PHILIPPINE SAVINGS BANK v.
CHOWKING FOOD CORPORATION, Petitioner, Santos and Abacan were unanimous in asserting that respondent is
G.R. No. 177526, July 4, 2008
DOCTRINE:
It cannot be over emphasized that the banking business is impressed with public
interest. Of paramount importance is the trust and confidence of the public in general
in the banking industry. Consequently, the diligence required of banks is more than
that of a Roman pater familias or a good father of a family.[33] The highest degree of
diligence is expected
the General Banking Law of 2000 requires of banks the highest standards of
integrity and performance. Needless to say, a bank is under obligation to treat the
accounts of its depositors with meticulous care. The fiduciary nature of the
relationship between the bank and the depositors must always be of paramount
concern
FACTS:
Between March 15, 1989 and August 10, 1989, Joe Kuan Food Corporation issued
in favor of Chowking five (5) PSBank checks. The total amount of the subject checks
reached P556,981.86.
On the respective due dates of each check, Chowkings acting accounting manager,
Rino T. Manzano, endorsed and encashed said checks with the Bustos branch
of respondent PSBank.[3]
All the five checks were honored by defendant Santos, even with only the
endorsement of Manzano approving them. The signatures of the other authorized
officers of respondent corporation were absent in the five (5) checks, contrary to usual
banking practice.[4] Unexpectedly, Manzano absconded with and misappropriated the
check proceeds.[5]
When Chowking found out Manzanos scheme, it demanded reimbursement from
PSBank.[6] When PSBank refused to pay, Chowking filed a complaint[7] for a sum of
money with damages before the RTC. Likewise impleaded were PSBanks president,
Antonio S. Abacan, and Bustos branch head, Santos.[8]
Petitioner’s Contention:
Petitioner denied liability to respondent for the encashed checks. [13] Petitioner bank
maintained it exercised due diligence in the supervision of all its employees. It even
dismissed defendant Santos after she was found guilty of negligence in the
performance of her duties.[14]
Abacan likewise denied any liability to respondent. He alleged that, as president and
officer of petitioner bank, he played no role in the transactions complained of. [16]Thus,
respondent has no cause of action against him.
estopped from claiming reimbursement and damages since it was negligent in
allowing Manzano to take hold, endorse, and encash its checks. Petitioner pointed
out that the proximate cause of respondents loss was its own negligence.[17]
RTC Ruling:
RTC rendered judgment in favor of respondent
against Philippine Savings Bank and Erlinda O. Santos ordering
the said defendants to pay plaintiff, jointly and severally. The
complaint with respect to defendant Antonio Abacan, Jr. hereby
DISMISSED.
Aggrieved, petitioner filed a motion for reconsideration. The RTC reversed its earlier
ruling and held that it was respondents own negligence that was the proximate cause
of the loss.
CA Ruling:
In its appeal, respondent Chowking contended, inter alia, that
the RTC erred in ruling that the proximate cause of the loss was its own negligence;
and that its claim was barred by estoppel.
CA granted the appeal held that both petitioner PSBank and Santos should
bear the loss.
ISSUES:
1. W/N Chowking was estopped from asserting its claim against PSBank? NO
2. W/N PSbank has observed the due diligence required of banks under the
law? YES.
RULING:
Whether or nor Chowking was estopped from asserting its claim against
PSBank? NO
The doctrine of equitable estoppel or estoppel in pais finds no application in
the present case. The equitable doctrine of estoppel was explained by this Court
in Caltex (Philippines), Inc. v. Court of Appeals:[24]
Under the doctrine of estoppel, an admission or
representation is rendered conclusive upon the person making it,
and cannot be denied or disproved as against the person relying
thereon. A party may not go back on his own acts and
 representations to the prejudice of the other party who relied upon
them. In the law of evidence, whenever a party has, by his own
declaration, act, or omission, intentionally and deliberately led
another to believe a particular thing true, to act upon such belief,
he cannot, in any litigation arising out of such declaration, act, or
omission, be permitted to falsify it.[25]
The principle received further elaboration in Maneclang v. Baun:[26]
In estoppel by pais, as related to the party sought to be
estopped, it is necessary that there be a concurrence of the
following requisites: (a) conduct amounting to false representation
or concealment of material facts or at least calculated to convey the
impression that the facts are otherwise than, and inconsistent with,
those which the party subsequently attempts to assert; (b) intent,
or at least expectation that this conduct shall be acted upon, or at
least influenced by the other party; and (c) knowledge, actual or
constructive of the actual facts.[27]
Estoppel may vary somewhat in definition, but all authorities agree that a party
invoking the doctrine must have been misled to ones prejudice. That is the final and,
in reality, most important of the elements of equitable estoppel. [28] It is this element
that is lacking here.
Petitioner failed to prove that it has observed the due diligence required of
banks under the law. Contrary to petitioners view, its negligence is the proximate
cause of respondents loss.
It cannot be over emphasized that the banking business is impressed with
public interest. Of paramount importance is the trust and confidence of the public in
general in the banking industry. Consequently, the diligence required of banks is more
than that of a Roman pater familias or a good father of a family.[33] The highest degree
of diligence is expected.[34]
In its declaration of policy, the General Banking Law of 2000 [35] requires of
banks the highest standards of integrity and performance. Needless to say, a bank is
under obligation to treat the accounts of its depositors with meticulous care. [36] The
fiduciary nature of the relationship between the bank and the depositors must always
be of paramount concern.[37]
Petitioner, through Santos, was clearly negligent when it honored
respondents checks with the lone endorsement of Manzano.

We agree with the CA that Chowking did not make any false representation or
concealment of material facts in relation to the encashments of the previous
checks. As adverted to earlier, respondent may have allowed Manzano to previously
encash its checks, but it has always been accompanied with the endorsements of the
other authorized signa tories.Respondent did not allow petitioner to have its
checks encashed without the signature of all of its authorized signatories.

The CA pointed out:

We find at the back of those checks, whereon

indorsement usually appears, the signature of Manzano together
with other signature/signatures though mostly are illegible. It
appears then that, assuming the appellant impliedly tolerated the
act of Manzano in indorsing the checks, it did not allow Manzano
alone to indorse its checks as what actually happened in this case
because his previous indorsements were coupled with other
indorsements of the appellants signatories. There is, therefore,
no sufficient evidence to sustain PSBs submission. On this score
alone, the defense of estoppel must fail.[29] (Underscoring and
emphasis supplied)

2. Whether or not PSbank has observed the due diligence

required of banks under the law? NO.
RURAL BANK OF LUCENA, INC. v. HON. FRANCISCO ARCA, as Judge of the
Court of First Instance of Manila, Branch 1, and CENTRAL BANK OF THE
PHILIPPINES
G.R. No. L-2114, September 20, 1965
DOCTRINE:
Section 10 RA 720 (Rural Bank Act) vis-à-vis Section 29, RA 265 (Central Bank
Act)
Section 10 RA 720, it authorized is the take over of the management by the Central
Bank, until the governing body of the offending Rural Bank is recognized with a view
to assuring compliance by it with the laws and regulations.
Section 29 of the Central Bank Act (R. A. 265) has in view a much more drastic
step, the liquidation of a rural bank by taking over its assets and converting them
into money to pay off its creditors.
FACTS:
The Monetary Board issue a Resolution No. 928 finding the Rural Bank of Lucena
(Lucena for short), through its officers, directors, and employees, had committed acts
substantially prejudicial to the Government, depositors, and creditors, and directing
Lucena to reorganize its board of directors; to refrain from granting or renewing loans,
or accept new deposits, and not to issue drafts or make disbursements without the
approval of the supervising Central Bank examiners , and threatening Lucena that its
management would be taken over if the latter should fail to comply with the resolution.
The Rural Bank of Lucena, Inc. instituted, on June 22, 1961, in the Court of First
Instance of Manila (Civil Case No. 47345) an action to collect damages and to
enjoin the Central Bank from enforcing Resolution No. 928.
While the litigation was still undecided the Monetary Board, having been informed that
the Director of its Department of Rural Banks recommended the liquidation of Lucena.
A Resolution No. 122 by Monetary Board issued requesting the Solicitor General, to
file a petition in the proper courts for the liquidation of the affairs of Lucena.
Notice was given by Central Bank officials, on February 10, 1962 that the Lucena
bank was temporarily closed pending final decision of the Court, and that business
be transacted with Central Bank representatives only.
Two days later, the Lucena bank filed suit in the Court of First Instance of Quezon
(Tayabas) to enjoin the enforcement of Resolution 122. The court issued ex parte a
writ of preliminary injunction to such effect.
On the same day, the Court of First Instance of Manila per Judge Gatmaitan, enjoining
enforcement of Resolution No. 928 of the Monetary Board, for having been issued
without the prior hearing prescribed by section 10 of the Rural Bank Act,.
Upon the other hand, the Court of First Instance of Quezon Province, dissolved its
preliminary injunction against the enforcement of Resolution 122 of the Monetary
Board.
On the 31st of March 1962, invoking section 29 of Republic Act 265, the Central
Bank, as liquidator, petitioned the Court of First Instance of Manila for assistance in
the liquidation of the Lucena bank. (Civil Case No. 50019). Upon motion, and after
hearing the parties, Judge Arca issued on interlocutory order the Lucena thru its duly
authorized officers or representatives to turn over to the Central Bank the physical
possession of all of said Rural Bank of Lucena's assets, properties and papers.
The Rural Bank of Lucena resorted to this Court on certiorari, claiming that Judge
Arca gravely abused his discretion in issuing the above order. It contends that Section
29 of the Central Bank Act (R.A. 265) does not apply in this case;
ISSUE: W/N Section 29 of Central Bank Act (R.A. 265) is applicable to Rural banks?
YES
HELD:
We see no irreconcilable conflict between section 10 of Republic Act No. 720 (Rural
Banks Act) and section 29 of Republic Act No. 265 (Central Bank Act). The former
provides in substance as follows:
The director of the Department of the Central Bank designated by the
Monetary Board to supervise Rural Banks ... upon proof that the Rural Bank
or its board of directors or officers are conducting and managing the affairs
of the bank in a manner contrary to laws, orders, instructions, rules and
regulations promulgated by the Monetary Board or in any manner
substantially prejudicial to the interests of the government, depositors or
creditors, to take over the management of such bank when specifically
authorized to do so by the Monetary Board after due hearing until a new
board of directors and officers are elected and qualified. ...
It is easily seen that what this section authorized is the take over of the
management by the Central Bank, until the governing body of the offending Rural
Bank is recognized with a view to assuring compliance by it with the laws and
regulations.
Upon the other hand, section 29 of the Central Bank Act (R. A. 265) has in view a
much more drastic step, the liquidation of a rural bank by taking over its assets
and converting them into money to pay off its creditors. Said section prescribes:
SEC. 29. Proceedings upon insolvency. — Whenever, upon examination by
the Superintendent 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 Superintendent
forthwith, in writing, to inform the Monetary Board of the facts, and the Board,
upon finding the statement of the Superintendent to be true, shall forthwith
forbid the institution to do business in the Philippines and shall take charge
of its assets and proceeds according to law.
The Monetary Board shall thereupon determine within thirty 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 creditors
and shall prescribe the conditions under which such resumption of business
shall take place. In such case the expenses and fee in the administration of
the institution shall be determined by the Board and shall be paid to the
Central Bank out of the assets of such banking institution.
insolvent, or that its continuance in business would involve probable loss to its
depositors or creditors, and that it cannot resume business with safety.
It follows that on the assumption that under section 10 of the Rural Banks Act the
Monetary Board may not take over the management of a rural bank without giving the
latter a hearing, i.e., an opportunity to rebut the charge that it has contravened
applicable laws, rules and regulations to the substantial prejudice of the government,
its depositors and creditors, such a previous hearing is nowhere required by section
29 of the Central Bank Law. Manifestly, whether a rural bank's "continuance in
business would involve probable loss" to its clients or creditors and that it "cannot
resume business with safety," is a matter of appreciation and judgment that the law
entrusts primarily to the Monetary Board. Equally apparent is that if the rural bank
affected is in the condition previously adverted to, every minute of delay in securing
its assets from dissipation inevitably increases the danger to the creditors. For this
reason, the statute has provided for a subsequent judicial review of the Monetary
Board, in lieu of a previous hearing.

At any time within ten days after the Monetary Board has taken charge of
the assets of any banking institution, such institution may apply to the Court
of First Instance for an order requiring the Monetary Board to show cause
why it should not be enjoined from continuing such charge of its assets, and
the court may direct the Board to refrain from further proceedings and to
surrender charge of its assets.

If the Monetary Board shall determine that the banking institution cannot
resume business with safety to its creditors, it 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 and supervision of the court in
the liquidation of the affairs of the same. The Superintendent shall thereafter,
upon order of the Monetary Board and under the supervision of the court
and with all convenient speed, convert the assets of the banking institution
to money.

Considering that section 27 of the Rural Banks law (R.A. No. 720) expressly
declares that —

The provisions of Republic Acts numbered 265 (Central Bank Act) and
337, in so far as applicable and not in conflict with any provision of this
Act, are hereby made a part of this Act.

we find no room for questioning the applicability of section 29 of Republic Act

No. 265 (Central Bank Act) to rural banks organized under Republic Act 720,
whenever the Monetary Board should find that the rural bank affected is
 GENERAL BANK AND TRUST COMPANY v. CENTRAL BANK OF THE
PHILIPPINES and ARNULFO B. AURELLANO in his capacity as Liquidator of
General Bank and Trust Company
G.R. NO. 152551, June 15, 2006
DOCTRINE:
Actions by monetary board cannot be enjoin by the court.
The actions of the Monetary Board 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 unless there is convincing
proof that the action of the Monetary Board is plainly arbitrary and made in bad.
Section 29, of RA 265, as amended by PD No. 1007
Insolvency, under this Act, shall be understood to mean the inability of a banking
institution to pay its liabilities as they fall due in the usual and ordinary course
of business, provided, however, that this shall not include the inability to pay of an
otherwise non-insolvent bank caused by extraordinary demands induced by financial
panic commonly evidenced by a run on the bank in the banking community.
FACTS:
General Bank and Trust Company (Genbank) incurred overdrafts in its current
account with the Central Bank [CB]. These daily overdrawings were covered up to the
next banking day by check deposits, thru "daycall" borrowings, obtained from various
commercial banks
A verification of the accounts showed that the overdrawings of Genbank - were due
to the all-out financial support it extended to Filcapital Development Corporation (a
related interest of the Yujuico Family Group and the directors and officers of Genbank)
to meet maturing obligations.
On December 14, 1976, the [CB] required Genbank to stop its unsound banking
practice of incurring daily overdrawings.
Dr. Clarencio Yujuico, Chairman of the Board and President of Genbank, reported
that the bank was experiencing heavy withdrawals and its liquidity position had
continuously deteriorated and will inevitably be needing immediate [CB] support
On December 20, 1976, the Monetary Board in its Resolution No. 2553 decided to
grant Genbank an emergency loan under Section 90 of the Central Bank Charter in
an amount not exceeding P150 m. President of Genbank executed a Deed of
Assignment of the general assets of the Bank in favor of the [CB]. As of that date,
[CB] emergency advances to Genbank amounted to P116 million - which were not
sufficiently collateralized by Genbank .
As of year-end 1976, emergency advances totalled P154.521 million '. In view of the
continuous drawdowns, [CB] advances reached P170.227 million. The Monetary
Board in its Resolution No. 90 dated January 7, 1977 authorized Management to
extend continued support to Genbank to meet further drawdowns on its deposits and
deposit substitutes.
The [CB] Governor created a Special Committee - to act as observers and advisers
in the negotiations for the proposed purchase of the outstanding shares of Genbank
or all its assets and assumption of all its liabilities.
By February 28, 1977, [CB] advances to Genbank totaled P300.961 million and as of
March 22, 1977 totaled P305.918 million.
The stockholders were advised by the Governor that public interest required that the
[CB] should not continuously extend further credit assistance to Genbank and that a
rehabilitation program instead be immediately implemented.
On March 25, 1977, finding the report of Director of Antonio Castro Department of
Commercial and Savings Banks [DCSB] that Genbank was insolvent within the
meaning of Section 29 of R.A. 265 (Central Bank Act), as amended, and that
Genbank's continuance in business would involve losses to its depositors and
creditors - the Monetary Board adopted Resolution No. 675 forbidding Genbank to
do business in the Philippines and designating Arnulfo B. Aurellano as receiver
Pursuant to the Memorandum of the Director of [DCSB], the Monetary Board adopted
Resolution No. 677 on March 29, 1977 determining and confirming that Genbank
was insolvent and could not resume business with safety to its depositors, creditors
and general public, and ordering the liquidation of Genbank, the designation of Arnulfo
B. Aurellano as Liquidator and the approval of a liquidation plan whereby all the assets
of Genbank should be purchased by the Lucio Tan Group which should also assume
all the liabilities under certain terms and conditions.
On May 9,1977, the Liquidator '; Allied Banking Corporation '; and the individual
members of the Lucio Tan - Willy Co group executed a Memorandum of Agreement
in implementation of Monetary Board Resolution No. 677 dated March 27, 1977,
whereby the Liquidator sold and transferred to Allied Bank all the assets of Genbank
and Allied Bank assumed all the liabilities of Genbank, subject to certain terms and
conditions, among which were:
On April 1, 1977, [CB and Arnulfo B. Aurellano, as Genbank Liquadator] initiated Sp.
Proc. No. 107812 before the then Court of First Instance (CFI) of Manila, Branch IV,
pursuant to Section 29, RA 265, as amended.
On May 5, 1982, appellees Worldwide Insurance & Surety Company ', Midland
Insurance Corporation ', and Standard Insurance Co., Inc. - filed a motion for
intervention in Sp. Proc. No. 107812. Said motion alleged that the closure and
liquidation of [Genbank] - were done arbitrarily and in bad faith. On May 7, 1982, the
court a quo issued an order approving the intervention.
About a couple of years later, appellee Genbank joined the intervention. Said
intervention was approved by the Court a quo .
RTC Ruling:
Judgment is hereby rendered against the Petitioners [CB et al.] and in favor of
Intervenors. That the closure of Genbank under Monetary Board Resolution No. 675,
March 25, 1977 and the adoption of the Lucio Tan Group as the liquidation plan of
Genbank under Monetary Board Resolution No. 677, March 29, 1977 are hereby
annulled and set aside as being plainly arbitrary and made in bad faith as provided
under Section 29, RA No. 265, as amended.
Therefrom, herein respondents CB and the Liquidator-designate appealed to the CA
. is deemed insolvent when " [its] realizable assets - as determined by the Central Bank
CA Ruling:
On December 6, 1999, the appellate court rendered judgment setting aside the
decision of the trial court.4 With the denial of its motion for reconsideration by the
same court in its resolution, petitioner is now with us via the present recourse,
submitting that the CA erred when –
ISSUE:
1. W/N the closure and liquidation of GenBank is proper? YES.
2. W/N Resolution 675 of Monetary Board can be set aside by court? NO
HELD:
1. W/N the closure and liquidation of GenBank is proper? YES.
At the outset, it bears to stress that the underlying governing law, Republic Act (RA)
2655, underwent several amendments. Among the amendatory laws are Presidential
Decree (PD) Nos. 1007 and 1937 which took effect in September 1976 and June
1984, respectively.
Petitioner’s Contention:
Petitioner Genbank claims that it was not insolvent when Resolution No. 675 was
issued on March 25, 1977, its assets at that time standing at P599,743,639.00, while
its total liabilities only amounted to P586,640,450.00, thus having surplus assets over
liabilities in the amount of P13,103,189.00. Plodding on, it insists that the definition of
insolvency in Section 29 of RA 265, as amended by PD 1937, should have been made
the tipping factor for determining on whether or not the declaration made by
respondent CB, acting through the Monetary Board, that petitioner Genbank is
insolvent constitutes grave abuse of discretion. In support of its contention of not
being insolvent during the period material, petitioner Genbank cites Central Bank of
the Philippines v. Court of Appeals6 and Banco Filipino Savings & Mortgage Bank v.
The Monetary Board7 .
Respondent’s Contention:
Respondent CB, however, retorted that the above-cited cases do not apply, albeit,
there, the Court struck down as null and void the closure of what CB then considered
as insolvent banks, referring to Banco Filipino Savings & Mortgage Bank and Triumph
Savings Bank, despite their respective total assets being more than their total
liabilities. As respondent CB argued, the closure of Banco Filipino and Triumph
Savings Bank on January 25, 1985 and May 31, 1985, respectively, were effected
under the aegis of Section 29 of RA 265, as amended by PD 1007, after it was further
amended by PD 1937 in June 1984. Under the latter amendment, a banking institution
are insufficient to meet its liabilities." Thus, this Court ruled that there was no valid
basis for the closure of both banks on the ground of insolvency, the total assets of
either bank exceeding as it were their respective liabilities.
Unlike the cases referred to above, however, Genbank was ordered closed by the CB
on March 25, 1977, when "insolvency" was defined under Section 29 of RA 265, as
amended on September 22, 1976 by PD 1007, where and when the insolvency
concept carried a slightly different but contextually significant connotation. As thus
then defined, insolvency was understood to mean as "the inability of a banking
institution to pay its liabilities as they fall due in the ordinary course of
business." Respondent CB found Genbank undoubtedly incapable to generate liquid
funds by itself in order to meet drawdowns on its deposits and deposit substitutes and
to pay for other maturing obligations, as well as advances from the Central Bank.
Respondent CB, therefore, concluded that Genbank was insolvent under the
obtaining definition of said term, with the CA eventually sustaining the posture of
respondent CB.
2. Whether or not Resolution 675 of Monetary Board can be set aside by court?
Resolution by Monetary Board is deemed final and executory and can only be
set aside by the court only if there is convincing proof that the action is plainly
arbitrary and made in bad faith
And by the terms of the same Section 29 of RA 265, as amended by PD No. 1007,
Resolution No. 675 is deemed final and executory, to wit:
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 of court
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. xxx.. (Emphasis supplied.)

The burden thus rests upon petitioner Genbank to prove the mala fides of the
Monetary Board in issuing Resolution No. 675. The present petition cites no concrete
proof to convincingly show that the pertinent findings and recommendation of Antonio
Castro, then Director of CB's DCSB whence Resolution No. 675 emanated were
factually infirm.
 DOMINGO R. MANALO vs. COURT OF APPEALS (Special Twelfth Division)
and PAIC SAVINGS AND MORTGAGE BANK,
G.R. No. 141297, October 8, 2001
DOCTRINE:
 A bank which had been ordered closed by the monetary board retains its
juridical personality which can sue and be sued through its liquidator.
The only limitation being that the prosecution or defense of the action must
be done through the liquidator.31 Otherwise, no suit for or against an
insolvent entity would prosper.
 Section 29 of RA 265 (Central Bank Act) only finds operation in cases
where there are claims against an insolvent bank. In fine, the exclusive
jurisdiction of the liquidation court pertains only to the adjudication of
claims against the bank. It does not cover the reverse situation where it is
the bank which files a claim against another person or legal entity.
FACTS:
On July 19, 1983, S. Villanueva Enterprises, represented by its president, Therese
Villanueva Vargas, obtained a loan of 3 million pesos and 1 million pesos from the
respondent PAIC Savings and Mortgage Bank and the Philippine American
Investments Corporation (PAIC), respectively. To secure payment of both debts,
Vargas executed in favor of the respondent over two parcels of land registered under
her name. One of the lots, located in Pasay is the subject of the present case. Section
2 of the mortgage contract states that "the properties mortgaged therein shall include
all buildings and improvements existing on the mortgaged property at the time of the
execution of the mortgage contract and thereafter."2
Villanueva Enterprises defaulted in paying the amortizations due. Accordingly,
respondent instituted extrajudicial foreclosure proceedings over the mortgaged lots.
The property was sold at a public auction to the respondent itself, after tendering the
highest bid. After the lapse of one year, or the statutory period extended by law to a
mortgagor to exercise his/her right of redemption, title was consolidated in
respondent's name for failure of Vargas to redeem.
On October 29, 1986, the Central Bank of the Philippines filed a Petition 4 for
assistance in the liquidation of the respondent with the Regional Trial Court. The
petition was given due course
It appears that from the years 1986 to 1991, Vargas negotiated with the respondent
(through its then liquidator, the Central Bank) for the repurchase of the foreclosed
property. The negotiations, however, fizzled out as Vargas cannot afford the
repurchase price fixed by the respondent based on the appraised value of the land at
that time.
On October 4, 1991, Vargas filed a case for annulment of mortgage and extrajudicial
foreclosure sale before Branch 116 of the Pasay City Regional Trial Court.
On July 22, 1993, the court rendered a decision 6 dismissing the complaint and
upholding the validity of the mortgage and foreclosure sale. On appeal, the appellate
court upheld the assailed judgment. This decision of the Court of Appeals
subsequently became final.8
In the meantime, respondent petitioned the Regional Trial Court, Branch 112, of
Pasay City, herein court a quo, for the issuance of a writ of possession for the subject
property.
During the pendency of the case, Vargas, executed a Deed of Absolute Sale9 selling,
transferring, and conveying ownership of the disputed lot in favor of a certain Armando
Angsico. Notwithstanding this sale, Vargas, still representing herself to be the lawful
owner of the property, leased the same to petitioner Domingo R. Manalo.
Later, on June 29, 1997, Armando Angsico, as buyer of the property, assigned his
rights therein to petitioner.12
RTC Ruling:
On April 21, 1998, the court a quo granted the petition for the issuance of the Writ of
Possession. Villanueva Enterprises and Vargas moved for its quashal. 15 Petitioner,
on the strength of the lease contract and Deed of Assignment made in his favor,
submitted a Permission to File an Ex-parte Motion to Intervene.
The court a quo denied the Motion to Quash and Motion to Intervene filed respectively
by Vargas and petitioner.
Petitioner then sought relief with the Court of Appeals, filing therein a Petition for
Certiorari.
While this was awaiting resolution, he entered into another lease agreement,19 this
time with the respondent, represented by its liquidator.
CA Ruling:
CA rendered the impugned Decision, dismissing the petition,
ISSUE:
 1. Whether or not the RTC has jurisdiction over the subject matter of the claim
in this case? YES
2. Whether or not a bank which had been ordered closed by the monetary bard
retains its juridical personality? YES
HELD:
1. Whether or not the RTC has jurisdiction over the subject matter of the
claim in this case? YES
Petitioner postulates that the lower court should have dismissed respondent's "Ex-
Parte Petition for Issuance of Writ of Possession" in Civil Case No. P-9011 for want
of jurisdiction over the subject matter of the claim. The power to hear the same, he
insists, exclusively vests with the Liquidation Court pursuant to Section 29 of Republic
Act No. 265, otherwise known as The Central Bank Act. 22 He then cites our decision
in Valenzuela v. Court of Appeals,23where we held that "if there is a judicial liquidation
of an insolvent bank, all claims against the bank should be filed in the liquidation
proceeding." For going to another court, the respondent, he accuses, is guilty of forum
shopping.
These contentions can not pass judicial muster. The pertinent portion of Section 29
states:
"x x x 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 institution. The court shall have jurisdiction in the same
proceedings to assist in the adjudication of disputed claims against the
bank or non-bank financial intermediary performing quasi-banking functions
and the enforcement of individual liabilities of the stockholders and do all
that is necessary to preserve the assets of such institution and to implement
the liquidation plan approved by the Monetary Board, x x x" 24 (emphasis
supplied.)
Petitioner apparently failed to appreciate the correct meaning and import of the above-
quoted law. The legal provision only finds operation in cases where there are
claims against an insolvent bank. In fine, the exclusive jurisdiction of the
liquidation court pertains only to the adjudication of claims against the bank. It
does not cover the reverse situation where it is the bank which files a claim
against another person or legal entity.
This interpretation of Section 29 becomes more obvious in the light of its intent. The
requirement that all claims against the bank be pursued in the liquidation proceedings
filed by the Central Bank is intended to prevent multiplicity of actions against the
insolvent bank and designed to establish due process and orderliness in the
liquidation of the bank, to obviate the proliferation of litigations and to avoid injustice
and arbitrariness.25 The lawmaking body contemplated that for convenience, only one
court, if possible, should pass upon the claims against the insolvent bank and that the
liquidation court should assist the Superintendents of Banks and regulate his
operations.26
It then ought to follow that petitioner's reliance on Section 29 and
the Valenzuela case is misplaced. The Petition for the Issuance of a Writ of
Possession in Civil Case No. 9011 is not in the nature of a disputed claim
against the bank. On the contrary, it is an action instituted by the respondent
bank itself for the preservation of its asset and protection of its property. It was
filed upon the instance of the respondent's liquidator in order to take
possession of a tract of land over which it has ownership claims.
Since the land subject of this controversy is located in Pasay City, then the city's RTC
should rightly take cognizance of the case, to the exclusion of other courts.
2. Whether or not a bank which had been ordered closed by the monetary
bard retains its juridical personality? YES
Petitioner next casts doubt on the capacity of the respondent to continue litigating the
petition for the issuance of the writ. He asserts that, being under liquidation,
respondent bank is already a "dead" corporation that cannot maintain the suit in the
RTC. Hence, no writ may be issued in its favor.
The argument is devoid of merit. A bank which had been ordered closed by the
monetary board retains its juridical personality which can sue and be sued through its
liquidator. The only limitation being that the prosecution or defense of the action must
be done through the liquidator.31 Otherwise, no suit for or against an insolvent entity
would prosper. In such situation, banks in liquidation would lose what justly belongs
to them through a mere technicality.32
That the law allows a bank under liquidation to participate in an action can
be clearly inferred from the third paragraph of the same Section 29 of The
Central Bank Act earlier quoted, which authorizes or empowers a liquidator
to institute actions, thus: "x x x and he (liquidator) 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."33 (emphasis supplied.)
It is therefore beyond dispute that respondent was legally capacitated to petition the
court a quo for the issuance of the writ.
 BANGKO SENTRAL NG PILIPINAS MONETARY BOARD and CHUCHI
FONACIER vs.
HON. NINA G. ANTONIO-VALENZUELA, in her capacity as Regional Trial Court
Judge of Manila, Branch 28; RURAL BANK OF PARAÑAQUE, INC.; RURAL BANK
OF SAN JOSE (BATANGAS), INC.; RURAL BANK OF CARMEN (CEBU), INC.;
PILIPINO RURAL BANK, INC.; PHILIPPINE COUNTRYSIDE RURAL BANK, INC.;
RURAL BANK OF CALATAGAN (BATANGAS), INC. (now DYNAMIC RURAL
BANK); RURAL BANK OF DARBCI, INC.; RURAL BANK OF KANANGA (LEYTE),
INC. (now FIRST INTERSTATE RURAL BANK); RURAL BANK OF BISAYAS
MINGLANILLA (now BANK OF EAST ASIA); and SAN PABLO CITY
DEVELOPMENT BANK, INC
G.R. No. 184778, October 2, 2009
DOCTRINE:
This "close now, hear later" scheme is grounded on practical and legal
considerations to prevent unwarranted dissipation of the bank’s assets and as a valid
exercise of police power to protect the depositors, creditors, stockholders, and the
general public. The writ of preliminary injunction cannot, thus, prevent the MB from
taking action, by preventing the submission of the ROEs and worse, by preventing
the MB from acting on such ROEs.
FACTS:
In September of 2007, the Supervision and Examination Department (SED) of the
Bangko Sentral ng Pilipinas (BSP) conducted examinations of the books of the
following banks: Rural Bank of Parañaque, Inc. (RBPI), Rural Bank of San Jose
(Batangas), Inc., Rural Bank of Carmen (Cebu), Inc., Pilipino Rural Bank, Inc.,
Philippine Countryside Rural Bank, Inc., Rural Bank of Calatagan (Batangas), Inc.
(now Dynamic Rural Bank), Rural Bank of Darbci, Inc., Rural Bank of Kananga
(Leyte), Inc. (now First Interstate Rural Bank), Rural Bank de Bisayas Minglanilla (now
Bank of East Asia), and San Pablo City Development Bank, Inc.
After the examinations, exit conferences were held with the officers or representatives
of the banks wherein the SED examiners provided them with copies of Lists of
Findings/Exceptions containing the deficiencies discovered during the examinations.
These banks were then required to comment and to undertake the remedial measures
stated in these lists within 30 days from their receipt of the lists, which remedial
measures included the infusion of additional capital. Though the banks claimed that
they made the additional capital infusions, petitioner Chuchi Fonacier, officer-in-
charge of the SED, sent separate letters to the Board of Directors of each bank,
informing them that the SED found that the banks failed to carry out the required
remedial measures.
In response, the banks requested that they be given time to obtain BSP approval to
amend their Articles of Incorporation, that they have an opportunity to seek investors.
They requested as well that the basis for the capital infusion figures be disclosed, and
noted that none of them had received the Report of Examination (ROE) which
finalizes the audit findings. They also requested meetings with the BSP audit teams
to reconcile audit figures. In response, Fonacier reiterated the banks’ failure to comply
with the directive for additional capital infusions.
On May 12, 2008, the RBPI filed a complaint for nullification of the BSP ROE with
application for a TRO and writ of preliminary injunction before the RTC against
Fonacier and the BSP,
The Rural Bank of San Jose (Batangas), Inc., Rural Bank of Carmen (Cebu), Inc.,
Pilipino Rural Bank, Inc., Philippine Countryside Rural Bank, Inc., Rural Bank of
Calatagan (Batangas), Inc., Rural Bank of Darbci, Inc., Rural Bank of Kananga
(Leyte), Inc., and Rural Bank de Bisayas Minglanilla followed suit, filing complaints
with the RTC substantially similar to that of RBPI.
On May 14, 2008, Fonacier and the BSP filed their opposition to the application for a
TRO and writ of preliminary injunction with the RTC.
Respondent Judge Nina Antonio-Valenzuela of Branch 28 granted RBPI’s prayer for
the issuance of a TRO.
The other banks separately filed motions for consolidation of their cases in Branch
28, which motions were granted. Judge Valenzuela issued an Order granting the
prayer for the issuance of TROs for the other seven cases consolidated
On May 26, 2008, petitioners filed a Motion to Dismiss against all the complaints
(except that of the San Pablo City Development Bank, Inc.), on the grounds that the
complaints stated no cause of .
RTC Ruling:
The RTC ruled that the banks were entitled to the writs of preliminary injunction
prayed for. It held that it had been the practice of the SED to provide the ROEs to the
banks before submission to the MB. It further held that as the banks are the subjects
of examinations, they are entitled to copies of the ROEs. The denial by petitioners of
the banks’ requests for copies of the ROEs was held to be a denial of the banks’ right
to due process.
CA Ruling:.
The CA ruled that the RTC committed no grave abuse of discretion when it ordered
the issuance of a writ of preliminary injunction and when it ordered the consolidation
of the 10 cases.
The CA held that the principles of fairness and transparency dictate that the
respondent banks are entitled to copies of the ROE.
By reason of the TRO issued by this Court, the SED was able to submit their ROEs
to the MB. The MB then prohibited the respondent banks from transacting business
and placed them under receivership under Section 53 of Republic Act No. (RA)
87915 and Sec. 30 of RA
ISSUE:
1. W/N the injunction issued by RTC violated Section 25 of the New Central
Bank Act and effectively handcuffed the Bangko Central from discharging its
function? YES
2. W/N the respondents bank are entitled to furnished copies of their respective
ROEs before the same is submitted to the Monetary Board? NO
HELD:
1. W/N the injunction issued by RTC violated Section 25 of the New
Central Bank Act and effectively handcuffed the Bangko Central from
discharging its function? YES
The issuance by the RTC of writs of preliminary injunction is an unwarranted
interference with the powers of the MB. Secs. 29 and 30 of RA 7653 10 refer to the
appointment of a conservator or a receiver for a bank, which is a power of the MB for
which they need the ROEs done by the supervising or examining department. The
writs of preliminary injunction issued by the trial court hinder the MB from fulfilling its
function under the law.
The actions of the MB under Secs. 29 and 30 of RA 7653 "may not be restrained or
set aside by the court except on petition for certiorari on the ground that the action
taken was in excess of jurisdiction or with such grave abuse of discretion as to amount
to lack or excess of jurisdiction." The writs of preliminary injunction order are precisely
what cannot be done under the law by preventing the MB from taking action under
either Sec. 29 or Sec. 30 of RA 7653.
The respondent banks have shown no necessity for the writ of preliminary injunction
to prevent serious damage. The serious damage contemplated by the trial court was
the possibility of the imposition of sanctions upon respondent banks, even the
sanction of closure. Under the law, the sanction of closure could be imposed upon a
bank by the BSP even without notice and hearing. The apparent lack of procedural
due process would not result in the invalidity of action by the MB. This was the ruling
in Central Bank of the Philippines v. Court of Appeals. 11
This "close now, hear later" scheme is grounded on practical and legal
considerations to prevent unwarranted dissipation of the bank’s assets and as a valid
exercise of police power to protect the depositors, creditors, stockholders, and the
general public. The writ of preliminary injunction cannot, thus, prevent the MB from
taking action, by preventing the submission of the ROEs and worse, by preventing
the MB from acting on such ROEs.
The trial court required the MB to respect the respondent banks’ right to due process
by allowing the respondent banks to view the ROEs and act upon them to forestall
any sanctions the MB might impose. Such procedure has no basis in law and does in
fact violate the "close now, hear later" doctrine.
The "close now, hear later" doctrine has already been justified as a measure for the
protection of the public interest. Swift action is called for on the part of the BSP when
it finds that a bank is in dire straits. Unless adequate and determined efforts are taken
by the government against distressed and mismanaged banks, public faith in the
banking system is certain to deteriorate to the prejudice of the national economy itself,
not to mention the losses suffered by the bank depositors, creditors, and stockholders,
who all deserve the protection of the government.
2. W/N the respondents bank are entitled to furnished copies of their
respective ROEs before the same is submitted to the Monetary Board?
NO
The respondent banks have failed to show that they are entitled to copies of the
ROEs. They can point to no provision of law, no section in the procedures of the BSP
that shows that the BSP is required to give them copies of the ROEs. Sec. 28 of RA
7653, or the New Central Bank Act, which governs examinations of banking
institutions, provides that the ROE shall be submitted to the MB; the bank examined
is not mentioned as a recipient of the ROE.
The respondent banks cannot claim a violation of their right to due process if they are
not provided with copies of the ROEs. The same ROEs are based on the lists of
findings/exceptions containing the deficiencies found by the SED examiners when
they examined the books of the respondent banks. As found by the RTC, these lists
of findings/exceptions were furnished to the officers or representatives of the
respondent banks, and the respondent banks were required to comment and to
undertake remedial measures stated in said lists. Despite these instructions,
respondent banks failed to comply with the SED’s directive.
Respondent banks are already aware of what is required of them by the BSP, and
cannot claim violation of their right to due process simply because they are not
furnished with copies of the ROEs. Respondent banks were held by the CA to be
entitled to copies of the ROEs prior to or simultaneously with their submission to the
MB, on the principles of fairness and transparency. Further, the CA held that if the
contents of the ROEs are essentially the same as those of the lists of
findings/exceptions provided to said banks, there is no reason not to give copies of
the ROEs to the banks. This is a flawed conclusion, since if the banks are already
aware of the contents of the ROEs, they cannot say that fairness and transparency
are not present. If sanctions are to be imposed upon the respondent banks, they are
already well aware of the reasons for the sanctions, having been informed via the lists
of findings/exceptions, demolishing that particular argument. The ROEs would then
be superfluities to the respondent banks, and should not be the basis for a writ of
preliminary injunction. Also, the reliance of the RTC on Banco Filipino v. Monetary
Board9 is misplaced. The petitioner in that case was held to be entitled to annexes of
the Supervision and Examination Sector’s reports, as it already had a copy of the
reports themselves. It was not the subject of the case whether or not the petitioner
was entitled to a copy of the reports. And the ruling was made after the petitioner bank
was ordered closed, and it was allowed to be supplied with annexes of the reports in
order to better prepare its defense. In this instance, at the time the respondent banks
requested copies of the ROEs, no action had yet been taken by the MB with regard
to imposing sanctions upon said banks.