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THE NEW CENTRAL BANK ACT (R.A. No.

7653) monetary and banking system of the Republic,


not a prosecution agency like the fiscal's office. Being
A. Responsibility and Primary Objective
an artificial person, The CB is limited to its statutory
DAMASO P. PEREZ and REPUBLIC BANK, ETC., powers and the nearest power to which prosecution of
ET AL. vs. MONETARY BOARD, THE violators of banking laws may be attributed is its
SUPERINTENDENT OF BANKS, CENTRAL BANK power to sue and be sued. But this corporate power of
OF THE PHILIPPINES and SECRETARY OF litigation evidently refers to civil cases only.
JUSTICE G.R. No. L-23307, June 30, 1967
Petitioner-appellant Damaso P. Perez, for himself and
The CB and its respondent officials have already done
in a derivative capacity on behalf of the Republic
all they could to cause the prosecution of those
Bank, instituted mandamus proceedings in the CFI
persons denounced by Perez. The cases of the alleged
Manila against the respondents. His object was to
anomalous loans had already been referred by the CB
compel these respondents to prosecute Pablo Roman
to the special prosecutors of the DoJ for criminal
and several other Republic Bank officials for violations
investigation and prosecution. For respondents to do
of the General Banking Act (specifically secs. 76-78
the actual prosecuting themselves, as petitioners
and 83 thereof) and the Central Bank Act, and for
would have it, would be tantamount to an ultra vires
falsification of public or commercial documents in
act already.
connection with certain alleged anomalous loans
amounting to P1,303,400.00 authorized by Roman and
As for the Secretary of Justice, while he may have the
the other bank officials.
power to prosecute through the office of the
Solicitor General criminal cases, yet it is settled
In 1964, the MB of the CB passed a resolution
rule that mandamus will not lie to compel a
granting the request of Republic Bank for credit
prosecuting officer to prosecute a criminal case in
accommodations to cover the unusual withdrawal of
court.
deposits by its depositors in view of the fact that said
Bank was under investigation by the authorities. The
Moreover, it does not appear from the law that only
grant, however, was conditioned upon the execution
the CB or its respondent officials can cause the
by the management and controlling stockholders of
prosecution of alleged violations of banking laws. Said
the Republic Bank of a voting trust agreement in favor
violations constitute a public offense, the prosecution
of a Board of Trustees to be chosen by the latter with
of which is a matter of public interest and hence,
the approval of the CB.
anyone even private individuals can denounce
such violations before the prosecuting authorities.
Pablo Roman and his family, the controlling
Since Perez himself could cause the filing of criminal
stockholders, executed a VTA in favor of a board of
complaints against those allegedly involved in the
trustees composed of former CJ Paras, Miguel
anomalous loans, if any, then he has a plain, adequate
Cuaderno and Felix de la Costa. Subsequently, this
and speedy remedy in the ordinary course of law,
agreement was superseded by another one with the
which makes mandamus against respondents
PNB as the trustee.
improper.

Issue: Does the remedy of mandamus lie to compel ROMEO P. BUSUEGO, CATALINO F. BANEZ and
respondents to prosecute Roman and company? No. RENATO F. LIM, petitioners, vs. THE
HONORABLE COURT OF APPEALS and THE
MONETARY BOARD OF THE CENTRAL BANK OF
THE PHILIPPINES, respondents.
Held: G.R. No. 95326. March 11, 1999, PURISIMA, J.

We rule that petitioners cannot seek by mandamus to Key Doctrine: The Central Bank, through the
compel respondents to prosecute criminally those Monetary Board, is empowered to conduct
alleged violators of the banking laws. Although the investigations and examine the records of savings and
Central Bank and its officials may have the duty under loan associations. If any irregularity is discovered in
the Central Bank Act and the General Banking Act to the process, the Monetary Board may impose
cause the prosecution of those alleged violators, yet appropriate sanctions, such as suspending the
We find nothing in said laws that imposes a clear, offender from holding office or from being employed
specific duty on the former to do the actual with the Central Bank, or placing the names of the
prosecution of the latter. The CB is a government offenders in a watchlist.
corporation created principally to administer the
1
The 16th regular examination of the books and
records of the PAL Employees Savings and Loan Ruling: No.
Association, Inc. ("PESALA") was conducted by a team
of CB examiners headed by Belinda Rodriguez. Petitioners' contentions are untenable. It must be
Following the said examination, several anomalies and remembered that the Central Bank of the Philippines
irregularities committed by the herein petitioners; (now Bangko Sentral ng Pilipinas), through the
PESALA's directors and officers, were uncovered, Monetary Board, is the government agency charged
among which are: with the responsibility of administering the monetary,
banking and credit system of the countryand is
1. Questionable investment In a multi-million peso granted the power of supervision and examination
real estate project (Pesalaville)
over banks and non-bank financial institutions
2. Conflict of interest in the conduct of business performing quasi-banking functions, of which savings
and loan associations, such as PESALA, form part of.
3. Unwarranted declaration and payment of
The special law governing savings and loan
dividends
association is Republic Act No. 3779, as amended,
4. Commission of unsound and unsafe business otherwise known as the "Savings and Loan Association
practices. Act." Said law authorizes the Monetary Board to
conduct regular yearly examinations of the books and
CB Supervision and Examination Section ("SES")
records of savings and loan associations, to suspend, a
Department IV Director Ricardo. F. Lirio sent a letter
savings and loan association for violation of law, to
to the Board of Directors of PESALA inviting them to a
decide any controversy over the obligations and duties
conference, but petitioners did not attend such
of directors and officers, and to take remedial
conference.
measures, among others.
Monetary Board adopted and issued MB
The Central Bank, through the Monetary Board,
Resolution No. 805 the pertinent provisions of which
is empowered to conduct investigations and examine
are as follows:
the records of savings and loan associations. If any
irregularity is discovered in the process, the Monetary
5. To include the names of Mr. Catalino Banez, Board may impose appropriate sanctions, such as
Mr. Romeo Busuego and Mr. Renato Lim in the suspending the offender from holding office or from
Sector's watchlist to prevent them from holding being employed with the Central Bank, or placing the
responsible positions in any institution under names of the offenders in a watchlist.
Central Bank supervision;
The requirement of prior notice is also relaxed
1. To require PESALA to enforce collection of the under Section 28 (c) of RA 3779 as investigations or
overpayment to the Vista Grande Management examinations may be conducted with or without prior
and Development Corporation and to require the notice "but always with fairness and reasonable
accounting of P12.28 million unaccounted and
opportunity for the association or any of its officials to
unremitted bank loan proceeds and P3.9 million
other unsupported cash disbursements from the give their side." As may be gathered from the records,
responsible directors and officers; or to properly the said requirement was properly complied with by
charge these against their respective accounts, if the respondent Monetary Board.
necessary;
We sustain the ruling of the Court of Appeals that
2. To require the board of directors of PESALA to file petitioners' suspension was only preventive in nature
civil and criminal cases against Messrs. Catalino and therefore, no notice or, hearing was necessary.
Banez, Romeo Busuego and Renato Lim for all the Until such time that the petitioners have proved their
misfeasance and malfeasance committed by them, innocence, they may be preventively suspended from
as warranted by the evidence;
holding office so as not to influence the conduct of
investigation, and to prevent the commission of
3. To require the board of directors of PESALA to further irregularities.
improve the operations of the Association, correct
all violations noted, and adopt internal control Neither were petitioners deprived of their lawful
measures to prevent the recurrence of similar
calling as they are free to look for another
incidents
employment so long as the agency or company
Issue: Whether the Monetary Board Resolution No. involved is not subject to Central Bank control and
805 is null and void for being violative of petitioners' supervision. Petitioners can still practise their
profession or engage in business as long as these are
right to due process
not within the ambit of Monetary Board Resolution
2
No. 805. Creation of a Management Committee, pursuant to
Rule 59 of the Rules of Civil Procedure, the Securities
KORUGA vs. ARCENAS ET AL. Regulation Code, the Interim Rules of Procedure
G.R. No. 168332, G.R. No. 169053 June 19, 2009, Governing Intra-Corporate Controversies, the General
NACHURA, J., THIRD DIVISION Banking Law of 2000, and the New Central Bank Act.
She accused the directors and officers of Banco
Doctrine Filipino of engaging in unsafe, unsound, and
It is the Governments responsibility to see to it that fraudulent banking practices, more particularly, acts
the financial interests of those who deal with banks that violate the prohibition on self-dealing.
and banking institutions, as depositors or otherwise, It is clear that the acts complained of pertain to the
are protected. In this country, that task is delegated to conduct of Banco Filipinos banking business. x x x It is
the BSP, which pursuant to its Charter, is authorized the Governments responsibility to see to it that the
to administer the monetary, banking, and credit financial interests of those who deal with banks and
system of the Philippines. It is further authorized to banking institutions, as depositors or otherwise, are
take the necessary steps against any banking protected. In this country, that task is delegated to the
institution if its continued operation would cause BSP, which pursuant to its Charter, is authorized to
prejudice to its depositors, creditors and the general administer the monetary, banking, and credit system
public as well. The law vests in the BSP the of the Philippines. It is further authorized to take the
supervision over operations and activities of banks. necessary steps against any banking institution if its
continued operation would cause prejudice to its
Facts depositors, creditors and the general public as well.
Koruga is a minority stockholder of Banco The law vests in the BSP the supervision over
Filipino Savings and Mortgage Bank. She filed a operations and activities of banks. The New Central
complaint alleging, among others, violation of the Bank Act provides:
Corporation Code which prohibit self-dealing and Section 25. Supervision and
conflicts of interest of directors and officers, violated Examination. -The Bangko Sentral
banking laws prohibiting or limiting DOSRI shall have supervision over, and
transactions, thus, for engaging in unsafe, unsound, conduct periodic or special
and fraudulent banking practices that have examinations of, banking institutions
jeopardized the welfare of the Bank, its shareholders, and quasi-banks, including their
who includes among others, the Petitioner, and subsidiaries and affiliates engaged in
depositors; invoked her right to inspect the allied activities.[24]
corporations records pursuant to Section 74 of the
Corporation Code and prayed for Receivership and Specifically, the BSPs supervisory and regulatory
creation of a Management Committee. In a decision powers include:
dated June 20, 2005, the appellate court directed the
4.1 The issuance of rules of conduct or
trial court to proceed with the hearings, having found
the establishment of standards
no grave abuse of discretion when it accepted the
of operation for uniform
case.
application to all institutions or
Issue functions covered, taking into
consideration the distinctive
Which body has jurisdiction over the Koruga character of the operations of
Complaint, the RTC or the BSP? institutions and the
substantive similarities of
Ruling specific functions to which
We hold that it is the BSP that has jurisdiction over the such rules, modes or standards
case. are to be applied;
x x x this Court finds that the CA erred in upholding
the jurisdiction of, and remanding the case to, the
4.2 The conduct of examination to
RTC.
determine compliance with laws and
Korugas Complaint charged defendants with violation
regulations if the circumstances so
of Sections 31 to 34 of the Corporation Code,
warrant as determined by the Monetary
prohibiting self-dealing and conflict of interest of
Board;
directors and officers; invoked her right to inspect the
corporations records under Sections 74 and 75 of the 4.3 Overseeing to ascertain that laws and
Corporation Code; and prayed for Receivership and Regulations are complied with;

3
4.4 Regular investigation which exposures of directors and its officers. It also allows
shall not be oftener than the Monetary Board to determine whether a bank is
once a year from the last conducting business in an unsafe manner.
date of examination to
determine whether an The New Central Bank Act, on the other hand,
institution is conducting its provides the Monetary Board the power to impose
business on a safe or sound administrative sanctions on the officers and board
basis: Provided, That the members of erring banks. Under the law, it is the
deficiencies/irregularities Monetary Board that exercises exclusive jurisdiction
found by or discovered by an over proceedings for receivership of banks. Thus, the
audit shall be immediately courts jurisdiction could only have been invoked after
addressed; 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
4.5 Inquiring into the solvency and
discretion as to amount to lack or excess of
liquidity of the institution (2-D); or
jurisdiction.
4.6 Enforcing prompt corrective action.
B. Monetary Board Powers and Functions
x x x Her allegations, then, call for the examination of
the allegedly questionable loans. Whether these loans BANGKO SENTRAL NG PILIPINAS MONETARY
are covered by the prohibition on self-dealing is a BOARD and CHUCHI FONACIER v. HON. NINA G.
matter for the BSP to determine. These are not ANTONIO-VALENZUELA, in her capacity as
ordinary intra-corporate matters; rather, they involve Regional Trial Court Judge of Manila, Branch 28;
banking activities which are, by law, regulated and RURAL BANK OF PARAAQUE, INC. et al. G.R.
supervised by the BSP. As the Court has previously No. 184778, October 2, 2009, VELASCO, JR., J.
held: Key Doctrine: Sec. 28 of RA 7653, or the New
Central Bank Act, which governs examinations of
It is well-settled in both law
banking institutions, provides that the ROE shall be
and jurisprudence that the Central
submitted to the MB; the bank examined is not
Monetary Authority, through the
mentioned as a recipient of the ROE. Under the law,
Monetary Board, is vested with
the sanction of closure could be imposed upon a bank
exclusive authority to assess, evaluate
and determine the condition of any by the BSP even without notice and hearing. The
bank, and finding such condition to be apparent lack of procedural due process would not
one of insolvency, or that its result in the invalidity of action by the MB.
continuance in business would involve Facts:
a probable loss to its depositors or
creditors, forbid bank or non-bank The Supervision and Examination Department
financial institution to do business in (SED) of the Bangko Sentral ng Pilipinas (BSP)
the Philippines; and shall designate an conducted examinations of the books of the following
official of the BSP or other competent banks: Rural Bank of Paraaque, Inc. (RBPI), Rural
person as receiver to immediately take Bank of San Jose (Batangas), Inc., Rural Bank of
charge of its assets and liabilities.[27] Carmen (Cebu), Inc., Pilipino Rural Bank, Inc.,
Philippine Countryside Rural Bank, Inc., Rural Bank of
Whenever a bank, quasi-bank or trust entity Calatagan (Batangas), Inc. (now Dynamic Rural Bank),
persists in conducting its business in an Rural Bank of Darbci, Inc., Rural Bank of Kananga
unsafe or unsound manner, the Monetary (Leyte), Inc. (now First Interstate Rural Bank), Rural
Board may, without prejudice to the Bank de Bisayas Minglanilla (now Bank of East Asia),
administrative sanctions provided in Section and San Pablo City Development Bank, Inc.
37 of the New Central Bank Act, take action (Respondent Banks)
under Section 30 of the same Act and/or
immediately exclude the erring bank from
After the examinations, exit conferences were
clearing, the provisions of law to the contrary
held with the officers or representatives of the banks
notwithstanding.
wherein the SED examiners provided them with copies
Note: The General Banking Law, which provides of Lists of Findings/Exceptions containing the
powers to the Monetary Board, restricts the bank deficiencies discovered during the examinations.

4
These banks were then required to comment and to They can point to no provision of law, no section in the
undertake the remedial measures stated in these lists procedures of the BSP that shows that the BSP is
within 30 days from their receipt of the lists, which required to give them copies of the ROEs. Sec. 28 of
remedial measures included the infusion of additional RA 7653, or the New Central Bank Act, which governs
capital. Though the banks claimed that they made the examinations of banking institutions, provides that the
additional capital infusions, petitioner Chuchi ROE shall be submitted to the MB; the bank examined
Fonacier, officer-in-charge of the SED, sent separate is not mentioned as a recipient of the ROE.
letters to the Board of Directors of each bank, The respondent banks cannot claim a violation
informing them that the SED found that the banks of their right to due process if they are not provided
failed to carry out the required remedial measures. with copies of the ROEs. The same ROEs are based on
The banks requested that they be given time to obtain the lists of findings/exceptions containing the
BSP approval to amend their Articles of Incorporation, deficiencies found by the SED examiners when they
that they have an opportunity to seek investors. They examined the books of the respondent banks.
requested as well that the basis for the capital infusion
figures be disclosed, and noted that none of them had Respondent banks are already aware of what
received the Report of Examination (ROE) which is required of them by the BSP, and cannot claim
finalizes the audit findings. They also requested violation of their right to due process simply because
meetings with the BSP audit teams to reconcile audit they are not furnished with copies of the ROEs.
figures. Respondent banks were held by the CA to be entitled
to copies of the ROEs prior to or simultaneously with
The respondent banks filed an action to nullify their submission to the MB, on the principles of
the Report on Examination (ROE) and the issuance of fairness and transparency. The ROEs would then be
restraining order before the RTC contending that their superfluities to the respondent banks, and should not
right to due process was violated as they were not be the basis for a writ of preliminary injunction.
furnished with the said report. Respondent banks also
In granting the writs of preliminary
claim that the imposition of sanctions upon them, the
injunction, the trial court held that the submission of
sanction of closure that the Monetary Board might
the ROEs to the MB before the respondent banks
impose upon the receipt of the ROE will result in
would violate the right to due process of said banks.
irreparable damage to them as well as to the public.
This is erroneous. The requisites for preliminary
RTC ruled that the banks were entitled to the injunctive relief are: (a) the invasion of right sought
writs of preliminary injunction prayed for. It held that to be protected is material and substantial; (b) the
it had been the practice of the SED to provide the right of the complainant is clear and unmistakable;
ROEs to the banks before submission to the MB. It and (c) there is an urgent and paramount necessity for
further held that as the banks are the subjects of the writ to prevent serious damage. These
examinations, they are entitled to copies of the ROEs. requirements are absent in the present case.
The denial by petitioners of the banks requests for
copies of the ROEs was held to be a denial of the The respondent banks cannot through seeking
banks right to due process. CA affirmed RTCs a writ of preliminary injunction by appealing to lack of
decision. By reason of the TRO issued by this Court, due process, in a roundabout manner prevent their
the SED was able to submit their ROEs to the MB. The closure by the MB. Their remedy, as stated, is a
MB then prohibited the respondent banks from subsequent one, which will determine whether the
transacting business and placed them under closure of the bank was attended by grave abuse of
receivership with the Philippine Deposit Insurance discretion. Judicial review enters the picture only after
Corporation as the appointed receiver. Hence, this the MB has taken action; it cannot prevent such action
petition. by the MB. The threat of the imposition of sanctions,
even that of closure, does not violate their right to due
Issue: process, and cannot be the basis for a writ of
preliminary injunction.
Whether or not the respondent banks were
entitled to the copy of the Report on Examination
They have shown no necessity for the writ of
(ROE) made by the BSP before its submission to the
preliminary injunction to prevent serious damage. The
Monetary Board.
serious damage contemplated by the trial court was
Ruling: NO. The respondent banks have failed to the possibility of the imposition of sanctions upon
show that they are entitled to copies of the ROEs. respondent banks, even the sanction of closure. Under

5
the law, the sanction of closure could be imposed upon the amount it released.
a bank by the BSP even without notice and hearing.
The apparent lack of procedural due process would On April 28, 1965, Island Savings Bank,
not result in the invalidity of action by the MB. This approved the loan application for P80,000.00 of
was the ruling in Central Bank of the Philippines v. Sulpicio M. Tolentino, who, as a security for the loan,
Court of Appeals. This close now, hear later scheme is executed on the same day a real estate mortgage over
grounded on practical and legal considerations to his 100-hectare land located in Cubo, Las Nieves,
prevent unwarranted dissipation of the banks assets Agusan, which was annotated on the title the next day.
and as a valid exercise of police power to protect the The approved loan application called for a lump sum
depositors, creditors, stockholders, and the general P80,000.00 loan, repayable in semi-annual
public. The writ of preliminary injunction cannot, thus, installments for a period of 3 years, with 12% annual
prevent the MB from taking action, by preventing the interest. It was required that Sulpicio M. Tolentino
submission of the ROEs and worse, by preventing the shall use the loan proceeds solely as an additional
MB from acting on such ROEs. capital to develop his other property into a
subdivision.
The close now, hear later doctrine has
already been justified as a measure for the protection On May 22, 1965, a mere P17,000.00 partial
of the public interest. Swift action is called for on the release of the P80,000.00 loan was made by the Bank;
part of the BSP when it finds that a bank is in dire and Sulpicio M. Tolentino and his wife Edita Tolentino
straits. Unless adequate and determined efforts are signed a promissory note for P17,000.00 at 12%
taken by the government against distressed and annual interest, payable within 3 years from the date
mismanaged banks, public faith in the banking system of execution of the contract at semi-annual
is certain to deteriorate to the prejudice of the installments of P3,459.00
national economy itself, not to mention the losses
suffered by the bank depositors, creditors, and An advance interest for the P80,000.00 loan
stockholders, who all deserve the protection of the covering a 6-month period amounting to P4,800.00
government. was deducted from the partial release of P17,000.00.
But this pre-deducted interest was refunded to
The respondent banks have failed to show Sulpicio M. Tolentino on July 23, 1965, after being
their entitlement to the writ of preliminary injunction. informed by the Bank that there was no fund yet
It must be emphasized that an application for available for the release of the P63,000.00 balance.
injunctive relief is construed strictly against the The Bank, thru its vice-president and treasurer,
pleader. The respondent banks cannot rely on a simple promised repeatedly the release of the P63,000.00
appeal to procedural due process to prove entitlement. balance.

C. How the BSP handles Banks in Distress


However on August 13, 1965, the Monetary
C.1. Conservatorship Board found out that Island Savings Bank was
suffering from liquidity problems. Thus it issued
Resolution no. 1049 prohibiting the bank from making
CENTRAL BANK OF THE PHILIPPINES and
new loans. On June 14, 1968, Island Savings Bank
ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF
failed to put up the required capital to restore its
THE DEPARTMENT OF COMMERCIAL AND
solvency. Consequently the Monetary Board through
SAVINGS BANK, in his capacity as statutory
Resolution no. 967 prohibited Island Savings Bank
receiver of Island Savings Bank, petitioners, vs.
from doing business in the Philippines and instructed
THE HONORABLE COURT OF APPEALS and
the Acting Superintendent of Banks to take charge of
SULPICIO M. TOLENTINO, respondents.
the assets of Island Savings Bank.
G.R. No. L-45710 October 3, 1985 MAKASIAR,
CJ.:
On August 1, 1968, Island Savings Bank, in
view of non-payment of the P17,000.00 covered by the
Key Doctrine: A bank which approved a loan
promissory note, filed an application for the extra-
application but was able to release only a portion of
judicial foreclosure of the real estate mortgage
the loan because it was prohibited by the Monetary
covering the 100-hectare land of Sulpicio M.
Board from continuing to operate is guilty of breach of
Tolentino; and the sheriff scheduled the auction for
contract and can foreclose the real estate mortgage
January 22, 1969.
executed to secure the loan only up to the extent of

6
On January 20, 1969, Sulpicio M. Tolentino banks for the protection of the public is recognized by
filed a petition with the Court of First Instance of Section 29 of R.A. No. 265, which took effect on June
Agusan for injunction, specific performance or 15, 1948, the validity of which is not in question.
rescission and damages with preliminary injunction,
alleging that since Island Savings Bank failed to The Board Resolution No. 1049 issued on August
deliver the P63,000.00 balance of the P80,000.00 loan, 13,1965 cannot interrupt the default of Island Savings
he is entitled to specific performance by ordering Bank in complying with its obligation of releasing the
Island Savings Bank to deliver the P63,000.00 with P63,000.00 balance because said resolution merely
interest of 12% per annum from April 28, 1965, and if prohibited the Bank from making new loans and
said balance cannot be delivered, to rescind the real investments, and nowhere did it prohibit island
estate mortgage. The trial court decided in favor of Savings Bank from releasing the balance of loan
Island Bank directing Sulpicio M. Tolentino to pay the agreements previously contracted.
Bank P17,000.00 plus legal interest and legal charges
due thereon, and lifting the restraining order so that Since both parties were in default in the performance
the sheriff may proceed with the foreclosure. of their respective reciprocal obligations, that is,
On Appeal the CA modified the decision Island Savings Bank failed to comply with its
affirming the dismissal of Sulpicio M. Tolentino's obligation to furnish the entire loan and Sulpicio M.
petition for specific performance, but it ruled that Tolentino failed to comply with his obligation to pay
Island Savings Bank can neither foreclose the real his P17,000.00 debt within 3 years as stipulated, they
estate mortgage nor collect the P17,000.00. are both liable for damages.

Issue: WON Sulpicio M. Tolentino is liable to pay the Since Island Savings Bank failed to furnish the
P17,000.00 and, can his real estate mortgage be P63,000.00 balance of the P80,000.00 loan, the real
foreclosed to satisfy said amount? estate mortgage of Sulpicio M. Tolentino became
unenforceable to such extent. P63,000.00 is 78.75% of
Ruling: Yes he is liable to pay, however the real estate P80,000.00, hence the real estate mortgage covering
mortgage can only be foreclosed up to the extent of 100 hectares is unenforceable to the extent of
the amount due. 78.75 hectares. The mortgage covering the remainder
of 21.25 hectares subsists as a security for the
When Island Savings Bank and Sulpicio M. Tolentino P17,000.00 debt. 21.25 hectares is more than
entered into an P80,000.00 loan agreement on April sufficient to secure a P17,000.00 debt.
28, 1965, they undertook reciprocal obligations. In
reciprocal obligations, the obligation or promise of CENTRAL BANK OF THE PHILIPPINES and HON.
each party is the consideration for that of the other JOSE B. FERNANDEZ v. HON. COURT OF
and when one party has performed or is ready and APPEALS, RTC JUDGE TEOFILO GUADIZ, JR.,
willing to perform his part of the contract, the other PRODUCERS BANK OF THE PHILIPPINES and
party who has not performed or is not ready and PRODUCERS PROPERTIES, INC. G.R. No. 88353
willing to perform incurs in delay. and G.R. No. 92943 May 8, 1992, DAVIDE, JR., J.
A conservator, once appointed, takes over the
The promise of Sulpicio M. Tolentino to pay was the management of the bank and assumes exclusive
consideration for the obligation of Island Savings Bank powers to oversee every aspect of the bank's
to furnish the P80,000.00 loan. When Sulpicio M. operations and affairs. However, it must be stressed
Tolentino executed a real estate mortgage on April 28, that a bank retains its juridical personality even if
1965, he signified his willingness to pay the placed under conservatorship; it is neither replaced
P80,000.00 loan. From such date, the obligation of nor substituted by the conservator. Hence, the
Island Savings Bank to furnish the P80,000.00 loan approval of the CB is not necessary where the action
accrued. Thus, the Bank's delay in furnishing the was instituted by the bank through the majority of the
entire loan started on April 28, 1965, and lasted for a bank's stockholders. To contend otherwise would be to
period of 3 years or when the Monetary Board of the defeat the rights of such stockholders under the fifth
Central Bank issued Resolution No. 967 on June 14, paragraph of Section 29 of the Central Bank Act.
1968, which prohibited Island Savings Bank from
doing further business. Such prohibition made it It is well-settled that the closure of a bank
legally impossible for Island Savings Bank to furnish may be considered as an exercise of police power. The
the P63,000.00 balance of the P80,000.00 loan. The action of the MB on this matter is final and executory.
power of the Monetary Board to take over insolvent Such exercise may nonetheless be subject to judicial
7
inquiry and can be set aside if found to be in excess of made in bad faith. Respondent Judge issued a
jurisdiction or with such grave abuse of discretion as temporary restraining order and subsequently a writ
to amount to lack or excess of jurisdiction. In this of preliminary injunction. CB filed a motion to dismiss
case, the order of CB placing PBP under but was denied and ruled that the MB resolutions
conservatorship is proper on the ground that there were arbitrarily issued. CB filed a petition for
was neither arbitrariness nor bad faith in the issuance certiorari before the Court of Appeals seeking to annul
of thereof. the orders of the trial court but CA affirmed the said
orders. Hence this petition.

Facts: Issue:

Central Bank (CB) discovered that certain Whether an approval from the CB is necessary
questionable loans extended by Producers Bank of the for the bank to bring action before the court?
Philippines (PBP), totalling approximately P300 million
(the paid-in capital of PBP amounting only to P Whether the court is correct in issuing the
140.544 million, were fictitious as they were extended, preliminary injunction?
without collateral, to certain interests related to PBP
owners themselves. Ruling:

Subsequently and during the same year, several blind No, but the Court in this case ruled that the case filed
items about a family-owned bank in Binondo which by PB should be dismissed. A conservator, once
granted fictitious loans to its stockholders appeared in appointed, takes over the management of the bank
major newspapers which triggered a bank-run in PBP and assumes exclusive powers to oversee every aspect
and resulted in continuous over-drawings on the of the bank's operations and affairs. However, it must
banks demand deposit account with the Central Bank; be stressed that a bank retains its juridical personality
reaching to P 143.955 million. Hence, on the basis of even if placed under conservatorship; it is neither
the report submitted by the Supervision and replaced nor substituted by the conservator. Hence,
Examination Sector, the Monetary Board (MB), placed the approval of the CB is not necessary where the
PBP under conservatorship. action was instituted by the bank through the majority
of the bank's stockholders. To contend otherwise
PBP submitted a rehabilitation plan to the CB which would be to defeat the rights of such stockholders
proposed the transfer to PBP of 3 buildings owned by under the fifth paragraph of Section 29 of the Central
Producers Properties, Inc. (PPI), its principal Bank Act.
stockholder and the subsequent mortgage of said
properties to the CB as collateral for the banks Therefore, the rule is the Board of Directors of a bank
overdraft obligation but which was not approved due is not prohibited to file suit to lift the conservatorship
to disagreements between the parties. over it, to question the validity of the conservator's
fraudulent acts and abuses and the arbitrary action of
Since no other rehabilitation program was submitted the MB provided following requisites should be
by PBP for almost 3 years its overdrafts with the CB complied with:
continued to accumulate and swelled to a staggering
P1.023 billion. Consequently, the CB Monetary Board 1. The appropriate pleading must be filed by the
decided to approve in principle what it considered a stockholders of record representing the majority
viable rehabilitation program for PBP. There being no of the capital stock of the bank in the proper
court;
response from both PBP and PPI on the proposed
2. Said pleading must be filed within ten (10) days
rehabilitation plan, the MB issued a resolution from receipt of notice by said majority
instructing Central Bank management to advise the stockholders of the order placing the bank under
bank that the conservatorship may be lifted if PBP conservatorship; and
complies with certain conditions. 3. There must be convincing proof, after hearing,
that the action is plainly arbitrary and made in bad
faith.
Without responding to the communications of the CB,
PBP filed a complaint with the Regional Trial Court of In the instant case, however, PBPs complaint was filed
Makati against the CB, the MB and CB Governor after the expiration of the 10-day period deferred to
alleging that the resolutions issued were arbitrary and above. Accordingly, the order placing PBP under

8
conservatorship had long become final and its validity Producers Bank (now First Philippine International
could no longer be litigated upon before the trial Bank) acquired six parcels of land located in Laguna.
court. Furthermore, it is important to note that the
The original plaintiffs, Demetrio Demetria and Jose O.
action instituted was not for the purpose of having the
Janolo (now substituted by Ejercito, their assignee)
conservatorship lifted but it is an action for damage
which must nevertheless be dismissed for failure of wanted to purchase the property and thus
the PBP to pay the correct docket fees. negotiations ensued between plaintiffs Janolo and
Mercurio Rivera, the Manager of the Property
The court is not correct in issuing the preliminary Management Department of the bank.
injunction. It is well-settled that the closure of a bank
may be considered as an exercise of police power. The Janolo, made a formal purchase offer to the
action of the MB on this matter is final and executory. bank through a letter. Rivera made on behalf of the
Such exercise may nonetheless be subject to judicial bank a formal reply by letter informing Janolo that the
inquiry and can be set aside if found to be in excess of banks counter-offer is at P5.5 million. Later, Janolo
jurisdiction or with such grave abuse of discretion as
sent to the bank, through Rivera, a letter that they are
to amount to lack or excess of jurisdiction. The
accepting the banks offer to purchase the property for
records of this case revealed that there was neither
arbitrariness nor bad faith in the issuance of MB P5.5 million.
Resolutions ordering for conservatorship.
On October 12, 1987, the conservator of the
It must be stressed in this connection that the banking bank (which has been placed under conservatorship
business is properly subject to reasonable regulation by the Central Bank since 1984) was replaced by an
under the police power of the state because of its Acting Conservator in the person of Leonida T.
nature and relation to the fiscal affairs of the people Encarnacion. What thereafter transpired was a series
and the revenues of the state. It is then Government's of demands by the plaintiffs for compliance by the
responsibility to see to it that the financial interests of
bank with what plaintiff considered as a perfected
those who deal with banks and banking institutions, as
contract of sale, which demands were in one form or
depositors or otherwise, are protected. Hence, the CB
another refused by the bank.
is authorized to take the necessary steps against any
banking institution if its continued operation would
As detailed by the trial court in its decision,
cause prejudice to its depositors, creditors and the
general public as well. This power has been expressly plaintiffs through a letter to defendant Rivera
recognized by this Court. tendered payment of the amount of P5.5 million
pursuant to the perfected sale agreement. Defendants
FIRST PHILIPPINE INTERNATIONAL BANK refused to receive both the payment and the letter.
(Formerly Producers Bank of the Philippines)
and MERCURIO RIVERA v. COURT OF APPEALS, On December 14, 1987, the plaintiffs made a
CARLOS EJERCITO, in substitution of DEMETRIO second tender of payment, this time through the
DEMETRIA, and JOSE JANOLO Acting Conservator, defendant Encarnacion. The
G.R. No. 115849, January 24, 1996, PANGANIBAN
J. foregoing letter drew no response for more than four
months. As recounted by the trial court, in a reply, the
KEY DOCTRINE: The conservator merely takes the bank through Acting Conservator Encarnacion
place of a banks board of directors. What the said repudiated the authority of defendant Rivera and
board cannot do -such as repudiating a contract claimed that his dealings with the plaintiffs Janolo,
validly entered into under the doctrine of implied particularly his counter-offer of P5.5 Million are
authority -the conservator cannot do either. unauthorized or illegal.
Ineluctably, his power is not unilateral and he cannot
simply repudiate valid obligations of the Bank. His Plaintiffs Janolo filed a suit for specific

authority would be only to bring court actions to assail performance with damages against the bank, its

such contracts -as he has already done so in the Manager Rivera and Acting Conservator Encarnacion.
The basis of the suit was that the transaction had with
instant case.
the bank resulted in a perfected contract of sale.
In the course of its banking operations,
9
ISSUE: Did the bank conservator have the unilateral
power to repudiate the authority of the bank officers
and/or to revoke the said contract of sale?

RULING: NO

While admittedly, the Central Bank law gives


vast and far-reaching powers to the
conservator of a bank, it must be pointed out
that such powers must be related to the
(preservation of) the assets of the bank, (the
reorganization of) the management thereof
and (the restoration of) its viability. Such
powers, enormous and extensive as they are,
cannot extend to the post-facto repudiation of
perfected transactions, otherwise they would
infringe against the non-impairment clause of
the Constitution.

10
If the legislature itself cannot revoke an assets of the banking institution to money."
existing valid contract, how can it delegate such non-
existent powers to the conservator under Section 28-A
FACTS:
of said law?Obviously, therefore, Section 28-A merely
gives the conservator power to revoke contracts that The OBM is a commercial banking corporation
are, under existing law, deemed to be defective -i.e., duly organized and existing under the laws of the
void, voidable, unenforceable or rescissible. Philippines with principal office at Rosario Street,
Manila. Petitioners are the majority and controlling
Hence, the conservator merely takes the place stockholders thereof. Petitioners charged that the
of a banks board of directors. What the said board OBM became financially distressed because of this
cannot do -such as repudiating a contract validly suspension and the deprivation by the CB of all the
usual credit facilities and accommodations accorded
entered into under the doctrine of implied authority
to the other banks. The financial situation of the OBM
-the conservator cannot do either.
had caused mounting concern in the CB. Petitioner
Ramos and the OBM management finally met with
Ineluctably, his power is not unilateral and he
respondent CB on the necessity and urgency of
cannot simply repudiate valid obligations of the Bank.
rehabilitating the OBM through the extension of
His authority would be only to bring court actions to necessary financial assistance.
assail such contracts -as he has already done so in the
instant case. A contrary understanding of the law As a condition to the financial assistance,
would simply not be permitted by the Constitution. mortgages and a voting trust agreement were
Neither by common sense. executed. New directors and officers drafted from the
CB itself, the PNB and DBP were elected and installed
To rule otherwise would be to enable a failing and they took over the management and control of the
bank to become solvent, at the expense of third Overseas bank. CB announced that only P10 million
were available as emergency loan to OBM as opposed
parties, by simply getting the conservator to
to the needed 30 million loan. PNB took over OBMs
unilaterally revoke all previous dealings which had
management. CB adopted a resolution ordering the
one way or another come to be considered unfavorable liquidation of OBM.
to the Bank, yielding nothing to perfected contractual
rights nor vested interests of the third parties who had
dealt with the Bank. ISSUE:
Is the order to liquidate OBM proper?
C.2 Closure

EMERITO M. RAMOS, SUSANA B. RAMOS, RULING: NO.


EMERITO B. RAMOS, JR., JOSEFA RAMOS DE LA
RAMA, HORACIO DE LA RAMA, ANTONIO B. It is obvious from this memorandum that far
from heeding the request of its own team for an
RAMOS, FILOMENA RAMOS LEDESMA,
advance of P30 million (or P17 million in cash) to
RODOLFO RAMOS, VICTORIA RAMOS
enable the OBM to resume normal operations, the
TANJUATCO, and TEOFILO TANJUATCO v. Central Bank did nothing to support the OBM between
CENTRAL. BANK OF THE PHILIPPIPINES G.R. 6 January to 14 June, for almost six months, and kept
No. L-29352, October 4, 1971, REYES, J.B.L., J.: even its own management team largely in the dark as
"If the Monetary Board shall determine that to what to expect. On 14 June, CB advised that only
the banking institution cannot resume business with P10 million were to be made available (i.e., one third
safety to its creditors, it shall, by the Solicitor of the requirements estimated necessary by its own
General, file a petition in the Court of First Instance representatives). This amount was naturally
reciting the proceedings which have been taken and considered insufficient to normalize, much less
praying the assistance and supervision of the court in rehabilitate, the OBM. And yet all this while, the CB
the liquidation of the affairs of the same. The was holding petitioners' mortgages on their private
Superintendent shall thereafter, upon order of the properties worth at least P67 million in 1967 by the
Monetary Board and under the supervision of the CB's own appraisal. Petitioners claimed they were
court and with all convenient speed, convert the worth P100 million, which can not be very far from the

11
truth, considering the continual rise in real estate jurisdiction. And never having attempted to comply,
values. nor even to begin compliance, with its commitments
and promises, the respondent CB is precluded to
Not content with procrastinating for 6 months, invoke the expiration of the period specified for the
without taking positive steps to normalize OBM as it duration of its obligations under the Voting Trust
had agreed to do, nor even announcing its support of Agreement. Such period should, in justice and equity,
its own management team or disclosing its policy be deemed to start running from and after the CB
regarding the future of OBM, the CB finally adopted begins due performance of its commitments, promises
the resolutions now attacked by herein petitioner and representations in good faith.
stockholders. On 30 July 1968, it excluded the OBM
from clearing with the CB (Resol. No. 1263) the CENTRAL BANK OF THE PHILIPPINES and
contingency that the Voting Trust and the mortgage of ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF
the petitioners' private properties were to guard THE DEPARTMENT OF COMMERCIAL AND
against. On 1 August 1968, CB authorized (and SAVINGS BANK, in his capacity as statutory
virtually directed) its nominee Board of Directors to receiver of Island Savings Bank, petitioners, vs.
suspend operations (Resol. No. 1290); and thirteen THE HONORABLE COURT OF APPEALS and
days thereafter (13 August 1968), the CB directed its SULPICIO M. TOLENTINO, respondents.
Superintendent of Banks to proceed to liquidate OBM. G.R. No. L-45710 October 3, 1985 MAKASIAR,
(Resol. No. 1333) under Section 29 of Republic Act CJ.:
No. 265 (Central Bank Charter), providing that "SEC.
29. Proceedings upon insolvency. -Whenever, upon Key Doctrine: A bank which approved a loan
examination by the Superintendent or his examiners application but was able to release only a portion of
or agents into the condition of any banking institution, the loan because it was prohibited by the Monetary
it shall be disclosed that the condition of the same is Board from continuing to operate is guilty of breach of
one of insolvency, or that its continuance in business contract and can foreclose the real estate mortgage
would involve probable loss to its depositors or executed to secure the loan only up to the extent of
creditors, it shall be the duty of the Superintendent the amount it released.
forthwith, in writing, to inform the Monetary Board of
the facts, and the Board, upon finding the statements On April 28, 1965, Island Savings Bank,
of the Superintendent to be true, shall forthwith forbid approved the loan application for P80,000.00 of
the institution to do business in the Philippines and Sulpicio M. Tolentino, who, as a security for the loan,
shall take charge of its assets and proceeds according executed on the same day a real estate mortgage over
to law. his 100-hectare land located in Cubo, Las Nieves,
Agusan, which was annotated on the title the next day.
"If the Monetary Board shall determine that The approved loan application called for a lump sum
the banking institution cannot resume business with P80,000.00 loan, repayable in semi-annual
safety to its creditors, it shall, by the Solicitor General, installments for a period of 3 years, with 12% annual
file a petition in the Court of First Instance reciting interest. It was required that Sulpicio M. Tolentino
the proceedings which have been taken and praying shall use the loan proceeds solely as an additional
the assistance and supervision of the court in the capital to develop his other property into a
liquidation of the affairs of the same. The subdivision.
Superintendent shall thereafter, upon order of the
Monetary Board and under the supervision of the On May 22, 1965, a mere P17,000.00 partial
court and with all convenient speed, convert the release of the P80,000.00 loan was made by the Bank;
assets of the banking institution to money." and Sulpicio M. Tolentino and his wife Edita Tolentino
signed a promissory note for P17,000.00 at 12%
We conclude that having induced the annual interest, payable within 3 years from the date
petitioners to part with additional security in reliance of execution of the contract at semi-annual
upon its (CB's) promises and commitments to avert installments of P3,459.00
liquidation and to support, normalize and rehabilitate
the OBM, the respondent CB is duty bound to comply An advance interest for the P80,000.00 loan
in good faith with such promises. Consequently, being covering a 6-month period amounting to P4,800.00
contrary thereto, CB Resolutions Nos. 1263, 1290 and was deducted from the partial release of P17,000.00.
1333 should be annulled and set aside for having been But this pre-deducted interest was refunded to
adopted in abuse of discretion, equivalent to excess of Sulpicio M. Tolentino on July 23, 1965, after being
12
informed by the Bank that there was no fund yet When Island Savings Bank and Sulpicio M. Tolentino
available for the release of the P63,000.00 balance. entered into an P80,000.00 loan agreement on April
The Bank, thru its vice-president and treasurer, 28, 1965, they undertook reciprocal obligations. In
promised repeatedly the release of the P63,000.00 reciprocal obligations, the obligation or promise of
balance. each party is the consideration for that of the other
and when one party has performed or is ready and
However on August 13, 1965, the Monetary willing to perform his part of the contract, the other
Board found out that Island Savings Bank was party who has not performed or is not ready and
suffering from liquidity problems. Thus it issued willing to perform incurs in delay.
Resolution no. 1049 prohibiting the bank from making
new loans. On June 14, 1968, Island Savings Bank The promise of Sulpicio M. Tolentino to pay was the
failed to put up the required capital to restore its consideration for the obligation of Island Savings Bank
solvency. Consequently the Monetary Board through to furnish the P80,000.00 loan. When Sulpicio M.
Resolution no. 967 prohibited Island Savings Bank Tolentino executed a real estate mortgage on April 28,
from doing business in the Philippines and instructed 1965, he signified his willingness to pay the
the Acting Superintendent of Banks to take charge of P80,000.00 loan. From such date, the obligation of
the assets of Island Savings Bank. Island Savings Bank to furnish the P80,000.00 loan
accrued. Thus, the Bank's delay in furnishing the
On August 1, 1968, Island Savings Bank, in entire loan started on April 28, 1965, and lasted for a
view of non-payment of the P17,000.00 covered by the period of 3 years or when the Monetary Board of the
promissory note, filed an application for the extra- Central Bank issued Resolution No. 967 on June 14,
judicial foreclosure of the real estate mortgage 1968, which prohibited Island Savings Bank from
covering the 100-hectare land of Sulpicio M. doing further business. Such prohibition made it
Tolentino; and the sheriff scheduled the auction for legally impossible for Island Savings Bank to furnish
January 22, 1969. the P63,000.00 balance of the P80,000.00 loan. The
power of the Monetary Board to take over insolvent
On January 20, 1969, Sulpicio M. Tolentino banks for the protection of the public is recognized by
filed a petition with the Court of First Instance of Section 29 of R.A. No. 265, which took effect on June
Agusan for injunction, specific performance or 15, 1948, the validity of which is not in question.
rescission and damages with preliminary injunction,
alleging that since Island Savings Bank failed to The Board Resolution No. 1049 issued on August
deliver the P63,000.00 balance of the P80,000.00 loan, 13,1965 cannot interrupt the default of Island Savings
he is entitled to specific performance by ordering Bank in complying with its obligation of releasing the
Island Savings Bank to deliver the P63,000.00 with P63,000.00 balance because said resolution merely
interest of 12% per annum from April 28, 1965, and if prohibited the Bank from making new loans and
said balance cannot be delivered, to rescind the real investments, and nowhere did it prohibit island
estate mortgage. The trial court decided in favor of Savings Bank from releasing the balance of loan
Island Bank directing Sulpicio M. Tolentino to pay the agreements previously contracted.
Bank P17,000.00 plus legal interest and legal charges
due thereon, and lifting the restraining order so that Since both parties were in default in the performance
the sheriff may proceed with the foreclosure. of their respective reciprocal obligations, that is,
On Appeal the CA modified the decision Island Savings Bank failed to comply with its
affirming the dismissal of Sulpicio M. Tolentino's obligation to furnish the entire loan and Sulpicio M.
petition for specific performance, but it ruled that Tolentino failed to comply with his obligation to pay
Island Savings Bank can neither foreclose the real his P17,000.00 debt within 3 years as stipulated, they
estate mortgage nor collect the P17,000.00. are both liable for damages.

Issue: WON Sulpicio M. Tolentino is liable to pay the Since Island Savings Bank failed to furnish the
P17,000.00 and, can his real estate mortgage be P63,000.00 balance of the P80,000.00 loan, the real
foreclosed to satisfy said amount? estate mortgage of Sulpicio M. Tolentino became
unenforceable to such extent. P63,000.00 is 78.75% of
Ruling: Yes he is liable to pay, however the real estate P80,000.00, hence the real estate mortgage covering
mortgage can only be foreclosed up to the extent of 100 hectares is unenforceable to the extent of 78.75
the amount due. hectares. The mortgage covering the remainder of

13
21.25 hectares subsists as a security for the YES. The rule that once a decision becomes
P17,000.00 debt. 21.25 hectares is more than final and executory, it is the ministerial duty of the
sufficient to secure a P17,000.00 debt. court to order its execution, admits of certain
exceptions as in cases of special and exceptional
SPOUSES ROMEO LIPANA and MILAGROS nature where it becomes imperative in the higher
LIPANA v. DEVELOPMENT BANK OF RIZAL interest of justice to direct the suspension of its
G.R. No. 73884, 24 September 1987, Paras, J. execution; whenever it is necessary to accomplish the
It is well settled ruled that after the Monetary Board aims of justice; or when certain facts and
has declared that a bank is insolvent and has ordered circumstances transpired after the judgment became
it to cease operations, the Board becomes the trustee final which could render the execution of the judgment
of its assets for the equal benefit of all the creditors, unjust.
including depositors. The assets of the insolvent
banking institution are held in trust for the equal In the instant case, the stay of the execution of
benefit of all creditors, and after its insolvency, one judgment is warranted by the fact that respondent
cannot obtain an advantage or a preference over bank was placed under receivership. To execute the
another by an attachment, execution or otherwise. judgment would unduly deplete the assets of
respondent bank to the obvious prejudice of other
depositors and creditors, since, as aptly stated in
FACTS. Central Bank of the Philippines vs. Morfe, after the
Monetary Board has declared that a bank is insolvent
During the period from 1982 to January 1984, and has ordered it to cease operations, the Board
herein petitioners opened and maintained both time becomes the trustee of its assets for the equal benefit
and savings deposits with herein respondent Bank all of all the creditors, including depositors. The assets of
in the aggregate amount of P939,737.32. when some the insolvent banking institution are held in trust for
of the Time Deposit Certificates matured, petitioners the equal benefit of all creditors, and after its
were not able to cash them but instead were issued a insolvency, one cannot obtain an advantage or a
managers check which was dishonored upon preference over another by an attachment, execution
presentment. Demands for the payment of both time or otherwise.
and savings deposits having failed, petitioners filed
with the RTC of Pasig a complaint with prayer for As to petitioners contention that placing the
issuance of a writ of preliminary attachment for bank under receivership long after the filing of the
collection of a sum of money with damages. complaint removed it from the doctrine in the said
Morfe case. The Court said this is untenable. The time
of the filing of the complaint is immaterial. It is the
The judge ordered the issuance of the writ of
execution that win obviously prejudice the other
attachment in favor of the petitioners. The trial court
depositors and creditors. Moreover, as stated in the
then rendered judgment in favor of petitioners
said Morfe case, the effect of the judgment is only to
ordering the Bank to pay the total sum plus interests
fix the amount of the debt, and not give priority over
etc. Meanwhile, on August 10, 1984, the Monetary
other depositors and creditors.
Board, in its Resolution No. 1009, finding that the
It is also contended by the petitioners that the
condition of respondent bank was one of insolvency
indefinite stay of execution without ruling as to how
and that its continuance in business would result in
long it will last, amounts to a deprivation of their
probable loss to its depositors and creditors, decided
property without due process of law.
to place it under receivership. Petitioners filed a
motion for execution pending appeal which the judge
granted. But when the Bank filed a MR and a motion Said contention, likewise, is devoid of merit.
to stay the writ of execution, the judge granted the Apart from the fact that the stay of execution is not
same. Hence this petition. 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
ISSUE.
resolution No. 4-33 approved the liquidation of
respondent bank on April 26, 1985 and ordered,
Does placing a bank under receivership by the
among others, the filing of a petition in the Regional
Central Bank, long after the complaint had become
Trial Court praying for assistance of said court in the
final and executory, legally stay execution of such
liquidation of the bank. The staying of the writ of
judgment?
execution will be lifted after approval by the
liquidation court of the project of distribution, and the
HELD.
liquidator or his deputy will authorize payments to all

14
claimants concerned in accordance with the approved action taken by the Central Bank," it had been
project of distribution.
prevented from undertaking banking operations

OVERSEAS BANK OF MANILA, petitioner, vs. "which would have generated funds to pay not only its
COURT OF APPEALS and NATIONAL depositors and creditors but likewise, the interests
WATERWORKS AND SEWERAGE AUTHORITY, due on the deposits." The argument is palpably
respondents. G.R. No. 45866, 19 March 1989, without merit. There is in the first place absolutely no
NARVASA
evidence of these facts in the record and this is simply
Key Doctrine: The claim that the Central Bank, by
because the petitioner bank had made no effort
suspending the Overseas Bank's banking operations,
whatever to set aside the default order against it so
had made it impossible for the Overseas Bank to pay
that it could present evidence in its behalf before the
its debts, whatever validity might be accorded thereto,
or the further claim that it had fallen into a Trial Court.
"distressed financial situation," cannot in any sense
Moreover, the suspension of operations which
excuse it from its obligation to the NAWASA, which
took place in August, 1968, could not possibly excuse
had nothing whatever to do with the Central Bank's
actuations or the events leading to the bank's non-compliance with the obligations in question which
distressed state matured in 1966. Again, the claim that the Central
Bank, by suspending the Overseas Bank's banking
Facts
operations, had made it impossible for the Overseas
NAWASA and Bonifacio Regalado entered in a Bank to pay its debts, whatever validity might be
contract of sale with the parties as vendor and vendee
accorded thereto, or the further claim that it had
respectively. The mode of payment was made as a time
fallen into a "distressed financial situation," cannot in
deposit in the amount of P327,257.20 for a period of 6
months maturing on 6 April 1966 with Overseas Bank any sense excuse it from its obligation to the
of Manila. A second time deposit was made for the NAWASA, which had nothing whatever to do with the
payment of P2,945,314.80 that will mature on 19 Central Bank's actuations or the events leading to the
December 1966. The time deposit was made so that a bank's distressed state.
refund could quickly be made to Regalado in the event
that his contract with the NAWASA be disapproved by
BANCO FILIPINO, petitioner, vs. MONETARY
the Office of the President. Upon maturity of the first
BOARD, ET AL., respondents.
time deposit, NAWASA sent a letter to Overseas Bank G.R. No. 70054, 1986-07-08
of its intent to withdraw the said time deposit.
However, nothing was heard from Overseas Bank. The
KEY DOCTRINE: In passing on a motion for discovery
same thing happened upon the maturity of the second
of documents, the courts should be liberal in
time deposit.
determining whether or not documents are relevant to
The matter was brought to the Central Bank the subject matter of action. Likewise, any statute
but even the Central Bank was ignored by Overseas declaring in general terms that official records are
bank. This prompted NAWASA to file a collection suit confidential should be liberally construed, to have an
against Overseas Bank. Same as before, Overseas implied exception for disclosure when needed in a
bank ignored the court so a judgment of default was court.
rendered against it. When the case was elevated to the
CA, the court modified "plus legal interest" in the The RTC of Makati City, granted, through an order, the
dispositive portion to "plus 4-1/2% interest." motion of petitioner Banco Filipino (BF) for the
production, inspection, and copying of certain papers
Overseas bank now contends that it failed to pay due
and records which are claimed as needed for the
to the punitive actions of the Central Bank.
preparation of its comments, objections, and
Issue exceptions to the Conservator's report. The documents
are: (1) Copies of tapes and transcripts of respondent
Was the bank justified in refusing payment due
Monetary Board (MB) deliberations and meetings on
to its suspension of operations? (No)
the closure of BF; (2) Copies of the letter and reports
Ruling of first conservator, Estanislao, to the MB; (3)
Computations of all the interests and penalties
No, the argument advanced by the Overseas
charged by the CB against BF; (4) Schedule of
Bank is that as of July 30, 1968, by reason of "punitive recommended valuation of reserves per Mr. Tiaoqui's
15
report; (5) Adjustment per Annex "C" of Mr. Tiaoqui's below that the documents are not privileged.
report; (6) Annexes "A", "B", and "C" of the joint report
of Mr. Tiaoqui,et al.; (7) Schedule of devaluation of The motion for the production of the subject
CB-premises of Paseo de Roxas of same report; (8) documents was filed by petitioner pursuant to Section
Schedule of BF's assets from P5,159.44 B to P3,909.23 1, Rule 27, of the Rules of Court. It has been held that
B; (9) Documents listed in BF's letter to Mr. a party is ordinarily entitled to the production of
Valenzuela. books, documents and papers which are material and
relevant to the establishment of his cause of action or
The court considered the documents sought to be defense. The test to be applied by the trial judge in
produced as not privileged because these constitute or determining the relevancy of documents and the
contain evidence material to the issue. These sufficiency of their description is one of
materials are said to compromise of records of the reasonableness and practicability. On the ground of
administrative proceedings conducted by MBs public policy, the rules providing for reproduction and
officials and representatives from the inception of and inspection of books and papers do not authorize the
preparation of the challenged reports and the production or inspection of privileged matter, that is,
resolution placing petitioner under receivership and books, papers which because of their confidential and
thereafter under liquidation as it is the regularity and privileged character could not be received in
impartiality of these administrative proceedings which evidence.
are being assailed by BF. Respondents MB and Central
Bank (CB) challenged the said order, arguing that the With respect to Items Nos. 3 to 9, these are the
proceedings before it do not at all deal with either the annexes to the Supervision and Examination Sector,
administrative proceedings or the regularity and Dept. II (SES) Reports submitted to the Central Bank
impartiality of the CB actions on BF and that the tapes and Monetary Board which were taken into
and transcripts of the MB deliberations are consideration by said respondents in closing petitioner
confidential pursuant to Sections 13 and 15 of the bank. A copy of the SES Reports was furnished to the
Central Bank Act. petitioner. We, therefore, fail to see any proper reason
why the annexes thereto should be withheld.
In its Comment, BF contended that there is no reason Petitioner cannot adequately study and properly
why it should not be furnished the documents, analyze the report without the corresponding annexes.
particularly Nos. 3 to 9 of its motion, when these are Pertinent and relevant, these could be useful and even
merely attachments to the Supervision and necessary to the preparation by petitioner of its
Examination Sector, Dept. II (SECS) Reports, copies of comment, objections and exceptions to the
which were given to it pursuant to a Supreme Court Conservator's reports and receiver's reports.
order; that the Supreme Court in its referral to the Regarding copies of the letter and reports of first
RTC Makati intended full evidence taking of the Conservator, Mr. Estanislao, to the MB and to CB
proceeding for judicial review of administrative action Governor Fernandez (Item No. 2) these appear
filed with the SC, the trial court being better equipped relevant as petitioner has asserted that the above-
for evidence taking; and that the requested documents named Conservator had in fact to resume normal
are records of the CB that are material and relevant operations of BF but then he was thereafter replaced
because BF is entitled to prove from the CB records by Mr. Teodoro. The latter and reports could be
(a) that Governor Fernandez closed BF without an MB favorable or adverse to the case of petitioner but
resolution and without examiner's reports on the whatever the result may be, petitioner should be
financial position of BF; (b) that a MB resolution was allowed to photocopy the same. As to the tapes and
later made to legalize the BF closure but it had no transcripts of the MB deliberations on the closure of
supporting examiner's report; (c) that the earlier BF and its meetings (Item No. 1), respondents contend
reports did not satisfy respondent Governor Fernandez that "it is obvious from the requirement (Sections 13
and he ordered the examiners and the conservator, and 15 of the Central Bank Act) that the subject
Gilberto Teodoro, to "improve" them; and (d) that the matter of the deliberations, when resolved, shall be
reports were then fabricated. made available to the public but the deliberations
themselves are not open to disclosure but are to be
ISSUE: Are the documents sought to be produced by kept in confidence. This Court, however, sees it in a
BF, privileged? different light. The deliberations may be confidential
but not necessarily absolute and privileged. There is
RULING: NO. We accept the view taken by the court no specific provision in the Central Bank Act, even in
Section 13 and 15 thereof, which prohibits absolutely
16
the courts from conducting an inquiry on said paragraph of Section 29 of the Central Bank Act.
deliberations when these are relevant or material to a
matter subject of a suit pending before it. The It is well-settled that the closure of a bank
disclosure is here not intended to obtain information may be considered as an exercise of police power. The
for personal gain. There is no indication that such action of the MB on this matter is final and executory.
disclosure would cause detriment to the government, Such exercise may nonetheless be subject to judicial
to the bank or to third parties. Significantly, it is the inquiry and can be set aside if found to be in excess of
bank itself here that is interested in obtaining what it jurisdiction or with such grave abuse of discretion as
considers as information useful and indispensably to amount to lack or excess of jurisdiction. In this
needed by it to support its position in the matter being case, the order of CB placing PBP under
inquired to by the court below. conservatorship is proper on the ground that there
was neither arbitrariness nor bad faith in the issuance
On the other hand, respondents cite Section 21, Rule of thereof.
130, Rules of Court which states that an officer cannot
be examined during his term of officer or afterwards,
as to communications made to him in official Facts:
confidence, when the court finds that the public
interest would suffer by disclosure. Central Bank (CB) discovered that certain
questionable loans extended by Producers Bank of the
But this privilege, as this Court notes, is intended not Philippines (PBP), totalling approximately P300 million
for the protection of public officers but for the (the paid-in capital of PBP amounting only to P
protection of public interest. Where there is no public 140.544 million, were fictitious as they were extended,
interest that would be prejudiced, this invoked rule without collateral, to certain interests related to PBP
will not be applicable. In the case at bar, the owners themselves.
respondents have not established that public interest
would suffer by the disclosure of the papers and Subsequently and during the same year, several blind
documents sought by petitioner. Considering that items about a family-owned bank in Binondo which
petitioner bank was already closed as of January 25, granted fictitious loans to its stockholders appeared in
1985, any disclosure of the aforementioned letters, major newspapers which triggered a bank-run in PBP
reports, and transcripts at this time pose no danger or and resulted in continuous over-drawings on the
peril to our economy. Neither will it trigger any bank banks demand deposit account with the Central Bank;
run nor compromise state secrets. On the contrary, reaching to P 143.955 million. Hence, on the basis of
public interests will be served by the disclosure of the the report submitted by the Supervision and
documents. Not only the banks and its employees but Examination Sector, the Monetary Board (MB), placed
also its numerous depositors and creditors are entitled PBP under conservatorship.
to be informed as to whether or not there was a valid
and legal justification for the petitioner's bank closure. PBP submitted a rehabilitation plan to the CB which
proposed the transfer to PBP of 3 buildings owned by
CENTRAL BANK OF THE PHILIPPINES and HON. Producers Properties, Inc. (PPI), its principal
JOSE B. FERNANDEZ v. HON. COURT OF stockholder and the subsequent mortgage of said
APPEALS, RTC JUDGE TEOFILO GUADIZ, JR., properties to the CB as collateral for the banks
PRODUCERS BANK OF THE PHILIPPINES and overdraft obligation but which was not approved due
PRODUCERS PROPERTIES, INC. G.R. No. 88353 to disagreements between the parties.
and G.R. No. 92943 May 8, 1992, DAVIDE, JR., J.
A conservator, once appointed, takes over the Since no other rehabilitation program was submitted
management of the bank and assumes exclusive by PBP for almost 3 years its overdrafts with the CB
powers to oversee every aspect of the bank's continued to accumulate and swelled to a staggering
operations and affairs. However, it must be stressed P1.023 billion. Consequently, the CB Monetary Board
that a bank retains its juridical personality even if decided to approve in principle what it considered a
placed under conservatorship; it is neither replaced viable rehabilitation program for PBP. There being no
nor substituted by the conservator. Hence, the response from both PBP and PPI on the proposed
approval of the CB is not necessary where the action rehabilitation plan, the MB issued a resolution
was instituted by the bank through the majority of the instructing Central Bank management to advise the
bank's stockholders. To contend otherwise would be to bank that the conservatorship may be lifted if PBP
defeat the rights of such stockholders under the fifth complies with certain conditions.
17
Without responding to the communications of the CB,
PBP filed a complaint with the Regional Trial Court of In the instant case, however, PBPs complaint was filed
Makati against the CB, the MB and CB Governor after the expiration of the 10-day period deferred to
alleging that the resolutions issued were arbitrary and above. Accordingly, the order placing PBP under
made in bad faith. Respondent Judge issued a conservatorship had long become final and its validity
temporary restraining order and subsequently a writ could no longer be litigated upon before the trial
of preliminary injunction. CB filed a motion to dismiss court. Furthermore, it is important to note that the
but was denied and ruled that the MB resolutions action instituted was not for the purpose of having the
were arbitrarily issued. CB filed a petition for conservatorship lifted but it is an action for damage
certiorari before the Court of Appeals seeking to annul which must nevertheless be dismissed for failure of
the orders of the trial court but CA affirmed the said the PBP to pay the correct docket fees.
orders. Hence this petition.
The court is not correct in issuing the preliminary
Issue: injunction. It is well-settled that the closure of a bank
may be considered as an exercise of police power. The
Whether an approval from the CB is necessary action of the MB on this matter is final and executory.
for the bank to bring action before the court? Such exercise may nonetheless be subject to judicial
inquiry and can be set aside if found to be in excess of
Whether the court is correct in issuing the jurisdiction or with such grave abuse of discretion as
preliminary injunction? to amount to lack or excess of jurisdiction. The
records of this case revealed that there was neither
Ruling: arbitrariness nor bad faith in the issuance of MB
Resolutions ordering for conservatorship.
No, but the Court in this case ruled that the case filed
by PB should be dismissed. A conservator, once It must be stressed in this connection that the banking
appointed, takes over the management of the bank business is properly subject to reasonable regulation
and assumes exclusive powers to oversee every aspect under the police power of the state because of its
of the bank's operations and affairs. However, it must nature and relation to the fiscal affairs of the people
be stressed that a bank retains its juridical personality and the revenues of the state. It is then Government's
even if placed under conservatorship; it is neither responsibility to see to it that the financial interests of
replaced nor substituted by the conservator. Hence, those who deal with banks and banking institutions, as
the approval of the CB is not necessary where the depositors or otherwise, are protected. Hence, the CB
action was instituted by the bank through the majority is authorized to take the necessary steps against any
of the bank's stockholders. To contend otherwise banking institution if its continued operation would
would be to defeat the rights of such stockholders cause prejudice to its depositors, creditors and the
under the fifth paragraph of Section 29 of the Central general public as well. This power has been expressly
Bank Act. recognized by this Court.

RURAL BANK OF SAN MIGUEL, INC. and


Therefore, the rule is the Board of Directors of a bank
HILARIO P. SORIANO, in his capacity as majority
is not prohibited to file suit to lift the conservatorship
stockholder in the Rural Bankof San Miguel, Inc.,
over it, to question the validity of the conservator's
v. MONETARY BOARD, BANGKO SENTRAL NG
fraudulent acts and abuses and the arbitrary action of
PILIPINAS and PHILIPPINE DEPOSIT
the MB provided following requisites should be
INSURANCE CORPORATION G.R. No. 150886,
complied with:
February 16, 2007,CORONA, J.
1. The appropriate pleading must be filed by the KEY DOCTRINE.
stockholders of record representing the majority It is well-settled that the closure of a bank
of the capital stock of the bank in the proper may be considered as an exercise of police power.
court;
The action of the MB on this matter is final and
2. Said pleading must be filed within ten (10) days
from receipt of notice by said majority executory. Such exercise may nonetheless be subject
stockholders of the order placing the bank under to judicial inquiry and can be set aside if found to be
conservatorship; and in excess of jurisdiction or with such grave abuse of
3. There must be convincing proof, after hearing, discretion as to amount to lack or excess of
that the action is plainly arbitrary and made in bad
faith. jurisdiction.

18
FACTS submitted to the MB; the bank examined is not
Petitioner Rural Bank of San Miguel, Inc. was mentioned as a recipient of the ROE. Under the law,
a domestic corporation engaged in banking and in the sanction of closure could be imposed upon a bank
which Hilario P. Soriano claims to be the majority by the BSP even without notice and hearing. The
stockholder. MB issued a Resolution prohibiting apparent lack of procedural due process would not
RBSM from doing business in the Philippines, placing result in the invalidity of action by the MB.
it under receivership and designating PDIC as Facts:
receiver. The MB, after evaluating and deliberating on
the findings and recommendation of the Department The Supervision and Examination Department
of Rural Banks Supervision and Examination Sector (SED) of the Bangko Sentral ng Pilipinas (BSP)
ordered the closure of the RBSM and placed its conducted examinations of the books of the following
management under PDIC. banks: Rural Bank of Paraaque, Inc. (RBPI), Rural
Hence, this petition contending that the Bank of San Jose (Batangas), Inc., Rural Bank of
Carmen (Cebu), Inc., Pilipino Rural Bank, Inc.,
closure order was bereft of any basis considering
Philippine Countryside Rural Bank, Inc., Rural Bank of
that no complete examination had been conducted
Calatagan (Batangas), Inc. (now Dynamic Rural Bank),
before it was issued.
Rural Bank of Darbci, Inc., Rural Bank of Kananga
(Leyte), Inc. (now First Interstate Rural Bank), Rural
ISSUE.
Bank de Bisayas Minglanilla (now Bank of East Asia),
Is a complete examination of the bank
and San Pablo City Development Bank, Inc.
required before it can be closed and placed
(Respondent Banks)
under receivership? NO.
After the examinations, exit conferences were
RULING. held with the officers or representatives of the banks
It is clear that under the New Central Bank wherein the SED examiners provided them with copies
Act or RA 7653 that only a report of the head of of Lists of Findings/Exceptions containing the
the supervising or examining department is deficiencies discovered during the examinations.
necessary before the MB can order for the closure of These banks were then required to comment and to
a bank and not a complete examination of the bank.It undertake the remedial measures stated in these lists
is well-settled that the closure of a bank may be within 30 days from their receipt of the lists, which
considered as an exercise of police power. The action remedial measures included the infusion of additional
of the MB on this matter is final and executory. Such capital. Though the banks claimed that they made the
exercise may nonetheless be subject to judicial additional capital infusions, petitioner Chuchi
inquiry and can be set aside if found to be in excess Fonacier, officer-in-charge of the SED, sent separate
of jurisdiction or with such grave abuse of discretion letters to the Board of Directors of each bank,
as to amount to lack or excess of jurisdiction. informing them that the SED found that the banks
In the case at bar, the reliance on the report failed to carry out the required remedial measures.
of the head of the supervising or examining The banks requested that they be given time to obtain
department, the MB had sufficient basis to arrive at a BSP approval to amend their Articles of Incorporation,
sound conclusion that there were grounds that would that they have an opportunity to seek investors. They
justify RBSMs closure and hence the issuance of requested as well that the basis for the capital infusion
closure order was untainted with arbitrariness. figures be disclosed, and noted that none of them had
received the Report of Examination (ROE) which
*From DC
finalizes the audit findings. They also requested
meetings with the BSP audit teams to reconcile audit
BANGKO SENTRAL NG PILIPINAS MONETARY
figures.
BOARD and CHUCHI FONACIER v. HON. NINA
G. ANTONIO-VALENZUELA, in her capacity as
The respondent banks filed an action to nullify
Regional Trial Court Judge of Manila, Branch
the Report on Examination (ROE) and the issuance of
28; RURAL BANK OF PARAAQUE, INC. et al.
restraining order before the RTC contending that their
G.R. No. 184778, October 2, 2009, VELASCO,
right to due process was violated as they were not
JR., J.
furnished with the said report. Respondent banks also
Key Doctrine: Sec. 28 of RA 7653, or the New
claim that the imposition of sanctions upon them, the
Central Bank Act, which governs examinations of
sanction of closure that the Monetary Board might
banking institutions, provides that the ROE shall be
impose upon the receipt of the ROE will result in
19
irreparable damage to them as well as to the public.

RTC 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. CA affirmed RTCs
decision. 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 with the Philippine Deposit Insurance
Corporation as the appointed receiver. Hence, this
petition.

Issue:

Whether or not the respondent banks were


entitled to the copy of the Report on Examination
(ROE) made by the BSP before its submission to the
Monetary Board.

Ruling:

20
NO. The respondent banks have failed to show serious damage contemplated by the trial court was
that they are entitled to copies of the ROEs. They can the possibility of the imposition of sanctions upon
point to no provision of law, no section in the respondent banks, even the sanction of closure. Under
procedures of the BSP that shows that the BSP is the law, the sanction of closure could be imposed upon
required to give them copies of the ROEs. Sec. 28 of a bank by the BSP even without notice and hearing.
RA 7653, or the New Central Bank Act, which governs The apparent lack of procedural due process would
examinations of banking institutions, provides that the not result in the invalidity of action by the MB. This
ROE shall be submitted to the MB; the bank examined was the ruling in Central Bank of the Philippines v.
is not mentioned as a recipient of the ROE. Court of Appeals. This close now, hear later scheme is
grounded on practical and legal considerations to
The respondent banks cannot claim a violation prevent unwarranted dissipation of the banks assets
of their right to due process if they are not provided and as a valid exercise of police power to protect the
with copies of the ROEs. The same ROEs are based on depositors, creditors, stockholders, and the general
the lists of findings/exceptions containing the public. The writ of preliminary injunction cannot, thus,
deficiencies found by the SED examiners when they prevent the MB from taking action, by preventing the
examined the books of the respondent banks. submission of the ROEs and worse, by preventing the
MB from acting on such ROEs.
Respondent banks are already aware of what
is required of them by the BSP, and cannot claim The close now, hear later doctrine has
violation of their right to due process simply because already been justified as a measure for the protection
they are not furnished with copies of the ROEs. of the public interest. Swift action is called for on the
Respondent banks were held by the CA to be entitled part of the BSP when it finds that a bank is in dire
to copies of the ROEs prior to or simultaneously with straits. Unless adequate and determined efforts are
their submission to the MB, on the principles of taken by the government against distressed and
fairness and transparency. The ROEs would then be mismanaged banks, public faith in the banking system
superfluities to the respondent banks, and should not is certain to deteriorate to the prejudice of the
be the basis for a writ of preliminary injunction. national economy itself, not to mention the losses
suffered by the bank depositors, creditors, and
In granting the writs of preliminary
stockholders, who all deserve the protection of the
injunction, the trial court held that the submission of
government.
the ROEs to the MB before the respondent banks
would violate the right to due process of said banks.
The respondent banks have failed to show
This is erroneous. The requisites for preliminary
their entitlement to the writ of preliminary injunction.
injunctive relief are: (a) the invasion of right sought
It must be emphasized that an application for
to be protected is material and substantial; (b) the
injunctive relief is construed strictly against the
right of the complainant is clear and unmistakable;
pleader. The respondent banks cannot rely on a simple
and (c) there is an urgent and paramount necessity for
appeal to procedural due process to prove entitlement.
the writ to prevent serious damage. These
requirements are absent in the present case.
C.3 Receivership

The respondent banks cannot through seeking CENTRAL BANK OF THE PHILIPPINES and
a writ of preliminary injunction by appealing to lack of ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF
due process, in a roundabout manner prevent their THE DEPARTMENT OF COMMERCIAL AND
closure by the MB. Their remedy, as stated, is a SAVINGS BANK, in his capacity as statutory
subsequent one, which will determine whether the receiver of Island Savings Bank, petitioners, vs.
closure of the bank was attended by grave abuse of THE HONORABLE COURT OF APPEALS and
discretion. Judicial review enters the picture only after SULPICIO M. TOLENTINO, respondents.
the MB has taken action; it cannot prevent such action G.R. No. L-45710 October 3, 1985 MAKASIAR,
by the MB. The threat of the imposition of sanctions, CJ.:
even that of closure, does not violate their right to due
process, and cannot be the basis for a writ of
Key Doctrine: A bank which approved a loan
preliminary injunction.
application but was able to release only a portion of
the loan because it was prohibited by the Monetary
They have shown no necessity for the writ of
Board from continuing to operate is guilty of breach of
preliminary injunction to prevent serious damage. The
contract and can foreclose the real estate mortgage
21
executed to secure the loan only up to the extent of On January 20, 1969, Sulpicio M. Tolentino
the amount it released. filed a petition with the Court of First Instance of
Agusan for injunction, specific performance or
On April 28, 1965, Island Savings Bank, rescission and damages with preliminary injunction,
approved the loan application for P80,000.00 of alleging that since Island Savings Bank failed to
Sulpicio M. Tolentino, who, as a security for the loan, deliver the P63,000.00 balance of the P80,000.00 loan,
executed on the same day a real estate mortgage over he is entitled to specific performance by ordering
his 100-hectare land located in Cubo, Las Nieves, Island Savings Bank to deliver the P63,000.00 with
Agusan, which was annotated on the title the next day. interest of 12% per annum from April 28, 1965, and if
The approved loan application called for a lump sum said balance cannot be delivered, to rescind the real
P80,000.00 loan, repayable in semi-annual estate mortgage.
installments for a period of 3 years, with 12% annual The trial court decided in favor of Island Bank
interest. It was required that Sulpicio M. Tolentino directing Sulpicio M. Tolentino to pay the Bank
shall use the loan proceeds solely as an additional P17,000.00 plus legal interest and legal charges due
capital to develop his other property into a thereon, and lifting the restraining order so that the
subdivision. sheriff may proceed with the foreclosure.
On Appeal the CA modified the decision
On May 22, 1965, a mere P17,000.00 partial affirming the dismissal of Sulpicio M. Tolentino's
release of the P80,000.00 loan was made by the Bank; petition for specific performance, but it ruled that
and Sulpicio M. Tolentino and his wife Edita Tolentino Island Savings Bank can neither foreclose the real
signed a promissory note for P17,000.00 at 12% estate mortgage nor collect the P17,000.00.
annual interest, payable within 3 years from the date
of execution of the contract at semi-annual Issue: WON Sulpicio M. Tolentino is liable to pay the
installments of P3,459.00 P17,000.00 and, can his real estate mortgage be
foreclosed to satisfy said amount?
An advance interest for the P80,000.00 loan
covering a 6-month period amounting to P4,800.00 Ruling: Yes he is liable to pay, however the real estate
was deducted from the partial release of P17,000.00. mortgage can only be foreclosed up to the extent of
But this pre-deducted interest was refunded to the amount due.
Sulpicio M. Tolentino on July 23, 1965, after being
informed by the Bank that there was no fund yet When Island Savings Bank and Sulpicio M. Tolentino
available for the release of the P63,000.00 balance. entered into an P80,000.00 loan agreement on April
The Bank, thru its vice-president and treasurer, 28, 1965, they undertook reciprocal obligations. In
promised repeatedly the release of the P63,000.00 reciprocal obligations, the obligation or promise of
balance. each party is the consideration for that of the other
and when one party has performed or is ready and
However on August 13, 1965, the Monetary willing to perform his part of the contract, the other
Board found out that Island Savings Bank was party who has not performed or is not ready and
suffering from liquidity problems. Thus it issued willing to perform incurs in delay.
Resolution no. 1049 prohibiting the bank from making
new loans. On June 14, 1968, Island Savings Bank The promise of Sulpicio M. Tolentino to pay was the
failed to put up the required capital to restore its consideration for the obligation of Island Savings Bank
solvency. Consequently the Monetary Board through to furnish the P80,000.00 loan. When Sulpicio M.
Resolution no. 967 prohibited Island Savings Bank Tolentino executed a real estate mortgage on April 28,
from doing business in the Philippines and instructed 1965, he signified his willingness to pay the
the Acting Superintendent of Banks to take charge of P80,000.00 loan. From such date, the obligation of
the assets of Island Savings Bank. Island Savings Bank to furnish the P80,000.00 loan
accrued. Thus, the Bank's delay in furnishing the
On August 1, 1968, Island Savings Bank, in entire loan started on April 28, 1965, and lasted for a
view of non-payment of the P17,000.00 covered by the period of 3 years or when the Monetary Board of the
promissory note, filed an application for the extra- Central Bank issued Resolution No. 967 on June 14,
judicial foreclosure of the real estate mortgage 1968, which prohibited Island Savings Bank from
covering the 100-hectare land of Sulpicio M. doing further business. Such prohibition made it
Tolentino; and the sheriff scheduled the auction for legally impossible for Island Savings Bank to furnish
January 22, 1969. the P63,000.00 balance of the P80,000.00 loan. The
22
power of the Monetary Board to take over insolvent were not able to cash them but instead were issued a
banks for the protection of the public is recognized by managers check which was dishonored upon
Section 29 of R.A. No. 265, which took effect on June
presentment. Demands for the payment of both time
15, 1948, the validity of which is not in question.
and savings deposits having failed, petitioners filed
with the RTC of Pasig a complaint with prayer for
The Board Resolution No. 1049 issued on August
13,1965 cannot interrupt the default of Island Savings issuance of a writ of preliminary attachment for
Bank in complying with its obligation of releasing the collection of a sum of money with damages.
P63,000.00 balance because said resolution merely
prohibited the Bank from making new loans and The judge ordered the issuance of the writ of
investments, and nowhere did it prohibit island attachment in favor of the petitioners. The trial court
Savings Bank from releasing the balance of loan then rendered judgment in favor of petitioners
agreements previously contracted.
ordering the Bank to pay the total sum plus interests
etc. Meanwhile, on August 10, 1984, the Monetary
Since both parties were in default in the performance
of their respective reciprocal obligations, that is, Board, in its Resolution No. 1009, finding that the
Island Savings Bank failed to comply with its condition of respondent bank was one of insolvency
obligation to furnish the entire loan and Sulpicio M. and that its continuance in business would result in
Tolentino failed to comply with his obligation to pay probable loss to its depositors and creditors, decided
his P17,000.00 debt within 3 years as stipulated, they to place it under receivership. Petitioners filed a
are both liable for damages. motion for execution pending appeal which the judge
granted. But when the Bank filed a MR and a motion
Since Island Savings Bank failed to furnish the
to stay the writ of execution, the judge granted the
P63,000.00 balance of the P80,000.00 loan, the real
estate mortgage of Sulpicio M. Tolentino became same. Hence this petition.
unenforceable to such extent. P63,000.00 is 78.75% of
P80,000.00, hence the real estate mortgage covering ISSUE.
100 hectares is unenforceable to the extent of 78.75
hectares. The mortgage covering the remainder of Does placing a bank under receivership by the
21.25 hectares subsists as a security for the Central Bank, long after the complaint had become
P17,000.00 debt. 21.25 hectares is more than final and executory, legally stay execution of such
sufficient to secure a P17,000.00 debt.
judgment?

SPOUSES ROMEO LIPANA and MILAGROS


HELD.
LIPANA v. DEVELOPMENT BANK OF RIZAL
G.R. No. 73884, 24 September 1987, Paras, J.
It is well settled ruled that after the Monetary Board YES. The rule that once a decision becomes
has declared that a bank is insolvent and has ordered final and executory, it is the ministerial duty of the
it to cease operations, the Board becomes the trustee court to order its execution, admits of certain
of its assets for the equal benefit of all the creditors, exceptions as in cases of special and exceptional
including depositors. The assets of the insolvent nature where it becomes imperative in the higher
banking institution are held in trust for the equal interest of justice to direct the suspension of its
benefit of all creditors, and after its insolvency, one execution; whenever it is necessary to accomplish the
cannot obtain an advantage or a preference over aims of justice; or when certain facts and
another by an attachment, execution or otherwise. circumstances transpired after the judgment became
final which could render the execution of the judgment
FACTS. unjust.

During the period from 1982 to January 1984, In the instant case, the stay of the execution of
herein petitioners opened and maintained both time judgment is warranted by the fact that respondent
and savings deposits with herein respondent Bank all bank was placed under receivership. To execute the
in the aggregate amount of P939,737.32. when some judgment would unduly deplete the assets of
of the Time Deposit Certificates matured, petitioners respondent bank to the obvious prejudice of other
23
depositors and creditors, since, as aptly stated in authority of the bank and of its directors and officers
Central Bank of the Philippines vs. Morfe, after the over its property and effects, such authority being
reposed in the receiver, and in this respect, the
Monetary Board has declared that a bank is insolvent
receivership is equivalent to an injunction to restrain
and has ordered it to cease operations, the Board
the bank officers from intermeddling with the property
becomes the trustee of its assets for the equal benefit of the bank in any way.
of all the creditors, including depositors. The assets of
the insolvent banking institution are held in trust for FACTS: Manila Banking Corporation (Manila Bank),
the equal benefit of all creditors, and after its owns a parcel of land located along Gil Puyat Avenue
insolvency, one cannot obtain an advantage or a Extension, Makati City. Prior to 1984, the bank began
preference over another by an attachment, execution constructing on said land a 14-storey building. Not
long after, however, the bank encountered financial
or otherwise.
difficulties that rendered it unable to finish
construction of the building.
As to petitioners contention that placing the
bank under receivership long after the filing of the On May 22, 1987, the Central Bank of the Philippines,
complaint removed it from the doctrine in the said now Bangko Sentral ng Pilipinas, ordered the closure
Morfe case. The Court said this is untenable. The time of Manila Bank and placed it under receivership, with
of the filing of the complaint is immaterial. It is the Feliciano Miranda, Jr. being initially appointed as
execution that win obviously prejudice the other Receiver. The legality of the closure was contested by
the bank before the proper court.
depositors and creditors. Moreover, as stated in the
said Morfe case, the effect of the judgment is only to
On November 11, 1988, the Central Bank, ordered the
fix the amount of the debt, and not give priority over
liquidation of Manila Bank and designated Atty. Renan
other depositors and creditors. V. Santos as Liquidator. The liquidation, however, was
It is also contended by the petitioners that the held in abeyance pending the outcome of the earlier
indefinite stay of execution without ruling as to how suit filed by Manila Bank regarding the legality of its
long it will last, amounts to a deprivation of their closure. Consequently, the designation of Atty. Renan
property without due process of law. V. Santos as Liquidator was amended by the Central
Bank on December 22, 1988 to that of Statutory
Receiver.
Said contention, likewise, is devoid of merit.
Apart from the fact that the stay of execution is not
In the interim, Manila Banks then acting president,
only in accordance with law but is also supported by the late Vicente G. Puyat, in a bid to save the banks
jurisprudence, such staying of execution is not without investment, started scouting for possible investors
a time limit. In fact, the Monetary Board, in its who could finance the completion of the building
resolution No. 4-33 approved the liquidation of earlier mentioned. On August 18, 1989, a group of
respondent bank on April 26, 1985 and ordered, investors, represented by Calixto Y. Laureano
among others, the filing of a petition in the Regional (Laureano group), wrote Vicente G. Puyat offering to
lease the building for 10 years and to advance the cost
Trial Court praying for assistance of said court in the
to complete the same, with the advanced cost to be
liquidation of the bank. The staying of the writ of
amortized and offset against rental payments during
execution will be lifted after approval by the the term of the lease. Likewise, the letter-offer stated
liquidation court of the project of distribution, and the that in consideration of advancing the construction
liquidator or his deputy will authorize payments to all cost, the group wanted to be given the exclusive
claimants concerned in accordance with the approved option to purchase the building and the lot on which it
project of distribution. was constructed.

Since no disposition of assets could be made due to


ABACUS REAL ESTATE DEVELOPMENT CENTER,
the litigation concerning Manila Banks closure, an
INC., VS. THE MANILA BANKING CORPORATION
arrangement was thought of whereby the property
G.R. No. 162270. April 06, 2005, J. Garcia, Third
would first be leased to Manila Equities Corporation
Division
(MEQCO), a wholly-owned subsidiary of Manila Bank,
with MEQCO thereafter subleasing the property to the
The appointment of a receiver operates to suspend the
24
Laureano group. the RTC.

Vicente G. Puyat accepted the Laureano groups offer Abacus insists that the option to purchase the lot and
and granted it an exclusive option to purchase the lot building in question granted to it by the late Vicente
and building for P150,000,000.00. Later, or on G. Puyat, then acting president of Manila Bank, was
October 31, 1989, the building was leased to MEQCO binding upon the latter. On the other hand, Manila
for a period of 10 years pursuant to a contract of lease Bank has consistently maintained that the late Vicente
bearing that date. On March 1, 1990, MEQCO G. Puyat had no authority to act for and represent
subleased the property to petitioner Abacus Real Manila Bank, the latter having been placed under
Estate Development Center, Inc. (Abacus, for short), a receivership by the Central Bank at the time of the
corporation formed by the Laureano group for the granting of the exclusive option to purchase.
purpose, under identical provisions as that of the
October 31, 1989 lease contract between Manila Bank ISSUE: Whether or not Abacus has acquired the right
and MEQCO. to purchase the lot and building.

The Laureano group was, however, unable to finish the HELD: No. Abacus has not acquired the right to
building due to the economic crisis brought about by purchase the lot and building.
the failed December 1989 coup attempt. On account
thereof, the Laureano group offered its rights in There can be no quibbling that respondent Manila
Abacus and its exclusive option to purchase to Bank was under receivership, pursuant to Central
Benjamin Bitanga (Bitanga) for P20,500,000.00. Banks MB Resolution No. 505 dated May 22, 1987, at
Bitanga would later allege that because of the the time the late Vicente G. Puyat granted the
substantial amount involved, he first had to talk with exclusive option to purchase to the Laureano group of
Atty. Renan Santos, the Receiver appointed by the investors. Owing to this defining reality, the appellate
Central Bank, to discuss Abacus offer. Bitanga further court was correct in declaring that Vicente G. Puyat
alleged that, over lunch, Atty. Santos then verbally was without authority to grant the exclusive option to
approved his entry into Abacus and his take-over of purchase the lot and building in question. The
the sublease and option to purchase. invocation by the appellate court of the following
pronouncement in Villanueva vs. Court of Appeals was
On March 30, 1990, the Laureano group transferred apropos, to say the least:
and assigned to Bitanga all of its rights in Abacus and
the exclusive option to purchase the subject land and The assets of the bank pass beyond its
building. control into the possession and control
On September 16, 1994, Abacus sent a letter to of the receiver whose duty it is to
Manila Bank informing the latter of its desire to administer the assets for the benefit of
exercise its exclusive option to purchase. However, the creditors of the bank. Thus, the
Manila Bank refused to honor the same. Abacus filed a appointment of a receiver operates to
complaint for specific performance and damages suspend the authority of the bank and
against Manila Bank and/or the Estate of Vicente G. of its directors and officers over its
Puyat. In its complaint, plaintiff Abacus prayed for a property and effects, such authority
judgment ordering Manila Bank, inter alia, to sell, being reposed in the receiver, and in
transfer and convey unto it for P150,000,000.00 the this respect, the receivership is
land and building in dispute free from all liens and equivalent to an injunction to restrain
encumbrances, plus payment of damages and the bank officers from intermeddling
attorneys fees. with the property of the bank in any
way.
In an Order dated April 15, 1996, the trial court
granted the motion to dismiss filed by the Estate of With respondent bank having been already placed
Vicente G. Puyat, but denied the motion to dismiss of under receivership, its officers, inclusive of its acting
Manila Bank. president, Vicente G. Puyat, were no longer authorized
to transact business in connection with the banks
RTC ruled in favor of Abacus and ordered Manila Bank assets and property. Clearly then, the exclusive option
to immediately sell to the former the subject land and to purchase granted by Vicente G. Puyat was and still
improvements. The CA however reversed the ruling of is unenforceable against Manila Bank.

25
Clearly, the receiver appointed by the Central Bank to placing it under receivership.
take charge of the properties of Manila Bank only had
authority to administer the same for the benefit of its Vivas argued that despite the deficiencies,
creditors. Granting or approving an exclusive option to inadequacies and oversights in the conduct of the
purchase is not an act of administration, but an act of affairs of ECBI, it has not committed any financial
strict ownership, involving, as it does, the disposition fraud and, hence, its placement under receivership
of property of the bank. Not being an act of was unwarranted and improper. The BSP should have
administration, the so-called approval by Atty. Renan taken over the management of ECBI and extended
Santos amounts to no approval at all, a bank receiver loans to the financially distrained bank pursuant to
not being authorized to do so on his own. Sections 11 and 14 of R.A. No. 7353 because the
BSPs power is limited only to supervision and
VIVAS VS. MONETARY BOARD OF THE BANGKO management take-over of banks.
SENTRAL NG PILIPINAS
G.R. No. 191424. August 7, 2013, J. Mendoza, He contends that the implementation of the
Third Division questioned resolution was tainted with arbitrariness
and bad faith, stressing that ECBI was placed under
If we rule that the questioned Section 113 of Central receivership without due and prior hearing in
Bank Circular No. 960 which exempts from violation of his and the banks right to due process.
attachment, garnishment, or any other order or
process of any court, legislative body, government Lastly, Vivas assails the constitutionality of Section 30
agency or any administrative body whatsoever, is of R.A. No. 7653 claiming that said provision vested
applicable to a foreign transient, injustice would result upon the BSP the unbridled power to close and place
especially to a citizen aggrieved by a foreign guest under receivership a hapless rural bank instead of
aiding its financial needs. He is of the view that such
FACTS: The Rural Bank of Faire, Incorporated (RBFI) power goes way beyond its constitutional limitation
was a duly registered rural banking institution in and has transformed the BSP to a sovereign in its own
Cagayan. The corporate life of RBFI expired on May "kingdom of banks."25
31, 2005.
ISSUES: (1) Whether or not the Monetary Board acted
Alfeo Vivas and his principals acquired the controlling in grave abuse of discretion in placing ECBI under
interest in RBFI. The Bangko Sentral ng Pilipinas receivership. (NO, there was no grave abuse of
(BSP) issued the Certificate of Authority extending the disretion) (2) Whether or not Section 30 of R.A. No.
corporate life of RBFI for another fifty years. The BSP 7653 is unconstitutional. (NO, constitutionality of a
also approved the change of its corporate name to law cannot be assailed by collateral attack)
EuroCredit Community Bank, Incorporated (ECBI).
RULING:
After a series of examinations, the Monetary Board
(MB) issued Resolution No. 276 placing ECBI under The MB Committed No Grave Abuse of Discretion
receivership because it (a) is unable to pay its
liabilities as they become due in the ordinary course of ECBI was given every opportunity to be heard and
business; (b) has insufficient realizable assets to meet improve on its financial standing. The records disclose
liabilities; (c) cannot continue in business without that BSP officials and examiners met with the
involving probable losses to its depositors and representatives of ECBI, including Vivas, and
creditors; and (d) has willfully violated a cease and discussed their findings. There were also reminders
desist order of the Monetary Board for acts or that ECBI submit its financial audit reports for the
transactions which are considered unsafe and years 2007 and 2008 with a warning that failure to
unsound banking practices and other acts or submit them and a written explanation of such
transactions constituting fraud or dissipation of the omission shall result in the imposition of a monetary
assets of the institution. penalty. More importantly, ECBI was heard on its
motion for reconsideration. For failure of ECBI to
Assailing MB Resolution No. 276, Vivas filed this comply, the MB came out with Resolution No. 1548
petition for prohibition before this Court, ascribing denying its request for reconsideration of Resolution
grave abuse of discretion to the MB for prohibiting No. 726. Having been heard on its motion for
ECBI from continuing its banking business and for reconsideration, ECBI cannot claim that it was

26
deprived of its right under the Rural Bank Act. Close In light of the circumstances obtaining in this case,
Now, Hear Later Rule not Violative of Due Process the application of the corrective measures enunciated
in Section 30 of R.A. No. 7653 was proper and
If circumstances warrant it, the MB may forbid a bank justified. Management take-over under Section 11 of
from doing business and place it under receivership R.A. No. 7353 was no longer feasible considering the
without prior notice and hearing. financial quagmire that engulfed ECBI showing
serious conditions of insolvency and illiquidity.
The Court, in several cases, upheld the power of the Besides, placing ECBI under receivership would
MB to take over banks without need for prior hearing. effectively put a stop to the further draining of its
It is not necessary inasmuch as the law entrusts to the assets.
MB the appreciation and determination of whether
any or all of the statutory grounds for the closure and Constitutionality of Statute not subject to Collateral
Attack
receivership of the erring bank are present. The MB,
under R.A. No. 7653, has been invested with more
power of closure Vivas attempt to assail the constitutionality of Section
and placement of a bank under receivership for 30 of R.A. No. 7653 constitutes collateral attack
insolvency or illiquidity, or because the banks on the said provision of law. Nothing is more settled
continuance in business would probably result in the than the rule that the constitutionality of a statute
loss to depositors or creditors. cannot be collaterally attacked as constitutionality
issues must be pleaded directly and not collaterally. A
collateral attack on a presumably valid law is not
The "close now, hear later doctrine has already been
permissible. Unless a law or rule is annulled in a
justified as a measure for the protection of the
direct proceeding, the legal presumption of its validity
public interest. Swift action is called for on the part of
stands.
the BSP when it finds that a bank is in dire straits.
Unless adequate and determined efforts are taken by
No Undue Delegation of Legislative Power
the government against distressed and mismanaged
There are two accepted tests to determine whether or
banks, public faith in the banking system is certain to
not there is a valid delegation of legislative power: (a)
deteriorate to the prejudice of the national economy
Under the completeness test, the law must be
itself, not to mention the losses suffered by the bank
complete in all its terms and conditions when it leaves
depositors, creditors, and stockholders, who all
the legislature such that when it reaches the delegate
deserve the protection of the government.
the only thing he will have to do is enforce it. (b)
Under the sufficient standard test, there must be
Due process does not necessarily require a prior
adequate guidelines or stations in the law to map out
hearing; a hearing or an opportunity to be heard may
the boundaries of the delegate's authority and prevent
be subsequent to the closure. One can just imagine
the delegation from running riot. Both tests are
the dire consequences of a prior hearing: bank runs
intended to prevent a total transference of legislative
would be the order of the day, resulting in panic and
authority to the delegate, who is not allowed to step
hysteria.
into the shoes of the legislature and exercise a power
essentially legislative.
Accordingly, the MB can immediately implement its
resolution prohibiting a banking institution to do
In this case, under the two tests, there was no undue
business in the Philippines and, thereafter, appoint the
delegation of legislative authority in the issuance of
PDIC as receiver. The procedure for the involuntary
R.A. No. 7653. To address the growing concerns in the
closure of a bank is summary and expeditious in
banking industry, the legislature has sufficiently
nature. Such action of the MB shall be final and
empowered the MB to effectively monitor and
executory, but may be later subjected to a judicial
supervise banks and financial institutions and, if
scrutiny via a petition for certiorari to be filed by the
circumstances warrant, to forbid them to do business,
stockholders of record of the bank representing a
to take over their management or to place them under
majority of the capital stock. Obviously, this procedure
receivership. The legislature has clearly spelled out
is designed to protect the interest of all concerned,
the reasonable parameters of the power entrusted to
that is, the depositors, creditors and stockholders, the
the MB and assigned to it only the manner of
bank itself and the general public. The protection
enforcing said power. In other words, the MB was
afforded public interest warrants the exercise of a
given a wide discretion and latitude only as to how the
summary closure.
law should be implemented in order to attain its
27
objective of protecting the interest of the public, the to resume business with safety to depositors, creditor
banking industry and the economy. and the general public; or
2) It is indeed insolvent or cannot resume
NOTE: Vivas availed the wrong remedy for business with safety to depositors, creditors
prohibition. The Monetary Board issued Resolution and the
No. 276 in the exercise of its power under R.A. No. general public, and public interest
7653. Under Section 30 thereof, any act of the MB requires that it be liquidated.
placing a bank under conservatorship, receivership or
liquidation may not be restrained or set aside except In this latter case (i.e., the bank can no longer
on a petition for certiorari. resume business with safety to depositors, creditors
and the public, etc.) its liquidation will be ordered and
Granting that a petition for prohibition is allowed, it is a liquidator appointed by the Monetary Board. The
already an ineffective remedy under the Central Bank shall thereafter file a petition in the RTC
circumstances. As a rule, the proper function of a writ praying for the Courts assistance in the liquidation of
of prohibition is to prevent the doing of an act which is the bank.
about to be done. It is not intended to provide a
remedy for acts already accomplished. It is noteworthy that the actions of the
Monetary Board in this regard are explicitly declared
C.4 Liquidation to be final and executory. They may not be set aside
APOLLO M. SALUD v. CENTRAL BANK OF THE or even restrained or enjoined by the court, except
PHILIPPINES only upon convincing proof that the action is plainly
G.R. No. L-17630 | AUGUST 19, 1986 | NARVASA, arbitrary and made in bad faith.
J. | FIRST DIVISION

A Petition for Assistance in the Liquidation of


In a petition by the Central Bank for
Rural Bank of Muntinlupa, Inc. was filed with the CFI
assistance in the liquidation of a bank allegedly
at Pasay City (RTC) by the Central Bank and the
insolvent, the latter may interpose in the same action,
designated Liquidator, Consolacion Odra. The petition
as an affirmative defense or counterclaim, that the CB
alleged that on the strength of the provisions in
action is plainly arbitrary and made in bad faith.
Section 29, the Monetary Board had adopted two (2)
The IAC (CA) has no direct appellate
resolutions, viz:
jurisdiction over resolutions or orders of the Central
1) Resolution No. 213, forbidding the Muntinlupa
Banks Monetary Board.
Bank to do business and designating
Consolacion Odra its statutory receiver; and
Facts
2) Resolution No. 1523, ordering liquidation of the
The Rural bank of Muntinlupa, Inc. and its
Muntinlupa Bank after confirmation that it
stockholders filed a petition for certiorari to annul the
was insolvent and could not resume business
resolutions of the IAC upon the theory that said
with safety to all concerned, and that public
resolutions are so far contrary to the provisions of
interest did require said liquidation.
Section 29 of the Central bank Act (old law) and
relevant rulings of the Supreme Court as to constitute
The RTC declared the actions taken by the
grave abuse of discretion.
Monetary Board to be arbitrary and dismissed the
petition for assistance in liquidation for lack of merit.
Sec. 29. Proceedings upon insolvency. (summary)
It opined that Muntinlupa Bank had more assets as
Whenever it shall appear prima facie that a
against liabilities and hence could not be considered
banking institution is in a condition of insolvency or
in the state of insolvency. It also ruled that
so situated that its continuance in business would
conservatorship under Section 28-A and not
involve probable loss to its depositors or creditors,
liquidation under Section 29, was the appropriate and
the Monetary Board has authority:
mandatory remedy. IAC rendered judgment on
First, to forbid the institution to do business
November 22, 1984 declaring:
and appoint a receiver therefor; and 1) While the Monetary Board had power to
Second, to determine, within 60 days, whether determine whether a rural banks continuance in
or not: business would involve probable loss to its
1) The institution may be reorganized and clients or creditors, etc.,the matter of
whether
rehabilitated to such an extent as to be
or not such findings by the Monetary Board is
permitted equipped with abuse in its issuance is subject
28
to judicial inquiry, assistance in liquidation, but only as a cause of action
2) However, because the RTC dismissed outright in a separate and distinct action. Nor can this Court
the petition for assistance on the basis of see why a full-blown hearing on the issue is possible
respondents opposition without a hearing only if it is asserted as cause of action, but not when
held for both parties to substantiate their set up by way of an affirmative defense, or a
allegations in their respective pleadings,it counterclaim. There is no provision of law which
had exceeded its authority. expressly or even by implication imposes the
requirement for a separate proceeding exclusively
But upon motion for reconsideration of the occupied with adjudicating this issue.
Central Bank and its Liquidator, the IAC clarified, if
not modifiedits Decision. By a RESOLUTION, after Moreover, to declare the issue as beyond the
simply adverting to the motion for reconsideration scope of matters cognizable in a proceeding for
which it found to be in accordance with law and assistance in liquidation would be to engender that
jurisprudence, it amended the dispositive part by multiplicity of proceedings which the law abhors.
declaring the challenged Orders Null and Void. The Indeed, the failure to assert, as a ground of defense or
respondent court is ordered to approve the petition for objection to a proceeding for assistance in liquidation,
Assistance in the Liquidation of the Rural Bank of the fact that the resolution of the Monetary Board
Muntinlupa, Inc., and to assist in its liquidation. authorizing the initiation of such a proceeding is
arbitrary and made in bad faith, would constitute a
Issue waiver thereof, conformably with the rule of Waiver
WON the Resolutions of the IAC should be set of Defenses, to the effect that defenses and
aside on the ground that they were issued without or objections not pleaded either in a motion to dismiss or
in excess of jurisdiction or with grave abuse of in the answer are (generally) deemed waived, or the
discretion. Omnibus Motion Rule, providing that A motion
attacking a pleading or a proceeding shall include all
Ruling objections then available, and all objections not so
YES. The Resolutions of the IAC are set aside included shall be deemed waived. The IAC has no
and the Decision dated November 22, 1984 is appellate jurisdiction over resolutions or orders of the
reinstated. Monetary Board. No law prescribes any mode of
appeal from Monetary Board to the IAC. The
Resolutions of the Monetary Board under contention is moreover consistent with the text of
Section 29 of the Central Bank Act e.g., forbidding Section 29 of the Central Bank Act. It is inconsistent
banking institutions to do business on account of a as well with the Central Banks own theory in this
condition of insolvencyor because its continuance case, which concedes original jurisdiction over the
in business would involve probable loss to depositors matter in the RTC provided it is alleged as a cause of
or creditors,or appointing a receiver to take charge action in a suit distinct from a proceeding for
of the banks assets and liabilities; or determining assistance in liquidation.
whether the banking institutions may be rehabilitated,
BANCO FILIPINO, petitioner, vs. MONETARY
or should be liquidated and appointing a liquidator
BOARD, ET AL., respondents.
towards this end are by law final and executory.
But they can be set aside by the court on one G.R. No. 70054, 1986-07-08
specific ground, and that is, if there is convincing
proof that the action is plainly arbitrary and made in
KEY DOCTRINE: In passing on a motion for discovery
bad faith.The Central Bank concedes this power in
of documents, the courts should be liberal in
the court, but insists that that setting aside can not
determining whether or not documents are relevant to
be done in the same proceedings for assistance in
the subject matter of action. Likewise, any statute
liquidation, but in a separate action instituted
declaring in general terms that official records are
specifically for the purpose.
confidential should be liberally construed, to have an
implied exception for disclosure when needed in a
This Court perceives no reason whatever why
court.
a banking institutions claim that a resolution of the
Monetary Board under Section 29 of the Central Bank
The RTC of Makati City, granted, through an order, the
Act should be set aside as plainly arbitrary and made
motion of petitioner Banco Filipino (BF) for the
in bad faith, cannot be asserted as an affirmative
production, inspection, and copying of certain papers
defense or counterclaim in the proceeding for
29
and records which are claimed as needed for the reports did not satisfy respondent Governor Fernandez
preparation of its comments, objections, and and he ordered the examiners and the conservator,
exceptions to the Conservator's report. The documents Gilberto Teodoro, to "improve" them; and (d) that the
are: (1) Copies of tapes and transcripts of respondent reports were then fabricated.
Monetary Board (MB) deliberations and meetings on
the closure of BF; (2) Copies of the letter and reports ISSUE: Are the documents sought to be produced by
of first conservator, Estanislao, to the MB; (3) BF, privileged?
Computations of all the interests and penalties
charged by the CB against BF; (4) Schedule of RULING: NO. We accept the view taken by the court
recommended valuation of reserves per Mr. Tiaoqui's below that the documents are not privileged.
report; (5) Adjustment per Annex "C" of Mr. Tiaoqui's
report; (6) Annexes "A", "B", and "C" of the joint report The motion for the production of the subject
of Mr. Tiaoqui,et al.; (7) Schedule of devaluation of documents was filed by petitioner pursuant to Section
CB-premises of Paseo de Roxas of same report; (8) 1, Rule 27, of the Rules of Court. It has been held that
Schedule of BF's assets from P5,159.44 B to P3,909.23 a party is ordinarily entitled to the production of
B; (9) Documents listed in BF's letter to Mr. books, documents and papers which are material and
Valenzuela. relevant to the establishment of his cause of action or
defense. The test to be applied by the trial judge in
The court considered the documents sought to be determining the relevancy of documents and the
produced as not privileged because these constitute or sufficiency of their description is one of
contain evidence material to the issue. These reasonableness and practicability. On the ground of
materials are said to compromise of records of the public policy, the rules providing for reproduction and
administrative proceedings conducted by MBs inspection of books and papers do not authorize the
officials and representatives from the inception of and production or inspection of privileged matter, that is,
preparation of the challenged reports and the books, papers which because of their confidential and
resolution placing petitioner under receivership and privileged character could not be received in
thereafter under liquidation as it is the regularity and evidence.
impartiality of these administrative proceedings which
are being assailed by BF. Respondents MB and Central With respect to Items Nos. 3 to 9, these are the
Bank (CB) challenged the said order, arguing that the annexes to the Supervision and Examination Sector,
proceedings before it do not at all deal with either the Dept. II (SES) Reports submitted to the Central Bank
administrative proceedings or the regularity and and Monetary Board which were taken into
impartiality of the CB actions on BF and that the tapes consideration by said respondents in closing petitioner
and transcripts of the MB deliberations are bank. A copy of the SES Reports was furnished to the
confidential pursuant to Sections 13 and 15 of the petitioner. We, therefore, fail to see any proper reason
Central Bank Act. why the annexes thereto should be withheld.
Petitioner cannot adequately study and properly
In its Comment, BF contended that there is no reason analyze the report without the corresponding annexes.
why it should not be furnished the documents, Pertinent and relevant, these could be useful and even
particularly Nos. 3 to 9 of its motion, when these are necessary to the preparation by petitioner of its
merely attachments to the Supervision and comment, objections and exceptions to the
Examination Sector, Dept. II (SECS) Reports, copies of Conservator's reports and receiver's reports.
which were given to it pursuant to a Supreme Court Regarding copies of the letter and reports of first
order; that the Supreme Court in its referral to the Conservator, Mr. Estanislao, to the MB and to CB
RTC Makati intended full evidence taking of the Governor Fernandez (Item No. 2) these appear
proceeding for judicial review of administrative action relevant as petitioner has asserted that the above-
filed with the SC, the trial court being better equipped named Conservator had in fact to resume normal
for evidence taking; and that the requested documents operations of BF but then he was thereafter replaced
are records of the CB that are material and relevant by Mr. Teodoro. The latter and reports could be
because BF is entitled to prove from the CB records favorable or adverse to the case of petitioner but
(a) that Governor Fernandez closed BF without an MB whatever the result may be, petitioner should be
resolution and without examiner's reports on the allowed to photocopy the same. As to the tapes and
financial position of BF; (b) that a MB resolution was transcripts of the MB deliberations on the closure of
later made to legalize the BF closure but it had no BF and its meetings (Item No. 1), respondents contend
supporting examiner's report; (c) that the earlier
30
that "it is obvious from the requirement (Sections 13 against the bank.
and 15 of the Central Bank Act) that the subject All claims against the insolvent bank should be
filed in the liquidation proceeding.
matter of the deliberations, when resolved, shall be
It is not necessary that a claim be initially
made available to the public but the deliberations disputed in a court or agency before it is filed
themselves are not open to disclosure but are to be with the liquidation court.
kept in confidence. This Court, however, sees it in a
different light. The deliberations may be confidential Facts
but not necessarily absolute and privileged. There is The Rural Bank of Olongapo, Inc. (RBO) was
no specific provision in the Central Bank Act, even in the owner in fee simple of two parcels of land
Section 13 and 15 thereof, which prohibits absolutely including the improvements thereon situated in
the courts from conducting an inquiry on said Tagaytay City. The said parcels of land were duly
deliberations when these are relevant or material to a mortgaged by RBO in favor of Jerry Ong to guarantee
matter subject of a suit pending before it. The the payment of Omnibus Finance, Inc., which is
disclosure is here not intended to obtain information likewise undergoing liquidation proceedings of its
for personal gain. There is no indication that such money market obligations to petitioner in the principal
disclosure would cause detriment to the government, amount of P963,517.02.
to the bank or to third parties. Significantly, it is the
bank itself here that is interested in obtaining what it For failure of Omnibus Finance, Inc. to
considers as information useful and indispensably seasonably settle its obligations to Jerry Ong, the
needed by it to support its position in the matter being latter proceeded to effect the extrajudicial foreclosure
inquired to by the court below. of said mortgages, such that the City Sheriff of
Tagaytay City issued a Certificate of Sale in favor
On the other hand, respondents cite Section 21, Rule Jerry. Such Certificate of Sale was duly registered with
130, Rules of Court which states that an officer cannot the Registry of Deeds of Tagaytay City.
be examined during his term of officer or afterwards,
as to communications made to him in official RBO failed to seasonably redeem the said
confidence, when the court finds that the public parcels of land, for which reason, Jerry Ong has
interest would suffer by disclosure. executed an Affidavit of Consolidation of Ownership
which, to date, has not been submitted to the RD of
But this privilege, as this Court notes, is intended not Tagaytay City, in view of the fact that possession of the
for the protection of public officers but for the aforesaid titles or owners duplicate certificate of title
protection of public interest. Where there is no public remains with RBO.
interest that would be prejudiced, this invoked rule
will not be applicable. In the case at bar, the To date, Jerry Ong has not been able to effect
respondents have not established that public interest the registration of said parcels of land in his name in
would suffer by the disclosure of the papers and view of the persistent refusal of RBO, despite demand,
documents sought by petitioner. Considering that to surrender RBOs copies of its certificate of title for
petitioner bank was already closed as of January 25, the parcels of land.
1985, any disclosure of the aforementioned letters,
reports, and transcripts at this time pose no danger or Hence, Jerry Ong filed with the Regional Trial
peril to our economy. Neither will it trigger any bank Court of Quezon City a petition for the surrender of
run nor compromise state secrets. On the contrary, two (2) TCTs of two parcels of land pursuant to the
public interests will be served by the disclosure of the provisions of Secs. 63(b) and 107 of PD 1529 against
documents. Not only the banks and its employees but Rural Bank of Olongapo, Inc. (RBO).
also its numerous depositors and creditors are entitled
to be informed as to whether or not there was a valid RBO filed a motion to dismiss on the ground
and legal justification for the petitioner's bank closure. that it was undergoing liquidation and, pursuant to
prevailing jurisprudence, it is the liquidation court
JERRY ONG v. CA and RURAL BANK OF which has exclusive jurisdiction to take cognizance of
OLONGAPO, INC. petitioners claim.
G.R. No. 112830 | FEBRUARY 1, 1996 |
BELLOSILLO, J. | FIRST DIVISION The trial court denied the motion to dismiss
holding that: (a) subject parcels of land were sold to
The court shall have jurisdiction in the same Jerry Ong through public bidding and, consequently,
proceedings to adjudicate disputed claims said pieces of realty were no longer part of the assets
31
of RBO; and (b) in the same token, subject lots were cannot be considered a disputed claim as
no longer considered assets of RBO when its contemplated by law.
liquidation was commenced by the Central Bank and
when the petition for assistance in its liquidation was It is not necessary that a claim be initially
approved by the RTC of Olongapo City. disputed in a court or agency before it is filed with the
liquidation court. The term disputed claim in the
CA reversed the decision of RTC of Quezon provision simply connotes that
City noting that in Sec 29, par 3 of RA 265 as in the course of the liquidation,
amended by PD 1827 does not limit the jurisdiction of contentious cases might arise wherein a full-
the liquidation court to claims against the assets of the dress hearing would be required and legal
insolvent bank. It also noted that the certificates of issues would have to be resolved. Hence, it
title are still in the name of RBO. As far as third would be necessary in justice to all concerned
persons are concerned, registration is the operative that a RTC assist and supervise the liquidation
act which would convey title to the property. and act as umpire or arbitrator in the
allowance and disallowance of claims.
Issue
WON the RTC of Quezon City (civil case) has Since RBO is insolvent, other claimants not privy to
jurisdiction and the civil case may proceed their transaction may be involved. As far as those
independently of the liquidation proceedings in RTC of claimants are concerned, in the absence of certificates
Olongapo City. of title in the name of petitioner, subject lots still form
part of the assets of the insolvent bank.
Ruling
No. Under Section 29, par 3 of RA 265 as On the basis of the Hernandez case as well as
amended by PD 1827, the liquidation court shall have Sec 29, par 3 of RA 265 as amended by PD 1827, CA
jurisdiction in the same proceedings to adjudicate was correct in holding that the RTC of Quezon City did
disputed claims against the bank. not have jurisdiction over the petition. Much less in
ordering the dismissal of the civil case, without
As held in Hernandez v. Rural Bank of Lucena, prejudice to petitioners right to file his claim in the
Inc., the fact that the insolvent bank is forbidden to do liquidation proceedings before RTC of Olongapo City.
business, that its assets are turned over to the
Superintendent of Banks, as a receiver, for conversion
into cash, and that its liquidation is undertaken with
judicial intervention means that, as far as lawful and
practicable, all claims against the insolvent bank
should be filed in the liquidation proceeding.

The rationale behind the provision, i.e., the


judicial liquidation is intended to prevent multiplicity
of actions against the insolvent bank. It is a pragmatic
arrangement designed to establish due process and
orderliness in the liquidation of the bank, to obviate
the proliferation of litigations and to avoid injustice
and arbitrariness. The lawmaking body contemplated
that for convenience only one court, if possible, should
pass upon the claims against the insolvent bank and
that the liquidation court should assist the
Superintendent of Banks and regulate his operations.

The phrase The court shall have jurisdiction


in the same proceedings to adjudicate disputed claims
against the bank appears to have misled petitioner.
He argues that to the best of his personal knowledge
there is no pending action filed before any court or
agency which contests his right over subject
properties. Thus his petition before the RTC of QC
32
DOMINGO R. MANALO vs. COURT OF APPEALS 2 Whether or not the bank closed by the
(Special Twelfth Division) and PAIC SAVINGS Monetary Board retains its juridical
personality?
AND MORTGAGE BANK. G.R. No. 141297,
October 8, 2001, PUNO, J. Ruling:

DOCTRINE: NO.
In fine, the exclusive jurisdiction of the liquidation
court pertains only to the adjudication of claims
1. Section 29 of the Central Bank Act provided: The
against the bank. It does not cover the reverse
liquidator designated as hereunder provided shall, by
situation where it is the bank which files a claim
the Solicitor General, file a petition in the Regional
against another person or legal entity.
Trial Court reciting the proceedings which have been
taken and praying the assistance of the court in the
A bank which had been ordered closed by the liquidation of such institution. The court shall have
Monetary Board retains its juridical personality which jurisdiction in the same proceedings to assist in the
can sue and be sued through its liquidartor. adjudication of disputed claims against the bank
or non-bank financial intermediary performing
FACTS: quasi-banking functions and the enforcement of
individual liabilites of the stockholders and do all that
S. Villanueva Enterprise through its President, is necessary to preserve the assets of such institution
Therese Vargas, obtained a loan from PAIC Savings. To and to implement the liquidation plan approved by the
secure payment of the loan, Vargas executed a Monetary Board.
mortgage. The latter defaulted in paying the
amortization, hence, PAIC extrajudicially foreclosed Petitioner apparently failed to appreciate the correct
the mortgage after demanding for payment. After the meaning and import of the above-quoted law. The legal
foreclosure sale in whuch PAIC became the highest provision only finds operation in cases where there are
bidder, the title of the lot was then consolidated in its claims against an insolvent bank. It does not
name. cover the reverse situation where it is the bank
which files a claim against another person or legal
The Central Bank filed a petition with the RTC for
assistance in the liquidation of PAIC. In the meantime,
2. YES.
PAIC Savings filed a petiton before RTC Pasay for the
issuance of a writ of possession for the subject
A bank which had been ordered closed by the
property as it has already consolidated its title. During
monetary board retains its juridical personality
the pendency of that case, Vargas sold the land to one
which can sue and be sued through its liquidator.
Angsico. Notwithstanding this sale, Vargas, still
The only limitation being that the prosecution or
representing herself to be the lawful owner of the
defense of the action must be done through the
property, leased the same to petitioner Domingo R.
liquidator. Otherwise, no suit for or against an
Manalo. The court then granted the writ of possession
insolvent entity would prosper. In such situation,
to PAIC. Manalo entered into another lease
banks in liquidation would lose what justly belongs to
agreement, this time with PAIC, represented by its
them through a mere technicality.
liquidator.

That the law allows a bank under liquidation to


Manalo postulates that the lower court should have
participate in an action can be clearly inferred from
dismissed P!ICs Petition for Issuance
the third paragraph of the same Section 29 of The
of Writ of Possession for want of jurisdiction over the
Central Bank Act earlier quoted, which authorizes or
subject matter of the claim. It claimed that the power
empowers a liquidator to institute actions, thus:
to hear the same exclusively vests with the Liquidation
Court pursuant to the Central Bank Act.
He (liquidator) may in the name of the bank or non-
bank financial intermediary performing quasi-banking
Issue:
functions and with the assistance of counsel as he may
retain, institute such actions as may be necessary in
1 Whether the the lower court should have
dismissed the petition for Issuance of Writ of the appropriate court to collect and recover accounts
Possession as the it is within the exclusive and assests of such institution or defend any action
jurisdiction of the Liquidatio Court? filed against the institution.
33
respondent must be limited to the aggregate amount
RURAL BANK OF STA. CATALINA, INC., of its oustanding liability as of the date of its closure,
represented by The Philippine Deposit Insurance inclusive of penalties and interest. It further said that
Corporation, in its capacity as Liquidator vs. the PDIC cannot be faulted for failing to answer and to
LAND BANK OF THE PHILIPPINES G.R. No. move for reconsidertation of the default order of the
148019, July 26, 2004, CALLEJO, SR., J. trial court and the CA because it had no knowledge of
DOCTRINE: cases filed against the petitoner. Such claims do not
A defending party declared in default loses his gain merit.
standing in court and his right to adduce evidence
and to present his defense. The record showed that the PDIC was designated by
the Central Bank as receiver of the Sta. Catalina Rural
FACTS: Bank as early as January 14, 1998, and in the course
of its management of the petitioner banks affairs, it
Respondent Land Bank filed a suit for collection of should have known of the pendency of the case
sum of money against Sta. Catalina Rural Bank. In against the latter in the trial court. Moreover, the
that case, the rural bank was declared in default for petitioner, through the PDIC, received a copy of the
its failure to file answer. Despite the receipt of the decision of the trial court on June 2, 1998, but did not
order of default, it failed to file a motion to set aside bother filing a motion for partial reconsideration or a
the same. motion to set aside the order of default. Instead, the
petitioner appealed the decision, and even failed to
In the meantime, the Monetary Board ordered the assign as an error the default order of the trial court.
banks assets be placed under receivership on January The petitioner is, thus, barred from relying on the
14, 1998, the PDIC being the receiver. Unaware of the orders of the Monetary Board of the Central Bank of
action of the Monetary Board, the trial court ordered the Philippines placing its assets and affairs under
Sta. Catalina Rural Bank to pay Landbank by virtue of receivership and ordering its liquidation.
the collection suit agaisnt it. The petitioer, through the
PDIC, appealed the decision to the CA stating that the Given this, the petitioner that was declared in default
petitioner bank remained insolvent and therefore losses his standing in the court and his right to adduce
should not be held liable for the payment of interest evidence and present his defense. And, the decision
and penlty on its loan after it has been placed under ordering the petitioner to pay interest after it has
receivership. been placed under reciverhip must be respected.
However, the petitioner can appeal the judgment only
The rural bank asserts that its liability to the on the ground that its is excessive or different in kind
Landbank under its availments must be limited only to from the one prayed for.
the aggregate amount of its outstanding liability as of
the date of its closure, inclusive of accrued interests LETICIA G. MIRANDA v. PHILIPPINE DEPOSIT
and penalties. It also avers that the PDIC, as the INSURANCE CORPORATION, BANGKO SENTRAL
liquidator, should not be faulted for failing to file its NG PILIPINAS and PRIME SAVINGS BANK
Answer to the complaint and to move for a G.R. No. 169334 , September 8, 2006, FIRST
reconsideration of the default order in the trial court DIVISION, YNARES-SANTIAGO, J.
and in the CA, because it had no knowledge of the
case filed against the rural bank. The rationale behind judicial liquidation is
intended to prevent multiplicity of actions against the
ISSUE: insolvent bank. It is a pragmatic arrangement
designed to establish due process and orderliness in
Whether or not Rural Bank of Sta Catalina is still the liquidation of the bank, to obviate the proliferation
liable to pay interest on its loan obligation after it has of litigations and to avoid injustice and arbitrariness.
been placed under receivership?
FACTS:
RULING:
Petitioner Leticia G. Miranda was a depositor
YES. of Prime Savings Bank, Santiago City Branch. She
withdrew substantial amounts from her account, but
The petitioner asserted that its liability to the instead of cash she opted to be issued a crossed
cashier's check. She was thus issued cashier's check
34
in the sum of P2,500,000.00 and in the amount of by Prime Savings Bank to the petitioner created a
P3,002,000.00. debtor/creditor relationship between them. This
disputed claim should therefore be lodged in the
Petitioner deposited the two checks into her liquidation proceedings by the petitioner as creditor,
account in another bank on the same day, however, since the closure of Prime Savings Bank has rendered
Bangko Sentral ng Pilipinas (BSP) suspended the all claims subsisting at that time moot which can best
clearing privileges of Prime Savings Bank effective be threshed out by the liquidation court and not the
2:00 p.m.. The two checks of petitioner were returned regular courts.
to her unpaid. The next day, Prime Savings Bank
declared a bank holiday. Thereafter, BSP placed Prime It is well-settled in both law and jurisprudence
Savings Bank under the receivership of the Philippine that the Central Monetary Authority, through the
Deposit Insurance Corporation (PDIC). Petitioner filed Monetary Board, is vested with exclusive authority to
a civil action for sum of money to recover the funds assess, evaluate and determine the condition of any
from her unpaid checks against Prime Savings Bank, bank, and finding such condition to be one of
PDIC and the BSP. RTC ruled in Mirandas favor. CA insolvency, or that its continuance in business would
reversed. MR was denied. involve a probable loss to its depositors or creditors,
forbid bank or non-bank financial institution to do
ISSUE: business in the Philippines; and shall designate an
1 Is the claim of Miranda under Section 30 of official of the BSP or other competent person as
Republic Act (R.A.) No. 7653, otherwise known receiver to immediately take charge of its assets and
as the New Central Bank Act, and therefore, liabilities.
under the jurisdiction of the liquidation court?
YES.
Hence, as clearly laid down in Ong v. Court of
2 Is Primary Savings Bank and BSP solidarily
liable? NO. Appeals, the rationale behind judicial liquidation is
intended to prevent multiplicity of actions against the
RULING: insolvent bank. It is a pragmatic arrangement
1. The claim lodged by the petitioner qualifies as a designed to establish due process and orderliness in
disputed claim subject to the jurisdiction of the liquidation of the bank, to obviate the proliferation
the liquidation court. Regular courts do not of litigations and to avoid injustice and arbitrariness.
have jurisdiction over actions filed by The lawmaking body contemplated that for
claimants against an insolvent bank, unless convenience, only one court, if possible, should pass
there is a clear showing that the action taken upon the claims against the insolvent bank and that
by the BSP, through the Monetary Board in the the liquidation court should assist the Superintendent
closure of financial institutions was in excess of Banks and regulate his operations.
of jurisdiction, or with grave abuse of
discretion. 2. It is only Prime Savings Bank that is liable to
pay for the amount of the two cashier's
The power and authority of the Monetary Board to checks. Solidary liability cannot attach to the
close banks and liquidate them thereafter when public BSP, in its capacity as government regulator of
interest so requires is an exercise of the police power banks, and the PDIC as statutory receiver
of the State. Police power, however, is subject to under R.A. No. 7653, because they are the
judicial inquiry. It may not be exercised arbitrarily or principal government agencies mandated by
unreasonably and could be set aside if it is either law to determine the financial viability of
capricious, discriminatory, whimsical, arbitrary, unjust, banks and quasi-banks, and facilitate
or is tantamount to a denial of due process and equal receivership and liquidation of closed financial
protection clauses of the Constitution. institutions, upon a factual determination of
the latter's insolvency.
"Disputed claims" refer to all claims, whether they
be against the assets of the insolvent bank, for specific As correctly pointed out by the Court of Appeals,
performance, breach of contract, damages, or the BSP should not be held liable on the crossed
whatever.Petitioner's claim which involved the cashier's checks for it was not a party to the issuance
payment of the two cashier's checks that were not of the same; nor can it be held liable for imposing the
honored by Prime Savings Bank due to its closure falls sanctions on Prime Savings Bank which indirectly
within the ambit of a claim against the assets of the affected Miranda, since it is mandated under Sec. 37
insolvent bank. The issuance of the cashier's checks of

35
R.A. No. 7653 to act accordingly. The BSP, through the Motion for Approval of Project of Distribution of the
Monetary Board was well within its discretion to assets of RBBI, in accordance with Section 31, in
exercise this power granted by law to issue a
relation to Section 30, of Republic Act No. 7653,
resolution suspending the interbank clearing
otherwise known as the New Central Bank Act. The
privileges of Prime Savings Bank, having made a
factual determination that the bank had deficient cash BIR manifested that PDIC should secure a tax
reserves deposited before the BSP. There is no clearance certificate from the appropriate BIR
showing that the BSP abused this discretionary power Regional Office, pursuant to Section 52(C) of Republic
conferred upon it by law. Act No. 8424, or the Tax Code of 1997, before it could
proceed with the dissolution of RBBI. The RTC
In addition, co-respondent PDIC was impleaded as directed PDIC to comply with Section 52(C) of the Tax
a party-litigant only in its representative capacity as
Code of 1997 and held in abeyance the Motion for
the receiver/liquidator of Prime Savings Bank. Both
Approval of Project of Distribution.
BSP and PDIC cannot therefore be held directly and
solidarily liable for the payment of the two cashier's ISSUE:
checks. Sole liability rests with Prime Savings Bank.
1. Does a bank ordered closed and placed
IN RE: PETITION FOR ASSITANCE IN THE under receivership by the Monetary Board of the BSP
LIQUIDATION OF THE RURAL BANK OF BOKOD still need to secure a tax clearance certificate from the
(BENGUET), INC., PDIC v. BUREAU OF BIR before the liquidation court approves the project
INTERNAL REVENUE G.R. No. 158261, December of distribution of the assets of the bank?
18, 2006, FIRST DIVISION (Chico-Nazario, J.) 2. Is the closure of the bank summary in
Key Doctrine: Section 30(d) of the New Central nature?
Bank Act gives the Monetary Board of the BSP the HELD:
power to, summarily and without need for prior
1. No. Section 30 of the New Central Bank Act
hearing, forbid a bank or quasi-bank from doing
lays down the proceedings for receivership and
business in the Philippines and designating the PDIC
liquidation of a bank. The said provision is silent as
as receiver of the banking institution.
regards the securing of a tax clearance from the BIR.
A special examination of RBBI was conducted The omission, nonetheless, cannot compel this Court
by the Supervision and Examination Sector (SES) to apply by analogy the tax clearance requirement of
Department III, now the BSP, wherein various loan the SEC, as stated in Section 52(C) of the Tax Code of
irregularities were uncovered. The SES required the 1997 and BIR-SEC Regulations No. 1, since, again, the
RBBI management to infuse fresh capital into the dissolution of a corporation by the SEC is a totally
bank, within 30 days from date of the advice, and to different proceeding from the receivership and
correct all the exceptions noted but no action was liquidation of a bank by the BSP. This Court cannot
taken by RBBI. The members of the RBBI Board of simply replace any reference by Section 52(C) of the
Directors were called for a conference at the BSP and Tax Code of 1997 and the provisions of the BIR-SEC
only a certain Mr. Wakit attended. The SES warned Regulations No. 1 to the "SEC" with the "BSP." To do
the RBBI Board of Directors that, unless substantial so would be to read into the law and the regulations
remedial measures are taken to rehabilitate the bank, something that is simply not there, and would be
it will recommend that the bank be placed under tantamount to judicial legislation.
receivership. Despite these notices, no word from
Second, the alleged purpose of the BIR in
RBBI or from any of its Directors was received. Hence,
requiring the liquidator PDIC to secure a tax
the Monetary Board placed RBBI under receivership
clearance is to enable it to determine the tax liabilities
and later ordered the liquidation of the bank and
of the closed bank. It raised the point that since the
designated the Director of the SES Department III as
PDIC, as receiver and liquidator, failed to file the final
liquidator who filed a Petition for Assistance in the
return of RBBI for the year its operations were
Liquidation of RBBI. The Monetary Board transferred
stopped, the BIR had no way of determining whether
to Philippine Deposit Insurance Corporation (PDIC)
the bank still had outstanding tax liabilities. To our
the receivership/liquidation of RBBI. PDIC filed a
mind, what the BIR should have requested from the
36
RTC, and what was within the discretion of the RTC to A liquidation proceeding is a single proceeding
grant, is not an order for PDIC, as liquidator of RBBI, which consists of a number of cases properly classified
to secure a tax clearance; but, rather, for it to submit as "claims." It is basically a two-phased proceeding.
the final return of RBBI. The first paragraph of Section The first phase is concerned with the approval and
30(C) of the Tax Code of 1997, read in conjunction disapproval of claims. Upon the approval of the
with Section 54 of the same Code, clearly imposes petition seeking the assistance of the proper court in
upon PDIC, as the receiver and liquidator of RBBI, the the liquidation of a closed entity, all money claims
duty to file such a return. Section 54 of the Tax Code against the bank are required to be filed with the
of 1997 imposes a general duty on all receivers, liquidation court. This phase may end with the
trustees in bankruptcy, and assignees, who operate declaration by the liquidation court that the claim is
and preserve the assets of a corporation, regardless of not proper or without basis. On the other hand, it may
the circumstances or the law by which they came to also end with the liquidation court allowing the claim.
hold their positions, to file the necessary returns on In the latter case, the claim shall be classified whether
behalf of the corporation under their care. it is ordinary or preferred, and thereafter included
Liquidator. In either case, the order allowing or
Third, the evident void in current statutes and
disallowing a particular claim is final order, and may
regulations as to the relations among the BIR, as tax
be appealed by the party aggrieved thereby.
collector of the National Government; the BSP, as
regulator of the banks; and the PDIC, as the receiver The second phase involves the approval by the
and liquidator of banks ordered closed by the BSP, is Court of the distribution plan prepared by the duly
not for this Court to fill in. It is up to the legislature to appointed liquidator. The distribution plan specifies in
address the matter through appropriate legislation, detail the total amount available for distribution to
and to the executive to provide the regulations for its creditors whose claim were earlier allowed. The Order
implementation. finally disposes of the issue of how much property is
available for disposal. Moreover, it ushers in the final
2. No. Although this Court rules in favor of
phase of the liquidation proceeding -payment of all
PDIC, in the sense that a tax clearance is not a
allowed claims in accordance with the order of legal
prerequisite to the approval of the Project of
priority and the approved distribution plan.
Distribution of the assets of RBBI, it cannot uphold its
argument that the Spec. Proc. No. 91-SP-0060 is Irrefragably, liquidation proceedings cannot be
summary in nature. Section 30(d) of the New Central summary in nature. It requires the holding of hearings
Bank Act gives the Monetary Board of the BSP the and presentation of evidence of the parties concerned,
power to, summarily and without need for prior i.e., creditors who must prove and substantiate their
hearing, forbid a bank or quasi-bank from doing claims, and the liquidator disputing the same. It also
business in the Philippines and designating the PDIC allows for multiple appeals, so that each creditor may
as receiver of the banking institution. It bears to appeal a final order rendered against its claim. Hence,
emphasize that: (1) the power is granted to the liquidation proceedings may very well be highly-
Monetary Board of the BSP; and (2) what is summary contested and drawn-out, because, at the end of it all,
in nature is the power of the Monetary Board of the all claims against the corporation undergoing
BSP to forbid or stop a bank or quasi-bank from doing litigation must be settled definitively and its assets
further business. properly disposed off.

37

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