3. 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.*
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, 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
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
VALENZUELA, ARNULFO AURELLANO AND RAMON TIAOQUI, respondents.
G.R. No. 78894. December 11, 1991.*
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, 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 bank’s 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 bank’s 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.
Page 1 of 23
 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
7 SUPREME COURT REPORTS ANNOTATED
70
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central
Bank of the Philippines
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 creditors’ 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
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central
Bank of the Philippines
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
7 SUPREME COURT REPORTS ANNOTATED
72
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central
Bank of the Philippines
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.
Page 2 of 23
 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
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central
Bank of the Philippines
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 latter’s 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 CB’s 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 CB’s
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
774 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
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.
Page 3 of 23
 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 Board, Central Bank of
the Philippines
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 creditors’ claims and
other transactions pertaining to normal operations of a bank are not enjoined. The
Central Bank is
776
776 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
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 Management’s 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 petitioners’ 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
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VOL. 204, DECEMBER 11, 1991 777
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
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 Filipino’s
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.
Page 4 of 23
 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
778 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
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 petitioner’s 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
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
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 petitioner’s 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
780 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
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.
Page 5 of 23
 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. 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. 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
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1. 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.
2. 3.The Board of Directors and the principal officers from Senior Vice
Presidents, as listed in the attached Annex ‘A' be included in the watchlist
of the Supervision and Examination Sector until such time that they shall
have cleared themselves.
3. 4.Refer to the Central Bank’s 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 continuance in business would involve probable loss to
its depositors and creditors, and in pursuance of Sec. 29 of R.A. 265, as amended, the
Board decided:
1. 1.To forbid Banco Filipino Savings and Mortgage Bank and all its branches to
do business in the Philippines;
2. 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 bank’s 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. 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
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Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
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1. wise to assist the Receiver in carrying out the functions vested in the
Receiver by law or Monetary Board Resolutions;
2. 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
3. 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:
Page 6 of 23
“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. 1.Banco Filipino Savings 6, Mortgage Bank be liquidated pursuant to
paragraph 3, Sec. 29 of RA No. 265, as amended;
2. 2.The Legal Department, through the Solicitor General, be au
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1. thorized to file in the proper court a petition for assistance in the liquidation
of the Bank;
2. 3.The Statutory Receiver be designated as the Liquidator of said bank; and
3. 4.Management be instructed to inform the stockholders of Banco Filipino
Savings 6, Mortgage Bank of the Monetary Board’s 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 creditors’ 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 Court’s 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
784 SUPREME COURT REPORTS ANNOTATED
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the Philippines
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 respondent’s 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 petitioner’s 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
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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 Cosico’s 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 Depositors’
Page 7 of 23
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. “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. “2)On the date of BF’s 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. “1.That the TEODORO and TIAOQUI reports did not establish, in
accordance with Sec. 29 of the R.A. 265, as amended, BF’s 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
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the Philippines
1. not clearly es tablished;
2. “2.That consequently, BF’s closure on January 25, 1985, not having satisfied
the requirements prescribed under Sec. 29 of RA 265, as amended, was null
and void.
3. “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 Board’s closure of petitioner, (Cosico Report
dated February 19,1988) and the other (Santiago Report dated January 25, 1991)
holding that petitioner’s closure was null and void because petitioner’s 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 respondents’ 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
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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
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receiver had not authorized anyone to file the action.
Page 8 of 23
 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. 1.In G.R. No. 68878, the respondent’s motion for reconsideration;
2. 2.In G.R. Nos. 77255–58, the petition, comment, reply, rejoinder and sur-
rejoinder;
3. 3.In G.R. No. 78766, the petition, comment, reply and rejoinder;
4. 4.In G.R. No. 81303, the petitioner’s motion for reconsideration;
5. 5.In G.R. No. 81304, the petition, comment and reply;
6. 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 bank’s 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
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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 creditors’ 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 latter’s expenditures incurred in
behalf of the bank. Notwithstanding this, the liquidator is still empowered under the
law to continue the functions of the
790
790 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
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,
Page 9 of 23
Sr. v. Secretary of Agriculture and Natural Resources, L-26990, August 31, 1970, 34
SCRA
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VOL. 204, DECEMBER 11, 1991 791
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
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
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Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
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
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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
Page 10 of 23
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 cashier’s 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
794 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
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
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Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
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 Bank’s credit accommodations. A formal
reply of the bank would still be forthcoming.” (pp. 58–59, Rollo, Vol. I; emphasis
ours)
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the Philippines
Page 11 of 23
Clearly, Tiaoqui based his report on an incomplete examination of petitioner bank
and outrightly concluded therein that the latter’s 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 latter’s 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 bank’s loan portfolio; that at that meeting, Fortunato Dizon (BF’s
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;
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the Philippines
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 examiners’ 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
798 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
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
Page 12 of 23
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
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Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
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 bank’s 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. 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. 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. ‘Unimpaired Capital and Surplus/ ‘Combined capital accounts/ and ‘Net worth,’
which terms shall mean for the purposes of this Act , the total of the ‘unimpaired 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
800 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
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 bank’s 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
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Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
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, cashier’s, manager’s 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 respondents’ 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
Page 13 of 23
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
802 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings & Mortgage Bank us. Monetary Board, Central Bank of
the Philippines
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 institution’s assets, the quality and character of
management and determines the institution’s compliance with laws, rules and
regulations.Audit is a detailed inspection of the institution’s 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
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
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 bank’s 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 bank’s having engaged in unsafe, unsound and fraudulent banking
practices by the granting of huge unsecured loans to several subsidiaries and related
804
804 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
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 bank’s 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
Page 14 of 23
Valenzuela, CB Deputy Governor, testified that the reason for petitioner bank’s
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
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
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
latter’s 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 Respondents’ Objections to
Santiago Report, p. 26; p. 3387, ‘Rollo,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
806 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
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 Bank’s
full support to meet Banco Filipino’s depositors’ 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
Bank’s 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 Bank’s concern for the safety of Banco Filipino’s
depositors as well as its creditors including itself which had granted substantial
financial assistance up to the time of the latter’s 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 country’s entire banking system and
807
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Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
Page 15 of 23
 the Philippines
ultimately, it may reflect on the Central Bank’s 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. 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. 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
808 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings & Mortgage Bank vs, Monetary Board, Central Bank of
the Philippines
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 Bank’s 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 latter’s 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
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
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 the bank, hence, without “administrative
due process"1 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
Page 16 of 23
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
810 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
house and lot which the buyer (Pahimutang) claimed to have completely paid for on
the installment plan. The appellate court’s judgment for the buyer was reversed by
this Court. The buyer’s motion for reconsideration is awaiting resolution by this
Court;
2. G.R. Nos. 77255–58, ‘Top 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 Appeals’ 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 Management’s 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 insolvent’s 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 Appeals’ decision in CA-G.R. SP No. 08809 dismissing El
Grande’s petition for prohibition to prevent the foreclosure of BF’s P8 million
mortgage on El Grande’s properties;
4. G.R. No. 78894, “Banco Filipino Savings and Mortgage Bank vs. Court of
Appeals, et al.” is an appeal of BF’s old management (using the name of BF) from the
decision of the Court of Appeals in CA-G.R, SP No. 07503entitled, “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
Appeals’ decision subject of G.R. No. 78894, which also dismissed Metropolis’
811
VOL. 204, DECEMBER 11, 1991 811
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
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 BF’s 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 petitioners’ 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 court’s order dismissing BF Homes’
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.
08676dismissing El Grande’s petition for prohibition to stop foreclosure proceed-
812
812 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
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.
Page 17 of 23
 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—
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VOL. 204, DECEMBER 11, 1991 813
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
“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
814 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
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 cashier’s 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
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
Page 18 of 23
 the Philippines
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 BF’s 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, Receiver’s Report.) Additional
emergency loans (a total of P119.7 millions) were extended by the Central
816
816 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
Bank to BF that month (MB Res. No. 839 dated June 29,1984). On July 12,1984, BF’s
chairman, Anthony Aguirre, offered to “turn over the administration of the affairs of
the bank” to the Central Bank (Aguirre’s letter to Governor Jose Fernandez, Annex 7
of Manifestation dated May 3, 1991). On July 23, 1984, unable to meet heavy deposit
withdrawals, BF’s 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 BF’s 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 BF’s 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 BF’s 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 of
Section 37 of the General Banking Act (R.A. 337):2
________________
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
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
1. 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. 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. 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. 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 bank’s operations. (p. 5, Teodoro Report.)
5. 5.Based on the projected outlook, the Bank’s 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. 6.An imprudently large proportion of assets were locked into long-term
applications. (Teodoro Report)
7. 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
Page 19 of 23
 liquidity stresses. (Teodoro Report.) This was done in violation of Section
38 of the General Banking Act (R.A. 337).3
________________
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
818 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
1. 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.)
2. 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 again BF violated the General Banking Act (R.A.
337).4
3. 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.)
4. 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.)
5. 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:
1. (a)2,658 TCT’s 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,
2. (b)Other properties (collaterals) supposedly worth P711 million could not be
evaluated by PAC because the details submitted by the bank were
insufficient;
3. (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.)
4. (d)Per SGV’s 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.
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Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
1. ing accrued interest, were secured by collateral worth only P1.54 billion.
Hence, BF’s 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.—
1. a)For the eleven (11) months ended November 30, 1984, the estimated net
loss was P372.6 Million;
2. 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)
3. 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)
4. d)The bank’s 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%.
5. 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.)
Teodoro’s 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 bank’s 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
820 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
cipal cause of the bank’s failure was that in violation of the General Banking Law and
CB rules and regulations, BF’s major stockholders, directors and officers, through
Page 20 of 23
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. “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. “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. “3.The Board of directors and the principal officers from Senior Vice
President, as listed in the attached Annex ‘A' be included in the watchlist of
the Supervision and Examination Sector until such time that they shall
have cleared themselves.
4. “4.Refer to the Central Bank’s 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 Tiaoqui’s Report, and three
weeks after it received Teodoro’s
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Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
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Report, the Monetary Board, then composed of:
Chairman: Jose B. Fernandez, Jr.
CB Governor
Members:
1. 1.Cesar E.A. Virata, Prime Minister 6, Concurrently Minister of Finance
2. 2.Roberto V. Ongpin, Minister of Trade 6, Industry 6, Chairman of Board of
Investment
3. 3.Vicente B. Valdepeñas, Jr., Minister of Economic Planning 6, Director
General of NEDA
4. 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 continuance in business would involve probable loss to
its depositors and creditors, and in pursuance of Section 29 of R.A. No. 265, as
amended, the Board decided:
1. “1.To forbid Banco Filipino Savings and Mortgage Bank and all its branches
to do business in the Philippines;
2. “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 bank’s 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. “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
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822 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
the Philippines
1. 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;
2. “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
3. “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. 1.BF had been suffering a capital deficiency of P336.5 million as of July 31,
1984 (pp. 2 and 4, Receivers’ Report).
2. 2.The bank’s weekly reserve deficiencies averaged P1 46.67 million from
November 25, 1983 up to March 16,1984, rising to a peak of P338.09
Page 21 of 23
 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. 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 bank’s 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
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Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
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1. vance of P569.49 million from Central Bank, and additional valuation
reserves of P124.5 million. (pp. 3–4, Receivers’ 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 ‘doubtful’ or ‘loss,’ there
were no substantial improvements on other loans classified ‘doubtful’ or loss;’ 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 insolventwith 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, Receivers’ Report.)
In the light of the results of the examination of BF by the Teodoro and Tiaoqui teams,
I do not find that the CB’s 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 bank’s assets and
liabilities as determinants of BF’s solvency or insolvency is irrelevant and
inconsequential, for under Section 29 of Rep. Act. 265, a bank’s 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
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824 SUPREME COURT REPORTS ANNOTATED
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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 bank’s 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
BF’s own president, and its total liabilities were P4.478 billions (p. 58, Cosico Report).
While Aguirre’s 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 BF’s admitted liabilities of
P4.478 billions, put together, would wipe out BF’s realizable assets of P4.891 billions
and confirm its insolvent condition to the tune of P187.538 millions.
BF’s and Judge (now CA Justice) Consuelo Y. Santiago’s 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. (1)The records of the defaulting debtors were in the possession of BF.
2. (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. (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 CB’s 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. (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).
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Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank of
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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.
Page 22 of 23
 BF’s 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.
Tiaoqui’s 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 CB’s 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
826 SUPREME COURT REPORTS ANNOTATED
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 depositors’ 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 Bank’s 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
Government’s 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.
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