for
himself a business opportunity which should belong to the corporation, thereby obtaining
profits to the prejudice of such corporation, he must account to the latter for all such profits
by refunding the same, unless his act has been ratified by a vote of the stockholders owning
or representing at least two-thirds (2/3) of the outstanding capital stock. This provision shall
be applicable, notwithstanding the fact that the director risked his own funds in the venture.
Korugas invocation of the provisions of the Corporation Code is misplaced. In an earlier case
with similar antecedents, we ruled that:
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.[31]
Consequently, it is not the Interim Rules of Procedure on Intra-Corporate Controversies,[32]
or Rule 59 of the Rules of Civil Procedure on Receivership, that would apply to this case.
Instead, Sections 29 and 30 of the New Central Bank Act should be followed, viz.:
Section 29. Appointment of Conservator. - Whenever, on the basis of a report submitted by

the appropriate supervising or examining department, the Monetary Board finds that a bank
or a quasi-bank is in a state of continuing inability or unwillingness to maintain a condition of
liquidity deemed adequate to protect the interest of depositors and creditors, the Monetary
Board may appoint a conservator with such powers as the Monetary Board shall deem
necessary to take charge of the assets, liabilities, and the management thereof, reorganize
the management, collect all monies and debts due said institution, and exercise all powers
necessary to restore its viability. The conservator shall report and be responsible to the
Monetary Board and shall have the power to overrule or revoke the actions of the previous
management and board of directors of the bank or quasi-bank.
xxxx
The Monetary Board shall terminate the conservatorship when it is satisfied that the
institution can continue to operate on its own and the conservatorship is no longer
necessary. The conservatorship shall likewise be terminated should the Monetary Board, on
the basis of the report of the conservator or of its own findings, determine that the
continuance in business of the institution would involve probable loss to its depositors or
creditors, in which case the provisions of Section 30 shall apply.
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 Bangko Sentral, 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.
xxxx
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.[33]
On the strength of these provisions, it is the Monetary Board that exercises exclusive
jurisdiction over proceedings for receivership of banks.
Crystal clear in Section 30 is the provision that says the appointment of a receiver under this
section shall be vested exclusively with the Monetary Board. The term exclusively connotes
that only the Monetary Board can resolve the issue of whether a bank is to be placed under
receivership and, upon an affirmative finding, it also has authority to appoint a receiver. This
is further affirmed by the fact that the law allows the Monetary Board to take action
summarily and without need for prior hearing.
And, as a clincher, the law explicitly provides that 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 a 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.
From the foregoing disquisition, there is no doubt that the RTC has no jurisdiction to hear and
decide a suit that seeks to place Banco Filipino under receivership.
Koruga herself recognizes the BSPs power over the allegedly unlawful acts of Banco Filipinos
directors. The records of this case bear out that Koruga, through her legal counsel, wrote the
Monetary Board[34] on April 21, 2003 to bring to its attention the acts she had enumerated
in her complaint before the RTC. The letter reads in part:
Banco Filipino and the current members of its Board of Directors should be placed under
investigation for violations of banking laws, the commission of irregularities, and for
conducting business in an unsafe or unsound manner. They should likewise be placed under
preventive suspension by virtue of the powers granted to the Monetary Board under Section
37 of the Central Bank Act. These blatant violations of banking laws should not go by without
penalty. They have put Banco Filipino, its depositors and stockholders, and the entire
banking system (sic) in jeopardy.
xxxx
We urge you to look into the matter in your capacity as regulators. Our clients, a minority
stockholders, (sic) and many depositors of Banco Filipino are prejudiced by a failure to
regulate, and taxpayers are prejudiced by accommodations granted by the BSP to Banco
Filipino[35]
In a letter dated May 6, 2003, BSP Supervision and Examination Department III Director
Candon B. Guerrero referred Korugas letter to Arcenas for comment.[36] On June 6, 2003,
Banco Filipinos then Executive Vice President and Corporate Secretary Francisco A. Rivera
submitted the banks comments essentially arguing that Korugas accusations lacked legal
and factual bases.[37]
On the other hand, the BSP, in its Answer before the RTC, said that it had been looking into
Banco Filipinos activities. An October 2002 Report of Examination (ROE) prepared by the
Supervision and Examination Department (SED) noted certain dacion payments, out-of-the-
ordinary expenses, among other dealings. On July 24, 2003, the Monetary Board passed
Resolution No. 1034 furnishing Banco Filipino a copy of the ROE with instructions for the
bank to file its comment or explanation within 30 to 90 days under threat of being fined or of
being subjected to other remedial actions. The ROE, the BSP said, covers substantially the
same matters raised in Korugas complaint. At the time of the filing of Korugas complaint on
August 20, 2003, the period for Banco Filipino to submit its explanation had not yet expired.
[38]
Thus, the courts jurisdiction could only have been invoked after the Monetary Board had
taken action on the matter and only 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.
Finally, there is one other reason why Korugas complaint before the RTC cannot prosper.
Given her own admission and the same is likewise supported by evidence that she is merely
a minority stockholder of Banco Filipino, she would not have the standing to question the
Monetary Boards action. Section 30 of the New Central Bank Act provides:
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.
All the foregoing discussion yields the inevitable conclusion that the CA erred in upholding
the jurisdiction of, and remanding the case to, the RTC. Given that the RTC does not have
jurisdiction over the subject matter of the case, its refusal to dismiss the case on that ground
amounted to grave abuse of discretion.
WHEREFORE, the foregoing premises considered, the Petition in G.R. No. 168332 is
DISMISSED, while the Petition in G.R. No. 169053 is GRANTED. The Decision of the Court of
Appeals dated July 20, 2005 in CA-G.R. SP No. 88422 is hereby SET ASIDE. The Temporary
Restraining Order issued by this Court on March 13, 2006 is made PERMANENT.
Consequently, Civil Case No. 03-985, pending before the Regional Trial Court of Makati City,
is DISMISSED.
SO ORDERED.
BANGKO SENTRAL NG PILIPINAS MONETARY BOARD and CHUCHI FONACIER,
Petitioners,
- versus -
HON. NINA G. ANTONIO-VALENZUELA, in her capacity as Regional Trial Court Judge
of Manila, Branch 28; RURAL BANK OF PARAAQUE, INC.; RURAL BANK OF SAN JOSE
(BATANGAS), INC.; RURAL BANK OF CARMEN (CEBU), INC.; PILIPINO RURAL BANK,
INC.; PHILIPPINE COUNTRYSIDE RURAL BANK, INC.; RURAL BANK OF CALATAGAN
(BATANGAS), INC. (now DYNAMIC RURAL BANK); RURAL BANK OF DARBCI, INC.;
RURAL BANK OF KANANGA (LEYTE), INC. (now FIRST INTERSTATE RURAL BANK);
RURAL BANK OF BISAYAS MINGLANILLA (now BANK OF EAST ASIA); and SAN
PABLO CITY DEVELOPMENT BANK, INC.,
Respondents.
G.R. No. 184778
This is a Petition for Review on Certiorari under Rule 45 with Prayer for Issuance of a
Temporary Restraining Order (TRO)/Writ of Preliminary Injunction, questioning the Decision
dated September 30, 2008[1] of the Court of Appeals (CA) in CA-G.R. SP No. 103935. The CA
Decision upheld the Order[2] dated June 4, 2008 of the Regional Trial Court (RTC), Branch 28
in Manila, issuing writs of preliminary injunction in Civil Case Nos. 08-119243, 08-119244,
08-119245, 08-119246, 08-119247, 08-119248, 08-119249, 08-119250, 08-119251, and 08-
119273, and the Order dated May 21, 2008 that consolidated the civil cases.
The Facts
In September of 2007, the Supervision and Examination Department (SED) of the Bangko
Sentral ng Pilipinas (BSP) conducted examinations of the books of the following banks: Rural
Bank of Paraaque, Inc. (RBPI), Rural Bank of San Jose (Batangas), Inc., Rural Bank of Carmen
(Cebu), Inc., Pilipino Rural Bank, Inc., Philippine Countryside Rural Bank, Inc., Rural Bank of
Calatagan (Batangas), Inc. (now Dynamic Rural Bank), Rural Bank of Darbci, Inc., Rural Bank
of Kananga (Leyte), Inc. (now First Interstate Rural Bank), Rural Bank de Bisayas Minglanilla
(now Bank of East Asia), and San Pablo City Development Bank, Inc.
After the examinations, exit conferences were held with the officers or representatives of the
banks wherein the SED examiners provided them with copies of Lists of Findings/Exceptions
containing the deficiencies discovered during the examinations. These banks were then
required to comment and to undertake the remedial measures stated in these lists within 30
days from their receipt of the lists, which remedial measures included the infusion of
additional capital. Though the banks claimed that they made the additional capital infusions,
petitioner Chuchi Fonacier, officer-in-charge of the SED, sent separate letters to the Board of
Directors of each bank, informing them that the SED found that the banks failed to carry out
the required remedial measures. In response, the banks requested that they be given time
to obtain BSP approval to amend their Articles of Incorporation, that they have an
opportunity to seek investors. They requested as well that the basis for the capital infusion
figures be disclosed, and noted that none of them had received the Report of Examination
(ROE) which finalizes the audit findings. They also requested meetings with the BSP audit
teams to reconcile audit figures. In response, Fonacier reiterated the banks failure to comply
with the directive for additional capital infusions.
On May 12, 2008, the RBPI filed a complaint for nullification of the BSP ROE with application
for a TRO and writ of preliminary injunction before the RTC docketed as Civil Case No. 08-
119243 against Fonacier, the BSP, Amado M. Tetangco, Jr., Romulo L. Neri, Vicente B.
Valdepenas, Jr., Raul A. Boncan, Juanita D. Amatong, Alfredo C. Antonio, and Nelly F.
Villafuerte. RBPI prayed that Fonacier, her subordinates, agents, or any other person acting
in her behalf be enjoined from submitting the ROE or any similar report to the Monetary
Board (MB), or if the ROE had already been submitted, the MB be enjoined from acting on
the basis of said ROE, on the allegation that the failure to furnish the bank with a copy of the
ROE violated its right to due process.
The Rural Bank of San Jose (Batangas), Inc., Rural Bank of Carmen (Cebu), Inc., Pilipino Rural
Bank, Inc., Philippine Countryside Rural Bank, Inc., Rural Bank of Calatagan (Batangas), Inc.,
Rural Bank of Darbci, Inc., Rural Bank of Kananga (Leyte), Inc., and Rural Bank de Bisayas
Minglanilla followed suit, filing complaints with the RTC substantially similar to that of RBPI,
including the reliefs prayed for, which were raffled to different branches and docketed as
Civil Cases Nos. 08-119244, 08-119245, 08-119246, 08-119247, 08-119248, 08-119249, 08-
119250, and 08-119251, respectively.
On May 13, 2008, the RTC denied the prayer for a TRO of Pilipino Rural Bank, Inc. The bank
filed a motion for reconsideration the next day.
On May 14, 2008, Fonacier and the BSP filed their opposition to the application for a TRO
and writ of preliminary injunction in Civil Case No. 08-119243 with the RTC. Respondent
Judge Nina Antonio-Valenzuela of Branch 28 granted RBPIs prayer for the issuance of a TRO.
The other banks separately filed motions for consolidation of their cases in Branch 28, which
motions were granted. Judge Valenzuela set the complaint of Rural Bank of San Jose
(Batangas), Inc. for hearing on May 15, 2008. Petitioners assailed the validity of the
consolidation of the nine cases before the RTC, alleging that the court had already prejudged
the case by the earlier issuance of a TRO in Civil Case No. 08-119243, and moved for the
inhibition of respondent judge. Petitioners filed a motion for reconsideration regarding the
consolidation of the subject cases.
On May 16, 2008, San Pablo City Development Bank, Inc. filed a similar complaint against
the same defendants with the RTC, and this was docketed as Civil Case No. 08-119273 that
was later on consolidated with Civil Case No. 08-119243. Petitioners filed an Urgent Motion
to Lift/Dissolve the TRO and an Opposition to the earlier motion for reconsideration of
Pilipino Rural Bank, Inc.
On May 19, 2008, Judge Valenzuela issued an Order granting the prayer for the issuance of
TROs for the other seven cases consolidated with Civil Case No. 08-119243. On May 21,
2008, Judge Valenzuela issued an Order denying petitioners motion for reconsideration
regarding the consolidation of cases in Branch 28. On May 22, 2008, Judge Valenzuela
granted the urgent motion for reconsideration of Pilipino Rural Bank, Inc. and issued a TRO
similar to the ones earlier issued.
On May 26, 2008, petitioners filed a Motion to Dismiss against all the complaints (except
that of the San Pablo City Development Bank, Inc.), on the grounds that the complaints
stated no cause of action and that a condition precedent for filing the cases had not been
complied with. On May 29, 2008, a hearing was conducted on the application for a TRO and
for a writ of preliminary injunction of San Pablo City Development Bank, Inc.
The Ruling of the RTC
After the parties filed their respective memoranda, the RTC, on June 4, 2008, ruled that the
banks were entitled to the writs of preliminary injunction prayed for. It held that it had been
the practice of the SED to provide the ROEs to the banks before submission to the MB. It
further held that as the banks are the subjects of examinations, they are entitled to copies of
the ROEs. The denial by petitioners of the banks requests for copies of the ROEs was held to
be a denial of the banks right to due process.
The dispositive portion of the RTCs order reads:
WHEREFORE, the Court rules as follows:
1) Re: Civil Case No. 08-119243. Pursuant to Rule 58, Section 4(b) of the Revised Rules of
Court, plaintiff Rural Bank of Paranaque Inc. is directed to post a bond executed to the
defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the
defendants all damages which they may sustain by reason of the injunction if the Court
should finally decide that the plaintiff was not entitled thereto. After posting of the bond and
approval thereof, let a writ of preliminary injunction be issued to enjoin and restrain the
defendants from submitting the Report of Examination or any other similar report prepared
in connection with the examination conducted on the plaintiff, to the Monetary Board. In
case such a Report on Examination [sic] or any other similar report prepared in connection
with the examination conducted on the plaintiff has been submitted to the Monetary Board,
the latter and its members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong,
Antonio, and Villafuerte) are enjoined and restrained from acting on the basis of said report.
Court, plaintiff Rural Bank of San Jose (Batangas), Inc. is directed to post a bond executed to
the defendants, in the amount of P500,000.00 to the effect that the plaintiff will pay to the
Court, plaintiff Rural Bank of Carmen (Cebu), Inc. is directed to post a bond executed to the
Court, plaintiff Pilipino Rural Bank Inc. is directed to post a bond executed to the defendants,
in the amount of P500,000.00 to the effect that the plaintiff will pay to the defendants all
damages which they may sustain by reason of the injunction if the Court should finally
decide that the plaintiff was not entitled thereto. After posting of the bond and approval
thereof, let a writ of preliminary injunction be issued to enjoin and restrain the defendants
from submitting the Report of Examination or any other similar report prepared in
connection with the examination conducted on the plaintiff, to the Monetary Board. In case
such a Report on Examination [sic] or any other similar report prepared in connection with
the examination conducted on the plaintiff has been submitted to the Monetary Board, the
latter and its members (i.e. defendants Tetangco, Neri, Valdepenas, Boncan, Amatong,
Court, plaintiff Philippine Countryside Rural Bank Inc. is directed to post a bond executed to
Court, plaintiff Dynamic Bank Inc. (Rural Bank of Calatagan) is directed to post a bond
executed to the defendants, in the amount of P500,000.00 to the effect that the plaintiff will
pay to the defendants all damages which they may sustain by reason of the injunction if the
Court should finally decide that the plaintiff was not entitled thereto. After posting of the
bond and approval thereof, let a writ of preliminary injunction be issued to enjoin and
restrain the defendants from submitting the Report of Examination or any other similar
report prepared in connection with the examination conducted on the plaintiff, to the
Monetary Board. In case such a Report on Examination [sic] or any other similar report
prepared in connection with the examination conducted on the plaintiff has been submitted
to the Monetary Board, the latter and its members (i.e. defendants Tetangco, Neri,
Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are enjoined and restrained from
acting on the basis of said report.
Court, plaintiff Rural Bank of DARBCI, Inc. is directed to post a bond executed to the
Court, plaintiff Rural Bank of Kananga Inc. (First Intestate Bank), is directed to post a bond
executed to the defendants, in the amount of P500,000.00 to the effect that the plaintiff will
pay to the defendants all damages which they may sustain by reason of the injunction if the
Court should finally decide that the plaintiff was not entitled thereto. After posting of the
bond and approval thereof, let a writ of preliminary injunction be issued to enjoin and
restrain the defendants from submitting the Report of Examination or any other similar
report prepared in connection with the examination conducted on the plaintiff, to the
Court, plaintiff Banco Rural De Bisayas Minglanilla (Cebu) Inc. (Bank of East Asia) is directed
to post a bond executed to the defendants, in the amount of P500,000.00 to the effect that
the plaintiff will pay to the defendants all damages which they may sustain by reason of the
injunction if the Court should finally decide that the plaintiff was not entitled thereto. After
posting of the bond and approval thereof, let a writ of preliminary injunction be issued to
enjoin and restrain the defendants from submitting the Report of Examination or any other
similar report prepared in connection with the examination conducted on the plaintiff, to the
Court, plaintiff San Pablo City Development Bank, Inc. is directed to post a bond executed to
[3]
The Ruling of the CA
Petitioners then brought the matter to the CA via a petition for certiorari under Rule 65
claiming grave abuse of discretion on the part of Judge Valenzuela when she issued the
orders dated May 21, 2008 and June 4, 2008.
The CA ruled that the RTC committed no grave abuse of discretion when it ordered the
issuance of a writ of preliminary injunction and when it ordered the consolidation of the 10
cases.
It held that petitioners should have first filed a motion for reconsideration of the assailed
orders, and failed to justify why they resorted to a special civil action of certiorari instead.
The CA also found that aside from the technical aspect, there was no grave abuse of
discretion on the part of the RTC, and if there was a mistake in the assessment of evidence
by the trial court, that should be characterized as an error of judgment, and should be
correctable via appeal.
The CA held that the principles of fairness and transparency dictate that the respondent
banks are entitled to copies of the ROE.
Regarding the consolidation of the 10 cases, the CA found that there was a similarity of
facts, reliefs sought, issues raised, defendants, and that plaintiffs and defendants were
represented by the same sets of counsels. It found that the joint trial of these cases would
prejudice any substantial right of petitioners.
Finding that no grave abuse of discretion attended the issuance of the orders by the RTC, the
CA denied the petition.
On November 24, 2008, a TRO was issued by this Court, restraining the CA, RTC, and
respondents from implementing and enforcing the CA Decision dated September 30, 2008 in
CA-G.R. SP No. 103935.[4]
By reason of the TRO issued by this Court, the SED was able to submit their ROEs to the MB.
The MB then prohibited the respondent banks from transacting business and placed them
under receivership under Section 53 of Republic Act No. (RA) 8791[5] and Sec. 30 of RA
7653[6] through MB Resolution No. 1616 dated December 9, 2008; Resolution Nos. 1637 and
1638 dated December 11, 2008; Resolution Nos. 1647, 1648, and 1649 dated December 12,
2008; Resolution Nos. 1652 and 1653 dated December 16, 2008; and Resolution Nos. 1692
and 1695 dated December 19, 2008, with the Philippine Deposit Insurance Corporation as
the appointed receiver.
Now we resolve the main petition.
Grounds in Support of Petition
I. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT

THE INJUNCTION ISSUED BY THE REGIONAL TRIAL COURT VIOLATED SECTION 25 OF THE
NEW CENTRAL BANK ACT AND EFFECTIVELY HANDCUFFED THE BANGKO SENTRAL FROM
DISCHARGING ITS FUNCTIONS TO THE GREAT AND IRREPARABLE DAMAGE OF THE
COUNTRYS BANKING SYSTEM;
II. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT
RESPONDENTS ARE ENTITLED TO BE FURNISHED COPIES OF THEIR RESPECTIVE ROEs
BEFORE THE SAME IS SUBMITTED TO THE MONETARY BOARD IN VIEW OF THE PRINCIPLES OF
FAIRNESS AND TRANSPARENCY DESPITE LACK OF EXPRESS PROVISION IN THE NEW CENTRAL
BANK ACT REQUIRING BSP TO DO THE SAME
III. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN DEPARTING FROM WELL-
ESTABLISHED PRECEPTS OF LAW AND JURISPRUDENCE
A. THE EXCEPTIONS CITED BY PETITIONER JUSTIFIED RESORT TO PETITION FOR

CERTIORARI UNDER RULE 65 INSTEAD OF FIRST FILING A MOTION FOR RECONSIDERATION
B. RESPONDENT BANKS ACT OF RESORTING IMMEDIATELY TO THE COURT WAS
PREMATURE SINCE IT WAS MADE IN UTTER DISREGARD OF THE PRINCIPLE OF PRIMARY
JURISDICTION AND EXHAUSTION OF ADMINISTRATIVE REMEDY
C. THE ISSUANCE OF A WRIT OF PRELIMINARY INJUNCTION BY THE REGIONAL TRIAL
COURT WAS NOT ONLY IMPROPER BUT AMOUNTED TO GRAVE ABUSE OF DISCRETION[7]
Our Ruling
The petition is meritorious.
In Lim v. Court of Appeals it was stated:
The requisites for preliminary injunctive relief are: (a) the invasion of right sought to be
protected is material and substantial; (b) the right of the complainant is clear and
unmistakable; and (c) there is an urgent and paramount necessity for the writ to prevent
serious damage.
As such, a writ of preliminary injunction may be issued only upon clear showing of an actual
existing right to be protected during the pendency of the principal action. The twin
requirements of a valid injunction are the existence of a right and its actual or threatened
violations. Thus, to be entitled to an injunctive writ, the right to be protected and the
violation against that right must be shown.[8]
These requirements are absent in the present case.

In granting the writs of preliminary injunction, the trial court held that the submission of the
ROEs to the MB before the respondent banks would violate the right to due process of said
banks.
This is erroneous.
The respondent banks have failed to show that they are entitled to copies of the ROEs. They
can point to no provision of law, no section in the procedures of the BSP that shows that the
BSP is required to give them copies of the ROEs. Sec. 28 of RA 7653, or the New Central
Bank Act, which governs examinations of banking institutions, provides that the ROE shall be
submitted to the MB; the bank examined is not mentioned as a recipient of the ROE.
The respondent banks cannot claim a violation of their right to due process if they are not
provided with copies of the ROEs. The same ROEs are based on the lists of
findings/exceptions containing the deficiencies found by the SED examiners when they
examined the books of the respondent banks. As found by the RTC, these lists of
findings/exceptions were furnished to the officers or representatives of the respondent
banks, and the respondent banks were required to comment and to undertake remedial
measures stated in said lists. Despite these instructions, respondent banks failed to comply
with the SEDs directive.
Respondent banks are already aware of what is required of them by the BSP, and cannot
claim violation of their right to due process simply because they are not furnished with
copies of the ROEs. Respondent banks were held by the CA to be entitled to copies of the
ROEs prior to or simultaneously with their submission to the MB, on the principles of fairness
and transparency. Further, the CA held that if the contents of the ROEs are essentially the
same as those of the lists of findings/exceptions provided to said banks, there is no reason
not to give copies of the ROEs to the banks. This is a flawed conclusion, since if the banks
are already aware of the contents of the ROEs, they cannot say that fairness and
transparency are not present. If sanctions are to be imposed upon the respondent banks,
they are already well aware of the reasons for the sanctions, having been informed via the
lists of findings/exceptions, demolishing that particular argument. The ROEs would then be
superfluities to the respondent banks, and should not be the basis for a writ of preliminary
injunction. Also, the reliance of the RTC on Banco Filipino v. Monetary Board[9] is misplaced.
The petitioner in that case was held to be entitled to annexes of the Supervision and
Examination Sectors reports, as it already had a copy of the reports themselves. It was not
the subject of the case whether or not the petitioner was entitled to a copy of the reports.
And the ruling was made after the petitioner bank was ordered closed, and it was allowed to
be supplied with annexes of the reports in order to better prepare its defense. In this
instance, at the time the respondent banks requested copies of the ROEs, no action had yet
been taken by the MB with regard to imposing sanctions upon said banks.
The issuance by the RTC of writs of preliminary injunction is an unwarranted interference

with the powers of the MB. Secs. 29 and 30 of RA 7653[10] refer to the appointment of a
conservator or a receiver for a bank, which is a power of the MB for which they need the
ROEs done by the supervising or examining department. The writs of preliminary injunction
issued by the trial court hinder the MB from fulfilling its function under the law. The actions
of the MB under Secs. 29 and 30 of RA 7653 may not be restrained or set aside by the court
except on petition for certiorari on the ground that the action taken was in excess of
jurisdiction. The writs of preliminary injunction order are precisely what cannot be done
under the law by preventing the MB from taking action under either Sec. 29 or Sec. 30 of RA
7653.
As to the third requirement, the respondent banks have shown no necessity for the writ of
preliminary injunction to prevent serious damage. The serious damage contemplated by the
trial court was the possibility of the imposition of sanctions upon respondent banks, even the
sanction of closure. Under the law, the sanction of closure could be imposed upon a bank by
the BSP even without notice and hearing. The apparent lack of procedural due process would
not result in the invalidity of action by the MB. This was the ruling in Central Bank of the
Philippines v. Court of Appeals.[11] This close now, hear later scheme is grounded on
practical and legal considerations to prevent unwarranted dissipation of the banks assets
and as a valid exercise of police power to protect the depositors, creditors, stockholders, and
the general public. The writ of preliminary injunction cannot, thus, prevent the MB from
taking action, by preventing the submission of the ROEs and worse, by preventing the MB
from acting on such ROEs.
The trial court required the MB to respect the respondent banks right to due process by
allowing the respondent banks to view the ROEs and act upon them to forestall any
sanctions the MB might impose. Such procedure has no basis in law and does in fact violate
the close now, hear later doctrine. We held in Rural Bank of San Miguel, Inc. v. Monetary
Board, Bangko Sentral ng Pilipinas:
It is well-settled that the closure of a bank may be considered as an exercise of police power.
The action of the MB on this matter is final and executory. Such exercise may nonetheless be
subject to judicial inquiry and can be set aside if found to be in excess of jurisdiction or with
such grave abuse of discretion as to amount to lack or excess of jurisdiction.[12]
The respondent banks cannotthrough seeking a writ of preliminary injunction by appealing

to lack of due process, in a roundabout manner prevent their closure by the MB. Their
remedy, as stated, is a subsequent one, which will determine whether the closure of the
bank was attended by grave abuse of discretion. Judicial review enters the picture only after
the MB has taken action; it cannot prevent such action by the MB. The threat of the
imposition of sanctions, even that of closure, does not violate their right to due process, and
cannot be the basis for a writ of preliminary injunction.
The close now, hear later doctrine has already been justified as a measure for the protection
of the public interest. Swift action is called for on the part of the BSP when it finds that a
bank is in dire straits. Unless adequate and determined efforts are taken by the government
against distressed and mismanaged banks, public faith in the banking system is certain to
deteriorate to the prejudice of the national economy itself, not to mention the losses
suffered by the bank depositors, creditors, and stockholders, who all deserve the protection
of the government.[13]
The respondent banks have failed to show their entitlement to the writ of preliminary
injunction. It must be emphasized that an application for injunctive relief is construed strictly
against the pleader.[14] The respondent banks cannot rely on a simple appeal to procedural
due process to prove entitlement. The requirements for the issuance of the writ have not
been proved. No invasion of the rights of respondent banks has been shown, nor is their
right to copies of the ROEs clear and unmistakable. There is also no necessity for the writ to
prevent serious damage. Indeed the issuance of the writ of preliminary injunction tramples
upon the powers of the MB and prevents it from fulfilling its functions. There is no right that
the writ of preliminary injunction would protect in this particular case. In the absence of a
clear legal right, the issuance of the injunctive writ constitutes grave abuse of discretion.[15]
In the absence of proof of a legal right and the injury sustained by the plaintiff, an order for
the issuance of a writ of preliminary injunction will be nullified.[16]
Courts are hereby reminded to take greater care in issuing injunctive relief to litigants, that it
would not violate any law. The grant of a preliminary injunction in a case rests on the sound
discretion of the court with the caveat that it should be made with great caution.[17] Thus,
the issuance of the writ of preliminary injunction must have basis in and be in accordance
with law. All told, while the grant or denial of an injunction generally rests on the sound
discretion of the lower court, this Court may and should intervene in a clear case of abuse.
[18]
WHEREFORE, the petition is hereby GRANTED. The assailed CA Decision dated September
30, 2008 in CA-G.R. SP No. 103935 is hereby REVERSED. The assailed order and writ of
preliminary injunction of respondent Judge Valenzuela in Civil Case Nos. 08-119243, 08-
119244, 08-119245, 08-119246, 08-119247, 08-119248, 08-119249, 08-119250, 08-119251,
and 08-119273 are hereby declared NULL and VOID.
SO ORDERED.
REYNATO S. PUNO
Chief Justice
CENTRAL BANK VS CA
G.R. No. 88353 May 8, 1992
CENTRAL BANK OF THE PHILIPPINES and HON. JOSE B. FERNANDEZ, petitioners,

vs.
HON. COURT OF APPEALS, RTC JUDGE TEOFILO GUADIZ, JR., PRODUCERS BANK OF THE
PHILIPPINES and PRODUCERS PROPERTIES, INC., respondents.
G.R. No. 92943 May 8, 1992
ATTY. LEONIDA G. TANSINSIN-ENCARNACION, as the Acting Conservator of Producers Bank of

the Philippines, and PRODUCERS BANK OF THE PHILIPPINES, petitioners,
vs.
PRODUCERS BANK OF THE PHILIPPINES, allegedly represented by HENRY L. CO, HON. COURT
OF APPEALS, HON. TEOFILO GUADIZ, JR., and the "LAW FIRM OF QUISUMBING, TORRES AND
EVANGELISTA" (RAMON J. QUISUMBING, VICENTE TORRES,RAFAEL E. EVANGELISTA, JR. and
CHRISTOFER L. LIM), respondents.
Agapito S. Fajardo, Jerry P. Rebutoc & Antonio M. Tan for petitioners in G.R. No. 88353.
Leonida G.T. Encarnacion for petitioners in G.R. No. 92943.
Quiason, Makalintal, Barot, Torres, Ibarra Law Office for the respondents in G.R. Nos. 88353 &
92943.
DAVIDE, JR., J.:
The common origin of these cases is Civil Case No. 17692 filed before Branch 147 (Makati) of
the Regional trail Court, National Capital Judicial Region and entitled Producers Bank of the
Philippines and Producers Properties, Inc. versus Central Bank of the Philippines, Jose B.
Fernandez. Jr. and the Monetary Board. On 21 January 1991, this Court ordered the
consolidation of G.R. No. 92943 with G.R. No. 88353. 1
The first case, G.R. No. 88353, is a petition for review on certiorari of the decision of 6
October 1988 2 and the resolution of 17 May 1989 3 of the respondent Court of Appeals in
C.A.-G.R. No. SP-13624. The impugned decision upheld the 21 September 1987 Order of
respondent Judge Teofilo Guadiz, Jr. in Civil Case No. 17692 granting the motion for issuance
of a writ of preliminary injunction enjoining petitioners Central Bank of the Philippines
(CB), Mr. Jose B. Fernandez, Jr. and the Monetary Board, or any of their agencies from
implementing Monetary Board (MB) Resolutions No. 649 and No. 751, or from taking the
threatened appropriate alternative action and the 27 October 1987 Order in the same
case denying petitioners' motion to dismiss and vacate said injunction. The challenged
resolution, on the other hand, denied petitioners' motion for reconsideration of the 6 October
1988 decision.
The second case, G.R. No. 92943, is a petition for review directed principally against the 17
January 1990 decision of the respondent Court of Appeals in C.A.-G.R. SP No. 16972. The
said decision dismissed the petition therein filed and sustained the various Orders of the
respondent Judge in Civil Case No. 17692, but directed the plaintiffs therein to amend the
amended complaint by stating in its prayer the specific amount of damages which Producers
Bank of the Philippines (PBP) claims to have sustained as a result of losses of operation and
the conservator's bank frauds and abuses; the Clerk of Court was also ordered to determine
the amount of filing fees which should be paid by the plaintiffs within the applicable
prescriptive or reglementary period. 4
The records of both cases reveal the following factual and procedural antecedents:
Petitioners claim that on 29 April 1983, during the regular examination of the PBP, CB
examiners stumbled upon some highly questionable loans which had been extended by the
PBP management to several entities. Upon further examination, it was discovered that these
loans, totalling approximately P300 million, were "fictitious" as they were extended, without
collateral, to certain interests related to PBP owners themselves. Said loans were deemed to
be anomalous particularly because the total paid-in capital of PBP at that time was only P
140.544 million. This means that the entire paid-in capital of the bank, together with some
P160 million of depositors' money, was utilized by PBP management to fund these
unsecured loans.
Sometime in August of the same year, at the height of the controversy surrounding the
discovery of the anomalous loans, several blind items about a family-owned bank in Binondo
which granted fictitious loans to its stockholders appeared in major newspapers. These news
items triggered a bank-run in PBP which resulted in continuous over-drawings on the bank's
demand deposit account with the Central Bank; the over-drawings reached P74.109 million
by 29 August 1983. By 17 January 1984, PBP's overdraft with the CB increased to P143.955
million, an indication of PBP's continuing inability to maintain that condition of solvency and
liquidity necessary to protect the interests of its depositors and creditors. Hence, on 20
January 1984, on the basis of the report submitted by the Supervision and Examination
Sector, Department I of the CB, the Monetary Board (MB), pursuant to its authority under
Section 28-A of R.A. No. 265 and by virtue of MB Board Resolution No. 164, placed PBP under
conservatorship. 5
While PBP admits that it had no choice but to submit to the conservatorship, 6 it nonetheless
requested that the same be lifted by the CB. Consequently, the MB issued on 3 February
1984 Resolution No. 169 directing the principal stockholders of PBP to increase its capital
accounts by such an amount that would be necessary for the elimination of PBP's negative
net worth of P424 million. On 10 April 1984, CB senior deputy Governor Gabriel Singson
informed PBP that pursuant to MB Resolution No. 490 of 30 March 1984, the CB would be
willing to lift the conservatorship under the following conditions:
(a) PBP's unsecured overdraft with the Central Bank will be converted into an emergency
loan, to be secured by sufficient collateral, including but not limited to the Following
properties offered by PBP's principal stockholders:
i. 6 floors and other areas of the Producers Bank Bldg., at Paseo de Roxas, owned by
PBP;
ii. 15 floors of the Producers Bank Bldg., at Paseo de Roxas, Makati, owned by the
Producers Properties, Inc.;
iii. Manhattan Bldg. on Nueva Street, Binondo, Manila; and
iv. Producers Bank, Makati Branch Bldg. at Buendia Avenue, Makati;
(b) A comptroller for PBP and any number of bank examiners deemed necessary to
oversee PBP's operations shall be designated by the Central Bank, under terms of reference
to be determined by the Governor;
(c) A letter from the Management of PBP authorizing the Central Bank to automatically
return clearing items that would result in an overdraft in its Central Bank account shall be
submitted to the Central Bank.
On 27 April 1984, the MB adopted Resolution No. 584 approving the consolidation of PBP's
other unsecured obligations to the CB with its overdraft and authorizing the conversion
thereof into an emergency loan. The same resolution authorized the CB Governor to lift the
conservatorship and return PBP's management to its principal stockholders upon completion
of the documentation and full collateralization of the emergency loan, but directed PBP to
pay the emergency loan in five (5) equal annual installments, with interest and penalty rates
at MRR 180 days plus 48% per annum, and liquidated damages of 5% for delayed payments.
On 4 June 1984, PBP submitted a rehabilitation plan to the CB which proposed the transfer to
PBP of three (3) buildings owned by Producers Properties, Inc. (PPI), its principal stockholder
and the subsequent mortgage of said properties to the CB as collateral for the bank's
overdraft obligation. 7 Although said proposal was explored and discussed, no program
acceptable to both the CB and PPI was arrived at because of disagreements on certain
matters such as interest rates, penalties and liquidated damages.
No other rehabilitation program was submitted by PBP for almost three (3) years; as a result
thereof, its overdrafts with the CB continued to accumulate. By the end of June 1987, the
figure swelled to a staggering P1.023 billion. Consequently, per Resolution No. 649 dated 3
July 1987, the CB Monetary Board decided to approve in principle what it considered a viable
rehabilitation program for PBP. The program had these principal features:
Al. The Central Bank will assign in favor of the Philippine Deposit Insurance Corporation
(PDIC) its claim over the overdraft of PBP net of net peso differential arising from swap
transactions and interest thereon, up to the amount of the par value of the Producers
Properties, Inc. (PPI) shares of stock in PBP presently pledged to the Central Bank, and PDIC
will enter into a contract of dacion en pago with PBP and PPI whereby PDIC will acquire
4,116,100 preferred shares of stock of PBP with a par value of P100 per share in
consideration for which PDIC will convey its rights over the overdraft assigned to it by the
Central Bank, in favor of PPI;
2. The balance of the overdraft of PBP, after the assignment to PDIC of a portion of such
overdraft referred to in Item I above, will also be assigned to PDIC and converted into
preferred shares of stock of PBP;
3. The interest on the overdraft of PBP will be reduced to 11.75% p.a. retroactively to
the date when the overdraft of PBP was incurred;
4. The accrued interest on the overdraft of PBP, at the reduced rate approved in Item 3
above, as well as the unbooked penalties on legal reserve deficiencies of PBP will be
assigned in favor of PDIC and such amounts will be allowed to be converted into preferred
shares of stock of PBP; and
5. The booking of valuation reserves will be allowed as follows:
3rd year P31 million

4th year 48 million
5th year 67 million
6th year 85 million
7th year 105 million
8th year 124.61 million
subject to the following conditions:
a. Fresh capital of P200.0 million shall be put up, provided that a new group of
stockholders shall hold at least 40% of the total outstanding voting shares of stock of PBP;
b. PBP shall submit additional collaterals to fully collateralize its overdraft with the
Central Bank;
c. PPI shall convey to PBP the remaining floors of the Producers Bank Centre for a value
of P143.54 million partly in payment of DOSRI loans of P27.6 million, principal plus interest,
and the balance of P115.94 million for shares of stock of PBP, P15.12 million common and
P100.89 million preferred, with features as presently provided under PBP's Articles of
Incorporation and By-Laws;
d. PBP's Articles of Incorporation and By-Laws shall be amended so as to create a

special class of preferred, non-voting, cumulative, non-participating shares of stock with a
dividend rate of 12% which shall be issued (i) in exchange for the PPI shares that will be
conveyed to PDIC under the dacion en pago mentioned in Item 1 above, (ii) in consideration
of the balance of PBP's overdraft assigned to PDIC under Item 2 above, (iii) in consideration
of the accrued interest on PBP's overdraft assigned to PDIC and the unbooked penalties on
legal reserve deficiencies of PBP also assigned to PDIC. The said preferred shares of stock
shall be convertible into common voting shares of stock upon the sale of such preferred
shares to private parties at the option of such parties. Proceeds from the sale of these
shares of stock shall be used to liquidate the advances made by the Central Bank to PDIC by
virtue of the various assignments under Items 1, 2, and 4 above. The said shares of stock
shall not share in losses and other capital adjustments representing reduction of capital
accounts as recommended by SES Department I incurred up to the date of the issuance of
such shares of stock;
e. PBP shall execute in favor of a trustee to be approved by the Central Bank of

mortgage trust indenture covering the assets presently mortgaged/pledged to Central Bank
as collateral for the overdraft of PBP as well as additional collaterals to be submitted to fully
collateralize the overdraft of PBP, under which indenture PDIC as holder of preferred shares
of stocks, shall have the first lien and preference over the assets subject of the indenture in
case of insolvency, to the extent of the overdraft converted into preferred shares of stock,
provided that PBP shall submit an opinion from the Securities and Exchange Commission
that such indenture is legal and valid; and
f. The principal stockholders of both PBP and PPI shall submit in writing their conformity
to the above conditions, with the effect that any previous agreements to the contrary shall
be set aside; and
B. To require PBP to submit to the Monetary Board for approval the identities of the new
stockholders and the new management which shall not be changed without the prior
approval of the Central Bank, it being understood that final approval of the above
rehabilitation plan shall depend entirely upon the acceptance by the Board of the new
stockholders and the new management; and to give PBP a period of two weeks after such
final approval within which to implement the above rehabilitation plan 8 (Emphasis
supplied).
There being no response from both PBP and PPI on the proposed rehabilitation plan, the MB
issued Resolution No. 751 on 7 August 1987 instructing Central Bank management to advise
the bank, through Mr. Henry Co, as follows:
a. The Central Bank conservatorship over PBP may be lifted only after PBP shall have
identified the new group of stockholders who will put in new capital in PBP and after the
Monetary Board shall have considered such new stockholders as acceptable; and
b. The stockholders of PBP have to decide whether or not to accept the terms of the
rehabilitation plan as provided under Resolution
No. 649 dated July 3, 1987 within one week from receipt of notice hereof and if such terms
are not acceptable to them, the Central Bank will take appropriate alternative action on the
matter; . . . 9
Additionally, in a letter dated 14 August 1987, the CB called the attention of the PBP
directors and officers to Section 107 of R.A. No. 265, as amended by Executive Order No.
289 dated 23 July 1987, which provides, inter alia, that:
. . . any bank which incurs an overdrawing in its deposit account with the Central Bank shall
fully cover said overdraft not later than the next clearing day: Provided, further, That
settlement of clearing balances shall not be effected for any account which continue (sic) to
be overdrawn for five consecutive banking days until such time as the overdrawing is fully
covered or otherwise converted into an emergency loan or advance pursuant to the
provisions of Sec. 90 of this Act. Provided, Finally, That the appropriate clearing office shall
be officially notified of banks with overdrawn balances. Banks with existing overdrafts with
the Central Bank as of the effectivity of this amended section shall within such period as
may be prescribed by the Monetary Board, either convert the overdraft into an emergency
loan or advance with a plan of payment, or settle such overdrafts, and that upon failure to so
comply herewith, the Central Bank shall take such action against the bank as may be
warranted under this Act. (Emphasis provided).
A. few days later, or on 27 August 1987, the PBP, without responding to the communications
of the CB, filed a complaint verified by its former board chairman, Henry Co, with the
Regional Trial Court of Makati against the CB, the MB and CB Governor Jose B. Fernandez, Jr.
The complaint, docketed as Civil Case No. 17692, 10 devoted several pages to specific
allegations in support of PBP's assertions that the conservatorship was unwarranted, ill-
motivated, illegal, utterly unnecessary and unjustified; that the appointment of the
conservator was arbitrary; that herein petitioners acted in bad faith; that the CB-designated
conservators committed bank frauds and abuses; that the CB is guilty of promissory
estoppel; and that by reason of the conservatorship, it suffered losses enumerated in
paragraph 27 thereof, the total quantifiable extent of which is P108,479,771.00, exclusive of
loss of profits and loss of
goodwill. 11 It concluded with a prayer for:
. . . judicial review of Monetary Board Resolutions No. 649 dated July 3, 1987 and No. 751
dated 14 August, 1987 and that judgment be rendered nullifying the same and ordering
defendant Central Bank's conservator to restore the viability of PBP as mandated by section
28-A of R.A. 265 and to fully repair the damages inflicted on PBP consisting of losses of
operation and the conservators' bank frauds and abuses, with costs against defendants.
(emphasis supplied).
and for:
. . . the issue of a temporary restraining order/preliminary injunction enjoining defendants'

coercion on PBP to accept the rehabilitation plan within one week or their taking
"appropriate alternative action" including exclusion of PBP from settlement of clearing
balances at the Central
Bank clearing house, pending judicial review of Monetary Board Resolutions No. 649 dated
July 3, 1987 and No. 751 dated August 14,
1987 defendants not being above the law. 12
Only P102.00 was paid as docket fee.
The case was raffled to Branch 147 of said court which was then presided over by
respondent Judge.
On 31 August 1987, respondent Judge issued a temporary restraining order and set the
hearing of the application for preliminary injunction on 9 September 1987. 13 On 11
September 1987, petitioner filed an Opposition to the application for preliminary injunction.
14
Subsequently, on 21 September 1987, respondent Judge issued an Order granting the writ
15 and enjoining defendant-petitioners or any of their agents from:
. . . implementing Monetary Board Resolutions Nos. 649 and 751 or from taking the
threatened "appropriate alternative action" including exclusion of plaintiff bank from
settlement of clearing balances at the Central Bank clearing house or any other action that
will disturb the status quo or the viability of plaintiff bank during the pendency of this case
conditioned upon the posting of a bond in the amount of P2,000,000.00.
On 25 October 1987, PBP filed the Amended Complaint 16 impleading PPI as an additional
plaintiff. No new allegations or causes of action for said plaintiff were made.
On 5 November 1987, petitioners filed a Motion to Dismiss the Amended Complaint. The
motion contained a prayer to vacate the injunction and raised the following grounds:
1) the amended complaint states no cause of action; MB Resolution Nos. 649 and 751
are merely advisory, thus, neither effect impairment of plaintiffs' rights nor cause it
prejudice, loss or damage; furthermore, there is no basis for the averments on the legality or
illegality of the conservatorship since the amended complaint does not seek its annulment;
2) the amended complaint is not authorized by the management of PBP; and
3) the lower court did not acquire jurisdiction over the case except to order the
amended complaint expunged from the records because the proper filing fee was not paid.
17
On 27 November 1987, the trial court, through the respondent Judge, handed down an Order
denying the motion to dismiss on the following grounds: (a) the amended complaint alleges
ultimate facts showing that plaintiff has a right and that such a right has been violated by
defendant; the questioned MB Resolutions were issued arbitrarily and with bad faith, "being
a part of a scheme to divest plaintiff's present stockholders of their control of PBP and to
award the same to the PDIC or its unknown transferees"; and the averments of legality or
illegality of the conservatorship are relevant to the cause of action since the complaint seeks
the lifting of the conservatorship; (b) While it is true that under Section 28-A of the Central
Bank Act the conservator takes over the management of a bank, the Board of Directors of
such bank is not prohibited from filing a suit to lift the conservatorship and from questioning
the validity of both the conservator's fraudulent acts and abuses and its principal's (MB)
arbitrary action; besides, PPI is now a party-plaintiff in the action; and (c) plaintiffs have paid
the correct filing fees since "the value of the case cannot be estimated." 18
G.R. No. 88353
Unable to accept the above Order, herein petitioners CB and Jose B. Fernandez, Jr. filed with
respondent Court of Appeals on 11 January 1988 a petition for certiorari with preliminary
injunction 19 to annul the 21 September and 27 November 1987 Orders of the respondent
Judge, restrain the implementation of the same and nullify the writ of preliminary injunction.
They contend therein that:
1. The trial court's injunctive order and writ are anomalous and illegal because they are
directed against CB acts and measures which constitute no invasion of plaintiff's rights; and
2. The complaint filed was, on its face, dismissible: (a) for failure to state a cause of
action, (b) for being unauthorized by the party in whose name it purports to have been filed,
and (c) for failure of the purported plaintiff to pay the required filing fees.
Confronted with the "threshold and decisive issue of whether the respondent Judge gravely
abused his discretion when he issued the Writ of Preliminary Injunction to enjoin petitioner
from implementing Monetary Board Resolutions Nos. 649 and 751 for having been issued
arbitrarily and with bad faith," the respondent Court promulgated the challenged decision
dismissing the petition for lack of merit. 20 Respondent Court ruled that the CB's sudden
and untimely announcement of the conservatorship over PBP eroded the confidence which
the banking public had hitherto reposed on the bank and resulted in the bank-run; it then
concluded that when the CB "peremptorily and illtimely (sic) announced" the
conservatorship, PBP was not given an opportunity to be heard since the CB arbitrarily
brushed aside administrative due process notwithstanding PBP's having sufficiently
established its inherent corporate right to autonomously perform its banking activities
without undue governmental interference that would in effect divest its stockholders of their
control over the operations of the bank." It further held that the challenged resolutions of
the MB are not just advisory in character "because the same sought to impose upon the
respondent bank petitioners' governmental acts that were specifically designed and
executed to devise a scheme that would irreparably divest from the stockholders of the
respondent bank control of the same."
The motion filed by petitioners for the reconsideration of the above decision was denied by
the respondent Court in its Resolution of 17 May
1989. 21 On the issue of the non-payment of the correct docket fees, the said court, in ruling
that the correct amount was paid, said that "the instant case is incapable of pecuniary
estimation because the value of the losses incurred by the respondent bank cannot be
calibrated nor pinned down to a specific amount in view of the damage that may be caused
by the appointment of a conservator to its goodwill and standing in the community."
Undaunted by the adverse decision of the Court of Appeals, petitioners filed with this Court
on 30 July 1989 the instant petition for review under Rule 45 of the Rules of Court. 22 It is
alleged therein that the respondent Court committed grave abuse of discretion in:
(1) Ignoring petitioners' contention that since PBP did not pay the correct filing fees, the
trial court did not acquire jurisdiction over the case; hence, pursuant to Manchester
Development Corp., et al. vs. Court of Appeals, et al., G.R. No. 75919, 7 May 1987, 23 the
complaint should have been dismissed for lack of jurisdiction on the part of the court;
(2) . . . ruling on the propriety or impropriety of the conservatorship as a basis for

determining the existence of a cause of action since the amended complaint does not seek
the annulment or lifting of the conservatorship;
(3) . . . not holding that the amended complaint should have been dismissed because it
was filed in the name of PBP without the authority of its conservator; and
(4) . . . not setting aside the Order of the trial court granting the issuance of a writ of
preliminary injunction which unlawfully restrained the CB from exercising its mandated
responsibilities and effectively compelled it to allow the PBP to continue incurring overdrafts
with it.
This petition was docketed as G.R. No. 88353.
On 19 July 1989, this Court required the respondents to comment on the petition. 24
In the Comment 25 filed on 9 October 1989, private respondents maintain that: (a) the issue
of whether or not they paid the correct filing fees involves a question of correctness of
judgment, not grave abuse of discretion; errors of judgment cannot be the subject of the
present petition for certiorari; (b) the complaint and the amended complaint state sufficient
causes of action because they both contain specific allegations of an illegal, unnecessary,
disastrous and repressive conservatorship conducted contrary to its mandated purpose, and
breach of promissory estoppel; furthermore, the trial court committed no grave abuse of
discretion when it found that the questioned MB Resolutions were arbitrarily issued in
contravention of the due process clause of the Constitution; (c) the "Filing of the complaint
without authority from the conservator is an issue involving an error of judgment; besides, it
would be ridiculous and absurd to require such prior authorization from the conservator for
no one expects him to sanction the filing of a suit against his principal the CB; moreover,
Rule 3 of the Rules of Court requires that every action must be prosecuted and defended in
the name of the real party in interest; besides, no administrative authority, even the CB, can
nullify judicial review of administrative action by requiring that only said administrative
authority or its designated conservator can file suit for judicial review of its actuation; and
(d) the writ of preliminary injunction was properly issued.
Petitioners filed a Reply 26 to the Comment on 3 November 1989.
In their Supplemental Comment, private respondents argue that the Manchester rule is not
applicable in the case at bar because what is primarily sought for herein is a writ of
injunction and not an award for damages; it is further alleged that an order denying a
motion to dismiss is neither appealable nor be made the proper subject of a petition for
certiorari absent a clear showing of lack of jurisdiction or grave abuse of discretion.
On 15 February 1990, this Court resolved to give due course to the instant petition and
require the parties to simultaneously file their respective Memoranda, 27 which they
complied with.
On 1 March 1990, petitioners filed an Urgent Motion 28 informing this Court of the fact that
on 6 June 1989, PBP, through Henry Co, proposed another rehabilitation plan which involved
the infusion of fresh capital into PBP by Banque Indosuez (Bangue) and the AFP-Retirement
and Separation Benefits Systems (ARSBS). Under said proposal, all existing law suits of PBP
against the Central Bank and the PBP Conservator, and vice-versa, shall be withdrawn upon
approval and implementation of the plan. The plan was approved by the Monetary Board in
its Resolution No. 497 dated 23 June 1989. However, before the mechanics of the
rehabilitation plan could be threshed out among the parties, a "quarrel" developed between
Henry and Luis Co, who both have controlling interests in PBP. Luis accused Henry of "serious
manipulations" in PBP and both steadfastly refused to settle their differences
notwithstanding efforts of mediators, including prospective investors. Eventually, the
prospective investors, in a letter dated 20 November 1989, advised the Central Bank that
they are withdrawing their offer to infuse capital in PBP and that they have terminated all
discussions with the Co family.
Petitioner further allege that with the withdrawal of Banque Indosuez and RSBS, the
rehabilitation plan for PBP is no longer feasible. Meanwhile, the bank's overdraft with the
Central Bank continues to rise. As of 13 February 1990, PBP's overdraft with the CB
increased to P1.233 billion. If the injunction is not lifted, PBP will continually bleed the CB
because of the former's liability to discharge its responsibilities under the law.
G.R. No. 92943
Pursuant to the powers and authority conferred upon her by the Central Bank, Atty. Leonida
Tansinsin-Encarnacion, in her capacity as conservator, instituted reforms aimed at making
PBP more viable. With this purpose in mind, she started reorganizing the bank's personnel
and committees.
In order to prevent her from continuing with the reorganization, PBP filed on 24 October
1987, or after it obtained a writ of preliminary injunction in Civil Case No. 17692, an
Omnibus Motion asking the trial court for an order:
(a) reinstating PBP officers to their original positions and restoring the bank's standing
committees to their respective compositions prior to said reorganization; (b) enjoining the
lease of any portion of the bank's space in Producers Bank Centre building to third parties
and the relocation of departments/offices of PBP as was contemplated; and (c) to hold, after
an opportunity to be heard is given her, said conservator in contempt of court for
disobedience of and resistance to the writ of injunction. An opposition to the contempt
charge was later filed by said petitioner.
Subsequently, upon its inclusion as party-plaintiff via the amended complaint, PPI filed on 4
November 1987 a motion asking the lower court to order the Central Bank and its agents to
restore to PPI the administration of the three (3) buildings earlier assigned to PBP pending
the lifting of the conservatorship. PPI claimed that such transfer was necessary to prevent
the rental income of said buildings being dissipated by the conservator.
On 17 November 1987, both PBP and PPI filed a motion praying:
(1) that the CB Conservator be ordered to publish PBP's financial statement for the last
quarter of 1987 and every quarterly statement thereafter during the pendency of this case,
with the following claims of plaintiff PBP against the Central Bank, to wit:
(a) Interest in unconscionable rates of CB overdrawing illegally paid by the CB

conservators to CB now totaling P56,002,000.00,
(b) Penalties on reserve deficiencies illegally paid by the CB conservators to CB now
totaling P20,657,000.00,
(c) Penalties on reserve deficiencies not yet paid but which the conservator has booked
as liabilities now totaling P31,717,000.00,
(d) Losses of operation by the CB conservators from January 31, 1984 to October 31,
1987 now totaling P461,092,000.00
as "suspense" accounts; and (2) that the CB conservator be ordered to carry those
"suspense" accounts in the books of PBP.
The following day, respondent Judge issued an Order (a) requiring conservator Tansinsin-
Encarnacion to reinstate PBP officers to their original positions prior to the reorganization of
the bank's personnel and restore PBP's standing committees to their original compositions,
and (b) restraining her from leasing out to third parties any portion of PBP's space in the
Producers Bank Centre building. However, respondent Judge held in abeyance the contempt
proceedings against the conservator pending her immediate compliance with the Order.
On 22 December 1987, respondent Judge granted PPI's motion for an order transferring to it
the administration of the three (3) buildings assigned to PBP. A motion for reconsideration of
this order was filed by petitioners but was subsequently denied by respondent Judge in the
Order of 4 October 1988.
A second Order, issued by respondent Judge on the same day, 22 December 1987, directed
conservator Tansinsin-Encarnacion to publish the financial statement of PBP in the manner
prayed for in the aforesaid 17 November 1987 motion. The motion to reconsider this Order
was denied by respondent Judge on 3 October 1988.
On several occasions thereafter, conservator Tansinsin-Encarnacion caused the publication

of PBP's financial statement as required by regulations, without, however, carrying the items
enumerated by the trial court as "suspense accounts." Consequently, two (2) contempt
charges were filed against her, one for the 3 February 1988 publication in the Manila
Standard of PBP's statement of condition as of 29 December 1987 and the other for the 29
July 1988 publication in the Daily Globe of the bank's statement as of 30 June 1988.
Oppositions to both charges of contempt were filed.
On 9 November 1988, respondent Judge declared said conservator guilty of contempt of

court on three (3) counts and imposed upon her a fine of P1,000.00 for each count of
contempt. The latter asked for reconsideration of the order but the respondent Judge denied
the same.
Another contempt charge against her was filed for publishing the statement of condition of
PBP (as of 13 September 1988) in the 9 November 1988 issue of the Daily Globe without
carrying the alleged "suspense accounts." She was again found guilty as charged and her
motion for reconsideration was denied. Finding no other adequate relief, Tansinsin-
Encarnacion filed with this Court on 11 January 1989 a petition for certiorari against
respondent Judge, Henry L. Co and the law firm of Quisumbing, Torres and Evangelista. This
case was docketed as G.R. No. 86526. She prays therein for judgment declaring respondent
judge to be without jurisdiction to entertain both the complaint and amended complaint in
Civil Case No. 17692; declaring null and void all his orders, specially the contempt orders;
and finding respondent Judge and respondent lawyers guilty of violating their respective
oaths of office. 29
On 8 February 1989, this Court resolved to refer said petition to the Court of Appeals which
docketed it as C.A.-G.R.-SP No. 16972.
In her Memorandum submitted to the Court of Appeals, Tansinsin-Encarnacion alleged that:

(1) respondent Judge has no jurisdiction over Civil Case No. 17692 because its filing was not
authorized by the petitioner or the conservator in violation of Section 28-A of R.A. No. 265,
as amended, it was filed after the ten (10) day period prescribed by Section 29 of R.A. No.
265, as amended, and the correct docket fees were not paid; (2) respondent Judge illegally
ordered her to return to PPI the administration of the bank's three (3) properties, contrary to
his own writ of preliminary injunction and earlier order to make the bank viable, and to
publish the alleged "suspense accounts" contrary to Section 28-A of R.A. No. 265, as
amended, the writ of preliminary injunction and her constitutional right to silence; (3)
respondent Judge erred in declaring her in contempt of court notwithstanding his lack of
jurisdiction over the case and failure to set any date for the hearing and reception of
evidence, in violation of her right to due process of law; and (4) respondents Judge and
lawyers are administratively liable for their grossly illegal actuations and for depriving the
Government of at least P13.2 million in filing fees. 30
In its decision dated 17 January 1990, the Court of Appeals (Twelfth Division) 31 dismissed
the petition; while finding the claim of lack of jurisdiction to be without merit, the said court
nonetheless gave the following exception:
. . . except that plaintiffs in Civil Case No. 17692, within 15 days from receipt of a copy of
this Decision, shall file the corresponding amendment to their amended complaint in said
case, stating a specific amount "to fully repair the damages inflicted on PBP consisting of
losses of operation and the conservator's bank frauds and abuses", in the prayer of their
amended complaint. Thereafter, the Clerk of Court of the lower court and/or his duly
authorized Docket Clerk of Court in charge, should determine the amount found due, which
should be paid by complainants within the applicable prescriptive or reglementary period,
failure of which said claims for damages shall be dismissed.
In disposing of the issues raised, respondent Court merely adopted with approval the ruling
of the respondent Judge on the question of jurisdiction and cited the decision of the Court of
Appeals in C.A.-G.R. SP No. 13624 (subject of G.R. No. 88353), sustaining the respondent
Judge's ruling. As to the filing of the complaint after the lapse of the 10-day period provided
for in Section 29 of R.A. No. 265, it ruled that the Section does not apply because the
complaint essentially seeks to compel the conservator to perform his duties and refers to
circumstances and incidents which transpired after said 10-day period.
On the issue of lack of jurisdiction for non-payment of correct filing fees, to which an
exception was made in the dispositive portion, the respondent Court found the same to be
"partly" meritorious. It agreed with petitioner that while the other losses and damages
sought to be recovered are incapable of pecuniary estimation, the damages inflicted on PBP
due to losses of operation and the conservator's bank frauds and abuses were in fact
pegged at P108,479,771.00 in paragraph 26 of the amended complaint. This specific
amount, however, should have been stated in the prayer of the complaint. It also held that
the Manchester case "has been legally construed in the subsequent case of Sun Insurance
Office Ltd. 32 and the case of Filipinas Shell Petroleum Corp. 33 to the effect that applying
the doctrine initiated in the case of Manchester, together with said subsequent thereto (sic),
plaintiffs in Civil Case No. 17692 should be given a reasonable time to amend their
complaint, more particularly, to state in their prayer in the amended complaint the specific
amount of damages . . ."
On the orders of contempt and the reasons therefor, respondent Court merely stated:
. . . Generally, when the court has jurisdiction over the subject matter and of the person,
decisions upon or questions pertinent to the cause are decisions within its jurisdiction, and
however, irregular or erroneous they may be, they cannot be corrected by certiorari Whether
the court's conclusions was based merely on speculations and conjecture, or on a
misapprehension of facts contrary to the documents and exhibits of the case, is not for us to
determine in a petition for certiorari wherein only issues of jurisdiction may be raised. . . .
Thus, the instant petition cannot prosper.
and opined that under the Rules of Court, a judgment of contempt may be questioned on
appeal and not on certiorari.
Finally, on the administrative liability of the respondent Judge and the lawyers, the
respondent Court declared the claim to be without merit.
Petitioner's motion to reconsider the decision having been denied in the 2 April 1990
Resolution of the respondent Court, 34 she filed with this Court a petition under Rule 45 of
the Rules of Court, which was docketed as G.R. No. 92943. Petitioner Claims that respondent
Court grossly erred in confirming/affirming the allegedly void Orders of respondent Judge
which denied the motion to dismiss the complaint and granted the writ of preliminary
injunction, restating in this regard the issues raised by the CB in G.R.
No. 88353, and in holding her in contempt of court on four occasions. As to the last ground,
she asserts that the Orders were issued in violation of the Rules of Court and infringed her
right to due process since there was no hearing on the motions for contempt, except for the
third motion wherein respondent Judge immediately ordered the movant to present
evidence.
In their Comment, 35 filed in compliance with Our Resolution 21 May 1990, private
respondents practically reiterated the arguments in their Comment to the petition in G.R. No.
88353; in addition, more specifically on the issue of contempt, they assert that while the
motions for contempt were set for hearing, there is no showing that the scheduled hearings
actually took place. Besides, the remedy to question a contempt order is an appeal; 36 since
petitioner did not appeal the questioned orders, the same became final and executory. 37
After petitioner filed a Reply and private respondents submitted their Rejoinder thereto, this
Court gave due course to the petition.
THE ISSUES
The basic issue in these cases is whether or not the respondent Court committed reversible
error in affirming the challenged Orders of the respondent Judge. This necessarily calls for a
determination of whether or not the respondent Judge committed grave abuse of discretion
amounting to lack of jurisdiction:
(1) In not dismissing Civil Case No. 17692 on the following grounds: (a) lack of legal.
personality to bring the action as the same was filed in the name of the PBP without the
authority of the conservator;
(b) failure of the complaint and amended complaint to state a cause of action; and (c) non-
payment of the correct amount of docket fee in violation of the rule enunciated in
Manchester Development Corp. vs. Court of Appeals, et al.;
(2) In granting the writ of preliminary injunction; and
(3) In issuing the assailed Orders in G.R. No. 92943.
DISCUSSION
We shall take up the issues sequentially.
1. PBP has been under conservatorship since 20 January 1984. Pursuant to Section 28-A
of the Central Bank Act, 38 a conservator, once appointed, takes over the management of
the bank and assumes exclusive powers to oversee every aspect of the bank's operations
and affairs. Petitioners now maintain that this power includes the authority to determine
"whether or not to maintain suit in the bank's name." 39 The trial court overruled this
contention stating that the section alluded to "does not prohibit the Board of Directors of a
bank to file suit to lift the conservatorship over it, to question the validity of the
conservator's fraudulent acts and abuses and the arbitrary action of the conservator's
principal the Monetary Board of the Central Bank. The conservator cannot be expected to
question his own continued existence and acts. He cannot be expected to file suit to annul
the action of his principal . . . or a suit that would point out the ill-motivation, the disastrous
effects of the conservatorship and the conservator's bank frauds and abuses as alleged in
the complaint." 40
Obviously, the trial court was of the impression that what was sought for in Civil Case No.
17692 is the lifting of the conservatorship because it was arbitrarily and illegally imposed.
While it may be true that the PBP devoted the first 38 pages of its 47-page complaint and
amended complaint to what it considers an unwarranted, ill-motivated, illegal, unnecessary,
and unjustified conservatorship, it, nevertheless, submitted to the same. There is nothing in
the amended complaint to reflect an unequivocal intention to ask for its lifting. Of course, as
subsequent maneuvers would show, PBP sought to accomplish the lifting thereof through
surreptitious means. That such action was not, on its face, filed to have the conservatorship
lifted, is best evidenced by PBP's prayer for a judgment "ordering defendant Central Bank's
conservator to restore the viability of PBP as mandated by Section 28-A of R.A. No. 265 . . ."
41 Unfortunately too, respondent Court was easily misled into believing that the amended
complaint sought the lifting of the conservatorship. Thus, although the matter was not
specifically raised in issue and clearly unnecessary for the determination of the issues
squarely raised, the respondent Court opined:
It is Our sober assessment that the respondent bank was not given an opportunity to be
heard when the Central Bank peremptorily and illtimely (sic) announced the appointment of
a conservatorship over the latter (bank) for which reason We believe that administrative due
process was arbitrarily brushed aside to the prejudice of the said bank. . . .
If it were to lift the conservatorship because it was arbitrarily imposed, then the case should
have been dismissed on the grounds of prescription and lack of personality to bring the
action. Per the fifth paragraph of Section 29 of the Central Bank Act, as amended by
Executive Order No. 289, the actions of the MB may be assailed in an appropriate pleading
filed by the stockholders of record representing the majority of the capital stock within ten
(10) days from receipt of notice by the said majority stockholders of the order placing the
bank under conservatorship. The pertinent portion of said paragraph reads as follows:
The provisions of any law to the contrary notwithstanding, the actions of the Monetary Board
under this Section, Section 28-A, and the second paragraph of section 34 of this Act shall be
final and executory, and can be set aside by a court only if there is convincing 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 the capital stock within ten (10) days from the date the receiver takes 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 or liquidation. . . .
The following requisites, therefore, must be present before the order of conservatorship may
be set aside by a court:
1. The appropriate pleading must be filed by the stockholders of record representing the
majority of the capital stock of the bank in the proper court;
2. Said pleading must be filed within ten (10) days from receipt of notice by said
majority stockholders of the order placing the bank under conservatorship; and
3. There must be convincing proof, after hearing, that the action is plainly arbitrary and
made in bad faith. 42
In the instant case, PBP was placed under conservatorship on 20 January 1984. The original
complaint in Civil Case No. 17692 was filed only on 27 August 1987, or three (3) years,
seven (7) months and seven (7) days later, long after the expiration of the 10-day period
deferred to above. It is also beyond question that the complaint and the amended complaint
were not initiated by the stockholders of record representing the majority of the capital
stock. Accordingly, the order placing PBP under conservatorship had long become final and
its validity could no longer be litigated upon before the trial court. Applying the original
provision of the aforesaid Section 29 of the Central Bank Act, this Court, in Rural Bank of
Lucena, Inc. vs. Arca, et al., 43 ruled that:
Nor can the proceedings before Judge Arca be deemed a judicial review of the 1962
resolution No. 122 of the Monetary Board, if only because by law (Section 29, R.A. 265) such
review must be asked within 10 days from notice of the resolution of the Board. Between the
adoption of Resolution No. 122 and the challenged order of Judge Arca, more than one year
had elapsed. Hence, the validity of the Monetary Board's resolution can no longer be
litigated before Judge Arca, whose role under the fourth paragraph of section 29 is confined
to assisting and supervising the liquidation of the Lucena bank.
This rule is still good law notwithstanding the amendment to Section 29 which expands its
scope by including the action of the MB under Section 28-A of the Act on the appointment of
a conservator.
It was precisely an awareness of the futility of any action to set aside the conservatorship
which prompted PBP to limit its action to a claim for damages and a prayer for an injunction
against the implementation of MB Resolution Nos. 649 and 751. However, to make it appear
that it had a meritorious case and a valid grievance against the Central Bank, it wandered
long into the past and narrated a sad story of persecution, oppression and injustice since the
inception of the conservatorship obviously to gain the sympathy of the court, which it
eventually obtained.
The next crucial question that suggests itself for resolution is whether an action for damages
arising from the MB's act of placing the PBP under conservatorship and the acts of the
conservator, and to enjoin the MB from implementing resolutions related or incident to, or in
connection with the conservatorship, may be brought only for and in behalf of the PBP by
the stockholders on record representing the majority of the capital stock thereof or simply
upon authority of its Board of Directors, or by its Chairman. We hereby rule that as to the
first kind of damages, the same may be claimed only if the MB's action is plainly arbitrary
and made in bad faith, and that the action therefor is inseparable from an action to set aside
the conservatorship. In other words, the same must be filed within ten (10) days from
receipt of notice of the order placing the bank under conservatorship. Otherwise, the
provision of the fifth paragraph of Section 29 of the Central. Bank Act could be rendered
meaningless and illusory by the bank's filing, beyond the prescribed ten-day period, of an
action ostensibly claiming damages but in reality questioning the conservatorship. As to
actions for the second kind of damages and for injunction to restrain the enforcement of the
CB's implementing resolutions, said fifth paragraph of Section 29 of the Central Bank Act, as
amended, equally applies because the questioned acts are but incidental to the
conservatorship. 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.
The original complaint in Civil Case No. 17692 was not initiated by the majority of the
stockholders, hence it should have been dismissed. However, confronted with this fatal flaw,
counsel for PBP, through shrewd maneuvering, attempted to save the day by impleading as
co-plaintiff a corporation, the PPI, which was not under conservatorship. Unfortunately, the
maneuver was crudely and imperfectly executed. Except for the inclusion of its name,
nothing new was actually added to the original complaint in terms of causes of action and
reliefs for PPI. The amendment then was an exercise in futility. We cannot, however,
subscribe to the petitioner's view that: (a) once a bank is placed under conservatorship, no
action may be filed on behalf of the bank without prior approval of the conservator, and (b)
since in this case such approval was not secured prior to the filing of Civil Case No. 17692,
the latter must also be dismissed on that ground. No such approval is necessary where the
action was instituted by the majority of the bank's stockholders. To contend otherwise would
be to defeat the rights of such stockholders under the fifth paragraph of Section 29 of the
Central Bank Act. It must be stressed here that a bank retains its juridical personality even if
placed under conservatorship; 44 it is neither replaced nor substituted by the conservator
who, per Section 28-A of the Central Bank Act, as amended by P.D. No. 1932, shall only:
. . . 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 . . ., any provision of law to the contrary notwithstanding, and such other
powers as the Monetary Board shall deem necessary.
Even assuming for the sake of argument that the action was properly brought by an
authorized party, the same must nevertheless be dismissed for failure of the plaintiffs
therein to pay the correct docket fees, pursuant to Manchester Development Corp. vs. Court
of Appeals, et al.; 45 the said case was decided by this Court on 7 May 1987, exactly three
(3) months and twenty (20) days before the filing of the original complaint and five (5)
months and eighteen (18) days before the filing of the Amended Complaint in Civil Case No.
17692. We ruled therein that:
The Court acquires jurisdiction over any case only upon the payment of the prescribed
docket fee. An amendment of the complaint or similar pleading will not thereby vest
jurisdiction in the Court, much less the payment of the docket fee based on the amounts
sought in the amended pleading. The ruling in the Magaspi case [115 SCRA 193], in so far as
it is inconsistent with this pronouncement is overturned and reversed.
The respondent Judge, in ruling that PBP and PPI had paid the correct docket fee of P102.00,
said that "the value of the case cannot be estimated" since what is sought is an injunction
against the enforcement of the challenged resolutions of the MB; in short, the claim for
damages is merely incidental. Upon the other hand, respondent Court, in its Resolution of 17
May 1989 in C.A.-G.R. SP No. 13624, ruled that the case is "incapable of pecuniary
estimation" because the value of the losses incurred by the PBP "cannot be calibrated nor
pinned down to a specific amount in view of the damage that may be caused by the
appointment of a conservator to its goodwill and standing in the community." 46
Both conclusions are unfounded and are the result of a misapprehension of the allegations
and causes of action in both the complaint and amended complaint.
While PBP cleverly worded its complaint in Civil Case No. 17692 to make it appear as one
principally for injunction, deliberately omitting the claim for damages as a specific cause of
action, a careful examination thereof bears that the same is in reality an action for damages
arising out of the alleged "unwarranted, ill-motivated and illegal conservatorship," or a
conservatorship which "was utterly unnecessary and unjustified," and the "arbitrary"
appointment of a conservator. 47 Thus, as stated earlier, it devoted the bulk of its petition to
detailed events, occurrences and transactions in support thereof and patiently enumerated
the losses it sustained and suffered. The pertinent portions of paragraph 27 of both the
original and amended complaints read as follows:
27. The record of the Central Bank conservatorship of PBP clearly shows that it was
responsible for the losses.
xxx xxx xxx
[Then follows an enumeration, from (a) to (u), of particular acts causing or resulting in
losses, most of which are specifically stated]
xxx xxx xxx
(v) Total of only the foregoing mentioned and only of those that can be quantified is
P108,479,771.00.
And that excludes loss of profits that PBP could have realized if that disastrous
conservatorship had not been imposed on it and loss of goodwill.
The causes for these abuses of the conservators are course graft and corruption of the
conservators aside from fault in the system which denies private enterprise. (emphasis
supplied)
xxx xxx xxx
These are the very damages referred to in the prayer:
. . . to fully repair the damages inflicted on PBP consisting of losses of operation and the
conservators' bank frauds and abuses, . . .
but not specified therein. To this Court's mind, this was done to evade the payment of the
corresponding filing fees which, as computed by petitioner on the basis alone of the
specified losses of P108,479,771.00, would amount to about P 437,000.00. 48 The PBP then
clearly acted with manifest bad faith in resorting to the foregoing clever strategy to avoid
paying the correct filing fees. We are thus constrained to reiterate Our pronouncements in
the Manchester case:
The Court cannot close this case without making the observation that it frowns at the
practice of counsel who filed the original complaint in this case of omitting any specification
of the amount of damages in the prayer although the amount of over P78 million is alleged
in the body of the complaint. This is clearly intended for no other purpose than to evade the
payment of the correct filing fees if not to mislead the docket clerk in the assessment of the
filing fee. . . .
The respondent Court itself, in its decision of 17 January 1990 in C.A-G.R. SP No. 16972, 49
confronted by the same issue, but perhaps unaware of its Resolution of 17 May 1989 in C.A.-
G.R. SP No. 13624 aforementioned, ruled that PBP and PPI are liable for the filing fees on the
claim for damages. It even directed PBP and PPI to file "the corresponding amendment to
their amended complaint in said case stating a specific amount 'to fully repair the damages
inflicted on PBP consisting of losses of operation and the conservator's bank frauds and
abuses' . . .," after which the Clerk of Court of the lower court or his duly authorized docket
clerk should determine the amount found due, which said plaintiffs shall pay "within the
applicable prescriptive or reglementary period,
. . ." 50 The 17 January 1990 ruling, clearly reversing the earlier one, is of doubtful propriety
in view of the petition for review of the decision in C.A.-G.R. SP No. 13624 filed by the
petitioner.
In granting PBP and PPI an opportunity to amend their amended complaint to reflect the
specific amount of damages in the prayer of their Amended Complaint, respondent Court
took refuge under the rule laid down in Sun Insurance Office, Ltd., et al. vs. Asuncion, et al.
51 and Filipinas Shell Petroleum Corp. vs. Court of Appeals, et al. 52 Of course, it was
erroneous for respondent Court to apply these last two (2) cases which were decided by this
Court three (3) months short of two (2) years after the promulgation of the Manchester
decision on 7 May 1987. Accordingly, since the original complaint in Civil Case No. 17692
was filed on 27 August 1987, the Manchester doctrine was the controlling and applicable
law. The lower court had no choice but to apply it when its attention was called by the
petitioner.
Moreover, even granting for the sake of argument that Sun Insurance and Pilipinas Shell 53
may apply in this case, We should not lose sight of the fact that in the former, this Court
categorically stated:
1. It is not simply the filing of the complaint or appropriate initiatory pleading, but the
payment of the prescribed docket fee, that vests a trial court with jurisdiction over the
subject-matter or nature of the action. Where the filling of the initiatory pleading is not
accompanied by payment of the docket fee, the court may allow the payment of the fee
within a reasonable time but in no case beyond the applicable prescriptive or reglementary
period.
The prescriptive period therein mentioned refers to the period within which a specific action
must be filed. It means that in every case, the docket fee must be paid before the lapse of
the prescriptive period. Chapter 3, Title V, Book III of the Civil Code is the principal law
governing prescription of actions.
There can be no question that in the instant case, PBP's claims for damages arise out of an
injury to its rights. Pursuant to Article 1146 of the Civil Code, the action therefor must be
initiated within four (4) years from the time the cause of action accrued. Since the damages
arose out of the alleged unwarranted, ill-motivated, illegal, unnecessary and unjustified
conservatorship, the cause of action, if any, first accrued in 1984 and continued until 27
August 1987, when the original complaint was filed. Even if We are to assume that the four-
year period should start running on 27 August 1987, that period lapsed on 27 August 1991.
There is no showing that PBP paid the correct filing fee for the claim within the prescribed
period. Hence, nothing can save Civil Case No. 17692 from being dismissed.
2. And now on the issue of the writ of preliminary injunction.
The challenged Orders of the trial court granting the application for a writ of preliminary
injunction and the assailed decision of the respondent Court in C.A. G.R. No. 13624 clearly
betray a prejudgment of the case. In both instances, not only did said courts declare MB
Resolutions Nos. 649 and 751 to be arbitrary, both also declared the conservatorship to have
been issued in violation of PBP's right to administrative due process, which the CB
"arbitrarily brushed aside to the prejudice" of the latter. The said courts further concluded
that "the sudden and untimely announcement by the Central Bank that respondent
Producers Bank will be under a conservatorship that will oversee its operations worked
havoc over the confidence that the public had hitherto reposed on respondent bank so that
the majority of its depositors over-reacted and rashly withdrew their accounts from said
bank, thus it incurred a loss of P593.707 million or 59.5% of its deposits."
Thus, save only for the determination of the full extent of PBP's claim for damages, said
courts have, at the most, decided or, at the very least, prejudged the case. Courts,
notwithstanding the discretion given to them, should avoid issuing writs of preliminary
injunction which in effect dispose of the main case without a trial. 54 We do not then
hesitate to rule that there was grave abuse of discretion in the issuance of the writ of
preliminary injunction.
Besides, there was neither arbitrariness nor bad faith in the issuance of MB Resolutions Nos.
649 and 751. It must be stressed in this connection 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. 55 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. 56
It is then Government's responsibility to see to it that the financial interests of those who
deal with 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, 57 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. 58 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 vs.
Philippine Veterans Bank, 59 this Court held that:
. . . Unless adequate and determined efforts are taken by the government against distressed
and mismanaged banks, public faith in the banking system is certain to deteriorate to the
prejudice of the national economy itself, not to mention the losses suffered by the bank
depositors, creditors, and stockholders, who all deserve the protection of the government.
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.
One important measure adopted by the government to protect the public against
unscrupulous practices of some bankers is to require banking institutions to set up reserves
against their deposit liabilities. These reserves, pegged at a certain percentage of the
volume of deposit liability, is that portion of the deposit received by a banking institution
which it cannot use for loans and investments. The reserve requirement, which ordinarily
takes the form of a deposit with the Central Bank, is one means by which the government
ensures the liquidity of banking institutions. 60
These reserve accounts maintained by banking institutions with the Central Bank also serve
as a basis for the clearing of checks and the settlement of interbank balances. 61
The need to maintain these required reserves cannot be over-emphasized. Thus, where over-
drawings on deposit accounts (regardless of amount) are incurred, R.A. No. 265 requires the
delinquent bank to:
. . . fully cover said overdraft not later than the next clearing day: Provided, Further, That
settlement of clearing balances shall not be effected for any account which continue to, be
overdrawn for five consecutive banking days until such time as the overdrawing is fully
covered or otherwise converted into an emergency loan or advance pursuant to the
provisions of Sec. 90 of this Act. Provided, Finally, That the appropriate clearing office shall
be officially notified of banks with overdrawn balances. Banks with existing overdrafts with
the Central Bank as of the effectivity of this amended section shall, within such period as
may be prescribed by the Monetary Board, either convert the overdraft into an emergency
loan or advance with a plan of payment, or settle such overdrafts, and that, upon failure to
comply herewith, the Central Bank shall take such action against the bank as may be
warranted under this Act. 62 [Emphasis supplied.]
The fact that PBP is grossly overdrawn on its reserve account with the CB (up to P1.233
billion as of 13 February 1990) is not disputed by PBP. This enormous overdraft evidences
the patent inability of the bank's management to keep PBP liquid. This fact alone sufficiently
justifies the remedial measures taken by the Monetary Board.
MB Resolutions Nos. 649 and 751 were not promulgated to arbitrarily divest the present
stockholders of control over PBP, as is claimed by the latter. The same contemplates an
effective and viable plan to revive and restore PBP. It is to be noted that before issuing these
resolutions, the MB gave the management of PBP ample opportunity (from 30 March 1984 to
June of 1987) to submit a viable rehabilitation plan for the bank.
MB Resolution Nos. 751 merely reiterated the requirement set forth in Resolution No. 649 for
PBP to identify and submit the list of new stockholders who will infuse new capital into the
bank for CB approval. In this Resolution, the MB gave PBP's stockholders one (1) week from
notice within which to signify their acceptance or rejection of the proposed rehabilitation
plan.
The foregoing resolutions refer to a recommended rehabilitation plan. What was conveyed to
PBP was a mere proposal. There was nothing in the resolutions to indicate that the plan was
mandatory. On the contrary, PBP was given a specific period within which to accept or reject
the plan. And, as petitioners correctly pointed out, the plan was not self-implementing. The
warning given by the MB that should said proposal be rejected, the CB "will take appropriate
alternative actions on the matter," does not make the proposed rehabilitation plan
compulsory. Whether or not there is a rehabilitation plan agreed upon between PBP and the
MB, the CB is authorized under R.A. No. 265 to take appropriate measures to protect the
interest of the bank's depositors as well as of the general public.
Furthermore, the assignment of claims to PDIC and the subsequent dacion en pago
(payment of credit through shares) do not divest the present stockholders of control over
PBP. As may be readily observed from the terms of Resolution No. 645, the shares which
shall be issued to PDIC under the dacion are preferred, non-voting and non-participating
shares. Hence, except for the instances enumerated in the Corporation Code where holders
of non-voting shares are given the right to vote, PDIC shall have no hand in the bank's
operation or business. In any event, these preferred shares will eventually be sold to private
parties or new stockholders as soon as they are identified by PBP and approved by the CB.
Prior approval by the CB of the stockholders is necessary screening purposes.
There is nothing objectionable to the actions of the MB. We, therefore, find to be completely
without legal or evidentiary basis the contention that the impugned resolutions are arbitrary,
illegal and made in bad faith.
Moreover, respondent Judge acted in complete disregard of Section 107 of R.A. No. 265
when he enjoined the CB from taking appropriate actions against the bank, "including
exclusion of (PBP) from settlement of clearing balances at the Central Bank clearing house"
as warranted by law. By using his own standards, and without scrutinizing the law,
respondent Judge arbitrarily determined when CB may or may not initiate measures against
a bank that cannot maintain its liquidity. He also arbitrarily and capriciously decided who can
continually overdraw from the deposit account with the CB, to the prejudice of other banking
institutions, the banking public and the government.
3. As could be gleamed from the pleadings in G.R. No. 92943, the respondent Judge, per
his order of 18 November 1987, (a) directed the conservator to restore both the PBP officers
to their original positions prior to the reorganization of the bank's personnel, and the PBP's
standing committees to their original compositions, and (b) restrained her from leasing out
to a third party any portion of PBP's space in the Producers Bank Centre; per his Order of 22
December 1987, respondent Judge granted PPI's motion for an order transferring to the
latter the administration of the three (3) buildings; and per the Order of 22 December 1987,
he granted the motion directing the conservator to publish the financial statement of the
PBP in the manner prayed for by the latter.
The foregoing Orders were issued without due hearing. Moreover, these reliefs were not
prayed for in the Amended Complaint. They were not even covered by any specific
allegations therein. Except for the prohibition to lease, the rest partook of the nature of a
preliminary mandatory injunction which deprived the conservator of her rights and powers
under Section 28-A of R.A. No. 265 and, in effect, set aside the conservatorship with PBP
itself had earlier accepted. It must be remembered that PBP did not ask, in its Amended
Complaint, for the setting aside of the conservatorship. On the contrary, it even prayed that
the conservator be ordered to restore the viability of PBP as mandated by said Section 28-A.
The respondent Judge should not have forgotten the settled doctrine that it is improper to
issue a writ of preliminary mandatory injunction prior to the final hearing, except in cases of
extreme urgency, where the right is very clear, where considerations of relative
inconvenience bear strongly in complainant's favor, where there is a willful and unlawful
invasion of plaintiff's right against his protest and remonstrance, the injury being a
continuing one, and where the effect of the mandatory injunction is rather to re-establish
and maintain a pre-existing continuing relation between the parties, recently and arbitrarily
interrupted by the defendant, than to establish a new relation. 63
It is plain to this Court that respondent Judge ceased to be an impartial arbitrator; he

became the godfather of PBP and PPI, granting to them practically all that they had asked
for in the motions they filed. Upon the issuance of these Orders, nothing appeared clearer in
the judicial horizon than this PBP and PPI had everything in the bag, so to speak, including
the reliefs not even contemplated in their Amended Complaint. The challenged Orders then
were whimsically and arbitrarily issued.
Compounding such detestable conduct is the respondent Judge's issuance, with undue haste
and unusual speed, of the orders of contempt without the proper hearing. If the conservator
could, at all, be liable for contempt, it would be for indirect contempt punished under Section
3, Rule 71 of the Rules of Court, more specifically item (b) of the first paragraph which reads:
Sec. 3 Indirect contempts to be punished after charge and hearing. After charge in writing
has been filed, and an opportunity given to the accused to be heard by himself or counsel, a
person guilty of any of the following acts may be punished for contempt:
xxx xxx xxx
(b) Disobedience of or resistance to a lawful writ, process, order, judgment, or command

of a court, or injunction granted by a court or judge, . . .;
It is clear from the said section that it is necessary that there be a charge and that the party
cited for contempt be given an opportunity to be heard. The reason for this is that contempt
partakes of the nature of a criminal offense. In the instant case, each motion for contempt
served as the charge. It is settled that a charge may be filed by a fiscal, a judge, or even a
private person. 64 Petitioner Tansinsin-Encarnacion filed oppositions thereto. Thereafter, it
was the duty of the respondent Judge to hold a hearing on the motions. Respondent Judge
deliberately did away with the hearing and this Court finds no justifiable reason therefor.
There is, moreover, another reason why the contempt orders must be struck down. The
orders which were supposedly disobeyed and from which the motions for contempt arose
were, as earlier indicated, null and void for having been issued with grave abuse of
discretion amounting to lack of jurisdiction. Such Orders, therefore, cannot then be
characterized as lawful. Consequently, resistance thereto cannot be punished as contempt
65
PREMISES CONSIDERED, the petitions in G.R. Nos. 88353 and 92943 are GRANTED. The 6
October 1988 decision and 17 May 1989 resolution of the Court of Appeals in C.A.-G.R. SP
No. 13624 are REVERSED and SET ASIDE. Respondent Judge is ordered to dismiss Civil Case
No. 17692. All proceedings undertaken and all orders issued by respondent Judge are hereby
SET ASIDE for being null and void. The writ of preliminary injunction issued by the trial court
in its Order dated 21 September 1987 is hereby LIFTED.
IT IS SO ORDERED.
LIPANA VS DEVELOPMENT BANK
G.R. No. 73884 September 24, 1987
SPOUSES ROMEO LIPANA and MILAGROS LIPANA, petitioners,

vs.
DEVELOPMENT BANK OF RIZAL, respondent.
PARAS, J.:
This is a petition for review on certiorari of the August 30, 1985 Order of the Regional Trial
Court of Pasig denying petitioners' Motion to Lift Stay of Execution in Civil Case No. 50802.
During the period from 1982 to January, 1984, herein petitioners opened and maintained
both time and savings deposits with the herein respondent Development Bank of Rizal all in
the aggregate amount of P939,737.32. When some of the Time Deposit Certificates
matured, petitioners were not able to cash them but instead were issued a manager's check
which was dishonored upon presentment. Demands for the payment of both time and
savings deposits having failed, on March 14, 1984, petitioners filed with the Regional Trial
Court of Pasig a Complaint With Prayer For Issuance of a Writ of Preliminary Attachment for
collection of a sum of money with damages, docketed therein as Civil Case No. 50802
(Record, pp. 3-11).
Respondent Judge, in an Order dated March 19, 1984 (Ibid., p. 19-21), ordered the issuance
of a writ of attachment, and pursuant thereto, a writ of attachment dated March 20, 1984
was issued in favor of the petitioners (Ibid., p. 33).
On June 27, 1984, respondent bank filed its Answer (Ibid., p. 58-61).
On July 23, 1984, petitioners filed a Motion For Judgment on the Pleadings (Ibid., pp. 68-73),
opposed by respondent bank (Ibid., pp. 74-76), but respondent judge, in a Decision dated
November 13, 1984, rendered judgment in favor of petitioners. The dispositive portion of the
said Decision, reads:
IN VIEW OF ALL THE FOREGOING, the Court renders judgment in favor of the plaintiffs,
ordering the defendant to pay the total sum of P939,737.32 plus stipulated interest; the sum
equivalent to 15% of the amount due as attorney's fees; and costs of suit.
The counterclaim is dismissed, for lack of merit.
Meanwhile, on August 10, 1984, the Monetary Board, in its Resolution No. 1009, finding that
the condition of respondent bank was one of insolvency and that its continuance in business
would result in probable loss to its depositors and creditors, decided to place it under
receivership (Rollo, p. 84).
On December 7, 1984, petitioners filed a Motion for Execution Pending Appeal (Rcd., pp. 91-
93), which was opposed by respondent bank (Ibid., p. 94-96). On December 27, 1984,
petitioners filed their Reply to the opposition (Ibid., pp. 98-101), to which respondent bank
filed its Rejoinder on January 1, 1985 (Ibid., pp. 102-105).
In an order dated January 29, 1985, respondent judge ordered the issuance of a writ of
execution (Ibid., p. 106).
On February 11, 1985, respondent bank filed a Motion for Reconsideration of order dated
January 29, 1985 and to Stay Writ of Execution (Ibid., pp. 109-110), opposed by petitioners
(Ibid., p. 111) but in an Order dated March 6, 1985, respondent judge stayed the execution
(Ibid., p. 113).
On August 7, 1985, petitioners filed a Motion to Lift Stay of Execution (Ibid., pp. 119-122),
opposed by respondent bank (Ibid., pp. 123-127), and in an Order dated August 30, 1985,
respondent judge denied the said motion (Ibid., p. 130). Hence, the instant petition (Rollo,
pp. 8-17).
The Second Division of the Court, in a resolution dated May 5, 1986, resolved to require the
respondent to comment (Ibid., p. 52). In compliance therewith, respondent bank filed its
Comment on June 9, 1986 (Ibid., pp. 53-58).
The petition was given due course in a resolution dated August 11, 1986, and the parties
were required to file their respective memoranda (Ibid., p. 61). In compliance therewith,
petitioners filed their Memorandum on September 19, 1986 (Ibid., p. 63-75), while
respondent bank filed its Memorandum on September 25, 1986 (Ibid., pp. 76-83), and the
case was considered submitted for deliberation in the Resolution dated October 8, 1986
(Ibid., p. 88)
Petitioners raised the following issues:
1. Respondent judge cannot legally stay execution of judgement that has already
become final and executory;
2. The placing under receivership by the Central Bank of the respondent bank, long
after the complaint was filed removed it from the application of the doctrine in Re: Central
Bank vs. Morfe (63 SCRA 113);
3. The filing of the complaint for a sum of money With damages against respondent
bank and the subsequent attachment of its property in Pasig, Metro Manila long before the
receivership took place render inapplicable the doctrine laid down by this Honorable
Supreme Court in the said Morfe case;
4. The indefinite stay of execution without a ruling as to how long it will last, amounts to
deprivation of petitioners of their property without due process of law.
The instant petition is without merit.
I.
The main issue in this case is whether or not respondent judge could legally stay execution
of judgment that has already become final and executory.
The answer is in the affirmative.
The rule that once a decision becomes final and executory, it is the ministerial duty of the
court to order its execution, admits of certain exceptions as in cases of special and
exceptional nature where it becomes imperative in the higher interest of justice to direct the
suspension of its execution (Vecine vs. Geronimo, 59 O.G. 579); whenever it is necessary to
accomplish the aims of justice (Pascual vs. Tan, 85 Phil. 164); or when certain facts and
circumstances transpired after the judgment became final which could render the execution
of the judgment unjust (Cabrias vs. Adil, 135 SCRA 354).
In the instant case, the stay of the execution of judgment is warranted by the fact that
respondent bank was placed under receivership. To execute the judgment would unduly
deplete the assets of respondent bank to the obvious prejudice of other depositors and
creditors, since, as aptly stated in Central Bank of the Philippines vs. Morfe (63 SCRA 114),
after the Monetary Board has declared that a bank is insolvent and has ordered it to cease
operations, the Board becomes the trustee of its assets for the equal benefit of all the
creditors, including depositors. The assets of the insolvent banking institution are held in
trust for the equal benefit of all creditors, and after its insolvency, one cannot obtain an
advantage or a preference over another by an attachment, execution or otherwise.
Moreover, it will be noted that respondent bank was placed under receivership on August 10,
1984, and the Decision of respondent judge is dated November 13, 1984. Accordingly, in line
with the ruling in the aforesaid Morfe case, which reads:
The circumstance that the Fidelity Savings Bank, having stopped operations since February
19, 1969, was forbidden to do business (and that ban would include the payment of time
deposits) implies that suits for the payment of such deposits were prohibited. What was
directly prohibited should not be encompassed indirectly. ...
petitioners 'complaint should have been dismissed.
II.
It is the contention of petitioners, however, that the placing under receivership of

respondent bank long after the filing of the complaint removed it from the doctrine in the
said Morfe case.
This contention is untenable. The time of the filing of the complaint is immaterial. It is the
execution that win obviously prejudice the other depositors and creditors. Moreover, as
stated in the said Morfe case, the effect of the judgment is only to fix the amount of the
debt, and not give priority over other depositors and creditors.
III.
Anent the contention of petitioners that the attachment of one of the properties of
respondent bank was erased by virtue of the delayed receivership is to expand the power of
the Central Bank, Suffice it to say that in the case of Central Bank of the Philippines, et al.
vs. Court of Appeals, et al. (Resolution of this Court dated September 17, 1984 in G.R. No.
33302), wherein the original plaintiff Algue Inc. was able to obtain a writ of preliminary
attachment against the original defendant Island Savings Bank, this Court refused to
recognize any preference resulting from such attachment and ruled that after a declaration
of insolvency, the remedy of the depositors is to intervene in the liquidation proceedings.
IV.
It is also contended by the petitioners that the indefinite stay of execution without ruling as
to how long it will last, amounts to a deprivation of their property without due process of law.
Said contention, likewise, is devoid of merit. Apart from the fact that the stay of execution is
not only in accordance with law but is also supported by jurisprudence, such staying of
execution is not without a time limit. In fact, the Monetary Board, in its resolution No. 4-33
approved the liquidation of respondent bank on April 26, 1985 and ordered, among others,
the filing of a petition in the Regional Trial Court praying for assistance of said court in the
liquidation of the bank. (Rollo, p. 81). The staying of the writ of execution will be lifted after
approval by the liquidation court of the project of distribution, and the liquidator or his
deputy will authorize payments to all claimants concerned in accordance with the approved
project of distribution.
PREMISES CONSIDERED, the instant petition is hereby DISMISSED.

SO ORDERED.
Yap (Chairman), Melencio-Herrera, Padilla and Sarmiento, JJ., concur.

VIVAS VS MONETARY BOARD OF BSP
THIRD DIVISION
ALFEO D. VIVAS, on his
behalf and on behalf of the
Shareholders of
EUROCREDIT
COMMUNITY BANK,
Petitioner,
-versus-
THE MONETARY BOARD
OF THE BANGKO
SENTRAL NG PILIPINAS
and the PHILIPPINE
G.R. No. 191424
Present:
VELASCO, JR., J., Chairperson,
PERALTA,
ABAD,
MENDOZA, and
LEONEN,JJ.
DEPOSIT INSURANCE Promulgated:
CORPORATION,
Respondents. ') U 7 2013
X -------------------------------------------------------------------~~------X
DECISION
MENDOZA, J.:
This is a petition for prohibition with prayer for the issuance of a
status quo ante order or writ of preliminary injunction ordering the
respondents to desist from closing EuroCredit Community Bank,
Incorporated (ECBI) and from pursuing the receivership thereof. The
petition likewise prays that the management and operation of ECBI be restored to its Board
of Directors (BOD) and its officers.
The Facts
The Rural Bank of Faire, Incorporated (RBFI) was a duly registered
rural banking institution with principal office in Centro Sur, Sto. Nifio,
Cagayan. Record shows that the corporate life of RBFI expired on May 31,
2005. 1 Notwithstanding, petitioner Alfeo D. Vivas (Vivas) and his principals
acquired the controlling interest in RBFI sometime in January 2006. At the initiative of Vivas
and the new management team, an internal audit was conducted on RBFI and results
thereof highlighted the dismal operation of the rural bank. In view of those findings, certain
measures calculated to revitalize the bank were allegedly introduced.2 On December 8,
2006, the Bangko Sentral ng Pilipinas (BSP) issued the Certificate of Authority
extending the corporate life of RBFI for another fifty (50) years. The BSP
also approved the change of its corporate name to EuroCredit Community
Bank, Incorporated, as well as the increase in the number of the members of
its BOD, from five (5) to eleven (11).3
Pursuant to Section 28 of Republic Act (R.A.) No. 7653, otherwise
known as The New Central Bank Act, the Integrated Supervision
Department II (ISD II) of the BSP conducted a general examination on ECBI
with the cut-off date of December 31, 2007. Shortly after the completion ofthe general
examination, an exit conference was held on March 27, 2008 atthe BSP during which the BSP
officials and examiners apprised Vivas, the Chairman and President of ECBI, as well as the
other bank officers and members of its BOD, of the advance findings noted during the said
examination. The ECBI submitted its comments on BSPs consolidated findings and risk asset
classification through a letter, dated April 8, 2008.4 Sometime in April 2008, the examiners
from the Department of Loansand Credit of the BSP arrived at the ECBI and cancelled the
rediscounting line of the bank. Vivas appealed the cancellation to BSP.5 Thereafter,
theMonetary Board (MB) issued Resolution No. 1255, dated September 25, 2008, placing
ECBI under Prompt Corrective Action (PCA) frameworkbecause of the following serious
findings and supervisory concerns noted during the general examination: 1] negative capital
of 14.674 million and capital adequacy ratio of negative 18.42%; 2] CAMEL (Capital Asset
Management Earnings Liquidity) composite rating of 2 with a Management component
rating of 1; and 3] serious supervisory concerns particularly on activities deemed unsafe
or unsound.6 Vivas claimed that the
BSP took the above courses of action due to the joint influence exerted by a certain hostile
shareholder and a former BSP examiner.7 Through its letter, dated September 30, 2008, the
BSP furnished ECBI with a copy of the Report of Examination (ROE) as of December 31,
2007.
In addition, the BSP directed the banks BOD and senior management to: 1] infuse fresh
capital of 22.643 million; 2] book the amount of 28.563 million representing unbooked
valuation reserves on classified loans and
2 Id. at 8-11.
3 Id. at 115.
4 Id. at 116.
5 Id. at 12.
6 Id. at 181.
7 Id. at 13.
DECISION 3 G.R. No. 191424

other risks assets on or before October 31, 2008; and 3] take appropriateaction necessary to
address the violations/exceptions noted in the examination.8
Vivas moved for a reconsideration of Resolution No. 1255 on the
grounds of non-observance of due process and arbitrariness. The ISD II, on several
instances, had invited the BOD of ECBI to discuss matters pertaining to the placement of the
bank under PCA framework and other supervisory
concerns before making the appropriate recommendations to the MB. The
proposed meeting, however, did not materialize due to postponements
sought by Vivas.9
In its letter, dated February 20, 2009, the BSP directed ECBI to
explain why it transferred the majority shares of RBFI without securing the
prior approval of the MB in apparent violation of Subsection X126.2 of the
Manual of Regulation for Banks (MORB).10 Still in another letter,11 dated
March 31, 2009, the ISD II required ECBI to explain why it did not obtain
the prior approval of the BSP anent the establishment and operation of the
banks sub-offices.
Also, the scheduled March 31, 2009 general examination of the
books, records and general condition of ECBI with the cut-off date of
December 31, 2008, did not push through. According to Vivas, ECBI asked
for the deferment of the examination pending resolution of its appeal before
the MB. Vivas believed that he was being treated unfairly because the letter
of authority to examine allegedly contained a clause which pertained to the
Anti-Money Laundering Law and the Bank Secrecy Act.12
The MB, on the other hand, posited that ECBI unjustly refused to
allow the BSP examiners from examining and inspecting its books and
records, in violation of Sections 25 and 34 of R.A. No. 7653. In its letter,13
dated May 8, 2009, the BSP informed ECBI that it was already due for
another annual examination and that the pendency of its appeal before the
MB would not prevent the BSP from conducting another one as mandated
by Section 28 of R.A. No. 7653.
8 Id. at 117-118.
9 Id. at 236-241.
10 Id. at 119-120.
11 Id. at 262.
12 Id. at 14.
13 Id. at 263.
In view of ECBIs refusal to comply with the required examination,
the MB issued Resolution No. 726,14 dated May 14, 2009, imposing
monetary penalty/fine on ECBI, and referred the matter to the Office of the
Special Investigation (OSI) for the filing of appropriate legal action. The
BSP also wrote a letter,15 dated May 26, 2009, advising ECBI to comply
with MB Resolution No. 771, which essentially required the bank to follow
its directives. On May 28, 2009, the ISD II reiterated its demand upon the
ECBI BOD to allow the BSP examiners to conduct a general examination on
June 3, 2009.16
In its June 2, 2009 Letter-Reply,17 ECBI asked for another deferment
of the examination due to the pendency of certain unresolved issues subject
of its appeal before the MB, and because Vivas was then out of the country.
The ISD II denied ECBIs request and ordered the general examination to
proceed as previously scheduled.18
Thereafter, the MB issued Resolution No. 823,19 dated June 4, 2009,
approving the issuance of a cease and desist order against ECBI, which
enjoined it from pursuing certain acts and transactions that were considered
unsafe or unsound banking practices, and from doing such other acts or
transactions constituting fraud or might result in the dissipation of its assets.
On June 10, 2009, the OSI filed with the Department of Justice (DOJ)
a complaint for Estafa Through Falsification of Commercial Documents
against certain officials and employees of ECBI. Meanwhile, the MB issued
Resolution No. 1164,20 dated August 13, 2009, denying the appeal of ECBI
from Resolution No. 1255 which placed it under PCA framework. On
November 18, 2009, the general examination of the books and records of
ECBI with the cut-off date of September 30, 2009, was commenced and
ended in December 2009. Later, the BSP officials and examiners met with
the representatives of ECBI, including Vivas, and discussed their findings.21
On December 7, 2009, the ISD II reminded ECBI of the non-submission of
its financial audit reports for the years 2007 and 2008 with a warning that
failure to submit those reports and the written explanation for such omission
shall result in the imposition of a monetary penalty.22 In a letter, dated
February 1, 2010, the ISD II informed ECBI of MB Resolution No. 1548
which denied its request for reconsideration of Resolution No. 726.
14 Id. at 265.
15 Id. at 267-268.
16 Id. at 271.
17 Id. at 272.
18 Id. at 273.
19 Id. at 275-277.
20 Id. at 282.
21 Id. at 125.
22 Id. at 283.
On March 4, 2010, the MB issued Resolution No. 27623 placing ECBI
under receivership in accordance with the recommendation of the ISD II
which reads:
On the basis of the examination findings as of 30 September
2009 as reported by the Integrated Supervision Department (ISD)
II, in its memorandum dated 17 February 2010, which findings
showed that the Eurocredit Community Bank, Inc. a Rural Bank
(Eurocredit Bank) (a) is unable to pay its liabilities as they become
due in the ordinary course of business; (b) has insufficient realizable
assets to meet liabilities; (c) cannot continue in business without
involving probable losses to its depositors and creditors; and (d) has
willfully violated a cease and desist order of the Monetary Board for
acts or transactions which are considered unsafe and unsound
banking practices and other acts or transactions constituting fraud
or dissipation of the assets of the institution, and considering the
failure of the Board of Directors/management of Eurocredit Bank to
restore the banks financial health and viability despite considerable
time given to address the banks financial problems, and that the
bank had been accorded due process, the Board, in accordance with
Section 30 of Republic Act No. 7653 (The New Central Bank Act),
approved the recommendation of ISD II as follows:
1. To prohibit the Eurocredit Bank from doing
business in the Philippines and to place its assets
and affairs under receivership; and
2. To designate the Philippine Deposit Insurance
Corporation as Receiver of the bank.
Assailing MB Resolution No. 276, Vivas filed this petition for
prohibition before this Court, ascribing grave abuse of discretion to the MB
for prohibiting ECBI from continuing its banking business and for placing it
under receivership. The petitioner presents the following
ARGUMENTS:
(a) It is grave abuse of discretion amounting to loss of
jurisdiction to apply the general law embodied in
Section 30 of the New Central Bank Act as opposed to
the specific law embodied in Sections 11 and 14 of the
Rural Banks Act of 1992.
23 Id. at 50.
(b) Even if it assumed that Section 30 of the New Central
Bank Act is applicable, it is still the gravest abuse of
discretion amounting to lack or excess of jurisdiction
to execute the law with manifest arbitrariness, abuse
of discretion, and bad faith, violation of constitutional
rights and to further execute a mandate well in excess
of its parameters.
(c) The power delegated in favor of the Bangko Sentral
ng Pilipinas to place rural banks under receiverships
is unconstitutional for being a diminution or invasion
of the powers of the Supreme Court, in violation of
Section 2, Article VIII of the Philippine
Constitution.24
Vivas submits that the respondents committed grave abuse of
discretion when they erroneously applied Section 30 of R.A. No. 7653,
instead of Sections 11 and 14 of the Rural Bank Act of 1992 or R.A. No.
7353. He argues that despite the deficiencies, inadequacies and oversights in
the conduct of the affairs of ECBI, it has not committed any financial fraud
and, hence, its placement under receivership was unwarranted and improper.
He posits that, instead, the BSP should have taken over the management of
ECBI and extended loans to the financially distrained bank pursuant to
Sections 11 and 14 of R.A. No. 7353 because the BSPs power is limited
only to supervision and management take-over of banks.
He contends that the implementation of the questioned resolution was
tainted with arbitrariness and bad faith, stressing that ECBI was placed
under receivership without due and prior hearing in violation of his and the
banks right to due process. He adds that respondent PDIC actually closed
ECBI even in the absence of any directive to this effect. Lastly, Vivas assails
the constitutionality of Section 30 of R.A. No. 7653 claiming that said
provision vested upon the BSP the unbridled power to close and place under
receivership a hapless rural bank instead of aiding its financial needs. He is
of the view that such power goes way beyond its constitutional limitation
and has transformed the BSP to a sovereign in its own kingdom of
banks.25
The Courts Ruling
The petition must fail.
24 Id. at 17-18.
25 Id. at 37.
Vivas Availed of the
Wrong Remedy
To begin with, Vivas availed of the wrong remedy. The MB issued
Resolution No. 276, dated March 4, 2010, in the exercise of its power under
R.A. No. 7653. Under Section 30 thereof, any act of the MB placing a bank
under conservatorship, receivership or liquidation may not be restrained or
set aside except on a petition for certiorari. Pertinent portions of R.A. 7653
read:
Section 30.
x x x x.
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.
x x x x. [Emphases supplied]
Prohibition is already
unavailing
Granting that a petition for prohibition is allowed, it is already an
ineffective remedy under the circumstances obtaining. Prohibition or a writ
of prohibition is that process by which a superior court prevents inferior
courts, tribunals, officers, or persons from usurping or exercising a
jurisdiction with which they have not been vested by law, and confines them
to the exercise of those powers legally conferred. Its office is to restrain
subordinate courts, tribunals or persons from exercising jurisdiction over
matters not within its cognizance or exceeding its jurisdiction in matters of
which it has cognizance.26 In our jurisdiction, the rule on prohibition is
enshrined in Section 2, Rule 65 of the Rules on Civil Procedure, to wit:
Sec. 2. Petition for prohibition - When the proceedings of any
tribunal, corporation, board, officer or person, whether exercising
judicial, quasi-judicial or ministerial functions, are without or in
excess of its or his jurisdiction, or with grave abuse of discretion
amounting to lack or excess of jurisdiction, and there is no appeal
26 City Engineer of Baguio v. Baniqued, G.R. No. 150270, November 26, 2008, 57 SCRA 617,
625.
or any other plain, speedy, and adequate remedy in the ordinary
course of law, a person aggrieved thereby may file a verified petition
in the proper court, alleging the facts with certainty and praying
that the judgment be rendered commanding the respondent to
desist from further proceedings in the action or matter specified
therein, or otherwise granting such incidental reliefs as the law and
justice require.
x x x x.
Indeed, prohibition is a preventive remedy seeking that a judgment be
rendered which would direct the defendant to desist from continuing with
the commission of an act perceived to be illegal.27 As a rule, the proper
function of a writ of prohibition is to prevent the doing of an act which is
about to be done. It is not intended to provide a remedy for acts already
accomplished.28
Though couched in imprecise terms, this petition for prohibition
apparently seeks to prevent the acts of closing of ECBI and placing it under
receivership. Resolution No. 276, however, had already been issued by the
MB and the closure of ECBI and its placement under receivership by the
PDIC were already accomplished. Apparently, the remedy of prohibition is
no longer appropriate. Settled is the rule that prohibition does not lie to
restrain an act that is already a fait accompli.29
The Petition Should Have
Been Filed in the CA
Even if treated as a petition for certiorari, the petition should have
been filed with the CA. Section 4 of Rule 65 reads:
Section 4. When and where petition filed. The petition shall
be filed not later than sixty (60) days from notice of the judgment,
order or resolution. In case a motion for reconsideration or new
trial is timely filed, whether such motion is required or not, the
sixty (60) day period shall be counted from notice of the denial of
said motion.
The petition shall be filed in the Supreme Court or, if it relates
to the acts or omissions of a lower court or of a corporation, board,
officer or person, in the Regional Trial Court exercising jurisdiction
over the territorial area as defined by the Supreme Court. It may
also be filed in the Court of Appeals whether or not the same is in
aid of its appellate jurisdiction, or in the Sandiganbayan if it is in
27 Guerrero v. Domingo, G.R. No. 156142, March 23, 2011, 646 SCRA 175, 180.
28 Cabanero v. Torres, 61 Phil, 522 (1935); Agustin v. De la Fuente, 84 Phil 525 (1949);
Navarro v.
Lardizabal, 134 Phil. 331 (1968); Heirs of Eugenia V. Roxas, Inc. v. Intermediate Appellate
Court, 255 Phil
558 (1989).
29 Montes v. Court of Appeals, 523 Phil 98, 110 (2006).
aid of its appellate jurisdiction. If it involves the acts or omissions of
a quasi-judicial agency, unless otherwise provided by law or these
Rules, the petition shall be filed in and cognizable only by the Court
of Appeals. [Emphases supplied]
That the MB is a quasi-judicial agency was already settled and
reiterated in the case of Bank of Commerce v. Planters Development Bank
And Bangko Sentral Ng Pilipinas.30
Doctrine of Hierarchy of Courts
Even in the absence of such provision, the petition is also dismissible
because it simply ignored the doctrine of hierarchy of courts. True, the
Court, the CA and the RTC have original concurrent jurisdiction to issue
writs of certiorari, prohibition and mandamus. The concurrence of
jurisdiction, however, does not grant the party seeking any of the
extraordinary writs the absolute freedom to file a petition in any court of his
choice. The petitioner has not advanced any special or important reason
which would allow a direct resort to this Court. Under the Rules of Court, a
party may directly appeal to this Court only on pure questions of law.31 In
the case at bench, there are certainly factual issues as Vivas is questioning
the findings of the investigating team.
Strict observance of the policy of judicial hierarchy demands that
where the issuance of the extraordinary writs is also within the competence
of the CA or the RTC, the special action for the obtainment of such writ
must be presented to either court. As a rule, the Court will not entertain
direct resort to it unless the redress desired cannot be obtained in the
appropriate lower courts; or where exceptional and compelling
circumstances, such as cases of national interest and with serious
implications, justify the availment of the extraordinary remedy of writ of
certiorari, prohibition, or mandamus calling for the exercise of its primary
jurisdiction.32 The judicial policy must be observed to prevent an imposition
on the precious time and attention of the Court.
30 G.R. Nos. 154470-71, September 24, 2012 , 681 SCRA 521, 555 (citing United Coconut
Planters Bank
v. E. Ganzon, Inc., G.R. No. 168859, June 30, 2009, 591 SCRA 321, 338-341).
31 Philippine Veterans Bank v. Benjamin Monillas, 573 Phil 298, 315 (2008).
32 Springfield Development Corp., Inc. v. Hon. Presiding Judge of RTC, Branch 40., Cagayan
de Oro City,
Misamis Oriental, 543 Phil. 298, 315 (2007).
DECISION 1 0 G.R. No. 191424
The MB Committed No
Grave Abuse of Discretion
In any event, no grave abuse of discretion can be attributed to the MB
for the issuance of the assailed Resolution No. 276.
Vivas insists that the circumstances of the case warrant the application
of Section 11 of R.A. No. 7353, which provides:
Sec. 11. The power to supervise the operation of any rural
bank by the Monetary Board as herein indicated shall consist in
placing limits to the maximum credit allowed to any individual
borrower; in prescribing the interest rate, in determining the loan
period and loan procedures, in indicating the manner in which
technical assistance shall be extended to rural banks, in imposing a
uniform accounting system and manner of keeping the accounts
and records of rural banks; in instituting periodic surveys of loan
and lending procedures, audits, test-check of cash and other
transactions of the rural banks; in conducting training courses for
personnel of rural banks; and, in general, in supervising the
business operations of the rural banks.
The Central Bank shall have the power to enforce the laws,
orders, instructions, rules and regulations promulgated by the
Monetary Board, applicable to rural banks; to require rural banks,
their directors, officers and agents to conduct and manage the
affairs of the rural banks in a lawful and orderly manner; and, upon
proof that the rural bank or its Board of Directors, or officers are
conducting and managing the affairs of the bank in a manner
contrary to laws, orders, instructions, rules and regulations
promulgated by the Monetary Board or in a manner substantially
prejudicial to the interest of the Government, depositors or
creditors, to take over the management of such bank when
specifically authorized to do so by the Monetary Board after due
hearing process until a new board of directors and officers are
elected and qualified without prejudice to the prosecution of the
persons responsible for such violations under the provisions of
Sections 32, 33 and 34 of Republic Act No. 265, as amended.
x x x x.
The thrust of Vivas argument is that ECBI did not commit any
financial fraud and, hence, its placement under receivership was
unwarranted and improper. He asserts that, instead, the BSP should have
taken over the management of ECBI and extended loans to the financially
distrained bank pursuant to Sections 11 and 14 of R.A. No. 7353 because the
BSPs power is limited only to supervision and management take-over of
banks, and not receivership.
Vivas argues that implementation of the questioned resolution was
tainted with arbitrariness and bad faith, stressing that ECBI was placed
under receivership without due and prior hearing, invoking Section 11 of
R.A. No. 7353 which states that the BSP may take over the management of a
rural bank after due hearing.33 He adds that because R.A. No. 7353 is a
special law, the same should prevail over R.A. No. 7653 which is a general
law.
The Court has taken this into account, but it appears from all over the
records that ECBI was given every opportunity to be heard and improve on
its financial standing. The records disclose that BSP officials and examiners
met with the representatives of ECBI, including Vivas, and discussed their
findings.34 There were also reminders that ECBI submit its financial audit
reports for the years 2007 and 2008 with a warning that failure to submit
them and a written explanation of such omission shall result in the
imposition of a monetary penalty.35 More importantly, ECBI was heard on
its motion for reconsideration. For failure of ECBI to comply, the MB came
out with Resolution No. 1548 denying its request for reconsideration of
Resolution No. 726. Having been heard on its motion for reconsideration,
ECBI cannot claim that it was deprived of its right under the Rural Bank
Act.
Close Now, Hear Later
At any rate, if circumstances warrant it, the MB may forbid a bank
from doing business and place it under receivership without prior notice and
hearing. Section 30 of R.A. No. 7653 provides, 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:
33 Section 11. The power to supervise the operation of any rural bank by the Monetary
Board as herein
indicated shall consists in placing limits to the maximum credit allowed to any individual
borrower; in
prescribing the interest rate; in determining the loan period and loan procedures; in
indicating the manner in
which technical assistance shall be extended to rural banks; in imposing a uniform
accounting system and
manner of keeping the accounts and records of rural banks; in instituting periodic surveys of
loan and
lending procedures, audits, test-check of cash and other transactions of the rural banks;
and, in general in
supervising the business operations of the rural banks.
The Central bank shall have the power to enforce the laws, orders, instructions, rules and
regulations promulgated by the Monetary Board applicable to rural banks; to require rural
banks, their
directors, officers and agents to conduct and manage the affairs of the rural banks in a
lawful and orderly
manner, and, upon proof that the rural bank of its Board of Directors, or officers are
conducting and
managing the affairs of the banking in a manner contrary to the laws, orders, instructions,
rules and
regulations promulgated by the Monetary Board or in a manner substantially prejudicial in
the interest of
the Government, depositors or creditors, to take over the management of such bank when
specifically
authorized to do so by the Monetary Board after due hearing process until a new board of
directors and
officers are elected and qualified without prejudice to the prosecution of the persons for
such violations
under the provisions of Sections 32, 33 and 34 of Republic Act No. 265, as amended.
34 Rollo, p. 125.
35 Id. at 283.
(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. [Emphases
supplied.]
x x x x.
Accordingly, there is no conflict which would call for the application
of the doctrine that a special law should prevail over a general law. It must
be emphasized that R.A .No. 7653 is a later law and under said act, the
power of the MB over banks, including rural banks, was increased and
expanded. The Court, in several cases, upheld the power of the MB to take
over banks without need for prior hearing. It is not necessary inasmuch as
the law entrusts to the MB the appreciation and determination of whether
any or all of the statutory grounds for the closure and receivership of the
erring bank are present. The MB, under R.A. No. 7653, has been invested
with more power of closure and placement of a bank under receivership for
insolvency or illiquidity, or because the banks continuance in business
would probably result in the loss to depositors or creditors. In the case of
Bangko Sentral Ng Pilipinas Monetary Board v. Hon. Antonio-Valenzuela,36
the Court reiterated the doctrine of close now, hear later, stating that it was
justified as a measure for the protection of the public interest. Thus:
The "close now, hear later doctrine has already been
justified as a measure for the protection of the public interest. Swift
action is called for on the part of the BSP when it finds that a bank
is in dire straits. Unless adequate and determined efforts are taken
by the government against distressed and mismanaged banks,
public faith in the banking system is certain to deteriorate to the
prejudice of the national economy itself, not to mention the losses
36 G.R. No. 184778, October 2, 2009, 602 SCRA 698.
suffered by the bank depositors, creditors, and stockholders, who
all deserve the protection of the government.37 [Emphasis supplied]
In Rural Bank of Buhi, Inc. v. Court of Appeals,38 the Court also wrote
that
x x x 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.39
The doctrine is founded on practical and legal considerations to
obviate unwarranted dissipation of the banks assets and as a valid exercise of police power
to protect the depositors, creditors, stockholders, and the general public.40 Swift, adequate
and determined actions must be taken against financially distressed and mismanaged banks
by government
agencies lest the public faith in the banking system deteriorate to the prejudice of the
national economy.
Accordingly, the MB can immediately implement its resolution
prohibiting a banking institution to do business in the Philippines and, thereafter, appoint the
PDIC as receiver. The procedure for the involuntary closure of a bank is summary and
expeditious in nature. Such action of the
MB shall be final and executory, but may be later subjected to a judicial scrutiny via a
petition for certiorari to be filed by the stockholders of record of the bank representing a
majority of the capital stock. Obviously, this procedure is designed to protect the interest of
all concerned, that is, the depositors, creditors and stockholders, the bank itself and the
general public.
The protection afforded public interest warrants the exercise of a summary closure.
In the case at bench, the ISD II submitted its memorandum, dated
February 17, 2010, containing the findings noted during the general
examination conducted on ECBI with the cut-off date of September 30, 2009. The
memorandum underscored the inability of ECBI to pay its liabilities as they would fall due in
the usual course of its business, its liabilities being in excess of the assets held. Also, it was
noted that ECBIs
continued banking operation would most probably result in the incurrence of
additional losses to the prejudice of its depositors and creditors. On top of
37 Id. at 721.
38 245 Phil. 263 (1988).
39 Id. at 278.
40 Bangko Sentral ng Pilipinas Monetary Board v. Antonio-Valenzuela, G.R. No. 184778,
October 2, 2009,
602 SCRA 698.
these, it was found that ECBI had willfully violated the cease-and-desist
order of the MB issued in its June 24, 2009 Resolution, and had disregarded
the BSP rules and directives. For said reasons, the MB was forced to issue
the assailed Resolution No. 276 placing ECBI under receivership. In
addition, the MB stressed that it accorded ECBI ample time and opportunity
to address its monetary problem and to restore and improve its financial
health and viability but it failed to do so.
In light of the circumstances obtaining in this case, the application of
the corrective measures enunciated in Section 30 of R.A. No. 7653 was
proper and justified. Management take-over under Section 11 of R.A. No.
7353 was no longer feasible considering the financial quagmire that
engulfed ECBI showing serious conditions of insolvency and illiquidity.
Besides, placing ECBI under receivership would effectively put a stop to the
further draining of its assets.
No Undue Delegation
of Legislative Power
Lastly, the petitioner challenges the constitutionality of Section 30 of
R.A. No. 7653, as the legislature granted the MB a broad and unrestrained power to close
and place a financially troubled bank under receivership. He claims that the said provision
was an undue delegation of legislative power.
The contention deserves scant consideration.
Preliminarily, Vivas attempt to assail the constitutionality of Section
30 of R.A. No. 7653 constitutes collateral attack on the said provision of law. Nothing is more
settled than the rule that the constitutionality of a statute cannot be collaterally attacked as
constitutionality issues must be pleaded directly and not collaterally.41 A collateral attack on
a presumably valid law is not permissible. Unless a law or rule is annulled in a direct
proceeding, the legal presumption of its validity stands.42
Be that as it may, there is no violation of the non-delegation of legislative power. The
rationale for the constitutional proscription is that legislative discretion as to the
substantive contents of the law cannot be delegated. What can be delegated is the
discretion to determine how the law may be enforced, not what the law shall be. The
ascertainment of the latter 41 Gutierrez v. Department of Budget and Management, G.R. No.
153266, March 18, 2010, 616 SCRA 1,25.
42 Dasmarias Water District v. Leonardo-De Castro, G.R. No. 175550, September 17, 2008,
565 SCRA 624, 637.
DECISION 15 G.R. No. 191424 subject is a prerogative of the legislature. This prerogative
cannot be abdicated or surrendered by the legislature to the delegate."43
"There are two accepted tests to determine whether or not there is a valid delegation of
legislative power, viz, the completeness test and the sufficient standard test. Under the first
test, the law must be complete in all its terms and conditions when it leaves the legislature
such that when it reaches the delegate the only thing he will have to do is enforce it. Under
the sufficient standard test, there must be adequate guidelines or stations in the
law to map out the boundaries of the delegate's authority and prevent thedelegation from
running riot. Both tests are intended to prevent a total transference of legislative authority
to the delegate, who is not allowed to step into the shoes of the legislature and exercise a
power essentiallylegislative. "44
In this case, under the two tests, there was no undue delegation of
legislative authority in the issuance of R.A. No. 7653. To address the
growing concerns in the banking industry, the legislature has sufficiently empowered the MB
to effectively monitor and supervise banks and financial institutions and, if circumstances
warrant, to forbid them to do business, to take over their management or to place them
under receivership. The legislature has clearly spelled out the reasonable parameters of the
power entrusted to the MB and assigned to it only the manner of enforcing saidpower. In
other words, the MB was given a wide discretion and latitude only as to how the law should
be implemented in order to attain its objective of protecting the interest of the public, the
banking industry and the economy.
WHEREFORE, the petition for prohibition is DENIED.
SO ORDERED.
RURAL BANK VS MONETARY BOARD
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, 1999 As of Dec. 31, 1999

Total obligations/
Liabilities P1,076,863,000.00 1,009,898,000.00
Realizable Assets 898,588,000.00 796,930,000.00
Deficit 178,275,000.00 212,968,000.00
Cash on Hand 101,441.547.00 8,266,450.00
Required 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.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.

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BUSUEGO V.

ROMEO P. BUSUEGO, CATALINO F. BANEZ and RENATO F. LIM, petitioners,

1. Questionable investment in a multi-million peso real estate project (Pesalaville).

2. Conflict of interest in the conduct of business.

3. Unwarranted declaration and payment of dividends.

4. Commission of unsound and unsafe business practices.

2. To require the board of directors of PESALA to immediately inform the members of

6. To require PESALA to enforce collection of the overpayment to the Vista Grande

8. To require the board of directors of PESALA to improve the operations of the

xxx xxx xxx

On January 26, 1989, the said court issued. a temporary restraining

The petition poses as issues for resolution:

WHETHER OR NOT THE RESPONDENT BOARD IS LEGALLY BOUND TO OBSERVE THE

With respect to the first issue, the trial court said:

The evidence submitted Preponderates in favor of petitioners. The deprivation of petitioners'

2. The tribunal must consider the evidence presented;

3. The decision must have something to support itself;

4. The evidence must be substantial;

xxx xxx xxx

xxx xxx xxx

xxx xxx xxx (emphasis supplied)

xxx xxx xxx

xxx xxx xxx

xxx xxx xxx

xxx xxx xxx

Romero, Vitug, Panganiban and Gonzaga-Reyes, JJ., concur.

June 19, 2009

G.R. No. 168332

10.3 Receivership and Creation of a Management Committee pursuant to:

(a) Rule 59 of the 1997 Rules of Civil Procedure (Rules);

(b) Section 5.2 of R.A. No. 8799;

(c) Rule 1, Section 1(a)(1) of the Interim Rules;

(d) Rule 1, Section 1(a)(2) of the Interim Rules;

(e) Rule 7 of the Interim Rules;

(f) Rule 9 of the Interim Rules; and

G.R. No. 169053

Arcenas, et al. assign the following errors:

I. THE COURT OF APPEALS, IN FINDING NO GRAVE ABUSE OF DISCRETION

II. THE FINDING OF THE COURT OF APPEALS OF NO GRAVE ABUSE OF DISCRETION

Initially, we will discuss the procedural issue.

This contention deserves scant consideration.

We now discuss the substantive issues in this case.

Accordingly, there is no necessity to restrain the implementation of the writ of preliminary

A reexamination of the Complaint is in order.

Korugas Complaint charged defendants with violation of Sections 31 to 34 of the Corporation

Specifically, the BSPs supervisory and regulatory powers include:

4.6 Enforcing prompt corrective action.[25]

The Monetary Board shall define the term related interests.

Furthermore, the authority to determine whether a bank is conducting business in an unsafe

SECTION 56. Conducting Business in an Unsafe or Unsound Manner. In determining whether

(b) suspension of rediscounting privileges or access to Bangko Sentral credit facilities;

(d) suspension of interbank clearing privileges; and/or

(e) revocation of quasi-banking license.

Sections 31 to 34 of the Corporation Code provide:

Section 29. Appointment of Conservator. - Whenever, on the basis of a report submitted by

G.R. No. 184778

The Ruling of the RTC

The Ruling of the CA

Now we resolve the main petition.

Grounds in Support of Petition

I. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT

A. THE EXCEPTIONS CITED BY PETITIONER JUSTIFIED RESORT TO PETITION FOR

The petition is meritorious.