Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of The Philippines

VOL.
204, DECEMBER 11, 1991 767

Banco Filipino Savings & Mortgage Bank vs. Monetary
Board, Central Bank of the Philippines
*
G.R. No. 70054. December 11, 1991.
BANCO FILIPINO SAVINGS AND MORTGAGE BANK,

petitioner, vs. THE MONETARY BOARD, CENTRAL
BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ,
CARLOTA P. VALENZUELA, ARNULFO B. AURELLANO
AND RAMON V. TIAOQUI, respondents.
*
G.R. No. 68878. December 11, 1991.

petitioner, vs. HON. INTERMEDIATE APPELLATE
COURT AND CELESTINA S. PAHIMUNTUNG, assisted
by her husband, respondents.
*
G.R. Nos. 77255–58. December 11,1991.
TOP MANAGEMENT PROGRAMS CORPORATION AND

PILAR DEVELOPMENT CORPORATION, petitioners, vs.
THE COURT OF APPEALS, The Executive Judge of the
Regional Trial Court of Cavite, Ex-Officio Sheriff
REGALADO E. EUSEBIO, BANCO FILIPINO SAVINGS
AND MORTGAGE BANK, CARLOTA P. VALENZUELA
AND SYCIP, SALAZAR, HERNANDEZ AND
GATMAITAN, respondents.
*
G.R. No. 78766. December 11, 1991.
EL GRANDE CORPORATION, petitioner, vs. THE COURT

OF APPEALS, THE EXECUTIVE JUDGE OF The
Regional Trial Court and Ex-Officio Sheriff REGALADO E.
EUSEBIO, BANCO FILIPINO SAVINGS AND
MORTGAGE BANK, CARLOTA P. VALENZUELA AND
SYCIP, SALAZAR, FELICIANO AND HERNANDEZ,
respondents.
*
G.R. No. 78767. December 11,1991.
METROPOLIS DEVELOPMENT CORPORATION,

petitioner, vs. COURT OF APPEALS, CENTRAL BANK
OF THE PHILIP-PINES, JOSE B. FERNANDEZ, JR.,
CARLOTA P.
________________
* EN BANC.
768
768 SUPREME COURT REPORTS ANNOTATED

VALENZUELA, ARNULFO AURELLANO AND RAMON

TIAOQUI, respondents.
G.R. No. 78894. December 11, 1991.*

petitioner, vs. COURT OF APPEALS, THE CENTRAL
BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ,
JR., CARLOTA P. VALENZUELA, ARNULFO B.
AURELLANO AND RAMON TIAOQUI, respondents.
G.R, No. 81303. December 11,1991.*
PILAR DEVELOPMENT CORPORATION, petitioner, vs.

COURT OF APPEALS, HON. MANUEL M. COSICO, in
his capacity as Presiding Judge of Branch 136 of the
Regional Trial Court of Makati, CENTRAL BANK OF THE
PHILIPPINES AND CARLOTA P. VALENZUELA,
respondents.
G.R. No. 81304. December 11, 1991.*

BF HOMES DEVELOPMENT CORPORATION, petitioner,
vs. THE COURT OF APPEALS, CENTRAL BANK AND
CARLOTA P. VALENZUELA, respondents.
G.R. No. 90473. December 11, 1991.*
EL GRANDE DEVELOPMENT CORPORATION,

petitioner, vs. THE COURT OF APPEALS, THE
EXECUTIVE JUDGE of the Regional Trial Court of Cavite,
CLERK OF COURT and ExOfficio Sheriff ADORACION
VICTA, BANCO FILIPINO SAVINGS AND MORTGAGE
BANK, CARLOTA P. VALENZUELA AND SY CIP,
SALAZAR, HERNANDEZ AND GATMAITAN,
respondents.
Remedial Law; Jurisdiction; Generally, courts have no

supervising power over the proceedings and actions of the
administrative departments of the government, exceptions.·It is a
well-recognized principle that administrative and discretionary
functions may not be interfered with by the courts. In general,
courts have no supervising power over the proceedings and actions
of the administrative departments of the government. This is
generally true with respect to acts
769
VOL. 204, DECEMBER 11, 1991 769
Banco Filipino Savings & Mortgage Bank vs. Monetary Board,

Central Bank of the Philippines
involving the exercise of judgment or discretion, and findings of

fact. But when there is a grave abuse of discretion which is
equivalent to a capricious and whimsical exercise of judgment or
where the power is exercised in an arbitrary or despotic manner,
then there is a justification for the courts to set aside the
administrative determination reached.
Commercial Law; Banks and Banking; Section 29 of Republic

Act No. 265 known as the Central Bank Act provides the person
designated as receiver to immediately take charge of the bankÊs
assets and liabilities, administer the same for the benefit of its
creditors and represent the bank personally or through counsel as he
may retain in all actions or proceedings for or against the institution
and to bring and foreclose mortgages in the name of the bank.
·Section 29 of the Republic Act No. 265, as amended, known as the
Central Bank Act, provides that when a bank is forbidden to do
business in the Philippines and placed under receivership, the
person designated as receiver shall immediately take charge of the
bankÊs assets and liabilities, as expeditiously as possible, collect and
gather all the assets and administer the same for the benefit of its
creditors, and represent the bank personally or through counsel as
he may retain in all actions or proceedings for or against the
institution, exercising all the powers necessary for these purposes
including, but not limited to, bringing and foreclosing mortgages in
the name of the bank. If the Monetary Board shall later determine
and confirm that the banking institution is insolvent or cannot
resume business with safety to depositors, creditors and the general
public, it shall, if public interest requires, order its liquidation and
appoint nu liquidator who shall take over and continue the functions
of the receiver previously appointed by Monetary Board. The
liquidator may, in the name of the bank and with the assistance of
counsel as he may retain, institute such actions as may be necessary
in the appropriate court to collect and recover accounts and assets of
such institution or defend any action filed against the institution.
Same; Same; Same; Pendency of G.R. No. 70054 did not

diminish the powers and authority of the designated liquidator to
effectuate and carry on the administration of the bank.·When the
issue on the validity of the closure and receivership of Banco
Filipino bank was raised in G.R. No. 70054, the pendency of the
case did not diminish the powers and authority of the designated
liquidator to effectuate and carry on the administration of the bank.
In fact when We adopted a resolution on August 25, 1985 and
issued a restraining order to respondents Monetary Board and
Central Bank, We enjoined merely
770

further acts of liquidation. Such acts of liquidation, as explained in

Sec. 29 of the Central Bank Act are those which constitute the
conversion of the assets of the banking institution to money or the
sale, assignment or disposition of the same to creditors and other
parties for the purpose of paying the debts of such institution. We
did not prohibit however acts such as receiving collectibles and
receivables or paying off creditorsÊ claims and other transactions
pertaining to normal operations of a bank.
Same; Same; Same; In G.R. Nos. 68878, 77255–68, 78766 and

90473, the liquidator by himself or through counsel has the
authority to bring actions for foreclosure of mortgages executed by
debtors in favor of the bank.·Clearly, in G.R. Nos. 68878, 77255–
68, 78766 and 90473, the liquidator by himself or through counsel
has the authority to bring actions for foreclosure of mortgages
executed by debtors in favor of the bank. In G.R. No. 81303, the
liquidator is likewise authorized to resist or defend suits instituted
against the bank by debtors and creditors of the bank and by other
private persons. Similarly, in G.R. No. 81304, due to the aforestated
reasons, the Central Bank cannot be compelled to fulfill financial
transactions entered into by Banco Filipino when the operations of
the latter were suspended by reason of its closure. The Central
Bank possesses those powers and functions only as provided for in
Sec. 29 of the Central Bank Act.
Same; Same; Same; Court held that the closure and receivership
of petitioner bank which was ordered by respondent Monetary Bank
on January 25, 1985 is null and void.·While We recognize the
actual closure of Banco Filipino and the consequent legal effects
thereof on its operations, We cannot uphold the legality of its
closure and thus, find the petitions in G.R. Nos. 70054, 78767 and
78894 impressed with merit. We hold that the closure and
receivership of petitioner bank, which was ordered by respondent
Monetary Board on January 25, 1985, is null and void.
Same; Same; Same; The Monetary Board may order the

cessation of operation of a bank in the Philippines and place it under
receivership upon a finding of insolvency or when its continuance in
business would involve probable loss to its depositors or creditors.
·Based on the aforequoted provision, the Monetary Board may
order the cessation of operations of a bank in the Philippines and
place it under receivership upon a finding of insolvency or when its
continuance in business would involve probable loss to its
depositors or creditors. If the Monetary Board shall determine and
confirm within sixty (60) days that the
771
VOL. 204, DECEMBER 11, 1991 771

bank is insolvent or can no longer resume business with safety to its

depositors, creditors and the general public, it shall, if public
interest will be served, order its liquidation.
Same; Same; Same; Same; Mandatory requirements to be

complied with before a bank found to be insolvent is ordered closed
and forbidden to do business in the Philippines.·There is no
question that under Section 29 of the Central Bank Act, the
following are the mandatory requirements to be complied with
before a bank found to be insolvent is ordered closed and forbidden
to do business in the Philippines: Firstly, an examination shall be
conducted by the head of the appropriate supervising or examining
department or his examiners or agents into the condition of the
bank; secondly, it shall be disclosed in the examination that the
condition of the bank is one of insolvency, or that its continuance in
business would involve probable loss to its depositors or creditors;
thirdly, the department head concerned shall inform the Monetary
Board in writing, of the facts; and lastly, the Monetary Board shall
find the statements of the department head to be true.
Same; Same; Same; Same; Same; The examination

contemplated in Section 29 of the CB Act as a mandatory
requirement was not completely and fully complied with.·It is
evident from the foregoing circumstances that the examination
contemplated in Sec. 29 of the CB Act as a mandatory requirement
was not completely and fully complied with. Despite the existence of
the partial list of findings in the examination of the bank, there
were still highly significant items to be weighed and determined
such as the matter of valuation reserves, before these can be
considered in the financial condition of the bank. It would be a
drastic move to conclude prematurely that a bank is insolvent if the
basis for such conclusion is lacking and insufficient, especially if
doubt exists as to whether such bases or findings faithfully
represent the real financial status of the bank.
Same; Same; Same; Same; The power and authority of the

Monetary Board to close banks and liquidate them thereafter when
public interest so requires is an exercise of the police power of the
state.·We recognize the fact that it is the responsibility of the
Central Bank of the Philippines to administer the monetary,
banking and credit system of the country and that its powers and
functions shall be exercised by the Monetary Board pursuant to
Rep. Act No. 265, known as the Central Bank Act. Consequently,
the power and authority of the Monetary Board to close banks and
liquidate them thereafter when
772

public interest so requires is an exercise of the police power of the

state. Police power, however, may not be done arbitratrily or
unreasonably and could be set aside if it is either capricious,
discriminatory, whimsical, arbitrary, unjust or is tantamount to a
denial of due process and equal protection clauses of the
Constitution.
Same; Same; Same; Same; Section 29 of RA 265 does not

require a previous hearing before the Monetary Board implements
the closure of a bank.·However, as to the requirement of notice and
hearing, Sec. 29 of RA 265 does not require a previous hearing
before the Monetary Board implements the closure of a bank, since
its action is subject to judicial scrutiny as provided for under the
same law.
Same; Same; Same; Same; Administrative due process does not

mean that the other important principles may be dispensed with.
·Notwithstanding the foregoing, administrative due process does
not mean that the other important principles may be dispensed
with, namely: the decision of the administrative body must have
something to support itself and the evidence must be substantial.
Substantial evidence is more than a mere scintilla. It means such
relevant evidence as a reasonable mind might accept as adequate to
support a conclusion.
Same; Same; Insolvency; Test of insolvency laid down in Section

29 of the Central Bank Act is measured by determining whether the
realizable assets of a bank are less than its liabilities.·The test of
insolvency laid down in Section 29 of the Central Bank Act is
measured by determining whether the realizable assets of a bank
are less than its liabilities. Hence, a bank is solvent if the fair cash
value of all its assets, realizable within a reasonable time by a
reasonable prudent person, would equal or exceed its total liabilities
exclusive of stock liability; but if such fair cash value so realizable is
not sufficient to pay such liabilities within a reasonable time, the
bank is insolvent. (Gillian v. State, 194 N.E. 360, 363, 207 Ind. 661).
Stated in other words, the insolvency of a bank occurs when the
actual cash market value of its assets is insufficient to pay its
liabilities, not considering capital stock and surplus which are not
liabilities for such purpose.
Same; Same; Same; Same; Court believes that the closure of the
petitioner bank was arbitrary and committed with grave abuse of
discretion.·ln view of the foregoing premises, We believe that the
closure of the petitioner bank was arbitrary and committed with
grave abuse of discretion. Granting in gratia argumenti that the
closure was
773
VOL. 204, DECEMBER 11, 1991 773

based on justified grounds to protect the public, the fact that

petitioner bank was suffering from serious financial problems
should not automatically lead to its liquidation. Section 29 of the
Central Bank provides that a closed bank may be reorganized or
otherwise placed in such a condition that it may be permitted to
resume business with safety to its depositors, creditors and the
general public
MELENCIO-HERRERA, J., Dissenting opinion
Same; Same; Same; The matter of reopening, reorganization, or

rehabilitation of BF is not within the competence of the Court to
ordain but is better addressed to the Monetary Board and the
Central Bank.·The matter of reopening, reorganization or
rehabilitation of BF is not within the competence of this Court to
ordain but is better addressed to the Monetary Board and the
Central Bank considering the latterÊs enormous infusion of capital
into BF to the tune of approximately P3.5 Billion in total
accommodations, after a thorough assessment of whether or not BF
is, indeed, possessed, as it stoutly contends, of sufficient assets and
capabilities with which to repay such huge indebtedness, and can
operate without loss to its many depositors and creditors.
GRIÑO-AQUINO, J., Dissenting opinion
Same; Same; Same; Court has neither the authority nor the
competence to determine whether or not and under what conditions
BF should be reorganized and reopened.·This Court has neither
the authority nor the competence to determine whether or not, and
under what conditions, BF should be reorganized and reopened.
That decision should be made by the Central Bank and the
Monetary Board, not by this Court
Same; Same; Same; Same; Dissenter does not find that the CBÊs
Resolution No. 75 ordering BF to cease banking operation and
placing it under receivership was plainly arbitrary and made in bad
faith.·In the light of the results of the examination of BF by the
Teodoro and Tiaoqui teams, I do not find that the CBÊs Resolution
No. 75 ordering BF to cease banking operations and placing it
under receivership was „plainly arbitrary and made in bad faith.‰
The receivership was justified because BF was insolvent and its
continuance in business would cause loss to its depositors and
creditors.
PETITION to review the decision of the Court of Appeals.
774

The facts are stated in the opinion of the Court.

Panganiban, Benitez, Barinaga & Bautista Law
Offices collaborating counsel for petitioner.
Florencio T. Domingo, Jr. and Crisanto S. Cornejo for
intervenors.
MEDIALDEA, J.:
This refers to nine (9) consolidated cases concerning the

legality of the closure and receivership of petitioner Banco
Filipino Savings and Mortgage Bank (Banco Filipino for
brevity) pursuant to the order of respondent Monetary
Board. Six (6) of these cases, namely, G.R. Nos. 68878,
77255–58, 78766, 81303, 81304 and 90473 involve the
common issue of whether or not the liquidator appointed by
the respondent Central Bank (CB for brevity) has the
authority to prosecute as well as to defend suits, and to
foreclose mortgages for and in behalf of the bank while the
issue on the validity of the receivership and liquidation of
the latter is pending resolution in G.R. No. 70054.
Corollary to this issue is whether the CB can be sued to
fulfill financial commitments of a closed bank pursuant to
Section 29 of the Central Bank Act On the other hand, the
other three (3) cases, namely, G.R. Nos. 70054, which is the
main case, 78767 and 78894 all seek to annul and set aside
M.B. Resolution No. 75 issued by respondents Monetary
Board and Central Bank on January 25, 1985.
The antecedent facts of each of the nine (9) cases are as
follows:
G.R. No. 68878
This is a motion for reconsideration, filed by respondent

Celestina Pahimuntung, of the decision promulgated by
this Court on April 8, 1986, granting the petition for review
on certiorari and reversing the questioned decision of
respondent appellate court, which annulled the writ of
possession issued by the trial court in favor of petitioner.
The respondent-movant contends that the petitioner has
no more personality to continue prosecuting the instant
case considering that petitioner bank was placed under
receivership
775
VOL. 204, DECEMBER 11, 1991 775

Banco Filipino Savings & Mortgage Bank vs.4 Monetary
since January 26, 1986 by the Central Bank pursuant to

the resolution of the Monetary Board.
G.R. Nos. 77255–58
Petitioners Top Management Programs Corporation (Top

Management for brevity) and Pilar Development
Corporation (Pilar Development for brevity) are
corporations engaged in the business of developing
residential subdivisions.
Top Management obtained a loan of P4,836,000 from
Banco Filipino as evidenced by a promissory note dated
January 7, 1982 payable in three years from date. The loan
was secured by real estate mortgage in its various
properties in Cavite. Likewise, Pilar Development obtained
loans from Banco Filipino between 1982 and 1983 in the
principal amounts of P6,000,000, P7,370,000 and
P5,300,000 with maturity dates on December 28,1984,
January 5, 1985 and February 16,1984, respectively. To
secure the loan, Pilar Development mortgaged to Banco
Filipino various properties in Dasmariñas, Cavite.
On January 25, 1985, the Monetary Board issued a
resolution finding Banco Filipino insolvent and unable to
do business without loss to its creditors and depositors. It
placed Banco Filipino under receivership of Carlota
Valenzuela, Deputy Governor of the Central Bank.
On March 22, 1985, the Monetary Board issued another
resolution placing the bank under liquidation and
designating Valenzuela as liquidator. By virtue of her
authority as liquidator, Valenzuela appointed the law firm
of Sycip, Salazar, et al. to represent Banco Filipino in all
litigations.
On March 26, 1985, Banco Filipino filed the petition for
certiorari in G.R. No. 70054 questioning the validity of the
resolutions issued by the Monetary Board authorizing the
receivership and liquidation of Banco Filipino.
In a resolution dated August 29, 1985, this Court in G.R.
No. 70054 resolved to issue a temporary restraining order,
effective during the same period of 30 days, enjoining the
respondents from executing further acts of liquidation of
the bank; that acts such as receiving collectibles and
receivables or paying off creditorsÊ claims and other
transactions pertaining to normal operations of a bank are
not enjoined. The Central Bank is
776

ordered to designate a comptroller for Banco Filipino.

Subsequently, Top Management failed to pay its loan on
the due date. Hence, the law firm of Sycip, Salazar, et al.
acting as counsel for Banco Filipino under authority of
Valenzuela as liquidator, applied for extra-judicial
foreclosure of the mortgage over Top ManagementÊs
properties. Thus, the Ex-Officio Sheriff of the Regional
Trial Court of Cavite issued a notice of extra-judicial
foreclosure sale of the properties on December 16, 1985.
On December 9, 1985, Top Management filed a petition
for injunction and prohibition with the respondent
appellate court docketed as CA-G.R. SP No. 07892 seeking
to enjoin the Regional Trial Court of Cavite, the ex-officio
sheriff of said court and Sycip, Salazar, et al. from
proceeding with foreclosure sale. Similarly, Pilar
Development defaulted in the payment of its loans. The law
firm of Sycip, Salazar, et al. filed separate applications with
the ex-officio sheriff of the Regional Trial Court of Cavite
for the extra-judicial foreclosure of mortgage over its
properties.
Hence, Pilar Development filed with the respondent
appellate court a petition for prohibition with prayer for
the issuance of a writ of preliminary injunction docketed as
CA-G.R. SP Nos. 08962–64 seeking to enjoin the same
respondents from enforcing the foreclosure sale of its
properties. CA-G.R. SP Nos. 07892 and 08962–64 were
consolidated and jointly decided.
On October 30, 1986, the respondent appellate court
rendered a decision dismissing the aforementioned
petitions.
Hence, this petition was filed by the petitioners Top
Management and Pilar Development alleging that Carlota
Valenzuela, who was appointed by the Monetary Board as
liquidator of Banco Filipino, has no authority to proceed
with the foreclosure sale of petitionersÊ properties on the
ground that the resolution of the issue on the validity of the
closure and liquidation of Banco Filipino is still pending
with this Court in G.R. 70054.
G.R. No. 78766
Petitioner El Grande Development Corporation (El Grande

for brevity) is engaged in the business of developing
residential subdivisions. It was extended by respondent
Banco Filipino a
777
VOL. 204, DECEMBER 11, 1991 777

credit accommodation to finance its housing program.

Hence, petitioner was granted a loan in the amount of
P8,034,130,00 secured by real estate mortgages on its
various estates located in Cavite.
On January 15, 1985, the Monetary Board forbade
Banco Filipino to do business, placed it under receivership
and designated Deputy Governor Carlota Valenzuela as
receiver. On March 22, 1985, the Monetary Board
confirmed Banco FilipinoÊs insolvency and designated the
receiver Carlota Valenzuela as liquidator.
When petitioner El Grande failed to pay its
indebtedness to Banco Filipino, the latter thru its
liquidator, Carlota Valenzuela, initiated the foreclosure
with the Clerk of Court and Ex-officio sheriff of RTC
Cavite. Subsequently, on March 31, 1986, the exofficio
sheriff issued the notice of extra-judicial sale of the mort-
gaged properties of El Grande scheduled on April 30, 1986.
In order to stop the public auction sale, petitioner El
Grande filed a petition for prohibition with the Court of
Appeals alleging that respondent Carlota Valenzuela could
not proceed with the foreclosure of its mortgaged properties
on the ground that this Court in G.R. No. 70054 issued a
resolution dated August 29, 1985, which restrained Carlota
Valenzuela from acting as liquidator and allowed Banco
Filipino to resume banking operations only under a Central
Bank comptroller.
On March 2, 1987, the Court of Appeals rendered a
decision dismissing the petition.
Hence this petition for review on certiorari was filed
alleging that the respondent court erred when it held in its
decision that although Carlota P. Valenzuela was
restrained by this Honorable Court from exercising acts in
liquidation of Banco Filipino Savings 6, Mortgage Bank,
she was not legally precluded from foreclosing the
mortgage over the properties of the petitioner through
counsel retained by her for the purpose.
G.R. No. 81303

On November 8, 1985, petitioner Pilar Development
Corporation (Pilar Development for brevity) filed an action
against Banco Filipino, the Central Bank and Carlota
Valenzuela for specific performance, docketed as Civil Case
No. 12191. It
778

appears that the former management of Banco Filipino

appointed Quisumbing 6, Associates as counsel for Banco
Filipino. On June 12,1986 the said law firm filed an answer
for Banco Filipino which confessed judgment against Banco
Filipino.
On June 17, 1986, petitioner filed a second amended
complaint. The Central Bank and Carlota Valenzuela, thru
the law firm Sycip, Salazar, Hernandez and Gatmaitan
filed an answer to the complaint.
On June 23, 1986, Sycip, et al., acting for all the
defendants including Banco Filipino moved that the
answer filed by Quisumbing 6, Associates for defendant
Banco Filipino be expunged from the records. Despite
opposition from Quisumbing 6, Associates, the trial court
granted the motion to expunge in an order dated March 17,
1987. Petitioner Pilar Development moved to reconsider
the order but the motion was denied.
Petitioner Pilar Development filed with the respondent
appellate court a petition for certiorari and mandamus to
annul the order of the trial court. The Court of Appeals
rendered a decision dismissing the petition. A petition was
filed with this Court but was denied in a resolution dated
March 22, 1988. Hence, this instant motion for
reconsideration.
G.R. No. 81304
On July 9, 1985, petitioner BF Homes Incorporated (BF

Homes for brevity) filed an action with the trial court to
compel the Central Bank to restore petitionerÊs financing
facility with Banco Filipino.
The Central Bank filed a motion to dismiss the action.
Petitioner BF Homes in a supplemental complaint
impleaded as defendant Carlota Valenzuela as receiver of
Banco Filipino Savings and Mortgage Bank.
On April 8, 1985, petitioner filed a second supplemental
complaint to which respondents filed a motion to dismiss.
On July 9, 1985, the trial court granted the motion to
dismiss the supplemental complaint on the grounds (1) that
plaintiff has no contractual relation with the defendants,
and (2) that the Intermediate Appellate Court in a previous
decision in ACG.R. SP. No. 04609 had stated that Banco
Filipino has been ordered closed and placed under
receivership pending liquida-
779
VOL. 204, DECEMBER 11, 1991 779

tion, and thus, the continuation of the facility sued for by

the plaintiff has become legally impossible and the suit has
become moot.
The order of dismissal was appealed by the petitioner to
the Court of Appeals. On November 4, 1987, the respondent
appellate court dismissed the appeal and affirmed the
order of the trial court.
Hence, this petition for review on certiorari was filed,
alleging that the respondent court erred when it found that
the private respondents should not be the ones to respond
to the cause of action asserted by the petitioner and the
petitioner did not have any cause of action against the
respondents Central Bank and Carlota Valenzuela,
G.R. No. 90473
Petitioner El Grande Development Corporation (El Grande

for brevity) obtained a loan from Banco Filipino in the
amount of P8,034,1 30.00, secured by a mortgage over its
five parcels of land located in Cavite which were covered by
Transfer Certificate of Title Nos. T-82187, T-109027, T-
132897, T-148377, and T-79371 of the Registry of Deeds of
Cavite.
When Banco Filipino was ordered closed and placed
under receivership in 1985, the appointed liquidator of BF,
thru its counsel Sycip, Salazar, et al. applied with the ex-
officio sheriff of the Regional Trial Court of Cavite for the
extrajudicial foreclosure of the mortgage constituted over
petitionerÊs properties. On March 24, 1986, the ex-officio
sheriff issued a notice of extrajudicial foreclosure sale of
the properties of petitioner.
Thus, petitioner filed with the Court of Appeals a
petition for prohibition with prayer for writ of preliminary
injunction to enjoin the respondents from foreclosing the
mortgage and to nullify the notice of foreclosure.
On June 16, 1989, respondent Court of Appeals rendered
a decision dismissing the petition.
Not satisfied with the decision, petitioner filed the
instant petition for review on certiorari.
G.R. No. 70054
Banco Filipino Savings and Mortgage Bank was authorized

to
780

operate as such under M.B. Resolution No. 223 dated

February 14, 1963. It commenced operations on July 9,
1964. It has eighty-nine (89) operating branches, forty-six
(46) of which are in Manila, with more than three (3)
million depositors.
As of July 31, 1984, the list of stockholders showed the
major stockholders to be: Metropolis Development
Corporation, Apex Mortgage and Loans Corporation,
Filipino Business Consultants, Tiu Family Group, LBH Inc.
and Anthony Aguirre.
Petitioner Bank had an approved emergency advance of
P119.7 million under M.B. Resolution No. 839 dated June
29, 1984. This was augmented with a P3 billion credit line
under M.B. Resolution No. 934 dated July 27, 1984.
On the same date, respondent Board issued M.B.
Resolution No. 955 placing petitioner bank under
conservatorship of Basilio Estanislao. He was later
replaced by Gilberto Teodoro as conservator on August 10,
1984. The latter submitted a report dated January 8, 1985
to respondent Board on the conservatorship of petitioner
bank, which report shall hereinafter be referred to as the
Teodoro report.
Subsequently, another report dated January 23, 1985
was submitted to the Monetary Board by Ramon Tiaoqui,
Special Assistant to the Governor and Head, SES
Department II of the Central Bank, regarding the major
findings of examination on the financial condition of
petitioner BF as of July 31, 1984. The report, which shall
be referred to herein as the Tiaoqui Report contained the
following conclusion and recommendation:
„The examination findings as of July 31, 1984, as shown earlier,

indicate one of insolvency and illiquidity and further confirms the
above conclusion of the Conservator.
„All the foregoing provides sufficient justification for forbidding
the bank from engaging in banking.
„Foregoing considered, the following are recommended:
1. Forbid the Banco Filipino Savings 6, Mortgage Bank to do

business in the Philippines effective the beginning of office
January 1985, pursuant to Sec. 29 of (R.A. No. 265, as
amended;
2. Designate the Head of the Conservator Team at the bank, as
Receiver of Banco Filipino Savings & Mortgage Bank, to
immediately take charge of the assets and liabilities, as
expeditiously as possible collect and gather all the assets
and ad
781
VOL. 204, DECEMBER 11, 1991 781

minister the same for the benefit of all the creditors, and
exercise all the powers necessary for these purposes
including but not limited to bringing suits and foreclosing
mortgages in the name of the bank.
3. The Board of Directors and the principal officers from
Senior Vice Presidents, as listed in the attached Annex ÂA'
be included in the watchlist of the Supervision and
Examination Sector until such time that they shall have
cleared themselves.
4. Refer to the Central BankÊs Legal Department and Office of
Special Investigation the report on the findings on Banco
Filipino for investigation and possible prosecution of
directors, officers, and employees for activities which led to
its insolvent position.‰ (pp. 61–62, Rollo)
On January 25, 1985, the Monetary Board issued the

assailed MB Resolution No. 75 which ordered the closure of
BF and which further provides:
„After considering the report dated January 8, 1985 of the

Conservator for Banco Filipino Savings and Mortgage Bank that
the continuance in business of the bank would involve probable loss
to its depositors and creditors, and after discussing and finding to
be true the statements of the Special Assistant to the Governor and
Head, Supervision and Examination Sector (SES) Department II as
recited in his memorandum dated January 23, 1985, that the Banco
Filipino Savings 6, Mortgage Bank is insolvent and that its
depositors and creditors, and in pursuance of Sec. 29 of R.A. 265, as
amended, the Board decided:
1. To forbid Banco Filipino Savings and Mortgage Bank and all

its branches to do business in the Philippines;
2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor
as Receiver who is hereby directly vested with jurisdiction
and authority to immediately take charge of the bankÊs
assets and liabilities, and as expeditiously as possible collect
and gather all the assets and administer the same for the
benefit of its creditors, exercising all the powers necessary
for these purposes including but not limited to, bringing
suits and foreclosing mortgagee in the name of the bank;
3. To designate Mr. Arnulfo B. Aurellano, Special Assistant to
the Governor, and Mr. Ramon V. Tiaoqui, Special Assistant
to the Governor and Head, Supervision and Examination
Sector Department II, as Deputy Receivers who are likewise
hereby directly vested with jurisdiction and authority to do
all things necessary or proper to carry out the functions
entrusted to them by the Receiver and other
782

wise to assist the Receiver in carrying out the functions
vested in the Receiver by law or Monetary Board
Resolutions;
4. To direct and authorize Management to do all other things
and carry out all other measures necessary or proper to
implement this Resolution and to safeguard the interests of
depositors, creditors and the general public; and
5. In consequence of the foregoing, to terminate the
conservatorship over Banco Filipino Savings and Mortgage
Bank.‰ (pp. 10- 11, Rollo, Vol. I)
On February 2, 1985, petitioner BF filed a complaint

docketed as Civil Case No. 9675 with the Regional Trial
Court of Makati to set aside the action of the Monetary
Board placing BF under receivership.
On February 28, 1985, petitioner filed with this Court
the instant petition for certiorari and mandamus under
Rule 65 of the Rules of Court seeking to annul the
resolution of January 25, 1985 as made without or in
excess of jurisdiction or with grave abuse of discretion, to
order respondents to furnish petitioner with the reports of
examination which led to its closure and to afford
petitioner BF a hearing prior to any resolution that may be
issued under Section 29 of R.A. 265, also known as Central
Bank Act.
On March 19, 1985, Carlota Valenzuela, as Receiver and
Arnulfo Aurellano and Ramon Tiaoqui as Deputy Receivers
of Banco Filipino submitted their report on the receivership
of BF to the Monetary Board, in compliance with the
mandate of Sec. 29 of R.A. 265 which provides that the
Monetary Board shall determine within sixty (60) days
from date of receivership of a bank whether such bank may
be reorganized/permitted to resume business or ordered to
be liquidated. The report contained the following
recommendation:
„In view of the foregoing and considering that the condition of the
banking institution continues to be one of insolvency, i.e., its
realizable assets are insufficient to meet all its liabilities and that
the bank cannot resume business with safety to its depositors, other
creditors and the general public, it is recommended that:
1. Banco Filipino Savings 6, Mortgage Bank be liquidated

pursuant to paragraph 3, Sec. 29 of RA No. 265, as
amended;
2. The Legal Department, through the Solicitor General, be au
783
VOL. 204, DECEMBER 11, 1991 783

thorized to file in the proper court a petition for assistance

in the liquidation of the Bank;
3. The Statutory Receiver be designated as the Liquidator of
said bank; and
4. Management be instructed to inform the stockholders of
Banco Filipino Savings 6, Mortgage Bank of the Monetary
BoardÊs decision to liquidate the Bank. (p. 167, Rollo, Vol. I)
On July 23, 1985, petitioner filed a motion before this

Court praying that a restraining order or a writ of
preliminary injunction be issued to enjoin respondents
from causing the dismantling of BF signs in its main office
and 89 branches. This Court issued a resolution on August
8, 1985 ordering the issuance of the aforesaid temporary
restraining order.
On August 20, 1985, the case was submitted for
resolution.
In a resolution dated August 29, 1985, this Court
Resolved to direct the respondents Monetary Board and
Central Bank to hold hearings at which the petitioner
should be heard, and to terminate such hearings and
submit its resolution within thirty (30) days. This Court
further resolved to issue a temporary restraining order
enjoining the respondents from executing further acts of
liquidation of a bank. Acts such as receiving collect-ibles
and receivables or paying off creditorsÊ claims and other
transactions pertaining to normal operations of a bank
were not enjoined. The Central Bank was also ordered to
designate a comptroller for the petitioner BF. This Court
also ordered the consolidation of Civil Cases Nos. 8108,
9676 and 10183 in Branch 136 of the Regional Trial Court
of Makati.
However, on September 12, 1985, this Court in the
meantime suspended the hearing it ordered in its
resolution of August 29, 1985.
On October 8, 1985, this Court submitted a resolution
ordering Branch 136 of the Regional Trial Court of Makati
then presided over by Judge Ricardo Francisco to conduct
the hearing contemplated in the resolution of August 29,
1985 in the most expeditious manner and to submit its
resolution to this Court.
In the CourtÊs resolution of February 19, 1987, the Court
stated that the hearing contemplated in the resolution of
August 29, 1985, which is to ascertain whether substantial
admin-
784

istrative due process had been observed by the respondent

Monetary Board, may be expedited by Judge Manuel
Cosico who now presides the court vacated by Judge
Ricardo Francisco, who was elevated to the Court of
Appeals, there being no legal impediment or justifiable
reason to bar the former from conducting such hearing.
Hence, this Court directed Judge Manuel Cosico to expedite
the hearing and submit his report to this Court.
On February 20, 1988, Judge Manuel Cosico submitted
his report to this Court with the recommendation that the
resolutions of respondents Monetary Board and Central
Bank authorizing the closure and liquidation of petitioner
BF be upheld.
On October 21,1988, petitioner BF filed an urgent
motion to reopen hearing to which respondents filed their
comment on December 16, 1988. Petitioner filed their reply
to respondentÊs comment of January 11,1989. After having
deliberated on the grounds raised in the pleadings, this
Court in its resolution dated August 3, 1989 declared that
its intention as expressed in its resolution of August 29,
1985 had not been faithfully adhered to by the herein
petitioner and respondents. The aforementioned resolution
had ordered a hearing on the reports that Ied respondents
to order petitionerÊs closure and its alleged preplanned
liquidation. This Court noted that during the referral
hearing however, a different scheme was followed.
Respondents merely submitted to the commissioner their
findings on the examinations conducted on petitioner,
affidavits of the private respondents relative to the
findings, their reports to the Monetary Board and several
other documents in support of their position while
petitioner had merely submitted objections to the findings
of respondents, counter-affidavits of its officers and also
documents to prove its claims. Although the records
disclose that both parties had not waived cross-
examination of their deponents, no such cross-examination
has been conducted. The reception of evidence in the form
of affidavits was followed throughout, until the
commissioner submitted his report and recommendations
to the Court. This Court also held that the documents
pertinent to the resolution of the instant petition are the
Teodoro Report, Tiaoqui Report, Valenzuela, Aurellano and
Tiaoqui Report and the supporting documents which were
785
VOL. 204, DECEMBER 11, 1991 785

made as the bases by the reporters of their conclusions

contained in their respective reports. This Court also
Resolved in its resolution to re-open the referral hearing
that was terminated after Judge Cosico had submitted his
report and recommendation with the end in view of
allowing petitioner to complete its presentation of evidence
and also for respondents to adduce additional evidence, if
so minded, and for both parties to conduct the required
cross-examination of witnesses/deponents, to be done
within a period of three months. To obviate all doubts on
Judge CosicoÊs impartiality, this Court designated a new
hearing commissioner in the person of former Judge
Consuelo Santiago of the Regional Trial Court, Makati,
Branch 149 (now Associate Justice of the Court of Appeals).
Three motions for intervention were filed in this case as
follows: First, in G.R. No. 70054 filed by Eduardo
Rodriguez and Fortunato M. Dizon, stockholders of
petitioner bank for and on behalf of other stockholders of
petitioner; second, in G.R. No. 78894, filed by the same
stockholders, and, third, again in G.R. No. 70054 by BF
DepositorsÊ Association and others similarly situated. This
Court, on March 1,1990, denied the aforesaid motions for
intervention.
On January 28, 1991, the hearing commissioner, Justice
Consuelo Santiago of the Court of Appeals submitted her
report and recommendation (to be hereinafter called,
„Santiago Report‰) on the following issues stated therein as
follows:
„1) Had the Monetary Board observed the procedural

requirements laid down in Sec. 29 of R.A. 265, as
amended to justify the closure of the Banco Filipino
Savings and Mortgage Bank?
„2) On the date of BFÊs closure (January 25, 1985) was
its condition one of insolvency or would its
continuance in business involve probable loss to its
depositors or creditors?‰
The commissioner after evaluation of the evidence

presented, found and recommended the following:
„1. That the TEODORO and TIAOQUI reports did not

establish, in accordance with Sec. 29 of the R.A.
265, as amended, BFÊs insolvency as of July 31,
1984 or that its continuance in business thereafter
would involve probable loss to its depositors or
creditors. On the contrary, the evidence indicates
that BF was solvent on July 31, 1984 and that on
January 25, 1985, the day it was closed, its
insolvency was
786

not clearly es tablished;

„2. That consequently, BFÊs closure on January 25,
1985, not having satisfied the requirements
prescribed under Sec. 29 of RA 265, as amended,
was null and void.
„3. That accordingly, by way of correction, BF should be
allowed to re-open subject to such laws, rules and
regulations that apply to its situation.‰
Respondents thereafter filed a motion for leave to file

objections to the Santiago Report. In the same motion,
respondents requested that the report and recommendation
be set for oral argument before the Court. On February 7,
1991, this Court denied the request for oral argument of
the parties.
On February 25, 1991, respondents filed their objections
to the Santiago Report. On March 5, 1991, respondents
submitted a motion for oral argument alleging that this
Court is confronted with two conflicting reports on the
same subject, one upholding on all points the Monetary
BoardÊs closure of petitioner, (Cosico Report dated February
19,1988) and the other (Santiago Report dated January 25,
1991) holding that petitionerÊs closure was null and void
because petitionerÊs insolvency was not clearly established
before its closure; and that such a hearing on oral
argument will therefore allow the parties to directly
confront the issues before this Court.
On March 12,1991 petitioner filed its opposition to the
motion for oral argument. On March 20,1991, it filed its
reply to respondentsÊ objections to the Santiago Report.
On June 18, 1991, a hearing was held where both
parties were heard on oral argument before this Court. The
parties, having submitted their respective memoranda, the
case is now submitted for decision.
G.R. No. 78767
On February 2, 1985, Banco Filipino filed a complaint with

the trial court docketed as Civil Case No. 9675 to annul the
resolution of the Monetary Board dated January 25, 1985,
which ordered the closure of the bank and placed it under
receivership.
On February 14, 1985, the Central Bank and the
receivers filed a motion to dismiss the complaint on the
ground that the
787
VOL. 204, DECEMBER 11, 1991 787

receivers had not authorized anyone to file the action. In a

supplemental motion to dismiss, the Central Bank cited the
resolution of this Court dated October 15, 1985 in G.R. No.
65723 entitled, „Central Bank et al. v. Intermediate
Appellate Court‰ whereby We held that a complaint
questioning the validity of the receivership established by
the Central Bank becomes moot and academic upon the
initiation of liquidation proceedings.
While the motion to dismiss was pending resolution,
petitioner herein Metropolis Development Corporation
(Metropolis for brevity) filed a motion to intervene in the
aforestated civil case on the ground that as a stockholder
and creditor of Banco Filipino, it has an interest in the
subject of the action.
On July 19, 1985, the trial court denied the motion to
dismiss and also denied the motion for reconsideration of
the order later filed by Central Bank. On June 5, 1985, the
trial court allowed the motion for intervention.
Hence, the Central Bank and the receivers of Banco
Filipino filed a petition for certiorari with the respondent
appellate court alleging that the trial court committed
grave abuse of discretion in not dismissing Civil Case No.
9675.
On March 17, 1986, the respondent appellate court
rendered a decision annulling and getting aside the
questioned orders of the trial court, and ordering the
dismissal of the complaint filed by Banco Filipino with the
trial court as well as the complaint in intervention of
petitioner Metropolis Development Corporation.
Hence this petition was filed by Metropolis Development
Corporation questioning the decision of the respondent
appellate court.
G.R. No. 78894
On February 2, 1985, a complaint was filed with the trial

court in the name of Banco Filipino to annul the resolution
of the Monetary Board dated January 25, 1985 which
ordered the closure of Banco Filipino and placed it under
receivership. The receivers appointed by the Monetary
Board were Carlota Valenzuela, Arnulfo Aurellano and
Ramon Tiaoqui.
On February 14, 1985, the Central Bank and the
receivers filed a motion to dismiss the complaint on the
ground that the
788
receiver had not authorized anyone to file the action.

On March 22, 1985, the Monetary Board placed the
bank under liquidation and designated Valenzuela as
liquidator and Aurellano and Tiaoqui as deputy liquidators.
The Central Bank filed a supplemental motion to
dismiss which was denied. Hence, the latter filed a petition
for certiorari with the respondent appellate court to set
aside the order of the trial court denying the motion to
dismiss. On March 17, 1986, the respondent appellate court
granted the petition and dismissed the complaint of Banco
Filipino with the trial court
Thus, this petition for certiorari was filed with the
petitioner contending that a bank which has been closed
and placed under receivership by the Central Bank under
Section 29 of RA 265 could file suit in court in its name to
contest such acts of the Central Bank, without the
authorization of the CB-appointed receiver.
After deliberating on the pleadings in the following
cases:
1. In G.R. No. 68878, the respondentÊs motion for

reconsideration;
2. In G.R. Nos. 77255–58, the petition, comment,
reply, rejoinder and sur-rejoinder;
3. In G.R. No. 78766, the petition, comment, reply and
rejoinder;
4. In G.R. No. 81303, the petitionerÊs motion for
reconsideration;
5. In G.R. No. 81304, the petition, comment and reply;
6. Finally, in G.R. No. 90473, the petition, comment
and reply,
We find the motions for reconsideration in G.R. Nos. 68878

and 81303 and the petitions in G.R. Nos. 77255–58, 78766,
81304 and 90473 devoid of merit.
Section 29 of the Republic Act No. 265, as amended
known as the Central Bank Act, provides that when a bank
is forbidden to do business in the Philippines and placed
under receivership, the person designated as receiver shall
immediately take charge of the bankÊs assets and liabilities,
as expeditiously as possible, collect and gather all the assets
and administer the same for the benefit of its creditors, and
represent the bank personally or through counsel as he may
retain in all actions or proceedings for or against the
institution, exercising all the powers necessary for these
purposes including, but not limited to, bringing and
foreclosing mortgages in the name of the bank. If the
789
VOL. 204, DECEMBER 11, 1991 789

Monetary Board shall later determine and confirm that the

banking institution is insolvent or cannot resume business
with safety to depositors, creditors and the general public,
it shall, if public interest requires, order its liquidation and
appoint a liquidator who shall take over and continue the
functions of the receiver previously appointed by Monetary
Board. The liquidator may, in the name of the bank and
with the assistance of counsel as he may retain, institute
such actions as may be necessary in the appropriate court to
collect and recover accounts and assets of such institution or
defend any action filed against the institution.
When the issue on the validity of the closure and
receivership of Banco Filipino bank was raised in G.R. No.
70054, the pendency of the case did not diminish the
powers and authority of the designated liquidator to
effectuate and carry on the administration of the bank. In
fact when We adopted a resolution on August 25, 1985 and
issued a restraining order to respondents Monetary Board
and Central Bank, We enjoined merely further acts of
liquidation. Such acts of liquidation, as explained in Sec. 29
of the Central Bank Act are those which constitute the
conversion of the assets of the banking institution to money
or the sale, assignment or disposition of the same to
creditors and other parties for the purpose of paying the
debts of such institution. We did not prohibit however acts
such as receiving collectibles and receivables or paying off
creditorsÊ claims and other transactions pertaining to
normal operations of a bank. There is no doubt that the
prosecution of suits for collection and the foreclosure of
mortgages against debtors of the bank by the liquidator are
among the usual and ordinary transactions pertaining to
the administration of a bank. Neither did Our order in the
same resolution dated August 25, 1985 for the designation
by the Central Bank of a comptroller for Banco Filipino
alter the powers and functions of the liquidator insofar as
the management of the assets of the bank is concerned. The
mere duty of the comptroller is to supervise accounts and
finances undertaken by the liquidator and to determine the
propriety of the latterÊs expenditures incurred in behalf of
the bank. Notwithstanding this, the liquidator is still
empowered under the law to continue the functions of the
790

receiver in preserving and keeping intact the assets of the

bank in substitution of its former management, and to
prevent the dissipation of its assets to the detriment of the
creditors of the bank. These powers and functions of the
liquidator in directing the operations of the bank in place of
the former management or former officials of the bank
include the retaining of counsel of his choice in actions and
proceedings for purposes of administration.
Clearly, in G.R. Nos. 68878, 77255–58, 78766 and 90473,
the liquidator by himself or through counsel has the
authority to bring actions for foreclosure of mortgages
executed by debtors in favor of the bank. In G.R. No. 81303,
the liquidator is likewise authorized to resist or defend
suits instituted against the bank by debtors and creditors
of the bank and by other private persons. Similarly, in G.R.
No. 81304, due to the aforestated reasons, the Central
Bank cannot be compelled to fulfill financial transactions
entered into by Banco Filipino when the operations of the
latter were suspended by reason of its closure. The Central
Bank possesses those powers and functions only as
provided for in Sec. 29 of the Central Bank Act.
While We recognize the actual closure of Banco Filipino
and the consequent legal effects thereof on its operations,
We cannot uphold the legality of its closure and thus, find
the petitions in G.R. Nos. 70054, 78767 and 78894
impressed with merit. We hold that the closure and
receivership of petitioner bank, which was ordered by
respondent Monetary Board on January 25, 1985, is null
and void.
It is a well-recognized principle that administrative and
discretionary functions may not be interfered with by the
courts. In general, courts have no supervising power over
the proceedings and actions of the administrative
departments of the government. This is generally true with
respect to acts involving the exercise of judgment or
discretion, and findings of fact. But when there is a grave
abuse of discretion which is equivalent to a capricious and
whimsical exercise of judgment or where the power is
exercised in an arbitrary or despotic manner, then there is
a justification for the courts to set aside the administrative
determination reached (Lim, Sr. v. Secretary of Agriculture
and Natural Resources, L-26990, August 31, 1970, 34
SCRA
791
VOL. 204, DECEMBER 11, 1991 791

751).
The jurisdiction of this Court is called upon, once again,
through these petitions, to undertake the delicate task of
ascertaining whether or not an administrative agency of
the government, like the Central Bank of the Philippines
and the Monetary Board, has committed grave abuse of
discretion or has acted without or in excess of jurisdiction
in issuing the assailed order. Coupled with this task is the
duty of this Court not only to strike down acts which
violate constitutional protections or to nullify
administrative decisions contrary to legal mandates but
also to prevent acts in excess of authority or jurisdiction, as
well as to correct manifest abuses of discretion committed
by the officer or tribunal involved.
The law applicable in the determination of these issues
is Section 29 of Republic Act No. 265, as amended, also
known as the Central Bank Act, which provides:
„SEC. 29. Proceedings upon insolvency.·Whenever, upon

examination by the head of the appropriate supervising or
examining department or his examiners or agents into the condition
of any bank or non-bank financial intermediary performing quasi-
banking functions, it shall be disclosed that the condition of the
same is one of insolvency, or that its continuance in business would
involve probable loss to its depositors or creditors, it shall be the
duty of the department head concerned forthwith, in writing, to
inform the Monetary Board of the facts. The Board may, upon
finding the statements of the department head to be true, forbid the
institution to do business in the Philippines and designate an
official of the Central Bank or a person of recognized competence in
banking or finance, as receiver to immediately take charge of its
assets and liabilities, as expeditiously as possible collect and gather
all the assets and administer the same for the benefits of its
creditors, and represent the bank personally or through counsel as
he may retain in all actions or proceedings for or against the
institution, exercising all the powers necessary for these purposes
including, but not limited to, bringing and foreclosing mortgages in
the name of the bank or non-bank financial intermediary
performing quasi-banking functions.
„The Monetary Board shall thereupon determine within sixty
days whether the institution may be reorganized or otherwise
placed in such a condition so that it may be permitted to resume
business with safety to its depositors and creditors and the general
public and shall prescribe the conditions under which such
resumption of busi
792

ness shall take place as well as the time for fulfillment of such
conditions. In such case, the expenses and fees in the collection and
administration of the assets of the institution shall be determined
by the Board and shall be paid to the Central Bank out of the assets
of such institution.
„If the Monetary Board shall determine and confirm within the
said period that the bank or non-bank financial intermediary
performing quasi-banking functions is insolvent or cannot resume
business with safety to its depositors, creditors, and the general
public, it shall, if the public interest requires, order its liquidation,
indicate the manner of its liquidation and approve a liquidation
plan which may, when warranted, involve disposition of any or all
assets in consideration for the assumption of equivalent liabilities.
The liquidator designated as hereunder provided shall, by the
Solicitor General, file a petition in the regional trial court reciting
the proceedings which have been taken and praying the assistance
of the court in the liquidation of such institutions. The court shall
have jurisdiction in the same proceedings to assist in the
adjudication of the disputed claims against the bank or non-bank
financial intermediary performing quasi-banking functions and in
the enforcement of individual liabilities of the stockholders and do
all that is necessary to preserve the assets of such institutions and
to implement the liquidation plan approved by the Monetary Board.
The Monetary Board shall designate an official of the Central bank
or a person of recognized competence in banking or finance, as
liquidator who shall take over and continue the functions of the
receiver previously appointed by the Monetary Board under this
Section. The liquidator shall, with all convenient speed, convert the
assets of the banking institutions or non-bank financial
intermediary performing quasi-banking functions to money or sell,
assign or otherwise dispose of the same to creditors and other
parties for the purpose of paying the debts of such institution and
he may, in the name of the bank or non-bank financial intermediary
performing quasi-banking functions and with the assistance of
counsel as he may retain, institute such actions as may be
necessary in the appropriate court to collect and recover accounts
and assets of such institution or defend any action filed against the
institution: Provided, However, That after having reasonably
established all claims against the institution, the liquidator may,
with the approval of the court, effect partial payments of such
claims for assets of the institution in accordance with their legal
priority.
„The assets of an institution under receivership or liquidation
shall be deemed in custodia legis in the hands of the receiver or
liquidator and shall from the moment of such receivership or
liquida
793
VOL. 204, DECEMBER 11, 1991 793

tion, be exempt from any order of garnishment, levy, attachment, or

execution.
„The provisions of any law to the contrary notwithstanding, the
actions of the Monetary Board under this Section, Section 28-A, and
the second paragraph of Section 34 of this Act shall be final and
executory, and can be set aside by a court only if there is convincing
proof, after hearing, that the action is plainly arbitrary and made in
bad faith: Provided, That the same is raised in an appropriate
pleading filed by the stockholders of record representing the
majority of the capital stock within ten (10) days from the date the
receiver, takes charge of the assets and liabilities of the bank or
non-bank financial intermediary performing quasi-banking
functions or, in case of conservatorship or liquidation, within ten
(10) days from receipt of notice by the said majority stockholders of
said bank or non-bank financial intermediary of the order of its
placement under conservatorship or liquidation. No restraining
order or injunction shall be issued by any court enjoining the
Central Bank from implementing its actions under this Section and
the second paragraph of Section 34 of this Act in the absence of any
convincing proof that the action of the Monetary Board is plainly
arbitrary and made in bad faith and the petitioner or plaintiff files
a bond, executed in favor of the Central Bank, in an amount to be
fixed by the court. The restraining order or injunction shall be
refused or, if granted, shall be dissolved upon filing by the Central
Bank of a bond, which shall be in the form of cash or Central Bank
cashierÊs check, in an amount twice the amount of the bond of the
petitioner or plaintiff conditioned that it will pay the damages
which the petitioner or plaintiff may suffer by the refusal or the
dissolution of the injunction. The provisions of Rule 58 of the New
Rules of Court insofar as they are applicable and not inconsistent
with the provisions of this Section shall govern the issuance and
dissolution of the restraining order or injunction contemplated in
this Section.
„x x x.‰
Based on the aforequoted provision, the Monetary Board

may order the cessation of operations of a bank in the
Philippines and place it under receivership upon a finding
of insolvency or when its continuance in business would
involve probable loss to its depositors or creditors. If the
Monetary Board shall determine and confirm within sixty
(60) days that the bank is insolvent or can no longer
resume business with safety to its depositors, creditors and
the general public, it shall, if public interest will be served,
order its liquidation.
794

Specifically, the basic question to be resolved in G.R. Nos.

70054, 78767 and 78894 is whether or not the Central
Bank and the Monetary Board acted arbitrarily and in bad
faith in finding and thereafter concluding that petitioner
bank is insolvent, and in ordering its closure on January
25, 1985.
As We have stated in Our resolution dated August 3,
1989, the documents pertinent to the resolution of these
petitions are the Teodoro Report, Tiaoqui Report, and the
Valenzuela, Aurellano and Tiaoqui Report and the
supporting documents made as bases by the supporters of
their conclusions contained in their respective reports. We
will focus Our study and discussion however on the Tiaoqui
Report and the Valenzuela, Aurellano and Tiaoqui Report.
The former recommended the closure and receivership of
petitioner bank while the latter report made the
recommendation to eventually place the petitioner bank
under liquidation. This Court shall likewise take into
consideration the findings contained in the reports of the
two commissioners who were appointed by this Court to
hold the referral hearings, namely the report by Judge
Manuel Cosico submitted February 20,1988 and the report
submitted by Justice Consuelo Santiago on January
28,1991.
There is no question that under Section 29 of the
Central Bank Act, the following are the mandatory
requirements to be complied with before a bank found to be
insolvent is ordered closed and forbidden to do business in
the Philippines: Firstly, an examination shall be conducted
by the head of the appropriate supervising or examining
department or his examiners or agents into the condition of
the bank; secondly, it shall be disclosed in the examination
that the condition of the bank is one of insolvency, or that
its continuance in business would involve probable loss to
its depositors or creditors; thirdly, the department head
concerned shall inform the Monetary Board in writing, of
the facts; and lastly, the Monetary Board shall find the
statements of the department head to be true.
Anent the first requirement, the Tiaoqui report,
submitted on January 23, 1985, revealed that the finding of
insolvency of petitioner was based on the partial list of
exceptions and findings on the regular examination of the
bank as of July 31, 1984 conducted by the Supervision and
Examination Sector II of the
795
VOL. 204, DECEMBER 11, 1991 795
Central Bank (p. 1, Tiaoqui Report).

On December 17, 1984, this list of exceptions and
findings was submitted to the petitioner bank (p. 6, Tiaoqui
Report). This was attached to the letter dated December
17, 1984, of examiner-in-charge Dionisio Domingo of SES
Department II of the Central Bank to Teodoro Arcenas,
president of petitioner bank, which disclosed that the
examination of the petitioner bank as to its financial
condition as of July 31, 1984 was not yet completed or
finished on December 17, 1984 when the Central Bank
submitted the partial list of findings of examination to the
petitioner bank. The letter reads:
„In connection with the regular examination of your institution as

of July 31, 1984, we are submitting herewith a partial list of our
exceptions/findings for your comments.
„Please be informed that we have not yet officially termina ted
our examination (tentatively scheduled last December 7, 1984) and
that we are still awaiting for the unsubmitted replies to our previous
letters/ requests. Moreover, other findings /observations are still
being summarized including the classification of loans and other
risk assets. These shall be submitted to you in due time‰ (p. 810,
Rollo, Vol. III; emphasis ours).
It is worthy to note that a conference was held on January

21, 1985 at the Central Bank between the officials of the
latter and of petitioner bank. What transpired and what
was agreed upon during the conference was explained in
the Tiaoqui report
„x x x The discussion centered on the substantial exposure of the

bank to the various entities which would have a relationship with
the bank; the manner by which some bank funds were made
indirectly available to several entities within the group; and the
unhealthy financial status of these firms in which the bank was
additionally exposed through new funds or refinancing
accommodation including accrued interest.
„Queried in the impact of these clean loans, on the bank solvency,
Mr. Dizon (BF Executive Vice President) intimated that, collectively,
these corporations have large undeveloped real estate properties in
the suburbs which can be made answerable for the unsecured loans
as well as the Central BankÊs credit accommodations. A formal reply
of the bank would still be forthcoming.‰ (pp. 58–59, Rollo, Vol. I;
emphasis ours)
796

Clearly, Tiaoqui based his report on an incomplete

examination of petitioner bank and outrightly concluded
therein that the latterÊs financial status was one of
insolvency or illiquidity. He arrived at the said conclusion
from the following facts: that as of July 31, 1984, total
capital accounts consisting of paid-in capital and other
capital accounts such as surplus, surplus reserves and
undivided profits aggregated P351.8 million; that capital
adjustments, however, wiped out the capital accounts and
placed the bank with a capital deficiency amounting to
P334.956 million; that the biggest adjustment which
contributed to the deficit is the provision for estimated
losses on accounts classified as doubtful and loss which was
computed at P600.4 million pursuant to the examination.
This provision is also known as valuation reserves which
was set up or deducted against the capital accounts of the
bank in arriving at the latterÊs financial condition.
Tiaoqui however admits the insufficiency and
unreliability of the findings of the examiner as to the
setting up of recommended valuation reserves from the
assets of petitioner bank. He stated:
„The recommended valuation reserves as bases for determining the

financial status of the bank would need to be discussed with the
bank, consistent with standard examination procedure, for which
the bank would in turn reply. Also, the examination has not been
officially terminated. (p. 7. Tiaoqui report; p. 59, Rollo, Vol. I)
In his testimony in the second referral hearing before

Justice Santiago, Tiaoqui testified that on January 21,
1985, he met with officers of petitioner bank to discuss the
advanced findings and exceptions made by Mr. Dionisio
Domingo which covered 70%-80% of the bankÊs loan
portfolio; that at that meeting, Fortunato Dizon (BFÊs
Executive Vice President) said that as regards the
unsecured loans granted to various corporations, said
corporations had large undeveloped real estate properties
which could be answerable for the said unsecured loans
and that a reply from BF was forthcoming; that he
(Tiaoqui) however prepared his report despite the absence
of such reply; that he believed, as in fact it is stated in his
report, that despite the meeting on January 21, 1985, there
was still a need to discuss the recommended valuation
reserves of petitioner bank and;
797
VOL. 204, DECEMBER 11, 1991 797

that he however, did not wait anymore for a discussion of

the recommended valuation reserves and instead prepared
his report two days after January 21, 1985 (pp. 3313–3314,
Rollo).
Records further show that the examination of petitioner
bank was officially terminated only when Central Bank
Examinerin-charge Dionisio Domingo submitted his final
report of examination on March 4, 1985.
It is evident from the foregoing circumstances that the
examination contemplated in Sec. 29 of the CB Act as a
mandatory requirement was not completely and fully
complied with. Despite the existence of the partial list of
findings in the examination of the bank, there were still
highly significant items to be weighed and determined such
as the matter of valuation reserves, before these can be
considered in the financial condition of the bank. It would
be a drastic move to conclude prematurely that a bank is
insolvent if the basis for such conclusion is lacking and
insufficient, especially if doubt exists as to whether such
bases or findings faithfully represent the real financial
status of the bank.
The actuation of the Monetary Board in closing
petitioner bank on January 25, 1985 barely four days after
a conference with the latter on the examinersÊ partial
findings on its financial position is also violative of what
was provided in the CB Manual of Examination
Procedures. Said manual provides that only after the
examination is concluded, should a pre-closing conference
led by the examiner-in-charge be held with the
officers/representatives of the institution on the
findings/exception, and a copy of the summary of the
findings/violations should be furnished the institution
examined so that corrective action may be taken by them
as soon as possible (Manual of Examination Procedures,
General Instruction, p. 14). It is hard to understand how a
period of four days after the conference could be a
reasonable opportunity for a bank to undertake a
responsive and corrective action on the partial list of
findings of the examiner-in-charge.
We recognize the fact that it is the responsibility of the
Central Bank of the Philippines to administer the
monetary, banking and credit system of the country and
that its powers and functions shall be exercised by the
Monetary Board pursu-
798

ant to Rep, Act No. 265, known as the Central Bank Act.
Consequently, the power and authority of the Monetary
Board to close banks and liquidate them thereafter when
public interest so requires is an exercise of the police power
of the state. Police power, however, may not be done
arbitratrily or unreasonably and could be set aside if it is
either capricious, discriminatory, whimsical, arbitrary,
unjust or is tantamount to a denial of due process and
equal protection clauses of the Constitution (Central Bank
v. Court of Appeals, Nos. L-50031–32, July 27, 1981, 106
SCRA 143).
In the instant case, the basic standards of substantial
due process were not observed. Time and again, We have
held in several cases, that the procedure of administrative
tribunals must satisfy the fundamentals of fair play and
that their judgment should express a well-supported
conclusion.
In the celebrated case of Ang Tibay v. Court of Industrial
Relations, 69 Phil. 635, this Court laid down several
cardinal primary rights which must be respected in a
proceeding before an administrative body.
However, as to the requirement of notice and hearing,
Sec. 29 of RA 265 does not require a previous hearing
before the Monetary Board implements the closure of a
bank, since its action is subject to judicial scrutiny as
provided for under the same law (Rural Bank of Bato v.
IAC, G.R No. 65642, October 15, 1984, Rural Bank v. Court
of Appeals, G.R. 61689, June 20,1988,162 SCRA 288).
Notwithstanding the foregoing, administrative due
process does not mean that the other important principles
may be dispensed with, namely: the decision of the
administrative body must have something to support itself
and the evidence must be substantial. Substantial evidence
is more than a mere scintilla. It means such relevant
evidence as a reasonable mind might accept as adequate to
support a conclusion (Ang Tibay vs. CIR, supra). Hence,
where the decision is merely based upon pieces of
documentary evidence that are not sufficiently substantial
and probative for the purpose and conclusion they are pre-
sented, the standard of fairness mandated in the due
process clause is not met. In the case at bar, the conclusion
arrived at by the respondent Board that the petitioner
bank is in an illiquid
799
VOL. 204, DECEMBER 11, 1991 799

financial position on January 23, 1985, as to justify its

closure on January 25, 1985 cannot be given weight and
finality as the report itself admits the inadequacy of its
basis to support its conclusion.
The second requirement provided in Section 29, R.A. 265
before a bank may be closed is that the examination should
disclose that the condition of the bank is one of insolvency.
As to the concept of whether the bank is solvent or not,
the respondents contend that under the Central Bank
Manual of Examination Procedures, Central Bank
examiners must recommend valuation reserves, when
warranted, to be set up or deducted against the
corresponding asset account to determine the bankÊs true
condition or net worth. In the case of loan accounts, to
which practically all the questioned valuation reserves
refer, the manual provides that:
1. For doubtful loans, or loans the ultimate collection

of which is doubtful and in which a substantial loss
is probable but not yet definitely ascertainable as to
extent, valuation reserves of fifty per cent (50%) of
the accounts should be recommended to be setup.
2. For loans classified as loss, or loans regarded by the
examiner as absolutely uncollectible or worthless,
valuation reserves of one hundred percent (100%) of
the accounts should be recommended to be set up
(p. 8, Objections to Santiago report).
The foregoing criteria used by respondents in determining

the financial condition of the bank is based on Section 5 of
RA 337, known as the General Banking Act which states:
„Sec. 5. The following terms shall be held to be synonymous and

interchangeable:
xxx
f. ÂUnimpaired Capital and Surplus/ ÂCombined capital accounts/
and ÂNet worth,Ê which terms shall mean for the purposes of this
Act, the total of the Âunimpaired paid-in capital, surplus, and
undivided profits net of such valuation reserves as may be required
by the Central Bank.‰
There is no doubt that the Central Bank Act vests

authority upon the Central Bank and Monetary Board to
take charge and administer the monetary and banking
system of the country and this authority includes the power
to examine and deter-
800

mine the financial condition of banks for purposes provided

for by law, such as for the purpose of closure on the ground
of insolvency stated in Section 29 of the Central Bank Act.
But express grants of power to public officers should be
subjected to a strict interpretation, and will be construed as
conferring those powers which are expressly imposed or
necessarily implied (Floyd Mechem, Treatise on the Law of
Public Offices and Officers, p. 335).
In this case, there can be no clearer explanation of the
concept of insolvency than what the law itself states. Sec.
29 of the Central Bank Act provides that insolvency under
the Act, shall be understood to mean that „the realizable
assets of a bank or a non-bank financial intermediary
performing quasi-banking functions as determined by the
Central Bank are insufficient to meet its liabilities.‰
Hence, the contention of the Central Bank that a bankÊs
true financial condition is synonymous with the terms
„unimpaired capital and surplus,‰ „combined capital
accounts‰ and net worth after deducting valuation reserves
from the capital, surplus and unretained earnings, citing
Sec. 5 of RA 337 is misplaced,
Firstly, it is clear from the law that a solvent bank is one
in which its assets exceed its liabilities. It is a basic
accounting principle that assets are composed of liabilities
and capital. The term „assets‰ includes capital and surplus‰
(Exley v. Harris, 267 p. 970, 973, 126 Kan., 302). On the
other hand, the term „capital‰ includes common and
preferred stock, surplus reserves, surplus and undivided
profits. (Manual of Examination Procedures, Report of
Examination on Department of Commercial and Savings
Banks, p. 3-C). If valuation reserves would be deducted
from these items, the result would merely be the networth
or the unimpaired capital and surplus of the bank applying
Sec. 5 of RA 337 but not the total financial condition of the
bank.
Secondly, the statement of assets and liabilities is used
in balance sheets. Banks use statements of condition to
reflect the amounts, nature and changes in the assets and
liabilities. The Central Bank Manual of Examination
Procedures provides a format or checklist of a statement of
condition to be used by examiners as guide in the
examination of banks. The, format
801
VOL. 204, DECEMBER 11, 1991 801

enumerates the items which will compose the assets and

liabilities of a bank. Assets include cash and those due from
banks, loans, discounts and advances, fixed assets and
other property owned or acquired and other miscellaneous
assets. The amount of loans, discounts and advances to be
stated in the statement of condition as provided for in the
manual is computed after deducting valuation reserves
when deemed necessary. On the other hand, liabilities are
composed of demand deposits, time and savings deposits,
cashierÊs, managerÊs and certified checks, borrowings, due
to head office, branches and agencies, other liabilities and
deferred credits (Manual of Examination Procedure, p. 9).
The amounts stated in the balance sheets or statements of
condition including the computation of valuation reserves
when justified, are based however, on the assumption that
the bank or company will continue in business indefinitely,
and therefore, the networth shown in the statement is in
no sense an indication of the amount that might be realized
if the bank or company were to be liquidated immediately
(Prentice Hall Encyclopedic Dictionary of Business
Finance, p. 48). Further, based on respondentsÊ
submissions, the allowance for probable losses on loans and
discounts represents the amount set up against current
operations to provide for possible losses arising from non-
collection of loans and advances, and this account is also
referred to as valuation reserve (p. 9, Objections to
Santiago report). Clearly, the statement of condition which
contains a provision for recommended valuation reserves
should not be used as the ultimate basis to determine the
solvency of an institution for the purpose of termination of
its operations.
Respondents acknowledge that under the said CB
manual, CB examiners must recommend valuation
reserves, when warranted, to be set up against the
corresponding asset account (p, 8, Objections to Santiago
report). Tiaoqui himself, as author of the report
recommending the closure of petitioner bank admits that
the valuation reserves should still be discussed with the
petitioner bank in compliance with standard examination
procedure. Hence, for the Monetary Board to unilaterally
deduct an uncertain amount as valuation reserves from the
assets of a bank and to conclude therefrom without
sufficient basis that the bank is insolvent, would be totally
unjust and unfair.
802

Banco Filipino Savings & Mortgage Bank us. Monetary
The test of insolvency laid down in Section 29 of the

Central Bank Act is measured by determining whether the
realizable assets of a bank are less than its liabilities.
Hence, a bank is solvent if the fair cash value of all its
assets, realizable within a reasonable time by a reasonable
prudent person, would equal or exceed its total liabilities
exclusive of stock liability; but if such fair cash value so
realizable is not sufficient to pay such liabilities within a
reasonable time, the bank is insolvent. (Gillian v. State,
194 N.E. 360, 363, 207 Ind. 661). Stated in other words, the
insolvency of a bank occurs when the actual cash market
value of its assets is insufficient to pay its liabilities, not
considering capital stock and surplus which are not
liabilities for such purpose (Exley v. Harris, 267 p. 970, 973,
126 Kan. 302; Alexander v. Llewellyn, Mo. App., 70 S.W. 2n
115, 117).
In arriving at the computation of realizable assets of
petitioner bank, respondents used its books which
undoubtedly are not reflective of the actual cash or fair
market value of its assets. This is not the proper procedure
contemplated in Sec. 29 of the Central Bank Act. Even the
CB Manual of Examination Procedures does not confine
examination of a bank solely with the determination of the
books of the bank. The latter is part of auditing which
should not be confused with examination. Examination
appraises the soundness of the institutionÊs assets, the
quality and character of management and determines the
institutionÊs compliance with laws, rules and regulations.
Audit is a detailed inspection of the institutionÊs books,
accounts, vouchers, ledgers, etc. to determine the recording
of all assets and liabilities. Hence, examination concerns
itself with review and appraisal, while audit concerns itself
with verification (CB Manual of Examination Procedures,
General Instructions, p. 5). This Court however, is not in
the position to determine how much cash or market value
shall be assigned to each of the assets and liabilities of the
bank to determine their total realizable value. The proper
determination of these matters by using the actual cash
value criteria belongs to the field of fact-finding expertise of
the Central Bank and the Monetary Board.
Notwithstanding the fact that the figures arrived at by the
respondent Board as to assets and liabilities do not truly
indicate their realizable value as they were merely based
on book value, We
803
VOL. 204, DECEMBER 11, 1991 803
will however, take a look at the figures presented by the

Tiaoqui Report in concluding insolvency as of July 31, 1984
and at the figures presented by the CB authorized deputy
receiver and by the Valenzuela, Aurellano and Tiaoqui
Report which recommended the liquidation of the bank by
reason of insolvency as of January 25, 1985.
The Tiaoqui report dated January 23, 1985, which was
based on partial examination findings on the bankÊs
condition as of July 31, 1984, states that total liabilities of
P5,282.1 million exceeds total assets of P4,947.2 million
after deducting from the assets valuation reserves of
P612.2 million. Since, as We have explained in our previous
discussion that valuation reserves can not be legally
deducted as there was no truthful and complete evaluation
thereof as admitted by the Tiaoqui report itself, then an
adjustment of the figures will show that the liabilities of
P5,282.1 million will not exceed the total assets which will
amount to P5,559.4 if the 612.2 million allotted to
valuation reserves will not be deducted from the assets.
There can be no basis therefore for both the conclusion of
insolvency and for the decision of the respondent Board to
close petitioner bank and place it under receivership.
Concerning the financial position of the bank as of
January 25, 1985, the date of the closure of the bank, the
consolidated statement of condition thereof as of the
aforesaid date shown in the Valenzuela, Aurellano and
Tiaoqui report on the receivership of petitioner bank, dated
March 19, 1985, indicates that total liabilities of 4,540.84
million does not exceed the total assets of 4,981.53 million.
Likewise, the consolidated statement of condition of
petitioner bank as of January 25, 1985 prepared by the
Central Bank Authorized Deputy Receiver Artemio Cruz
shows that total assets amounting to P4,981,522,996.22
even exceeds total liabilities amounting to
P4,540,836,834.15. Based on the foregoing, there was no
valid reason for the Valenzuela, Aurellano and Tiaoqui
report to finally recommend the liquidation of petitioner
bank instead of its rehabilitation.
We take note of the exhaustive study and findings of the
Cosico report on the petitioner bankÊs having engaged in
unsafe, unsound and fraudulent banking practices by the
granting of huge unsecured loans to several subsidiaries
and related
804

companies, We do not see, however, that this has any

material bearing on the validity of the closure. Section 34
of the RA 265, Central Bank Act empowers the Monetary
Board to take action under Section 29 of the Central Bank
Act when a bank „persists in carrying on its business in an
unlawful or unsafe manner.‰ There was no showing
whatsoever that the bank had persisted in committing
unlawful banking practices and that the respondent Board
had attempted to take effective action on the bankÊs alleged
activities, During the period from July 27, 1984 up to
January 25, 1985, when petitioner bank was under
conservatorship no official of the bank was ever prosecuted,
suspended or removed for any participation in unsafe and
unsound banking practices, and neither was the entire
management of the bank replaced or substituted. In fact, in
her testimony during the second referral hearing, Carlota
Valenzuela, CB Deputy Governor, testified that the reason
for petitioner bankÊs closure was not unsound, unsafe and
fraudulent banking practices but the alleged insolvency
position of the bank (TSN, August 3, 1990, p. 3315, Rollo,
Vol. VIII).
Finally, another circumstance which point to the
solvency of petitioner bank is the granting by the Monetary
Board in favor of the former a credit line in the amount of
P3 billion along with the placing of petitioner bank under
conservatorship by virtue of M.B. Resolution No. 955 dated
July 27, 1984. This paved the way for the reopening of the
bank on August 1,1984 after a selfimposed bank holiday on
July 23, 1984.
On emergency loans and advances, Section 90 of RA 265
provides two types of emergency loans that can be granted
by the Central Bank to a financially distressed bank:
„Sec. 90. x x x. In periods of emergency or of imminent financial

panic which directly threaten monetary and banking stability, the
Central Bank may grant banking institutions extraordinary
advances secured by any assets which are defined as acceptable
security by a concurrent vote of at least five members of the
Monetary Board, While such advances are outstanding, the debtor
institution may not expand the total volume of its loans or
investments without the prior authorization of the Monetary
Board.‰
„The Central Bank may, at its discretion, likewise grant advances
to banking institutions, even during normal periods, for the purpose
of assisting a bank in a precarious financial condition or under
serious
805
VOL. 204, DECEMBER 11, 1991 805

financial pressures brought about by unforeseen events, or events

which, though foreseeable, could not be prevented by the bank
concerned. Provided, however, That the Monetary Board has
ascertained that the bank is not insolvent and has clearly realizable
assets to secure the advances. Provided, further, That a concurrent
vote of at least five members of the Monetary Board is obtained.‰
(Emphasis ours)
The first paragraph of the aforequoted provision

contemplates a situation where the whole banking
community is confronted with financial and economic crisis
giving rise to serious and widespread confusion among the
public, which may eventually threaten and gravely
prejudice the stability of the banking system. Here, the
emergency or financial confusion involves the whole
banking community and not one bank or institution only.
The second situation on the other hand, provides for a
situation where the Central Bank grants a loan to a bank
with uncertain financial condition but not insolvent.
As alleged by the respondents, the following are the
reasons of the Central Bank in approving the resolution
granting the P3 billion loan to petitioner bank and the
latterÊs reopening after a brief self-imposed banking
holiday:
„WHEREAS, the closure by Banco Filipino Savings and Mortgage

Bank of its Banking offices on its own initiative has worked serious
hardships on its depositors and has affected confidence levels in the
banking system resulting in a feeling of apprehension among
depositors and unnecessary deposit withdrawals;
„WHEREAS, the Central Bank is charged with the function of
administering the banking system;
„WHEREAS, the reopening of Banco Filipino would require
additional credit resources from the Central Bank as well as an
independent management acceptable to the Central Bank;
„WHEREAS, it is the desire of the Central Bank to rapidly
diffuse the uncertainty that presently exists;
„x x x.‰ (M.B. Min. No, 35 dated July 27, 1984 cited in
RespondentsÊ Objections to Santiago Report, p. 26; p. 3387, ÂRollo,
Vol. IX; Emphasis ours).
A perusal of the foregoing „Whereas‰ clauses unmistakably

show that the clear reason for the decision to grant the
emergency loan to petitioner bank was that the latter was
suffering
806

from financial distress and severe bank „run‰ as a result of

which it closed on July 23, 1984 and that the release of the
said amount is in accordance with the Central BankÊs full
support to meet Banco FilipinoÊs depositorsÊ withdrawal
requirements (Excerpts of minutes of meeting on MB Min.
No. 35, p. 25, Rollo, Vol. IX). Nothing therein shows that an
extraordinary emergency situation exists affecting most
banks, not only as regards petitioner bank. This Court
thereby finds that the grant of the said emergency loan was
intended from the beginning to fall under the second
paragraph of Section 90 of the Central Bank Act, which
could not have occurred if the petitioner bank was not
solvent. Where notwithstanding knowledge of the
irregularities and unsafe banking practices allegedly
committed by the petitioner bank, the Central Bank even
granted financial support to the latter and placed it under
conservatorship, such actuation means that petitioner bank
could still be saved from its financial distress by adequate
aid and management reform, which was required by
Central BankÊs duty to maintain the stability of the
banking system and the preservation of public confidence
in it (Ramos v. Central Bank, No. L-29352, October 4, 1971,
41 SCRA 565).
In view of the foregoing premises, We believe that the
closure of the petitioner bank was arbitrary and committed
with grave abuse of discretion. Granting in gratia
argumenti that the closure was based on justified grounds
to protect the public, the fact that petitioner bank was
suffering from serious financial problems should not
automatically lead to its liquidation. Section 29 of the
Central Bank provides that a closed bank may be
reorganized or otherwise placed in such a condition that it
may be permitted to resume business with safety to its
depositors, creditors and the general public.
We are aware of the Central BankÊs concern for the
safety of Banco FilipinoÊs depositors as well as its creditors
including itself which had granted substantial financial
assistance up to the time of the latterÊs closure. But there
are alternatives to permanent closure and liquidation to
safeguard those interests as well as those of the general
public for the failure of Banco Filipino or any bank for that
matter may be viewed as an irreversible decline of the
countryÊs entire banking system and
807
VOL. 204, DECEMBER 11, 1991 807

ultimately, it may reflect on the Central BankÊs own

viability. For one thing, the Central Bank and the
Monetary Board should exercise strict supervision over
Banco Filipino. They should take all the necessary steps
not violative of the laws that will fully secure the
repayment of the total financial assistance that the Central
Bank had already granted or would grant in the future.
ACCORDINGLY, decision is hereby rendered as follows:
1. The motion for reconsideration in G.R. Nos. 68878

and 81303, and the petitions in G.R. Nos. 77255–58,
78766, 81304 and 90473 are DENIED;
2. The petitions in G.R. No. 70054, 78767 and 78894
are GRANTED and the assailed order of the
Central Bank and the Monetary Board dated
January 25, 1985 is hereby ANNULLED AND SET
ASIDE. The Central Bank and the Monetary Board
are ordered to reorganize petitioner Banco Filipino
Savings and Mortgage Bank and allow the latter to
resume business in the Philippines under the
comptrollership of both the Central Bank and the
Monetary Board and under such conditions as may
be prescribed by the latter in connection with its
reorganization until such time that petitioner bank
can continue in business with safety to its creditors,
depositors and the general public.
SO ORDERED.
Narvasa (C.J.), Gutierrez, Jr., Cruz, Bidin and

Regalado, JJ., concur.
Melencio-Herrera, J., See dissent.
Paras, J., No part. Son is one of the lawyers.
Feliciano, J., No part. One of parties represented by
my former firm.
Padilla, J., No part; former director of Bank of P.I.
which at one time negotiated for the acquisition of Banco
Filipino.
Griño-Aquino, J., Please see my separate dissenting
opinion.
Davide, Jr., J., No part as one of the counsels was a
former partner in a Cebu-based law firm.
Romero, J., I join in the dissent of J. Aquino.
Nocon, J., No part. Did not participate in the
deliberations.
808

Banco Filipino Savings & Mortgage Bank vs, Monetary
MELENCIO-HERRERA, J., Dissenting:
I join Mme. Justice Carolina G. Aquino in her dissent and

vote to deny the prayer, in G.R. No. 70054, to annul
Monetary Board Resolution No. 75 placing Banco Filipino
(BF) under receivership.
Even assuming that the BF was not, as alleged, in a
literal state of insolvency at the time of the passage of said
Resolution, there was a finding in the Teodoro report that,
based on that BankÊs illiquidity, to have allowed it to
continue in operation would have meant probable loss to
depositors and creditors. That is also a ground for placing
the bank under receivership, as a first step, pursuant to
Section 29 of the Central Bank Act (Rep. Act No. 265, as
amended). The closure of BF, therefore, can not be said to
have been arbitrary or made in bad faith. There was
sufficient justification, considering its inability to meet the
heavy withdrawals by its depositors and to pay its
liabilities as they fell due, to forbid the bank from further
engaging in banking.
The matter of reopening, reorganization or
rehabilitation of BF is not within the competence of this
Court to ordain but is better addressed to the Monetary
Board and the Central Bank considering the latterÊs
enormous infusion of capital into BF to the tune of
approximately P3.5 Billion in total accommodations, after a
thorough assessment of whether or not BF is, indeed,
possessed, as it stoutly contends, of sufficient assets and
capabilities with which to repay such huge indebtedness,
and can operate without loss to its many depositors and
creditors.
GRlÑO-AQUINO, J., Dissenting in part.
Although these nine (9) Banco Filipino (BF) cases have

been consolidated under one ponencia, all of them except
one, raise issues unrelated to the receivership and
liquidation of said bank, In fact, two of these cases (G.R.
No. 68878 and 81303) have already been decided by this
Court and are only awaiting the resolution of the motions
for reconsideration filed therein. Only G.R. No, 70054
„Banco Filipino Savings and Mortgage Bank (BF) vs. the
Monetary Board (MB), Central Bank of the Philippines
(CB), et al.," is an original action for mandamus and
809
VOL. 204, DECEMBER 11, 1991 809

certiorari filed in this Court by former officials of BF to

annul the Monetary Board Resolution No. 75 dated
January 25, 1985 (ordering the closure of Banco Filipino
[BF] and appointing Carlota Valenzuela as receiver of the
bank) on the ground that the resolution was issued
„without affording BF a hearing on the reports‰ on which
the Monetary Board based its decision to close
1
the bank,
hence, without „administrative due process" The prayer of
the petition reads:
„WHEREFORE, petitioner respectfully prays that a writ of

mandamus be issued commanding respondents immediately to
furnish it copies of the reports of examination of BF employed by
respondent Monetary Board to support its Resolution of January
25, 1985 and thereafter to afford it a hearing prior to any resolution
that may be issued under Section 29 of R.A. 265, meanwhile
annulling said Resolution of January 25, 1985 by writ of certiorari
as made without or in excess of jurisdiction or with grave abuse of
discretion.
„So as to expedite proceedings, petitioner prays that the
assessment of the damages respondents should pay it be deferred
and referred to commissioners.
„Petitioner prays for such other remedy as the Court may deem
just and equitable in the premises.
„Quezon City for Manila, February 28, 1985." (p. 8, Rollo I.)
and the prayer of the Supplement to Petition reads:
„WHEREFORE, in addition to its prayer for mandamus and

certiorari contained in its original petition, petitioner respectfully
prays that Sections 28-A and 29 of the Central Bank charter (R.A.
265) including its amendatory Presidential Decrees Nos. 72, 1771,
1827 and 1937 be annulled as unconstitutional.
„Quezon City for Manila, March 4, 1985." (p. 11-G, Rollo I.)
The other eight (8) cases merely involve transactions of BF

with third persons and certain „related‰ corporations which
had defaulted an their loans and sought to prohibit the
extrajudicial foreclosure of the mortgages on their
properties by the receiver of BF. These eight (8) cases are:
1. G.R. No. 68878 „BF vs. Intermediate Appellate Court
and Celestina Pahimutang‰ involves the repossession by
BF of a
________________
1 P. 3, Petition.
810
house and lot which the buyer (Pahimutang) claimed to

have completely paid for on the installment plan. The
appellate courtÊs judgment for the buyer was reversed by
this Court. The buyerÊs motion for reconsideration is
awaiting resolution by this Court;
2. G.R. Nos. 77255–58, ÂTop Management Programs
Corporation and Pilar Development Corporation us. Court
of Appeals, et al.‰ (CA-G.R, SP No. 07892) and „Pilar
Development Corporation vs. Executive Judge, RTC, Cavite‰
(CA-G.R. SP Nos. 08962–64) is a consolidated petition for
review of the Court of AppealsÊ joint decision dismissing the
petitions for prohibition in which the petitioners seek to
prevent the receiver/liquidator of BF from extrajudicially
foreclosing the P4.8 million mortgage on Top ManagementÊs
properties and the P18.67 million mortgage on Pilar
Development properties. The Court of Appeals dismissed
the petitions on October 30, 1986 on the ground that „the
functions of the liquidator, as receiver under Section 29
(R.A. 265), include taking charge of the insolventÊs assets
and administering the same for the benefit of its creditors
and of bringing suits and foreclosing mortgages in the
name of the bank;‰
3. G.R. No. 78766, „El Grande Corporation vs. Court of
Appeals, et al.," is an appeal from the Court of AppealsÊ
decision in CA-G.R. SP No. 08809 dismissing El GrandeÊs
petition for prohibition to prevent the foreclosure of BFÊs P8
million mortgage on El GrandeÊs properties;
4. G.R. No. 78894, „Banco Filipino Savings and
Mortgage Bank vs. Court of Appeals, et al.‰ is an appeal of
BFÊs old management (using the name of BF) from the
decision of the Court of Appeals in CA-G.R, SP No. 07503
entitled, „Central Bank, et al. vs. Judge Zoilo Aguinaldo, et
al.‰ dismissing the complaint of „BF" to annul the
receivership, for no suit may be brought or defended in the
name of the bank except by its receiver;
5. G.R. No. 87867, „Metropolis Development Corporation
vs. Court of Appeals‰ (formerly AC-G.R. No. 07503, „Central
Bank, et al. vs. Honorable Zoilo Aguinaldo, et al.‰) is an
appeal of the intervenor (Metropolis) from the same Court
of AppealsÊ decision subject of G.R. No. 78894, which also
dismissed MetropolisÊ
811
VOL. 204, DECEMBER 11, 1991 811

complaint in intervention on the ground that a stockholder

(Metropolis) may not bring suit in the name of BF while the
latter is under receivership, without the authority of the
receiver;
6. G.R. No. 81303, „Pilar Development Corporation vs.
Court of Appeals, et al.‰ is an appeal from the decision
dated October 22, 1987 of the Court of Appeals in CA-G.R.
SP No. 12368, „Pilar Development Corporation, et al. vs,
Honorable Manuel Cosico, et al.," dismissing the petition
for certiorari against Judge Manuel Cosico, Br. 136, RTC,
Makati, who dismissed the complaint filed by Pilar
Development Corporation against BF, for specific
performance of certain developer contracts. An answer filed
by Norberto Quisumbing and Associates, as BFÊs supposed
counsel, virtually confessed judgment in favor of Pilar
Development. On motion of the receiver, the answer was
expunged and the complaint was dismissed. On a petition
for certiorari in this Court, we held that: „As liquidator of
BF by virtue of a valid appointment from the Central Bank,
private respondent Carlota Valenzuela has the authority to
direct the operation of the bank in substitution of the
former management, which authority includes the retainer
of counsel to represent it in bringing or resisting suits in
connection with such liquidation and, in the case at bar, to
take the proper steps to prevent collusion, to the prejudice
of the legitimate creditors, between BF and the petitioners
herein which appear to be owned and controlled by the
same interest controlling BF" (p. 49, Rollo). The petitionersÊ
motion for reconsideration of that decision is pending
resolution.
7. G.R. No. 81304, „BF Homes Development Corporation
vs. Court of Appeals, et al.‰ is an appeal from the decision
dated November 4, 1987 of the Court of Appeals in CA-G.R.
CV No. 08565 affirming the trial courtÊs order dismissing
BF HomesÊ action to compel the Central Bank to restore the
financing facilities of BF, because the plaintiff (BF Homes)
has no cause of action against the CB.
8. G.R. No. 90473, „El Grande Development Corporation
vs. Court of Appeals, et al.‰ is a petition to review the
decision dated June 6, 1989 in CA-G.R. SP No. 08676
dismissing El GrandeÊs petition for prohibition to stop
foreclosure proceed-
812

ings against it by the receiver of BF.

As previously stated, G.R. No. 70054 „BF vs. Monetary
Board, et al.," is an original special civil action for
certiorari and mandamus filed in this Court by the old
management of BF, through their counsel, N.J.
Quisumbing 6, Associates, using the name of the bank and
praying for the annulment of MB Resolution No, 75 which
ordered the closure of BF and placed it under receivership.
It is a „forum-shopping‰ case because it was filed here on
February 28, 1985 three weeks after they had filed on
February 2, 1985 Civil Case No. 9675 „Banco Filipino vs.
Monetary Board, et al.‰ in the Regional Trial Court of
Makati, Br. 143 (presided over by Judge Zoilo Aguinaldo)
for the same purpose of securing a declaration of the nullity
of MB Resolution No. 75 dated January 25, 1985.
On August 25, 1985, this Court ordered the transfer and
consolidation of Civil Case No. 9675 (to annul the
receivership) from Br. 143 to Br. 136 (Judge Manuel Cosico)
of the Makati Regional Trial Court where Civil Case No.
8108 (to annul the conservatorship) and Civil Case No.
10183 (to annul the liquidation) of BF were and are still
pending. All these three (3) cases were archived on June
30, 1988 by Judge Cosico pending the resolution of G.R. No.
70054 by this Court.
Because of my previous participation, as a former
member of the Court of Appeals, in the disposition of AC-
G.R. No. 02617 (now G.R. No. 68878) and AC-G.R. SP No.
07503 (now G.R. Nos. 78767 and 78894), I am taking no
part in G.R. Nos. 68878, 78767 and 78894. It may be
mentioned in this connection that neither in AC-G.R. SP
No. 02617, nor in AC-G.R. SP No. 07503, did the Court of
Appeals rule on the constitutionality of Sections 28-A and
29 of Republic Act 265 (Central Bank Act), as amended,
and the validity of MB Resolution No. 75, for those issues
were not raised in the Court of Appeals.
I concur with the ponencia insofar as it denies the
motion for reconsideration in G.R. No. 81303, and
dismisses the petitions for review in G.R. Nos. 77255–58,
78766, 81304, and 90473.
I respectfully dissent from the majority opinion in G.R.
No. 70054 annulling and setting aside MB Resolution No.
75 and ordering the respondents, Central Bank of the
Philippines and the Monetary Board·
813
VOL. 204, DECEMBER 11, 1991 813

„to reorganize petitioner Banco Filipino Savings and Mortgage

Bank, and allow the latter to resume business in the Philippines
under the comptrollership of both the Central Bank and the
Monetary Board and under such conditions as may be prescribed by
the latter until such time that petitioner bank can continue in
business with safety to its creditors, depositors and the general
public.‰
for I believe that this Court has neither the authority nor
the competence to determine whether or not, and under
what conditions, BF should be reorganized and reopened,
That decision should be made by the Central Bank and the
Monetary Board, not by this Court.
All that we may determine in this case is whether the
actions of the Central Bank and the Monetary Board in
closing BF and placing it under receivership were „plainly
arbitrary and made in bad faith.‰
Section 29 of Republic Act No. 265 provides:
„Section 29. Proceedings upon insolvency.·Whenever, upon

examination by the head of the appropriate supervising and
examining department or his examiners or agents into the condition
of any banking institution, it shall be disclosed that the condition of
the same is one of insolvency, or that its continuance in business
would involve probable loss to its depositors or creditors, it shall be
the duty of the department head concerned forthwith, in writing, to
inform the Monetary Board of the facts, and the Board may, upon
finding the statements of the department head to be true, forbid the
institution to do business in the Philippines and shall designate an
official of the Central Bank as receiver to immediately take charge
of its assets and liabilities, as expeditiously as possible collect and
gather all the assets and administer the same for the benefit of its
creditors, exercising all the powers necessary for these purposes
including, but not limited to, bringing suits and foreclosing
mortgages in the name of the banking institution.
„The Monetary Board shall thereupon determine within sixty
days whether the institution may be reorganized or otherwise
placed in such a condition so that it may be permitted to resume
business with safety to its depositors and creditors and the general
public and shall prescribe the conditions under which such
resumption of business shall take place as well as the time for
fulfillment of such conditions. In such case, the expenses and fees in
the collection and administration of the assets of the institution
shall be determined by the Board and shall be paid to the Central
Bank out of the assets of
814

such banking institution.

„If the Monetary Board shall determine and confirm within the
said period that the banking ins titution is insolvent or cannot
resume business with safety to its depositors, creditors and the
general public, it shall, if the public interest requires, order its
liquidation, indicate the manner of its liquidation and approve a
liquidation plan. The Central Bank shall, by the Solicitor General,
file a petition in the Court of First Instance, reciting the
proceedings which have been taken and praying the assistance of
the court in the liquidation of the banking institutions. The court
shall have jurisdiction in the same proceedings to adjudicate
disputed claims against the bank and enforce individual liabilities
of the stockholders and do all that is necessary to preserve the
assets of the banking institution and to implement the liquidation
plan approved by the Monetary Board. The Monetary Board shall
designate an official of the Central Bank as liquidator who shall
take over the functions of the receiver previously appointed by the
Monetary Board under this section. The liquidator shall, with all
convenient speed, convert the assets of the banking institution to
money or sell, assign or otherwise dispose of the same to creditors
and other parties for the purpose of paying the debts of such bank
and he may, in the name of the banking institution, institute such
actions as may be necessary in the appropriate court to collect and
recover accounts and assets of the banking institution.
„The provisions of any law to the contrary notwithstanding, the
actions of the Monetary Board under this section and the second
paragraph of Section 34 of this Act shall be final and executory, and
can be set aside by the court only if there is convincing proof that the
action is plainly arbitrary and made in bad faith. No restraining
order or injunction shall be issued by the court enjoining the
Central Bank from implementing its actions under this section and
the second paragraph of Section 34 of this Act, unless there is
convincing proof that the action of the Monetary Board is plainly
arbitrary and made in bad faith and the petitioner or plaintiff files
with the clerk or judge of the court in which the action is pending a
bond executed in favor of the Central Bank, in an amount to be fixed
by the court. The restraining order or injunction shall be refused or,
if granted, shall be dissolved upon filing by the Central Bank of a
bond, which shall be in the form of cash or Central Bank cashierÊs
check, in an amount twice the amount of the bond of the petitioner
or plaintiff, conditioned that it will pay the damages which the
petitioner or plaintiff may suffer by the refusal or the dissolution of
the injunction. The provisions of Rule 58 of the new Rules of Court
insofar as they are applicable and not inconsistent with the
provisions of this section shall govern the issuance and
815
VOL. 204, DECEMBER 11, 1991 815

dissolution of the restraining order or injunction contemplated in

this section.
Insolvency, under this Act, shall be understood to mean the
inability of a banking institution to pay its liabilities as they fall due
in the usual and ordinary course of business, provided, however,
that this shall not include the inability to pay of an otherwise non-
insolvent bank caused by extra-ordinary demands induced by
financial panic commonly evidenced by a run on the banks in the
banking community.‰
The determinative factor in the closure, receivership, and

liquidation of a bank is the finding, upon examination by
the SES of the Central Bank, that its condition „is one of
insolvency, or that its continuance in business would
involve probable loss to its depositors and creditors.‰ (Sec.
29, R.A. 265.) It should be pointed out that insolvency is
not the only statutory ground for the closure of a bank. The
other ground is when „its continuance in business would
involve probable loss to its depositors and creditors.‰
Was BF insolvent i.e., unable to pay its liabilities as they
fell due in the usual and ordinary course of business, on
and for some time before January 25, 1985 when the
Monetary Board issued Resolution No. 75 closing the bank
and placing it under receivership? Would its continued
operation involve probable loss to its depositors and
creditors?
The answer to both questions is yes. Both the
conservator Gilberto Teodoro and the head of the SES
(Supervision and Examination Sector) Ramon V. Tiaoqui
opined that BFÊs continuance in business would cause
probable loss to depositors and creditors. Tiaoqui further
categorically found that BF was insolvent. Why was this
so?
The Teodoro and Tiaoqui reports as well as the report of
the receivers, Carlota Valenzuela, Arnulfo B. Aurellano and
Ramon V. Tiaoqui, showed that since the end of November
1983 BF had already been incurring „chronic reserve
deficiencies‰ and experiencing severe liquidity problems. So
much so, that it had become „a substantial borrower in the
call loans market‰ and in June 1984 it obtained a P30
million emergency loan from the Central Bank. (p. 2,
ReceiverÊs Report.) Additional emergency loans (a total of
P119.7 millions) were extended by the Central
816

Bank to BF that month (MB Res. No. 839 dated June

29,1984). On July 12,1984, BFÊs chairman, Anthony
Aguirre, offered to „turn over the administration of the
affairs of the bank‰ to the Central Bank (AguirreÊs letter to
Governor Jose Fernandez, Annex 7 of Manifestation dated
May 3, 1991). On July 23, 1984, unable to meet heavy
deposit withdrawals, BFÊs management motu proprio,
without obtaining the conformity of the Central Bank,
closed the bank and declared a bank holiday. On July 27,
1984, the CB, responding to BFÊs pleas for additional
financial assistance, granted BF a P3 billion credit line
(MB Res. No. 934 of July 27, 1984) to enable it to reopen
and resume business on August 1,1984. P2.3601 billions of
the credit line were availed of by the end of 1984 exclusive
of an overdraft of P932.4 millions (p. 2, Tiaoqui Report).
Total accommodations granted to BF amounted to P3.4122
billions (p. 19, Cosico Report).
Presumably to assure that the financial assistance
would be properly used, the MB appointed Basilio
Estanislao as conservator of the bank. A conservatorship
team of 78 examiners and accountants was assigned at the
bank to keep track of its activities and ascertain its
financial condition (p. 8, Tiaoqui Report):
Estanislao resigned after two weeks for health reasons.
He was succeeded by Gilberto Teodoro as conservator in
August, 1984 up to January 8, 1985.
Besides the conservatorship team, Teodoro hired
financial consultants Messrs. Tirso G. Santillan, Jr. and
Plorido P. Casuela to make an analysis of BFÊs financial
condition. Teodoro also engaged the accounting firm of
Sycip, Gorres, Velayo and Company to make an asset
evaluation, The Philippine Appraisal Company (PAC)
appraised BFÊs real estate properties, acquired assets, and
collaterals held. On January 9, 1985, Teodoro submitted his
Report. Three weeks later, on January 23, 1985, Tiaoqui
also submitted his Report. Both reports showed that, in
violation
2
of Section 37 of the General Banking Act (R.A.
337):
________________
2 Sec. 37. All savings and mortgage banks shall maintain on deposit
with the Central Bank of the Philippines such reserves against their
deposit liabilities as the Monetary Board shall determine in accordance
with the pertinent provisions of the Central Bank Act.
817
VOL. 204, DECEMBER 11, 1991 817

1. BF had been continually deficient in liquidity

reserves (Teodoro Report). The bank had been
experiencing a severe drop in liquidity levels. The
ratio of liquid assets to deposits and borrowings
plunged from about 20% at end-1983, to about 8.6%
by end-May 1984, much below the statutory
requirements of 24% for demand deposits/deposit
substitutes and 14% for savings and time deposits.
(p. 2, Tiaoqui Report.)
2. Deficiencies in average daily legal reserves rose
from P63.0 million. during the week of November
21–26, 1983 to a high of P435.9 million during the
week of June 11–15, 1984 (pp. 2–3, Tiaoqui Report).
Accumulated penalties on reserve deficiencies
amounted to P37.4 million by July 31, and rose to
P48 million by the end of 1984. (Tiaoqui Report.)
3. Deposit levels, which were at P3,845 million at end-
May 1984 (its last „normal‰ month), dropped to
P935 million at the end of November 1984 or a loss
of P2,910 million. This represented an average
monthly loss of P485 million vs. an average
monthly gain of P26 million during the first 5
months of 1984. (pp. 2–3, Tiaoqui Report.)
4. Deposits had declined at the rate of P20 million
during the month of December 1984, but expenses
of about P17 million per month were required to
maintain the bankÊs operations. (p. 5, Teodoro
Report.)
5. Based on the projected outlook, the BankÊs average
yield on assets of 16.3% p.a., was insufficient to
meet the average cost of funds of 19.5% p.a. and
operating expenses of 4.8% p.a. (p. 5 Teodoro
Report.)
6. An imprudently large proportion of assets were
locked into long-term applications. (Teodoro Report)
7. BF overextended itself in lending to the real estate
industry, committing as much as 52% of its peso
deposits to its affiliates or „related accounts‰ to
which it continued lending even when it was
already suffering from liquidity stresses. (Teodoro
Report.) This was done in violation 3of Section 38 of
the General Banking Act (R.A. 337).
________________
3 Sec. 38. Whenever there is a call by depositors of a savings bank for

repayment of their deposits and the call so made shall result in reducing
its legal reserves below the amount required by the Monetary Board,
such bank shall not make any new loans or investment of the funds of
depositors or earnings of such funds until the call of the depositors has
been satisfied and its legal reserves have been restored to the required
minimum.
818

8. During the period of marked decline in liquidity

levels the loan portfolio grew by P417.3 million in
the first five months of 1984·and by another
P105.1 million in the next two months. (pp. 2–3,
Tiaoqui Report.)
9. The loan portfolio stood at P3.679 billion at the end
of July 1984, 56.2% of it channeled to companies
whose stockholders, directors and officers were
related to the officers, directors, and some
stockholders of BF. (p. 8, Tiaoqui Report.) Here
again4 BF violated the General Banking Act (R.A.
337).
10. Some of the loans were used to acquire preferred
stocks of BF. Between September 17, 1983 and
February 10,1984, P49.9 million of preferred non-
convertible stocks were issued. About 85% or P42.4
million was paid out of the proceeds of loans to
stockholders/ borrowers with relationship to the
bank (Annex D). Around P18.8 million were issued
in the name of an entity other than the purchaser of
the stocks. (Tiaoqui Report.)
11. Loans amounting to some P69.3 million were
granted simply to pay-off old loans including
accrued interest, as an accommodation for the
direct maturing loans of some firms and as a way of
paying-off loans of other borrower firms which have
their own credit lines with the bank. These helped
to make otherwise delinquent loans appear
„current‰ and deceptively „improved‰ the quality of
the loan portfolio. (Tiaoqui Report.)
12. Examination of the collaterals for the loan accounts
of 63 major borrowers and 32 other selected
borrowers as of July 31, 1984, showed that:
(a) 2,658 TCTÊs which BF evaluated to be worth P1,487

million were appraised by PAC to be worth only
P1,196 million, hence, deficient by P291 million,
(b) Other properties (collaterals) supposedly worth
P711 million could not be evaluated by PAC because
the details submitted by the bank were insufficient;
(c) While P674 million in loans were supposedly
guaranteed by the Home Financing Corporation
(HFC), the latter confirmed only P427 million. P247
million in loans were not guaranteed by HPC.
(Teodoro Report.)
(d) Per SGVÊs report, loans totalling P1.882 million
includ-
________________
4 Sec. 83, No director or officer of any banking institution shall, either

directly or indirectly, for himself or as the representative or agent of
others, borrow any of the deposits of funds of such bank x x x.
819
VOL. 204, DECEMBER 11, 1991 819

ing accrued interest, were secured by collateral

worth only P1.54 billion. Hence, BFÊs unsecured
exposure amounted to P586.2 million. BF Homes,
Inc., a related company which has filed with the
SEC a petition for suspension of payments, owes
P502 million to BF.
13. BF had been suffering heavy losses.·
a) For the eleven (11) months ended November 30,

1984, the estimated net loss was P372.6 Million;
b) For the twelve (12) months from November 1984,
the projected net loss would be P390.7 Million and
would continue unabated; (p. 2, Teodoro Report)
c) Around 71.7% of the total accommodations of
P2.0677 billions to the related/linked entities were
adversely classified. Close to 33.7% or P697.1
millions were clean loans or against PNs
(promissory notes) of these entities. Of the latter,
52.6% were classified as loss.‰ (p. 5, Tiaoqui Report)
d) The bankÊs financial condition as of date of
examination, after setting up the additional
valuation reserves of P612.2 millions and
accumulated net loss of P48.2 millions, indicates
one of insolvency. Total liabilities of P5,282.1 million
exceeds total assets of P4,947.2 million by 6.8%.
Total capital account of P334.9 million) is deficient
by P322.7 million against the mini-mum capital
required of P657.6 million (Annex F). Capital to
risk assets ratio is negative 10.38%.
e) Total loans and investment portfolio amounted to
P3,914.3 millions (gross), of which P194.0 millions
or 5.0% were past due and P1,657.1 millions or
42.3% were adversely classified (Substandard·
P1,011.4 millions; Doubtful·P274.6 millions and
Loss·P371.1 millions). Accounts adversely
classified included unmatured loan of P1,482.0
million to entities related with each other and to
the bank, several of which showed distressed
conditions.‰ (p. 7, Tiaoqui Report.)
TeodoroÊs conclusion was that „the continuance of the bank

in business would involve probable loss to its depositors
and creditors.‰ He recommended „that the Monetary Board
take a more effective and responsible action to protect the
depositors and creditors x x x in the light of the bankÊs
worsening condition.‰ (p. 5, Teodoro Report.)
On January 23, 1985, Tiaoqui submitted his report to
the Monetary Board. Like Teodoro, Tiaoqui believed that
the prin-
820

cipal cause of the bankÊs failure was that in violation of the

General Banking Law and CB rules and regulations, BFÊs
major stockholders, directors and officers, through their
„related‰ companies: (i.e. companies owned or controlled by
them of their relatives) had been „borrowing‰ huge chunks
of the money of the depositors. His Conclusion and
Recommendations were:
„The Conservator, in his report to the Monetary Board dated

January 8, 1985, has stated that the continuance of the bank in
business would involve probable loss to its depositors and creditors.
It has recommended that a more effective action be taken to protect
depositors and creditors.
„The examination findings as of July 31, 1984 as shown earlier,
indicate one of insolvency and illiquidity and further confirms the
above conclusion of the Conservator.
„All the foregoing provides sufficient justification for forbidding
the bank from further engaging in banking.
„Foregoing considered, the following are recommended:
„1. Forbid the Banco Filipino Savings 6, Mortgage Bank to do

business in the Philippines effective the beginning of office
on January, 1985, pursuant to Sec. 29 of R.A. No. 265, as
amended;
„2. Designate the Head of the Conservator Team at the bank, as
Receiver of Banco Filipino Savings 6, Mortgage Bank, to
immediately take charge of the assets and liabilities, as
expeditiously as possible collect and gather all the assets
and administer the same for the benefit of all the creditors,
and exercise all the powers necessary for these purposes
including but not limited to bringing suits and foreclosing
mortgages in the name of the bank.
„3. The Board of directors and the principal officers from Senior
Vice President, as listed in the attached Annex ÂA' be
included in the watchlist of the Supervision and
Examination Sector until such time that they shall have
cleared themselves.
„4. Refer to the Central BankÊs Legal Department and Office of
Special Investigation the report on the findings on Banco
Filipino for investigation and possible prosecution of
directors, officers and employees for activities which led to
its insolvent position.‰ (pp. 9–10, Tiaoqui Report.)
On January 25, 1985 or two days after the submission of

TiaoquiÊs Report, and three weeks after it received
TeodoroÊs
821
VOL. 204, DECEMBER 11, 1991 821
Report, the Monetary Board, then composed of:
Chairman: Jose B. Fernandez, Jr.

CB Governor
Members:
1. Cesar E.A. Virata, Prime Minister 6, Concurrently Minister

of Finance
2. Roberto V. Ongpin, Minister of Trade 6, Industry 6,
Chairman of Board of Investment
3. Vicente B. Valdepeñas, Jr., Minister of Economic Planning
6, Director General of NEDA
4. Cesar A. Buenaventura, President of Filipinas Shell
Petroleum Corp. (p. 37, Annual Report 1985)
issued Resolution No. 75 closing BF and placing it under

receivership. The MB Resolution reads as follows:
„After considering the report dated January 8, 1985 of the

Conservator for Banco Filipino Savings and Mortgage Bank that
the continu-ance in business of the bank would involve probable
loss to its depositors and creditors, and after discussing and finding
to be true the statements of the Special Assistant to the Governor
and Head, Supervision and Examination Sector (SES) Department
II, as recited in his memorandum dated January 23, 1985, that the
Banco Filipino Savings and Mortgage Bank is insolvent and that its
depositors and creditors, and in pursuance of Section 29 of R.A. No.
265, as amended, the Board decided:
„1. To forbid Banco Filipino Savings and Mortgage Bank and all
its branches to do business in the Philippines;
„2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor,
as Receiver who is hereby directly vested with jurisdiction
and authority to immediately take charge of the bankÊs
assets and liabilities, and as expeditiously as possible collect
and gather all the assets and administer the same for the
benefit of its creditors, exercising all the powers necessary
for these purposes including, but not limited to, bringing
suits and foreclosing mortgages in the name of the bank;
„3. To designate Mr. Arnulfo B. Aurellano, Special Assistant to
the Governor, and Mr. Ramon V. Tiaoqui, Special Assistant
to the Governor and Head, Supervision and Examination
Sector Department II, as Deputy Receivers who are likewise
822

hereby directly vested with jurisdiction and authority to do

all things necessary or proper to carry out the functions
entrusted to them by the Receiver and otherwise to assist
the Receiver in carrying out the functions vested in the
Receiver by law or Monetary Board resolutions;
„4. To direct and authorize Management to do all other things
and carry out all other measures necessary or proper to
implement this Resolution and to safeguard the interests of
depositors/creditors and the general public; and
„5. In consequence of the foregoing, to terminate the
conservatorship over Banco Filipino Savings and Mortgage
Bank.‰ (pp. 126–127, Rollo l.)
On March 19, 1985, the receiver, Carlota Valenzuela, and

the deputy receivers, Arnulfo B. Aurellano and Ramon V.
Tiaoqui, submitted a report to the Monetary Board as
required in Section 29, 2nd paragraph of R.A. 265 which
provides that within sixty (60) days from date of the
receivership, the Monetary Board shall determine whether
the bank may be reorganized and permitted to resume
business, or be liquidated. The receivers recommended that
BF be placed under litigation. For, among other things,
they found that:
1. BF had been suffering a capital deficiency of P336.5

million as of July 31, 1984 (pp. 2 and 4, ReceiversÊ
Report).
2. The bankÊs weekly reserve deficiencies averaged P1
46.67 million from November 25, 1983 up to March
16,1984, rising to a peak of P338.09 million until
July 27, 1984. Its reserve deficiencies against
deposits and deposit substitutes began on the week
ending June 15, 1984 up to December 7, 1984, with
average daily reserve deficiencies of P2.98 million.
3. Estimated losses or „unbooked valuation reserves‰
for loans to entities with relationships to certain
stockholders/ directors and officers of the bank
amounted to P600.5 million. Combined with other
adjustments in the amount of P73.2 million, they
will entirely wipe out the bankÊs entire capital
account and leave a capital deficiency of P336.5
million. The bank was already insolvent on July 31,
1984. The capital deficiency increased to P908.4
million as of January 25, 1985 on account of
unbooked penalties for deficiencies in legal reserves
(P49.07 million), unbooked interest on
overdrawings, emergency ad
823
VOL. 204, DECEMBER 11, 1991 823

vance of P569.49 million from Central Bank, and

additional valuation reserves of P124.5 million. (pp.
3–4, ReceiversÊ Report.)
The Receivers further noted that·
„After BF was closed as of January 25, 1985, there were no

collections from loans granted to firms related to each other and to
BF classified as ÂdoubtfulÊ or Âloss,Ê there were no substantial
improvements on other loans classified ÂdoubtfulÊ or loss;Ê there was
no further increase in the value of assets owned/acquired supported
by new appraisals and there was no infusion of additional capital
such that the estimated realizable assets of BF remained at
P3,909.23, (millions) while the total liabilities amounted to
P5,159.44 (millions). Thus, BF remains insolvent with estimated
deficiency to creditors of P1,250.21 (millions),
„Moreover, there were no efforts on the part of the stockholders
of the bank to improve its financial condition and the possibility of
rehabilitation has become more remote.‰ (p. 8, ReceiversÊ Report.)
In the light of the results of the examination of BF by the

Teodoro and Tiaoqui teams, I do not find that the CBÊs
Resolution No. 75 ordering BF to cease banking operations
and placing it under receivership was „plainly arbitrary
and made in bad faith.‰ The receivership was justified
because BF was insolvent and its continuance in business
would cause loss to its depositors and creditors. Insolvency,
as defined in Rep. Act Act 265, means „the inability of a
banking institution to pay its liabilities as they fall due in
the usual and ordinary course of business. Since June 1984,
BF had been unable to meet the heavy cash withdrawals of
its depositors and pay its liabilities to its creditors, the
biggest of them being the Central Bank, hence, the
Monetary Board correctly found its condition to be one of
insolvency.
All the discussion in the Santiago Report concerning the
bankÊs assets and liabilities as determinants of BFÊs
solvency or insolvency is irrelevant and inconsequential, for
under Section 29 of Rep. Act. 265, a bankÊs insolvency is not
determined by its excess of liabilities over assets, but by its
„inability to pay its liabilities as they fall due in the
ordinary course of business‰ and it was abundantly shown
that BF was unable to pay its liabilities to depositors for
over a six-month-period before it was
824

placed under receivership.

Even if assets and liabilities were to be factored into a
formula for determining whether or not BF was already
insolvent on or before January 25, 1985, the result would
be no different. The bankÊs assets as of the end of 1984
amounted to P4.891 billions (not P6 billions) according to
the Report signed and submitted to the CB by BFÊs own
president, and its total liabilities were P4.478 billions (p.
58, Cosico Report). While AguirreÊs Report showed BF
ahead with a net worth of P412.961 millions, said report
did not make any provision for estimated valuation
reserves amounting to P600.5 millions, (50% of face value
of doubtful loans and 100% of face value of loss accounts)
which BF had granted to its related/linked companies. The
estimated valuation reserves of P600.5 millions plus BFÊs
admitted liabilities of P4.478 billions, put together, would
wipe out BFÊs realizable assets of P4.891 billions and
confirm its insolvent condition to the tune of P187.538
millions.
BFÊs and Judge (now CA Justice) Consuelo Y. SantiagoÊs
argument that valuation reserves should not be considered
because the matter was not discussed by Tiaoqui with BF
officials is not well taken for:
(1) The records of the defaulting debtors were in the

possession of BF.
(2) The „adversely classified‰ loans were in fact
included in the List of Exceptions and Findings (of
irregularities and violations of laws and CB rules
and regulations) prepared by the SES, a copy of
which was furnished BF on December 17, 1984;
(3) A conference on the matter was held on January 21,
1985 with senior officials of BF headed by EVP F.
Dizon,. (pp. 14–15, Cosico Report.) BF did not
formally protest against the CBÊs estimate of
valuation reserves. The CB could not wait forever
for BF to respond for the CB had to act with
reasonable promptness to protect the depositors
and creditors of BF because the bank continued to
operate.
(4) Subsequent events proved correct the SES
classification of the loan accounts as „doubtful‰ or
„loss‰ because as of January 25, 1985 none of the
loans, except three, had been paid either partially
or in full, even if they had already matured (p. 53,
Cosico Report).
825
VOL. 204, DECEMBER 11, 1991 825

The recommended provision for valuation reserves of

P600.5 millions for „doubtful‰ and „loss‰ accounts was a
proper factor to consider in the capital adjustments of BF
and was in accordance with accounting rules. For, if the
uncollectible loan accounts would be entered in the assets
column as „receivables,‰ without a corresponding entry in
the liabilities column for estimated losses or valuation
reserves arising from their uncollectability, the result
would be a gravely distorted picture of the financial
condition of BF.
BFÊs strange argument that it was not insolvent for
otherwise the CB would not have given it financial
assistance does not merit serious consideration for
precisely BF needed financial assistance because it was
insolvent.
TiaoquiÊs admission that the examination of BF had „not
yet been officially terminated‰ when he submitted his
report on January 23, 1985 did not make the action of the
Monetary Board of closing the bank and appointing
receivers for it, „plainly arbitrary and in bad faith.‰ For
what had been examined by the SES was more than
enough to warrant a finding that the bank was „insolvent
and could not continue in business without probable loss to
its depositors or creditors,‰ and what had not been
examined was negligible and would not have materially
altered the result. In any event, the official termination of
the examination with the submission by the Chief
Examiner of his report to the Monetary Board in March
1985, did not contradict, but in fact confirmed, the findings
in the Tiaoqui Report,
The responsibility of administering the Philippine
monetary and banking systems is vested by law in the
Central Bank whose duty it is to use the powers granted to
it under the law to achieve the objective, among others, of
maintaining monetary stability in the country (Sec. 2, Rep.
Act 265). I do not think it would be proper and advisable
for this Court to interfere with the CBÊs exercise of its
prerogative and duty to discipline banks which have
persistently engaged in illegal, unsafe, unsound and
fraudulent banking practices causing tremendous losses
and unimaginable anxiety and prejudice to depositors and
creditors and generating widespread distrust and loss of
confidence in the banking system. The damage to the
banking system and to the depositing public is bigger when
the bank, like Banco
826

GSIS vs. Civil Service Commission
Filipino, is big. With 89 branches nationwide, 46 of them in

Metro Manila alone, pumping the hard-earned savings of 3
million depositors into the bank, BF had no reason to go
bankrupt if it were properly managed. The Central Bank
had to infuse almost P3.5 billions into the bank in its
endeavor to save it. But even this financial assistance was
misused, for instead of satisfying the depositorsÊ demands
for the withdrawal of their money, BF channeled and
diverted a substantial portion of the funds into the coffers
of its related/linked companies. Up to this time, its officers,
directors and major stockholders have neither repaid the
Central BankÊs P3.5 billion financial assistance, nor put up
adequate collaterals therefor, nor submitted a credible plan
for the rehabilitation of the bank. What authority has this
Court to require the Central Bank to reopen and
rehabilitate the bank, and in effect risk more of the
GovernmentÊs money in the moribund bank? I respectfully
submit that that decision is for the Central Bank, not for
this Court, to make.
WHEREFORE, I vote to dismiss the petition for
certiorari and mandamus in G.R. No. 70054 for lack of
merit.
Motion for reconsideration in G.R. Nos. 68878 and
81303, and petitions in G.R. Nos. 77255–58, 78766, 81304
and 90473, denied; petitions in G.R. Nos. 70054, 76767 and
78894, granted and the order annulled and set aside.
··o0o··
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Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of The Philippines

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VOL.

204, DECEMBER 11, 1991 767

BANCO FILIPINO SAVINGS AND MORTGAGE BANK,

BANCO FILIPINO SAVINGS AND MORTGAGE BANK,

TOP MANAGEMENT PROGRAMS CORPORATION AND

EL GRANDE CORPORATION, petitioner, vs. THE COURT

METROPOLIS DEVELOPMENT CORPORATION,

768 SUPREME COURT REPORTS ANNOTATED

VALENZUELA, ARNULFO AURELLANO AND RAMON

G.R. No. 78894. December 11, 1991.*

BANCO FILIPINO SAVINGS AND MORTGAGE BANK,

G.R, No. 81303. December 11,1991.*

PILAR DEVELOPMENT CORPORATION, petitioner, vs.

G.R. No. 81304. December 11, 1991.*

G.R. No. 90473. December 11, 1991.*

EL GRANDE DEVELOPMENT CORPORATION,

Remedial Law; Jurisdiction; Generally, courts have no

VOL. 204, DECEMBER 11, 1991 769

Banco Filipino Savings & Mortgage Bank vs. Monetary Board,

involving the exercise of judgment or discretion, and findings of

Commercial Law; Banks and Banking; Section 29 of Republic

Same; Same; Same; Pendency of G.R. No. 70054 did not

770 SUPREME COURT REPORTS ANNOTATED

Banco Filipino Savings & Mortgage Bank vs. Monetary Board,

further acts of liquidation. Such acts of liquidation, as explained in

Same; Same; Same; In G.R. Nos. 68878, 77255–68, 78766 and

Same; Same; Same; The Monetary Board may order the

Banco Filipino Savings & Mortgage Bank vs. Monetary Board,

bank is insolvent or can no longer resume business with safety to its

Same; Same; Same; Same; Mandatory requirements to be

Same; Same; Same; Same; Same; The examination

Same; Same; Same; Same; The power and authority of the

772 SUPREME COURT REPORTS ANNOTATED

Banco Filipino Savings & Mortgage Bank vs. Monetary Board,

public interest so requires is an exercise of the police power of the

Same; Same; Same; Same; Section 29 of RA 265 does not

Same; Same; Same; Same; Administrative due process does not

Same; Same; Insolvency; Test of insolvency laid down in Section

VOL. 204, DECEMBER 11, 1991 773

Banco Filipino Savings & Mortgage Bank vs. Monetary Board,

based on justified grounds to protect the public, the fact that

MELENCIO-HERRERA, J., Dissenting opinion

Same; Same; Same; The matter of reopening, reorganization, or

GRIÑO-AQUINO, J., Dissenting opinion

PETITION to review the decision of the Court of Appeals.

774 SUPREME COURT REPORTS ANNOTATED

The facts are stated in the opinion of the Court.

This refers to nine (9) consolidated cases concerning the

G.R. No. 68878

This is a motion for reconsideration, filed by respondent

VOL. 204, DECEMBER 11, 1991 775

since January 26, 1986 by the Central Bank pursuant to

G.R. Nos. 77255–58

Petitioners Top Management Programs Corporation (Top

776 SUPREME COURT REPORTS ANNOTATED

ordered to designate a comptroller for Banco Filipino.

G.R. No. 78766

Petitioner El Grande Development Corporation (El Grande

VOL. 204, DECEMBER 11, 1991 777

credit accommodation to finance its housing program.

G.R. No. 81303

778 SUPREME COURT REPORTS ANNOTATED

appears that the former management of Banco Filipino