11 First Philippine International Bank vs. CA AUTHOR: Dadivas, Ma. Louise B.

G.R. No. 115849/January 24, 1996 NOTES: LONG CASE -.-

TOPIC: Banking I did not include the issues on Forum Shopping, Perfection of a
PONENTE: Panganiban, J. Contract, Enforceability of the Contract and Reversible Errors of
Facts.
CASE LAW/ DOCTRINE:
The conservator of a bank’s powers must be related to the preservation of the assets of the bank, the reorganization of the
management thereof and the restoration of its viability. A formal offer of P3.5 Million in cash (by Janolo et. al’s letter) and the
bank's counter-offer is at P5.5 Million for more than 101 hectares on lot basis (Rivera’s letter); Janolo Accepted. Producer (through
conservator Encarnacion) repudiated the authority of Rivera and claimed that his dealings with Janolo et. al particularly his counter-
offer of P5.5 Million are unauthorized or illegal. Producer contended that the conservator has the power to revoke or overrule
actions of the management or the board of directors of a bank, under Section 28-A of Republic Act No. 265. The Court ruled that
Section 28-A merely gives the conservator power to revoke contracts that are under existing law deemed to be defective (void,
voidable, unenforceable or rescissible) Hence, the conservator merely takes the place of a bank's board of directors. In this case,
Encarnacion, who took over from Romey (former Conservator) after the sale was perfected which unilaterally repudiated the
authority of Rivera to make a binding offer AND NOT THE CONTRACT ITSELF.
Emergency Recit:
Demetria and Janolo wanted to purchase the property of Producers Bank through a formal purchase offer to the bank (letter).
FACTS:
1. Producer Bank of the Philippines (Producer) acquired six parcels of land (101 hectare; Sta. Rosa, Laguna). The property
used to be owned by BYME Investment and Development Corporation which had them mortgaged with the bank as
collateral for a loan.
2. Demetrio Demetria and Jose O. Janolo (lawyers) wanted to purchase the property and thus initiated negotiations.
3. 08/30/1987: Janolo et al made a formal purchase offer to the bank through a letter, following the advice of Rivera
(Manager of the Property Management Department of the Producer). This happened during a meeting with the intention
in buying the property.
 A formal offer of P3.5 Million in cash (by Janolo et. al’s letter) and the bank's counter-offer is at P5.5 Million for
more than 101 hectares on lot basis (Rivera’s letter); Janolo Accepted (There was also an allegation as to a 4.2 M
revised counter offer of Janolo but this is irrelevant because the bank only limited its amount to 5.5 M)
4. 05/03/1988: Janolo et. Al made a final demand for compliance by the bank with its obligations under the considered
perfected contract of sale. (The letter drew no response for more than four months)
5. Producer (through conservator Encarnacion) repudiated the authority of Rivera and claimed that his dealings with Janolo
et. al particularly his counter-offer of P5.5 Million are unauthorized or illegal. It justified the refusal of the tenders of
payment and the non-compliance with the obligations under what Janolo considered to be a perfected contract of sale.
6. Janolo et. al filed a suit for specific performance with damages. The transaction had with the bank resulted in a perfected
contract of sale.
7. 03/14/1991: Henry L. Co filed a motion to intervene in the trial court, alleging that as owner of 80% of the Bank's
outstanding shares of stock, he had a substantial interest in resisting the complaint. (DENIED by RTC; it was filed after trial
had already been concluded)
8. CA: Affirmed RTC; In favor of Janolo et. al
9. During the pendency of the action in CA:
10. Carlos Ejercito was substituted in place of Demetria and Janolo, in view of the assignment of the latters' rights in the matter
in litigation
11. 07/11/1992: Henry Co and several other stockholders of the Bank filed a "derivative suit" against Encarnacion, Demetria
and Janolo "to declare any perfected sale of the property as unenforceable and to stop Ejercito from enforcing or
implementing the sale. (RTC Makati)
12. Janolo argued that the Second Case was barred by litis pendentia by virtue of the case then pending in the CA.
13. Producer contended that the conservator has the power to revoke or overrule actions of the management or the board of
directors of a bank, under Section 28-A of Republic Act No. 265 (otherwise known as the Central Bank Act) (See the law;
too long)
ISSUE(S): May the Conservator Revoke the Perfected and Enforceable Contract? (The issue related to Banking I think)
HELD: NO NO NO WAY!
RATIO:
 Procedural Consideration: This issue was raised first time in this petition
 There is absolutely no evidence that the Conservator, at the time the contract was perfected, actually repudiated or
overruled said contract of sale. The Bank's acting conservator at the time, Rodolfo Romey, never objected to the sale of
the property to Demetria and Janolo. What Producers are really referring to is the letter of Conservator Encarnacion, who
 took over from Romey (former Conservator) after the sale was perfected which unilaterally repudiated the authority of
Rivera (NOT THE CONTRACT ITSELF) to make a binding offer and which unarguably came months after the perfection of
the contract. The ff. are the basis:

Inter-Office Memorandum: (addressed to and approved by former Acting Conservator Mr. Andres I. Rustia) Producers
Bank Senior Manager detailed the functions of Property Management Department (PMD) staff and officers. Rivera or any
of his subordinates has no authority, power or right to make any alleged counter-offer.

Sec. 23 and 36 of the Corporation Code and Sec. 28-A of the Central Bank Act: only the Board of Directors/Conservator
may authorize the sale of any property of the corporation/bank. (Rivera was not authorized) What took place were just
preliminary discussions/consultations between him and your clients, which everyone knows cannot bind the Bank's Board
or Conservator.

 The Central Bank law gives vast and far-reaching powers to the conservator of a bank, it must be pointed out that such
powers must be related to the preservation of the assets of the bank, the reorganization of the management thereof and
the restoration of its viability. Such powers cannot extend to the post-facto repudiation of perfected transactions,
otherwise they would infringe against the non-impairment clause of the Constitution
 Section 28-A merely gives the conservator power to revoke contracts that are under existing law deemed to be defective
(void, voidable, unenforceable or rescissible) Hence, the conservator merely takes the place of a bank's board of directors.
(IN THIS CASE, the CONTRACT WAS PERFECTED AND ENFORECEABLE)
 His power is not unilateral and he cannot simply repudiate valid obligations of the Bank. His authority would be only to
bring court actions to assail such contracts as he has already done so in this case.

What is the effect if the Conservator can repudiate perfected contracts?

It will enable a failing bank to become solvent, at the expense of third parties, by simply getting the conservator to
unilaterally revoke all previous dealings which had one way or another or come to be considered unfavorable to the Bank,
yielding nothing to perfected contractual rights nor vested interests of the third parties who had dealt with the Bank.
(CONTRARY TO THE CONSTITUTION AND LAWS)

Perfection of the Contract (Baka relevant as to Rivera’s authority as a bank officer)

 Janolo et. al were dealing with the bank official authorized to entertain offers, to accept offers and to present the offer to
the Committee before which the said official is authorized to discuss information relative to price determination. It being
inherent in his authority, Rivera is the officer from whom official information regarding the price, as determined by the
Committee and approved by the Conservator.
 As advised by Rivera, they made a formal offer stating that they would buy at the price of P3.5 Million in cash. (The letter
was for the attention of Rivera who was tasked to convey and accept such offers)
 Considering an aspect of the official duty of Rivera as some sort of intermediary and considering the discussion of price at
the meeting resulting in a formal offer, there can be no other logical conclusion than that when Rivera informed Janolo et.
al by letter about the bank’s counter-offer, such counter-offer price had been determined by the Past Due Committee and
approved by the Conservator after Rivera had duly presented their offer for discussion by the Committee of such matters
as original loan of borrower, bid price during foreclosure, total claim of the bank, and market value.
 Rivera has apparent or implied authority to act for the Bank in the matter of selling its acquired assets.
 The Bank's repudiation, through Conservator Encarnacion, of Rivera's authority and action, particularly the latter's
counter-offer of P5.5 million, as being "unauthorized and illegal" came only more than 7 months after Janolo' acceptance.
Such delay clearly characterizes the repudiation as nothing more than a last-minute attempt on the Bank's part to get out
of a binding contractual obligation.
 AS TO ENFORCEABILITY: The banks' letter taken together with Janolo’s letter constitute in law a sufficient memorandum
of a perfected contract of sale. (THE CONTRACT WAS PERFECTED AND ALSO ENFORCEABLE)