Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-12610 October 25, 1963

BACOLOD-MURCIA, MILLING CO., INC., petitioner-appellant,

vs.
CENTRAL BANK OF THE PHILIPPINES, respondent-appellee.

Vicente Hilado for petitioner-appellant.

Nat. M. Balboa, Enrique M. Fernando and F. E. Evangelista for respondent-appellee.

LABRADOR, J.:

This is an appeal from a decision of the Court of First Instance of Manila, Hon. Magno Gatmaitan,
presiding, dismissing a petition for prohibition filed by petitioner-appellant, praying that the Court
declare Circular No. 20 of the Central Bank, particularly section 4(a) thereof, null and void, and that
the Central Bank be perpetually enjoined from enforcing the same. The complaint contains a petition
for the issuance of a writ of preliminary injunction.

Circular No. 20 of the Central Bank was promulgated on December 9, 1949 and Section 4(a) thereof
provides:

4. (a) All receipts of foreign exchange shall be sold daily to the Central Bank by those
authorized to deal in foreign exchange. All receipts of foreign exchange by any person, firm,
partnership, association, branch office, agency, company or other unincorporated body or
corporation shall be sold to the authorized agents of the Central Bank by the recipients within
one business day following the receipt of such foreign exchange. Any person firm,
partnership, association, branch office, agency, company or other unincorporated body or
corporation, residing or located within the Philippines who acquired on and after the date of
this Circular foreign exchange shall not, unless, licensed by the Central Bank, dispose of
such foreign exchange in whole or in part, not receive less than its full value, nor delay taking
ownership thereof except as such delay is customary; Provided, further, That within one day
upon taking ownership, or receiving payment, of foreign exchange the aforementioned
persons and entities shall sell such foreign exchange to designated agents of the Central
Bank.

Section 8 also provides:

Strict observance of the Provisions of this Circular is enjoined, and any person, firm or
corporation, foreign or domestic: who, being bound to the observance thereof, or of such
other rules, regulations or directives as may hereafter be issued in implementation of this
Circular, shall fail or refuse to comply with, or abide by, or shall violate the same, shall be
subject to the penal sanctions provided in the Central Bank Act.

The facts and circumstances giving rise to the petition are, as found by the court below, as follows:
 On or about December 17, 1956, plaintiff sold and exported to Olavarria & Co., Inc. of New
York, United States of America 48,192 piculs (equivalent to 3,000 tons) of sugar for the total
price of $416,640.00 U.S. currency, and as a consequence drew against said Olavarria &
Co., Inc. two (2) drafts for the total sum of $336,995.40 U.S. currency, to cover an initial
payment of 95% of said purchase price (Exhs. "E" and "F"); said drafts were then entrusted
and delivered for collection to the Philippine Bank of Commerce, which duly accepted the
undertaking to collect the amount thereof for the account of plaintiff, but called the attention
of plaintiff that under existing rules and regulations all exchange proceeds of the drafts must
be sold to the Central Bank authorities at the prevailing rate of exchange set up by the
Central Bank(Exhibits "E", "F", "G" and "H") creating a reserve supply of dollars which the
Cenral Bank thereafter disposed to parties in need thereof, but at the rate also of 2 to 1.
Plaintiff apparently felt, that it had suffered enough; thereof, on December 29, 1956, it wrote
to the defendant Central Bank that "we seriously doubt the legality and validity of your rules
and regulations on this particular point, and cannot therefore agree and cannot give our
consent to the sale of the dollar proceeds of our said drafts to the Central Bank of the
Philippines, unless the Central Bank should agree to pay us, as fair consideration and just
compensation, the real international worth and prevailing market value of the said dollar
proceeds of our sugar," . . .

It was because of this that on 28 January 1957, plaintiff brought this special civil action for
prohibition in order to stop the defendant Central Bank from taking further action to enforce
Circular No. 20. Plaintiff says that the forced sale of foreign to the Central Bank required in
Circular No. 20 is "ultra vires"; and that the practice of the central Bank in paying for such
exchange only at a the legal party rate with the purpose of reselling the same to other private
parties at the same rate is a confiscation of private property not for public use nor for just
compensation. Respondent contends the contrary.

The defenses presented by the respondent-appellee in its answer are: (1) that Circular No. 20 is
presumed to be valid; (2) that the Philippines is a signatory member of the International Monetary
Fund Agreement and as such is bound to respect or to maintain the par value of the Philippine
currency; (3) that Circular No. 20 was approved in an exchange crisis in accordance with Section 74
of the Central Bank Act and said circular was approved by the President of the Philippines and by
the International Monetary Fund; (4) that the powers of the Central Bank to curtail, regulate and
license the use of foreign exchange include the right to require that all foreign exchange be
surrendered and that the plaintiff has not exhausted all the administrative remedies available in the
ordinary course of law, etc.

The court below found, as plaintiffs evidence itself shows, that there is a monetary crisis. It also
found that the export of sugar by plaintiff was a transaction on foreign exchange; it declared that
plaintiff would stand to lose by the operation of the exchange control circular, but that the enactment
of a law on currency and even the issuance of paper money as legal tender are attributes of the
sovereign power (citing Juillard vs. Greennan, 110 U.S. 421); that the devaluation of the dollar by
authority of the Congress of the United States and the provision legalizing payment of contractual
obligations and other restrictions may not be considered as a capricious or arbitrary exercise of its
powers; and the damage done to plaintiff in this case may be considered damnum absque injuria.

The foregoing decision is the subject of the present appeal.

In its brief appellant argues that the court below failed to pass upon the specific objections of
appellant to the circular and its provisions, namely:
1. That the compulsory sale regulation expressly violates Section 73 of the Central Bank Charter,
that it may engage in exchange transactions only with banking institutions and other entities
specified;

2. That the circular establishes a monopoly by allowing commandeering of foreign exchange, when
its charter allows commandeering only of gold (Sec. 72);

3. That compelling private persons to sell foreign exchange to the Central Bank can not be included
in the power "to subject to license all transactions in gold and foreign exchange during an exchange
crisis" as defined in Section 74 of the Charter.

The first three objections may be explained away by the observation that the powers granted in
Sections 72, 73, and 80 of the Central Bank Charter, which plaintiff-appellant claims to have been
violated, are the powers of the Bank in normal times, and not during an exchange crisis, when the
Bank may adopt the remedies indicated in Section 74 of its Charter, entitled "Emergency
Restrictions on Exchange Operations."

Issue

The most important issue now before the Court is whether the exchange control provision, contained
in Section 4 (a) of Central Bank Circular No. 20, may be considered is sufficiently authorized by the
provisions of the Charter. Petitioner sustains the negative of the issue, i.e., that the establishment of
exchange control can not be considered authorized by the provisions of Section 72 of the Bank
Charter and is, therefore, null and void. Respondent supports the affirmative, arguing that such
establishment (of exchange control) may be considered authorized by implication from the general
duty imposed upon the Bank of preserving and maintaining the international value of the peso.

Reasons Adduced To Justify Exchange Control

The provisions of Republic Act 265 are so broad and encompassing with respect to the Bank's
powers that it is difficult to believe that exchange control was not authorized within the scope of the
Charter. The fact that the Charter does not expressly grant the Bank the power to require the forcible
sale of foreign exchange is no reason, per se, for holding that the Bank may not do so; the inquiry
should be whether the Act contains sufficient standards on which the exercise of a power could be
premised. On this score Republic Act No. 265 is not wanting.

In Section 2, the Central Bank is charged with the duty "to administer the monetary and banking
system of the Republic; to maintain monetary stability in the Philippines; to preserve the international
value of the peso; and to promote in rising level of production, employment and real income in the
Philippines." In Section 64, it is given the duty to "control any expansion or contraction in the money
supply, or any rise or fall in prices, which, in the opinion of the Board is prejudicial to the attainment
or maintenance of a high level of production, employment and real income." Under this section, the
Monetary Board shall have due regard "for their effects (measures) on the availability and cost of
money to particular sectors of the economy as well as to the economy as a whole, and their effects
on the relationship of domestic prices and costs to world prices and costs."

Dealing on the international reserve, Section 68 enjoins the Central Bank to maintain an international
reserve "adequate to meet any foreseeable net demands on the Bank for foreign currencies." In
gauging the adequacy of the international reserve, the guide is the "prospective receipts and
payments of foreign exchange by the Philippines." Further, the Monetary Board is required to
consider the it volume and maturity of the Central Bank's own liabilities in foreign currencies, the
volume and maturity of the foreign exchange assets and liabilities of other banks operating in the
Philippines, and in so far as they are known or can be estimated, the volume and maturity of the
foreign exchange assets and liabilities of all other persons and entities in the Philippines."

In Section 70, the Central Bank shall take remedial measures as are appropriate and within the
powers granted whenever the international reserve falls "to an amount which the Monetary Board
considers inadequate to meet the prospective net demands on the Central Bank for foreign
currencies, or whenever the international reserve appears to be in imminent danger of falling to such
a level, or whenever the international reserve is falling as a result of payments or remittances
abroad, which, in the opinion of the Monetary Board, are contrary to the national welfare."

It would seem, from a study of the provisions cited, that the Act contains sufficient standards as the
term is understood in Philippine jurisprudence. It is recognized that a body created by, law has the
power to promulgate rules and regulations to implement a given legislation and effectuate its
policies.(See People vs. Pedro R. Exconde, G.R. No. L-9820, Aug. 80, 1957; Calalang vs. Williams,
70 Phil. 727; Pangasinan Transportation vs. Public Service Commission, 70 Phil. 22; People vs.
Rosenthal, 68 Phil 328; People vs. Vera, 38 Phil. 660; Rubi vs. The Provincial Board of Mindoro, 39
Phil. 660.)

Even the Legislature was perhaps aware that by the nature of the vast subject matter which R.A. No.
265 covers, it could not foresee every conceivable means or power by which the objectives of the
law could be achieved. That is why under Section 14, the Monetary Board is given the authority to
"prepare and issue such rules and regulations as it considers necessary for the effective discharge
of the responsibilities and exercise the powers assigned to the Monetary Board and to the Central
Bank." This is reiterated under Section 70 aforecited, under which when the international stability of
the peso is threatened, the Central Bank may "take such remedial measures as are appropriate and
within the powers granted to the Monetary Board and the Central Bank under the provisions of this
Act." (R.A. No. 265)

Against appellant's contention that the rules and regulations which the Central Bank or the Monetary
Board may Promulgate are only such as are within the powers granted by the Charter, and that the
latter does not grant the Central Bank the power to impose the forcible sale of foreign exchange, it is
pointed out, that the test of whether a power has been granted to a body created by law is not
necessarily whether the Charter expressly grants such power, but whether the law contains sufficient
standards on which its exercise may be based. (People vs. Jollite, G.R. No. L-9553, May 13, 1959.)

The forcible sale of foreign exchange to the Central Bank, in relation to the powers and
responsibilities given to it in Sees. 2, 14, 64, 68, 70, 74 and other sections of R.A. No. 265 can be
regarded as falling within the category of "implied powers", as those necessary for the effective
discharge of its responsibilities.

Implied powers flow from a grant of expressed powers and are those powers necessary or
incidental to the exercise of the expressed powers. (Shelby Oil Co. vs. Pruitt & McCrory, 221
P. 709, 710, 94 Okl. 232). Implied powers are such as are necessary to carry into effect
those which are expressly granted, and which must therefore be presumed to have been
within the intention of the legislative grant." (City of Madison vs. Daley, 58 F. 751, 755); ...
incidental powers are such as are necessary in order to enable a corporation to carry into
execution that specific powers conferred upon it by its Charter. (First M. E. Church vs. Dixon,
152 N.E. 887, 890, 178 III. 260.)

Criticism Of The Theory Supporting Control

The gist of the argument for exchange control, therefore, is the rule of necessity, i.e., its
establishment would affect the international stability of the peso and it is necessary to establish it to
maintain international reserve, etc. The writer does not understand how commandeering of the
foreign exchange by the Central Bank itself is necessary to carry out the purpose of establishing the
stability of the peso or maintaining the international reserve. Commandeering does not increase
foreign exchange, neither does it decrease demand therefor. With the licensing of exports and
imports possession of foreign exchange becomes known, and the stability can be maintained by the
limitation of licenses for the importation of goods to such foreign exchange as may have been
secured through exports. It is not necessary that the central Bank get the foreign exchange itself for
it to distribute among persons whom it chooses, it is sufficient that the foreign exchange obtained be
apportioned among legitimate importers in accordance with the relative necessity of such imports. If
the demand for exchange exceeds the foreign exchange earned by exports, the demand, if deemed
necessary preserve the economy of the country, can be met by international reserves or by
international loans, etc. limiting the sale of foreign exchange to be used for imports to the amounts
earned through exports and obtain by loans, the stability of the currency could be secure even
without the Bank commandeering the foreign exchange earned by exporters in the course of their
business operations.

By way of remark it may be added that exchange control is unwise in that the profits that are derived
from the producer of export products and which could stimulate further production of export products
is removed from the hands of the producer and transferred to the importer trader to the ultimate
detriment of the over-all economy, reducing production and increasing importation. And by placing
the allocation of foreign exchange in the hands of the Government opportunities for graft and
corruption are multiplied resulting not in the demoralization of industry only but in that of the whole
Government. The Previous administration is witness to the deleterious effects of exchange control.

Theory Sustained By Appellant

The theory sustained by appellant is that exchange control can not be embraced or intended within
the meaning of the clause "may temporarily suspend or restrict sales of exchange by the Central
Bank and may subject all transactions in gold and foreign exchange to license", embodied in the
provisions of Section 74 of the Bank's Charter.

Let us examine the merits of appellant's arguments.

Evitt1 states that "exchange control" is one form of exchange restriction; the most drastic form
thereof and the last step in a series of exchange restrictions. He considers exchange control
separately from exchange restriction.

Forms of Exchange Restrictions.

xxx xxx xxx

The expression "exchange restrictions" is applied not only to official regulation of dealings in
foreign exchange, but also to any disabilities attaching to the ownership of certain forms of
the home currency.

xxx xxx xxx

Each of the main methods is capable of refinements. An exchange quota system may be
introduced, allowing the purchase at the official selling rate of a monthly allowance of
exchange based on the average over a previous period; arbitrary "rationing" of exchange to
buyers may be resorted to; exporters may be required to hand over only a proportion of the
proceeds in foreign currency of their exports, leaving them free to dispose of any balance in
whatever manner they choose, etc. Again, import and export restrictions and official control
of exchange dealings are usually combined, and may be reinforced by regulations against
the granting of "clean" credits or overdrafts to foreigners (to prevent outside speculation
against the currency), by the enforced surrender of the part of home owners of any assets
which they may hold abroad, usually at an arbitrarily fixed price, and by the prohibition of the
export of capital in any form.

xxx xxx xxx

All these restrictions are fairly simple both to operate and to understand. The serious
complications arise when restrictions are placed on the actual use of certain funds in the
home country. Since the object of the government when imposing any trade or exchange
restrictions is to reduce the demand for and increase the supply of foreign currencies against
the home currency so that a larger balance of foreign exchange shall be available for
government purposes, it follows that this object would be defeated if foreign owners of capital
were able to withdraw that capital from the country at will or if foreign exporters were allowed
to take payment from home currency and then offer that currency for sale in the exchange
market, or if existing home debtors to foreign creditors could have any pressure brought to
bear on them by the latter to discharge such debts immediately in full either by payment in
home currency (no foreign exchange being available) or in goods, service, or securities. To
prevent such possibilities, the restrictions on trade and exchange are frequently reinforced by
restrictions on the working of foreign-owned accounts, either banking or trading, by
restrictions as to the uses which may be made of the proceeds of specified operations in
trade and finance, and, more drastic still, the declaration of moratoria on certain forms of
foreign debts. (H.E. Evitt, Manual of Foreign Exchange, pp. 289-291.)

xxx xxx xxx

Methods of Exchange Control.

xxx xxx xxx

The most drastic form of official action is that by which all exporters are compelled by law to
sell only in terms of the currencies of buying countries and to hand over to the home Central
Bank or State Bureau the entire proceeds of such sale Such foreign currency will be
purchased from the exporter by the central authority only it an arbitrarily fixed "official" rate of
exchange in terms of the home currency. At the same time importers wishing to buy goods
from abroad must first apply for a license to import and must also apply to the central
authority for the allocation of the necessarily foreign exchange. This latter will only be sold to
them at another arbitrarily fixed "official" rate (which may bear little relation to current market
quotation), and which even then may only be obtainable in series of small amounts. It is
under such conditions that clandestine dealings in exchange take place and which lead to
the creation of a "Black Bourse" or illegal exchange market. Such markets have persisted
under these conditions in spite of rigorous attempts to suppress them, as the prospects of
large profits for the operators appear to outweigh the fears of fines and imprisonment. A
slight relaxation of this form of control is to be found when the central authority is permitted to
offer specified sums of foreign exchange for sale by tender to prospective buyers who
already hold the necessary licenses, instead of "rationed" sales at the "official" rate.
 In a still more relaxed form, the duty of acquiring all foreign exchange from exporters and
alloting it to importers may be handed over to approved home banks instead of being carried
out by the State Bank or a State Bureau. Even so, it is usually stipulated that official buying
and selling rates shall be fixed and that a stated percentage of all foreign exchange acquired
by the banks shall be sold to the State at the fixed price. (Ibid., pp. 300-301.)

Henius in his Dictionary of Foreign Trade explains that "exchange restrictions apply to official
regulation (such as licensing) and also to disabilities attaching to ownership of foreign exchange but
control or commandeering of all exchange is a last step in regulation."

The term exchange restrictions is applied not only to official regulation of dealings in foreign
exchange, but also to any disabilities attaching to the ownership of certain forms of home
currency. . . . In their early form, exchange restrictions usually consist of regulations requiring
importers to open market the foreign exchange needed to pay for their imports. ... The next
stage is for the State to require all exporters of home produce to sell only in terms of foreign
currencies, and to hand over the eventual proceeds in such foreign currencies to the
government banking agent, which will pay out the equivalent in home currency to the
exporter at the official rate of exchange.

Laws or regulations for exchange control generally commandeer all foreign exchange arising
from the country's export and release that exchange as a means of paying for imports in
accordance with certain conditions. (Henius, Dictionary of Foreign Trade, 2nd Ed., pp. 292-
293.)

Another author explains the monopolistic and compulsory nature of exchange control, thus:

Where there is an effective exchange control, residents are required to sell to the control at a
rate set by the control, all foreign exchange that comes into their possession from any source
whatsoever. Residents are unable to buy foreign exchange from any source except the
exchange control, for purposes, in amounts, and at rates fixed by the control. The exchange
control thus becomes a monopolistic buyer of foreign exchange to which all residents must
sell as soon as they acquire exchange and a monopolistic seller, the only source from which
residents may acquire foreign exchange for payment abroad. The heart of all exchange
control is compulsion. (International Trade & Commercial Policy, 2nd Ed., Lawrence W.
Towle, p. 93.)

From the above it would appear that the grant of the power to adopt "exchange restrictions" and to
license exchange should, if a reasonable construction is to be adopted, not be extended to include
the most drastic step of control, namely, the commandeering of the exchange earned by private
individuals and the power to pay therefor at prices which the controller or commandeerer itself fixes.

It is true that under Section 70 of the Central Bank Charter the Bank may adopt such remedial
measures as are appropriate to maintain, the international reserve to a desired level, as directed in
Section 70 of the Charter which provides:

SEC. 70. Action when the international stability of peso is threatened. Whenever the
international reserve of Central Bank falls to an amount which the Monetary Board considers
inadequate to meet the prospective net demands the Central Bank for foreign currencies, or
whenever the international reserve appears to be imminent, danger of falling to such level or
whenever the international reserve is falling as a result of payments or remittance abroad
which, in the opinion of the Monetary Board, are contrary to the national welfare, the
Monetary Board shall:
 (a) Take such remedial measures as are appropriate and within the powers granted to the
Monetary Board, and Central Bank under the provisions of this Act: (Emphasis ours)

As indicated in the underlined portions of the provisions cited, the remedial measures must be within
the powers granted under the provisions of the Act. We venture the suggestion that the
commandeering of an exporter's dollars for a price less by 50% than its value and the selling of said
dollars to an importer to the exclusion of the exporter himself 1 can not be said to be authorized
even under the pretext of an exchange crisis, by the provisions of Section 74 of the Central Bank Act
because the Bank's acts taken to remedy an exchange crisis must be within the powers granted and
exchange control is not mere licensing of foreign exchange or the restriction thereof.

If, as contended, there is need for the Government to adopt such a radical compulsory and
confiscatory measure as the exchange control, the matter should be reported to the President and
the Legislature for the formulation of a law authorizing such confiscation, because such confiscation
can be exercised only under a clear and express provision of law authorizing or directing such
confiscation. In other words, it is only the Legislature that has the power to determine when the
police power should be exercised and when the circumstances for the exercise thereof exist. The
Central Bank can not be said to have been given the authority to pass or enact by law the exchange
control provision that it had established.

In short, the writer holds the view that the Central Bank Act merely authorizes the Monetary Board to
license or restrict or regulate foreign exchange; said Act does not authorize it to commandeer foreign
exchange earned by exporters and pay for it the price it fixes, later selling it to importers at the same
rate of purchase. The writer further holds the belief that the power to commandeer amounts to a
confiscatory power that may not be exercised by the Central Bank under its Charter; that such
confiscatory measures if justified by a monetary crisis can be adopted by the Legislature alone under
its police power. In the opinion of the writer, therefore, the disputed Section 4(a) of Circular No. 20 of
the Central Bank is beyond the power of the Central Bank to adopt under the provisions of its
Charter, particularly Section 74 thereof.

That exchange control helped to ward off the exchange crisis is true; but it was by no means the only
way to do so. It was not necessary for the Bank to commandeer all foreign exchange to maintain the
international monetary reserve. This could be done by mere licensing of the sale of foreign
exchange, directing those that earn the dollars, for example, to sell to those that are licensed to
import the foreign commodities needed by the country's population and economy. As the exports are
to be licensed also, the Bank could merely restrict the freedom of the exporter holding the foreign
exchange, requiring him to sell the foreign exchange to the licensed importer.

Lastly, it may not be amiss to state here that the alleged necessity and wisdom of the exchange
control has been refuted by the success of the decontrol measure adopted by this administration
upon its inception.

Estoppel Bars Action To Compel Payment At P3.00 To The Dollar

The majority of the members of the Court, however, of the belief that petitioner's present suit is
subject the defense of estoppel. As petitioner obtained the license to export under the provisions of
Circular No. 20, it may not question the right or power of the Bank to enforce the provisions of said
circular requiring surrender of proceeds of the shipment obtained through the use of license. When
the petitioner secured the license it aware of the fact that the license was being issued under general
Circular No. 20, subject to the right of the Bank to commandeer the proceeds of the exportation.
Although aware of said provisions petitioner nevertheless secured license; it may not now after the
use of license to secure exportation, refuse to comply with the obligation it assumed under the
license to surrender the foreign change earned. Under general principles of law such action on the
part of the petitioner cannot be sustained cause he is estoppel from questioning the right of Bank to
commandeer the dollars earned through the license.

The defense of estoppel, however, can be set up on with respect to the demand for the payment of
the foreign exchange earned at the rate of P3 to $1. The defense estoppel is no bar to the
Petitioner's present petition prohibit the enforcement of Circular No. 20. The defense to this position
of the Petitioner must be found in the other provisions or principles of law.

Suit Barred By Republic's Exchange Commitments And By Republic Act No. 265

One last defense raised by the Bank against the action is that under present laws and because of
international agreements which the country has entered into, the Bank may not unilaterally change
the present rate of exchange of P2 to the dollar. The members of the Court agreed that this defense
is valid and bars the present suit.

Sections 3 and 4 of Article IV of the International Monetary Fund Agreement of which the Philippines
is signatory, provides as follows:

SEC. 3. Foreign exchange dealings based on parity. The maximum and the minimum
rates for exchange transactions between the currencies of members taking place within their
territories shall not differ from parity:

(i) in the case of spot exchange transactions, by more than one per cent; and

(ii) in the case of other exchange transactions, by a margin which exceeds the margin for
spot exchange transactions by more than the Fund considers reasonable.

SEC. 4. Obligations regarding exchange stability

(a) Each member undertakes to collaborate with the Fund to promote exchange stability, to
maintain orderly exchange arrangements with other members, and to avoid competitive
exchange alterations.

(b) Each member undertakes, through appropriate measures consistent with this Agreement,
to permit within its territories exchange transactions between its currency and the currencies
of other members only within the limits prescribed under section 3 of this article.

The main purpose of the agreement is to promote exchange stability, to maintain orderly exchange
arrangements among members, and to avoid competitive exchange depreciation. (Art. 1, par. iii,
International Monetary Fund Agreement.)

To comply with its obligations under the agreement, especially as regards exchange stability, the
Bank may not change the par value of the peso in relation to the dollar without previous consultation
or approval by the other signatories to the agreement. Circular No. 20 must have been
communicated to the other members of the agreement and it is assumed that no contemplated
change therein had been communicated to the other signatories at the time of the filing of this case.

The Central Bank, therefore, may not be compelled to ignore Circular No. 20, which was adopted
with the advice and acquiescence of the other members of the International Monetary Fund, and it
may not be compelled by mandamus to prohibit its enforcement.
Furthermore, under Article 49 of Republic Act No. 265, the Central Bank does not have the power to
change the par value of the peso, a change which the present suit would require. This can be done
only by the President upon proposal of the Monetary Board and with the approval of Congress. Were
the petition of the petitioner for the payment of his dollar earnings at the rate of P3 to the dollar
granted, the Central Bank would be violating the above provision of Republic Act No. 265 because it
would be consenting to an actual change in the par value of the peso in relation to the dollar without
previous approval or authority of those empowered to make the change.

WHEREFORE, the petition should be, as it is hereby dismissed, without costs. So ordered.

Bengzon, C.J., Padilla, Concepcion, Barrera and Regala, JJ., concur.

Bautista Angelo and Dizon, JJ., concur in the result.
Paredes and Makalintal, JJ., took no part.

Separate Opinions

REYES, J.B.L., J., concurring:

That the suit is barred by estoppel and the Monetary Fund Agreement.

Footnotes

1 An exporter is paid only P2 per dollar. The dollar thus earned by the exporter is sold to the
importer for P2. The importer brings into the country with the dollar goods valued or that can
be sold for P3, thus gaining fully 50% on the dollar earned by the exporter. Hence, the
exporter is discriminated against in favor of the importer. We have witnessed the results of
the unjust policy; exportations have decreased, importers grew like mushrooms everywhere.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-12610 July 16, 1964

BACOLOD MURCIA MILLING CO., INC., petitioner-appellant,

vs.
CENTRAL BANK OF THE PHILIPPINES, respondent-appellee.
 RESOLUTION

LABRADOR, J.:

The motion raises two important issues: (1) that petitioner can not be held to have been estopped by
his failure to protest against the enforcement of Circular No. 20 on time, and (2) that the injunction
should issue on the ground that Circular No. 20 is unconstitutional.

On the first issue, the record discloses that on December 16, 1949 Export Regulations (Annex 1-B to
Reply Memo. of Appellee), formerly known as E. C. Form No. 2, was promulgated with the following
provisions:

Without a specific license from the Central Bank no goods, merchandise and/or commodities
may be shipped, forwarded, or sent direct to the exporter's head office and/or agents abroad,
or to any foreign branch or agency of such exporter which are not covered by a draft or drafts
drawn in U.S. dollars representing the full value of the goods, merchandise and/or
commodities being or to be shipped, forwarded, or sent abroad, and unless the collection of
the proceeds of sale of such goods, merchandise and/or commodities is to be undertaken
by, or entrusted to, a bank which is incorporated or licensed to do business in the
Philippines.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted
and approved by this Honorable Court, without prejudice to the parties adducing other
evidence to prove their case not covered by this stipulation of facts. 1w ph1.t

xxx xxx xxx

All Commercial banks incorporated and/or licensed to do business in the Philippines are
hereby designated agents of the Central Bank of the Philippines, for the purpose of these
regulations, and a general license is hereby granted such banks to handle bills and shipping
documents arising from the transportation of goods, commodities, and/or merchandise from
the Philippines to foreign countries, and/or the collection of such bills or the proceeds of sale
of such goods, merchandise and/or commodities in accordance with these regulations.

Consonant with the above regulations, especially with the first paragraph quoted, petitioner herein
had secured its export license for the sugar shipped with the accompanying drafts drawn in U.S.
dollars representing the value of the whole sugar. In accordance with paragraph 2 above quoted, the
drafts accompanying the sugar were, as per regulations, entrusted to the Commercial bank "for the
collection of the proceeds of the sale" of the sugar. So that the petitioner herein was well aware that
it was exporting its sugar subject to the conditions set forth in the said regulations, especially the
paragraphs quoted above.

The supposed protest made by the petitioner herein against the collection of the proceeds of the
sale in U.S. dollars by the Central Bank came after the shipment had been made under the
conditions specified in the license issued by the Central Bank accompanying the corresponding draft
and subject to the export regulations already mentioned. If the petitioner had really protested the
enforcement of Circular No. 20, it should have refused to secure the license with the draft
mentioned, with the authority granted to the commercial banks to collect the dollars for the Central
Bank.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and
approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove
their case not covered by this stipulation of facts.
1wph1.t

We, therefore, find no merit in the first ground of the motion for reconsideration.

With respect to the second ground, it is Our considered opinion that the matter has long become
moot. Under Republic Act No. 2609, the power of the Central Bank to commandeer the dollars
earned by exporters was superseded by the provisions of the said Act, which provides in part:

SECTION 1. The provisions of any law to the contrary notwithstanding when and as long as
the Central Bank of the Philippines subjects all transactions in gold and foreign exchange to
licensing in accordance with the provisions of section seventy-four of Republic Act
Numbered Two hundred sixty-five, the Central Bank, in respect of all sales of foreign
exchange by the Central Bank and its authorized agent banks, shall have authority to
establish a uniform margin of not more than forty per cent over the banks' selling rates
stipulated by the Monetary Board under section seventy-nine of Republic Act Numbered Two
hundred sixty-five, which margin shall not be changed oftener than once a year except upon
the recommendation of the National Economic Council and the approval of the President.
The Monetary Board shall fix the margin at such rate as it may deem necessary to effectively
curtail any excessive demand upon the international reserve.

In implementing the provisions of this Act, along with other monetary, credit and fiscal
measures to stabilize the economy, the monetary authorities shall take steps for the adoption
of a four-year program of gradual decontrol.

The above law was implemented by Circular No. 133 of the Central Bank dated January 21, 1962
(58 O.G. p. 882).

The issue to prohibit the enforcement of said Circular No. 20 is, therefore, moot and it is
unnecessary for Us to pass upon the same.

WHEREFORE, the motion for reconsideration filed by the petitioner should be, as it is hereby,
denied.

Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L., and Regala, JJ., concur.
Paredes and Makalintal, JJ., took no part.
G.R. No. L-33022 April 22, 1975

CENTRAL BANK OF THE PHILIPPINES, petitioner,

vs.
COURT OF APPEALS and ABLAZA CONSTRUCTION & FINANCE
CORPORATION, respondents.

F.E. Evangelista for petitioner.

Cruz, Villarin & Laureta for private respondent.

BARREDO, J.: +.wph! 1

Petition of the Central Bank of the Philippines for review of the decision of the Court of Appeals in
CA-G.R. No. 43638-R affirming the judgment of the Court of First Instance of Rizal in Civil Case No.
Q-10919 sentenced petitioner to pay respondent Ablaza Construction and Finance Corporation
damages for breach contract in that after having formally and officially awarded, pursuant to the
results of the usual bidding to Ablaza in December 1965 the "contract" for the construction of its San
Fernando, La Union branch building and allowed said contractor to commence the work up to about
May, 1966, albeit without any written formal contract having been executed, the Bank failed and
refused to proceed with the project, unless the plans were revised and a lower price were agreed to
by Ablaza, the Bank claiming that its action was pursuant to the policy of fiscal restraint announced
by the then new President of the Philippines on December 30, 1965 and the Memorandum Circular
No. 1 dated December 31, 1965 of the same President.

The factual background of this case is related in the following portions of the decision of the trial
court, which the Court of Appeals affirmed without modification: t.hqw

Sometime in 1965, defendant Central Bank of the Philippines issued Invitations to

Bid and Instructions to Bidders for the purpose of receiving sealed proposals for the
general construction of its various proposed regional offices, including the Central
Bank regional office building in San Fernando, La Union.

In response to the aforesaid Invitations to Bid, the plaintiff Ablaza Construction and
Finance Corporation, which was one of the qualified bidders, submitted a bid
proposal for the general construction of defendant's proposed regional office building
in San Fernando, La Union at the public bidding held on November 3, 1965. The said
proposal was, as required by the defendant accompanied by a cash bidder's bond in
the sum of P275,000.00.

On December 7, 1965, the Monetary Board of the defendant Central Bank of the
Philippines, after evaluating all the bid proposals submitted during the above-
mentioned bidding, unanimously voted and approved the award to the plaintiff of the
contract for the general construction of defendant's proposed regional office building
in San Fernando, La Union, for the sum of P3,749,000.00 under plaintiff's Proposal
Item No. 2.

Pursuant thereto, on December 10, 1965, Mr. Rizalino L. Mendoza, Assistant to the
Governor and concurrently the Chairman of the Management Building Committee of
the defendant Central Bank of the Philippines, set a telegram to the plaintiff,
informing the latter that the contract for the general construction of defendant's
proposed regional office building in San Fernando, La Union, had been awarded to
the plaintiff. The said telegram was followed by a formal letter, also dated December
10, 1965, duly signed by said Mr. Rizalino L. Mendoza, confirming the approval of
the award of the above-stated contract under plaintiff's Proposal Item No. 2 in the
amount of P3,749,000.00.

Upon receipt of the aforementioned letter, plaintiff immediately accepted the said
award by means of a letter dated December 15, 1965, whereby plaintiff also
requested permission for its workmen to enter the site of the project, build a
temporary shelter and enclosure, and do some clearing job thereat. Accordingly, said
permission was granted by the defendant as embodied in its letter dated January 4,
1966, addressed to the plaintiff..

Within five (5) days from receipt by the plaintiff of the said notice of award, and
several times thereafter Mr. Nicomedes C. Ablaza, an officer of the plaintiff
corporation, went personally to see Mr. Rizalino L. Mendoza at the latter's Central
Bank office to follow up the signing of the corresponding contract. A performance
bond in the total amount of P962,250.00 (P275,000.00 of which was in cash and
P687,250.00 in the form of a surety bond) was subsequently posted by the plaintiff in
compliance with the above-stated Instructions to Bidders, which bond was duly
accepted by the defendant.

Pursuant to the permission granted by the defendant, as aforesaid, plaintiff

commenced actual construction work on the project about the middle of January,
1966. On February 8, 1966, by means of a formal letter, defendant requested the
plaintiff to submit a schedule of deliveries of materials which, according to plaintiff's
accepted proposal, shall be furnished by the defendant. In compliance therewith, on
February 16, 1966, plaintiff submitted to the defendant the schedule of deliveries
requested for.

During the period when the actual construction work on the project was in progress,
Mr. Nicomedes G. Ablaza had several meetings with Mr. Rizalino L. Mendoza at the
latter's office in the Central Bank. During those meetings, they discussed the
progress of the construction work being then undertaken by the plaintiff of the
projects of the defendant in San Fernando, La Union, including the progress of the
excavation work.

Sometime during the early part of March, 1966, Mr. Rizalino L. Mendoza was at the
construction site of the said project. While he was there, he admitted having seen
pile of soil in the premises. At that time, the excavation work being undertaken by the
plaintiff was about 20% complete. On March 22, 1966, defendant again wrote the
plaintiff, requesting the latter to submit the name of its representative authorized to
sign the building contract with the defendant. In compliance with the said request,
plaintiff submitted to the defendant the name of its duly authorized representative by
means of a letter dated March 24, 1966.

A meeting called by the defendant was held at the conference room of the Central
Bank on May 20, 1966. At the said meeting, the defendant, thru Finance Secretary
Eduardo Romualdez, announced, among other things, the reduction of the
appropriations for the construction of the defendant's various proposed regional
 offices, including that of the proposed San Fernando, La Union regional office
building, the construction of which had already been started by the plaintiff. He also
stated that the Central Bank Associated Architects would be asked to prepare new
plans and designs based on such reduced appropriations. The defendant, during that
same meeting, also advised the plaintiff, thru Messrs. Nicomedes G. Ablaza and
Alfredo G. Ablaza (who represented the plaintiff corporation at the said meeting), to
stop its construction work on the Central Bank Regional office building in San
Fernando, La Union. This was immediately complied with by the plaintiff, although its
various construction equipment remained in the jobsite. The defendant likewise
presented certain offer and proposals to the plaintiff, among which were: (a) the
immediate return of plaintiff's cash bidder's bond of P275,000.00; (b) the payment of
interest on said bidder's bond at 12% per annum; (c) the reimbursement to the
plaintiff of the value of all the work accomplished at the site; (d) the entering into a
negotiated contract with the plaintiff on the basis of the reduced appropriation for the
project in question; and (e) the reimbursement of the premium on plaintiff's
performance bond. Not one of these offers and proposals of the defendant, however,
was accepted by the plaintiff during that meeting of May 20, 1966.

On June 3, 1966, plaintiff, thru counsel, wrote the defendant, demanding for the
formal execution of the corresponding contract, without prejudice to its claim for
damages. The defendant, thru its Deputy Governor, Mr. Amado R. Brinas, on June
15, 1966, replied to the said letter of the plaintiff, whereby the defendant claimed that
an agreement was reached between the plaintiff and the defendant during the
meeting held on May 20, 1966. On the following day, however, in its letter dated
June 16, 1966, the plaintiff, thru counsel, vehemently denied that said parties
concluded any agreement during the meeting in question.

On July 5, 1966, defendant again offered to return plaintiff's cash bidder's bond in the
amount of P275,000.00. The plaintiff, thru counsel, on July 6, 1966, agreed to accept
the return of the said cash bond, without prejudice, however, to its claims as
contained in its letters to the defendant dated June 3, June 10, and June 16, 1966,
and with further reservation regarding payment of the corresponding interest thereon.
On July 7, 1966, the said sum of P275,000.00 was returned by the defendant to the
plaintiff.

On January 30, 1967, in accordance with the letter of the plaintiff, thru counsel, dated
January 26, 1967, the construction equipment of the plaintiff were pulled out from the
construction site, for which the plaintiff incurred hauling expenses.

The negotiations of the parties for the settlement of plaintiff's claims out of court
proved to be futile; hence, the present action was instituted by plaintiff against the
defendant." (Pp. 249-256, Rec. on Appeal).

It may be added that the Instructions to Bidders on the basis of which the bid and award in question
were submitted and made contained, among others, the following provisions: t.hqw

IB 113.4 The acceptance of the Proposal shall be communicated in writing by the

Owner and no other act of the Owner shall constitute the acceptance of the Proposal.
The acceptance of a Proposal shall bind the successful bidder to execute the
Contract and to be responsible for liquidated damages as herein provided. The rights
and obligations provided for in the Contract shall become effective and binding upon
the parties only with its formal execution.
 xxx xxx xxx

IB 114.1 The bidder whose proposal is accepted will be required to appear at the
Office of the Owner in person, or, if a firm or corporation, a duly authorized
representative shall so appear, and to execute that contract within five (5) days after
notice that the contract has been awarded to him. Failure or neglect to do so shall
constitute a breach of agreement effected by the acceptance of the Proposal.

xxx xxx xxx

IB 118.1 The Contractor shall commence the work within ten (10) calendar days from
the date he receives a copy of the fully executed Contract, and he shall complete the
work within the time specified." (Pp. 18-19 & 58-59, Petitioner-Appellant's Brief.)

In the light of these facts, petitioner has made the following assignment of errors: t.hqw

I. THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS A

PERFECTED CONTRACT BETWEEN PETITIONER CENTRAL BANK OF THE
PHILIPPINES AND RESPONDENT ABLAZA CONSTRUCTION & FINANCE
CORPORATION FOR THE GENERAL CONSTRUCTION WORK OF PETITIONER'S
REGIONAL OFFICE BUILDING AT SAN FERNANDO, LA UNION.

II. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAS

COMMITTED A BREACH OF CONTRACT.

III. THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAD

GIVEN ITS APPROVAL TO THE WORK DONE BY RESPONDENT ABLAZA
CONSTRUCTION & FINANCE CORPORATION.

IV. THE COURT OF APPEALS ERRED IN HOLDING THAT THE AWARD OF

ACTUAL AND COMPENSATORY DAMAGES, ATTORNEY'S FEES AND
RETAINING FEE IS FAIR AND REASONABLE, AND IN HOLDING THAT
PETITIONER IS LIABLE FOR COSTS." (Pp. A & B, Petitioner-Appellant's Brief.)

Under the first assigned error, petitioner denotes the major part of its effort to the discussion of its
proposition that there could be no perfected contract in this case, (contrary to the conclusion of the
courts below) because there is no showing of compliance, and in fact, there has been no compliance
with the requirement that there must be a certification of the availability of funds by the Auditor
General pursuant to Section 607 of the Revised Administrative Code which provides thus: t.hqw

Section 607. Certificate showing appropriation to meet contract. Except in the

case of a contract for personal service or for supplies to be carried in stock, no
contract involving an expenditure by the National Government of three thousand
pesos or more shall be entered into or authorized until the Auditor General shall have
certified to the officer entering into such obligation that funds have been duly
appropriated for such purpose and that the amount necessary to cover the proposed
contract is available for expenditure on account thereof. When application is made to
the Auditor General for the certificate herein required, a copy of the proposed
contract or agreement shall be submitted to him accompanied by a statement in
writing from the officer making the application showing all obligations not yet
presented for audit which have been incurred against the appropriation to which the
contract in question would be chargeable; and such certificate, when signed by the
 Auditor, shall be attached to and become a part of the proposed contract, and the
sum so certified shall not thereafter be available for expenditure for any other
purposes until the Government is discharged from the contract in question.

Except in the case of a contract for supplies to be carried in stock, no contract

involving the expenditure by any province, municipality, chartered city, or municipal
district of two thousand pesos or more shall be entered into or authorized until the
treasurer of the political division concerned shall have certified to the officer entering
into such contract that funds have been duly appropriated for such purpose and that
the amount necessary to cover the proposed contract is available for expenditure on
account thereof. Such certificate, when signed by the said treasurer, shall be
attached to and become part of the proposed contract and the sum so certified shall
not thereafter be available for expenditure for any other purpose until the contract in
question is lawfully abrogated or discharged.

For the purpose of making the certificate hereinabove required ninety per centum of
the estimated revenues and receipts which should accrue during the current fiscal
year but which are yet uncollected, shall be deemed to be in the treasury of the
particular branch of the Government against which the obligation in question would
create a charge." (Pp. 23-25, Petitioner-Appellant's Brief.)

It is contended that in view of such omission and considering the provisions of Section 608 of the
same code to the effect that "a purported contract entered into contrary to the requirements of the
next preceding section hereof shall be wholly void", "no contract between the petitioner and
respondent Ablaza Construction and Finance Corporation for the general construction of the
proposed regional office building of the Central Bank in San Fernando, La Union, was ever perfected
because only the first stage, that is the award of the contract to the lowest responsible bidder,
respondent Ablaza Construction and Finance Corporation, was completed." (p. 29, Petitioner-
Appellant's Brief.) And in support of this pose, petitioner relies heavily on Tan C. Tee & Co. vs.
Wright thus:t.hqw

The aforesaid requirements of the Revised Administrative Code for the perfection of
government contracts have been upheld by this Honorable Court in the case of Tan
C. Tee Co. vs. Wright, 53 Phil. 172, in which case it was held that the award of the
contract to the lowest bidder does not amount to entering into the contract because
of the requirement of Section 607 of the Revised Administrative Code that a copy of
the proposed contract shall be submitted to the Auditor General together with a
request for the availability of funds to cover the proposed contract. Thus, this
Honorable Court held: t.hqw

'To award the contract to the lowest responsible bidder is not the
equivalent of entering into the contract. Section 607 of the
Administrative Code requires that a copy of the proposed contract
shall be submitted along with the request for the certificate of
availability of funds, but there could be no proposed contract to be
submitted until after the award was made.'

And to guide government authorities in the letting of government contracts, this

Honorable Court, in said case of Tan C. Tee vs. Wright, supra, laid down the
procedure which should be followed, as follows: t.hqw
 `PROCEDURE WHICH SHOULD BE FOLLOWED IN THE LETTING
OF CONTRACTS FOR INSULAR WORKS. The procedure which
should be followed in the letting of contracts for Insular works is the
following: First, there is an award of the contract by the Director of
Public Works to the lowest responsible bidder. Second, there is a
certificate of availability of funds to be obtained from the Insular
Auditor, and in some cases from the Insular Treasurer, to cover the
proposed contract. And third, there is a contract to be executed on
behalf of the Government by the Director of Public Works with the
approval of the department head.'" (Pp. 27-28, Petitioner-Appellant's
Brief.)

The contention is without merit. To start with, the record reveals that it is more of an afterthought.
Respondent never raised this question whether in its pleadings or at the hearings in the trial court.
We have also read its brief in the appellate court and no mention is made therein of this point. Not
even in its memorandum submitted to that court in lieu of oral argument is there any discussion
thereof, even as it appears that emphasis was given therein to various portions of the Revised
Manual of Instructions to Treasurers regarding the perfection and constitution of public contracts. In
fact, reference was made therein to Administrative Order No. 290 of the President of the Philippines,
dated February 5, 1959, requiring "all contracts of whatever nature involving P10,000 or more to be
entered into by all bureaus and offices, ... including the ... Central Bank ... shall be submitted to the
Auditor General for examination and review before the same are perfected and/or consummated,
etc.", without mentioning, however, that said administrative order was no longer in force, the same
having been revoked on January 17, 1964 by President Macapagal under Administrative Order No.
81, s. 1964.

Hence, if only for the reason that it is a familiar rule in procedure that defenses not pleaded in the
answer may not be raised for the first time on appeal, petitioner's position cannot be sustained.
Indeed, in the Court of Appeals, petitioner could only bring up such questions as are related to the
issues made by the parties in their pleadings, particularly where factual matters may be involved,
because to permit a party to change his theory on appeal "would be unfair to the adverse party." (II,
Moran, Rules of Court, p. 505, 1970 ed.) Furthermore, under Section 7 of Rule 51, the appellate
court cannot consider any error of the lower court "unless stated in the assignment of errors and
properly argued in the brief."

Even prescinding from this consideration of belatedness, however, it is Our considered view that
contracts entered into by petitioner Central Bank are not within the contemplation of Sections 607
and 608 cited by it. Immediately to be noted, Section 607 specifically refers to "expenditure(s) of the
National Government" and that the term "National Government" may not be deemed to include the
Central Bank. Under the Administrative Code itself, the term "National Government" refers only to
the central government, consisting of the legislative, executive and judicial departments of the
government, as distinguished from local governments and other governmental entities and is not
synonymous, therefore, with the terms "The Government of the Republic of the Philippines" or
"Philippine Government", which are the expressions broad enough to include not only the central
government but also the provincial and municipal governments, chartered cities and other
government-controlled corporations or agencies, like the Central Bank. (I, Martin, Administrative
Code, p. 15.)

To be sure the Central Bank is a government instrumentality. But it was created as an autonomous
body corporate to be governed by the provisions of its charter, Republic Act 265, "to administer the
monetary and banking system of the Republic." (Sec. 1) As such, it is authorized "to adopt, alter and
use a corporate seal which shall be judicially noticed; to make contracts; to lease or own real and
personal property, and to sell or otherwise dispose of the same; to sue and be sued; and otherwise
to do and perform any and all things that may be necessary or proper to carry out the purposes of
this Act. The Central Bank may acquire and hold such assets and incur such liabilities as result
directly from operations authorized by the provisions of this Act, or as are essential to the proper
conduct of such operations." (Sec. 4) It has capital of its own and operates under a budget prepared
by its own Monetary Board and otherwise appropriates money for its operations and other
expenditures independently of the national budget. It does not depend on the National Government
for the financing of its operations; it is the National Government that occasionally resorts to it for
needed budgetary accommodations. Under Section 14 of the Bank's charter, the Monetary Board
may authorize such expenditures by the Central Bank as are in the interest of the effective
administration and operation of the Bank." Its prerogative to incur such liabilities and expenditures is
not subject to any prerequisite found in any statute or regulation not expressly applicable to it.
Relevantly to the issues in this case, it is not subject, like the Social Security Commission, to Section
1901 and related provisions of the Revised Administrative Code which require national government
constructions to be done by or under the supervision of the Bureau of Public Works. (Op. of the Sec.
of Justice No. 92, Series of 1960) For these reasons, the provisions of the Revised Administrative
Code invoked by the Bank do not apply to it. To Our knowledge, in no other instance has the Bank
ever considered itself subject thereto.

In Zobel vs. City of Manila, 47 Phil. 169, this Court adopted a restrictive construction of Section 607
of the Administrative Code thus:

The second question to be considered has reference to the applicability of section 607 of the
Administrative Code to contracts made by the City of Manila. In the second paragraph of said
section it is declared that no contract involving the expenditure by any province, municipality,
township, or settlement of two thousand pesos or more shall be entered into or authorized until the
treasurer of the political division concerned shall have certified to the officer entering into such
contract that funds have been duly appropriated for such purpose and that the amount necessary to
cover the proposed contract is available for expenditure on account thereof. It is admitted that no
such certificate was made by the treasurer of Manila at the time the contract now in question was
made. We are of the opinion that the provision cited has no application to contracts of a chartered
city, such as the City of Manila. Upon examining said provision (sec. 607) it will be found that the
term chartered city, or other similar expression, such as would include the City of Manila, is not
used; and it is quite manifest from the careful use of terms in said section that chartered cities were
intended to be excluded. In this connection the definitions of "province," "municipality," and
"chartered city," given in section 2 of the Administrative Code are instructive. The circumstance that
for certain purposes the City of Manila has the status both of a province and a municipality (as is true
in the distribution of revenue) is not inconsistent with this conclusion."1

We perceive no valid reason why the Court should not follow the same view now in respect to the
first paragraph of the section by confirming its application only to the offices comprised within the
term National Government as above defined, particularly insofar as government-owned or created
corporations or entities having powers to make expenditures and to incur liabilities by virtue of their
own corporate authority independently of the national or local legislative bodies, as in the case of the
petitioner herein, are concerned. Whenever necessary, the Monetary Board, like any other corporate
board, makes all required appropriations directly from the funds of the Bank and does not need any
official statement of availability from its treasurer or auditor and without submitting any papers to,
much less securing the approval of the Auditor General or any outside authority before doing so.
Indeed, this is readily to be inferred from the repeal already mentioned earlier of Administrative
Order No. 290, s. 1959, which petitioner tried to invoke, overlooking perhaps such repeal. In other
words, by that repeal, the requirement that the Central Bank should submit to the Auditor General for
examination and review before contracts involving P10,000 or more to be entered into by it "before
the same are perfected and/or consummated" had already been eliminated at the time the
transaction herein involved took place. Consequently, the point of invalidity pressed, belatedly at
that, by petitioner has no leg to stand on.

The other main contention of petitioner is that the purported or alleged contract being relied upon by
respondent never reached the stage of perfection which would make it binding upon the parties and
entitle either of them to sue for specific performance in case of breach thereof. In this connection,
since the transaction herein involved arose from the award of a construction contract2 by a
government corporation and the attempt on its part to discontinue with the construction several
months after such award had been accepted by the contractor and after the latter had already
commenced the work without any objection on the part of the corporation, so much so that entry into
the site for the purpose was upon express permission from it, but before any written contract has
been executed, it is preferable that certain pertinent points be clarified for the proper resolution of the
issue between the parties here and the general guidance of all who might be similarly situated.

Petitioner buttresses its position in regard to this issue on the provisions earlier quoted in this opinion
of the Instruction to Bidders:t.hqw

IB 113.4 The acceptance of the Proposal shall be communicated in writing by the

Owner and no other act of the Owner shall constitute the acceptance of the Proposal.
The acceptance of a Proposal shall bind the successful bidder to execute the
Contract and to be responsible for liquidated damages as herein provided. The rights
and obligations provided for in the Contract shall become effective and binding upon
the parties only with its formal execution.

xxx xxx xxx

IB 118.1 The Contractor shall commence the work within ten (10) calendar days from
the date he receives a copy of the fully executed Contract, and he shall complete the
work within the time specified." (Pp. 18-19, Petitioner-Appellant's Brief.)

Petitioner insists that under these provisions, the rights and obligations of the Bank and Ablaza could
become effective and binding only upon the execution of the formal contract, and since admittedly
no formal contract has yet been signed by the parties herein, there is yet no perfected contract to
speak of and respondent has, therefore, no cause of action against the Bank. And in refutation of
respondent's argument that it had already started the work with some clearing job and foundation
excavations, which has never been stopped by petitioner who had previously given express
permission to respondent to enter the jobsite, build a temporary shelter and enclosures thereon,
petitioner counters that under the above instructions, respondent is supposed to commence the work
"within ten (10) calendar days from the date he receives a copy of the fully executed Contract," and
for said respondent to have started actual construction work before any contract has been signed
was unauthorized and was consequently undertaken at his own risk, all the above circumstances
indicative of estoppel notwithstanding.

We are not persuaded that petitioner's posture conforms with law and equity. According to
Paragraph IB 114.1 of the Instructions to Bidders, Ablaza was "required to appear in the office of the
Owner (the Bank) in person, or, if a firm or corporation, a duly authorized representative (thereof),
and to execute the contract within five (5) days after notice that the contract has been awarded to
him. Failure or neglect to do so shall constitute a breach of agreement effected by the acceptance of
the Proposal." There can be no other meaning of this provision than that the Bank's acceptance of
the bid of respondent Ablaza effected an actionable agreement between them. We cannot read it in
the unilateral sense suggested by petitioner that it bound only the contractor, without any
corresponding responsibility or obligation at all on the part of the Bank. An agreement presupposes
a meeting of minds and when that point is reached in the negotiations between two parties intending
to enter into a contract, the purported contract is deemed perfected and none of them may thereafter
disengage himself therefrom without being liable to the other in an action for specific performance.

The rather ambiguous terms of Paragraph IB 113.4 of the Instructions to Bidders relied upon by
petitioner have to be reconciled with the other paragraphs thereof to avoid lack of mutuality in the
relation between the parties. This invoked paragraph stipulates that "the acceptance of
(respondent's) Proposal shall bind said respondent to execute the Contract and to be responsible for
liquidated damages as herein provided." And yet, even if the contractor is ready and willing to
execute the formal contract within the five (5) day period given to him, petitioner now claims that
under the invoked provision, it could refuse to execute such contract and still be absolutely free from
any liability to the contractor who, in the meantime, has to make necessary arrangements and incur
expenditures in order to be able to commence work "within ten (10) days from the date he receives a
copy of the fully executed Contract," or be responsible for damages for delay. The unfairness of such
a view is too evident to be justified by the invocation of the principle that every party to a contract
who is sui juris and who has entered into it voluntarily and with full knowledge of its unfavorable
provisions may not subsequently complain about them when they are being enforced, if only
because there are other portions of the Instruction to Bidders which indicate the contrary. Certainly,
We cannot sanction that in the absence of unavoidable just reasons, the Bank could simply refuse to
execute the contract and thereby avoid it entirely. Even a government owned corporation may not
under the guise of protecting the public interest unceremoniously disregard contractual commitments
to the prejudice of the other party. Otherwise, the door would be wide open to abuses and anomalies
more detrimental to public interest. If there could be instances wherein a government corporation
may justifiably withdraw from a commitment as a consequence of more paramount considerations,
the case at bar is not, for the reasons already given, one of them.

As We see it then, contrary to the contention of the Bank, the provision it is citing may not be
considered as determinative of the perfection of the contract here in question. Said provision only
means that as regards the violation of any particular term or condition to be contained in the formal
contract, the corresponding action therefor cannot arise until after the writing has been fully
executed. Thus, after the Proposal of respondent was accepted by the Bank thru its telegram and
letter both dated December 10, 1965 and respondent in turn accepted the award by its letter of
December 15, 1965, both parties became bound to proceed with the subsequent steps needed to
formalize and consummate their agreement. Failure on the part of either of them to do so, entities
the other to compensation for the resulting damages. To such effect was the ruling of this Court in
Valencia vs. RFC 103 Phil. 444. We held therein that the award of a contract to a bidder constitutes
an acceptance of said bidder's proposal and that "the effect of said acceptance was to perfect a
contract, upon notice of the award to (the bidder)". (at p. 450) We further held therein that the
bidder's "failure to (sign the corresponding contract) do not relieve him of the obligation arising from
the unqualified acceptance of his offer. Much less did it affect the existence of a contract between
him and respondent". (at p. 452)

It is neither just nor equitable that Valencia should be construed to have sanctioned a one-sided
view of the perfection of contracts in the sense that the acceptance of a bid by a duly authorized
official of a government-owned corporation, financially and otherwise autonomous both from the
National Government and the Bureau of Public Works, insofar as its construction contracts are
concerned, binds only the bidder and not the corporation until the formal execution of the
corresponding written contract.

Such unfairness and inequity would even be more evident in the case at bar, if We were to uphold
petitioner's pose. Pertinently to the point under consideration, the trial court found as follows:
To determine the amount of damages recoverable from the defendant, plaintiff's claim for actual
damages in the sum of P298,433.35, as hereinabove stated, and the recommendation of Messrs.
Ambrosio R. Flores and Ricardo Y. Mayuga, as contained in their separate reports (Exhs. "13" and
"15"), in the amounts of P154,075.00 and P147,500.00, respectively, should be taken into account.

There is evidence on record showing that plaintiff incurred the sum of P48,770.30 for the preparation
of the jobsite, construction of bodegas, fences field offices, working sheds, and workmen's quarters;
that the value of the excavation work accomplished by the plaintiff at the site was P113,800.00; that
the rental of the various construction equipment of the plaintiff from the stoppage of work until the
removal thereof from the jobsite would amount to P78,540.00 (Exhs. "K" - "K-l"); that the interest on
the cash bond of P275,000.00 from November 3, 1965 to July 7, 1966 at 12% per annum would be
P22,000.00; that for removing said construction equipment from the jobsite to Manila, plaintiff paid a
hauling fee of P700.00 (Exhs. "L" - "L-1" ); that for the performance bond that the plaintiff posted as
required under its contract with the defendant, the former was obliged to pay a premium of
P2,216.55; and that the plaintiff was likewise made to incur the sum of P32,406.50, representing the
3% contractor's tax (Exhs. "AA" - "A-l"). The itemized list of all these expenditures, totalling
P298,433.35 is attached to the records of this case (Annex "B", Complaint) and forms part of the
evidence of the plaintiff. Mr. Nicomedes G. Ablaza, the witness for the plaintiff, properly identified
said document and affirmed the contents thereof when he testified during the hearing. The same
witness likewise explained in detail the various figures contained therein, and identified the
corresponding supporting papers.

It is noteworthy, in this connection, that there is nothing in the records that would show that the
defendant assailed the accuracy and/or reasonableness of the figures presented by the plaintiff;
neither does it appear that the defendant offered any evidence to refute said figures.

While it is claimed by the defendant that the plaintiff incurred a total expense of only P154,075.00
according to the report of Mr. Ambrosio R. Flores, or P147,500.00, according to the report of Mr.
Ricardo Y. Mayuga, the Court finds said estimates to be inaccurate. To cite only an instance, in
estimating, the value of the excavation work, the defendant merely measured the depth, length and
width of the excavated, area which was submerged in water, without ascertaining the volume of rock
and the volume of earth actually excavated as was done by the plaintiff who prepared a detailed plan
showing the profile of the excavation work performed in the site (Exh. "B"). Likewise, the unit
measure adopted by the defendant was in cubic meter while it should be in cubic yard. Also the unit
price used by the defendant was only P8.75 for rock excavation while it should be P10.00 per cubic
yard; and only P4.95 for earth excavation while it should be P5.50 per cubic yard as clearly indicated
in plaintiff's proposal (Annex "A", Complaint; same as Annex "1", Answer). The Court, therefore, can
not give credence to defendant's, aforementioned estimates in view of their evident inaccuracies.

The Court finds from the evidence adduced that Plaintiff claim for actual damages in the sum of
P298,433.35 is meritorious.

The Bulk of plaintiffs claims consists of expected profit which it failed to realize due to the breach of
the contract in question by the defendant. As previously stated, the plaintiff seeks to recover the
amount of P814,190.00 by way of unrealized expected profit. This figure represents 18% of
P4,523,275.00 which is the estimated direct cost of the subject project.

As it has been established by the evidence that the defendant in fact was guilty of breach of contract
and, therefore, liable for damages (Art. 1170, New Civil Code), the Court finds that the plaintiff is
entitled to recover from the defendant unrealized expected profit as part of the actual or
compensatory damages. Indemnification for damages shall comprehend not only the value of the
loss suffered, but also that of the profits which the obligee failed to obtain (Art. 2200, New Civil
Code).

Where a party is guilty of breach of contract, the other party is entitled to recover the profit which the
latter would have been able to make had the contract been performed (Paz P. Arrieta, et al.,
plaintiffs-appellees, vs. National Rice Corporation defendant-appellant, G.R. No. L-15645,
promulgated on January 31, 1964; Vivencio Cerrano, plaintiff-appellee, vs. Tan Chuco, defendant-
appellant, 38 Phil. 392).

Regarding the expected profit, a number of questions will have to be answered: Is the 18%
unrealized expected profit being claimed by the plaintiff reasonable? Would the plaintiff be entitled to
the whole amount of said expected profit although there was only partial performance of the
contract? Would the 18% expected profit be based on the estimated direct cost of the subject in the
amount of P4,523,275.00, or on plaintiff's bid proposal of P3,749,000.00?

On the question of reasonableness of the 18% expected profit, the Court noted that according to
defendant's own expert witness, Mr. Ambrosio R. Flores, 25% contractor's profit for a project similar
in magnitude as the one involved in the present case would be ample and reasonable. Plaintiff's
witness, Mr. Nicomedes G. Ablaza, an experienced civil engineer who has been actively engaged in
the construction business, testified that 15% to 20% contractor's profit would be in accordance with
the standard engineering practice. Considering the type of the project involved in this case, he
stated, the contractor's profit was placed at 18%. Taking into consideration the fact that this
percentage of profit is even lower than what defendant's witness considered to be ample and
reasonable, the Court believes that the reasonable percentage should be 18% inasmuch as the
actual work was not done completely and the plaintiff has not invested the whole amount of money
called for by the project." (Pp. 263-268, Record on Appeal.)

These findings have not been shown to Us to be erroneous. And additional and clarificatory details,
which We find to be adequately supported by the record, are stated in Respondents' brief thus: t.hqw

23. In a letter dated January 4, 1966, petitioner Central Bank, through the same Mr.
Mendoza, to this request of respondent Ablaza. (Annex "D-1" to the Partial
Stipulation of Facts, R.A., p. 146).

24. Acting upon this written permission, respondent Ablaza immediately brought its
men and equipment from Manila to the construction site in San Fernando, La Union,
and promptly commenced construction work thereat. This work, consisted of the
setting up of an enclosure around the site, the building of temporary shelter for its
workmen, and the making of the necessary excavation works. (Commissioner's
Report, R.A., p. 181).

25. Following the commencement of such construction work, petitioner Central Bank,
through a letter dated February 8, 1966, formally requested respondent Ablaza to
submit to petitioner the following:t.hqw

(a) A schedule of deliveries of material which, under the terms of

respondent Ablaza's approved proposal, were to be furnished by
petitioner.

(b) A time-table for the accomplishment of the construction work.

 In short, as early as February 8, 1966, or more than three months
prior to petitioner's repudiation of the contract in question the latter
(petitioner) already took the above positive steps it compliance with
its own obligations under the contract.

26. Acting upon petitioner's above letter of February 8, 1966, on February 16, 1966,
respondent Ablaza submitted the schedule of deliveries requested by petitioner.
(Commissioner's Report, R.A., p. 182; Decision id., 252; also Exhs. "D" to "D-7",
inclusive.)

27. During the period of actual construction, respondent Ablaza, on several

occasions, actually discussed the progress of the work with Mr. Mendoza. In
addition, in March 1966, the latter (Mr. Mendoza) personally visited the construction
site. There he saw the work which respondent had by that time already accomplished
which consisted of the completion of approximately 20% of the necessary excavation
works. (Commissioner's Report, R.A., p. 182; Decision, id., p. 252).

28. Following Mr. Mendoza's visit at the construction site, or more specifically on
March 22, 1966, the latter (Mendoza) wrote to respondent Ablaza, instructing the
latter to formally designate the person to represent the corporation at the signing of
the formal construction contract. (Exh. "H"; also t.s.n., pp. 119-121, December 18,
1967).

29. By a letter dated March 24, 1966, respondent Ablaza promptly complied with the
above request. (Exh. "I"; also t.s.n., pp 121-123, December 18, 1967).

30. Subsequently, respondent Ablaza posted the required performance guaranty

bond in the total amount of P962,250.00, consisting of (a) a cash bond in the amount
of P275,000.00, and (b) a surety bond, PSIC Bond No. B-252-ML, dated May 19,
1966, in the amount of P687,250.00. In this connection, it is important to note that the
specific purpose of this bond was to guarantee "the faithful Performance of the
Contract" by respondent Ablaza. (Partial Stipulation of Facts, par. 6, R.A., p.
141). This performance guaranty bond was duly accepted by petitioner.(Id.)

31. However, on May 20, 1966, petitioner Central Bank called for a meeting with
representatives of respondent Ablaza and another contractor. This meeting was held
at the Conference Room of the Central Bank Building. At this meeting, then Finance
Secretary Eduardo Romualdez, who acted as the representative of petitioner,
announced that the Monetary Board had decided to reduce the appropriations for the
various proposed Central Bank regional office buildings, including the one for San
Fernando, La Union.

32. In view of this decision, Secretary Romualdez informed respondent Ablaza that
new plans and designs for the proposed regional office building in San Fernando
would have to be drawn up to take account of the reduction in appropriation.
Secretary Romualdez then advised respondent to suspendwork at the construction
site in San Fernando in the meanwhile. (Decision, R.A., pp. 253-254).

33. After making the above announcements, Secretary Romualdez proposed that all
existing contracts previously entered into between petitioner Central Bank and the
several winning contractors (among them being respondent Ablaza) be considered
set aside.
 34. Obviously to induce acceptance of the above proposal, Secretary Romualdez
offered the following concessions to respondent Ablaza: t.hqw

(a) That its cash bond in the amount of P275,000.00 be released

immediately, and that interest be paid thereon at the rate of 12% per
annum.

(b) That respondent Ablaza be reimbursed for expenses incurred for

the premiums on the performance bond which it posted, and which
petitioner had already accepted. (Decision, R.A., pp. 253-254).

35. In addition, Secretary Romualdez also proposed the conclusion of a new contract
with respondent Ablaza for the construction of a more modest regional office building
at San Fernando, La Union, on a negotiated basis. However, the sincerity and
feasibility of this proposal was rendered dubious by a caveat attached to it, as
follows: t.hqw

'4. Where auditing regulations would permit, the Central Bank would
enter into a negotiated contract with the said corporation (Ablaza) for
the construction work on the building on the basis of the revised
estimates.' (Annex "8" to Answer, R.A., p. 95).

36. The revised cost fixed for this proposed alternative regional office building was
fixed at a maximum of P3,000,000.00 (compared to P3,749,000.00 under the
contract originally awarded to respondent). (Annex "6-A" to Answer, R.A., p. 87).

37. Needless perhaps to state, respondent Ablaza rejected the above proposals
(pars. 34 and 35, supra.), and on June 3, 1966, through counsel, wrote to petitioner
demanding the formal execution of the contract previously awarded to it, or in the
alternative, to pay "all damages and expenses suffered by (it) in the total amount of
P1,181,950.00 ... "(Annex "7" to Answer, R.A., pp. 89-91; Decision, id., p. 254).

38. In a letter dated June 15, 1966, petitioner Central Bank, through Deputy
Governor Amado R. Brinas, replied to respondent Ablaza's demand denying any
liability on the basis of the following claim: t.hqw

`(That, allegedly) in line with the agreement ... reached between the
Central Bank and Ablaza Construction and Finance Corporation at a
meeting held ... on May 20, 1966,' "whatever agreements might have
been previously agreed upon between (petitioner and respondent)
would be considered set aside." (Decision, R.A., p. 255; Annex "8" to
Answer, id., pp. 93-96.)

39. The above claim was, however, promptly and peremptorily denied by respondent
Ablaza, through counsel, in a letter dated June 16, 1966. (Partial Stipulation of Facts,
par. 9, R.A., p. 142, also Annex "G" thereof; Commissioner's Report, R.A., p.
185; Decision, id., p. 255.)" (Appellee's Brief, pars. 23 to 39, pp. 14-19.)

None of these facts is seriously or in any event sufficiently denied in petitioner's reply brief.
Considering all these facts, it is quite obvious that the Bank's insistence now regarding the need for
the execution of the formal contract comes a little too late to be believable. Even
assuming arguendo that the Revised Manual of Instructions to Treasurers were applicable to the
Central Bank, which is doubtful, considering that under the provisions of its charter already referred
to earlier, disbursements and expenditures of the Bank are supposed to be governed by rules and
regulations promulgated by the Monetary Board, in this particular case, the attitude and actuations
then of the Bank in relation to the work being done by Ablaza prior to May 20, 1966 clearly indicate
that both parties assumed that the actual execution of the written contract is a mere formality which
could not materially affect their respective contractual rights and obligations. In legal effect,
therefore, the Bank must be considered as having waived such requirement.

To be more concrete, from December 15, 1965, when Ablaza accepted the award of the contract in
question, both parties were supposed to have seen to it that the formal contract were duly signed.
Under the Instructions to Bidders, Ablaza was under obligation to sign the same within five (5) days
from notice of the award, and so, he called on the Bank at various times for that purpose. The Bank
never indicated until May, 1966 that it would not comply. On the contrary, on February 8, 1966,
Ablaza was requested to submit a "schedule of deliveries of materials" which under the terms of the
bid were to be furnished by the Bank. On March 22, 1966, Ablaza received a letter from the Bank
inquiring as to who would be Ablaza's representative to sign the formal contract. In the meanwhile,
no less than Mr. Rizalino Mendoza, the Chairman of the Management Building Committee of the
Central Bank who had been signing for the Bank all the communications regarding the project at
issue, had visited the construction site in March, 1966, just before he wrote the request
abovementioned of the 22nd of that month for the nomination of the representative to sign the formal
contract, and actually saw the progress of the work and that it was being continued, but he never
protested or had it stopped. All these despite the fact that the Memorandum Circular being invoked
by the Bank was issued way back on December 31, 1965 yet. And when finally on May 20, 1966 the
Bank met with the representatives of Ablaza regarding the idea of changing the plans to more
economical ones, there was no mention of the non-execution of the contract as entitling the Bank to
back out of it unconditionally. Rather, the talk, according to the findings of the lower courts, was
about the possibility of setting aside whatever agreement there was already. Under these
circumstances, it appears that respondent has been made to believe up to the time the Bank
decided definitely not to honor any agreement at all that its execution was not indispensable to a
contract to be considered as already operating and respondent could therefore proceed with the
work, while the contract could be formalized later.

Petitioner contends next that its withdrawal from the contract is justified by the policy of economic
restraint ordained by Memorandum Circular No. 1. We do not see it that way. Inasmuch as the
contract here in question was perfected before the issuance of said Memorandum Circular, it is
elementary that the same may not be enforced in such a manner as to result in the impairment of the
obligations of the contract, for that is not constitutionally permissible. Not even by means of a
statute, which is much more weighty than a mere declaration of policy, may the government issue
any regulation relieving itself or any person from the binding effects of a contract. (Section 1 (10),
Article III, Philippine Constitution of 1953 and Section 11, Article IV, 1973 Constitution of the
Philippines.) Specially in the case of the Central Bank, perhaps, it might not have been really
imperative that it should have revised its plans, considering that it has its own resources
independent of those of the national government and that the funds of the Central Bank are derived
from its own operations, not from taxes. In any event, if the memorandum circular had to be
implemented, the corresponding action in that direction should have been taken without loss of time
and before the contract in question had taken deeper roots. It is thus clear that in unjustifiably failing
to honor its contract with respondent, petitioner has to suffer the consequences of its action.

The last issue submitted for Our resolution refers to the amount of damages awarded to Ablaza by
the trial court and found by the Court of Appeals to be "fair and reasonable." Again, after a review of
the record, We do not find sufficient ground to disturb the appealed judgment even in this respect,
except as to attorney's fees.

There are three principal items of damages awarded by the courts below, namely: (1) compensation
for actual work done in the amount of P298,433.35, (2) unrealized profits equivalent to 18% of the
contract price of P3,749,000 or P674,820.00 and (3) 15% of the total recovery as attorney's fees in
addition to the P5,000 already paid as retaining fee. All of these items were the subject of evidence
presented by the parties. According to the Court of Appeals: t.hqw

As regard the accuracy and reasonableness of the award for damages, both actual
and compensatory, it is to be noted that the trial court subjected the Commissioner's
report and the evidence adduced therein to a careful scrutiny. Thus, when the
appellant called the trial court's attention to the fact that the P814,190.00 unrealized
expected profit being claimed by appellee represented 18% of P4,523,275.00 which
was the estimated cost of the project, while the contract awarded to appellee was
only in the amount of P3,749,000.00 as per its bid proposal, the Court made the
necessary modification. It is further to be noted that the amount of 18% of the
estimated cost considered in the said award is much less than that given by
appellant's own expert witness, Ambrosio R. Flores. He testified that 25% as
contractor's profit "would be fair, ample and reasonable." (T.s.n, p. 557, Batalla.)" (p.
17 A, Appellant's brief.)

Basically, these are factual conclusions which We are not generally at liberty to disregard. And We
have not been shown that they are devoid of reasonable basis.

There can be no dispute as to the legal obligation of petitioner to pay respondent the actual
expenses it has incurred in performing its part of the contract.

Upon the other hand, the legal question of whether or not the Bank is liable for unrealized profits
presents no difficulty. In Arrieta vs. Naric G.R. No. L-15645, Jan. 31, 1964, 10 SCRA 79, this Court
sustained as a matter of law the award of damages n the amount of U.S. $286,000, payable in
Philippine Currency, measured in the rate of exchange prevailing at the time the obligation was
incurred (August, 1952), comprising of unrealized profits of the plaintiff, Mrs. Paz Arrieta, in a case
where a government-owned corporation, the Naric failed to proceed with the purchase of imported
rice after having accepted and approved the bid of Arrieta and after she had already closed her
contract with her foreign sellers.

Actually, the law on the matter is unequivocally expressed in Articles 2200 and 2201 of the Civil
Code thus: t.hqw

ART. 2200. Identification for damages shall comprehend not only the value of the
loss suffered, but also that of the profits, which the obligee failed to obtain..

ART. 2201. In contracts and quasi-contracts, the damages for which the obligor who
acted in good faith is liable shall be those that are the natural and probable
consequences of the breach of the obligation, and which the parties have forseen or
could have reasonably foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible
for all damages which may be reasonably attributed to the non- performance of the
obligation.
Construing these provisions, the following is what this Court held in Cerrano vs. Tan Chuco, 38 Phil.
392: t.hqw

.... Article 1106 (now 2200) of the Civil Code establishes the rule that prospective
profits may be recovered as damages, while article 1107 (now 2201) of the same
Code provides that the damages recoverable for the breach of obligations not
originating in fraud (dolo) are those which were or might have been foreseen at the
time the contract was entered into. Applying these principles to the facts in this case,
we think that it is unquestionable that defendant must be deemed to have foreseen at
the time he made the contract that in the event of his failure to perform it, the plaintiff
would be damaged by the loss of the profit he might reasonably have expected to
derive from its use.

When the existence of a loss is established, absolute certainty as to its amount is not
required. The benefit to be derived from a contract which one of the parties has
absolutely failed to perform is of necessity to some extent, a matter of speculation,
but the injured party is not to be denied all remedy for that reason alone. He must
produce the best evidence of which his case is susceptible and if that evidence
warrants the inference that he has been damaged by the loss of profits which he
might with reasonable certainty have anticipated but for the defendant's wrongful act,
he is entitled to recover. As stated in Sedgwick on Damages (Ninth Ed., par. 177):

The general rule is, then, that a plaintiff may recover compensation for any gain
which he can make it appear with reasonable certainty the defendant's wrongful act
prevented him from acquiring, ...'. (See also Algarra vs. Sandejas, 27 Phil. Rep., 284,
289; Hicks vs. Manila Hotel Co., 28 Phil. Rep., 325.) (At pp. 398-399.)

Later, in General Enterprises, Inc. vs. Lianga Bay Logging Co. Inc., 11 SCRA 733, Article 2200 of
the Civil Code was again applied as follows: t.hqw

Regarding the actual damages awarded to appellee, appellant contends that they are
unwarranted inasmuch as appellee has failed to adduce any evidence to substantiate
them even assuming arguendo that appellant has failed to supply the additional
monthly 2,000,000 board feet for the remainder of the period agreed upon in the
contract Exhibit A. Appellant maintains that for appellee to be entitled to demand
payment of sales that were not effected it should have proved (1) that there are
actual sales made of appellee's logs which were not fulfilled, (2) that it had obtained
the best price for such sales, (3) that there are buyers ready to buy at such price
stating the volume they are ready to buy, and (4) appellee could not cover the sales
from the logs of other suppliers. Since these facts were not proven, appellee's right to
unearned commissions must fail.

This argument must be overruled in the light of the law and evidence on the matter.
Under Article 2200 of the Civil Code, indemnification for damages comprehends not
only the value of the loss suffered but also that of the profits which the creditor fails to
obtain. In other words, lucrum cessans is also a basis for indemnification. The
question then that arises is: Has appellee failed to make profits because of
appellant's breach of contract, and in the affirmative, is there here basis for
determining with reasonable certainty such unearned profits?

Appellant's memorandum (p. 9) shows that appellee has sold to Korea under the
contract in question the following board feet of logs, Breareton Scale: t.hqw
 Months Board Feet

From June to August 1959 3,007,435

September, 1959 none
October, 1959 2,299,805
November, 1959 801,021
December, 1959 1,297,510

Total 7,405,861

The above figures tally with those of Exhibit N. In its brief (p. 141) appellant claims
that in less than six months' time appellee received by way of commission the
amount of P117,859.54, while in its memorandum, appellant makes the following
statement:

`11. The invoice F.O.B. price of the sale through plaintiff General is P767,798.82 but
the agreed F.O.B. price was P799,319.00, the commission at 13% (F.O.B.) is
P117,859.54. But, as there were always two prices Invoice F.O.B price and F.O.B.
price as per contract, because of the sales difference amounting to P31,920.18, and
the same was deducted from the commission, actually paid to plaintiff General is only
P79,580.82.' " It appears, therefore, that during the period of June to December,
1959, in spite of the short delivery incurred by appellant, appellee had been earning
its commission whenever logs were delivered to it. But from January, 1960, appellee
had ceased to earn any commission because appellant failed to deliver any log in
violation of their agreement. Had appellant continued to deliver the logs as it was
bound to pursuant to the agreement it is reasonable to expect that it would have
continued earning its commission in much the same manner as it used to in
connection with the previous shipments of logs, which clearly indicates that it failed to
earn the commissions it should earn during this period of time. And this commission
is not difficult to estimate. Thus, during the seventeen remaining months of the
contract, at the rate of at least 2,000,000 board feet, appellant should have delivered
thirty-four million board feet. If we take the number of board feet delivered during the
months prior to the interruption, namely, 7,405,861 board feet, and the commission
received by appellee thereon, which amounts to P79,580.82, we would have that
appellee received a commission of P.0107456 per board feet. Multiplying 34 million
board feet by P.0107456, the product is P365,350.40, which represents the lucrum
cessans that should accrue to appellee. The award therefore, made by the court a
quo of the amount of P400,000.00 as compensatory damages is not speculative, but
based on reasonable estimate.

In the light of these considerations, We cannot say that the Court of Appeals erred in making the
aforementioned award of damages for unrealized profits to respondent Ablaza.

With respect to the award for attorney's fees, We believe that in line with the amount fixed in Lianga,
supra., an award of ten per centum (10%) of the amount of the total recovery should be enough.

PREMISES CONSIDERED, the decision of the Court of Appeals in this case is affirmed, with the
modification that the award for attorney's fees made therein is hereby reduced to ten per centum
(10%) of the total recovery of respondent Ablaza.

Costs against petitioner.

Fernando (Chairman), Antonio, Aquino and Concepcion, JJ., concur. 1wph1.t

Footnotes t.hqw

1 This was before Section 607 was amended by Act 3441 by including chartered
cities in the provision.

2 According to the stipulation of facts of the parties, "the contract for the general
construction work for the Central Bank Regional Office Building in San Fernando, La
Union was awarded to plaintiff." (Par. 4 thereof.)
 [G.R. No. 115849. January 24, 1996]

FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank

of the Philippines) and MERCURIO RIVERA, petitioners, vs.
COURT OF APPEALS, CARLOS EJERCITO, in substitution of
DEMETRIO DEMETRIA, and JOSE JANOLO, respondents.

DECISION
PANGANIBAN, J.:

In the absence of a formal deed of sale, may commitments given by bank

officers in an exchange of letters and/or in a meeting with the buyers
constitute a perfected and enforceable contract of sale over 101 hectares of
land in Sta. Rosa, Laguna? Does the doctrine of apparent authority apply in
this case? If so, may the Central Bank-appointed conservator of Producers
Bank (now First Philippine International Bank) repudiate such apparent
authority after said contract has been deemed perfected? During the
pendency of a suit for specific performance, does the filing of a derivative suit
by the majority shareholders and directors of the distressed bank to prevent
the enforcement or implementation of the sale violate the ban against forum-
shopping?
Simply stated, these are the major questions brought before this Court in
the instant Petition for review on certiorari under Rule 45 of the Rules of
Court, to set aside the Decision promulgated January 14, 1994 of the
respondent Court of Appeals in CA-G.R. CV No. 35756 and the Resolution
[1]

promulgated June 14, 1994 denying the motion for reconsideration. The
dispositive portion of the said Decision reads:

WHEREFORE, the decision of the lower court is MODIFIED by the elimination of

the damages awarded under paragraphs 3, 4 and 6 of its dispositive portion and the
reduction of the award in paragraph 5 thereof to P75,000.00, to be assessed against
defendant bank. In all other aspects, said decision is hereby AFFIRMED.

All references to the original plaintiffs in the decision and its dispositive portion are
deemed, herein and hereafter, to legally refer to the plaintiff-appellee Carlos C.
Ejercito.

Costs against appellant bank.

 The dispositive portion of the trial courts decision dated July 10, 1991, on
[2]

the other hand, is as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the

plaintiffs and against the defendants as follows:

1. Declaring the existence of a perfected contract to buy and sell over the six (6)
parcels of land situated at Don Jose, Sta. Rosa, Laguna with an area of 101 hectares,
more or less, covered by and embraced in Transfer Certificates of Title Nos. T-
106932 to T-106937, inclusive, of the Land Records of Laguna, between the plaintiffs
as buyers and the defendant Producers Bank for an agreed price of Five and One Half
Million (P5,500,000.00) Pesos;

2. Ordering defendant Producers Bank of the Philippines, upon finality of this

decision and receipt from the plaintiffs the amount of P5.5 Million, to execute in favor
of said plaintiffs a deed of absolute sale over the aforementioned six (6) parcels of
land, and to immediately deliver to the plaintiffs the owners copies of T.C.T. Nos. T-
106932 to T-106937, inclusive, for purposes of registration of the same deed and
transfer of the six (6) titles in the names of the plaintiffs;

3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and
Demetrio Demetria the sums of P 200,000.00 each in moral damages;

4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P
100,000.00 as exemplary damages;

5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of
P400,000.00 for and by way of attorneys fees;

6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and
moderate damages in the amount of P20,000.00;

With costs against the defendants.

After the parties filed their comment, reply, rejoinder, sur-rejoinder and
reply to sur-rejoinder, the petition was given due course in a Resolution
dated January 18, 1995. Thence, the parties filed their respective memoranda
and reply memoranda. The First Division transferred this case to the Third
Division per resolution dated October 23, 1995. After carefully deliberating on
the aforesaid submissions, the Court assigned the case to the undersigned
ponente for the writing of this Decision.
 The Parties

Petitioner First Philippine International Bank (formerly Producers Bank of

the Philippines; petitioner Bank, for brevity) is a banking institution organized
and existing under the laws of the Republic of the Philippines. Petitioner
Mercurio Rivera (petitioner Rivera, for brevity) is of legal age and was, at all
times material to this case, Head Manager of the Property Management
Department of the petitioner Bank.
Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal
age and is the assignee of original plaintiffs-appellees Demetrio Demetria and
Jose Janolo.
Respondent Court of Appeals is the court which issued the Decision and
Resolution sought to be set aside through this petition.

The Facts

The facts of this case are summarized in the respondent Courts

Decision, as follows:
[3]

(1) In the course of its banking operations, the defendant Producer Bank of the
Philippines acquired six parcels of land with a total area of 101 hectares located at
Don Jose, Sta. Rosa, Laguna, and covered by Transfer Certificates of Title Nos. T-
106932 to T-106937. The property used to be owned by BYME Investment and
Development Corporation which had them mortgaged with the bank as collateral fora
loan. The original plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted to
purchase the property and thus initiated negotiations for that purpose.

(2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME
Investments legal counsel, Jose Fajardo, met with defendant Mercurio Rivera,
Manager of the Property Management Department of the defendant bank. The
meeting was held pursuant to plaintiffs plan to buy the property (TSN of Jan. 16,
1990, pp. 7-10). After the meeting, plaintiff Janolo, following the advice of defendant
Rivera, made a formal purchase offer to the bank through a letter dated August 30,
1987 (Exh. B), as follows:

August 30, 1987

The Producers Bank of the Philippines

Makati, Metro Manila
 Attn. Mr. Mercurio Q. Rivera
Manager, Property Management Dept.

Gentlemen:

I have the honor to submit my formal offer to purchase your properties covered by
titles listed hereunder located at Sta. Rosa, Laguna, with a total area of 101 hectares,
more or less.

TCT NO. AREA

T-106932 113,580 sq.m.

T-106933 70,899 sq.m.
T-106934 52,246 sq.m.
T-106935 96,768 sq.m.
T-106936 187,114 sq.m.
T-106937 481,481 sq.m.

My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND

(P3,500,000.00) PESOS, in cash.

Kindly contact me at Telephone Number 921-1344.

(3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal
reply by letter which is hereunder quoted (Exh. C):

September 1, 1987

J-P M-P GUTIERREZ ENTERPRISES

142 Charisma St., Doa Andres II
Rosario, Pasig, Metro Manila

Attention: JOSE O. JANOLO Dear Sir:

Dear Sir:

Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa,
Laguna (formerly owned by Byme industrial Corp.). Please be informed however that
the banks counter-offer is at P5.5 million for more than 101 hectares on lot basis.

We shall be very glad to hear your position on the matter.

Best regards.
(4)On September 17, 1987, plaintiff Janolo, responding to Riveras aforequoted reply,
wrote (Exh.

September 17, 1987

Producers Bank
Paseo de Roxas
Makati, Metro Manila

Attention: Mr. Mercurio Rivera

Gentlemen:

In reply to your letter regarding my proposal to purchase your 101-hectare lot

located at Sta. Rosa Laguna, I would like to amend my previous offer and I now
propose to buy the said lot at P4.250 million in CASH.

Hoping that this proposal meets your satisfaction.

(5) There was no reply to Janolos foregoing letter of September 17, 1987. What took
place was a meeting on September 28, 1987 between the plaintiffs and Luis Co, the
Senior Vice-President of defendant bank. Rivera as well as Fajardo, the BYME
lawyer, attended the meeting. Two days later, or on September 30, 1987, plaintiff
Janolo sent to the bank, through Rivera, the following letter (Exh. E):

The Producers Bank of the Philippines

Paseo de Roxas, Makati
Metro Manila

Attention: Mr. Mercurio Rivera

Re: 101 Hectares of Land in Sta. Rosa, Laguna

Gentlemen:

Pursuant to our discussion last 28 September 1987, we are pleased to inform you that
we are accepting your offer for us to purchase the property at Sta. Rosa, Laguna,
formerly owned by Byme In-vestment, for a total price of PESOS: FIVE MILLION
FIVE HUNDRED THOUSAND (P5,500,000.00).

Thank you.
(6) On October 12, 1987, the conservator of the bank (which has been placed under
conservatorship by the Central Bank since 1984) was replaced by an Acting
Conservator in the person of defendant Leonida T. Encarnacion. On November 4,
1987, defendant Rivera wrote plaintiff Demetria the following letter (Exh. F):

Attention: Atty. Demetrio Demetria

Dear Sir:

Your proposal to buy the properties the bank foreclosed from Byme Investment Corp.
located at Sta. Rosa, Laguna is under study yet as of this time by the newly created
committee for submission to the newly designated Acting Conservator of the bank.

For your information.

(7) What thereafter transpired was a series of demands by the plaintiffs for
compliance by the bank with what plaintiff considered as a perfected contract of sale,
which demands were in one form or another refused by the bank. As detailed by the
trial court in its decision, on November 17, 1987, plaintiffs through a letter to
defendant Rivera (Exhibit G) tendered payment of the amount of P5.5 million
pursuant to (our) perfected sale agreement. Defendants refused to receive both the
payment and the letter. Instead, the parcels of land involved in the transaction were
advertised by the bank for sale to any interested buyer (Exhs. H and H-1). Plaintiffs
demanded the execution by the bank of the documents on what was considered as a
perfected agreement. Thus:

Mr. Mercurio Rivera

Manager, Producers Bank
Paseo de Roxas, Makati
Metro Manila

Dear Mr. Rivera:

This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your
101-hectare lot located in Sta. Rosa, Laguna, and which are covered by TCT No. T-
106932 to 106937.

From the documents at hand, it appears that your counter-offer dated September 1,
1987 of this same lot in the amount of P5.5 million was accepted by our client thru a
letter dated September 30, 1987 and was received by you on October 5, 1987.
In view of the above circumstances, we believe that an agreement has been perfected.
We were also informed that despite repeated follow-up to consummate the purchase,
you now refuse to honor your commitment. Instead, you have advertised for sale the
same lot to others.

In behalf of our client, therefore, we are making this formal demand upon you to
consummate and execute the necessary actions/documentation within three (3) days
from your receipt hereof We are ready to remit the agreed amount of P5.5 million at
your advice. Otherwise, we shall be constrained to file the necessary court action to
protect the interest of our client.

We trust that you will be guided accordingly.

(8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing
letter and stated, in its communication of December 2, 1987 (Exh. I), that said letter
has been referred x x x to the office of our Conservator for proper disposition.
However, no response came from the Acting Conservator. On December 14, 1987, the
plaintiffs made a second tender of payment (Exhs. L and L-1), this time through the
Acting Conservator, defendant Encarnacion. Plaintiffs letter reads:

PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila

Attn.: Atty. NIDA ENCARNACION Central Bank Conservator

Gentlemen:

We are sending you herewith, in-behalf of our client, Mr. JOSE O. JANOLO, MBTC
Check No. 258387 in the amount of P5.5 million as our agreed purchase price of the
101-hectare lot covered by TCT Nos. 106932, 106933, 106934, 106935, 106936 and
106937 and registered under Producers Bank.

This is in connection with the perfected agreement consequent from your offer of P5.5
Million as the purchase price of the said lots. Please inform us of the date of
documentation of the sale immediately.

Kindly acknowledge receipt of our payment.

(9) The foregoing letter drew no response for more than four months. Then, on May 3,
1988, plaintiff, through counsel, made a final demand for compliance by the bank
with its obligations under the considered perfected contract of sale (Exhibit N). As
recounted by the trial court (Original Record, p. 656), in a reply letter dated May 12,
1988 (Annex 4 of defendants answer to amended complaint), the defendants through
Acting Conservator Encarnacion repudiated the authority of defendant Rivera and
claimed that his dealings with the plaintiffs, particularly his counter-offer of P5.5
Million are unauthorized or illegal. On that basis, the defendants justified the refusal
of the tenders of payment and the non-compliance with the obligations under what the
plaintiffs considered to be a perfected contract of sale.

(10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages
against the bank, its Manager Rivera and Acting Conservator Encarnacion. The basis
of the suit was that the transaction had with the bank resulted in a perfected contract
of sale. The defendants took the position that there was no such perfected sale because
the defendant Rivera is not authorized to sell the property, and that there was no
meeting of the minds as to the price.

On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip
Salazar Hernandez and Gatmaitan, filed a motion to intervene in the trial court,
alleging that as owner of 80% of the Banks outstanding shares of stock, he had a
substantial interest in resisting the complaint. On July 8, 1991, the trial court issued an
order denying the motion to intervene on the ground that it was filed after trial had
already been concluded. It also denied a motion for reconsideration filed thereafter.
From the trial courts decision, the Bank, petitioner Rivera and conservator
Encarnacion appealed to the Court of Appeals which subsequently affirmed with
modification the said judgment. Henry Co did not appeal the denial of his motion for
intervention.

In the course of the proceedings in the respondent Court, Carlos

Ejercito was substituted in place of Demetria and Janolo, in view of the
assignment of the latters rights in the matter in litigation to said private
respondent.
On July 11, 1992, during the pendency of the proceedings in the Court of
Appeals, Henry Co and several other stockholders of the Bank, through
counsel Angara Abello Concepcion Regala and Cruz, filed an action
(hereafter, the Second Case) -purportedly a derivative suit - with the Regional
Trial Court of Makati, Branch 134, docketed as Civil Case No. 92-1606,
against Encarnacion, Demetria and Janolo to declare any perfected sale of
the property as unenforceable and to stop Ejercito from enforcing or
implementing the sale. In his answer, Janolo argued that the Second Case
[4]

was barred by litis pendentia by virtue of the case then pending in the Court of
Appeals. During the pre-trial conference in the Second Case, plaintiffs filed a
Motion for Leave of Court to Dismiss the Case Without Prejudice. Private
respondent opposed this motion on the ground, among others, that plaintiffs
act of forum shopping justifies the dismissal of both cases, with
prejudice. Private respondent, in his memorandum, averred that this motion
[5]

is still pending in the Makati RTC.

In their Petition and Memorandum, petitioners summarized their position
[6] [7]

as follows:
I.

The Court of Appeals erred in declaring that a contract of sale was perfected between
Ejercito (in substitution of Demetria and Janolo) and the bank.
II.

The Court of Appeals erred in declaring the existence of an enforceable contract of

sale between the parties.
III.

The Court of Appeals erred in declaring that the conservator does not have the power
to overrule or revoke acts of previous management.
IV.

The findings and conclusions of the Court of Appeals do not conform to the evidence
on record.

On the other hand, private respondents prayed for dismissal of the instant
suit on the ground that:
[8]

I.

Petitioners have engaged in forum shopping.

II.

The factual findings and conclusions of the Court of Appeals are supported by the
evidence on record and may no longer be questioned in this case.
III.

The Court of Appeals correctly held that there was a perfected contract between
Demetria and Janolo (substituted by respondent Ejercito) and the bank.
 IV.

The Court of Appeals has correctly held that the conservator, apart from being
estopped from repudiating the agency and the contract, has no authority to revoke the
contract of sale.

The Issues

From the foregoing positions of the parties, the issues in this case may be
summed up as follows:
1) Was there forum-shopping on the part of petitioner Bank?
2) Was there a perfected contract of sale between the parties?
3) Assuming there was, was the said contract enforceable under the
statute of frauds?
4) Did the bank conservator have the unilateral power to repudiate the
authority of the bank officers and/or to revoke the said contract?
5) Did the respondent Court commit any reversible error in its findings of
facts?

The First Issue: Was There Forum-Shopping?

In order to prevent the vexations of multiple petitions and actions, the

Supreme Court promulgated Revised Circular No. 28-91 requiring that a party
must certify under oath x x x [that] (a) he has not (t)heretofore commenced
any other action or proceeding involving the same issues in the Supreme
Court, the Court of Appeals, or any other tribunal or agency; (b) to the best of
his knowledge, no such action or proceeding is pending in said courts or
agencies. A violation of the said circular entails sanctions that include the
summary dismissal of the multiple petitions or complaints. To be sure,
petitioners have included a VERIFICATION/CERTIFICATION in their Petition
stating for the record(,) the pendency of Civil Case No. 92-1606 before the
Regional Trial Court of Makati, Branch 134, involving a derivative suit filed by
stockholders of petitioner Bank against the conservator and other defendants
but which is the subject of a pending Motion to Dismiss Without Prejudice. [9]

Private respondent Ejercito vigorously argues that in spite of this

verification, petitioners are guilty of actual forum shopping because the instant
petition pending before this Court involves identical parties or interests
represented, rights asserted and reliefs sought (as that) currently pending
before the Regional Trial Court, Makati Branch 134 in the Second Case. In
fact, the issues in the two cases are so intertwined that a judgment or
resolution in either case will constitute res judicata in the other. [10]

On the other hand, petitioners explain that there is no forum-shopping

[11]

because:

1) In the earlier or First Case from which this proceeding arose, the Bank was
impleaded as a defendant, whereas in the Second Case (assuming the Bank is the real
party in interest in a derivative suit), it was the plaintiff;

2) The derivative suit is not properly a suit for and in behalf of the corporation under
the circumstances;

3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank

president and attached to the Petition identifies the action as a derivative suit, it does
not mean that it is one and (t)hat is a legal question for the courts to decide;

4) Petitioners did not hide the Second Case as they mentioned it in the said
VERIFICATION/CERTIFICATION.

We rule for private respondent.

To begin with, forum-shopping originated as a concept in private
international law, where non-resident litigants are given the option to choose
[12]

the forum or place wherein to bring their suit for various reasons or excuses,
including to secure procedural advantages, to annoy and harass the
defendant, to avoid overcrowded dockets, or to select a more friendly venue.
To combat these less than honorable excuses, the principle of forum non
conveniens was developed whereby a court, in conflicts of law cases, may
refuse impositions on its jurisdiction where it is not the most convenient or
available forum and the parties are not precluded from seeking remedies
elsewhere.
In this light, Blacks Law Dictionary says that forum-shopping occurs
[13]

when a party attempts to have his action tried in a particular court or

jurisdiction where he feels he will receive the most favorable judgment or
verdict. Hence, according to Words and Phrases, a litigant is open to the
[14]

charge of forum shopping whenever he chooses a forum with slight

connection to factual circumstances surrounding his suit, and litigants should
be encouraged to attempt to settle their differences without imposing undue
expense and vexatious situations on the courts.
In the Philippines, forum-shopping has acquired a connotation
encompassing not only a choice of venues, as it was originally understood in
conflicts of laws, but also to a choice of remedies. As to the first (choice of
venues), the Rules of Court, for example, allow a plaintiff to commence
personal actions where the defendant or any of the defendants resides or may
be found, or where the plaintiff or any of the plaintiffs resides, at the election of
the plaintiff (Rule 4, Sec. 2 [b]). As to remedies, aggrieved parties, for
example, are given a choice of pursuing civil liabilities independently of the
criminal, arising from the same set of facts. A passenger of a public utility
vehicle involved in a vehicular accident may sue on culpa contractual, culpa
aquiliana or culpa criminal - each remedy being available independently of the
others - although he cannot recover more than once.

In either of these situations (choice of venue or choice of remedy), the litigant actually
shops for a forum of his action. This was the original concept of the term forum
shopping.

Eventually, however, instead of actually making a choice of the forum of their actions,
litigants, through the encouragement of their lawyers, file their actions in all available
courts, or invoke all relevant remedies simultaneously. This practice had not only
resulted to (sic) conflicting adjudications among different courts and consequent
confusion enimical (sic) to an orderly administration of justice. It had created extreme
inconvenience to some of the parties to the action.

Thus, forum-shopping had acquired a different concept - which is unethical

professional legal practice. And this necessitated or had given rise to the formulation
of rules and canons discouraging or altogether prohibiting the practice. [15]

What therefore originally started both in conflicts of laws and in our

domestic law as a legitimate device for solving problems has been abused
and misused to assure scheming litigants of dubious reliefs.
To avoid or minimize this unethical practice of subverting justice, the
Supreme Court, as already mentioned, promulgated Circular 28-91. And even
before that, the Court had proscribed it in the Interim Rules and Guidelines
issued on January 11, 1983 and had struck down in several cases the [16]

inveterate use of this insidious malpractice. Forum-shopping as the filing of

repetitious suits in different courts has been condemned by Justice Andres R.
Narvasa (now Chief Justice) in Minister of Natural Resources, et al. vs. Heirs
of Orval Hughes, et al., as a reprehensible manipulation of court processes
and proceedings x x x. When does forum-shopping take place?
[17]

There is forum-shopping whenever, as a result of an adverse opinion in one forum, a

party seeks a favorable opinion (other than by appeal or certiorari) in another. The
principle applies not only with respect to suits filed in the courts but also in
connection with litigations commenced in the courts while an administrative
proceeding is pending, as in this case, in order to defeat administrative processes and
in anticipation of an unfavorable administrative ruling and a favorable court ruling.
This is specially so, as in this case, where the court in which the second suit was
brought, has no jurisdiction [18]

The test for determining whether a party violated the rule against forum-
shopping has been laid down in the 1986 case of Buan vs. Lopez, also by [19]

Chief Justice Narvasa, and that is, forum-shopping exists where the elements
of litis pendentia are present or where a final judgment in one case will
amount to res judicata in the other, as follows:

There thus exists between the action before this Court and RTC Case No. 86-36563
identity of parties, or at least such parties as represent the same interests in both
actions, as well as identity of rights asserted and relief prayed for, the relief being
founded on the same facts, and the identity on the two preceding particulars is such
that any judgment rendered in the other action, will, regardless of which party is
successful, amount to res adjudicata in the action under consideration: all the
requisites, in fine, of auter action pendant.

xxx xxx xxx

As already observed, there is between the action at bar and RTC Case No. 86-36563,
an identity as regards parties, or interests represented, rights asserted and relief
sought, as well as basis thereof, to a degree sufficient to give rise to the ground for
dismissal known as auter action pendant or lis pendens. That same identity puts into
operation the sanction of twin dismissals just mentioned. The application of this
sanction will prevent any further delay in the settlement of the controversy which
might ensue from attempts to seek reconsideration of or to appeal from the Order of
the Regional Trial Court in Civil Case No. 86-36563 promulgated on July 15, 1986,
which dismissed the petition upon grounds which appear persuasive.

Consequently, where a litigant (or one representing the same interest or

person) sues the same party against whom another action or actions for the
alleged violation of the same right and the enforcement of the same relief
is/are still pending, the defense of litis pendencia in one case is a bar to the
others; and, a final judgment in one would constitute res judicata and thus
would cause the dismissal of the rest. In either case, forum shopping could be
cited by the other party as a ground to ask for summary dismissal of the
two (or more) complaints or petitions, and for the imposition of the other
[20]

sanctions, which are direct contempt of court, criminal prosecution, and

disciplinary action against the erring lawyer.
Applying the foregoing principles in the case before us and comparing it
with the Second Case, it is obvious that there exist identity of parties or
interests represented, identity of rights or causes and identity of reliefs sought.
Very simply stated, the original complaint in the court a quo which gave
rise to the instant petition was filed by the buyer (herein private respondent
and his predecessors-in-interest) against the seller (herein petitioners) to
enforce the alleged perfected sale of real estate. On the other hand, the
complaint in the Second Case seeks to declare such purported sale
[21]

involving the same real property as unenforceable as against the Bank, which
is the petitioner herein. In other words, in the Second Case, the majority
stockholders, in representation of the Bank, are seeking to accomplish what
the Bank itself failed to do in the original case in the trial court. In brief, the
objective or the relief being sought, though worded differently, is the same,
namely, to enable the petitioner Bank to escape from the obligation to sell the
property to respondent. In Danville Maritime, Inc. vs. Commission on
Audit, this Court ruled that the filing by a party of two apparently different
[22]

actions, but with the same objective, constituted forum shopping:

In the attempt to make the two actions appear to be different, petitioner impleaded
different respondents therein - PNOC in the case before the lower court and the COA
in the case before this Court and sought what seems to be different reliefs. Petitioner
asks this Court to set aside the questioned letter-directive of the COA dated October
10, 1988 and to direct said body to approve the Memorandum of Agreement entered
into by and between the PNOC and petitioner, while in the complaint before the lower
court petitioner seeks to enjoin the PNOC from conducting a rebidding and from
selling to other parties the vessel T/T Andres Bonifacio, and for an extension of time
for it to comply with the paragraph 1 of the memorandum of agreement and
damages. One can see that although the relief prayed for in the two (2) actions are
ostensibly different, the ultimate objective in both actions is the same, that is, the
approval of the sale of vessel in favor of petitioner, and to overturn the letter-directive
of the COA of October 10, 1988 disapproving the sale. (italics supplied)

In an earlier case, but with the same logic and vigor, we held:
[23]
In other words, the filing by the petitioners of the instant special civil action
for certiorari and prohibition in this Court despite the pendency of their action in the
Makati Regional Trial Court, is a species of forum-shopping. Both actions
unquestionably involve the same transactions, the same essential facts and
circumstances. The petitioners claim of absence of identity simply because the PCGG
had not been impleaded in the RTC suit, and the suit did not involve certain acts
which transpired after its commencement, is specious. In the RTC action, as in the
action before this Court, the validity of the contract to purchase and sell of September
1, 1986, i.e., whether or not it had been efficaciously rescinded, and the propriety of
implementing the same (by paying the pledgee banks the amount of their loans,
obtaining the release of the pledged shares, etc.) were the basic issues. So, too, the
relief was the same: the prevention of such implementation and/or the restoration of
the status quo ante. When the acts sought to be restrained took place anyway despite
the issuance by the Trial Court of a temporary restraining order, the RTC suit did not
become functus oflcio. It remained an effective vehicle for obtention of relief; and
petitioners remedy in the premises was plain and patent: the filing of an amended and
supplemental pleading in the RTC suit, so as to include the PCGG as defendant and
seek nullification of the acts sought to be enjoined but nonetheless done. The remedy
was certainly not the institution of another action in another forum based on
essentially the same facts. The adoption of this latter recourse renders the petitioners
amenable to disciplinary action and both their actions, in this Court as well as in the
Court a quo, dismissible.

In the instant case before us, there is also identity of parties, or at least, of
interests represented. Although the plaintiffs in the Second Case (Henry L.
Co. et al.) are not name parties in the First Case, they represent the same
interest and entity, namely, petitioner Bank, because:

Firstly, they are not suing in their personal capacities, for they have no direct personal
interest in the matter in controversy. They are not principally or even subsidiarily
liable; much less are they direct parties in the assailed contract of sale; and

Secondly, the allegations of the complaint in the Second Case show that the
stockholders are bringing a derivative suit. In the caption itself, petitioners claim to
have brought suit for and in behalf of the Producers Bank of the Philippines. Indeed,
[24]

this is the very essence of a derivative suit:

An individual stockholder is permitted to institute a derivative suit on behalf of the

corporation wherein he holds stock in order to protect or vindicate corporate rights,
whenever the officials of the corporation refuse to sue, or are the ones to be sued or
hold the control of the corporation. In such actions, the suing stockholder is regarded
as a nominal party, with the corporation as the real party in interest. (Gamboa v.
Victoriano, 90 SCRA 40, 47 [1979]; italics supplied).

In the face of the damaging admissions taken from the complaint in the
Second Case, petitioners, quite strangely, sought to deny that the Second
Case was a derivative suit, reasoning that it was brought, not by the minority
shareholders, but by Henry Co et al., who not only own, hold or control over
80% of the outstanding capital stock, but also constitute the majority in the
Board of Directors of petitioner Bank. That being so, then they really represent
the Bank. So, whether they sued derivatively or directly, there is undeniably
an identity of interests/entity represented.
Petitioner also tried to seek refuge in the corporate fiction that the
personality of the Bank is separate and distinct from its shareholders. But the
rulings of this Court are consistent: When the fiction is urged as a means of
perpetrating a fraud or an illegal act or as a vehicle for the evasion of an
existing obligation, the circumvention of statutes, the achievement or
perfection of a monopoly or generally the perpetration of knavery or crime, the
veil with which the law covers and isolates the corporation from the members
or stockholders who compose it will be lifted to allow for its consideration
merely as an aggregation of individuals. [25]

In addition to the many cases where the corporate fiction has been
[26]

disregarded, we now add the instant case, and declare herewith that the
corporate veil cannot be used to shield an otherwise blatant violation of the
prohibition against forum-shopping. Shareholders, whether suing as the
majority in direct actions or as the minority in a derivative suit, cannot be
allowed to trifle with court processes, particularly where, as in this case, the
corporation itself has not been remiss in vigorously prosecuting or defending
corporate causes and in using and applying remedies available to it. To rule
otherwise would be to encourage corporate litigants to use their shareholders
as fronts to circumvent the stringent rules against forum shopping.
Finally, petitioner Bank argued that there cannot be any forum shopping,
even assuming arguendo that there is identity of parties, causes of action and
reliefs sought, because it (the Bank) was the defendant in the (first) case while
it was the plaintiff in the other (Second Case), citing as authority Victronics
Computers, Inc. vs. Regional Trial Court, Branch 63, Makati, etc. et
al., where the Court held:
[27]

The rule has not been extended to a defendant who, for reasons known only to him,
commences a new action against the plaintiff - instead of filing a responsive pleading
in the other case - setting forth therein, as causes of action, specific denials, special
and affirmative defenses or even counterclaims. Thus, Velhagens and Kings motion to
dismiss Civil Case No. 91-2069 by no means negates the charge of forum-shopping as
such did not exist in the first place. (italics supplied)

Petitioner pointed out that since it was merely the defendant in the original
case, it could not have chosen the forum in said case.
Respondent, on the other hand, replied that there is a difference in factual
setting between Victronics and the present suit. In the former, as underscored
in the above-quoted Court ruling, the defendants did not file any responsive
pleading in the first case. In other words, they did not make any denial or raise
any defense or counter-claim therein. In the case before us however,
petitioners filed a responsive pleading to the complaint - as a result of which,
the issues were joined.
Indeed, by praying for affirmative reliefs and interposing counter-claims in
their responsive pleadings, the petitioners became plaintiffs themselves in the
original case, giving unto themselves the very remedies they repeated in the
Second Case.
Ultimately, what is truly important to consider in determining whether
forum-shopping exists or not is the vexation caused the courts and parties-
litigant by a party who asks different courts and/or administrative agencies to
rule on the same or related causes and/or to grant the same or substantially
the same reliefs, in the process creating the possibility of conflicting decisions
being rendered by the different fora upon the same issue. In this case, this is
exactly the problem: a decision recognizing the perfection and directing the
enforcement of the contract of sale will directly conflict with a possible
decision in the Second Case barring the parties from enforcing or
implementing the said sale. Indeed, a final decision in one would
constitute res judicata in the other.
[28]

The foregoing conclusion finding the existence of forum-shopping

notwithstanding, the only sanction possible now is the dismissal of both cases
with prejudice, as the other sanctions cannot be imposed because petitioners
present counsel entered their appearance only during the proceedings in this
Court, and the Petitions VERIFICATION/CERTIFICATION contained sufficient
allegations as to the pendency of the Second Case to show good faith in
observing Circular 28-91. The lawyers who filed the Second Case are not
before us; thus the rudiments of due process prevent us from motu
propio imposing disciplinary measures against them in this Decision.
However, petitioners themselves (and particularly Henry Co, et al.) as litigants
are admonished to strictly follow the rules against forum-shopping and not to
trifle with court proceedings and processes. They are warned that a repetition
of the same will be dealt with more severely.
Having said that, let it be emphasized that this petition should be
dismissed not merely because of forum-shopping but also because of the
substantive issues raised, as will be discussed shortly.

The Second Issue: Was The Contract Perfected?

The respondent Court correctly treated the question of whether or not

there was, on the basis of the facts established, a perfected contract of sale
as the ultimate issue. Holding that a valid contract has been established,
respondent Court stated:

There is no dispute that the object of the transaction is that property owned by the
defendant bank as acquired assets consisting of six (6) parcels of land specifically
identified under Transfer Certificates of Title Nos. T-106932 to T-106937. It is
likewise beyond cavil that the bank intended to sell the property. As testified to by the
Banks Deputy Conservator, Jose Entereso, the bank was looking for buyers of the
property. It is definite that the plaintiffs wanted to purchase the property and it was
precisely for this purpose that they met with defendant Rivera, Manager of the
Property Management Department of the defendant bank, in early August 1987. The
procedure in the sale of acquired assets as well as the nature and scope of the authority
of Rivera on the matter is clearly delineated in the testimony of Rivera himself, which
testimony was relied upon by both the bank and by Rivera in their appeal briefs. Thus
(TSN of July 30, 1990. pp. 19-20):

A: The procedure runs this way: Acquired assets was turned over to me and then I
published it in the form of an inter-office memorandum distributed to all branches that
these are acquired assets for sale. I was instructed to advertise acquired assets for sale
so on that basis, I have to entertain offer; to accept offer, formal offer and upon having
been offered, I present it to the Committee. I provide the Committee with necessary
information about the property such as original loan of the borrower, bid price during
the foreclosure, total claim of the bank, the appraised value at the time the property is
being offered for sale and then the information which are relative to the evaluation of
the bank to buy which the Committee considers and it is the Committee that evaluate
as against the exposure of the bank and it is also the Committee that submit to the
Conservator for final approval and once approved, we have to execute the deed of sale
and it is the Conservator that sign the deed of sale, sir.
The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of
buying the property, dealt with and talked to the right person. Necessarily, the agenda
was the price of the property, and plaintiffs were dealing with the bank official
authorized to entertain offers, to accept offers and to present the offer to the
Committee before which the said official is authorized to discuss information relative
to price determination. Necessarily, too, it being inherent in his authority, Rivera is
the officer from whom official information regarding the price, as determined by the
Committee and approved by the Conservator, can be had. And Rivera confirmed his
authority when he talked with the plaintiff in August 1987. The testimony of plaintiff
Demetria is clear on this point (TSN of May 31, 1990, pp. 27-28):

Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did you
ask him point-blank his authority to sell any property?
A: No, sir. Not point blank although it came from him. (W)hen I asked him how long it
would take because he was saying that the matter of pricing will be passed upon
by the committee. And when I asked him how long it will take for the committee to
decide and he said the committee meets every week. If I am not mistaken
Wednesday and in about two weeks (sic) time, in effect what he was saying he
was not the one who was to decide. But he would refer it to the committee and he
would relay the decision of the committee to me.
Q: Please answer the question.
A: He did not say that he had the authority(.) But he said he would refer the matter to
the committee and he would relay the decision to me and he did just like that.

Parenthetically, the Committee referred to was the Past Due Committee of which Luis
Co was the Head, with Jose Entereso as one of the members.

What transpired after the meeting of early August 1987 are consistent with the
authority and the duties of Rivera and the banks internal procedure in the matter of the
sale of banks assets. As advised by Rivera, the plaintiffs made a formal offer by a
letter dated August 20, 1987 stating that they would buy at the price of P3.5 Million in
cash. The letter was for the attention of Mercurio Rivera who was tasked to convey
and accept such offers. Considering an aspect of the official duty of Rivera as some
sort of intermediary between the plaintiffs-buyers with their proposed buying price on
one hand, and the bank Committee, the Conservator and ultimately the bank itself
with the set price on the other, and considering further the discussion of price at the
meeting of August resulting in a formal offer of P3.5 Million in cash, there can be no
other logical conclusion than that when, on September 1, 1987, Rivera informed
plaintiffs by letter that the banks counter-offer is at P5.5 Million for more than 101
hectares on lot basis, such counter-offer price had been determined by the Past Due
Committee and approved by the Conservator after Rivera had duly presented plaintiffs
offer for discussion by the Committee of such matters as original loan of borrower,
bid price during foreclosure, total claim of the bank, and market value. Tersely put,
under the established facts, the price of P5.5 Million was, as clearly worded in Riveras
letter (Exh. E), the official and definitive price at which the bank was selling the
property.

There were averments by defendants below, as well as before this Court, that the P5.5
Million price was not discussed by the Committee and that it was merely quoted to
start negotiations regarding the price. As correctly characterized by the trial court, this
is not credible. The testimonies of Luis Co and Jose Entereso on this point are at best
equivocal and considering the gratuitous and self-serving character of these
declarations, the banks submission on this point does not inspire belief. Both Co and
Entereso, as members of the Past Due Committee of the bank, claim that the offer of
the plaintiff was never discussed by the Committee. In the same vein, both Co and
Entereso openly admit that they seldom attend the meetings of the Committee. It is
important to note that negotiations on the price had started in early August and the
plaintiffs had already offered an amount as purchase price, having been made to
understand by Rivera, the official in charge of the negotiation, that the price will be
submitted for approval by the bank and that the banks decision will be relayed to
plaintiffs. From the facts, the amount of P5.5 Million has a definite significance. It is
the official bank price. At any rate, the bank placed its official, Rivera, in a position of
authority to accept offers to buy and negotiate the sale by having the offer officially
acted upon by the bank. The bank cannot turn around and later say, as it now does,
that what Rivera states as the banks action on the matter is not in fact so. It is a
familiar doctrine, the doctrine of ostensible authority, that if a corporation knowingly
permits one of its officers, or any other agent, to do acts within the scope of an
apparent authority, and thus holds him out to the public as possessing power to do
those acts, the corporation will, as against any one who has in good faith dealt with
the corporation through such agent, he estopped from denying his authority (Francisco
v. GSIS, 7 SCRA 577, 583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370;
Prudential Bank v. Court of Appeals, G.R. No. 103957, June 14, 1993). [29]

Article 1318 of the Civil Code enumerates the requisites of a valid and
perfected contract as follows: (1) Consent of the contracting parties; (2) Object
certain which is the subject matterof the contract; (3) Cause of the obligation
which is established.
There is no dispute on requisite no. 2. The object of the questioned
contract consists of the six (6) parcels of land in Sta. Rosa, Laguna with an
aggregate area of about 101 hectares, more or less, and covered by Transfer
Certificates of Title Nos. T-106932 to T-106937. There is, however, a dispute
on the first and third requisites.
 Petitioners allege that there is no counter-offer made by the Bank, and any
supposed counter-offer which Rivera (or Co) may have made is unauthorized.
Since there was no counter-offer by the Bank, there was nothing for Ejercito
(in substitution of Demetria and Janolo) to accept. They disputed the factual
[30]

basis of the respondent Courts findings that there was an offer made by
Janolo for P3.5 million, to which the Bank counter-offered P5.5 million. We
have perused the evidence but cannot find fault with the said Courts findings
of fact. Verily, in a petition under Rule 45 such as this, errors of fact -if there
be any - are, as a rule, not reviewable. The mere fact that respondent Court
(and the trial court as well) chose to believe the evidence presented by
respondent more than that presented by petitioners is not by itself a reversible
error. in fact, such findings merit serious consideration by this Court,
particularly where, as in this case, said courts carefully and meticulously
discussed their findings. This is basic.
Be that as it may, and in addition to the foregoing disquisitions by the
Court of Appeals, let us review the question of Riveras authority to act and
petitioners allegations that the P5.5 million counter-offer was extinguished by
the P4.25 million revised offer of Janolo. Here, there are questions of law
which could be drawn from the factual findings of the respondent Court. They
also delve into the contractual elements of consent and cause.
The authority of a corporate officer in dealing with third persons may be
actual or apparent. The doctrine of apparent authority, with special reference
to banks, was laid out in Prudential Bank vs. Court of Appeals, where it was
[31]

held that:

Conformably, we have declared in countless decisions that the principal is liable for
obligations contracted by the agent. The agents apparent representation yields to the
principals true representation and the contract is considered as entered into between
the principal and the third person (citing National Food Authority vs. Intermediate
Appellate Court, 184 SCRA 166).

A bank is liable for wrongful acts of its officers done in the interests of the bank or in
the course of dealings of the officers in their representative capacity but not for acts
outside the scope of their authority (9 C.J.S., p. 417). A bank holding out its officers
and agents as worthy of confidence will not be permitted to profit by the frauds they
may thus be enabled to perpetrate in the apparent scope of their employment; nor will
it be permitted to shirk its responsibility for such frauds, even though no benefit may
accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking
corporation is liable to innocent third persons where the representation is made in the
course of its business by an agent acting within the general scope of his authority even
though, in the particular case, the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or some other person, for his own
ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR
1021).

Application of these principles is especially necessary because banks have a fiduciary

relationship with the public and their stability depends on the confidence of the people
in their honesty and efficiency. Such faith will be eroded where banks do not exercise
strict care in the selection and supervision of its employees, resulting in prejudice to
their depositors.

From the evidence found by respondent Court, it is obvious that petitioner

Rivera has apparent or implied authority to act for the Bank in the matter of
selling its acquired assets. This evidence includes the following:

(a) The petition itself in par. II-1 (p. 3) states that Rivera was at all times material to
this case, Manager of the Property Management Department of the Bank. By his own
admission, Rivera was already the person in charge of the Banks acquired assets
(TSN, August 6, 1990, pp. 8-9);

(b) As observed by respondent Court, the land was definitely being sold by the Bank.
And during the initial meeting between the buyers and Rivera, the latter suggested that
the buyers offer should be no less than P3.3 million (TSN, April 26, 1990, pp. 16-17);

(c) Rivera received the buyers letter dated August 30, 1987 offering P3.5 million
(TSN, 30 July 1990, p. 11);

(d) Rivera signed the letter dated September 1, 1987 offering to sell the property for
P5.5 million (TSN, July 30, p. 11);

(e) Rivera received the letter dated September 17, 1987 containing the buyers
proposal to buy the property for P4.25 million (TSN, July 30, 1990, p. 12);

(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final
price of the Bank (TSN, January 16, 1990, p. 18);

(g) Rivera arranged the meeting between the buyers and Luis Co on September 28,
1987, during which the Banks offer of P5.5 million was confirmed by Rivera (TSN,
April 26, 1990, pp. 34-35). At said meeting, Co, a major shareholder and officer of the
Bank, confirmed Riveras statement as to the finality of the Banks counter-offer of
P5.5 million (TSN, January 16, 1990, p. 21; TSN, April 26, 1990, p. 35);
(h) In its newspaper advertisements and announcements, the Bank referred to Rivera
as the officer acting for the Bank in relation to parties interested in buying assets
owned/acquired by the Bank. In fact, Rivera was the officer mentioned in the Banks
advertisements offering for sale the property in question (cf. Exhs. S and S-I).

In the very recent case of Limketkai Sons Milling, Inc. vs. Court of
Appeals, et al., the Court, through Justice Jose A. R. Melo, affirmed the
[32]

doctrine of apparent authority as it held that the apparent authority of the

officer of the Bank of P.I. in charge of acquired assets is borne out by similar
circumstances surrounding his dealings with buyers.
To be sure, petitioners attempted to repudiate Riveras apparent authority
through documents and testimony which seek to establish
Riveras actual authority. These pieces of evidence, however, are inherently
weak as they consist of Riveras self-serving testimony and various inter-office
memoranda that purport to show his limited actual authority, of which private
respondent cannot be charged with knowledge. In any event, since the issue
is apparent authority, the existence of which is borne out by the respondent
Courts findings, the evidence of actual authority is immaterial insofar as the
liability of a corporation is concerned. [33]

Petitioners also argued that since Demetria and Janolo were experienced
lawyers and their law firm had once acted for the Bank in three criminal cases,
they should be charged with actual knowledge of Riveras limited authority. But
the Court of Appeals in its Decision (p. 12) had already made a factual finding
that the buyers had no notice of Riveras actual authority prior to the sale. In
fact, the Bank has not shown that they acted as its counsel in respect to any
acquired assets; on the other hand, respondent has proven that Demetria and
Janolo merely associated with a loose aggrupation of lawyers (not a
professional partnership), one of whose members (Atty. Susana Parker) acted
in said criminal cases.
Petitioners also alleged that Demetrias and Janolos P4.25 million counter-
offer in the letter dated September 17, 1987 extinguished the Banks offer of
P5.5 million. They disputed the respondent Courts finding that there was a
[34]

meeting of minds when on 30 September 1987 Demetria and Janolo through

Annex L (letter dated September 30, 1987) accepted Riveras counter offer of
P5.5 million under Annex J (letter dated September 17, 1987), citing the late
Justice Paras, Art. 1319 of the Civil Code and related Supreme Court
[35] [36]

rulings starting with Beaumont vs. Prieto. [37]

However, the above-cited authorities and precedents cannot apply in the

instant case because, as found by the respondent Court which reviewed the
testimonies on this point, what was accepted by Janolo in his letter dated
September 30, 1987 was the Banks offer of P5.5 million as confirmed and
reiterated to Demetria and Atty. Jose Fajardo by Rivera and Co during their
meeting on September 28, 1987. Note that the said letter of September 30,
1987 begins with (p)ursuant to our discussion last 28 September 1987 x x x.
Petitioners insist that the respondent Court should have believed the
testimonies of Rivera and Co that the September 28, 1987 meeting was
meant to have the offerors improve on their position of P5.5
million. However, both the trial court and the Court
[38]
of Appeals found
petitioners testimonial evidence not credible, and we find no basis for
changing this finding of fact.
Indeed, we see no reason to disturb the lower courts (both the RTC and
the CA) common finding that private respondents evidence is more in keeping
with truth and logic - that during the meeting on September 28, 1987, Luis Co
and Rivera confirmed that the P5.5 million price has been passed upon by the
Committee and could no longer be lowered (TSN of April 27, 1990, pp. 34-
35). Hence, assuming arguendo that the counter-offer of P4.25 million
[39]

extinguished the offer of P5.5 million, Luis Cos reiteration of the said P5.5
million price during the September 28, 1987 meeting revived the said offer.
And by virtue of the September 30, 1987 letter accepting this revived offer,
there was a meeting of the minds, as the acceptance in said letter was
absolute and unqualified.
We note that the Banks repudiation, through Conservator Encarnacion, of
Riveras authority and action, particularly the latters counter-offer of P5.5
million, as being unauthorized and illegal came only on May 12, 1988 or more
than seven (7) months after Janolos acceptance. Such delay, and the
absence of any circumstance which might have justifiably prevented the Bank
from acting earlier, clearly characterizes the repudiation as nothing more than
a last-minute attempt on the Banks part to get out of a binding contractual
obligation.
Taken together, the factual findings of the respondent Court point to an
implied admission on the part of the petitioners that the written offer made
on September 1, 1987 was carried through during the meeting of September
28, 1987. This is the conclusion consistent with human experience, truth and
good faith.
It also bears noting that this issue of extinguishment of the Banks offer of
P5.5 million was raised for the first time on appeal and should thus be
disregarded.
This Court in several decisions has repeatedly adhered to the principle that points of
law, theories, issues of fact and arguments not adequately brought to the attention of
the trial court need not be, and ordinarily will not be, considered by a reviewing court,
as they cannot be raised for the first time on appeal (Santos vs. IAC, No. 74243,
November 14, 1986, 145 SCRA 592). [40]

xxx It is settled jurisprudence that an issue which was neither averred in the complaint
nor raised during the trial in the court below cannot be raised for the first time on
appeal as it would be offensive to the basic rules of fair play, justice and due process
(Dihiansan vs. CA, 153 SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA 434
[1987]; Dulos Realty & Development Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs.
IAC, 175 SCRA 70 [1989]; Gevero vs. IAC, G.R. 77029, August 30, 1990). [41]

Since the issue was not raised in the pleadings as an affirmative defense,
private respondent was not given an opportunity in the trial court to controvert
the same through opposing evidence. Indeed, this is a matter of due process.
But we passed upon the issue anyway, if only to avoid deciding the case on
purely procedural grounds, and we repeat that, on the basis of the evidence
already in the record and as appreciated by the lower courts, the inevitable
conclusion is simply that there was a perfected contract of sale.

The Third Issue: Is the Contract Enforceable?

The petition alleged: [42]

Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million
during the meeting of 28 September 1987, and it was this verbal offer that Demetria
and Janolo accepted with their letter of 30 September 1987, the contract produced
thereby would be unenforceable by action - there being no note, memorandum or
writing subscribed by the Bank to evidence such contract. (Please see Article 1403[2],
Civil Code.)

Upon the other hand, the respondent Court in its Decision (p. 14) stated:

x x x Of course, the banks letter of September 1, 1987 on the official price and the
plaintiffs acceptance of the price on September 30, 1987, are not, in themselves,
formal contracts of sale. They are however clear embodiments of the fact that a
contract of sale was perfected between the parties, such contract being binding in
whatever form it may have been entered into (case citations omitted). Stated simply,
the banks letter of September 1, 1987, taken together with plaintiffs letter
dated September 30, 1987, constitute in law a sufficient memorandum of a perfected
contract of sale.

The respondent Court could have added that the written communications
commenced not only from September 1, 1987 but from Janolos August 20,
1987 letter. We agree that, taken together, these letters constitute sufficient
memoranda - since they include the names of the parties, the terms and
conditions of the contract, the price and a description of the property as the
object of the contract.
But let it be assumed arguendo that the counter-offer during the meeting
on September 28, 1987 did constitute a new offer which was accepted by
Janolo on September 30, 1987. Still, the statute of frauds will not apply by
reason of the failure of petitioners to object to oral testimony proving petitioner
Banks counter-offer of P5.5 million. Hence, petitioners - by such utter failure to
object - are deemed to have waived any defects of the contract under the
statute of frauds, pursuant to Article 1405 of the Civil Code:

Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article
1403, are ratified by the failure to object to the presentation of oral evidence to prove
the same, or by the acceptance of benefits under them.

As private respondent pointed out in his Memorandum, oral testimony on

the reaffirmation of the counter-offer of P5.5 million is aplenty -and the silence
of petitioners all throughout the presentation makes the evidence binding on
them thus:
A - Yes, sir. I think it was September 28, 1987 and I was again present because Atty.
Demetria told me to accompany him and we were able to meet Luis Co at the
Bank.
xxx xxx xxx
Q - Now, what transpired during this meeting with Luis Co of the Producers Bank?
A - Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.
Q - What price?
A - The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio
Rivera is the final price and that is the price they intends (sic) to have, sir.
Q - What do you mean?
A - That is the amount they want, sir.
Q - What is the reaction of the plaintiff Demetria to Luis Cos statment (sic) that the
defendant Riveras counter-offer of 5.5 million was the defendants bank (sic) final
offer?
 A - He said in a day or two, he will make final acceptance, sir.
Q - What is the response of Mr. Luis Co?
A - He said he will wait for the position of Atty. Demetria, sir.

[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]

----0----
Q - What transpired during that meeting between you and Mr. Luis Co of the defendant
Bank?
A - We went straight to the point because he being a busy person, I told him if the
amount of P5.5 million could still be reduced and he said that was already passed
upon by the committee. What the bank expects which was contrary to what Mr.
Rivera stated. And he told me that is the final offer of the bank P5.5 million and we
should indicate our position as soon as possible.
Q - What was your response to the answer of Mr. Luis Co?
A - I said that we are going to give him our answer in a few days and he said that was
it. Atty. Fajardo and I and Mr. Mercurio [Rivera] was with us at the time at his
office.
Q - For the record, your Honor please, will you tell this Court who was with Mr. Co in
his Office in Producers Bank Building during this meeting?
A - Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.
Q - By Mr. Co you are referring to?
A - Mr. Luis Co.
Q - After this meeting with Mr. Luis Co, did you and your partner accede on (sic) the
counter offer by the bank?
A - Yes, sir, we did. Two days thereafter we sent our acceptance to the bank which
offer we accepted, the offer of the bank which is P5.5 million.

[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]

---- 0 ----
Q - According to Atty. Demetrio Demetria, the amount of P5.5 million was reached by
the Committee and it is not within his power to reduce this amount. What can you
say to that statement that the amount of P5.5 million was reached by the
Committee?
A - It was not discussed by the Committee but it was discussed initially by Luis Co and
the group of Atty. Demetrio Demetria and Atty. Pajardo (sic), in that September 28,
1987 meeting, sir.

[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]

 The Fourth Issue: May the Conservator Revoke
the Perfected and Enforceable Contract?
It is not disputed that the petitioner Bank was under a conservator placed
by the Central Bank of the Philippines during the time that the negotiation and
perfection of the contract of sale took place. Petitioners energetically
contended that the conservator has the power to revoke or overrule actions of
the management or the board of directors of a bank, under Section 28-A of
Republic Act No. 265 (otherwise known as the Central Bank Act) as follows:

Whenever, on the basis of a report submitted by the appropriate supervising or

examining department, the Monetary Board finds that a bank or a non-bank financial
intermediary performing quasi - banking functions is in a state of continuing inability
or unwillingness to maintain a state of liquidity deemed adequate to protect the
interest of depositors and creditors, the Monetary Board may appoint a conservator to
take charge of the assets, liabilities, and the management of that institution, collect all
monies and debts due said institution and exercise all powers necessary to preserve
the assets of the institution, reorganize the management thereof, and restore its
viability. He shall have the power to overrule or revoke the actions of the previous
management and board of directors of the bank or non-bank financial intermediary
performing quasi-banking functions, any provision of law to the contrary
notwithstanding, and such other powers as the Monetary Board shall deem necessary.

In the first place, this issue of the Conservators alleged authority to revoke
or repudiate the perfected contract of sale was raised for the first time in this
Petition - as this was not litigated in the trial court or Court of Appeals. As
already stated earlier, issues not raised and/or ventilated in the trial court, let
alone in the Court of Appeals, cannot be raised for the first time on appeal as
it would be offensive to the basic rules of fair play, justice and due process. [43]

In the second place, there is absolutely no evidence that the Conservator,

at the time the contract was perfected, actually repudiated or overruled said
contract of sale. The Banks acting conservator at the time, Rodolfo Romey,
never objected to the sale of the property to Demetria and Janolo. What
petitioners are really referring to is the letter of Conservator Encarnacion, who
took over from Romey after the sale was perfected on September 30,
1987 (Annex V, petition) which unilaterally repudiated - not the contract - but
the authority of Rivera to make a binding offer - and which unarguably came
months after the perfection of the contract. Said letter dated May 12, 1988 is
reproduced hereunder:

May 12, 1988

Atty. Noe C. Zarate
Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building
Ayala Avenue, Makati, Metro Manila

Dear Atty. Zarate:

This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and
Demetria regarding the six (6) parcels of land located at Sta. Rosa, Laguna.

We deny that Producers Bank has ever made a legal counter-offer to any of your
clients nor perfected a contract to sell and buy with any of them for the following
reasons.

In the Inter-Office Memorandum dated April 25, 1986 addressed to and approved by
former Acting Conservator Mr. Andres I. Rustia, Producers Bank Senior Manager
Perfecto M. Pascua detailed the functions of Property Management Department
(PMD) staff and officers (Annex A), you will immediately read that Manager Mr.
Mercurio Rivera or any of his subordinates has no authority, power or right to make
any alleged counter-offer. In short, your lawyer-clients did not deal with the
authorized officers of the bank.

Moreover, under Secs. 23 and 36 of the Corporation Code of the Philippines (Batas
Pambansa Blg. 68) and Sec. 28-A of the Central Bank Act (Rep. Act No. 265, as
amended), only the Board of Directors/Conservator may authorize the sale of any
property of the corporation/bank.

Our records do not show that Mr. Rivera was authorized by the old board or by any of
the bank conservators (starting January, 1984) to sell the aforesaid property to any of
your clients. Apparently, what took place were just preliminary discussions/
consultations between him and your clients, which everyone knows cannot bind the
Banks Board or Conservator.

We are, therefore, constrained to refuse any tender of payment by your clients, as the
same is patently violative of corporate and banking laws. We believe that this is more
than sufficient legal justification for refusing said alleged tender.

Rest assured that we have nothing personal against your clients. All our acts are
official, legal and in accordance with law. We also have no personal interest in any of
the properties of the Bank.

Please be advised accordingly.

 Very truly yours,

(Sgd.) Leonida T. Encarnacion

LEONIDA T. ENCARNACION
Acting Conservator
In the third place, while admittedly, the Central Bank law gives vast and
far-reaching powers to the conservator of a bank, it must be pointed out that
such powers must be related to the (preservation of) the assets of the bank,
(the reorganization of) the management thereof and (the restoration of) its
viability. Such powers, enormous and extensive as they are, cannot extend to
the post-facto repudiation of perfected transactions, otherwise they would
infringe against the non-impairment clause of the Constitution. If the [44]

legislature itself cannot revoke an existing valid contract, how can it delegate
such non-existent powers to the conservator under Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives the conservator power to
revoke contracts that are, under existing law, deemed to be defective - i.e.,
void, voidable, unenforceable or rescissible. Hence, the conservator merely
takes the place of a banks board of directors. What the said board cannot do -
such as repudiating a contract validly entered into under the doctrine of
implied authority - the conservator cannot do either. Ineluctably, his power is
not unilateral and he cannot simply repudiate valid obligations of the Bank. His
authority would be only to bring court actions to assail such contracts - as he
has already done so in the instant case. A contrary understanding of the law
would simply not be permitted by the Constitution. Neither by common sense.
To rule otherwise would be to enable a failing bank to become solvent, at the
expense of third parties, by simply getting the conservator to unilaterally
revoke all previous dealings which had one way or another come to be
considered unfavorable to the Bank, yielding nothing to perfected contractual
rights nor vested interests of the third parties who had dealt with the Bank.

The Fifth Issue: Were There Reversible Errors of Fact?

Basic is the doctrine that in petitions for review under Rule 45 of the Rules
of Court, findings of fact by the Court of Appeals are not reviewable by the
Supreme Court. In Andres vs. Manufacturers Hanover & Trust
Corporation, we held:
[45]
x x x. The rule regarding questions of fact being raised with this Court in a petition for
certiorari under Rule 45 of the Revised Rules of Court has been stated in Remalante
vs. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus:

The rule in this jurisdiction is that only questions of law may be raised in a petition
for certiorari under Rule 45 of the Revised Rules of Court. The jurisdiction of the
Supreme Court in cases brought to it from the Court of Appeals is limited to reviewing
and revising the errors of law imputed to it, its findings of the fact being conclusive
[Chan vs. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737,
reiterating a long line of decisions]. This Court has emphatically declared that it is
not the function of the Supreme Court to analyze or weigh such evidence all
over again, its jurisdiction being limited to reviewing errors of law that might have
been committed by the lower court (Tiongco v. De la Merced, G.R. No. L-24426, July
25, 1974, 58 SCRA 89; Corona vs. Court of Appeals, G.R. No. L-62482, April 28,
1983, 121 SCRA 865; Baniqued vs. Court of Appeals, G.R. No. L-47531, February 20,
1984, 127 SCRA 596). Barring, therefore, a showing that the findings complained of
are totally devoid of support in the record, or that they are so glaringly erroneous as
to constitute serious abuse of discretion, such findings must stand, for this Court is
not expected or required to examine or contrast the oral and documentary evidence
submitted by the parties [Santa Ana, Jr. vs. Hernandez, G.R. No. L-16394, December
17, 1966, 18 SCRA 973] [at pp. 144-145.]

Likewise, in Bernardo vs. Court of Appeals, we held:

[46]

The resolution of this petition invites us to closely scrutinize the facts of the case,
relating to the sufficiency of evidence and the credibility of witnesses presented. This
Court so held that it is not the function of the Supreme Court to analyze or weigh such
evidence all over again. The Supreme Courts jurisdiction is limited to reviewing
errors of law that may have been committed by the lower court. The Supreme Court is
not a trier of facts. x x x

As held in the recent case of Chua Tiong Tay vs. Court of Appeals and
Goldrock Construction and Development Corp.: [47]

The Court has consistently held that the factual findings of the trial court, as well as
the Court of Appeals, are final and conclusive and may not be reviewed on appeal.
Among the exceptional circumstances where a reassessment of facts found by the
lower courts is allowed are when the conclusion is a finding grounded entirely on
speculation, surmises or conjectures; when the inference made is manifestly absurd,
mistaken or impossible; when there is grave abuse of discretion in the appreciation of
facts; when the judgment is premised on a misapprehension of facts; when the
findings went beyond the issues of the case and the same are contrary to the
admissions of both appellant and appellee. After a careful study of the case at bench,
we find none of the above grounds present to justify the re-evaluation of the findings
of fact made by the courts below.

In the same vein, the ruling of this Court in the recent case of South Sea
Surety and Insurance Company, Inc. vs. Hon. Court of Appeals, et al. is [48]

equally applicable to the present case:

We see no valid reason to discard the factual conclusions of the appellate court. x x x
(I)t is not the function of this Court to assess and evaluate all over again the evidence,
testimonial and documentary, adduced by the parties, particularly where, such as here,
the findings of both the trial court and the appellate court on the matter coincide.
(italics supplied)

Petitioners, however, assailed the respondent Courts Decision as fraught

with findings and conclusions which were not only contrary to the evidence on
record but have no bases at all, specifically the findings that (1) the Banks
counter-offer price of P5.5 million had been determined by the past due
committee and approved by conservator Romey, after Rivera presented the
same for discussion and (2) the meeting with Co was not to scale down the
price and start negotiations anew, but a meeting on the already determined
price of P5.5 million. Hence, citing Philippine National Bank vs. Court of
Appeals, petitioners are asking us to review and reverse such factual
[49]

findings.
The first point was clearly passed upon by the Court of Appeals, thus: [50]

There can be no other logical conclusion than that when, on September 1, 1987,
Rivera informed plaintiffs by letter that the banks counter-offer is at P5.5 Million for
more than 101 hectares on lot basis, such counter-offer price had been determined by
the Past Due Committee and approved by the Conservator after Rivera had duly
presented plaintiffs offer for discussion by the Committee x x x. Tersely put, under the
established fact, the price of P5.5 Million was, as clearly worded in Riveras letter
(Exh. E), the official and definitive price at which the bank was selling the property.
(p. 11, CA Decision)

xxx xxx xxx

xxx. The argument deserves scant consideration. As pointed out by plaintiff, during
the meeting of September 28, 1987 between the plaintiffs, Rivera and Luis Co, the
senior vice-president of the bank, where the topic was the possible lowering of the
price, the bank official refused it and confirmed that the P5.5 Million price had been
passed upon by the Committee and could no longer be lowered (TSN of April 27,
1990, pp. 34-35) (p. 15, CA Decision).

The respondent Court did not believe the evidence of the petitioners on
this point, characterizing it as not credible and at best equivocal,
and considering the gratuitous and self-serving character of these
declarations, the banks submissions on this point do not inspire belief.
To become credible and unequivocal, petitioners should have presented
then Conservator Rodolfo Romey to testify on their behalf, as he would have
been in the best position to establish their thesis. Under the rules on
evidence, such suppression gives rise to the presumption that his testimony
[51]

would have been adverse, if produced.

The second point was squarely raised in the Court of Appeals, but
petitioners evidence was deemed insufficient by both the trial court and the
respondent Court, and instead, it was respondents submissions that were
believed and became bases of the conclusions arrived at.
In fine, it is quite evident that the legal conclusions arrived at from the
findings of fact by the lower courts are valid and correct. But the petitioners
are now asking this Court to disturb these findings to fit the conclusion they
are espousing. This we cannot do.
To be sure, there are settled exceptions where the Supreme Court may
disregard findings of fact by the Court of Appeals. We have studied both the
[52]

records and the CA Decision and we find no such exceptions in this case. On
the contrary, the findings of the said Court are supported by a preponderance
of competent and credible evidence. The inferences and conclusions are
reasonably based on evidence duly identified in the Decision. Indeed, the
appellate court patiently traversed and dissected the issues presented before
it, lending credibility and dependability to its findings. The best that can be
said in favor of petitioners on this point is that the factual findings of
respondent Court did not correspond to petitioners claims, but were closer to
the evidence as presented in the trial court by private respondent. But this
alone is no reason to reverse or ignore such factual findings, particularly
where, as in this case, the trial court and the appellate court were in common
agreement thereon. Indeed, conclusions of fact of a trial judge - as affirmed by
the Court of Appeals - are conclusive upon this Court, absent any serious
abuse or evident lack of basis or capriciousness of any kind, because the trial
court is in a better position to observe the demeanor of the witnesses and
their courtroom manner as well as to examine the real evidence presented.
 Epilogue

In summary, there are two procedural issues involved - forum-shopping

and the raising of issues for the first time on appeal [viz., the extinguishment
of the Banks offer of P5.5 million and the conservators powers to repudiate
contracts entered into by the Banks officers] - which per se could justify the
dismissal of the present case. We did not limit ourselves thereto, but delved
as well into the substantive issues - the perfection of the contract of sale and
its enforceability, which required the determination of questions of fact. While
the Supreme Court is not a trier of facts and as a rule we are not required to
look into the factual bases of respondent Courts decisions and resolutions, we
did so just the same, if only to find out whether there is reason to disturb any
of its factual findings, for we are only too aware of the depth, magnitude and
vigor by which the parties, through their respective eloquent counsel, argued
their positions before this Court.
We are not unmindful of the tenacious plea that the petitioner Bank is
operating abnormally under a government-appointed conservator and there is
need to rehabilitate the Bank in order to get it back on its feet x x x as many
people depend on (it) for investments, deposits and well as employment. As of
June 1987, the Banks overdraft with the Central Bank had already reached
P1.023 billion x x x and there were (other) offers to buy the subject properties
for a substantial amount of money. [53]

While we do not deny our sympathy for this distressed bank, at the same
time, the Court cannot emotionally close its eyes to overriding considerations
of substantive and procedural law, like respect for perfected contracts, non-
impairment of obligations and sanctions against forum-shopping, which must
be upheld under the rule of law and blind justice.
This Court cannot just gloss over private respondents submission that,
while the subject properties may currently command a much higher price, it is
equally true that at the time of the transaction in 1987, the price agreed upon
of P5.5 million was reasonable, considering that the Bank acquired these
properties at a foreclosure sale for no more than P 3.5 million. That the
[54]

Bank procrastinated and refused to honor its commitment to sell cannot now
be used by it to promote its own advantage, to enable it to escape its binding
obligation and to reap the benefits of the increase in land values. To rule in
favor of the Bank simply because the property in question has algebraically
accelerated in price during the long period of litigation is to reward
lawlessness and delays in the fulfillment of binding contracts. Certainly, the
Court cannot stamp its imprimatur on such outrageous proposition.
 WHEREFORE, finding no reversible error in the questioned Decision and
Resolution, the Court hereby DENIES the petition. The assailed Decision is
AFFIRMED. Moreover, petitioner Bank is REPRIMANDED for engaging in
forum-shopping and WARNED that a repetition of the same or similar acts will
be dealt with more severely. Costs against petitioners.
SO ORDERED.
G.R. No. L-61689 June 20, 1988

RURAL BANK OF BUHI, INC., and HONORABLE JUDGE CARLOS R. BUENVIAJE, petitioners,
vs.
HONORABLE COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES and
CONSOLACION ODRA, respondents.

Manuel B. Tomacruz and Rustico Pasilavan for petitioners.

I.B. Regalado, Jr. and Pacifica T. Torres for respondents.

PARAS, J.:

This is a petition for review on certiorari with preliminary mandatory injunction seeking the reversal of the orders of the Court of Appeals
dated March 19, 1982 and March 24, 1982 and its decision * (HATOL) promulgated on June 17,1982 in CA-G.R. No. 13944 entitled "Banko
Central ng Pilipinas at Consolacion Odra Laban Kina Rural Bank of Buhi (Camarines Sur), Inc." and praying for a restraining order or a
preliminary mandatory injunction to restrain respondents from enforcing aforesaid orders and decision of the respondent Court, and to give
due course to the petitioners' complaint in IR-428, pending before Hon. Judge Carlos R. Buenviaje of Branch VII, CFI, Camarines Sur.

The decretal portion of the appealed decision reads:

DAHIL DITO, ang utos ng pinasasagot sa Hukom noong ika-9 ng Marso, 1982, ay
isinasang-tabi. Kapalit nito, isang utos and ipinalabas na nag-uutos sa pinasasagot
sa Hukom na itigil ang anumang pagpapatuloy o pagdidinig kaugnay sa usaping IR-
428 na pinawawalang saysay din ng Hukumang ito.

SIYANG IPINAG-UUTOS.

The antecedent facts of the case are as follows:

The petitioner Rural Bank of Buhi, Inc. (hereinafter referred to as Buhi) is a juridical entity existing
under the laws of the Philippines. Buhi is a rural bank that started its operations only on December
26,1975 (Rollo, p. 86).

In 1980, an examination of the books and affairs of Buhi was ordered conducted by the Rural Banks
and Savings and Loan Association (DRBSLA), Central Bank of the Philippines, which by law, has
charge of the supervision and examination of rural banks and savings and loan associations in the
Philippines. However, said petitioner refused to be examined and as a result thereof, financial
assistance was suspended.

On January 10, 1980, a general examination of the bank's affairs and operations was conducted and
there were found by DRBSLA represented by herein respondent, Consolacion V. Odra, Director of
DRBSLA, among others, massive irregularities in its operations consisting of loans to unknown and
fictitious borrowers, where the sum of P 1,704,782.00 was past due and another sum
of P1,130,000.00 was also past due in favor of the Central Bank (Rollo, p. 86). The promissory notes
evidencing these loans were rediscounted with the Central Bank for cash. As a result thereof, the
bank became insolvent and prejudiced its depositors and creditors.

Respondent, Consolacion V. Odra, submitted a report recommending to the Monetary Board of the
Central Bank the placing of Buhi under receivership in accordance with Section 29 of Republic Act
No. 265, as amended, the designation of the Director, DRBSLA, as receiver thereof. On March 28,
1980, the Monetary Board, finding the report to be true, adopted Resolution No. 583
placing Buhi, petitioner herein, under receivership and designated respondent, Consolacion V. Odra,
as Receiver, pursuant to the provisions of Section 29 of Republic Act No. 265 as amended (Rollo, p.
111).

In a letter dated April 8, 1980, respondent Consolacion V. Odra, as receiver, implemented and
carried out said Monetary Board Resolution No. 583 by authorizing deputies of the receiver to take
control, possession and charge of Buhi, its assets and liabilities (Rollo, p. 109).

Imelda del Rosario, Manager of herein petitioner Buhi, filed a petition for injunction with Restraining
Order dated April 23, 1980, docketed as Special Proceedings IR-428 against respondent
Consolacion V. Odra and DRBSLA deputies in the Court of First Instance of Camarines Sur, Branch
VII, Iriga City, entitled Rural Bank of Buhi vs. Central Bank, which assailed the action of herein
respondent Odra in recommending the receivership over Buhi as a violation of the provisions of
Sections 28 and 29 of Republic Act No. 265 as amended, and Section 10 of Republic Act No. 720
(The Rural Banks Act) and as being ultra vires and done with grave abuse of discretion and in
excess of jurisdiction (Rollo, p. 120).

Respondents filed their motion to dismiss dated May 27, 1980 alleging that the petition did not allege
a cause of action and is not sufficient in form and substance and that it was filed in violation of
Section 29, Republic Act No. 265 as amended by Presidential Decree No. 1007 (Rollo, p. 36).

Petitioners, through their counsel, filed an opposition to the motion to dismiss dated June 17, 1980
averring that the petition alleged a valid cause of action and that respondents have violated the due
process clause of the Constitution (Rollo, p. 49).

Later, respondents filed a reply to the opposition dated July 1, 1980, claiming that the petition is not
proper; that Imelda del Rosario is not the proper representative of the bank; that the petition failed to
state a cause of action; and, that the provisions of Section 29 of Republic Act No. 265 had been
faithfully observed (Rollo, p. 57).

On August 22, 1980, the Central Bank Monetary Board issued a Resolution No. 1514 ordering the
liquidation of the Rural Bank of Buhi (Rollo, p. 108).

On September 1, 1981, the Office of the Solicitor General, in accordance with Republic Act No. 265,
Section 29, filed in the same Court of First Instance of Camarines Sur, Branch VII, a petition for
Assistance in the Liquidation of Buhi, which petition was docketed as SP-IR-553, pursuant to the
Monetary Board Resolution No. 1514 (Rollo, pp. 89; 264).

Meanwhile, respondent Central Bank filed on September 15, 1981, in Civil Case No. IR-428 a
Supplemental Motion To Dismiss on the ground that the receivership of Buhi, in view of the issuance
of the Monetary Board Resolution No. 1514 had completely become moot and academic (Rollo, p.
68) and the fact that Case SP-IR-553 for the liquidation of Buhi was already pending with the same
Court (Rollo, p. 69).

On October 16, 1981, petitioners herein filed their amended complaint in Civil Case No. IR-428
alleging that the issuance of Monetary Board Resolution No. 583 was plainly arbitrary and in bad
faith under aforequoted Section 29 of Republic Act No. 265 as amended, among others (Rollo, p.
28). On the same day, petitioner herein filed a rejoinder to its opposition to the motion to dismiss
(Rollo, p. 145).
On March 9,1982, herein petitioner Judge Buenviaje, issued an order denying the respondents'
motion to dismiss, supplemental motion to dismiss and granting a temporary restraining order
enjoining respondents from further managing and administering the Rural Bank of Buhi and to
deliver the possession and control thereof to the petitioner Bank under the same conditions and with
the same financial status as when the same was taken over by herein respondents (defendants) on
April 16, 1980 and further enjoining petitioner to post a bond in the amount of three hundred
thousand pesos (P300,000.00) (Rollo, p. 72).

The dispositive portion of said decision reads:

WHEREFORE, premises considered, the motion to dismiss and supplemental motion

to dismiss, in the light of petitioners' opposition, for want of sufficient merit is denied.
Respondents are hereby directed to file their answer within ten (10) days from receipt
of a copy of this order. (Rollo, p. 4).

On March 11, 1982, petitioner Buhi through counsel, conformably with the above-mentioned order,
filed a Motion to Admit Bond in the amount of P300,220.00 (Rollo, pp. 78-80).

On March 15,1982, herein petitioner Judge issued the order admitting the bond of P300,220.00 filed
by the petitioner, and directing the respondents to surrender the possession of the Rural Bank of
Buhi, together with all its equipments, accessories, etc. to the petitioners (Rollo, p. 6).

Consequently, on March 16, 1982, herein petitioner Judge issued the writ of execution directing the
Acting Provincial Sheriff of Camarines Sur to implement the Court's order of March 9, 1982 (Rollo, p.
268). Complying with the said order of the Court, the Deputy Provincial Sheriff went to the Buhi
premises to implement the writ of execution but the vault of the petitioner bank was locked and no
inventory was made, as evidenced by the Sheriffs Report (Rollo, pp. 83-84). Thus, the petitioner
herein filed with the Court an "Urgent Ex-Parte Motion to Allow Sheriff Calope to Force Open Bank
Vault" on the same day (Rollo, p. 268). Accordingly, on March 17, 1982, herein petitioner Judge
granted the aforesaid Ex-Parte Motion to Force Open the Bank Vault (Rollo, p. 269).

On March 18, 1982, counsel for petitioner filed another "Urgent Ex-Parte Motion to Order Manager of
City Trust to Allow Petitioner to Withdraw Rural Bank Deposits" while a separate "Urgent Ex-Parte
Motion to Order Manager of Metrobank to Release Deposits of Petitioners" was filed on the same
date. The motion was granted by the Court in an order directing the Manager of Metro Bank-Naga
City (Rollo, p. 269) to comply as prayed for.

In view thereof, herein respondents filed in the Court of Appeals a petition for certiorari and
prohibition with preliminary injunction docketed as CA-G.R. No. 13944 against herein petitioners,
seeking to set aside the restraining order and reiterating therein that petitioner Buhi's complaint in
the lower court be dismissed (Rollo, p. 270).

On March 19, 1982, the Court of Appeals issued a Resolution (KAPASIYAHAN) in tagalog,
restraining the Hon. Judge Carlos R. Buenviaje, from enforcing his order of March 9,1982 and
suspending further proceedings in Sp. Proc. No. IR-428 pending before him while giving the Central
Bank counsel, Atty. Ricardo Quintos, authority to carry out personally said orders and directing the
"Punong Kawani" of the Court of Appeals to send telegrams to the Office of the President and the
Supreme Court (Rollo, p. 168).

Herein petitioners did not comply with the Court of Appeals' order of March 19, 1982, but filed
instead on March 21, 1982 a motion for reconsideration of said order of the Court of Appeals,
claiming that the lower court's order of March 9, 1982 referred only to the denial of therein
respondents' motion to dismiss and supplemental motion to dismiss and that the return of Buhi to the
petitioners was already an accomplished fact. The motion was denied by the respondent court in a
resolution dated June 1, 1982 (Rollo, p. 301).

In view of petitioners' refusal to obey the Court of Appeals' Order of March 19, 1982, herein
respondents filed with the Court of Appeals a Motion to Cite Petitioners in Contempt, dated April 22,
1982 (Rollo, p. 174).

The Court of Appeals issued on May 24, 1982 an order requiring herein petitioner Rural Bank of
Buhi, Inc., through its then Acting Manager, Imelda del Rosario and herein petitioner Judge Carlos
Buenviaje, as well as Manuel Genova and Rodolfo Sosa, to show cause within ten (10) days from
notice why they should not be held in contempt of court and further directing the Ministry of National
Defense or its representative to cause the return of possession and management of the Rural Bank
to the respondents Central Bank and Consolacion Odra (Rollo, p. 180).

On June 9, 1982, petitioners filed their objection to respondents' motion for contempt dated June 5,
1982 claiming that the properties, subject of the order, had already been returned to the herein
petitioners who are the lawful owners thereof and that the returning could no longer be undone
(Rollo, p. 181).

Later, petitioners filed another motion dated June 17, 1982 for the reconsideration of the resolution
of June 1, 1982 of the Court of Appeals alleging that the same contravened and departed from the
rulings of the Supreme Court that consummated acts or acts already done could no longer be the
subject of mandatory injunction and that the respondent Court of Appeals had no jurisdiction to issue
the order unless it was in aid of its appellate jurisdiction, claiming that the case (CA-G.R. No. 13944)
did not come to it on appeal (Rollo, p. 302).

As aforestated, on June 17, 1982, respondent Court of Appeals rendered its decision (HATOL)
setting aside the lower court's restraining order dated March 9,1982 and ordering the dismissal of
herein petitioners' amended complaint in Civil Case No. IR-428 (Rollo, p. 186).

On July 9, 1982, petitioners (respondents in CA-G.R. No. 13944) filed a Motion for Reconsideration
of the Decision dated June 17, 1982 insofar as the complaint with the lower court (Civil Case No. IR-
428 was ordered dismissed (Rollo, p. 305).

On August 23, 1982, the respondent Court of Appeals issued its Resolution denying for lack of merit,
herein petitioners' motion for reconsideration of the resolution issued by the respondent Court of
Appeals on June 1, 1982 and set on August 31, 1982 the hearing of the motion to cite the
respondents in CA-G.R. No. SP-13944 (herein petitioner) for contempt (Rollo, p. 193).

At said hearing, counsel for Rural Bank of Buhi agreed and promised in open court to restore and
return to the Central Bank the possession and control of the Bank within three (3) days from August
31, 1982.

However on September 3,1982, Rosalia Guevara, Manager thereof, vigorously and adamantly
refused to surrender the premises unless she received a written order from the Court.

In a subsequent hearing of the contempt incident, the Court of Appeals issued its Order dated
October 13,1982, but Rosalia Guevara still refused to obey, whereupon she was placed under arrest
and the Court of Appeals ordered her to be detained until she decided to obey the Court's Order
(Rollo, pp. 273-274).
Earlier, on September 14, 1982 petitioners had filed this petition even while a motion for
reconsideration of the decision of June 17,1982 was still pending consideration in the Court of
Appeals.

In the resolution of October 20, 1982, the Second Division of this Court without giving due course to
the petition required respondents to COMMENT (Rollo, p. 225).

Counsel for respondents manifested (Rollo, p. 226) that they could not file the required comment
because they were not given a copy of the petition. Meanwhile, they filed an urgent motion dated
October 28, 1982 with the Court of Appeals to place the bank through its representatives in
possession of the Rural Bank of Buhi (Camarines Sur), Inc. (Rollo, p. 237).

On December 9, 1982, petitioners filed a Supplemental Petition with urgent motion for the issuance
of a restraining order dated December 2, 1982 praying that the restraining order be issued against
respondent court (Rollo, p. 229).

In the resolution of December 15,1982, the Court resolved to require petitioners to furnish the
respondents with a copy of the petition and to require the respondents to comment on both the
original and the supplemental petitions (Rollo, p. 243).

In a resolution of February 21, 1983, the Court NOTED Rosalia V. Guevara's letter dated February
4, 1983 (Rollo, p. 252) addressed to Hon. Chief Justice Enrique M. Fernando, requesting that she be
allowed to file a petition for the issuance of a writ of habeas corpus (Rollo, p. 256).

At the hearing of the said petition on February 23, 1983 where the counsel of both parties appeared,
this Court noted the Return of the Writ of Habeas Corpus as well as the release of petitioner Rosalia
V. Guevara from detention by the National Bureau of Investigation. After hearing aforesaid counsel
and petitioner herself, and it appearing that the latter had resigned since January 18,1983 as
Manager of the Rural Bank of Buhi, Inc. and that the Central Bank might avail of more than adequate
legal measures to take over the management, possession and control of the said bank (and not
through contempt proceedings and detention and confinement of petitioner), with Assistant Solicitor
General Andin manifesting that respondents were not insisting on the continued detention of
petitioner, the Court Resolved to SET the petitioner at liberty and to consider the contempt incident
closed (Rollo, p. 339).

On April 11, 1983, respondents filed their comment on the original and supplemental petitions.

Meanwhile, the Court of Appeals, acting on respondents' urgent motion filed on October 28, 1982
ordered on April 13, 1983 the return to the petitioners (herein respondents) or their duly authorized
representatives of the possession, management and control of subject Rural Bank (Rollo, p. 319),
together with its properties.

On April 28, 1983, petitioner filed an urgent motion: (1) to give due course to the petition and (2) for
immediate issuance of a Restraining Order against the respondent court to prevent it from enforcing
its aforesaid resolution dated April 13, 1983 and from further proceeding in AC-G.R. No. 13944-SP
(Rollo, p. 315).

On May 16, 1983, this Court resolved to deny the petition for lack of merit (Rollo, p. 321). On July
25, 1983, petitioners filed their verified Motion for Reconsideration (Rollo, p. 337) praying that the
HATOL dated June 17, 1982 of the Court of Appeals be set aside as null and void and that Special
Proceedings No. IR-428 of CFI-Camarines Sur, Iriga City, Branch VII, be ordered remanded to the
RTC of Camarines Sur, Iriga City, for further proceedings.
A Motion for Early Resolution was filed by herein petitioners on March 12,1984 (Rollo, p. 348).

Petitioners raised the following legal issues in their motion for reconsideration:

I. UNDER SEC. 29, R.A. 265, AS AMENDED, MAY THE MONETARY BOARD (MB) OF THE
CENTRAL BANK (CB) PLACE A RURAL BANK UNDER RECEIVERSHIP WITHOUT PRIOR
NOTICE TO SAID RURAL BANK TO ENABLE IT TO BE HEARD ON THE GROUND RELIED
UPON FOR SUCH RECEIVERSHIP?

II. UNDER THE SAME SECTION OF SAID LAW, WHERE THE MONETARY BOARD (MB) OF THE
CENTRAL BANK (CB) HAS PLACED A RURAL BANK UNDER RECEIVERSHIP, IS SUCH ACTION
OF THE MONETARY BOARD (MB) SUBJECT TO JUDICIAL REVIEW? IF SO, WHICH COURT
MAY EXERCISE SUCH POWER AND WHEN MAY IT EXERCISE THE SAME?

III. UNDER THE SAID SECTION OF THE LAW, SUPPOSE A CIVIL CASE IS INSTITUTED
SEEKING ANNULMENT OF THE RECEIVERSHIP ON THE GROUND OF ARBITRARINESS AND
BAD FAITH ON THE PART OF THE MONETARY BOARD (MB), MAY SUCH CASE BE
DISMISSED BY THE IAC (THEN CA) ON THE GROUND OF INSUFFICIENCY OF EVIDENCE
EVEN IF THE TRIAL COURT HAS NOT HAD A CHANCE YET TO RECEIVE EVIDENCE AND THE
PARTIES HAVE NOT YET PRESENTED EVIDENCE EITHER IN THE TRIAL COURT OR IN SAID
APPELLATE COURT? (Rollo, pp. 330-331).

I. Petitioner Rural Bank's position is to the effect that due process was not observed by the Monetary
Board before said bank was placed under receivership. Said Rural Bank claimed that it was not
given the chance to deny and disprove such claim of insolvency and/or any other ground which the
Monetary Board used in justification of its action.

Relative thereto, the provision of Republic Act No. 265 on the proceedings upon insolvency reads:

SEC. 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, or a person of recognized competence in banking, 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 recognized 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 redemption of
business shall take place 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 banking institution.
 If the Monetary Board shall determine and confirm within the said period that the
banking institution 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 institution. 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 or a person of recognized competence in banking, 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 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 extraordinary demands induced by financial
panic commonly evidenced by a run on the banks in the banking community.

The appointment of a conservator under Section 28-A of this Act or the appointment
of receiver under this Section shall be vested exclusively with the Monetary Board,
the provision of any law, general or special, to the contrary not withstanding.

It will be observed from the foregoing provision of law, that there is no requirement whether express
or implied, that a hearing be first conducted before a banking institution may be placed under
receivership. On the contrary, the law is explicit as to the conditions prerequisite to the action of the
Monetary Board to forbid the institution to do business in the Philippines and to appoint a receiver to
immediately take charge of the bank's assets and liabilities. They are: (a) an examination made by
the examining department of the Central Bank; (b) report by said department to the Monetary Board;
and (c) prima facie showing that the bank is in a condition of insolvency or so situated that its
continuance in business would involve probable loss to its depositors or creditors.

Supportive of this theory is the ruling of this Court, which established the authority of the Central
Bank under the foregoing circumstances, which reads:

As will be noted, whenever it shall appear prima facie that a banking institution is in
"a condition of insolvency" or so situated "that its continuance in business would
involved probable loss to its depositors or creditors," the Monetary Board has
authority:

First, to forbid the institution to do business and appoint a receiver therefor; and

Second, to determine, within 60 days, whether or not:

1) the institution may be reorganized and rehabilitated to such an

extent as to be permitted to resume business with safety to
depositors, creditors and the general public; or

2) it is indeed insolvent or cannot resume business with safety to

depositors, creditors and the general public, and public interest
requires that it be liquidated.

In this latter case (i.e., the bank can no longer resume business with safety to depositors, creditors
and the public, etc.) its liquidation will be ordered and a liquidator appointed by the Monetary Board.
The Central Bank shall thereafter file a petition in the Regional Trial Court praying for the Court's
assistance in the liquidation of the bank." ... (Salud vs. Central Bank, 143 SCRA 590 [1986]).

Petitioner further argues, that there is also that constitutional guarantee that no property shall be
taken without due process of law, so that Section 29, R.A. 265, as amended, could not have
intended to disregard and do away with such constitutional requirement when it conferred upon the
Monetary Board the power to place Rural Banks under receivership (Rollo, p. 333).

The contention is without merit. It has long been established and recognized in this jurisdiction that
the closure and liquidation of a bank may be considered as an exercise of police power. Such
exercise may, however, be subject to judicial inquiry and could be set aside if found to be capricious,
discriminatory, whimsical, arbitrary, unjust or a denial of the due process and equal protection
clauses of the Constitution (Central Bank vs. Court of Appeals, 106 SCRA 155 [1981]).

The evident implication of the law, therefore, is that the appointment of a receiver may be made by
the Monetary Board without notice and hearing but its action is subject to judicial inquiry to insure the
protection of the banking institution. Stated otherwise, due process does not necessarily require a
prior hearing; a hearing or an opportunity to be heard may be subsequent to the closure. One can
just imagine the dire consequences of a prior hearing: bank runs would be the order of the day,
resulting in panic and hysteria. In the process, fortunes may be wiped out, and disillusionment will
run the gamut of the entire banking community.

In Mendiola vs. Court of Appeals, (106 SCRA 130), the Supreme Court held:
 The pivotal issue raised by petitioner is whether or not the appointment of a receiver
by the Court of First Instance on January 14, 1969 was in order.

Respondent Court correctly stated that the appointment of a receiver pendente lite is
a matter principally addressed to and resting largely on the sound discretion of the
court to which the application is made. This Tribunal has so held in a number of
cases. However, receivership being admittedly a harsh remedy, it should be granted
with extreme caution. Sound reasons for receivership must appear of record, and
there should be a clear showing of a necessity therefor. Before granting the remedy,
the court is advised to consider the consequence or effects thereof in order to avoid
irreparable injustice or injury to others who are entitled to as much consideration as
those seeking it.

xxx xxx xxx

This is not to say that a hearing is an indispensable requirement for the appointment
of a receiver. As petitioner correctly contends in his first assignment of error, courts
may appoint receivers without prior presentation of evidence and solely on the basis
of the averments of the pleadings. Rule 59 of the Revised Rules of Court allows the
appointment of a receiver upon an ex parte application.

There is no question that the action of the Monetary Board in this regard may be subject to judicial
review. Thus, it has been held that the courts may interfere with the Central Bank's exercise of
discretion in determining whether or not a distressed bank shall be supported or liquidated.
Discretion has its limits and has never been held to include arbitrariness, discrimination or bad faith
(Ramos vs. Central Bank of the Philippines, 41 SCRA 567 [1971]).

It has likewise been held that resolutions of the Monetary Board under Section 29 of the Central
Bank Act, such as: forbidding bank institutions to do business on account of a "condition of
insolvency" or because its continuance in business would involve probable loss to depositors or
creditors; or appointing a receiver to take charge of the bank's assets and liabilities, or determining
whether the bank may be rehabilitated or should be liquidated and appointing a liquidator for that
purpose, are under the law "final and executory" and may be set aside only on one ground, that is "if
there is convincing proof that the action is plainly arbitrary and made in bad faith" (Salud vs. Central
Bank, supra).

There is no dispute that under the above-quoted Section 29 of the Central Bank Act, the Regional
Trial Court has jurisdiction to adjudicate the question of whether or not the action of the Monetary
Board directing the dissolution of the subject Rural Bank is attended by arbitrariness and bad faith.
Such position has been sustained by this Court in Salud vs. Central Bank of the Philippines (supra).

In the same case, the Court ruled further that a banking institution's claim that a resolution of the
Monetary Board under Section 29 of the Central Bank Act should be set aside as plainly arbitrary
and made in bad faith, may be asserted as an affirmative defense (Sections 1 and 4[b], Rule 6,
Rules of Court) or a counterclaim (Section 6, Rule 6; Section 2, Rule 72 of the Rules of Court) in the
proceedings for assistance in liquidation or as a cause of action in a separate and distinct action
where the latter was filed ahead of the petition for assistance in liquidation (ibid; Central Bank vs.
Court of Appeals, 106 SCRA 143 [1981]).

III. It will be noted that in the issuance of the Order of the Court of First Instance of Camarines Sur,
Branch VII, Iriga City, dated March 9, 1982 (Rollo, pp. 72-77), there was no trial on the merits. Based
on the pleadings filed, the Court merely acted on the Central Bank's Motion to Dismiss and
Supplemental Motion to Dismiss, denying both for lack of sufficient merit. Evidently, the trial court
merely acted on an incident and has not as yet inquired, as mandated by Section 29 of the Central
Bank Act, into the merits of the claim that the Monetary Board's action is plainly arbitrary and made
in bad faith. It has not appreciated certain facts which would render the remedy of liquidation proper
and rehabilitation improper, involving as it does an examination of the probative value of the
evidence presented by the parties properly belonging to the trial court and not properly cognizable
on appeal (Central Bank vs. Court of Appeals, supra, p. 156).

Still further, without a hearing held for both parties to substantiate their allegations in their respective
pleadings, there is lacking that "convincing proof" prerequisite to justify the temporary restraining
order (mandatory injunction) issued by the trial court in its Order of March 9, 1982.

PREMISES CONSIDERED, the decision of the Court of Appeals is MODIFIED; We hereby order the
remand of this case to the Regional Trial Court for further proceedings, but We LIFT the temporary
restraining order issued by the trial court in its Order dated March 9, 1982.

SO ORDERED.
G.R. No. 76118 March 30, 1993

THE CENTRAL BANK OF THE PHILIPPINES and RAMON V. TIAOQUI, petitioners,

vs.
COURT OF APPEALS and TRIUMPH SAVINGS BANK, respondents.

Sycip, Salazar, Hernandez & Gatmaitan for petitioners.

Quisumbing, Torres & Evangelista for Triumph Savings Bank.

BELLOSILLO, J.:

May a Monetary Board resolution placing a private bank under receivership be annulled on the
ground of lack of prior notice and hearing?

This petition seeks review of the decision of the Court of Appeals in CA G.R. S.P. No. 07867 entitled
"The Central Bank of the Philippines and Ramon V. Tiaoqui vs. Hon. Jose C. de Guzman and
Triumph Savings Bank," promulgated 26 September 1986, which affirmed the twin orders of the
Regional Trial Court of Quezon City issued 11 November 19851 denying herein petitioners' motion to
dismiss Civil Case No. Q-45139, and directing petitioner Ramon V. Tiaoqui to restore the private
management of Triumph Savings Bank (TSB) to its elected board of directors and officers, subject to
Central Bank comptrollership.2

The antecedent facts: Based on examination reports submitted by the Supervision and Examination
Sector (SES), Department II, of the Central Bank (CB) "that the financial condition of TSB is one of
insolvency and its continuance in business would involve probable loss to its depositors and
creditors,"3 the Monetary Board (MB) issued on 31 May 1985 Resolution No. 596 ordering the
closure of TSB, forbidding it from doing business in the Philippines, placing it under receivership,
and appointing Ramon V. Tiaoqui as receiver. Tiaoqui assumed office on 3 June 1985.4

On 11 June 1985, TSB filed a complaint with the Regional Trial Court of Quezon City, docketed as
Civil Case No. Q-45139, against Central Bank and Ramon V. Tiaoqui to annul MB Resolution No.
596, with prayer for injunction, challenging in the process the constitutionality of Sec. 29 of R.A. 269,
otherwise known as "The Central Bank Act," as amended, insofar as it authorizes the Central Bank
to take over a banking institution even if it is not charged with violation of any law or regulation, much
less found guilty thereof.5

On 1 July 1985, the trial court temporarily restrained petitioners from implementing MB Resolution
No. 596 "until further orders", thus prompting them to move for the quashal of the restraining order
(TRO) on the ground that it did not comply with said Sec. 29, i.e., that TSB failed to show convincing
proof of arbitrariness and bad faith on the part of petitioners;' and, that TSB failed to post the
requisite bond in favor of Central Bank.

On 19 July 1985, acting on the motion to quash the restraining order, the trial court granted the relief
sought and denied the application of TSB for injunction. Thereafter, Triumph Savings Bank filed with
Us a petition for certiorariunder Rule 65 of the Rules of Court6 dated 25 July 1985 seeking to enjoin
the continued implementation of the questioned MB resolution.
Meanwhile, on 9 August 1985; Central Bank and Ramon Tiaoqui filed a motion to dismiss the
complaint before the RTC for failure to state a cause of action, i.e., it did not allege ultimate facts
showing that the action was plainly arbitrary and made in bad faith, which are the only grounds for
the annulment of Monetary Board resolutions placing a bank under conservatorship, and that TSB
was without legal capacity to sue except through its receiver.7

On 9 September 1985, TSB filed an urgent motion in the RTC to direct receiver Ramon V. Tiaoqui to
restore TSB to its private management. On 11 November 1985, the RTC in separate orders denied
petitioners' motion to dismiss and ordered receiver Tiaoqui to restore the management of TSB to its
elected board of directors and officers, subject to CB comptrollership.

Since the orders of the trial court rendered moot the petition for certiorari then pending before this
Court, Central Bank and Tiaoqui moved on 2 December 1985 for the dismissal of G.R. No. 71465
which We granted on 18 December 1985.8

Instead of proceeding to trial, petitioners elevated the twin orders of the RTC to the Court of Appeals
on a petition for certiorari and prohibition under Rule 65.9 On 26 September 1986, the appellate
court, upheld the orders of the trial court thus

Petitioners' motion to dismiss was premised on two grounds, namely, that the
complaint failed to state a cause of action and that the Triumph Savings Bank was
without capacity to sue except through its appointed receiver.

Concerning the first ground, petitioners themselves admit that the Monetary Board
resolution placing the Triumph Savings Bank under the receivership of the officials of
the Central Bank was done without prior hearing, that is, without first hearing the side
of the bank. They further admit that said resolution can be the subject of judicial
review and may be set aside should it be found that the same was issued with
arbitrariness and in bad faith.

The charge of lack of due process in the complaint may be taken as constitutive of
allegations of arbitrariness and bad faith. This is not of course to be taken as
meaning that there must be previous hearing before the Monetary Board may
exercise its powers under Section 29 of its Charter. Rather, judicial review of such
action not being foreclosed, it would be best should private respondent be given the
chance to show and prove arbitrariness and bad faith in the issuance of the
questioned resolution, especially so in the light of the statement of private
respondent that neither the bank itself nor its officials were even informed of any
charge of violating banking laws.

In regard to lack of capacity to sue on the part of Triumph Savings Bank, we view
such argument as being specious, for if we get the drift of petitioners' argument, they
mean to convey the impression that only the CB appointed receiver himself may
question the CB resolution appointing him as such. This may be asking for the
impossible, for it cannot be expected that the master, the CB, will allow the receiver it
has appointed to question that very appointment. Should the argument of petitioners
be given circulation, then judicial review of actions of the CB would be effectively
checked and foreclosed to the very bank officials who may feel, as in the case at bar,
that the CB action ousting them from the bank deserves to be set aside.

xxx xxx xxx

 On the questioned restoration order, this Court must say that it finds nothing
whimsical, despotic, capricious, or arbitrary in its issuance, said action only being in
line and congruent to the action of the Supreme Court in the Banco Filipino Case
(G.R. No. 70054) where management of the bank was restored to its duly elected
directors and officers, but subject to the Central Bank comptrollership.10

On 15 October 1986, Central Bank and its appointed receiver, Ramon V. Tiaoqui, filed this petition
under Rule 45 of the Rules of Court praying that the decision of the Court of Appeals in CA-G.R. SP
No. 07867 be set aside, and that the civil case pending before the RTC of Quezon City, Civil Case
No.
Q-45139, be dismissed. Petitioners allege that the Court of Appeals erred

(1) in affirming that an insolvent bank that had been summarily closed by the
Monetary Board should be restored to its private management supposedly because
such summary closure was "arbitrary and in bad faith" and a denial of "due process";

(2) in holding that the "charge of lack of due process" for "want of prior hearing" in a
complaint to annul a Monetary Board receivership resolution under Sec. 29 of R.A.
265 "may be taken as . . allegations of arbitrariness and bad faith"; and

(3) in holding that the owners and former officers of an insolvent bank may still act or
sue in the name and corporate capacity of such bank, even after it had been ordered
closed and placed under receivership.11

The respondents, on the other hand, allege inter alia that in the Banco Filipino case,12 We held that
CB violated the rule on administrative due process laid down in Ang Tibay vs. CIR (69 Phil. 635)
and Eastern Telecom Corp. vs. Dans, Jr. (137 SCRA 628) which requires that prior notice and
hearing be afforded to all parties in administrative proceedings. Since MB Resolution No. 596 was
adopted without TSB being previously notified and heard, according to respondents, the same is
void for want of due process; consequently, the bank's management should be restored to its board
of directors and officers.13

Petitioners claim that it is the essence of Sec. 29 of R.A. 265 that prior notice and hearing in cases
involving bank closures should not be required since in all probability a hearing would not only cause
unnecessary delay but also provide bank "insiders" and stockholders the opportunity to further
dissipate the bank's resources, create liabilities for the bank up to the insured amount of P40,000.00,
and even destroy evidence of fraud or irregularity in the bank's operations to the prejudice of its
depositors and creditors. 14 Petitioners further argue that the legislative intent of Sec. 29 is to repose
in the Monetary Board exclusive power to determine the existence of statutory grounds for the
closure and liquidation of banks, having the required expertise and specialized competence to do so.

The first issue raised before Us is whether absence of prior notice and hearing may be considered
acts of arbitrariness and bad faith sufficient to annul a Monetary Board resolution enjoining a bank
from doing business and placing it under receivership. Otherwise stated, is absence of prior notice
and hearing constitutive of acts of arbitrariness and bad faith?

Under Sec. 29 of R.A. 265,15 the Central Bank, through the Monetary Board, is vested with exclusive
authority to assess, evaluate and determine the condition of any bank, and finding such condition to
be one of insolvency, or that its continuance in business would involve probable loss to its depositors
or creditors, forbid the bank or non-bank financial institution to do business in the Philippines; and
shall designate an official of the CB or other competent person as receiver to immediately take
charge of its assets and liabilities. The fourth paragraph,16 which was then in effect at the time the
action was commenced, allows the filing of a case to set aside the actions of the Monetary Board
which are tainted with arbitrariness and bad faith.

Contrary to the notion of private respondent, Sec. 29 does not contemplate prior notice and hearing
before a bank may be directed to stop operations and placed under receivership. When par. 4 (now
par. 5, as amended by E.O. 289) provides for the filing of a case within ten (10) days after the
receiver takes charge of the assets of the bank, it is unmistakable that the assailed actions should
precede the filing of the case. Plainly, the legislature could not have intended to authorize "no prior
notice and hearing" in the closure of the bank and at the same time allow a suit to annul it on the
basis of absence thereof.

In the early case of Rural Bank of Lucena, Inc. v. Arca [1965],17 We held that a previous hearing is
nowhere required in Sec. 29 nor does the constitutional requirement of due process demand that the
correctness of the Monetary Board's resolution to stop operation and proceed to liquidation be first
adjudged before making the resolution effective. It is enough that a subsequent judicial review be
provided.

Even in Banco Filipino, 18 We reiterated that Sec. 29 of R.A. 265 does not require a previous hearing
before the Monetary Board can implement its resolution closing a bank, since its action is subject to
judicial scrutiny as provided by law.

It may be emphasized that Sec. 29 does not altogether divest a bank or a non-bank financial
institution placed under receivership of the opportunity to be heard and present evidence on
arbitrariness and bad faith because within ten (10) days from the date the receiver takes charge of
the assets of the bank, resort to judicial review may be had by filing an appropriate pleading with the
court. Respondent TSB did in fact avail of this remedy by filing a complaint with the RTC of Quezon
City on the 8th day following the takeover by the receiver of the bank's assets on 3 June 1985.

This "close now and hear later" scheme is grounded on practical and legal considerations to prevent
unwarranted dissipation of the bank's assets and as a valid exercise of police power to protect the
depositors, creditors, stockholders and the general public.

In Rural Bank of Buhi, Inc. v. Court of Appeals,19 We stated that

. . . due process does not necessarily require a prior hearing; a hearing or an

opportunity to be heard may be subsequent to the closure. One can just imagine the
dire consequences of a prior hearing: bank runs would be the order of the day,
resulting in panic and hysteria. In the process, fortunes may be wiped out and
disillusionment will run the gamut of the entire banking community.

We stressed in Central Bank of the Philippines v. Court of Appeals20 that

. . . the banking business is properly subject to reasonable regulation under the

police power of the state because of its nature and relation to the fiscal affairs of the
people and the revenues of the state (9 CJS 32). Banks are affected with public
interest because they receive funds from the general public in the form of deposits.
Due to the nature of their transactions and functions, a fiduciary relationship is
created between the banking institutions and their depositors. Therefore, banks are
under the obligation to treat with meticulous care and utmost fidelity the accounts of
those who have reposed their trust and confidence in them (Simex International
[Manila], Inc., v. Court of Appeals, 183 SCRA 360 [1990]).
 It is then the Government's responsibility to see to it that the financial interests of
those who deal with the banks and banking institutions, as depositors or otherwise,
are protected. In this country, that task is delegated to the Central Bank which,
pursuant to its Charter (R.A. 265, as amended), is authorized to administer the
monetary, banking and credit system of the Philippines. Under both the 1973 and
1987 Constitutions, the Central Bank is tasked with providing policy direction in the
areas of money, banking and credit; corollarily, it shall have supervision over the
operations of banks (Sec. 14, Art. XV, 1973 Constitution, and Sec. 20, Art. XII, 1987
Constitution). Under its charter, the CB is further authorized to take the necessary
steps against any banking institution if its continued operation would cause prejudice
to its depositors, creditors and the general public as well. This power has been
expressly recognized by this Court. In Philippine Veterans Bank Employees Union-
NUBE v. Philippine Veterans Banks (189 SCRA 14 [1990], this Court held that:

. . . [u]nless adequate and determined efforts are taken by the

government against distressed and mismanaged banks, public faith
in the banking system is certain to deteriorate to the prejudice of the
national economy itself, not to mention the losses suffered by the
bank depositors, creditors, and stockholders, who all deserve the
protection of the government. The government cannot simply cross
its arms while the assets of a bank are being depleted through
mismanagement or irregularities. It is the duty of the Central Bank in
such an event to step in and salvage the remaining resources of the
bank so that they may not continue to be dissipated or plundered by
those entrusted with their management.

Section 29 of R.A. 265 should be viewed in this light; otherwise, We would be subscribing to a
situation where the procedural rights invoked by private respondent would take precedence over the
substantive interests of depositors, creditors and stockholders over the assets of the bank.

Admittedly, the mere filing of a case for receivership by the Central Bank can trigger a bank run and
drain its assets in days or even hours leading to insolvency even if the bank be actually solvent. The
procedure prescribed in Sec. 29 is truly designed to protect the interest of all concerned, i.e., the
depositors, creditors and stockholders, the bank itself, and the general public, and the summary
closure pales in comparison to the protection afforded public interest. At any rate, the bank is given
full opportunity to prove arbitrariness and bad faith in placing the bank under receivership, in which
event, the resolution may be properly nullified and the receivership lifted as the trial court may
determine.

The heavy reliance of respondents on the Banco Filipino case is misplaced in view of factual
circumstances therein which are not attendant in the present case. We ruled in Banco Filipino that
the closure of the bank was arbitrary and attendant with grave abuse of discretion, not because of
the absence of prior notice and hearing, but that the Monetary Board had no sufficient basis to arrive
at a sound conclusion of insolvency to justify the closure. In other words, the arbitrariness, bad faith
and abuse of discretion were determined only after the bank was placed under conservatorship and
evidence thereon was received by the trial court. As this Court found in that case, the Valenzuela,
Aurellano and Tiaoqui Reports contained unfounded assumptions and deductions which did not
reflect the true financial condition of the bank. For instance, the subtraction of an uncertain amount
as valuation reserve from the assets of the bank would merely result in its net worth or the
unimpaired capital and surplus; it did not reflect the total financial condition of Banco Filipino.
Furthermore, the same reports showed that the total assets of Banco Filipino far exceeded its total
liabilities. Consequently, on the basis thereof, the Monetary Board had no valid reason to liquidate
the bank; perhaps it could have merely ordered its reorganization or rehabilitation, if need be.
Clearly, there was in that case a manifest arbitrariness, abuse of discretion and bad faith in the
closure of Banco Filipino by the Monetary Board. But, this is not the case before Us. For here, what
is being raised as arbitrary by private respondent is the denial of prior notice and hearing by the
Monetary Board, a matter long settled in this jurisdiction, and not the arbitrariness which the
conclusions of the Supervision and Examination Sector (SES), Department II, of the Central Bank
were reached.

Once again We refer to Rural Bank of Buhi, Inc. v. Court of Appeals,21 and reiterate Our
pronouncement therein that

. . . the law is explicit as to the conditions prerequisite to the action of the Monetary
Board to forbid the institution to do business in the Philippines and to appoint a
receiver to immediately take charge of the bank's assets and liabilities. They are: (a)
an examination made by the examining department of the Central Bank; (b) report by
said department to the Monetary Board; and (c) prima facie showing that its
continuance in business would involve probable loss to its depositors or creditors.

In sum, appeal to procedural due process cannot just outweigh the evil sought to be prevented;
hence, We rule that Sec. 29 of R.A. 265 is a sound legislation promulgated in accordance with the
Constitution in the exercise of police power of the state. Consequently, the absence of notice and
hearing is not a valid ground to annul a Monetary Board resolution placing a bank under
receivership. The absence of prior notice and hearing cannot be deemed acts of arbitrariness and
bad faith. Thus, an MB resolution placing a bank under receivership, or conservatorship for that
matter, may only be annulled after a determination has been made by the trial court that its issuance
was tainted with arbitrariness and bad faith. Until such determination is made, the status quo shall
be maintained, i.e., the bank shall continue to be under receivership.

As regards the second ground, to rule that only the receiver may bring suit in behalf of the bank is, to
echo the respondent appellate court, "asking for the impossible, for it cannot be expected that the
master, the CB, will allow the receiver it has appointed to question that very appointment."
Consequently, only stockholders of a bank could file an action for annulment of a Monetary Board
resolution placing the bank under receivership and prohibiting it from continuing
operations.22 In Central Bank v. Court of Appeals, 23 We explained the purpose of the law

. . . in requiring that only the stockholders of record representing the majority of the
capital stock may bring the action to set aside a resolution to place a bank under
conservatorship is to ensure that it be not frustrated or defeated by the incumbent
Board of Directors or officers who may immediately resort to court action to prevent
its implementation or enforcement. It is presumed that such a resolution is directed
principally against acts of said Directors and officers which place the bank in a state
of continuing inability to maintain a condition of liquidity adequate to protect the
interest of depositors and creditors. Indirectly, it is likewise intended to protect and
safeguard the rights and interests of the stockholders. Common sense and public
policy dictate then that the authority to decide on whether to contest the resolution
should be lodged with the stockholders owning a majority of the shares for they are
expected to be more objective in determining whether the resolution is plainly
arbitrary and issued in bad faith.
It is observed that the complaint in this case was filed on 11 June 1985 or two (2) years prior to 25
July 1987 when E.O. 289 was issued, to be effective sixty (60) days after its approval (Sec. 5). The
implication is that before E.O

. 289, any party in interest could institute court proceedings to question a Monetary Board resolution
placing a bank under receivership. Consequently, since the instant complaint was filed by parties
representing themselves to be officers of respondent Bank (Officer-in-Charge and Vice President),
the case before the trial court should now take its natural course. However, after the effectivity of
E.O. 289, the procedure stated therein should be followed and observed.

PREMISES considered, the Decision of the Court of Appeals in CA-G.R. SP No. 07867
is AFFIRMED, except insofar as it upholds the Order of the trial court of 11 November 1985 directing
petitioner RAMON V. TIAOQUI to restore the management of TRIUMPH SAVINGS BANK to its
elected Board of Directors and Officers, which is hereby SET ASIDE.

Let this case be remanded to the Regional Trial Court of Quezon City for further proceedings to
determine whether the issuance of Resolution No. 596 of the Monetary Board was tainted with
arbitrariness and bad faith and to decide the case accordingly.

SO ORDERED.
G.R. No. 114870 May 26, 1995

MIGUELA R. VILLANUEVA, RICHARD R. VILLANUEVA, and MERCEDITA VILLANUEVA-

TIRADOS, petitioners,
vs.
COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES, ILDEFONSO C. ONG, and
PHILIPPINE VETERANS BANK, respondents.

DAVIDE, JR., J.:

Do petitioners have a better right than private respondent Ildefonso Ong to purchase from the
Philippine Veterans Bank (PVB) the two parcels of land described as Lot No. 210-D-1 and Lot No.
210-D-2 situated at Muntinglupa, Metro Manila, containing an area of 529 and 300 square meters,
respectively? This is the principal legal issue raised in this petition.

In its decision of 27 January 1994 in CA-G.R. CV No. 35890,1 the Court of Appeals held for Ong,
while the trial court, Branch 39 of the Regional Trial Court (RTC) of Manila, ruled for the petitioners
in its joint decision of 31 October 1991 in Civil Case No. 87-425502 and Sp. Proc. No. 85-32311.3

The operative antecedent facts are set forth in the challenged decision as follows:

The disputed lots were originally owned by the spouses Celestino Villanueva and
Miguela Villanueva, acquired by the latter during her husband's sojourn in the United
States since 1968. Sometime in 1975, Miguela Villanueva sought the help of one
Jose Viudez, the then Officer-in-Charge of the PVB branch in Makati if she could
obtain a loan from said bank. Jose Viudez told Miguela Villanueva to surrender the
titles of said lots as collaterals. And to further facilitate a bigger loan, Viudez, in
connivance with one Andres Sebastian, swayed Miguela Villanueva to execute a
deed of sale covering the two (2) disputed lots, which she did but without the
signature of her husband Celestino. Miguela Villanueva, however, never got the loan
she was expecting. Subsequent attempts to contact Jose Viudez proved futile, until
Miguela Villanueva thereafter found out that new titles over the two (2) lots were
already issued in the name of the PVB. It appeared upon inquiry from the Registry of
Deeds that the original titles of these lots were canceled and new ones were issued
to Jose Viudez, which in turn were again canceled and new titles issued in favor of
Andres Sebastian, until finally new titles were issued in the name of PNB [should be
PVB] after the lots were foreclosed for failure to pay the loan granted in the name of
Andres Sebastian.

Miguela Villanueva sought to repurchase the lots from the PVB after being informed
that the lots were about to be sold at auction. The PVB told her that she can redeem
the lots for the price of P110,416.00. Negotiations for the repurchase of the lots
nevertheless were stalled by the filing of liquidation proceedings against the PVB on
August of 1985.

Plaintiff-appellant [Ong] on the other hand expounds on his claim over the disputed
lots in this manner:
 In October 1984, plaintiff-appellant offered to purchase two pieces of
Land that had been acquired by PVB through foreclosure. To back-up
plaintiff-appellant's offer he deposited the sum of P10,000.00.

In 23 November 1984, while appellant was still abroad, PVB

approved his subject offer under Board Resolution No. 10901-84.
Among the conditions imposed by PVB is that: "The purchase price
shall be P110,000.00 (Less deposit of P10,000.00) payable in cash
within fifteen (15) days from receipt of approval of the offer."

In mid-April 1985, appellant returned to the country. He immediately

verified the status of his offer with the PVB, now under the control of
CB, where he was informed that the same had already been
approved. On 16 April 1985, appellant formally informed CB of his
desire to pay the subject balance provided the bank should execute
in his favor the corresponding deed of conveyance. The letter was not
answered.

Plaintiff-appellant sent follow-up Letters that went unheeded, the last

of which was on 21 May 1987. On 26 May 1987, appellant's payment
for the balance of the subject properties were accepted by CB under
Official Receipt #0816.

On 17 September 1987, plaintiff-appellant through his counsel, sent a

letter to CB demanding for the latter to execute the corresponding
deed of conveyance in favor of appellant. CB did not bother to
answer the same. Hence, the instant case.

While appellant's action for specific performance against CB was

pending, Miguela Villanueva and her children filed their claims with
the Liquidation court. (Appellant's Brief, pp. 3-4).4

From the pleadings, the following additional or amplificatory facts are established:

The efforts of Miguela Villanueva to reacquire the property began on 8 June 1983 when she offered
to purchase the lots for P60,000.00 with a 20%
downpayment and the balance payable in five years on a quarterly amortization basis.5

Her offer not having been accepted,6 Miguela Villanueva increased her bid to P70,000.00. It was only
at this time that she disclosed to the bank her private transactions with Jose Viudez.7

After this and her subsequent offers were rejected,8 Miguela sent her sealed bid of P110,417.00
pursuant to the written advice of the vice president of the PVB.9

The PVB was placed under receivership pursuant to Monetary Board (MB) Resolution No. 334 dated
3 April 1985 and later, under liquidation pursuant to MB Resolution No. 612 dated 7 June 1985.
Afterwards, a petition for liquidation was filed with the RTC of Manila, which was docketed as Sp.
Proc. No. 85-32311 and assigned to Branch 39 of the said court.

On 26 May 1987, Ong tendered the sum of P100,000.00 representing the balance of the purchase
price of the litigated lots. 10 An employee of the PVB received the amount conditioned upon approval
by the Central Bank
liquidator. 11 Ong's demand for a deed of conveyance having gone unheeded, he filed on 23 October
1987 with the RTC of Manila an action for specific performance against the Central Bank.12 It was
raffled to Branch 47 thereof. Upon learning that the PVB had been placed under liquidation, the
presiding judge of Branch 47 ordered the transfer of the case to Branch 39, the liquidation court.13

On 15 June 1989, then Presiding Judge Enrique B. Inting issued an order allowing the purchase of
the two lots at the price of P150,000.00. 14 The Central Bank liquidator of the PVB moved for the
reconsideration of the order asserting that it is contrary to law as the disposal of the lots should be
made through public auction. 15

On 26 July 1989, Miguela Villanueva filed her claim with the liquidation court. She averred, among
others, that she is the lawful and registered owner of the subject lots which were mortgaged in favor
of the PVB thru the falsification committed by Jose Viudez, the manager of the PVB Makati Branch,
in collusion with Andres Sebastian; that upon discovering this fraudulent transaction, she offered to
purchase the property from the bank; and that she reported the matter to the PC/INP Criminal
Investigation Service Command, Camp Crame, and after investigation, the CIS officer recommended
the filing of a complaint for estafa through falsification of public documents against Jose Viudez and
Andres Sebastian. She then asked that the lots be excluded from the assets of the PVB and be
conveyed back to her. 16 Later, in view of the death of her husband, she amended her claim to
include her children, herein petitioners Mercedita Villanueva-Tirados and Richard Villanueva. 17

On 31 October 1991, the trial court rendered judgment 18 holding that while the board resolution
approving Ong's offer may have created in his favor a vested right which may be enforced against
the PVB at the time or against the liquidator after the bank was placed under liquidation
proceedings, the said right was no longer enforceable, as he failed to exercise it within the
prescribed 15-day period. As to Miguela's claim, the court ruled that the principle of estoppel bars
her from questioning the transaction with Viudez and the subsequent transactions because she was
a co-participant thereto, though only with respect to her undivided one-half (1/2) conjugal share in
the disputed lots and her one-third (1/3) hereditary share in the estate of her husband.

Nevertheless, the trial court allowed her to purchase the lots if only to restore their status as conjugal
properties. It further held that by reason of estoppel, the transactions having been perpetrated by a
responsible officer of the PVB, and for reasons of equity, the PVB should not be allowed to charge
interest on the price of the lots; hence, the purchase price should be the PVB's claim as of 29 August
1984 when it considered the sealed bids, i.e., P110,416.20, which should be borne by Miguela
Villanueva alone.

The dispositive portion of the decision of the trial court reads as follows:

WHEREFORE, judgment is hereby rendered as follows:

1. Setting aside the order of this court issued on June

15, 1989 under the caption Civil Case No. 87-42550
entitled "Ildefonso Ong vs. Central Bank of the Phils.,
et al.;

2. Dismissing the claim of Ildefonso Ong over the two

parcels of land originally covered by TCT No. 438073
and 366364 in the names of Miguela Villanueva and
Celestino Villanueva, respectively which are now
 covered by TCT No. 115631 and 115632 in the name
of the PVB;

3. Declaring the Deed of Absolute Sale bearing the

signature of Miguela Villanueva and the falsified
signature of Celestino [sic] Viudez under date May 6,
1975 and all transactions and related documents
executed thereafter referring to the two lots covered
by the above stated titles as null and void;

4. Ordering the Register of Deeds of Makati which

has jurisdiction over the two parcels of land in
question to re-instate in his land records, TCT No.
438073 in the name of Miguela Villanueva and TCT
No. 366364 in the name of Celestino Villanueva who
were the registered owners thereof, and to cancel all
subsequent titles emanating therefrom; and

5. Ordering the Liquidator to reconvey the two lots

described in TCT No. 115631 and 115632 and
executing the corresponding deed of conveyance of
the said lots upon the payment of One Hundred Ten
Thousand Four Hundred Sixteen and 20/100
(P110,416.20) Pesos without interest and less the
amount deposited by the claimant, Miguela Villanueva
in connection with the bidding where she had
participated and conducted by the PVB on August 29,
1984.

Cost against Ildefonso Ong and the PVB.

SO ORDERED. 19

Only Ong appealed the decision to the Court of Appeals. The appeal was docketed as CA-G.R. CV
No. 35890. In its decision of 27 January 1994, the Court of Appeals reversed the decision of the trial
court and ruled as follows:

WHEREFORE, premises considered, the assailed decision is hereby REVERSED

and SET ASIDE, and a new one entered ordering the disputed-lots be awarded in
favor of plaintiff-appellant Ildefonso Ong upon defendant-appellee Central Bank's
execution of the corresponding deed of sale in his favor. 20

In support thereof, the Court of Appeals declared that Ong's failure to pay the balance within the
prescribed period was excusable because the PVB neither notified him of the approval of his bid nor
answered his letters manifesting his readiness to pay the balance, for which reason he could not
have known when to reckon the 15-day period prescribed under its resolution. It went further to
suggest that the Central Bank was in estoppel because it accepted Ong's late-payment of the
balance. As to the petitioners' claim, the Court of Appeals stated:

The conclusion reached by the lower court favorable to Miguela Villanueva is, as
aptly pointed out by plaintiff-appellant, indeed confusing. While the lower court's
decision declared Miguela Villanueva as estopped from recovering her proportionate
 share and interest in the two (2) disputed lots for being a "co-participant" in the
fraudulent scheme perpetrated by Jose Viudez and Andres Sebastian a factual
finding which We conform to and which Miguela Villanueva does not controvert in
this appeal by not filing her appellee's brief, yet it ordered the reconveyance of the
disputed lots to Miguela Villanueva as the victorious party upon her payment of
P110,416.20. Would not estoppel defeat the claim of the party estopped? If so, which
in fact must be so, would it not then be absurd or even defiant for the lower court to
finally entitle Miguela Villanueva to the disputed lots after having been precluded
from assailing their subsequent conveyance in favor of Jose Viudez by reason of her
own negligence and/or complicity therein? The intended punitive effect of estoppel
would merely be a dud if this Court leaves the lower court's conclusion unrectified. 21

Their motion for reconsideration 22 having been denied, 23 the petitioners filed this petition for review
on certiorari. 24

Subsequently, the respondent Central Bank apprised this Court that the PVB was no longer under
receivership or liquidation and that the PVB has been back in operation since 3 August 1992. It then
prayed that it be dropped from this case or at least be substituted by the PVB, which is the real party
in interest. 25

In its Manifestation and Entry of Appearance, the PVB declared that it submits to the jurisdiction of
this Court and that it has no objection to its inclusion as a party respondent in this case in lieu of the
Central Bank. 26 The petitioners did not object to the substitution. 27

Later, in its Comment dated 10 October 1994, the PVB stated that it "submits to and shall abide by
whatever judgment this Honorable Supreme Tribunal may announce as to whom said lands may be
awarded without any touch of preference in favor of one or the other party litigant in the instant
case." 28

In support of their contention that the Court of Appeals gravely erred in holding that Ong is better
entitled to purchase the disputed lots, the petitioners maintain that Ong is a disqualified bidder, his
bid of P110,000.00 being lower than the starting price of P110,417.00 and his deposit of P10,000.00
being less than the required 10% of the bid price; that Ong failed to pay the balance of the price
within the 15-day period from notice of the approval of his bid; and that his offer of payment is
ineffective since it was conditioned on PVB's execution of the deed of absolute sale in his favor.

On the other hand, Ong submits that his offer, though lower than Miguela ViIlanueva's bid by
P417.00, is much better, as the same is payable in cash, while Villanueva's bid is payable in
installment; that his payment could not be said to have been made after the expiration of the 15-day
period because this period has not even started to run, there being no notice yet of the approval of
his offer; and that he has a legal right to compel the PVB or its liquidator to execute the
corresponding deed of conveyance.

There is no doubt that the approval of Ong's offer constitutes an acceptance, the effect of which is to
perfect the contract of sale upon notice thereof to Ong. 29 The peculiar circumstances in this case,
however, pose a legal obstacle to his claim of a better right and deny support to the conclusion of
the Court of Appeals.

Ong did not receive any notice of the approval of his offer. It was only sometime in mid-April 1985
when he returned from the United States and inquired about the status of his bid that he came to
know of the approval.
It must be recalled that the PVB was placed under receivership pursuant to the MB Resolution of 3
April 1985 after a finding that it was insolvent, illiquid, and could not operate profitably, and that its
continuance in business would involve probable loss to its depositors and creditors. The PVB was
then prohibited from doing business in the Philippines, and the receiver appointed was directed 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."

Under Article 1323 of the Civil Code, an offer becomes ineffective upon the death, civil interdiction,
insanity, or insolvency of either party before acceptance is conveyed. The reason for this is that:

[T]he contract is not perfected except by the concurrence of two wills which exist and
continue until the moment that they occur. The contract is not yet perfected at any
time before acceptance is conveyed; hence, the disappearance of either party or his
loss of capacity before perfection prevents the contractual tie from being formed. 30

It has been said that where upon the insolvency of a bank a receiver therefor is appointed, the
assets of the bank pass beyond its control into the possession and control of the receiver whose
duty it is to administer the assets for the benefit of the creditors of the bank.31 Thus, the appointment
of a receiver operates to suspend the authority of the bank and of its directors and officers over its
property and effects, such authority being reposed in the receiver, and in this respect, the
receivership is equivalent to an injunction to restrain the bank officers from intermeddling with the
property of the bank in any way. 32

Section 29 of the Central Bank Act, as amended, provides thus:

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, 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 benefit of its creditors . . . exercising all the
powers necessary for these purposes. . . .

xxx xxx xxx

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 liquidation, be exemp from any order of garnishment, levy,
attachment, or execution.

In a nutshell, the insolvency of a bank and the consequent appointment of a receiver restrict the
bank's capacity to act, especially in relation to its property, Applying Article 1323 of the Civil Code,
Ong's offer to purchase the subject lots became ineffective because the PVB became insolvent
before the bank's acceptance of the offer came to his knowledge. Hence, the purported contract of
sale between them did not reach the stage of perfection. Corollarily, he cannot invoke the resolution
of the bank approving his bid as basis for his alleged right to buy the disputed properties.

Nor may the acceptance by an employee of the PVB of Ong's payment of P100,000.00 benefit him
since the receipt of the payment was made subject to the approval by the Central Bank liquidator of
the PVB thus:

Payment for the purchase price of the former property of Andres Sebastian per
approved BR No. 10902-84 dated 11/13/84, subject to the approval of CB
liquidator. 33

This payment was disapproved on the ground that the subject property was already
in custodia legis, and hence, disposable only by public auction and subject to the approval of
the liquidation court. 34

The Court of Appeals therefore erred when it held that Ong had a better right than the petitioners to
the purchase of the disputed lots.

Considering then that only Ong appealed the decision of the trial court, the PVB and the Central
Bank, as well as the petitioners, are deemed to have fully and unqualifiedly accepted the judgment,
which thus became final as to them for their failure to appeal.

WHEREFORE, the instant petition is GRANTED and the challenged decision of the Court of Appeals
of 27 January 1994 in CA-G.R. CV No. 35890 is hereby SET ASIDE. The decision of Branch 39 of
the Regional Trial Court of Manila of 31 October 1991 in Civil Case No. 87-42550 and Sp. Proc. No.
85-32311 is hereby REINSTATED.

Respondent Philippine Veterans Bank is further directed to return to private respondent Ildefonso C.
Ong the amount of P100,000.00.

No pronouncement as to costs.

SO ORDERED.
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. No. 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 PHILIPPINES, JOSE B. FERNANDEZ, JR.,
CARLOTA P. 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 Ex-Officio Sheriff ADORACION VICTA, BANCO FILIPINO SAVINGS
AND MORTGAGE BANK, CARLOTA P. VALENZUELA AND SYCIP, SALAZAR, HERNANDEZ
AND GATMAITAN, respondents.

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, 77255-68,
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. 7004.
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 thisCourt on April 8, 1986, granting the petition for review on certiorari and reversing
the questioned decision of respondent appellate court, which annulled the writ of possession issued
by the trial court in favor of petitioner.

The respondent-movant contends that the petitioner has no more personality to continue prosecuting
the instant case considering that petitioner bank was placed under receivership since January 25,
1985 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 Dasmarias,
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 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 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 ex-officio sheriff issued the notice of extra-
judicial sale of the mortgaged properties of El Grande scheduled on April 30, 1986.

In order to stop the public auction sale, petitioner El Grande filed a petition for prohibition with the
Court of Appeals alleging that respondent Carlota Valenzuela could not proceed with the foreclosure
of its mortgaged properties on the ground that this Court in G.R. No. 70054 issued a resolution dated
August 29, 1985, which restrained Carlota Valenzuela from acting as liquidator and allowed Banco
Filipino to resume banking operations only under a Central Bank comptroller.

On March 2, 1987, the Court of Appeals rendered a decision dismissing the petition.

Hence this petition for review on certiorari was filed alleging that the respondent court erred when it
held in its decision that although Carlota P. Valenzuela was restrained by this Honorable Court from
exercising acts in liquidation of Banco Filipino Savings & 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 appears that the former management of Banco Filipino
appointed Quisumbing & 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 & Associates for defendant Banco Filipino be expunged from the
records. Despite opposition from Quisumbing & 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 AC-G.R. SP. No. 04609 had stated that Banco
Filipino has been ordered closed and placed under receivership pending liquidation, 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 P8,034,130.00, 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 operate as such under M.B.
Resolution No. 223 dated February 14, 1963. It commenced operations on July 9, 1964. It has
eighty-nine (89) operating branches, forty-six (46) of which are in Manila, with more than three (3)
million depositors.

As of July 31, 1984, the list of stockholders showed the major stockholders to be: Metropolis
Development Corporation, Apex Mortgage and Loans Corporation, Filipino Business Consultants,
Tiu Family Group, LBH Inc. and Anthony Aguirre.

Petitioner Bank had an approved emergency advance of P119.7 million under M.B. Resolution No.
839 dated June 29, 1984. This was augmented with a P3 billion credit line under M.B. Resolution
No. 934 dated July 27, 1984.

On the same date, respondent Board issued M.B. Resolution No. 955 placing petitioner bank under
conservatorship of Basilio Estanislao. He was later replaced by Gilberto Teodoro as conservator on
August 10, 1984. The latter submitted a report dated January 8, 1985 to respondent Board on the
conservatorship of petitioner bank, which report shall hereinafter be referred to as the Teodoro
report.

Subsequently, another report dated January 23, 1985 was submitted to the Monetary Board by
Ramon Tiaoqui, Special Assistant to the Governor and Head, SES Department II of the Central
Bank, regarding the major findings of examination on the financial condition of petitioner BF as of
July 31, 1984. The report, which shall be referred to herein as the Tiaoqui Report contained the
following conclusion and recommendation:

The examination findings as of July 31, 1984, as shown earlier, indicate one of insolvency
and illiquidity and further confirms the above conclusion of the Conservator.

All the foregoing provides sufficient justification for forbidding the bank from engaging in
banking.
Foregoing considered, the following are recommended:

1. Forbid the Banco Filipino Savings & Mortgage Bank to do business in the
Philippines effective the beginning of office January 1985, pursuant to Sec. 29 of R.A
No. 265, as amended;

2. Designate the Head of the Conservator Team at the bank, as Receiver of Banco
Filipino Savings & Mortgage Bank, to immediately take charge of the assets and
liabilities, as expeditiously as possible collect and gather all the assets and
administer the same for the benefit of all the creditors, and exercise all the powers
necessary for these purposes including but not limited to bringing suits and
foreclosing mortgages in the name of the bank.

3. The Board of Directors and the principal officers from Senior Vice 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.

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 & 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 RA 265, as amended, the
Board decided:

1. To forbid Banco Filipino Savings and Mortgage Bank and all its branches
to do business in the Philippines;

2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor as Receiver

who is hereby directly vested with jurisdiction and authority to immediately
take charge of the 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. 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 otherwise to assist the Receiver in carrying out the functions
vested in the Receiver by law or Monetary Board Resolutions;

4. To direct and authorize Management to do all other things and carry out all
other measures necessary or proper to implement this Resolution and to
safeguard the interests of depositors, creditors and the general public; and

5. In consequence of the foregoing, to terminate the conservatorship over

Banco Filipino Savings and Mortgage Bank. (pp. 10-11, Rollo, Vol. I)

On February 2, 1985, petitioner BF filed a complaint docketed as Civil Case No.

9675 with the Regional Trial Court of Makati to set aside the action of the Monetary
Board placing BF under receivership.

On February 28, 1985, petitioner filed with this Court the instant petition
for certiorari and mandamus under Rule 65 of the Rules of Court seeking to annul
the resolution of January 25, 1985 as made without or in excess of jurisdiction or with
grave abuse of discretion, to order respondents to furnish petitioner with the reports
of examination which led to its closure and to afford petitioner BF a hearing prior to
any resolution that may be issued under Section 29 of R.A. 265, also known as
Central Bank Act.

On March 19, 1985, Carlota Valenzuela, as Receiver and Arnulfo Aurellano and
Ramon Tiaoqui as Deputy Receivers of Banco Filipino submitted their report on the
receivership of BF to the Monetary Board, in compliance with the mandate of Sec. 29
of R.A. 265 which provides that the Monetary Board shall determine within sixty (60)
days from date of receivership of a bank whether such bank may be
reorganized/permitted to resume business or ordered to be liquidated. The report
contained the following recommendation:

In view of the foregoing and considering that the condition of the banking
institution continues to be one of insolvency, i.e., its realizable assets are
insufficient to meet all its liabilities and that the bank cannot resume business
with safety to its depositors, other creditors and the general public, it is
recommended that:

1. Banco Filipino Savings & Mortgage Bank be liquidated pursuant to paragraph 3,

Sec. 29 of RA No. 265, as amended;

2. The Legal Department, through the Solicitor General, be authorized to file in the
proper court a petition for assistance in th liquidation of the Bank;

3. The Statutory Receiver be designated as the Liquidator of said bank; and

4. Management be instructed to inform the stockholders of Banco Filipino Savings &

Mortgage Bank of the Monetary Board's decision 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 direct the respondents
Monetary Board and Central Bank hold hearings at which the petitioner should be
heard, and 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 collectibles and receivables or paying off creditors' claims and other
transactions pertaining to normal operations of a bank were no enjoined. The Central
Bank was also ordered to designate comptroller for the petitioner BF. This Court also
ordered th 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 order ing Branch 136 of the
Regional Trial Court of Makati the presided over by Judge Ricardo Francisco to
conduct the hear ing 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 administrative 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 BP 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 healing on the reports that led respondents to order petitioner's
closure and its alleged pre-planned 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
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 Fortunate 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'
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:

l) Had the Monetary Board observed the procedural requirements laid down
in Sec. 29 of R.A. 265, as amended to justify th closure of the Banco Filipino
Savings and Mortgage Bank?

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. That the TEODORO and TIAOQUI reports did not establish in accordance
with See. 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 not clearly established;

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. 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 argrument 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 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 setting 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 o 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 receiver filed a motion to dismiss
the complaint on the ground that the receiver had not authorized anyone to file the
action.

On March 22, 1985, the Monetary Board placed the bank under liquidation and
designated Valenzuela as liquidator and Aurellano and Tiaoqui as deputy liquidators.

The Central Bank filed a supplemental motion to dismiss which was denied. Hence,
the latter filed a petition for certiorari with the respondent appellate court to set aside
the order of the trial court denying the motion to dismiss. On March 17, 1986, the
respondent appellate court granted the petition and dismissed the complaint of
Banco Filipino with the trial court.

Thus, this petition for certiorari was filed with the petitioner contending that a bank
which has been closed and placed under receivership by the Central Bank under
Section 29 of RA 265 could file suit in court in its name to contest such acts of the
Central Bank, without the authorization of the CB-appointed receiver.

After deliberating on the pleadings in the following cases:

1. In G.R. No. 68878, the respondent's motion for reconsideration;

2. In G.R. Nos. 77255-58, the petition, comment, reply, rejoinder and sur-
rejoinder;

2. In G.R. No. 78766, the petition, comment, reply and rejoinder;

3. In G.R. No. 81303, the petitioner's motion for reconsideration;

4. In G.R.No. 81304, the petition, comment and reply;

5. 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 Monetary Board shall later determine and confirm that
banking institution is insolvent or cannot resume business safety to depositors,
creditors and the general public, it shall, public interest requires, order its liquidation
and appoint a liquidator who shall take over and continue the functions of receiver
previously appointed by Monetary Board. The liquid for may, in the name of the bank
and with the assistance counsel as he may retain, institute such actions as may
necessary in the appropriate court to collect and recover a counts and assets of such
institution or defend any action ft 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, pendency of the case did not diminish the powers and
authority of the designated liquidator to effectuate and carry on the a ministration of
the bank. In fact when We adopted a resolute on August 25, 1985 and issued a
restraining order to respondents Monetary Board and Central Bank, We enjoined me
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 s to
creditors and other parties for the purpose of paying debts of such institution. We did
not prohibit however acts a as receiving collectibles and receivables or paying off
credits claims and other transactions pertaining to normal operate of a bank. There is
no doubt that the prosecution of suits collection and the foreclosure of mortgages
against debtors the bank by the liquidator are among the usual and ordinary
transactions pertaining to the administration of a bank. their did Our order in the
same resolution dated August 25, 1985 for the designation by the Central Bank of a
comptroller Banco Filipino alter the powers and functions; of the liquid insofar as the
management of the assets of the bank is concerned. The mere duty of the
comptroller is to supervise counts and finances undertaken by the liquidator and to d
mine the propriety of the latter's expenditures incurred behalf of the bank.
Notwithstanding this, the liquidator is empowered under the law to continue the
functions of receiver is preserving and keeping intact the assets of the bank in
substitution of its former management, and to prevent the dissipation of its assets to
the detriment of the creditors of the bank. These powers and functions of the
liquidator in directing the operations of the bank in place of the former management
or former officials of the bank include the retaining of counsel of his choice in actions
and proceedings for purposes of administration.

Clearly, in G.R. Nos. 68878, 77255-58, 78766 and 90473, the liquidator by himself or
through counsel has the authority to bring actions for foreclosure of mortgages
executed by debtors in favor of the bank. In G.R. No. 81303, the liquidator is likewise
authorized to resist or defend suits instituted against the bank by debtors and
creditors of the bank and by other private persons. Similarly, in G.R. No. 81304, due
to the aforestated reasons, the Central Bank cannot be compelled to fulfill financial
transactions entered into by Banco Filipino when the operations of the latter were
suspended by reason of its closure. The Central Bank possesses those powers and
functions only as provided for in Sec. 29 of the Central Bank Act.

While We recognize the actual closure of Banco Filipino and the consequent legal
effects thereof on its operations, We cannot uphold the legality of its closure and
thus, find the petitions in G.R. Nos. 70054, 78767 and 78894 impressed with merit.
We hold that the closure and receivership of petitioner bank, which was ordered by
respondent Monetary Board on January 25, 1985, is null and void.

It is a well-recognized principle that administrative and discretionary functions may

not be interfered with by the courts. In general, courts have no supervising power
over the proceedings and actions of the administrative departments of the
government. This is generally true with respect to acts involving the exercise of
judgment or discretion, and findings of fact. But when there is a grave abuse of
discretion which is equivalent to a capricious and whimsical exercise of judgment or
where the power is exercised in an arbitrary or despotic manner, then there is a
justification for the courts to set aside the administrative determination reached (Lim,
Sr. v. Secretary of Agriculture and Natural Resources, L-26990, August 31, 1970, 34
SCRA 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 benefit's 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 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 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 function 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 liquidation, be exempt from any order of
garnishment, levy, attachment, orexecution.

The provisions of any law to the contrary notwithstanding, the actions of the
Monetary Board under this Section, Section 28-A, an the second paragraph
of Section 34 of this Act shall be final an executory, and can be set aside by
a court only if there is convince 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 th capital stock within ten (10) days from the date the receiver
take 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 o liquidation. No
restraining order or injunction shall be issued by an court enjoining the
Central Bank from implementing its actions under this Section and the
second paragraph of Section 34 of this Act in th 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 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 th 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 provision of this Section shall govern
the issuance and dissolution of the re straining order or injunction
contemplated in this Section.

xxx xxx xxx

Based on the aforequoted provision, the Monetary Board may order the cessation of
operations of a bank in the Philippine and place it under receivership upon a finding
of insolvency or when its continuance in business would involve probable loss 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.

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 Central Bank of the
PhilippinesCentral Bank (p. 1, Tiaoqui Report).

On December 17, 1984, this list of exceptions and finding 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 petitione 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 th petitioner bank. The letter
reads:

In connection with the regular examination of your institution a 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 terminated 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 an of petitioner bank. What transpired and
what was agreed upon during the conference was explained in the Tiaoqui report.

... 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 unhealth 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 a 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)

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; 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 Examination-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 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
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 presented, the standard of fairness
mandated in the due process clause is not met. In the case at bar, the conclusion
arrived at by the respondent Board that the petitioner bank is in an illiquid 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. 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 set up.

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:

... 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
determine 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 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 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.

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 leas 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 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 o 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 win 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
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
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. 3316, 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 self-imposed 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. ... 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 by 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 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;

... (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 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
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. The motion for reconsideration in G.R. Nos. 68878 and 81303, and the petitions in
G.R. Nos. 77255-58, 78766, 81304 and 90473 are DENIED;

2. The petitions in G.R. No. 70054, 78767 and 78894 are GRANTED and the
assailed order of the Central Bank and the Monetary Board dated January 25, 1985
is hereby ANNULLED AND SET ASIDE. The Central Bank and the Monetary Board
are ordered to reorganize petitioner Banco Filipino Savings and Mortgage Bank and
allow the latter to resume business in the Philippines under the comptrollership of
both the Central Bank and the Monetary Board and under such conditions as may be
prescribed by the latter in connection with its reorganization until such time that
petitioner bank can continue in business with safety to its creditors, depositors and
the general public.

SO ORDERED.
G.R. No. L-29352 October 4, 1971

EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DE LA

RAMA, HORACIO DE LA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA,
RODOLFO RAMOS, VICTORIA RAMOS TANJUATCO, and TEOFILO TANJUATCO, petitioners,
vs.
CENTRAL BANK OF THE PHILIPPINES, respondent.

Francisco Carreon, Feliciano C. Tumale and Araneta, Mendoza & Papa for petitioners.

Office of the Solicitor General Felix Q. Antonio and F. E. Evangelista, Clara Cruz-Espritu & Iigo B.
Regalado, Jr. for respondent Bank.

REYES, J.B.L., J.:

This is a petition for Certiorari, Prohibition and Mandamus with prayer for the issuance of a writ of
preliminary injunction to restrain respondent Central Bank of the Philippines (hereinafter designated
as the CB) from enforcing and implementing the Monetary Board Resolution No. 1263, adopted on
30 July 1968, excluding the Overseas Bank of Manila (hereinafter termed the OBM) from clearing
with the Central Bank, that was ordered implemented on 31 July 1968 (Annex "11"), and Resolution
No. 1290, adopted on 1 August 1968, granting authority to the OBM Board of Directors to suspend
operations thereof, which was implemented on 2 August 1968 (Annex "13").

The herein petition is based on the following grounds:

(a) That the aforesaid resolutions were not legally issued and were promulgated by respondent CB
through the Monetary Board in excess of jurisdiction and with grave abuse of discretion;

(b) That the said resolutions are prejudicial to the national interest and against public policy, as they
would erode confidence in the banking system and undermine the integrity and stability thereof,
contrary to the purpose and spirit of the Central Bank Act;

(c) That said resolutions have caused and will cause further irreparable losses, damages and
injuries to the depositors, creditors and stockholders of the OBM;

(d) That said resolutions were promulgated without due process of law, would constitute deprivation
of property likewise without due process of law, and will amount to impairment of the obligations of
contract; and

(e) That there is no appeal nor any plain, speedy and adequate remedy in the ordinary course of
law.

From the pleadings and annexes, the following appears:

The OBM is a commercial banking corporation duly organized and existing under the laws of the
Philippines with principal office at Rosario Street, Manila. Petitioners are the majority and controlling
stockholders thereof. The OBM was opened for business on 6 January 1964 with authorized capital
of P30 million, P10 million subscribed and P8 million thereof paid, but had been suspended by
respondent from clearing with the CB and from lending operations for various violations of the
banking laws and implementing regulations. Petitioners charged that the OBM became financially
distressed because of this suspension and the deprivation by the CB of all the usual credit facilities
and accommodations accorded to the other banks. The alleged exactions of onerous fines and
penalties by respondent was likewise blamed for the aggravated situation. For its deficiencies it was
made subject to penalties of 12% interest on overdrawings and 36% per annum on reserve
deficiencies, which by 1968 amounted to several millions.

By April, 1967, the financial situation of the OBM had caused mounting concern in the CB. Petitioner
Ramos and the OBM management finally met with respondent CB on the necessity and urgency of
rehabilitating the OBM through the extension of necessary financial assistance.

The upshot of these conferences appears from the correspondence exchanged between the CB and
the OBM.

On 2 May 1967, the Governor of the Central Bank, Andres Castillo, upon instructions of the
Monetary Board, wrote a letter (Petition, Annex "B") stating:

This is with reference to the conference had between Mr. Emerito Ramos, Sr.,
Chairman of your Board, and the undersigned, the Deputy Governor, the Acting
Superintendent of Banks, and the Officer-in-Charge, Accounting Department of this
Bank, last Friday evening on the present very precarious condition of the Overseas.
In the conference, we described to Mr. Ramos at length the circumstances which led
to the present precarious conditions of the bank. We stressed the imminent danger of
the bank's being thrown out of clearing, in accordance with existing Central Bank
regulations, on account of its continuous adverse clearing balances, and of the
immediate necessity of putting up additional capital in the amount of at least P3
million, which Mr. Ramos promised to put up when he last appeared before the
Monetary Board.

I informed Mr. Ramos that if his bank is thrown out of clearing, the Central Bank will
proceed in accordance with the existing policy under which he and other
stockholders representing a majority will have to sign a trusteeship agreement with
the Philippine National Bank pursuant to which the Overseas Bank will be managed
by the Philippine National Bank. If the PNB takes over management in such
eventuality, the Central Bank could also announce that it is ready to support the
Philippine National Bank in order to allay the fears of depositors and creditors.

In view of the OBM stockholders' reluctance to execute the Voting Trust suggested, the Monetary
Board adopted Resolution No. 2015 dated 16 October 1967, having the following terms (Petition,
Annex "F"):

(1) To require Mr. Emerito M. Ramos, Sr., the principal stockholder of the Overseas
Bank of Manila, to submit a listing of his properties and to mortgage or assign the
same to the Central Bank to cover the overdraft balance therewith of the Overseas
Bank of Manila;

(2) To require the stockholders of the Overseas Bank of Manila to subscribe to an

appropriate voting trust agreement so that the Central Bank may be able to effect a
complete reorganization and/or transfer the management of the bank to a nominee of
the Monetary Board;
Further conference ensued, and on 30 October 1967 Governor Castillo of the CB wrote again
(Petition, Annex "G" ):

I wish to refer to the conference had between your goodself and the members of the
Monetary Board at Malacaang of 16 October 1967, relative to the financial condition
and state of affairs of the Overseas Bank of Manila, of which the substantial majority
of stock is owned by you and your family and corporations controlled by you.

Among other things, the Monetary Board, having in mind the overdrawing in your
deposit account with the Central Bank which, on that date, stood at P22.3 million,
together with the balance of your past due emergency loan with the Central Bank
amounting to P10.3 million exclusive of accumulated interest, decided that, as a
measure to stave off liquidation, a voting trust agreement should be executed by you
and your family and the corporations controlled by you in favor of the Superintendent
of Banks, in an instrument similar to the one executed by stockholders of the
Republic Bank in favor of the Philippine National Bank. On 23 October 1967, the
Legal Counsel of this Bank submitted to you a draft of such "Voting Trust Agreement"
desired by the Monetary Board. However, on 25 October 1967, you handed the legal
Counsel your own draft of a "Trust Agreement" which, in essence, is not a voting
trust agreement as desired by the Monetary Board and reiterated in its Resolution
No. 2020 dated 20 October 1967 and confirmed on 24 October 1967.

This was followed up by another letter of 8 November 1967 (Petition, Annex "H"):

In line with the conference this morning between your goodself and the undersigned,
the Deputy Governor, the Acting Superintendent of Banks, and the Central Bank
Legal Counsel, and your manifestation of readiness to abide by the decisions of the
Monetary Board on all matters involving the Overseas Bank of Manila, it is requested
that the voting trust agreement prepared by the Legal Counsel of this Bank be now
signed by you and other members of your family and by the proper officials of the
corporations which are stockholders of the bank and which are controlled by you and
your family.

It is also requested that the execution of the mortgages on the properties you offered
as security for the obligations of the Overseas Bank of Manila to the Central Bank be
finalized, and the shares of stock belonging to you and your family in your
corporations and enterprises be endorsed in favor of the Central Bank and delivered
to us as soon as possible.

Finally, on 20 November 1967, the petitioners herein executed the Voting Trust Agreement prepared
by attorneys of the CB (Petition, Annex "A") with petitioners as Cestuis Que Trust1 and respondent
CB's Superintendent of Banks as the Trustee. The Trustee entered into the agreement pursuant to
the authority given by respondent's Monetary Board under M. B. Resolution No. 2017, dated 17
October 1967. The salient features of the said Voting Trust Agreement are the following:

(a) Objectives. The objectives are stated in the "Whereas Clauses", the pertinent portions of which
read: "... the abovenamed stockholders of the Overseas Bank of Manila believe that it is for and/or
the interest and benefit of the bank depositors, creditors and stockholders that this trust agreement
should be entered into by them for the rehabilitation, normalization and stabilization of the Overseas
Bank of Manila;" and "... TRUSTEE has likewise signified his willingness to accept such trust in
pursuance of the objectives above-mentioned;" (Emphasis supplied)
(b) Term. The life of the trust shall be for three (3) years from 20 November 1967, but the Trustee at
its option, may relinquish the trust upon approval of the Monetary Board. It is provided further that if,
at the expiration of the three-year period the purposes for which the trust has been constituted have
not as yet been fully achieved, the trust agreement shall be considered automatically extended for
such period to be determined by the Monetary Board, similarly terminable within such further period
at the discretion of the Monetary Board;

(c) Powers and authority. The trustee is given all and full authority, subject to the limitations set forth
in the law and other conditions in the contract to: (1) direct the management of the affairs and
accounts and properties of the OBM; (2) vote its directors and choose the officers and employees;
(3) improve, modify, reorganize its operation policies, standards, systems, methods, structure,
organization, personnel, staffing pattern, etc.; (4) hold and vote on the shares of stocks transferred
to him as trustee; (5) safeguard the interests of depositors, creditors and stockholders; and (6) in
general, to exercise all such powers and discharge all such functions as inherently pertain to
the cestui que trust as owners, and/or for the sound management of a banking institution;

(d) Consideration. The cestui que trust hound themselves, among others, to pay the trustee during
the life of the trust an annual honorarium subject to certain conditions.

Petitioners likewise conveyed by way of mortgage to the CB all their private properties and holdings
to secure the obligations of the OBM to the CB, but there is no agreement as to the value of these
properties, petitioners contending that they are worth over 141 million, but the CB appraised them at
around 67 million (Petition, Annexes "B" and "C").

But as early as 25 September 1967, Mr. Martin Oliva, who had become president of OBM only since
13 March 1967, had written to the Superintendent of Banks that transactions worth around P48
million, of which over P43 million were time deposits, at usurious rates of interest, had not been
incorporated in the Bank's books nor reported to the Board of Directors. It was explained2 that the
OBM management had resorted to these unrecorded transactions because the suspension of its
lending activities after 14 months of operation reduced OBM to virtual inactivity, and it had to agree
to pay high premiums or interests on such deposits because this high costs is comparatively
cheaper than the Central Bank's interests on overdrawings at the rate of 12% per annum and a
penalty of 36% per annum on reserve deficiencies.

Oliva's letter prompted a further investigation of OBM records by the CB examiners that revealed
allegedly unrecorded deposits and transactions (which is disputed by Petitioners) amounting to
48,007,211 as of 13 September 1967 (reduced to P35 million when petition was filed); diversion of
deposits to accounts controlled by certain OBM officials (so-called COFICO and EMRACO accounts)
and loans to the Ramos family and firms controlled by them.3Petitioners contend that these
transactions were recorded in subsidiary ledger accounts that were linked to the general ledger
accounts of the Bank under the so-called EMRACO and COFICO accounts, and finally incorporated
in OBM's regular books in September, 1967 upon instructions of President Martin Oliva.4 And as to
the loans to the Ramos family and firms, the same had been written off when around 31 July 1967
the Ramoses conveyed to the OBM properties worth P54.096 million.

On 27 October 1967, the Superintendent of Banks reported that the condition of the OBM was one
of insolvency, calling for application of Section 29 of the Central Bank Act and liquidation of OBM.
However, with the listing of Ramos properties worth 100 million, it was added, a new possibility
emerged to recapitalize the OBM in 100 million.5
 2. However, with the letter dated October 26, 1967 of Mr. Martin R. Oliva, President
of the Overseas Bank of Manila, giving a list of the Ramos properties worth P100
million (?), a radically different possibility has emerged.

If the valuation of the P100 million (net of encumbrances to the parties other than the
CB and TOBM) to the properties is true, or substantially true, then the new
"possibility" may be briefly stated thus:

A Recapitalization of the Overseas Bank of Manila on the amount of P100 million will
save the bank, because as a general proposition, subject of course to
corroborative quantification such a magnitude of capital can make good the bad
loans as well as the funds that cannot be legitimately accounted for, and can absorb
the losses in bad debts, can provide it with funds for viable operations, and thus
ultimately give adequate protection to depositors and creditors.

In the same memorandum report, considering the need for liquid funds, the Superintendent of Banks
suggested the following alternatives:

(1) The OBM be required to acquire the properties in payment for frozen or bad loans
or for unaccountable funds, and then mortgage the properties to CB for emergency
advances, or

(2) The owners be required to mortgage the properties to the CB directly, and for CB
to extend loans to OBM depending on the needs.

Three days later, 30 October 1967, the Central Bank governor wrote to the petitioner, Emerito
Ramos, reiterating the need for the OBM stockholders to execute a voting trust agreement "to stave
of liquidation", which letter was followed by another of 8 November 1967, requiring the execution of
the Voting Trust Agreement by the OBM stockholders and of the mortgage of their properties to
secure OBM obligations to the Central Bank and the endorsement of the shares of stock held by
them in their corporations and enterprises (Petition, Annexes "G" and "H", quoted previously).
Petitioners duly complied (Annexes "A", "C" and "S") in November, 1967.

On 5 December 1967, new directors and officers drafted from the CB itself, the PNB and DBP were
elected and installed and they took over the management and control of the Overseas bank.

On 14 June 1968, the CB announced that only P10 million were available as emergency loan to
OBM and requested the management of the latter (appointed under the Voting Trust Agreement to
replace the old Board elected by the stockholders) to project how it could help bail out OBM.

OBM president, Mr. Orosa, submitted a "Projected Cash Flow Statement"6, concluding

It is pointed out here that with the P10 million loan from the CB, the extremely
distressed financial condition of TOBM will continue to prevail. At best, the P10
million loan will enable TOBM to resume limited lending operations on a highly
selected basis and diminish its estimated loss by some P492.5 thousand assuming
that the loans to be extended have a high turnover rate and a 100% repayment ratio.
Thus, with the P10 million CB loan, the annual loss has been estimated to be P8.9
million. To be able to breakdown in operations, therefore, TOBM needs loanable
funds estimated at P196 million, placing the cost of such funds at 1 %.
In a memorandum submitted to Governor Calalang 12 days later, 22 July, Mr. Orosa unburdened
himself and deployed CB for hemming and hawing. This caused, he said the loss of "psychological
advantage" initially gained by PNB's take over of the OBM management. He reminded the CB
Governor about the OBM management's request on 6 January 1968 for a P20 million loan to enable
OBM to get on its feet. "At that time", he said, "the aid we are recommending, properly used, would
have staved off panic and restored some confidence."

Eight months of indecision has made depositors lose faith and as a result, we are
faced with more court suits and withdrawals than ever before and more obligations
have matured.7

The next day, 23 July 1968, the Superintendent of Banks recommended to the Monetary Board that
OBM be liquidated under Section 29, Republic Act 265, if its "capital structure cannot be
strengthened to meet the requirements of Section 22 of RA 337",8 and if "massive financing cannot
be given to enable the bank to expand its risk assets." He concluded that:

... The bank's continuance in business under its present extremely precarious
financial condition, without the necessary capital injection and financial aid, will
involve not merely probable, but certain further losses to its depositors and other
creditors and may have further adverse effects on the banking system.

Thereafter, on 13 August 1968, as heretofore stated, the CB Monetary Board adopted Resolution
No. 1333, ordering the Superintendent of Banks to proceed to the liquidation of the OBM, under
Section 29 of the Central Bank Act. As already noted, implementation of this resolution was
restrained by this Court.

Petitioners aver that no adequate financial assistance was granted to the OBM after the execution of
the Voting Trust Agreement. They further ]claim that the said agreement is not only bilateral,
imposing reciprocal obligations for valuable consideration, but was also entered into by respondent
CB in the performance of its duties under the law; and that under said agreement the obligation of
the CB was to act and work for the "rehabilitation, normalization and stabilization" of the OBM,
through the extension of adequate and necessary financial assistance to stave off liquidation, is
legally demandable, as well as a duty specifically enjoined and imposed by law. And that in violation
of its obligations, the CB, "after eight months of delay", adopted the questioned resolutions, without
notice to or hearing the petitioners.

By resolution of this Court, the respondents were required to answer the petition and set for hearing
the petition for a writ of injunction. However, on 13 August 1968, the CB adopted Resolution No.
1333 (Annex "12", Answer) forbidding the OBM from doing business and instructing the
Superintendent of Banks to take charge of the Bank's assets and to take action under Section 29 of
the Central Bank Act (Republic Act 265), which amounted to a directive for the liquidation of the
OBM. Implementation of the resolution was, upon petitioners' motion, restrained by the Court on 14
August 1968.

Justifying Resolutions 1263 and 1290, CB in its answer cited specific instances of OBM's "unusual
and irregular transactions" discovered by examiners or "revealed by OBM officials themselves". By
way of affirmative defenses, CB averred that:

1. The CB is not a party to the Voting Trust agreement, and therefore cannot be compelled to
implement it.
2. Assuming that CB is obliged to rehabilitate OBM, it cannot give more loans to the latter than that
already given to it as of 30 July 1968, without violating Section 90 of the Central Bank Act since
neither OBM nor its stockholders could put up additional capital and additional collaterals to secure
CB's future advances.

3. It would be illegal and contrary to public interest to construe the voting trust agreement as
imposing upon CB the duty to rescue OBM at all cost.

4. No bank has an absolute right to take part in inter-bank clearing, because Section 100, Republic
Act 265, requires a bank as a condition to such participation to keep deposit reserves, which the
OBM does not have in fact it had overdrawn its reserve account with the CB beyond the
maximum fixed by law.

Several petitions for intervention were denied by the Court.

The issues involved appear to be:

(a) Whether or not this Supreme Court has jurisdiction to restrain the implementation
of CB Resolution No. 1333;

(b) Whether or not the CB had agreed to rehabilitate, normalize and stabilize OBM;

(c) Whether or not CB Resolutions Nos. 1263, 1290 and 1333 were adopted in abuse
of discretion.

On the first issue of jurisdiction, the respondent Central Bank defines its position in its Rejoinder
Memorandum, pages 3-5, as follows:

"We respectfully maintain,"..., that even as this Honorable Court had ample
jurisdiction over the said petition, any action based on the approval and
implementation of the third resolution, Res. 1333 on 13 August 1968 comes already
within the exclusive original jurisdiction of the Court of First Instance, in accordance
with the provisions itself of Section 29 of the Central Bank Act, Rep. Act 265, under
which said resolution was promulgated.

xxx xxx xxx

The point ... is that the situation has changed entirely because of the approval of
Res. 1333 on August 13, 1968, after the main petition had already been filed and
given due course. This resolution has made the two previous questioned resolutions
academic and the main petition pointless.

The CB stand is that to assail Resolution 1333 of the Monetary Board ordering the liquidation of the
Overseas Bank, an action must be filed in the Court of First Instance of Manila by the Bank itself,
and not by petitioning stockholders, allegedly in view of the provisions of Section 29, Republic Act
No. 265, paragraph 3, reading:

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

This argument must be rejected, for it overlooks the fact that before the Central Bank adopted said
Resolution No. 1333 on 13 August 1968 this Court had already taken cognizance of the petition
herein, assailing Resolutions Nos. 1263 and 1290 of the Monetary Board as "patent acts of
liquidation," violative of its alleged commitment to rehabilitate the overseas Bank; and the Court, in
fact, already had required the Central Bank to answer the petition on 12 August 1962, prior to the
adoption of Resolution No. 1333. The latter resolution is clearly an act in pursuance of the policy
outlined in the previous resolutions (1263 and 1290) enjoined by this Court. Hence, if jurisdiction was
already acquired ito delve into the validity of Resolutions 1263 and 1290 (and this the Central Bank
admits), there is no cogent reason why, after such jurisdiction had been acquired, the Court should
be deprived thereof by the subsequent adoption of Resolution 1333, particularly because the latter,
in relation to the antecedent facts, appears to be no more than a deliberate effort to evade the
jurisdiction of this Court, and have the case thrown back to the Court of First Instance.

In People vs. Pegarum, this Court quoted with approval the rule that:

... the jurisdiction of a court depends upon the state of facts existing at the time it is
invoked, and if the jurisdiction once attaches to the person and subject matter of the
litigation, the subsequent happening of events, although they are of such a character
as would have prevented jurisdiction from attaching in the first instance, will not
operate to oust jurisdiction already attached.

This rule coincides with well-established principles of American law9 to the same effect.

The basic guidelines in the exercise of this Court's original jurisdiction to issue prerogative writs were
expressed in Dimayuga vs. Fernandez, 43 Phil. 306-307, thus:

... It is true, as respondents contend, that as a general rule, a court of equity will not
restrain the authorities of either a state or municipality from the enforcement of a
criminal law, and among the earlier decisions, there was no exception to that rule. By
the modern authorities, an exception is sometimes made, and the writ is granted,
where it is necessary for the orderly administration of justice, or to prevent the use of
the strong arm of the law in an oppressive or vindictive manner, or a multiplicity of
actions.

In legal effect, that was the decision of this court in Kwong Sing vs. City of
Manila. (41 Phil. 103)

The writ of prohibition is somewhat sui generis, and is more or less in the sound legal
discretion of the court and is intended to prevent the unlawful and oppressive
exercise of legal authority, and to bring about the orderly administration of justice.

Nor would it serve the interest of justice to dismiss the case at this stage and let a new petition be
filed in another court. In Bay View vs. Manila Hotel Worker's Union (L-21803, 17 December 1966),
this Court, through Mr. Justice Conrado V. Sanchez, pointed out the evils attending split jurisdictions,
saying:

To draw a tenuous jurisdictional line is to undermine stability in ... litigations. A piece

meal resort to one Court and another gives rise to multiplicity of suits. ... The time to
be lost, effort wasted, anxiety augmented, additional expense incurred these are
 considerations which weigh heavily against split jurisdiction. Indeed it is more in
keeping with orderly administration of justice that all the causes of action here be
cognizable and heard by only one court... (Cas. cit., 18 SCRA 953).

On Previous occasions, this Court has overruled the defense of jurisdiction in the interest of public
welfare and for the advanced agreement of public policy, where, as in this case, an extraordinary
situation existed. 10 There is no denying that creditors, depositors and the banking community are all
interested in a quick determination whether the Overseas Bank may, under the circumstances, be
closed or allowed to continue operating at the exclusive discretion of respondent Central Bank.

The plea that the Overseas Bank is not a party to the case at bar need not give concern. The
petitioners are the controlling stockholders of that Bank, and are qualified to represent its interests,
so that a judgment may be enforced for or against it, although it is not impleaded by name in the
suits (V. Albert vs. Court of First Instance, L-26361, 29 May 1968, 23 SCRA 948, 964). This is
particularly true considering that the present management of the OBM (Overseas Bank of Manila) is
at present composed of respondent's nominees, pursuant to the Trust Agreement, and they can
hardly be expected to resist the plans and actions of respondent Central Bank (CB).

On the second issue, whether or not the respondent CB agreed to rehabilitate the OBM, Of which
petitioner are the majority stockholders, it is believed that a review of the letters from the CB to the
petitioners (hereinbefore quoted), considered together with the terms of the Voting Trust Agreement,
leaves no doubt that the CB did agree and commit itself to the continued operation of, and
rehabilitation of, the OBM. As early as 2 May 1967, the respondent CB, through its Monetary Board,
caused then Governor Castillo to advise petitioners that

he and other stockholders representing a majority will have to sign a trusteeship

agreement with the Philippine National Bank pursuant to which the Overseas Bank
will be managed by the Philippine National Bank. If the PNB takes over management
in such eventuality, the Central Bank could also announce that it is ready to support
the Philippine National Bank in order to allay the fears of depositors and
creditors. (Pet., Annex "B") (Emphasis supplied)

CB Resolution No. 2015 of 16 October 1967 (Petition, Annex "F"), in addition to requiring a mortgage
or assignment of petitioners' personal properties to CB, confirmed the quoted memorandum by
requiring the stockholders of OBM to subscribe to an appropriate trust agreement, with the only
difference that instead of the Philippine National Bank, the trust would be executed in favor of the CB
as trustee to enable it to reorganize and transfer management to a nominee of the Monetary Board."
Two weeks later, on 30 October 1967, after a conference at Malacaang, the CB governor once
more wrote to Ramos that the Monetary Board

decided that, as a measure to stave off liquidation, a voting trust agreement should
be executed by you and your family and the corporations controlled by you in favor of
the Superintendent of Banks, in an instrument similar to the one executed by
stockholders of the Republic Bank in favor of the Philippine National Bank (Petition,
Annex "G") (Emphasis supplied)

The reference to the case of the Republic Bank clarifies the purpose and scope of the demand for a
voting trust agreement "as a measure to stave off liquidation"; for it is well-known, and it is not
denied, that when the Republic Bank previously became distressed, the CB had advanced funds, to
rehabilitate it and allow it to resume operating.
Accordingly, the voting trust agreement that was finally executed (Annex "A"), and which was
admittedly prepared by the Legal Counsel of the Central Bank, recited in its preamble as an
objective of the voting trust agreement, that:

... the above named stockholders of the Overseas Bank of Manila believe that it is for
and/or interest and benefit of the bank depositors, creditors, and stockholders, that
this trust agreement should be entered into by them for the rehabilitation,
normalization and stabilization of the Overseas Bank of Manila.

and that the Superintendent of Banks as

... Trustee has likewise signified his willingness to accept such trust in pursuance of
the objectives above mentioned. ... (Emphasis supplied)

While the trust agreement on its face creates obligations only for the Superintendent of Banks as
trustee, his commitments were undeniably those of the Central Bank itself, since it was the latter that
had from the very beginning insisted upon such voting trust being executed. For the Superintendent
of Banks was an officer of the CB, the chief of its Department of Supervision and Examination of all
banking institutions operating in the country, subject to the instructions of the Monetary Board at all
times, pursuant to Section 25 of the CB charter, Republic Act No. 265; and it is not credible that he
should have understand that he was entering into the trust agreement in his personal capacity.

Bearing in mind that the communications, Annexes "B" and "G," as well as the voting trust
agreement, Annex "A," had been prepared by the CB, and the well-known rule that ambiguities
therein are to be construed against the party that caused them, 11 the record becomes clear that, in
consideration of the execution of the voting trust agreement by the petitioner stockholders of OBM,
and of the mortgage or assignment of their personal properties to the CB (Res. No. 2015, 16
October 1967, Annex "F," Petition), the CB had agreed to announce its readiness to support the new
management "in order to allay the fears of depositors and creditors." (Annex "B"), and to stave off
liquidation" by providing adequate funds for "the rehabilitation, normalization and stabilization" of the
OBM, in a manner similar to what the CB had previously done with the Republic Bank (Portion,
Annex "G," ante). While no express terms in the documents refer to the provision of funds by CB for
the purpose, the same is necessarily implied, for in no other way could it rehabilitate, normalize and
stabilize a distressed bank.

Even in the absence of contract, the record plainly shows that the CB made express representations
to petitioners herein that it would support the OBM, and avoid its liquidation if the petitioners would
execute (a) the Voting Trust Agreement turning over the management of OBM to the CB or its
nominees, and (b) mortgage or assign their properties to the Central Bank to cover the overdraft
balance of OBM. The petitioners having complied with these conditions and parted with value to the
profit of the CB (which thus acquired additional security for its own advances), the CB may not now
renege on its representations and liquidate the OBM, to the detriment of its stockholders, depositors
and other creditors, under the rule of promissory estoppel (19 Am. Jur., pages 657-658; 28 Am. Jur.
2d, 656-657; Ed. Note, 115 ALR, 157).

The broad general rule to the effect that a promise to do or not to do something in the
future does not work an estoppel must be qualified, since there are numerous cases
in which an estoppel has been predicated on promises or assurances as to future
conduct. The doctrine of "promissory estoppel" is by no means new, although the
name has been adopted only in comparatively recent years. According to that
doctrine, an estoppel may arise from the making of a promise, even though without
consideration, if it was intended that the promise should be relied upon and in fact it
 was relied upon, and if a refusal to enforce it would be virtually to sanction the
perpetration of fraud or would result in other injustice. In this respect, the reliance by
the promisee is generally evidenced by action or forbearance on his part, and the
idea has been expressed that such action or forbearance would reasonably have
been expected by the promissor. Mere omission by the promisee to do whatever the
promisor promised to do has been held insufficient "forbearance" to give rise to a
promissory estoppel. (19 Am. Jur., loc. cit.)

Disingenuously, the CB pleaded that the Voting Trust agreement was binding only upon the trustee,
the Superintendent of Banks. But as already pointed out this proposition is unacceptable since the
trust could have no private interest in the matters. Not only that, but CB subsequently caused its own
team of nominees to take over the direction and management of the OBM, through the voting of the
shares conveyed to the trustee. Even more, in August, 1970, the CB gave notice that it would not
extend or renew the voting trust, and attempted to turn back the shares covered by it to the
petitioners, thereby recognizing the obligations under the agreement as its own, and repudiating its
original disclaimer thereof.

How did the CB subsequently treat its commitments?

After execution of the Voting Trust Agreement, on 20 November 1967, the CB elected and installed
new directors and officers drafted from the Central Bank itself, the Philippine National Bank and the
Development Bank of the Philippines. The new team assumed the management and control of the
OBM and elected Augusto E. Orosa as bank president. On 6 January 1968, the new management
requested for a thirty million peso loan to enable the OBM to get on its feet. How this request for aid
was treated appears in a memorandum to the new CB governor, dated 22 July 1968 (Petitioner's
Reply Memorandum, Annex "X," Record, pages 526-527). Mr. Orosa stated:

MEMORANDUM TO:

Governor Alfonso Calalang

SUBJECT: POSITION PAPER OF THE OVERSEAS BANK

OF MANILA

BACKGROUND

A selected PNB team formally took over the management of the Overseas Bank of
Manila on December 7, 1967.

On January 16, 1968 we completed a report on the financial standing of the Bank,
the original of which is in your possession. In that report, we recommended that the
balance of the unpaid capital stock of P11 million be fully paid and P20 million be
advanced by the Central Bank to enable the Bank to resume normal operations. At
that time, we gathered from the books of account that the Bank faced obligations to
be immediately met amounting to about P30 million as against liquid assets of more
than P12 million or an immediate cash requirement of about P17 million.
Nevertheless, and this is a very important point, our feeling was that at that time the
aid we are recommending, properly used, would have staved off panic and restored
some confidence.

The entrance of the PNB team actually was a great initial psychological advantage;
we have used that advantage to full extent: the advantage has faded.
 PRESENT POSITION

Eight months of indecision has made depositors lose faith and as a result, we are
faced with more court suits and withdrawals than ever before and more obligations
have matured.

We are made to understand that an advance of P19 million has been approved for
the Bank and that an initial release of P10 million is under study. Last July 10, 1968,
we wrote the Superintendent of Banks complying with his request to render a
projection of what we can do with P10 million.

There is a great leeway with what we can do with P10 million depending on the
conditions which will accompany its grant. Even under the most liberal conditions that
we can imagine, P10 million will not save the Bank. We are, however, not aware
whether this proposed P10 million will be the start of a series of advances nor as to
how much ultimately the Central Bank will be willing to finance the rehabilitation.

We are faced with both internal and external problems that are daily increasing in
difficulty. If we are requested to make a projection which we believe is a reasonable
request, the present management should be made privy to the following:

(1) What is the real policy of the Central Bank regarding the future of TOBM;

(2) What is the policy of the Central Bank regarding present rates of interest and
penalties on prevailing deficiencies;

(3) What is the rate of interest to be charged on the fresh advances;

(4) What are the conditions to be meted out regarding leeway and operations of
TOBM;

(5) Any other strings that may be attached.

(6) What is the policy of Central Banking regarding unrecorded time deposits.

All these points will greatly affect any projection.

REQUEST:

That the PNB management team be withdrawn from TOBM.

It is obvious from this memorandum that far from heeding the request of its own team for an advance
of P30 million (or P17 million in cash) to enable the OBM to resume normal operations, the Central
Bank did nothing to support the OBM between 6 January to 14 June, for almost six months, and kept
even its own management team largely in the dark as to what to expect. 0n 14 June, CB advised
that only P10 million were to be made available (i.e., one third of the requirements estimated
necessary by its own representatives). This amount was naturally considered insufficient to
normalize, much less rehabilitate, the OBM. And yet all this while, the CB was holding petitioners'
mortgages on their private properties worth at least P67 million in 1967 by the CB's own appraisal.
Petitioners claimed they were worth P100 million which can not be very far from the truth,
considering the continual rise in real estate values.
Not content with procrastinating for 6 months, without taking positive steps to normalize OBM as it
had agreed to do, nor even announcing its support of its own management team or disclosing its
policy regarding the future of OBM, (the CB finally adopted the resolutions now attacked by herein
petitioner stockholders. On 30 July 1968, it excluded the OBM from clearing with the CB (Resol. No.
1263) the contingency that the Voting Trust and the mortgage of the petitioners' private properties
were to guard against. On 1 August 1968, CB authorized (and virtually directed) its nominee Board
of Directors to suspend operations (Resol. No. 1290); and thirteen days thereafter (13 August 1968),
the CB directed its Superintendent of Banks to proceed to liquidate OBM (Resol. No. 1333) under
Section 29 of Republic Act No. 265 (Central Bank Charter), providing that

SEC. 29. Proceedings upon insolvency. Whenever, upon examination by the

Superintendent or his examiners or agents into the condition of any banking
institution, it shall be disclosed that the condition of the same is one of insolvency, or
that its continuance in business would involve probable loss to its depositors or
creditors, it shall be the duty of the Superintendent forthwith, in writing, to inform the
Monetary Board of the facts, and the Board, upon finding the statements of the
Superintendent to be true, shall forthwith forbid the institution to do business in the
Philippines and shall take charge of its assets and proceeds according to law.

If the Monetary Board shall determine that the banking institution cannot resume
business with safety to its creditors, it shall, by the Solicitor General, file a petition in
the Court of First Instance reciting the proceedings which have been taken and
praying the assistance and supervision of the court in the liquidation of the affairs of
the same. The Superintendent shall thereafter, upon order of the Monetary Board
and under the supervision of the court and with all convenient speed, convert the
assets of the banking institution to money.

We are constrained to agree with petitioners that the conduct of the CB from and after January,
1968, reveals a calculated attempt to evade rehabilitating OBM despite its promises. What is more
aggravating is that by the ordered liquidation, depositors and other creditors would have to share in
the assets of the OBM, while the CB's own credits for advances were secured by the new mortgages
it had obtained from the petitioners, thereby gaining for it what amounts to an illegal preference. To
cap it all, the CB disregarded its representations and promises to rehabilitate and normalize the
financial condition of OBM, as it had previously done with the Republic Bank, without even offering
to discharge the mortgages, given by petitioners in consideration for its promises, or notifying
petitioners that it desired to rescind its contract, or bringing action in court for the purpose. And all
the while CB knew that the situation of the OBM was deteriorating daily, with penalties at 3% per
month continually accumulating, while its creditors, depositors and stockholders awaited the
promised aid that never came, and which apparently CB never intended to give.

The deception practiced by the Central Bank, not only on petitioners but on its own management
team, was in violation of Articles 1159 and 1315 of the Civil Code of the Philippines:

ART. 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.

ART. 1315. Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly stipulated but
also to all the consequences which, according to their nature, may be in keeping with
good faith, usage and law. (Emphasis supplied)
The Supreme Court expounded the import of these legal provisions in Abelarde vs. Lopez, 74 Phil.
344, 348, stating:

Cleverness should never take the place of the loyal, upright and straightforward
observance of plighted undertakings.

The CB excuses itself by pleading that the OBM officers had resorted to non-recording of time
deposits in the Bank's books and diverting such deposits to accounting controlled by certain bank
officials, and other irregularities. It is well to note, however, that these "unrecorded" deposits were
revealed to the CB as early as 25 September 1967 by the then President of the OBM, Mr. Martin
Oliva, who had no hand in such irregularities and who informed the Superintendent of Banks that
time deposits worth P43,188,009.29 had not been carried in the books and had not been reported to
the OBM directors. 12 In fact, on 29 September 1967, the CB had already ordered its examiners to
investigate the Bank's records and determine the parties responsible. 13 Notwithstanding knowledge
of these irregularities, the CB did not withdraw its promised support, and insisted on the execution of
the Voting Trust Agreement on 20 November 1967. Such attitude imports that, in its opinion, the
irregularities disclosed were not to be blamed on the OBM itself or its depositors and creditors, but
on the officials responsible; and further, that the OBM could still be saved by adequate aid and
management reform, which was required by CB's duty to maintain the stability of the banking system
and the preservation of public confidence in it.

Respondent CB likewise urges in its defense that the rehabilitation of the OBM has become
impossible, and points out to the reports of the Superintendent of Banks and of Mr. Augusto Orosa
(the President of OBM elected by the CB nominees under the Voting Trust) that the Bank's loanable
funds had to be expanded to P136 million to break even. 14It is to be borne in mind, however, that
these reports were made in July, 1968, after six months of inaction on the part of the CB, without
positive action on its part to comply with its previous commitments. Furthermore, while the
stabilization of the OBM required injections of capital, it would be erroneous to assume that such
capital would have to reach P130 million, or that it would have to be advanced all at once. For had
the CB furnished the original aid of 30 million asked by the Orosa team early in January, 1968, and
the OBM allowed to resume operations with CB support, the restored confidence would have
stimulated new deposits, which, as is well-known, become in turn a source of loanable funds. It thus
becomes apparent that most of the difficulties invoked now by the CB are of its own making, and are
not a lawful excuse for its refusal to comply with its commitments. Finally, in the computations by the
CB examiners, there are included a total of P16.994 million for estimated losses, interests and
penalties 15 that did not represent amounts to be disbursed. More concretely, even in July, 1968, after
six months of CB dilly-dallying, the actual amount needed to be loaned to the OBM for capital
requirements "to support the necessary expansion in risk assets of P126.334 million in order to
break even in its operations" was estimated by the Superintendent of Banks at no more than
P40.730
million. 16 This amount tallies with Mr. A. Orosa's estimate that an advance of P30 million in January,
1968 would have saved OBM. 17 There is no showing that these amounts were beyond the capacity
of CB to make, 18 nor is it proved that they exceeded the amounts supplied for the rehabilitation of the
Republic Bank (the CB, for reasons of its own, refused to disclose the latter amounts despite
requests from the court). Certainly, the ten million increase in advance capital requirements between
January and July of 1968 can not be blamed on the petitioners herein, and was not of their own
making.

The respondent CB cites American cases to the effect that the courts can not interfere with CB's
discretion in determining whether or not a distressed bank should be supported or liquidated. In
none of the cases cited, however, does it appear that the CB engaged to support the distressed
bank in exchange for control of its management and additional mortgages in its favor, and, therefore,
the authorities cited are not in point. Discretion has its limits and has never been held to include
arbitrariness, discrimination or bad faith.

We conclude that having induced the petitioners to part with additional security in reliance upon its
(CB's) promises and commitments to avert liquidation and to support, normalize and rehabilitate the
OBM, the respondent CB is duty bound to comply in good faith with such promises. Consequently,
being contrary thereto, CB Resolutions Nos. 1263, 1290 and 1333 should be annulled and set aside
for having been adopted in abuse of discretion, equivalent to excess of jurisdiction. And never
having attempted to comply, nor even to begin compliance, with its commitments and promises, the
respondent CB is precluded to invoke the expiration of the period specified for the duration of its
obligations under the Voting Trust Agreement. Such period should, in justice and equity, be deemed
to start running from and after the CB begins due performance of its commitments, promises and
representations in good faith.

WHEREFORE, the writs prayed for in the petition are hereby granted, and respondent Central
Bank's resolutions Nos. 1263, 1290 and 1333 (that prohibit the Overseas Bank of Manila to
participate in clearing, direct the suspension of its operations, and ordering liquidation of said bank)
are hereby annulled and set aside; and said respondent Central Bank of the Philippines is directed
to comply with it obligations under the Voting Trust Agreement, and to desist from taking action in
violation thereof. Costs against respondent Central Bank of the Philippines.

Dizon, Teehankee, and Villamor, JJ., concur.

Concepcion, Barredo and Makasiar, C.J., took no part.

Zaldivar, J., concurs in the result.

Separate Opinions

FERNANDO, J., concurring:

In the result primarily on the ground that respondent's arbitrary and improvident exercise of its
asserted power in the premises is violative of due process.

MAKALINTAL, J., dissenting:

I fail to see, either from the record of this case or from the opinion of the majority, just how and
where respondent Central Bank acted without or in excess of jurisdiction or with grave abuse of
discretion so as to justify the writs of certiorari and prohibition granted by this Court; and just how
and where said respondent neglected to perform a duty specifically enjoined by law so as to justify
the writ of mandamus. To my mind the acts complained of in the petition, namely, Resolutions Nos.
1263 and 1290, passed by the Monetary Board on July 31 and August 1, 1968, respectively, were, if
anything, a judicious exercise of discretion for the purpose of carrying out the policies laid down by
the Central Bank Act with respect to supervision over the operation of private banking institutions
and this Court, by issuing the writs prayed for, has substituted its own judgment for that of the
Monetary Board in a matter that is peculliarly within the competence of the latter.

The thrust of the decision, as far as I can make out, is that the Voting Trust Agreement of November
20, 1967 created contractual obligations, with which "respondent Central Bank of the Philippines is
directed to comply ." The directive does not specify what those obligations are. The principal
stipulation in the agreement is simply what its title indicates: petitioners here, referred to as the
Cestuis Que Trust, assign to the Trustee "for such purpose" the voting rights to all their shares of
stock in the Overseas Bank of Manila, subject to certain conditions thereafter stated. The purpose
envisaged is expressed in the first of the two "WHEREAS" clauses of the agreement, to wit: "the
abovenamed stockholders (petitioners here) believe that it is for and/or in the interest and benefit of
the bank's depositors, creditors and stockholders that this trust agreement should be entered into by
them for the rehabilitation, normalization and stabilization of the Overseas Bank of Manila."

It seems, from a reading of the decision of this Court, that the purpose for which the Voting Trust
Agreement was entered into more accurately, the goal sought to be achieved is mistaken for the
obligation thereunder, and that such obligation devolves not upon the Trustee, the Superintendent of
Banks, but upon the Central Bank itself, which is not a party to the agreement. Be that as it may, the
agreement contains an optional rescission clause, which is only logical, since the feasibility of
rehabilitating, normalizing and stabilizing the Overseas Bank, which was then in extremely
distressed circumstances, would depend upon many factors which could not be predicted with
mathematical certitude, but only upon a reasonably considered projection of future probabilities.
Thus while the life of the agreement would be for three years from the date of its execution, it was
provided expressly "that the Trustee may, at its option, relinquish the trust, upon approval of the
Monetary Board."

Resolution No. 1263, adopted July 31, 1968, excluded the Overseas Bank, then under trusteeship,
from clearing with the Central Bank, effective immediately. Resolution No. 1290, adopted the next
day, granted authority to the Board of Directors of the Overseas Bank to suspend operations
pending final action by the Monetary Board. Such final action was evidently meant to be in
connection with the recommendation submitted by the Superintendent of Banks to the Monetary
Board on June 23, 1968, which reads in part as follows:

After considering (1) the Examiners' provisions for estimated losses on the recorded
loans and receivables of P13.766 million (exclusive of estimated losses of P13.243
million on "unrecorded" loans and receivables), plus 2(a) the accrued interest on the
emergency loans by, and overdrawings with, the Central Bank, and 2(b) penalties
payable on deposit reserve deficiencies aggregating P3.228 million, or a total of
P16.994 million, all of these not yet taken up in the books, the bank's capital
accounts per books of P14.356 million as of June 30, 1968, would be wiped out
resulting in an estimated deficiency to creditors of P2.638 million. Since the minimum
capital required under Section 22 of Republic Act No. 337 as of June 30, 1968 is
P19.142 million, the amount of fresh capital needed to be put up to comply with the
minimum capital requirement as of June 30, 1968 would be P21.780 million. In
addition, P18.950 million of new capital must be put up by the Bank to support the
necessary expansion in risk assets of P126.334 million in order to break even in its
operations. Therefore, the total fresh capital which the Bank must put to meet the
requirements of Section 22 of R.A. No. 337, after considering the estimated losses
on loans and other expenses not yet taken up in the books, as well as the necessary
 expansion in risk assets so as to break even in its operations, would be P40.730
million.

xxx xxx xxx

If the capital structure cannot be strengthened to meet the requirements of Section

22 of R.A. No. 337, and massive financing cannot be given to enable the Bank to
expand its risk assets to the level at which it can break even in operations, then there
seems to be no other alternative except to liquidate the Bank under Section 29 of
R.A. No. 265. The Bank's continuance in business under its present extremely
precarious financial condition, without the necessary capital injection and financial
aid, will involve not merely probable, but certain, further losses to its depositors and
other creditors and may have further adverse effects on the banking system.

In the situation depicted by the Superintendent of Banks, which in his opinion presented no other
alternative except to liquidate the Overseas Bank pursuant to Section 29 of Republic Act No. 265
(Charter of the Central Bank), the adoption of Resolutions Nos. 1263 and 1290 was not, in my
opinion, a violation of the Voting Trust Agreement, much less an abuse of discretion on the part of
the Monetary Board.

In a sense the issue with respect to the aforesaid resolutions has become moot and academic in
view of the fact that on August 13, 1968, after the instant petition was filed, the Monetary Board
adopted Resolution No. 1333, wherein it decided as follows:

(1) To forbid the Overseas Bank of Manila to do business in the Philippines;

(2) To instruct the Superintendent of Banks to take charge, in the name of the
Monetary Board of the bank's assets;

(3) To instruct the Superintendent of Banks to take such further action as may be
necessary pursuant to Section 29 of Republic Act No. 265; and

(4) To refer the said memorandum report of the Superintendent of Banks as well as
previous pertinent reports of the examiners of the Department of Supervision and
Examination, particularly those pertaining to unrecorded certificates of time deposits
bearing the signatures of former officers of the bank, to the Central Bank Legal
Counsel for appropriate legal action.

The adoption of Resolution No. 1333, it seems to me, should remove the present controversy from
this Court if it was properly here at all in the first place, which I doubt and address it to the
Court of First Instance pursuant to Section 29 of the Central Bank Charter, which provides:

SEC. 29. Proceeding upon insolvency. Whenever, upon examination by the

Superintendent or his examiners or agents into the condition of any banking
institution, it shall be disclosed that the condition of the same is one of insolvency, or
that its continuance in business would involve probable loss to its depositors or
creditors, it shall be the duty of the Superintendent forthwith, in writing, to inform the
Monetary Board of the facts, and the Board, upon finding the statements of the
Superintendent to be true, shall forthwith forbid the institution to do business in the
Philippines and shall take charge of its assets and proceeds according to law.
 The Monetary Board shall thereupon determine within thirty days whether the
institution may be reorganized or otherwise placed in such a condition so that it may
be permitted to resume business with safety to its creditors and shall prescribe the
conditions under which such resumption of business shall take place. In such case
the expenses and fees in the administration of the institution shall be determined by
the Board and shall be paid to the Central Bank out of the assets of such banking
institution.

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

If the Monetary Board shall determine that the banking institution cannot resume
business with safety to its creditors, it shall, by the Solicitor General, file a petition in
the Court of First Instance reciting the proceedings which have been taken and
praying the assistance and supervision of the court in the liquidation of the affairs of
the same. The Superintendent shall thereafter, upon order of the Monetary Board
and under the supervision of the court and with all convenient speed, convert the
assets of the banking institution to money.

My misgiving as to the propriety of the remedy sought by petitioners is that it is essentially for the
enforcement of an alleged contract, presented in the guise of a petition for certiorari, prohibition
and mandamus. This is borne out by the decision of this Court, which directs the Central Bank "to
comply with its obligations under the Voting Trust Agreement, and to desist from taking any action in
violation thereof." It is to be noted that noted that no "act which the law specifically enjoins as a duty
resulting from an office, trust, or station" is ordered to be performed. Compliance with contractual
obligations is beyond the purview of mandamus, and original jurisdiction over an action for that
purpose pertains to the Courts of First Instance. Such an action is a plain, speedy and adequate
remedy in the ordinary course of law which, being available to petitioners, should bar the present
recourse to the extraordinary writ of mandamus, especially because certain vital facts are
controverted by the parties, such as the outstanding liabilities which can not be paid by the Overseas
Bank, the value of the properties mortgaged to the Central Bank by petitioners, the extent of the
loans secured by the mortgage, and the amount of money which the Central Bank is supposed to
advance in order to comply with its supposed undertaking to rehabilitate, normalize and stabilize
Overseas Bank. Curiously enough, as already noted, the decision of this Court merely directs
compliance with the Voting Trust Agreement without specifying if indeed what is implied is the
rehabilitation of the Overseas Bank just what should be done to achieve that goal, or just how
many millions of pesos the Central Bank must continue to pump into the Overseas Bank in order to
put it in its feet again. It is no idle speculation to say that the writs granted by this Court may raise
more questions than they answer.

With particular reference to the mortgages executed by petitioners, they say the same were a
consideration of the Voting Trust Agreement. Respondent Central Bank denies this and maintains
that the mortgages were constituted as security for "the huge amounts of emergency loans and
overdrawings advanced in the clearing house to the OBM by the Central Bank." The Voting Trust
Agreement itself is silent on the point. My own reading of the record convinces me of the correctness
of the position of the Central Bank. In any case, considering the existence of a substantial
disagreement on this point, not only between the parties but also among the members of this Court,
the issue could best be resolved in an ordinary action, either for specific performance as
hereinbefore indicated or for rescission of the mortgages and the reconveyance of the mortgaged
properties to petitioners. For the resolution of this issue I believe that this Court is not the proper
forum in the first instance, nor the present petition the proper vehicle.

Going back to Section 29 of Republic Act No. 265, it may be noted that what the Central Bank did,
including its suggestion that a Voting Trust Agreement be executed, was in accordance with its
powers and duties under the said section. Whenever a banking institution is in a state of insolvency
the Monetary Board shall determine whether it "may be reorganized or otherwise placed in such a
condition so that it may be permitted to resume business with safety." A Voting Trust, such as that
which was entered into in the case of the Overseas Bank, is certainly one of the measures which
may be adopted for that purpose. The rehabilitation of the distressed institution is the primary goal of
the authority given to the Monetary Board, and there is nothing so sacrosanct in a voting trust
agreement, or in the use of the word "rehabilitate" therein, that once it is executed the Central Bank
is thereby bound to see the rehabilitation" through as an ordinary contractual commitment, no matter
how costly and impractical it may prove. For Section 29 also provides that "if the Monetary Board
shall determine that the banking institution cannot resume business with safety to its creditors, it
shall, by the Solicitor General, file a petition in the Court of First Instance reciting the proceedings
which have been taken and praying the assistance and supervision of the Court in the liquidation of
the affairs of the same." This was precisely the step contemplated by the Monetary Board when it
passed Resolution No. 1333 on August 1968, and any questions concerning its validity, in my
opinion, should be raised in a proper case as authorized in the said provision.

In view of the foregoing considerations, I vote to deny the writs prayed for and to dismiss the instant
petition.

CASTRO, J., concurring:

Like Mr. Justice Querube C. Makalintal, in whose dissent I concur fully, I am in sharp disagreement
with the conclusions reached by the majority of the Court.

Before I state my reasons, which will be extensively discuss in seriatim farther below, it is well that
we get a general picture of (a) the overdrawings incurred by the Overseas Bank of Manila in its
clearing account with the Central Bank up to August 13, 1968 when the liquidation of the Overseas
Bank was ordered by the Central Bank, and (b) the fraudulent transactions perpetrated in the
operations and management of the Overseas Bank. These are summarized by the Superintendent
of Banks, as follows:

1. Advances granted to TOBM by way of overdrawings in 1967 thru 1968

The Overseas Bank of Manila had been chronically overdrawn in its current account
since 1967 thru 1968. However, these overdrawings were made good before clearing
time by means of cash deposit, call money or sale of dollar drafts. It was sometime in
September, 1967 that it failed to cover the overdrawings. [The overdraft which
amounted to P16,116,890.06 as of September 29, 1967 increased to
P51,925,381.90 as of August 13, 1968.]

On September 29, 1967, the Monetary Board in its Resolution No. 1890 enjoined
TOBM not to allow overdrawings amounting to P16.4 million to deteriorate any
further.

On October 16, 1967, the Monetary Board in its Resolution No. 2015, among others,
required Mr. Ramos, Sr. to submit a listing of his properties and to mortgage or
assign the same to cover the overdraft balance therewith of TOBM and not to
exclude TOBM from clearing. On October 16, 1967, date the listing of the alleged
P100 million collateral was submitted, TOBM's overdrawings of its clearing account
with CB totalled P22.333 million.

On November 20, 1967, date the Voting Trust Agreement was executed between the
Superintendent of Banks and Emerito M. Ramos, Sr. et al., the bank's overdrawings
amounted to P33,624,743.68. During this period [from November 20, 1967 to July
26, 1968] it will be noted that the collateral position of the Central Bank on loans
granted to TOBM by way of overdrawings, showed consistent net collateral
deficiency, taking into consideration, appraised value of collateral documents and
even at the higher of PNB or DBP appraised values. When finally the registration of
the mortgages was almost complete, on July 23, 1968, the Monetary Board decided
to consider a liberal loan value of 90% on the average of PNB and DBP market
values.

2. Monetary Board decisions showing real intention in requiring collateral from M. E.

M. Ramos, Sr. et al.

From the various Monetary Board decisions and reports, there was no doubt that the
requirement for Mr. Emerito M. Ramos, Sr. et al. to put up the collateral was for the
purpose of securing the unsecured obligation of TOBM with the Central Bank, by way
of overdrawings in the clearing account. Records show that Central Bank made this
known to TOBM and Mr. Ramos, Sr. all along from the very beginning.

a) No. 1735 dated September 8, 1967 To require TOBM to

mortgage the Padre Faura property to the Central Bank to secure the
unsecured advances given thereto especially by way of
overdrawings. (Transmitted to TOBM per DSE letter dated
September 14, 1967.)

b) No. 1890 dated September 29, 1967 After noting the report on
the disclosure of transactions at TOBM which had neither been
incorporated in the books of said bank nor reported to its board of
directors, the Monetary Board enjoined TOBM not to allow the
overdrawings of its clearing account with CB amounting then to P16.4
million, to deteriorate any further; and required the TOBM to
immediately mortgage to CB all other available properties of Mr. E. M.
Ramos and family in order to secure the unsecured advances given
to said bank especially by way of overdrawings.

(Transmitted to TOBM per DSE letter dated October 1967.)

c) No. 1918 dated October 3, 1967 Monetary Board instructed

management to exert every effort to obtain collateral to secure the
unsecured liabilities of TOBM to CB.

d) No. 1975 dated October 10, 1967 Monetary Board instructed

management to continue with its efforts to obtain additional collateral
to secure the unsecured liabilities and for the protection of other
creditors/depositors thereof.
 e) No. 2014 dated October 14, 1967 To effect the registration of
the second mortgage on Xavierville Estate.

f) No. 2015 dated October 16, 1967 To require Mr. Emerito M.

Ramos, Sr., to submit a listing of his property and to mortgage and
assign the same to the Central Bank to cover the overdraft balance of
TOBM. (Transmitted to TOBM per DSE letter dated October 19,
1967.)

g) No. 2017 dated October 17, 1967 Instruction to the Central

Bank Legal Counsel to proceed immediately with the registration of
the second mortgage on the Xavierville Estate in favor of the Central
Bank; and thereafter, to obtain the consent of the majority of the
stockholders of the Xavierville Estate, Inc. to a second mortgage in
appropriate resolution approved at a regularly called stockholders'
meeting; and to assign one or more lawyers for the particular purpose
of (a) seeing to it that the Central Bank obtain a lien on as many
properties (real or personal), including shares of stock (the
corresponding certificate of which be delivered to the Central Bank)
and other assets in the name of Mr. Emerito M. Ramos, Sr. and
members of his family, as can be obtained, amounting to at least
P100 million as represented by Mr. Ramos; and (b) drawing up and
registering with the Register of Deeds of the necessary documents
establishing the liens of the Central Bank on such properties.

To the Acting Superintendent of Banks To obtain information on as

many more properties as possible (including shares of stocks) in the
name of Mr. Ramos and members of his family as are not included in
a list submitted by Mr. Ramos on October 16, 1967, so that the
Central Bank can obtain a lien thereon.

h) No. 2132 dated November 3, 1967 Monetary Board instructed

management to write a letter to TOBM to reiterate CB's demand for
additional collateral to secure the unsecured liabilities of the TOBM to
CB and for the protection of the other creditors and depositors. (Letter
of Governor dated November 6, 1967 sent.)

i) Memorandum to Monetary Board of Acting Superintendent of

Banks on the matters taken up in the conference held with Mr. E. M.
Ramos, Sr. and Mr. M. Oliva on October 23, 1967 disclosed that the
Governor impressed upon Mr. Ramos the imperativeness of his
putting up of adequate collaterals to fully secure present CB
advances and before the CB can even consider the extension of
additional advances to TOBM.

One specific resolution to this effect was M. B. Resolution No. 2210 dated November
17, 1967 wherein the Board instructed management to acknowledge the letter dated
November 17, 1967 of the Auditor of the Central Bank inviting attention to the
increasing trend in the overdraft of TOBM with the CB amounting to P32,210,242.21
as of November 16, 1967; to advise the Auditor General and the CB Auditor that
documentation is now being undertaken of the mortgages covering the properties
(allegedly worth P100 million) offered by Mr. Emerito M. Ramos, Sr. to secure the
unsecured liabilities of TOBM to the CB; and to transmit copies of the aforesaid 1st
Indorsement of the Auditor General and the letter of the CB Auditor to the Board of
Directors of TOBM and to require the said bank to explain why it should not be
excluded from CB clearing.

3. Fraudulent transactions

a) Extent of the fraudulent transactions made known to the Central Bank

In a letter dated September 25, 1967, Mr. Martin R. Oliva, then TOBM
President, made a disclosure to the Acting Superintendent of Banks,
certain transactions amounting to P48 million which have not been
incorporated in the books of TOBM and not reported to its Board of
Directors.

In addition to these transactions, a number of regular accounts were

manipulated by top officers of TOBM whereby bank funds amounting
to about P38 million (net) were channeled to various interests. These
manipulated accounts were reinstated in the books of the bank
through a series of adjustments and accounting entries passed upon
by the bank in September 1967.

The consolidated trial balance of these two sets of transactions as

prepared by TOBM Acting Assistant Accountant follows:

Consolidated Trial Balance

As of September 22, 1967
___________________

Debits Credits

Accounts P25,235,721.34
Receivable

Bills 419,989.27
Discounted

Time Loans 4,764,968.59

Special 12,502,521.38
Overdrafts

Expenses 4,492,498.47

Suspense 38,858,797.87
Account in
Liquidation

Time P44,110,563.45
Deposits

Accounts 1,086,566.03
Payable

Cashier's 2,020,000.00
Checks

Acceptances 1,100,000.00
Payable

Earnings 644,587.00

Overdrawings 2,933,646.78
C/A #1198

Demand 12,107,517.78
Deposits

Savings 10,005,080.54
Deposits

Bills Payable 1,500,000.00

Due to 3,584,004.28
Branches

Domestic 6,177,451.44
Bills
Purchased
(Payable)

Accrued 1,005,079.62
Interest
Receivable

____________ ___________

P86,274,496.92 86,274,496.92

The loans and other receivable accounts shown in the above trial
balance were without any loan papers and collaterals, thus their
collections would be extremely difficult and hopeless to pursue. On
the other hand, the liabilities, including the `unrecorded' time deposits
which were ruled as liabilities of the bank, in an opinion rendered by
the Secretary of Justice, were properly documented and therefore
actual liabilities of the bank.

The bulk of the loans and other receivable accounts were in the name
of Ramoses and their various business interests. The Suspense
Account in Liquidation amounting to P38.8 million, however, could not
be accounted for, but verification of the fraudulent transactions,
based on available documents/records tends to show that said
account represents funds channeled to the benefit of the Ramoses
 and their business interests. However, there was no acknowledgment
on their part to this effect.

b) Extent of verification

Verification of the above transactions has been temporarily suspended in view of lack
of bank examiners. However, even with the resumption of verification, a complete
reconstruction and documentation thereof are highly improbable because so many
bank records are missing in the bank's files. Besides, it will take a considerable
length of time, considering that the manipulations, involved thousands of transactions
and verification requires the tracing of every single transaction to a number of
records. Moreover, verification is made doubly difficult by the fact that so many
entries in the deposit/withdrawal sheets were fictitious, alongside with the genuine
ones, and the examiners had to follow the trial and error method in tracing the
entries. One type of manipulation alone was done daily, with so many deposit
accounts involved on a single day and this covered a period of two (2) years more or
less.

c) Modus operandi for the fraudulent transactions

The "modus operandi" or mode of operation employed the opening of current or

checking accounts with the bank, the signatories of which were Emerito B. Ramos,
Jr. and a few selected officers.

1) Current Account No. 1198 EMRACO with the following

authorized signatures:

(a) Emerito B. Ramos, Jr. Executive Vice President & Treasurer

(b) Rodrigo Recto Assistant Vice President & Cashier

(c) Rodolfo R. Sunico Vice President & Chief Accountant

(d) Manuel Moje with the Office of the Executive Vice President

2) Current Account No. 1198-A General Fund with no known

authorized signatures.

3) Current Account No. 1920 COFICO SPECIAL ACCOUNT NO. 2

with the following authorized signatures:

(a) Emerito B. Ramos, Jr. Executive Vice President & Treasurer

(b) Rodolfo R. Sunico Vice President & Chief Accountant

These fraudulent and highly devious operations involving a staggering amount of

P86 million were perpetrated under two general schemes:

1) Moneys of depositors received by the bank as time deposits or in

exchange for banker's acceptances and cashier's checks were not
recorded in the books of the bank as money owned or liability of the
 bank to the depositors/creditors. Instead, the money received were
recorded as deposits to Current Account No. 1920. As mentioned
above, these transactions, known as "unrecorded transactions",
involved P48 million.

2) The second scheme involving about P38 million as of September

30, 1967 is subdivided into three operations, namely:

(a) "Segregated accounts" Ledger cards showing

the balances of the deposits of either current, time or
savings account depositors, usually with large
balances, were removed from the respective files of
depositors. Withdrawals were effected on these
ledger cards without the knowledge or consent of the
depositors. The aggregate amount illegally withdrawn
was then shown as deposits to Current Account No.
1920, 1198, or 1198-A.

(b) "Diverted accounts" Funds properly belonging

to the bank were credited or shown as deposits to
Current Account No. 1198 or 1198-A. Examples: (1)
Payments made by La Suerte Cigar and Cigarette Co.
of P6.25 million on its loan with the bank was
recorded as deposit to Current Account No. 1198,
instead of crediting the account of the debtor. The
amount paid properly belong to the bank. (2) Call
loans obtained from other banks were also credited to
the current accounts controlled by the officers of
TOBM. (3) Remittances from other banks for the
account of a TOBM branch were likewise not shown
in the books as such but instead credited to the
current accounts owned/controlled by the officers.

(c) "Fictitious/simulated entries" Books were made

to show that funds were transferred from branches to
Head Office (no actual fund transfer) and credited to
current accounts owned/controlled by officers of
TOBM. Checks were drawn by Ramos corporations
against their unfunded current accounts. These
checks were held up as asset accounts of TOBM and
credited again to the current accounts
owned/controlled by officers of TOBM.

As fast as funds were received under either the "unrecorded transactions" or

"segregated/diverted" schemes, loans were surreptitiously granted to the various
firms/corporations, owned or controlled by Mr. Emerito M. Ramos, Sr., and members
of his family, numbering twenty-seven (27), twelve (12) of which were established
from 1964 to 1967, and also to other borrowers.

As a means of control and accounting of this clandestine financing operations,

Messrs. Emerito B. Ramos, Jr. and Rodolfo R. Sunico, ably assisted by trusted
 employees, designed and maintained a separate book of accounts accessible only to
them and to nobody else.

Since the nucleus of the anomalous transactions was linked to the deposit accounts,
Mr. Emerito B. Ramos, Jr. and his men availed fully of the protective mantle of the
provisions of R.A. No. 1405 which prohibits the disclosure of any information on
deposit accounts even to bank examiners, and thus the perpetrators were able to
amass an enormous amount of P86.129 million as of September 30, 1967 which they
appropriated for their various firms/corporations and partially to other borrowers, in
wanton disregard of banking laws, rules, regulations and orders legally issued by the
Central Bank, never before recorded in the annals of banking in the Philippines.

In addition to the above, Emerito B. Ramos, Jr., Executive Vice President and
Treasurer, during the time that he was on an indefinite leave of absence from May
1967, and therefore no longer authorized to sign for the bank, still received funds and
issued TOBM certificates of time deposit and banker's acceptances in the aggregate
amount of P2.02 million. Naturally, these amounts were not recorded in the regular
books of the bank nor in the separate set of books, and the proceeds thereof were
pocketed by Mr. Ramos, Jr.

4. Loans to the Ramoses

As of July 31, 1967 (date of latest regular examination of TOBM), the total
outstanding loans and advances to the Ramos/family/enterprises aggregated
P29.086 million, representing 41.18% of the total loan portfolio (recorded or regular
loans) of P70.633 million.

On September 25, 1967, Mr. Martin R. Oliva, then TOBM President, disclosed the
so-called unrecorded transactions. He first reported that as per tentative trial balance
as of September 13, 1967, the total unrecorded transactions totalled P48.007 million.
However, as of September 30, 1967, after certain adjustments/entries have been
passed, the total amount of unrecorded/diverted/segregated accounts totalled
P86.129 million. From discussions of manipulation above, these funds were
channeled to current accounts controlled by the E. M. Ramoses and were withdrawn
or spent according to their pleasure.

Certain properties of the Ramoses were offered to the bank on a "dacion en pago"
arrangement in the total amount of P30.6 million and were applied to the outstanding
loans and obligations (both recorded and unrecorded loans) of the Ramoses.
However, even with the application of the proceeds of these properties offered to
TOBM, the outstanding loans of the Ramoses/family/enterprises still stood at an
enormous amount of P72.150 million (both recorded and unrecorded) or 58.90% of
the total loans of P122.502 million (both recorded and unrecorded) as of June 30,
1968 summarized below:

Outstanding Loans and Advances (Recorded & Unrecorded)

(As of June 30, 1968)

(In Millions)

Recorded Unrecorded Total

 % to % to % to

Y: Amount Total Amount Total Amount Total

s and

amounts

for by E.

P19.100 37.95% P53.050 P72.150

enterprises 73.50% 58.90%

d advances

her than
s

erprises 31.23062.05% 19.122*26.50% 550.35241.10%

tanding

es P50.330 100.00% P72.172 P122.502

100.00% 100.00%

* While these were shown as having been lent to third parties, promissory notes were
not presented to indicate indebtedness of third parties. Considering that these
amounts were derived from funds channeled to the current accounts of the Ramoses
and were granted by them to third parties, these amounts could very well be amounts
that will also have to be accounted for by E.M. Ramos, et al.

My fundamental purpose in quoting in full the above narration is to project the importance of certain
facets of this case which were accorded only scant attention or consideration in the majority opinion,
and with reference to which I entertain a perspective different from that of the majority.

On the basis thereof and of other facts which I will advert to in the course of my discussion, I now
proceed to explain the reasons for my dissent, as well as refute certain arguments advanced and
specific conclusions reached in the main opinion.

Briefly stated, my reasons are as follows:

1. The Central Bank (hereinafter referred to as the CB) is without power, under the law, to enter into
the voting trust agreement in question, as this agreement is construed by the majority.

2. Even assuming that the CB is legally a party thereto, (a) the said agreement expressly gave the
Monetary Board authority to terminate the same at any time; (b) no express and definite commitment
was therein made that the CB will extend further extraordinary financial assistance to the Overseas
Bank of Manila (hereinafter referred to as the OBM); (c) contrary to the assertion that the CB has
reneged on its "promise" under the said agreement, the CB has taken the necessary steps,
consistent with law, to rehabilitate the OBM; and (d) the CB cannot be expected, legally and morally,
to continue supporting the OBM at any and all cost.

The basic assumptions of the majority opinion, vis-a-vis the CB's being a privy to the voting trust
agreement, are as follows:

(a) The CB rather than the Superintendent of Banks is the real party thereto because the latter is a
mere officer of the CB acting under its orders.

(b) The CB had executed certain acts which indicate that it is the real party to the said agreement.
Thus, it is said that the CB, from the very start, had insisted upon the execution of the said
agreement; had caused the nomination of the team that took over the management of the OBM; had
given notice that the agreement in question will no longer be renewed or extended, which,
consequently, led to the promulgation of Resolution No. 1333 on August 13, 1968 ordering the
Superintendent of Banks to proceed to liquidate the OBM under section 29 of the Central Bank Act.

(c) By "promising" to work for the rehabilitation, normalization and stabilization of the OBM to stave
off its liquidation, the CB, in effect, impliedly obligated itself to finance the funding requirements of
the OBM until these objectives are attained within the term stated in the voting trust agreement.

In my view, even if it were assumed that the intention of the CB authorities relative to the said voting
trust agreement was to make the CB a party thereto, its validity and binding effect upon the CB are
not legally possible since under the said agreement the CB would not only be acquiring the legal
title, including voting rights, over the shares of stock of the petitioners in the OBM, but it would also
be actually directing the management and operation of the bank-powers and prerogatives the
acquisition of which by the CB is expressly prohibited by law. Section 133 of the Central Bank Act
states:

Sec. 133. Prohibitions. The Central Bank shall not acquire shares of any kind or
accept them as collateral, and shall not participate in the ownership or management
of any enterprise, either directly or indirectly.

Section 27 of the Central Bank Act explicitly prohibits the Superintendent of Banks from exercising
the powers granted under the said voting trust agreement. Thus:

Sec. 27. Prohibition. The Superintendent and all employees of the Department of
Supervision and Examination are hereby prohibited from:

(a) Being an officer, director, employee or stockholder, directly or indirectly, of any

institution subject to supervision or examination by the department.

Obviously, by virtue of the clear and unmistakable constraints described in the foregoing provisions
of the CB Charter, the alleged intent of the CB authorities to be bound by the terms of the said voting
trust agreement cannot but be interpreted as having been pursued under a clear misapprehension if
not direct disregard, of the law. On this point, it appears to me to be well settled in our jurisdiction
that the Government (and the CB is an instrumentality of the Government) is never estopped by the
mistake or error of its agents. And since estoppel cannot give validity to an act that is prohibited by
law or contrary to public policy, the CB cannot consequently be bound by any action diametrically
contrary to what the law prohibits (such as those found in sections 27 and 133 of the CB Charter)
which may be executed on its behalf by its agents, such as the Monetary Board. (See Eugenie vs.
Perdido, L-7083, May 19, 1955; Benguet Consolidated Mining Co. vs. Pineda, L-7231, March 28,
1956; Bachrach Motor Co. vs. Unson, 50 Phil. 981; San Diego vs. Municipality of Naujan, Oriental
Mindoro, L-9920, February 29, 1960; also 10 Am. Jur. 802).

Because the voting trust agreement ascribes to the Monetary Board certain duties and grants it
certain powers, the majority opinion used this as one of the reasons to support the conclusion that
the CB is a real contractual party to the agreement. I view the matter differently. As I see it, the
agreement is between the OBM and the Superintendent of Banks only. Nowhere within the four
corners thereof do I find any statement that, the CB is a contractual party thereto. The majority
opinion loses sight of the fact that in the matter of the regulation of the banking and monetary
systems of this country, the CB, as the "bank of banks," is given-all-embracing powers of supervision
and superintendence. In the situation that the OBM has found itself, it was incumbent upon the CB to
exercise these powers. If the agreement contains express reference to the Monetary Board it is
because the OBM and the Superintendent of Banks, by themselves alone, without any assist from
the CB, would be completely incapable of rehabilitating, normalizing and stabilizing the OBM. The
agreement is much more than an ordinary contract between two private parties; it is a covenant
unavoidably impressed with public policy: the stability of the banking and monetary systems. It must
therefore be regarded, properly speaking, as one in which the provisions of the CB Charter and
other pertinent laws are deemed perforce incorporated. As a matter of fact, even if there were no
mention at all of the Monetary Board in the agreement, still the execution thereof would, by
compulsion of the provisions of the Central Bank Charter, require direct supervision and
superintendence by the CB.

Whether the Monetary Board, in requiring the execution of the trust agreement, had in mind section
29 of the Central Bank Act or any of the general corporate powers vested in it by section 4 of the
same Act, or what it honestly felt was its duty under the law "to maintain monetary stability in the
Philippines" (section 2, CBA), and, in the discharge thereof, to make available its credit facilities "to
regulate the volume, costs, availability and character of bank credit and to provide the banking
system with liquid funds in times of need" (section 86, CBA), and "ensure that the supply, availability
and cost of money are in accord with the needs of the Philippine economy and that bank credit is not
granted for speculative purposes prejudicial to the national interests (Section 108, CBA), still the
inescapable conclusion remains, by virtue of the statute's prescribing the principles that should
guide, and the objectives that should be pursued by, the CB, that the Monetary Board required the
execution of the voting trust agreement not for the purpose of binding the CB as a contracting party,
but solely to fulfill its statutory obligation to superintend the banking system and forestall the
occurrence of conditions that effectively lead to financial panic or that threaten monetary and
banking stability.

The law as well as the situation in extremis of the OBM by 1967, therefore, called for the monetary
authorities to act, and act they did, by conscientiously attempting to eliminate the reported (at least,
what they believed to be) causes of the bank's deterioration, by requiring the management of the
bank to be passed onto new and trusted hands. But the said action, as I have stated earlier, was
exercised for no other reason than to comply with the CB's statutory duty to manage and administer
the banking and monetary systems of the country.

I now proceed to discuss my second fundamental reason for this dissent. Assuming that the CB is
legally a contracting party to the voting trust agreement, (a) the said agreement expressly gave the
Monetary Board authority to terminate the same at any time; (b) no express and definite commitment
was therein made that the CB would extend further extraordinary financial assistance to the OBM;
(c) contrary to the assertion that the CB has taken the necessary steps, consistent with law, to
rehabilitate the OBM; and (d) the CB cannot be expected, legally and morally, to continue supporting
the OBM at any and all cost. Although I have divided this reason into foul parts, I will discuss all of
these parts together as they are inextricably intertwined.
By its very terms, the agreement could be terminated at any time at the option of the Monetary
Board.

The stipulated life span of the said agreement is stated in the following words:

1. That the life of this trust agreement shall be for a period of three years
commencing from the date of the execution of this contract, provided, however, that
the TRUSTEE may, at its option, relinquish the trust, upon approval of the Monetary
Board, and provided, further that if, at the expiration of the three-year period, the
purposes for which this trust agreement has been constituted have not, as yet, been
fully achieved, this trust agreement shall then be considered automatically extended
for such further period to be determined by the Monetary Board, similarly terminable
within such further period also at the discretion of the Monetary Board. It is further
agreed that if the condition of the Overseas Bank of Manila so warrant, the CESTUIS
QUE TRUST may request the Monetary Board for the earlier termination of this
agreement.

Without having to turn the mentioned stipulation inside out, it is unmistakably clear that under the
unambiguous specific language used, the CB was not absolutely bound thereunder to any specific
period during which it must restore the OBM to its feet. For, while the opening portion of the said
stipulation states that the trust agreement shall be for a 3-year period, this term is, however,
explicitly made subject to the condition that the "TRUSTEE may, at its option, relinquish the trust." If,
as the majority opinion says, the resolutions in question contradict the "promise" of the CB that it will
rehabilitate, restore and stabilize (to stave off the liquidation of) the OBM, then I can see no other
conclusion but that the CB had thereby relinquished the said trust. The said trust agreement having
been thus rescinded, I cannot see how the CB, in adopting the said resolutions, can be accused of
having acted in "abuse of discretion equivalent to excess of jurisdiction.".

Undue emphasis and reliance are placed by the majority opinion upon the argument that under the
voting trust agreement in question the CB was obligated "to act and work for the "rehabilitation,
normalization and stabilization" of the Overseas Bank of Manila, through the extension of adequate
and necessary financial instance to stave off liquidation" an argument which, in my view, entirely
fails to consider that there are contractual and statutory, if not administrative as well as market,
constraints to what the CB can do in the matter of assisting banks in extremis.

A reading of the scope of the powers and authority granted to the CB under the voting trust
agreement provides the first step in an analysis of the contractual and legal constraints under which
the OB must operate. The relevant stipulation of the said agreement recites:

3. During the life of this trust agreement the trustee shall have all and full authority,
subject only to the limitations set by law and other conditions set forth therein: to
direct the management of the affairs and accounts and properties of the Overseas
Bank of Manila; to vote its directors and to choose the officers and employees giving
due consideration to the suggestions of the cestui que trust for the employment and
retention of qualified, competent and reputable persons who enjoy their confidence;
to improve, modify, reorganize its operation, policies, standards, systems, methods,
structure, organization, personnel, staffing, pattern, etc.; to hold and vote on the
shares of stocks transferred to him as trustee; to safeguard the interests of
depositors, creditors and stockholders; and in general to exercise all such powers
and discharge all such functions as inherently pertain to the cestui que trust as
owners, and/or for the sound management of a banking institution.
The aforementioned stipulation sets forth with definiteness and specificity the scope and reach of the
alleges obligation f the CB to work for the "rehabilitation, normalization and stabilization of the
Overseas Bank of Manila" under the voting trust agreement. By virtue of the said stipulation, the
trustee's only duty and authority is to manage the affairs of the OBM in a manner beneficial to the
bank, its equity owners, depositors and creditors. Nowhere does it appear in the said stipulation nor
in any portion of the said voting trust agreement (which them majority opinion considers as the law
between the parties) that the CB must pump money into the coffers of the OBM for its "rehabilitation,
normalization and stabilization." Indeed, considering the precarious position of the OBM, the
subsequent takeover by the CB (through its nominees) of its operations constitutes full compliance
with its duty under the said agreement. For, it must be noted that the take-over of the OBM's
operations was induced by the CB's considered belief, through reports submitted by its examiners,
that the principal stockholders of the bank were misusing and fraudulently diverting for personal
purposes the funds and assets of the bank to the detriment of its other stockholders and its creditors
and depositors a belief which is not unfounded. The majority opinion itself states that the OBM (a)
had overdrawn its clearing account with the CB beyond permissible limits, (b) had chronic reserve
deficiency, and (c) had deficiency in the required liquidity floor against government deposits as early
as 1965, all of which, by 1967, caused such a mounting concern at the CB that the latter

ordered the closing of all deposit accounts of Mr. Emerito Ramos and members of
his family within the third degree, and firms and corporations in which they had
interest; for the stockholders to put in an addition of P6.8 million, to remove Ramos
and other key officials of the bank found to be responsible for irregular or anomalous
transactions from their positions, to install an internal comptroller appointed by the
Central Bank, and to place collection efforts of the bank under a special team headed
by the Central Bank Legal Council.

Undoubtedly, the take-over by a new management of the operations of the OBM to stop the bank's
assets and funds from further being fraudulently dissipated could bring about relative normalcy and
stability and remove the immediate threat of closure. But no trustee can be expected to surmount
what is humanly insurmountable. The CB is not expected, nor cannot it be obliged, to divert its own
funds for the purpose of saving a solitary bank whose in extremiscondition was, in the first place,
caused by the malfeasance, and non-feasance of its principal stockholders and officers. The CB was
established to discharge certain constituent functions. Its powers are necessarily circumscribed by
law. The fact that it achieves a surplus fund in its operations does not mean that it can devote such
surplus fund to any use not specifically and clearly described by law. Section 41 of the Central Bank
Act, in fact, specifies the uses to which its net profits may be devoted. The "rehabilitation,
normalization and stabilization" of a private commercial bank are not among these.

And even if it be construed that the management function which the CB had supposedly assumed
includes the giving of extraordinary financial assistance, I seriously dispute the observation of the
majority that the CB did not conscientiously and in good faith exert every effort to rehabilitate,
normalize and stabilize the OBM.

The pertinent facts, narrated in chronological perspective below, conclusively rebut this observation
of the majority.

1. During the five years of the existence of the OBM, the CB granted it a total of P76.11 million in the
form of emergency loans (P24,185,193.74) and overdrawings in its clearing account
(P51,925,381.90). (For purposes of clarity, a banking institution, by law and as ruled by the Monetary
Board, is required to hold reserves against its deposit liabilities partly in the form of deposits with the
CB. If this deposit account is overdrawn, which results from the clearing of checks, the bank incurs
an overdraft. An overdraft in the clearing account of a bank is regarded as a loan in the books of the
CB.)

2. The OBM, since early 1967, had been chronically overdrawn in its clearing account with the CB,
but somehow, was able to make sufficient deposits to cover the daily overdrawings before the start
of the clearing every day. It was sometime in September 1967 that it failed to cover the
overdrawings. On September 25, 1967, Martin Oliva, then OBM President, informed the CB of
transactions which were not recorded in the books of the OBM in the amount of 48.007 million.
There were other manipulations made in the books which caused funds derived from depositors and
clients of the bank to be credited to current accounts of certain OBM officers for their personal use
and/or for the benefit of corporations and other interests of the Ramos family. The disclosed amount
of P48.007 million was later determined to reach P86.129 million as of September 30, 1967.

3. Alarmed by this development and by the sudden increase in the overdrawings, the Monetary
Board issued a series of directives requiring, among other things, the bank and Emerito M. Ramos,
Sr., et al., the majority stockholders of the bank, to put up collateral to secure the unsecured
obligations of the OBM with the CB, especially the overdrawings. The CB account was apparently
being used to fund the operations of the OBM and the withdrawals of the depositors, since the funds
originally deposited and collected to the extent of the manipulations were not invested for the benefit
of the bank but were instead withdrawn for the use and benefit of the Ramos corporations.

(a) Resolution No. 1735 dated September 8, 1967 required the OBM to mortgage its
Padre Faura property to the CB to secure the unsecured advances given, especially
by way of overdrawings.

(b) Resolution No. 1890 dated September 29, 1967 required the Xavierville Estate,
Inc. to mortgage to the CB its Xavierville property situated in Quezon City to partly
secure whatever liabilities the OBM had with the CB, and required the OBM to
immediately mortgage to the CB all other available properties of the Ramoses
(Emerito M. Ramos and family) in order to secure the unsecured advances given to
the OBM especially by way of overdrawings, and place the advances so secured in a
separate account.

(c) Resolution No. 1918 dated October 3, 1967 instructed the CB management to
exert every effort to obtain collateral to secure the unsecured liabilities of the OBM to
the CB.

(d) Resolution No. 1975 dated October 10, 1967 instructed the CB management to
continue with its efforts to obtain additional collateral to secure the unsecured
liabilities of the OBM to the CB and for the protection of other creditors/depositors
thereof.

(e) Resolution No. 2014 dated October 14, 1967 instructed the CB management to
effect the registration of the second mortgage on the Xavierville Estate.

(f) Resolution No. 2015 dated October 16, 1967 required Emerito M. Ramos, Sr., to
submit a listing of his property and to mortgage and assign the same to the CB to
cover the overdraft balance of the OBM.

(g) Resolution No. 2017 dated October 17, 1967 instructed the CB Legal Counsel to
proceed immediately with the registration of the second mortgage on the Xavierville
Estate in favor of the CB, and thereafter to obtain the consent of the majority of the
 stockholders of the Xavierville Estate, Inc. to a second mortgage in an appropriate
resolution approved at a regularly called stockholders' meeting; to assign one or
more lawyers for the particular purposes of (1) seeing to it that the CB obtained a lien
on as many properties (real or personal), including shares of stock (the
corresponding certificate of which should be delivered to the CB) and other assets in
the same of Emerito M. Ramos, Sr. and members of his family, as could be obtained,
amounting to at least P100 million as represented by Emerito Ramos, and (2)
drawing up and registering with the Register of Deeds the necessary documents
establishing the liens of the CB on such properties. This resolution also instructed the
Acting Superintendent of Banks to obtain information on as many more properties as
possible (including shares of stocks) in the names of Emerito Ramos and members
of his family as were not included in the list submitted by Emerito Ramos on October
16, 1967, so that the CB could obtain a lien thereon.

(h) Resolution No. 2132 dated November 3, 1967 reiterated the CB's demand for
additional collateral to secure the unsecured liabilities of the OBM to the CB and for
the protection of the other creditors and/or depositors thereof.

(i) Resolution No. 2185 dated November 7, 1967 noted a letter dated November 6,
1967 of the CB Governor to the OBM, which stated among other things, as follows:
"As previously requested and agreed to by your principal stockholder, Mr. Emerito
Ramos, Sr., immediately have Mr. Emerito M. Ramos, Sr., his associates or
controlled corporations execute the necessary documentation to mortgage real
properties to the Central Bank to secure the unsecured liabilities of The Overseas
Bank of Manila to the Central Bank, and for the protection of the other creditors
and/or depositors thereof. In this connection, it is reiterated that Mr. Ramos deliver to
the Central Bank the endorsed certificates of stock of corporations in which he or his
family has equity."

(j) Resolution No. 2210 dated November 17, 1967 instructed the CB management to
acknowledge the letter dated November 17, 1967 of the Auditor of the CB, inviting
attention to the increasing trend in the overdraft of the OBM with the CB amounting
to P32,210,242.21 as of November 16, 1967; to advise the Auditor General and the
CB Auditor that documentation was then being undertaken of the mortgages
covering the properties (allegedly worth P100 million) offered by Emerito M. Ramos,
Sr. to secure the unsecured liabilities of the OBM to the CB; to transmit copies of the
aforesaid 1st Indorsement of the Auditor General and the letter of the CB Auditor to
the Board of Directors of the OBM and to require the OBM to explain why it should
not be excluded from CB clearing.

As can be deduced from the foregoing resolutions, bad faith cannot be imputed to the CB when the
voting trust agreement was executed on November 20, 1967, since all along Emerito M. Ramos, Sr.
knew, as he was indeed from the very beginning, that the properties he had offered, allegedly worth
P100 million, were to secure all the unsecured liabilities of the OBM with the CB.

4. In a conference held with E. M. Ramos, Sr. and M. Oliva on October 23, 1967, the CB
Governor impressed upon Ramos the imperativeness of his putting up adequate collateral to fully
secure the CB advances before the CB could even consider the extension of additional advances to
the OBM. Moreover, the intentions of the CB in the execution of the voting trust agreement may be
found in Resolution No. 2015 dated October 16, 1967 wherein the Monetary Board decided, among
other things.
 To require the stockholders of The Overseas Bank of Manila to subscribe to an
appropriate voting trust agreement so that the Central Bank may be able to effect a
complete reorganization and/or transfer management of the bank to a nominee of the
Monetary Board.

In point of fact, the voting trust agreement was broached to the OBM or the Ramoses for the first
time, not on October 16, 1967, but on December 23, 1966, when the Monetary Board, per its
Resolution No. 2072, expressed the sense that if the OBM failed to elect a permanent President by
January 31, 1967, acceptable to the Monetary Board, the bank should transfer the management of
its affairs to the PNB under an appropriate voting trust agreement.

5. The CB was alarmed by the uncontrolled increase of the overdrawings in the OBM's clearing
account, which continued to deteriorate despite admonitions from' the CB. The CB sought a change
in the management of the OBM because the anomalies and fraudulent transactions in the OBM were
being perpetrated by son of E. M. Ramos, Sr., and funds derived from the manipulation of accounts
were being channeled to the corporations and interests of the Ramos family. These are borne out by
the following:

(a) Resolution No. 1890 dated September 29, 1967 enjoined the OBM not to allow
the state of the overdrawings in its clearing account with the CB, amounting to P16.4
million as of September 29, 1967, to deteriorate any further.

(b) Resolution No. 2014 dated October 14, 1967 ordered

(1) the return to clearing of OBM's Manager's and Cashiers' checks

debited to clearing on Friday, October 13, 1967;

(2) the listing and taking possession of outstanding Manager's,

Cashiers and Treasurer's checks to be presented in the afternoon
clearing on Monday, October 16, 1967; and .

(3) the OBM to refrain from issuing Manager's and Cashier's checks.

(c) Resolution No. 2015 dated October 16, 1967 suspended, in the meantime, the
implementation of the instructions embodied in Resolution No. 2014 dated October
14, 1967 for the return of the bank's Manager's, Cashier's, and Treasurer's checks
received thru the clearing to the banks which honored them, and the exclusion of the
OBM from clearing, pending implementation of the requirements under paragraphs
(1) re: submission of list of properties and (2) re: voting trust agreement, provided
that the overdraft balance of the OBM as a result of clearing operations did not
significantly increase above the level thereof of P21.2 million as of October 13, 1967.

(d) Resolution No. 2017 dated October 17, 1967 instructed the Acting
Superintendent of Banks to see to it that the accounts with the OBM of the
enterprises owned by Ramos and members of his family were either closed or frozen
in order to prevent the further deterioration of the OBM's clearing balance with the
CB, and to see to it that the OBM did not issue Manager's and Cashier's checks.

(e) Resolution No. 2132 dated November 3, 1967 instructed the CB management to
immediately write a letter to the OBM demanding payment, within five (5) days from
receipt of such demand, of whatever amount was necessary so as to reduce the
OBM's overdraft balance with the CB to the level thereof of P21.2 million as of
October 13, 1967, and the OBM not to permit drawings by its clients on their
overdraft accounts until after completion of the review of such accounts by CB
examiners, and to immediately advise the clients concerned accordingly.

(f) Resolution No. 2188 dated November 7, 1967 stated, in connection with the report
of the Acting Superintendent of Banks dated October 27, 1967 on the financial
condition of the OBM as of August 31, 1967, that the general principle/policy to be
carried out/applied on the OBM was to prevent the further increase of its
overdrawings with the CB. Toward this end, the Board:

(1) Expressed the sense that the unrecorded transactions of the OBM should not be
recognized by the OBM pending study and verification thereof; and

(2) Directed the CB management to require the OBM:

(a) Not to convert deposits from one type to another:

(b) To return all incoming checks and items from

clearing which were drawn against accounts in the
unrecorded transactions, against demand deposits
which were converted from time or savings deposits,
and, as already instructed, against overdraft lines and
against accounts with insufficient balances; and

(c) To take all precautions, measures and steps

necessary to prevent further deterioration of the
overdrawn clearing balance with the CB which as of
November 7, 1967 amounted to P28.437 million.

(g) Emerito M. Ramos, Sr. procrastinated in the final execution of the voting trust
agreement. In the meantime, the overdrawings increased from P21.2 million on
October 13, 1967 to P33.62 million on November 20, 1967.

Finally, on November 17, 1967, the Monetary Board, in its Resolution No. 2190,
instructed the CB management:

(1) To require the stockholders of the OBM representing a substantial

majority of the stock thereof to sign, not later than Monday morning,
November 20, 1967, a voting trust agreement in favor of the
Superintendent of Banks, called for under Resolution No. 2020 dated
October 20, 1967;

(2) To deny to the OBM access to CB clearing beginning Monday

afternoon, November 20, 1967, should such voting trust agreement
not be signed by that time; and

(3) To return all incoming checks and items from clearing which were
drawn against accounts in the unrecorded or falsely recorded
transactions in the OBM.
 (h) Resolution No. 2252 dated November 23, 1967 instructed the CB management to
take immediate action so that increases in overdrawings in the CB would be reflected
in corresponding decrease in "recorded" deposit liabilities, impressing upon all those
concerned that the unrecorded or falsely recorded transactions in the OBM were not
to be recognized or honored, although evidence purporting to establish the legitimacy
of such supposed transactions could be received by the CB. All transactions were to
be passed upon by the Comptroller designated by the CB.

6. On November 20, 1967, the voting trust agreement between Emerito M. Ramos, Sr., et al., as
trustor, and the Superintendent of Banks, as trustee, was executed.

7. It took a considerable length of time, or up to July 23,.1968, before all the properties deemed
acceptable as collateral by the Monetary Board were mortgaged/assigned in favor of the CB.
Contrary to the belief that the CB withheld funds from the OBM, the advances by way of
overdrawings on any one date were always more than the appraised value of collateral
mortgaged/assigned on the same day. The CB later liberally changed this basis of valuation, to be
able to extend more advances by way of overdrawings to the OBM.

8. As of July 2, 1968, the balance of the overdrawings in the OBM's clearing account amounted to
P51,661,774.90, whereas the loan value of the collaterals put up by Emerito M. Ramos, Sr., et
al., computed liberally at 90% of the average PNB and DBP market values, amounted to
P51,127,290, with a resulting collateral deficiency of P534,484.90. Having been apprised that no
further acceptable collateral of appreciable value had been offered by the controlling stockholders
and no additional fresh capital funds of the magnitude necessary to bail out the very distressed
condition of the OBM was expected from the controlling stockholders, the Monetary Board was
constrained to take drastic action and on July 30, 1968, under its Resolution No. 1263, decided to
exclude the OBM from clearing with the CB, effective immediately. Two days Later, the Monetary
Board, under its Resolution No. 1290 dated August 1, 1968, further decided to authorize the Board
of Directors of the OBM to suspend the operations of the OBM.

9. At the time of the execution of the voting agreement on November 20, 1967, the overdrawings in
the OBM's clearing account amounted to P33,624,743.68; as of August 13, 1968, they amounted to
P51,925,381.90, or an increase of P18,300,638.22.

All the above demonstrates that the CB extended P18.3 million additional financial assistance to the
OBM from November 21, 1967 to August 13, 1968, or during the period of almost nine (9) months
following the date of the execution of the voting trust agreement.

The crucial portion of the decision relative to the alleged obligation of the CB to "rehabilitate,
normalize and stabilize" the OBM is found on p. 16 thereof, the pertinent portion of which reads as
follows:

... the record becomes clear that, in consideration of the execution of the voting trust
agreement by the petitioner stockholders of OBM, and of the mortgage or
assignment of their personal properties to the CB (Res. No. 2015, 16 October 1967,
Annex "F", Petition), the CB had agreed to announce its readiness to support the
new management "in order to allay the fears of depositors and creditors" (Annex
"B"), and to "stave off liquidation" by providing adequate funds for "the rehabilitation,
normalization and stabilization" of the OBM, in a manner similar to what the CB had
previously done with the Republic Bank (Petition, Annex "G", ante).
While no express terms in the documents refer to the provision of funds by CB for the purpose, the
same is necessarily implied, for in no other way could it rehabilitate, normalize and stabilize a
distressed bank. (Emphasis supplied)

As I have already stressed, the CB did not commit itself to rehabilitate, normalize and stabilize the
OBM. But even assuming that there was in fact such a commitment, it is obvious to me that the
same cannot be unqualified. The limits thereof must be ascertained in the light of existing statutes,
more particularly, the pertinent provisions of the Civil Code of the Philippines, in relation to the
pertinent provisions of the Central Bank Charter.

In this connection, Article 1306 Of the Civil Code provides as follows:

ART. 1306. The contracting parties may establish such stipulations, clauses, terms
and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy. (Emphasis supplied)

Thus, assuming that the CB is legally committed under the voting trust agreement to rehabilitated
the OBM, any action of the CB in respect thereto must have to be particularly what it can perform
within the periphery of the law.

The only way by which the CB can succeed in rehabilitating the OBM, under present conditions, is to
extend financial assistance through loans of astronomical magnitude granted to the latter. In this
respect, section 90 of the Central Bank Charter provides as follows:

SEC. 90. Emergency loans and advances. In periods of emergency or 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
prior authorization of the Monetary Board. (Emphasis supplied)

It would be in palpable violation of the provisions of section 90 if the CB were to grant the OBM
further loans and advances, considering that neither the OBM nor its stockholders can put in the
required additional capital nor submit collaterals acceptable to at least five (5) members of the
Monetary Board. Nowhere in the voting trust agreement is it provided that the CB bound itself to
bring about the rehabilitation, normalization and stabilization of the OBM at all cost.

The decision of this Court further states that the CB should rehabilitate the OBM in a manner similar
to what the CB had previously done with the Republic Bank. The rationale of this statement, found
on p. 15 of the decision, reads:

CB Resolution No. 2015 of 16 October 1967 (Petition, Annex `F'), in addition to

requiring a mortgage or assignment of petitioner's personal properties to CB,
confirmed the quoted memorandum by requiring the stockholders of OBM to
subscribe to an appropriate trust agreement, with the only difference that instead of
the Philippine National Bank, the trust would be executed in favor of the CB as
trustee "to enable it to reorganize and transfer management to a nominee of the
Monetary Board." Two weeks later, on 30 October 1967, after a conference at
Malacaang, the CB governor once more wrote to Ramos that the Monetary Board

 decided that, as a measure to stave off liquidation, a voting trust
agreement should be executed by you and your family and the
corporations controlled by you in favor of the Superintendent of
Banks, in an instrument similar to the one executed by stockholders
of the Republic Bank in favor of the Philippine National Bank.

The reference to the case of the Republic Bank clarifies the purpose and scope of
the demand for a voting trust agreement "as a measure to stave off liquidation"; for it
is well-known, and it is not denied, that when the Republic Bank previously became
distressed, the CB had advanced funds to rehabilitate it and allow it to resume
operating.

The above statements are without support in the record of this case. First: It will be clearly seen that
reference was made to the Republic Bank merely for the purpose of describing the "instrument" to
be executed by the OBM stockholders (which must be "similar to the one executed by the
stockholders of the Republic Bank.") On the basis of such reference, one cannot logically and
immediately reach the conclusion that because the instrument (form) may be similar, the obligations
(substance) would necessarily be similar, such that if the CB had indeed advanced funds to the
Republic Bank, it is likewise obligated to advance funds to the OBM. Second: The statement that
"when the Republic Bank previously become distressed, the CB had advanced funds to rehabilitate it
and allow it to resume operating," appears to me to be gratuitous. There is nothing in the pleadings
which shows as a fact that the CB had advanced funds to the Republic Bank, nor, if it did so, how
much and for what specific purposes or ends.

I have earlier stated that the mortgages or assignments of properties to the CB by the OBM
stockholders were not a consideration of their entering in to the voting trust agreement. However, the
decision appears to imply that the said mortgages were executed by the OBM stockholders because
they were "induced" by the CB and "misled" into believing that such conveyances would "stave off
liquidation."

The pleadings of the respondent CB have uniformly maintained that the OBM stockholders were
required to effect the mortgages in question precisely and solely because of the requirements of
section 90 of the Central Bank Charter. The OBM had incurred, long before the execution of the
voting trust agreement, overdrawings amounting to tens of millions of pesos; section 90 of the
Central Bank Charter requires that these overdrawings be secured by collaterals acceptable to the
Monetary Board. On November 20, 1967, the date the voting trust agreement was entered into, the
OBM's overdrawings in its clearing account with the CB amounted to P33,624,743.68. Emerito
Ramos had been promising the Monetary Board that fresh capital would be put into the bank, but
these promises remained unfulfilled, notwithstanding repeated demands made on him by the CB,
such that with the revelation of the unrecorded huge deposits in the OBM, it became obvious that
Ramos could never fulfill his promises.

Logic cannot sustain the statement that the OBM stockholders were induced into mortgaging their
properties for the purpose of staving off liquidation. There was a moral and legal obligation on the
part of the OBM to execute such mortgage because of its huge overdrawings which were not
secured by sufficient and acceptable collaterals. The CB could legally demand the execution of such
mortgages without need of providing any enticement or inducement to the OBM stockholders. It is,
therefore, grossly erroneous to state that the execution of such mortgages was the consideration of
the voting trust agreement. .

The decision further states that the CB is now reneging on its commitments and on page 22 thereof,
observes that the CB excuses itself by pleading that the OBM officers had resorted to non-recording
of time deposits in the Bank's books and diverting such deposits to accounts controlled by certain
bank officials, and other irregularities.

True it is that, in its pleadings, the CB dwelt lengthily on the irregularities and anomalies, committed
by the OBM management. This was done, however, not for the purpose of "excusing" itself from
rehabilitating the OBM, but to show the imperativeness of the execution of the voting trust
agreement as engendered by the critical condition of the OBM.

I find it difficult to understand, therefore, why the majority of the Court would brush aside as being
inconsequential the serious irregularities and anomalies committed by the OBM official's and
stockholders, and instead "censure" the CB in deciding to liquidate the OBM.

The decision further observes that "the CB made express representations to petitioners herein that it
would support the OBM, and avoid its liquidation if the petitioners would execute (a) the Voting Trust
Agreement turning over the management of OBM to the CB or its nominees, and (b) mortgage or
assign their properties to the Central Bank to cover the overdraft balance of OBM. The petitioners
having complied with these conditions and parted with value to profit of the CB (which thus acquired
additional security for its own advances), the CB may not now renege on its representations and
liquidation the OBM, to the detriment of its stockholders, depositors and other creditors, under the
rule of promissory estoppel."

As may be seen, however, the real situation is widely disparate. The CB required a change of
management of the OBM by means of the voting agreement, because it had lost its confidence in
the former one and it required the owners of the bank to collateralize all its obligations to the CB
because that is what the law ordains. With the putting up of additional capital by the owners of the
OBM and the financial assistance extended by the CB in the form of overdrawings in the OBM's
clearing account, it was hoped that the OBM would be able to rehabilitate, normalize and stabilize
itself. Unfortunately these expectations did not materialize partly because the owners of the OBM
failed to produce the needed additional capital and the necessary collaterals for further loans from
the CB. As already repeatedly stated, the conveyances of properties made by the petitioners were
required by the CB in order to secure the huge amounts of loans and overdrawings which had been
advanced to the OBM long before the voting trust agreement was executed.

Under these circumstances, how can it be asserted that the CB is now "estopped" from "reneging"
on its promise to rehabilitate, normalize and stabilize the OBM?

The doctrine of "promissory estoppel" is discussed in Corpus Juris Secundum,

which, in this connection, states,

Of course, a promise cannot be the basis of an estoppel if any other essential

element is lacking ...Justifiable reliance and irreparable detriment to the promisee are
requisite factors. (31 C.J.S. 291) .

Certainly the petitioners could not have justifiably relied upon any "promise" of the CB to rehabilitate
the OBM, assuming that there was such promise, if in the fulfillment thereof the CB would have to
extend further financial assistance in the form of loans, without the requisite corresponding
collaterals from the OBM, or to contribute to the capital of the said bank. For these would be in
flagrant violation of section 90 and 133 of the Central Bank Charter, which are mandatorily
prescriptive, and would in effect compel the CB to dole out public funds in the hundreds of millions of
pesos in cynical contravention of the law.
It is, therefore, incomprehensible to me how the doctrine of "promissory estoppel" can be made to
apply.

Bad faith and abuse of discretion are imputed by the majority of the Court to the CB for ordering the
liquidation of the OBM, in obedience to the mandate of section 29 Of the Central Bank Charter. To
demonstrate that this charge is groundless, I quote excerpts (which are self-explanatory) from the
memorandum dated July 23, 1968 of the Superintendent of Banks to the Monetary Board. Thus:

... The Bank cannot be rehabilitated unless its operational losses are stopped. As of
June 30, 1968, the accumulated losses of the Bank per its books stood at P6.9
million exclusive of estimated losses on loans. In order to at least break even in its
operations (that is, that there be no net profit or net loss), the Bank must be able to
lend in such a magnitude as to be able to cover the large operational expenses,
particularly interest on deposits and borrowings.

... However ... the Bank must put up additional capital in order to meet the
requirements of Section 22 of Republic Act No. 337 and to support the necessary
expansion in risk assets. Therefore, the fresh funds needed in order to break even in
operations must consist not only of borrowed funds but also of additional capital
contribution. On this basis, the Bank will need a total of P126.334 million of loanable
funds, which must be composed of P40.730 million additional capital (P21.780 million
needed for risk assets as of June 30, 1968 plus P18.950 million to support the
expansion in risk assets of P126.334 million) and P85.604 million of borrowed
funds ...

xxx xxx xxx

And even granting that the Bank can obtain the required loanable funds in order to
break even in its operations, it cannot legally invest all the funds unless its capital
structure is also increased to support the necessary expansion in risk assets. Section
22 of Republic Act No. 337 requires that the combined capital accounts of a
commercial bank shall not be less than 15% of its total risk assets. As of June 30,
1968, the required minimum capital of the bank was P19.142 million while its
combined capital accounts per books were only P14.356 million thus showing a
capital deficiency of P4.786 million.

After considering (1) the Examiners' provision for estimated losses on the recorded
loans and receivables of P13.766 million (exclusive of estimated losses of P13.243
million on `unrecorded' loans and receivables), plus 2(a) the accrued interest on the
emergency loans by, and overdrawings with, the Central Bank, and 2(b) penalties
payable on deposit reserve deficiencies aggregating P3.228 million, or a total of
P16.994 million, all of these not yet taken up in the books, the bank's capital
accounts per books of P14.356 million as of June 30, 1968, would be wiped out
resulting in an estimated deficiency to creditors of P2.638 million. Since the minimum
capital required under Section 22 of Republic Act No. 337 as of June 30, 1968 is
P19.142 million, the amount of fresh capital needed to be put up to comply with the
minimum capital requirement as of June 30, 1968 would be P21.780 million. In
addition, P18.950 million of new capital must be put up by the Bank to support the
necessary expansion in risk assets of P126.334 million in order to break even in its
operations. Therefore, the total fresh capital which the Bank must put up to meet the
requirements of Section 22 of RA No. 337, after considering the estimated losses on
loans and other expenses not yet taken up in the books, as well as the necessary
 expansion in risk assets so as to break even in its operations, would be P40.730
million.

xxx xxx xxx

If the capital structure cannot be strengthened to meet the requirements of Section

22 of RA No. 337, and massive financing cannot be given to enable the Bank to
expand its risk assets to the level at which it can break even in operations, then there
seems to be no other alternative except to liquidate the Bank under Section 29 of RA
No. 265.

Unlike the majority of the Court, I recognize the existence of numerous shifting imponderables
always attendant to the superintendence of the banking and monetary systems, the solutions to or
resolutions of which lie peculiarly within the expertise of the CB, but assuredly beyond the ken,
beyond the competence, of any member of this Tribunal or of even the entire judicial collegium that
is the Supreme Court. For my part, I refuse to be simplistic; I dare not substitute my own personal
judgments or predilections or predilections for the judicious exercise by the CB of the specialized
discretion vested in it by law.

It is thus that I cannot discern what act done or step taken by the CB in relation to the OBM, when
tested against the postulates of the law and of public morality, can be condemned as deceptive or
oppressive, or as amounting to bad faith or abuse of discretion.

Reference was made in our deliberations on the case at bar to an offer supposedly made by a
number of depositors as a partial solution to alleviate the grave situation that now besets the OBM,
which in general outline is to the effect that their deposits be converted into shares of stock of the
OBM. But I am not told nor does the record anywhere disclose, the names of these venturesome
depositors, or the amounts of their respective deposits, or the precise meaning and details of such
offer. Verily, everything about this "proposition" is a disembodied blur.

I well understand the overriding concern of the majority of the Court for the plight of the innocent
depositors and creditors of the OBM. I share that concern, I, too, want to see all of them retrieve the
full face value of their deposits and credits. As it is, the prejudice that they have already suffered is
nigh incalculable. The deposits were made and the credits were extended at a time when the foreign
exchange rate was four pesos to one US dollar. When these shall be returned, if at all, the rate of
exchange will probably have risen to more than the present floating rate of about six and one half
pesos to one US dollar, and the purchasing power of the will have been considerably watered down.
In the meantime, these depositors and creditors have been, and will continue to be, effectively
prevented from investing their OBM money (which has not earned nor is now earning interest) in
profitable ventures or stocks. If, on some future but highly uncertain day, fifty percent of such
deposits and credits will be returned, the depositors and creditors of the OBM might well regarded
what they will get as veritable manna from heaven.

At all events, I should think that if and when the OBM by the grace of the majority opinion, shall have
resumed operations, even under the protective solicitude of the CB, the be-all and end-all concern of
most of the OBM depositors and creditors will be to extricate from the OBM, soonest possible and
not to the last centavo, all their deposits and credits. More likely than not, they will not thereafter
like many perceptive observers on the outside looking in touch the OBM again, not even with the
proverbial ten-foot pole.

Finally, I must articulate a query which, as far as I am able to perceive, the Central Bank has not
explored in depth, but which the majority of the Court have apparently confidently answered in the
affirmative: In the face of the well-known constraints of public policy and high public morality, is it
the real amendment of the Central Bank Charter and other pertinent laws that the Central Bank must
run to the total rescue of any and every private banking institution which is in extremis due to causes
other than inept but bona fide management?

Separate Opinions

FERNANDO, J., concurring:

In the result primarily on the ground that respondent's arbitrary and improvident exercise of its
asserted power in the premises is violative of due process.

MAKALINTAL, J., dissenting:

I fail to see, either from the record of this case or from the opinion of the majority, just how and
where respondent Central Bank acted without or in excess of jurisdiction or with grave abuse of
discretion so as to justify the writs of certiorari and prohibition granted by this Court; and just how
and where said respondent neglected to perform a duty specifically enjoined by law so as to justify
the writ of mandamus. To my mind the acts complained of in the petition, namely, Resolutions Nos.
1263 and 1290, passed by the Monetary Board on July 31 and August 1, 1968, respectively, were, if
anything, a judicious exercise of discretion for the purpose of carrying out the policies laid down by
the Central Bank Act with respect to supervision over the operation of private banking institutions
and this Court, by issuing the writs prayed for, has substituted its own judgment for that of the
Monetary Board in a matter that is peculliarly within the competence of the latter.

The thrust of the decision, as far as I can make out, is that the Voting Trust Agreement of November
20, 1967 created contractual obligations, with which "respondent Central Bank of the Philippines is
directed to comply ." The directive does not specify what those obligations are. The principal
stipulation in the agreement is simply what its title indicates: petitioners here, referred to as the
Cestuis Que Trust, assign to the Trustee "for such purpose" the voting rights to all their shares of
stock in the Overseas Bank of Manila, subject to certain conditions thereafter stated. The purpose
envisaged is expressed in the first of the two "WHEREAS" clauses of the agreement, to wit: "the
abovenamed stockholders (petitioners here) believe that it is for and/or in the interest and benefit of
the bank's depositors, creditors and stockholders that this trust agreement should be entered into by
them for the rehabilitation, normalization and stabilization of the Overseas Bank of Manila."

It seems, from a reading of the decision of this Court, that the purpose for which the Voting Trust
Agreement was entered into more accurately, the goal sought to be achieved is mistaken for the
obligation thereunder, and that such obligation devolves not upon the Trustee, the Superintendent of
Banks, but upon the Central Bank itself, which is not a party to the agreement. Be that as it may, the
agreement contains an optional rescission clause, which is only logical, since the feasibility of
rehabilitating, normalizing and stabilizing the Overseas Bank, which was then in extremely
distressed circumstances, would depend upon many factors which could not be predicted with
mathematical certitude, but only upon a reasonably considered projection of future probabilities.
Thus while the life of the agreement would be for three years from the date of its execution, it was
provided expressly "that the Trustee may, at its option, relinquish the trust, upon approval of the
Monetary Board."

Resolution No. 1263, adopted July 31, 1968, excluded the Overseas Bank, then under trusteeship,
from clearing with the Central Bank, effective immediately. Resolution No. 1290, adopted the next
day, granted authority to the Board of Directors of the Overseas Bank to suspend operations
pending final action by the Monetary Board. Such final action was evidently meant to be in
connection with the recommendation submitted by the Superintendent of Banks to the Monetary
Board on June 23, 1968, which reads in part as follows:

After considering (1) the Examiners' provisions for estimated losses on the recorded
loans and receivables of P13.766 million (exclusive of estimated losses of P13.243
million on "unrecorded" loans and receivables), plus 2(a) the accrued interest on the
emergency loans by, and overdrawings with, the Central Bank, and 2(b) penalties
payable on deposit reserve deficiencies aggregating P3.228 million, or a total of
P16.994 million, all of these not yet taken up in the books, the bank's capital
accounts per books of P14.356 million as of June 30, 1968, would be wiped out
resulting in an estimated deficiency to creditors of P2.638 million. Since the minimum
capital required under Section 22 of Republic Act No. 337 as of June 30, 1968 is
P19.142 million, the amount of fresh capital needed to be put up to comply with the
minimum capital requirement as of June 30, 1968 would be P21.780 million. In
addition, P18.950 million of new capital must be put up by the Bank to support the
necessary expansion in risk assets of P126.334 million in order to break even in its
operations. Therefore, the total fresh capital which the Bank must put to meet the
requirements of Section 22 of R.A. No. 337, after considering the estimated losses
on loans and other expenses not yet taken up in the books, as well as the necessary
expansion in risk assets so as to break even in its operations, would be P40.730
million.

xxx xxx xxx

If the capital structure cannot be strengthened to meet the requirements of Section

22 of R.A. No. 337, and massive financing cannot be given to enable the Bank to
expand its risk assets to the level at which it can break even in operations, then there
seems to be no other alternative except to liquidate the Bank under Section 29 of
R.A. No. 265. The Bank's continuance in business under its present extremely
precarious financial condition, without the necessary capital injection and financial
aid, will involve not merely probable, but certain, further losses to its depositors and
other creditors and may have further adverse effects on the banking system.

In the situation depicted by the Superintendent of Banks, which in his opinion presented no other
alternative except to liquidate the Overseas Bank pursuant to Section 29 of Republic Act No. 265
(Charter of the Central Bank), the adoption of Resolutions Nos. 1263 and 1290 was not, in my
opinion, a violation of the Voting Trust Agreement, much less an abuse of discretion on the part of
the Monetary Board.

In a sense the issue with respect to the aforesaid resolutions has become moot and academic in
view of the fact that on August 13, 1968, after the instant petition was filed, the Monetary Board
adopted Resolution No. 1333, wherein it decided as follows:
 (1) To forbid the Overseas Bank of Manila to do business in the Philippines;

(2) To instruct the Superintendent of Banks to take charge, in the name of the
Monetary Board of the bank's assets;

(3) To instruct the Superintendent of Banks to take such further action as may be
necessary pursuant to Section 29 of Republic Act No. 265; and

(4) To refer the said memorandum report of the Superintendent of Banks as well as
previous pertinent reports of the examiners of the Department of Supervision and
Examination, particularly those pertaining to unrecorded certificates of time deposits
bearing the signatures of former officers of the bank, to the Central Bank Legal
Counsel for appropriate legal action.

The adoption of Resolution No. 1333, it seems to me, should remove the present controversy from
this Court if it was properly here at all in the first place, which I doubt and address it to the
Court of First Instance pursuant to Section 29 of the Central Bank Charter, which provides:

SEC. 29. Proceeding upon insolvency. Whenever, upon examination by the

Superintendent or his examiners or agents into the condition of any banking
institution, it shall be disclosed that the condition of the same is one of insolvency, or
that its continuance in business would involve probable loss to its depositors or
creditors, it shall be the duty of the Superintendent forthwith, in writing, to inform the
Monetary Board of the facts, and the Board, upon finding the statements of the
Superintendent to be true, shall forthwith forbid the institution to do business in the
Philippines and shall take charge of its assets and proceeds according to law.

The Monetary Board shall thereupon determine within thirty days whether the
institution may be reorganized or otherwise placed in such a condition so that it may
be permitted to resume business with safety to its creditors and shall prescribe the
conditions under which such resumption of business shall take place. In such case
the expenses and fees in the administration of the institution shall be determined by
the Board and shall be paid to the Central Bank out of the assets of such banking
institution.

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

If the Monetary Board shall determine that the banking institution cannot resume
business with safety to its creditors, it shall, by the Solicitor General, file a petition in
the Court of First Instance reciting the proceedings which have been taken and
praying the assistance and supervision of the court in the liquidation of the affairs of
the same. The Superintendent shall thereafter, upon order of the Monetary Board
and under the supervision of the court and with all convenient speed, convert the
assets of the banking institution to money.

My misgiving as to the propriety of the remedy sought by petitioners is that it is essentially for the
enforcement of an alleged contract, presented in the guise of a petition for certiorari, prohibition
and mandamus. This is borne out by the decision of this Court, which directs the Central Bank "to
comply with its obligations under the Voting Trust Agreement, and to desist from taking any action in
violation thereof." It is to be noted that noted that no "act which the law specifically enjoins as a duty
resulting from an office, trust, or station" is ordered to be performed. Compliance with contractual
obligations is beyond the purview of mandamus, and original jurisdiction over an action for that
purpose pertains to the Courts of First Instance. Such an action is a plain, speedy and adequate
remedy in the ordinary course of law which, being available to petitioners, should bar the present
recourse to the extraordinary writ of mandamus, especially because certain vital facts are
controverted by the parties, such as the outstanding liabilities which can not be paid by the Overseas
Bank, the value of the properties mortgaged to the Central Bank by petitioners, the extent of the
loans secured by the mortgage, and the amount of money which the Central Bank is supposed to
advance in order to comply with its supposed undertaking to rehabilitate, normalize and stabilize
Overseas Bank. Curiously enough, as already noted, the decision of this Court merely directs
compliance with the Voting Trust Agreement without specifying if indeed what is implied is the
rehabilitation of the Overseas Bank just what should be done to achieve that goal, or just how
many millions of pesos the Central Bank must continue to pump into the Overseas Bank in order to
put it in its feet again. It is no idle speculation to say that the writs granted by this Court may raise
more questions than they answer.

With particular reference to the mortgages executed by petitioners, they say the same were a
consideration of the Voting Trust Agreement. Respondent Central Bank denies this and maintains
that the mortgages were constituted as security for "the huge amounts of emergency loans and
overdrawings advanced in the clearing house to the OBM by the Central Bank." The Voting Trust
Agreement itself is silent on the point. My own reading of the record convinces me of the correctness
of the position of the Central Bank. In any case, considering the existence of a substantial
disagreement on this point, not only between the parties but also among the members of this Court,
the issue could best be resolved in an ordinary action, either for specific performance as
hereinbefore indicated or for rescission of the mortgages and the reconveyance of the mortgaged
properties to petitioners. For the resolution of this issue I believe that this Court is not the proper
forum in the first instance, nor the present petition the proper vehicle.

Going back to Section 29 of Republic Act No. 265, it may be noted that what the Central Bank did,
including its suggestion that a Voting Trust Agreement be executed, was in accordance with its
powers and duties under the said section. Whenever a banking institution is in a state of insolvency
the Monetary Board shall determine whether it "may be reorganized or otherwise placed in such a
condition so that it may be permitted to resume business with safety." A Voting Trust, such as that
which was entered into in the case of the Overseas Bank, is certainly one of the measures which
may be adopted for that purpose. The rehabilitation of the distressed institution is the primary goal of
the authority given to the Monetary Board, and there is nothing so sacrosanct in a voting trust
agreement, or in the use of the word "rehabilitate" therein, that once it is executed the Central Bank
is thereby bound to see the rehabilitation" through as an ordinary contractual commitment, no matter
how costly and impractical it may prove. For Section 29 also provides that "if the Monetary Board
shall determine that the banking institution cannot resume business with safety to its creditors, it
shall, by the Solicitor General, file a petition in the Court of First Instance reciting the proceedings
which have been taken and praying the assistance and supervision of the Court in the liquidation of
the affairs of the same." This was precisely the step contemplated by the Monetary Board when it
passed Resolution No. 1333 on August 1968, and any questions concerning its validity, in my
opinion, should be raised in a proper case as authorized in the said provision.

In view of the foregoing considerations, I vote to deny the writs prayed for and to dismiss the instant
petition.

CASTRO, J., concurring:

Like Mr. Justice Querube C. Makalintal, in whose dissent I concur fully, I am in sharp disagreement
with the conclusions reached by the majority of the Court.

Before I state my reasons, which will be extensively discuss in seriatim farther below, it is well that
we get a general picture of (a) the overdrawings incurred by the Overseas Bank of Manila in its
clearing account with the Central Bank up to August 13, 1968 when the liquidation of the Overseas
Bank was ordered by the Central Bank, and (b) the fraudulent transactions perpetrated in the
operations and management of the Overseas Bank. These are summarized by the Superintendent
of Banks, as follows:

1. Advances granted to TOBM by way of overdrawings in 1967 thru 1968

The Overseas Bank of Manila had been chronically overdrawn in its current account
since 1967 thru 1968. However, these overdrawings were made good before clearing
time by means of cash deposit, call money or sale of dollar drafts. It was sometime in
September, 1967 that it failed to cover the overdrawings. [The overdraft which
amounted to P16,116,890.06 as of September 29, 1967 increased to
P51,925,381.90 as of August 13, 1968.]

On September 29, 1967, the Monetary Board in its Resolution No. 1890 enjoined
TOBM not to allow overdrawings amounting to P16.4 million to deteriorate any
further.

On October 16, 1967, the Monetary Board in its Resolution No. 2015, among others,
required Mr. Ramos, Sr. to submit a listing of his properties and to mortgage or
assign the same to cover the overdraft balance therewith of TOBM and not to
exclude TOBM from clearing. On October 16, 1967, date the listing of the alleged
P100 million collateral was submitted, TOBM's overdrawings of its clearing account
with CB totalled P22.333 million.

On November 20, 1967, date the Voting Trust Agreement was executed between the
Superintendent of Banks and Emerito M. Ramos, Sr. et al., the bank's overdrawings
amounted to P33,624,743.68. During this period [from November 20, 1967 to July
26, 1968] it will be noted that the collateral position of the Central Bank on loans
granted to TOBM by way of overdrawings, showed consistent net collateral
deficiency, taking into consideration, appraised value of collateral documents and
even at the higher of PNB or DBP appraised values. When finally the registration of
the mortgages was almost complete, on July 23, 1968, the Monetary Board decided
to consider a liberal loan value of 90% on the average of PNB and DBP market
values.

2. Monetary Board decisions showing real intention in requiring collateral from M. E.

M. Ramos, Sr. et al.

From the various Monetary Board decisions and reports, there was no doubt that the
requirement for Mr. Emerito M. Ramos, Sr. et al. to put up the collateral was for the
purpose of securing the unsecured obligation of TOBM with the Central Bank, by way
of overdrawings in the clearing account. Records show that Central Bank made this
known to TOBM and Mr. Ramos, Sr. all along from the very beginning.

a) No. 1735 dated September 8, 1967 To require TOBM to

mortgage the Padre Faura property to the Central Bank to secure the
 unsecured advances given thereto especially by way of
overdrawings. (Transmitted to TOBM per DSE letter dated
September 14, 1967.)

b) No. 1890 dated September 29, 1967 After noting the report on
the disclosure of transactions at TOBM which had neither been
incorporated in the books of said bank nor reported to its board of
directors, the Monetary Board enjoined TOBM not to allow the
overdrawings of its clearing account with CB amounting then to P16.4
million, to deteriorate any further; and required the TOBM to
immediately mortgage to CB all other available properties of Mr. E. M.
Ramos and family in order to secure the unsecured advances given
to said bank especially by way of overdrawings.

(Transmitted to TOBM per DSE letter dated October 1967.)

c) No. 1918 dated October 3, 1967 Monetary Board instructed

management to exert every effort to obtain collateral to secure the
unsecured liabilities of TOBM to CB.

d) No. 1975 dated October 10, 1967 Monetary Board instructed

management to continue with its efforts to obtain additional collateral
to secure the unsecured liabilities and for the protection of other
creditors/depositors thereof.

e) No. 2014 dated October 14, 1967 To effect the registration of

the second mortgage on Xavierville Estate.

f) No. 2015 dated October 16, 1967 To require Mr. Emerito M.

Ramos, Sr., to submit a listing of his property and to mortgage and
assign the same to the Central Bank to cover the overdraft balance of
TOBM. (Transmitted to TOBM per DSE letter dated October 19,
1967.)

g) No. 2017 dated October 17, 1967 Instruction to the Central

Bank Legal Counsel to proceed immediately with the registration of
the second mortgage on the Xavierville Estate in favor of the Central
Bank; and thereafter, to obtain the consent of the majority of the
stockholders of the Xavierville Estate, Inc. to a second mortgage in
appropriate resolution approved at a regularly called stockholders'
meeting; and to assign one or more lawyers for the particular purpose
of (a) seeing to it that the Central Bank obtain a lien on as many
properties (real or personal), including shares of stock (the
corresponding certificate of which be delivered to the Central Bank)
and other assets in the name of Mr. Emerito M. Ramos, Sr. and
members of his family, as can be obtained, amounting to at least
P100 million as represented by Mr. Ramos; and (b) drawing up and
registering with the Register of Deeds of the necessary documents
establishing the liens of the Central Bank on such properties.

To the Acting Superintendent of Banks To obtain information on as

many more properties as possible (including shares of stocks) in the
 name of Mr. Ramos and members of his family as are not included in
a list submitted by Mr. Ramos on October 16, 1967, so that the
Central Bank can obtain a lien thereon.

h) No. 2132 dated November 3, 1967 Monetary Board instructed

management to write a letter to TOBM to reiterate CB's demand for
additional collateral to secure the unsecured liabilities of the TOBM to
CB and for the protection of the other creditors and depositors. (Letter
of Governor dated November 6, 1967 sent.)

i) Memorandum to Monetary Board of Acting Superintendent of

Banks on the matters taken up in the conference held with Mr. E. M.
Ramos, Sr. and Mr. M. Oliva on October 23, 1967 disclosed that the
Governor impressed upon Mr. Ramos the imperativeness of his
putting up of adequate collaterals to fully secure present CB
advances and before the CB can even consider the extension of
additional advances to TOBM.

One specific resolution to this effect was M. B. Resolution No. 2210 dated November
17, 1967 wherein the Board instructed management to acknowledge the letter dated
November 17, 1967 of the Auditor of the Central Bank inviting attention to the
increasing trend in the overdraft of TOBM with the CB amounting to P32,210,242.21
as of November 16, 1967; to advise the Auditor General and the CB Auditor that
documentation is now being undertaken of the mortgages covering the properties
(allegedly worth P100 million) offered by Mr. Emerito M. Ramos, Sr. to secure the
unsecured liabilities of TOBM to the CB; and to transmit copies of the aforesaid 1st
Indorsement of the Auditor General and the letter of the CB Auditor to the Board of
Directors of TOBM and to require the said bank to explain why it should not be
excluded from CB clearing.

3. Fraudulent transactions

a) Extent of the fraudulent transactions made known to the Central Bank

In a letter dated September 25, 1967, Mr. Martin R. Oliva, then TOBM
President, made a disclosure to the Acting Superintendent of Banks,
certain transactions amounting to P48 million which have not been
incorporated in the books of TOBM and not reported to its Board of
Directors.

In addition to these transactions, a number of regular accounts were

manipulated by top officers of TOBM whereby bank funds amounting
to about P38 million (net) were channeled to various interests. These
manipulated accounts were reinstated in the books of the bank
through a series of adjustments and accounting entries passed upon
by the bank in September 1967.

The consolidated trial balance of these two sets of transactions as

prepared by TOBM Acting Assistant Accountant follows:
 Consolidated Trial Balance
As of September 22, 1967
___________________

Debits Credits

Accounts P25,235,721.34
Receivable

Bills 419,989.27
Discounted

Time Loans 4,764,968.59

Special 12,502,521.38
Overdrafts

Expenses 4,492,498.47

Suspense 38,858,797.87
Account in
Liquidation

Time P44,110,563.45
Deposits

Accounts 1,086,566.03
Payable

Cashier's 2,020,000.00
Checks

Acceptances 1,100,000.00
Payable

Earnings 644,587.00

Overdrawings 2,933,646.78
C/A #1198

Demand 12,107,517.78
Deposits

Savings 10,005,080.54
Deposits

Bills Payable 1,500,000.00

Due to 3,584,004.28
Branches

Domestic 6,177,451.44
Bills
Purchased
 (Payable)

Accrued 1,005,079.62
Interest
Receivable

____________ ___________

P86,274,496.92 86,274,496.92

The loans and other receivable accounts shown in the above trial
balance were without any loan papers and collaterals, thus their
collections would be extremely difficult and hopeless to pursue. On
the other hand, the liabilities, including the `unrecorded' time deposits
which were ruled as liabilities of the bank, in an opinion rendered by
the Secretary of Justice, were properly documented and therefore
actual liabilities of the bank.

The bulk of the loans and other receivable accounts were in the name
of Ramoses and their various business interests. The Suspense
Account in Liquidation amounting to P38.8 million, however, could not
be accounted for, but verification of the fraudulent transactions,
based on available documents/records tends to show that said
account represents funds channeled to the benefit of the Ramoses
and their business interests. However, there was no acknowledgment
on their part to this effect.

b) Extent of verification

Verification of the above transactions has been temporarily suspended in view of lack
of bank examiners. However, even with the resumption of verification, a complete
reconstruction and documentation thereof are highly improbable because so many
bank records are missing in the bank's files. Besides, it will take a considerable
length of time, considering that the manipulations, involved thousands of transactions
and verification requires the tracing of every single transaction to a number of
records. Moreover, verification is made doubly difficult by the fact that so many
entries in the deposit/withdrawal sheets were fictitious, alongside with the genuine
ones, and the examiners had to follow the trial and error method in tracing the
entries. One type of manipulation alone was done daily, with so many deposit
accounts involved on a single day and this covered a period of two (2) years more or
less.

c) Modus operandi for the fraudulent transactions

The "modus operandi" or mode of operation employed the opening of current or

checking accounts with the bank, the signatories of which were Emerito B. Ramos,
Jr. and a few selected officers.

1) Current Account No. 1198 EMRACO with the following

authorized signatures:
(a) Emerito B. Ramos, Jr. Executive Vice President & Treasurer

(b) Rodrigo Recto Assistant Vice President & Cashier

(c) Rodolfo R. Sunico Vice President & Chief Accountant

(d) Manuel Moje with the Office of the Executive Vice President

2) Current Account No. 1198-A General Fund with no known

authorized signatures.

3) Current Account No. 1920 COFICO SPECIAL ACCOUNT NO. 2

with the following authorized signatures:

(a) Emerito B. Ramos, Jr. Executive Vice President & Treasurer

(b) Rodolfo R. Sunico Vice President & Chief Accountant

These fraudulent and highly devious operations involving a staggering amount of

P86 million were perpetrated under two general schemes:

1) Moneys of depositors received by the bank as time deposits or in

exchange for banker's acceptances and cashier's checks were not
recorded in the books of the bank as money owned or liability of the
bank to the depositors/creditors. Instead, the money received were
recorded as deposits to Current Account No. 1920. As mentioned
above, these transactions, known as "unrecorded transactions",
involved P48 million.

2) The second scheme involving about P38 million as of September

30, 1967 is subdivided into three operations, namely:

(a) "Segregated accounts" Ledger cards showing

the balances of the deposits of either current, time or
savings account depositors, usually with large
balances, were removed from the respective files of
depositors. Withdrawals were effected on these
ledger cards without the knowledge or consent of the
depositors. The aggregate amount illegally withdrawn
was then shown as deposits to Current Account No.
1920, 1198, or 1198-A.

(b) "Diverted accounts" Funds properly belonging

to the bank were credited or shown as deposits to
Current Account No. 1198 or 1198-A. Examples: (1)
Payments made by La Suerte Cigar and Cigarette Co.
of P6.25 million on its loan with the bank was
recorded as deposit to Current Account No. 1198,
instead of crediting the account of the debtor. The
amount paid properly belong to the bank. (2) Call
loans obtained from other banks were also credited to
 the current accounts controlled by the officers of
TOBM. (3) Remittances from other banks for the
account of a TOBM branch were likewise not shown
in the books as such but instead credited to the
current accounts owned/controlled by the officers.

(c) "Fictitious/simulated entries" Books were made

to show that funds were transferred from branches to
Head Office (no actual fund transfer) and credited to
current accounts owned/controlled by officers of
TOBM. Checks were drawn by Ramos corporations
against their unfunded current accounts. These
checks were held up as asset accounts of TOBM and
credited again to the current accounts
owned/controlled by officers of TOBM.

As fast as funds were received under either the "unrecorded transactions" or

"segregated/diverted" schemes, loans were surreptitiously granted to the various
firms/corporations, owned or controlled by Mr. Emerito M. Ramos, Sr., and members
of his family, numbering twenty-seven (27), twelve (12) of which were established
from 1964 to 1967, and also to other borrowers.

As a means of control and accounting of this clandestine financing operations,

Messrs. Emerito B. Ramos, Jr. and Rodolfo R. Sunico, ably assisted by trusted
employees, designed and maintained a separate book of accounts accessible only to
them and to nobody else.

Since the nucleus of the anomalous transactions was linked to the deposit accounts,
Mr. Emerito B. Ramos, Jr. and his men availed fully of the protective mantle of the
provisions of R.A. No. 1405 which prohibits the disclosure of any information on
deposit accounts even to bank examiners, and thus the perpetrators were able to
amass an enormous amount of P86.129 million as of September 30, 1967 which they
appropriated for their various firms/corporations and partially to other borrowers, in
wanton disregard of banking laws, rules, regulations and orders legally issued by the
Central Bank, never before recorded in the annals of banking in the Philippines.

In addition to the above, Emerito B. Ramos, Jr., Executive Vice President and
Treasurer, during the time that he was on an indefinite leave of absence from May
1967, and therefore no longer authorized to sign for the bank, still received funds and
issued TOBM certificates of time deposit and banker's acceptances in the aggregate
amount of P2.02 million. Naturally, these amounts were not recorded in the regular
books of the bank nor in the separate set of books, and the proceeds thereof were
pocketed by Mr. Ramos, Jr.

4. Loans to the Ramoses

As of July 31, 1967 (date of latest regular examination of TOBM), the total
outstanding loans and advances to the Ramos/family/enterprises aggregated
P29.086 million, representing 41.18% of the total loan portfolio (recorded or regular
loans) of P70.633 million.
 On September 25, 1967, Mr. Martin R. Oliva, then TOBM President, disclosed the
so-called unrecorded transactions. He first reported that as per tentative trial balance
as of September 13, 1967, the total unrecorded transactions totalled P48.007 million.
However, as of September 30, 1967, after certain adjustments/entries have been
passed, the total amount of unrecorded/diverted/segregated accounts totalled
P86.129 million. From discussions of manipulation above, these funds were
channeled to current accounts controlled by the E. M. Ramoses and were withdrawn
or spent according to their pleasure.

Certain properties of the Ramoses were offered to the bank on a "dacion en pago"
arrangement in the total amount of P30.6 million and were applied to the outstanding
loans and obligations (both recorded and unrecorded loans) of the Ramoses.
However, even with the application of the proceeds of these properties offered to
TOBM, the outstanding loans of the Ramoses/family/enterprises still stood at an
enormous amount of P72.150 million (both recorded and unrecorded) or 58.90% of
the total loans of P122.502 million (both recorded and unrecorded) as of June 30,
1968 summarized below:

Outstanding Loans and Advances (Recorded & Unrecorded)

(As of June 30, 1968)

(In Millions)

Recorded Unrecorded Total

% to % to % to

Y: Amount Total Amount Total Amount Total

s and

amounts

for by E.

P19.100 37.95% P53.050 P72.150

enterprises 73.50% 58.90%

d advances

her than
s

erprises 31.23062.05% 19.122*26.50% 550.35241.10%

tanding

es P50.330 100.00% P72.172 P122.502

 100.00% 100.00%

* While these were shown as having been lent to third parties, promissory notes were
not presented to indicate indebtedness of third parties. Considering that these
amounts were derived from funds channeled to the current accounts of the Ramoses
and were granted by them to third parties, these amounts could very well be amounts
that will also have to be accounted for by E.M. Ramos, et al.

My fundamental purpose in quoting in full the above narration is to project the importance of certain
facets of this case which were accorded only scant attention or consideration in the majority opinion,
and with reference to which I entertain a perspective different from that of the majority.

On the basis thereof and of other facts which I will advert to in the course of my discussion, I now
proceed to explain the reasons for my dissent, as well as refute certain arguments advanced and
specific conclusions reached in the main opinion.

Briefly stated, my reasons are as follows:

1. The Central Bank (hereinafter referred to as the CB) is without power, under the law, to enter into
the voting trust agreement in question, as this agreement is construed by the majority.

2. Even assuming that the CB is legally a party thereto, (a) the said agreement expressly gave the
Monetary Board authority to terminate the same at any time; (b) no express and definite commitment
was therein made that the CB will extend further extraordinary financial assistance to the Overseas
Bank of Manila (hereinafter referred to as the OBM); (c) contrary to the assertion that the CB has
reneged on its "promise" under the said agreement, the CB has taken the necessary steps,
consistent with law, to rehabilitate the OBM; and (d) the CB cannot be expected, legally and morally,
to continue supporting the OBM at any and all cost.

The basic assumptions of the majority opinion, vis-a-vis the CB's being a privy to the voting trust
agreement, are as follows:

(a) The CB rather than the Superintendent of Banks is the real party thereto because the latter is a
mere officer of the CB acting under its orders.

(b) The CB had executed certain acts which indicate that it is the real party to the said agreement.
Thus, it is said that the CB, from the very start, had insisted upon the execution of the said
agreement; had caused the nomination of the team that took over the management of the OBM; had
given notice that the agreement in question will no longer be renewed or extended, which,
consequently, led to the promulgation of Resolution No. 1333 on August 13, 1968 ordering the
Superintendent of Banks to proceed to liquidate the OBM under section 29 of the Central Bank Act.

(c) By "promising" to work for the rehabilitation, normalization and stabilization of the OBM to stave
off its liquidation, the CB, in effect, impliedly obligated itself to finance the funding requirements of
the OBM until these objectives are attained within the term stated in the voting trust agreement.

In my view, even if it were assumed that the intention of the CB authorities relative to the said voting
trust agreement was to make the CB a party thereto, its validity and binding effect upon the CB are
not legally possible since under the said agreement the CB would not only be acquiring the legal
title, including voting rights, over the shares of stock of the petitioners in the OBM, but it would also
be actually directing the management and operation of the bank-powers and prerogatives the
acquisition of which by the CB is expressly prohibited by law. Section 133 of the Central Bank Act
states:

Sec. 133. Prohibitions. The Central Bank shall not acquire shares of any kind or
accept them as collateral, and shall not participate in the ownership or management
of any enterprise, either directly or indirectly.

Section 27 of the Central Bank Act explicitly prohibits the Superintendent of Banks from exercising
the powers granted under the said voting trust agreement. Thus:

Sec. 27. Prohibition. The Superintendent and all employees of the Department of
Supervision and Examination are hereby prohibited from:

(a) Being an officer, director, employee or stockholder, directly or indirectly, of any

institution subject to supervision or examination by the department.

Obviously, by virtue of the clear and unmistakable constraints described in the foregoing provisions
of the CB Charter, the alleged intent of the CB authorities to be bound by the terms of the said voting
trust agreement cannot but be interpreted as having been pursued under a clear misapprehension if
not direct disregard, of the law. On this point, it appears to me to be well settled in our jurisdiction
that the Government (and the CB is an instrumentality of the Government) is never estopped by the
mistake or error of its agents. And since estoppel cannot give validity to an act that is prohibited by
law or contrary to public policy, the CB cannot consequently be bound by any action diametrically
contrary to what the law prohibits (such as those found in sections 27 and 133 of the CB Charter)
which may be executed on its behalf by its agents, such as the Monetary Board. (See Eugenie vs.
Perdido, L-7083, May 19, 1955; Benguet Consolidated Mining Co. vs. Pineda, L-7231, March 28,
1956; Bachrach Motor Co. vs. Unson, 50 Phil. 981; San Diego vs. Municipality of Naujan, Oriental
Mindoro, L-9920, February 29, 1960; also 10 Am. Jur. 802).

Because the voting trust agreement ascribes to the Monetary Board certain duties and grants it
certain powers, the majority opinion used this as one of the reasons to support the conclusion that
the CB is a real contractual party to the agreement. I view the matter differently. As I see it, the
agreement is between the OBM and the Superintendent of Banks only. Nowhere within the four
corners thereof do I find any statement that, the CB is a contractual party thereto. The majority
opinion loses sight of the fact that in the matter of the regulation of the banking and monetary
systems of this country, the CB, as the "bank of banks," is given-all-embracing powers of supervision
and superintendence. In the situation that the OBM has found itself, it was incumbent upon the CB to
exercise these powers. If the agreement contains express reference to the Monetary Board it is
because the OBM and the Superintendent of Banks, by themselves alone, without any assist from
the CB, would be completely incapable of rehabilitating, normalizing and stabilizing the OBM. The
agreement is much more than an ordinary contract between two private parties; it is a covenant
unavoidably impressed with public policy: the stability of the banking and monetary systems. It must
therefore be regarded, properly speaking, as one in which the provisions of the CB Charter and
other pertinent laws are deemed perforce incorporated. As a matter of fact, even if there were no
mention at all of the Monetary Board in the agreement, still the execution thereof would, by
compulsion of the provisions of the Central Bank Charter, require direct supervision and
superintendence by the CB.

Whether the Monetary Board, in requiring the execution of the trust agreement, had in mind section
29 of the Central Bank Act or any of the general corporate powers vested in it by section 4 of the
same Act, or what it honestly felt was its duty under the law "to maintain monetary stability in the
Philippines" (section 2, CBA), and, in the discharge thereof, to make available its credit facilities "to
regulate the volume, costs, availability and character of bank credit and to provide the banking
system with liquid funds in times of need" (section 86, CBA), and "ensure that the supply, availability
and cost of money are in accord with the needs of the Philippine economy and that bank credit is not
granted for speculative purposes prejudicial to the national interests (Section 108, CBA), still the
inescapable conclusion remains, by virtue of the statute's prescribing the principles that should
guide, and the objectives that should be pursued by, the CB, that the Monetary Board required the
execution of the voting trust agreement not for the purpose of binding the CB as a contracting party,
but solely to fulfill its statutory obligation to superintend the banking system and forestall the
occurrence of conditions that effectively lead to financial panic or that threaten monetary and
banking stability.

The law as well as the situation in extremis of the OBM by 1967, therefore, called for the monetary
authorities to act, and act they did, by conscientiously attempting to eliminate the reported (at least,
what they believed to be) causes of the bank's deterioration, by requiring the management of the
bank to be passed onto new and trusted hands. But the said action, as I have stated earlier, was
exercised for no other reason than to comply with the CB's statutory duty to manage and administer
the banking and monetary systems of the country.

I now proceed to discuss my second fundamental reason for this dissent. Assuming that the CB is
legally a contracting party to the voting trust agreement, (a) the said agreement expressly gave the
Monetary Board authority to terminate the same at any time; (b) no express and definite commitment
was therein made that the CB would extend further extraordinary financial assistance to the OBM;
(c) contrary to the assertion that the CB has taken the necessary steps, consistent with law, to
rehabilitate the OBM; and (d) the CB cannot be expected, legally and morally, to continue supporting
the OBM at any and all cost. Although I have divided this reason into foul parts, I will discuss all of
these parts together as they are inextricably intertwined.

By its very terms, the agreement could be terminated at any time at the option of the Monetary
Board.

The stipulated life span of the said agreement is stated in the following words:

1. That the life of this trust agreement shall be for a period of three years
commencing from the date of the execution of this contract, provided, however, that
the TRUSTEE may, at its option, relinquish the trust, upon approval of the Monetary
Board, and provided, further that if, at the expiration of the three-year period, the
purposes for which this trust agreement has been constituted have not, as yet, been
fully achieved, this trust agreement shall then be considered automatically extended
for such further period to be determined by the Monetary Board, similarly terminable
within such further period also at the discretion of the Monetary Board. It is further
agreed that if the condition of the Overseas Bank of Manila so warrant, the CESTUIS
QUE TRUST may request the Monetary Board for the earlier termination of this
agreement.

Without having to turn the mentioned stipulation inside out, it is unmistakably clear that under the
unambiguous specific language used, the CB was not absolutely bound thereunder to any specific
period during which it must restore the OBM to its feet. For, while the opening portion of the said
stipulation states that the trust agreement shall be for a 3-year period, this term is, however,
explicitly made subject to the condition that the "TRUSTEE may, at its option, relinquish the trust." If,
as the majority opinion says, the resolutions in question contradict the "promise" of the CB that it will
rehabilitate, restore and stabilize (to stave off the liquidation of) the OBM, then I can see no other
conclusion but that the CB had thereby relinquished the said trust. The said trust agreement having
been thus rescinded, I cannot see how the CB, in adopting the said resolutions, can be accused of
having acted in "abuse of discretion equivalent to excess of jurisdiction.".

Undue emphasis and reliance are placed by the majority opinion upon the argument that under the
voting trust agreement in question the CB was obligated "to act and work for the "rehabilitation,
normalization and stabilization" of the Overseas Bank of Manila, through the extension of adequate
and necessary financial instance to stave off liquidation" an argument which, in my view, entirely
fails to consider that there are contractual and statutory, if not administrative as well as market,
constraints to what the CB can do in the matter of assisting banks in extremis.

A reading of the scope of the powers and authority granted to the CB under the voting trust
agreement provides the first step in an analysis of the contractual and legal constraints under which
the OB must operate. The relevant stipulation of the said agreement recites:

3. During the life of this trust agreement the trustee shall have all and full authority,
subject only to the limitations set by law and other conditions set forth therein: to
direct the management of the affairs and accounts and properties of the Overseas
Bank of Manila; to vote its directors and to choose the officers and employees giving
due consideration to the suggestions of the cestui que trust for the employment and
retention of qualified, competent and reputable persons who enjoy their confidence;
to improve, modify, reorganize its operation, policies, standards, systems, methods,
structure, organization, personnel, staffing, pattern, etc.; to hold and vote on the
shares of stocks transferred to him as trustee; to safeguard the interests of
depositors, creditors and stockholders; and in general to exercise all such powers
and discharge all such functions as inherently pertain to the cestui que trust as
owners, and/or for the sound management of a banking institution.

The aforementioned stipulation sets forth with definiteness and specificity the scope and reach of the
alleges obligation f the CB to work for the "rehabilitation, normalization and stabilization of the
Overseas Bank of Manila" under the voting trust agreement. By virtue of the said stipulation, the
trustee's only duty and authority is to manage the affairs of the OBM in a manner beneficial to the
bank, its equity owners, depositors and creditors. Nowhere does it appear in the said stipulation nor
in any portion of the said voting trust agreement (which them majority opinion considers as the law
between the parties) that the CB must pump money into the coffers of the OBM for its "rehabilitation,
normalization and stabilization." Indeed, considering the precarious position of the OBM, the
subsequent takeover by the CB (through its nominees) of its operations constitutes full compliance
with its duty under the said agreement. For, it must be noted that the take-over of the OBM's
operations was induced by the CB's considered belief, through reports submitted by its examiners,
that the principal stockholders of the bank were misusing and fraudulently diverting for personal
purposes the funds and assets of the bank to the detriment of its other stockholders and its creditors
and depositors a belief which is not unfounded. The majority opinion itself states that the OBM (a)
had overdrawn its clearing account with the CB beyond permissible limits, (b) had chronic reserve
deficiency, and (c) had deficiency in the required liquidity floor against government deposits as early
as 1965, all of which, by 1967, caused such a mounting concern at the CB that the latter

ordered the closing of all deposit accounts of Mr. Emerito Ramos and members of
his family within the third degree, and firms and corporations in which they had
interest; for the stockholders to put in an addition of P6.8 million, to remove Ramos
and other key officials of the bank found to be responsible for irregular or anomalous
transactions from their positions, to install an internal comptroller appointed by the
Central Bank, and to place collection efforts of the bank under a special team headed
by the Central Bank Legal Council.
Undoubtedly, the take-over by a new management of the operations of the OBM to stop the bank's
assets and funds from further being fraudulently dissipated could bring about relative normalcy and
stability and remove the immediate threat of closure. But no trustee can be expected to surmount
what is humanly insurmountable. The CB is not expected, nor cannot it be obliged, to divert its own
funds for the purpose of saving a solitary bank whose in extremiscondition was, in the first place,
caused by the malfeasance, and non-feasance of its principal stockholders and officers. The CB was
established to discharge certain constituent functions. Its powers are necessarily circumscribed by
law. The fact that it achieves a surplus fund in its operations does not mean that it can devote such
surplus fund to any use not specifically and clearly described by law. Section 41 of the Central Bank
Act, in fact, specifies the uses to which its net profits may be devoted. The "rehabilitation,
normalization and stabilization" of a private commercial bank are not among these.

And even if it be construed that the management function which the CB had supposedly assumed
includes the giving of extraordinary financial assistance, I seriously dispute the observation of the
majority that the CB did not conscientiously and in good faith exert every effort to rehabilitate,
normalize and stabilize the OBM.

The pertinent facts, narrated in chronological perspective below, conclusively rebut this observation
of the majority.

1. During the five years of the existence of the OBM, the CB granted it a total of P76.11 million in the
form of emergency loans (P24,185,193.74) and overdrawings in its clearing account
(P51,925,381.90). (For purposes of clarity, a banking institution, by law and as ruled by the Monetary
Board, is required to hold reserves against its deposit liabilities partly in the form of deposits with the
CB. If this deposit account is overdrawn, which results from the clearing of checks, the bank incurs
an overdraft. An overdraft in the clearing account of a bank is regarded as a loan in the books of the
CB.)

2. The OBM, since early 1967, had been chronically overdrawn in its clearing account with the CB,
but somehow, was able to make sufficient deposits to cover the daily overdrawings before the start
of the clearing every day. It was sometime in September 1967 that it failed to cover the
overdrawings. On September 25, 1967, Martin Oliva, then OBM President, informed the CB of
transactions which were not recorded in the books of the OBM in the amount of 48.007 million.
There were other manipulations made in the books which caused funds derived from depositors and
clients of the bank to be credited to current accounts of certain OBM officers for their personal use
and/or for the benefit of corporations and other interests of the Ramos family. The disclosed amount
of P48.007 million was later determined to reach P86.129 million as of September 30, 1967.

3. Alarmed by this development and by the sudden increase in the overdrawings, the Monetary
Board issued a series of directives requiring, among other things, the bank and Emerito M. Ramos,
Sr., et al., the majority stockholders of the bank, to put up collateral to secure the unsecured
obligations of the OBM with the CB, especially the overdrawings. The CB account was apparently
being used to fund the operations of the OBM and the withdrawals of the depositors, since the funds
originally deposited and collected to the extent of the manipulations were not invested for the benefit
of the bank but were instead withdrawn for the use and benefit of the Ramos corporations.

(a) Resolution No. 1735 dated September 8, 1967 required the OBM to mortgage its
Padre Faura property to the CB to secure the unsecured advances given, especially
by way of overdrawings.

(b) Resolution No. 1890 dated September 29, 1967 required the Xavierville Estate,
Inc. to mortgage to the CB its Xavierville property situated in Quezon City to partly
secure whatever liabilities the OBM had with the CB, and required the OBM to
immediately mortgage to the CB all other available properties of the Ramoses
(Emerito M. Ramos and family) in order to secure the unsecured advances given to
the OBM especially by way of overdrawings, and place the advances so secured in a
separate account.

(c) Resolution No. 1918 dated October 3, 1967 instructed the CB management to
exert every effort to obtain collateral to secure the unsecured liabilities of the OBM to
the CB.

(d) Resolution No. 1975 dated October 10, 1967 instructed the CB management to
continue with its efforts to obtain additional collateral to secure the unsecured
liabilities of the OBM to the CB and for the protection of other creditors/depositors
thereof.

(e) Resolution No. 2014 dated October 14, 1967 instructed the CB management to
effect the registration of the second mortgage on the Xavierville Estate.

(f) Resolution No. 2015 dated October 16, 1967 required Emerito M. Ramos, Sr., to
submit a listing of his property and to mortgage and assign the same to the CB to
cover the overdraft balance of the OBM.

(g) Resolution No. 2017 dated October 17, 1967 instructed the CB Legal Counsel to
proceed immediately with the registration of the second mortgage on the Xavierville
Estate in favor of the CB, and thereafter to obtain the consent of the majority of the
stockholders of the Xavierville Estate, Inc. to a second mortgage in an appropriate
resolution approved at a regularly called stockholders' meeting; to assign one or
more lawyers for the particular purposes of (1) seeing to it that the CB obtained a lien
on as many properties (real or personal), including shares of stock (the
corresponding certificate of which should be delivered to the CB) and other assets in
the same of Emerito M. Ramos, Sr. and members of his family, as could be obtained,
amounting to at least P100 million as represented by Emerito Ramos, and (2)
drawing up and registering with the Register of Deeds the necessary documents
establishing the liens of the CB on such properties. This resolution also instructed the
Acting Superintendent of Banks to obtain information on as many more properties as
possible (including shares of stocks) in the names of Emerito Ramos and members
of his family as were not included in the list submitted by Emerito Ramos on October
16, 1967, so that the CB could obtain a lien thereon.

(h) Resolution No. 2132 dated November 3, 1967 reiterated the CB's demand for
additional collateral to secure the unsecured liabilities of the OBM to the CB and for
the protection of the other creditors and/or depositors thereof.

(i) Resolution No. 2185 dated November 7, 1967 noted a letter dated November 6,
1967 of the CB Governor to the OBM, which stated among other things, as follows:
"As previously requested and agreed to by your principal stockholder, Mr. Emerito
Ramos, Sr., immediately have Mr. Emerito M. Ramos, Sr., his associates or
controlled corporations execute the necessary documentation to mortgage real
properties to the Central Bank to secure the unsecured liabilities of The Overseas
Bank of Manila to the Central Bank, and for the protection of the other creditors
and/or depositors thereof. In this connection, it is reiterated that Mr. Ramos deliver to
 the Central Bank the endorsed certificates of stock of corporations in which he or his
family has equity."

(j) Resolution No. 2210 dated November 17, 1967 instructed the CB management to
acknowledge the letter dated November 17, 1967 of the Auditor of the CB, inviting
attention to the increasing trend in the overdraft of the OBM with the CB amounting
to P32,210,242.21 as of November 16, 1967; to advise the Auditor General and the
CB Auditor that documentation was then being undertaken of the mortgages
covering the properties (allegedly worth P100 million) offered by Emerito M. Ramos,
Sr. to secure the unsecured liabilities of the OBM to the CB; to transmit copies of the
aforesaid 1st Indorsement of the Auditor General and the letter of the CB Auditor to
the Board of Directors of the OBM and to require the OBM to explain why it should
not be excluded from CB clearing.

As can be deduced from the foregoing resolutions, bad faith cannot be imputed to the CB when the
voting trust agreement was executed on November 20, 1967, since all along Emerito M. Ramos, Sr.
knew, as he was indeed from the very beginning, that the properties he had offered, allegedly worth
P100 million, were to secure all the unsecured liabilities of the OBM with the CB.

4. In a conference held with E. M. Ramos, Sr. and M. Oliva on October 23, 1967, the CB
Governor impressed upon Ramos the imperativeness of his putting up adequate collateral to fully
secure the CB advances before the CB could even consider the extension of additional advances to
the OBM. Moreover, the intentions of the CB in the execution of the voting trust agreement may be
found in Resolution No. 2015 dated October 16, 1967 wherein the Monetary Board decided, among
other things.

To require the stockholders of The Overseas Bank of Manila to subscribe to an

appropriate voting trust agreement so that the Central Bank may be able to effect a
complete reorganization and/or transfer management of the bank to a nominee of the
Monetary Board.

In point of fact, the voting trust agreement was broached to the OBM or the Ramoses for the first
time, not on October 16, 1967, but on December 23, 1966, when the Monetary Board, per its
Resolution No. 2072, expressed the sense that if the OBM failed to elect a permanent President by
January 31, 1967, acceptable to the Monetary Board, the bank should transfer the management of
its affairs to the PNB under an appropriate voting trust agreement.

5. The CB was alarmed by the uncontrolled increase of the overdrawings in the OBM's clearing
account, which continued to deteriorate despite admonitions from' the CB. The CB sought a change
in the management of the OBM because the anomalies and fraudulent transactions in the OBM were
being perpetrated by son of E. M. Ramos, Sr., and funds derived from the manipulation of accounts
were being channeled to the corporations and interests of the Ramos family. These are borne out by
the following:

(a) Resolution No. 1890 dated September 29, 1967 enjoined the OBM not to allow
the state of the overdrawings in its clearing account with the CB, amounting to P16.4
million as of September 29, 1967, to deteriorate any further.

(b) Resolution No. 2014 dated October 14, 1967 ordered

(1) the return to clearing of OBM's Manager's and Cashiers' checks

debited to clearing on Friday, October 13, 1967;
 (2) the listing and taking possession of outstanding Manager's,
Cashiers and Treasurer's checks to be presented in the afternoon
clearing on Monday, October 16, 1967; and .

(3) the OBM to refrain from issuing Manager's and Cashier's checks.

(c) Resolution No. 2015 dated October 16, 1967 suspended, in the meantime, the
implementation of the instructions embodied in Resolution No. 2014 dated October
14, 1967 for the return of the bank's Manager's, Cashier's, and Treasurer's checks
received thru the clearing to the banks which honored them, and the exclusion of the
OBM from clearing, pending implementation of the requirements under paragraphs
(1) re: submission of list of properties and (2) re: voting trust agreement, provided
that the overdraft balance of the OBM as a result of clearing operations did not
significantly increase above the level thereof of P21.2 million as of October 13, 1967.

(d) Resolution No. 2017 dated October 17, 1967 instructed the Acting
Superintendent of Banks to see to it that the accounts with the OBM of the
enterprises owned by Ramos and members of his family were either closed or frozen
in order to prevent the further deterioration of the OBM's clearing balance with the
CB, and to see to it that the OBM did not issue Manager's and Cashier's checks.

(e) Resolution No. 2132 dated November 3, 1967 instructed the CB management to
immediately write a letter to the OBM demanding payment, within five (5) days from
receipt of such demand, of whatever amount was necessary so as to reduce the
OBM's overdraft balance with the CB to the level thereof of P21.2 million as of
October 13, 1967, and the OBM not to permit drawings by its clients on their
overdraft accounts until after completion of the review of such accounts by CB
examiners, and to immediately advise the clients concerned accordingly.

(f) Resolution No. 2188 dated November 7, 1967 stated, in connection with the report
of the Acting Superintendent of Banks dated October 27, 1967 on the financial
condition of the OBM as of August 31, 1967, that the general principle/policy to be
carried out/applied on the OBM was to prevent the further increase of its
overdrawings with the CB. Toward this end, the Board:

(1) Expressed the sense that the unrecorded transactions of the OBM should not be
recognized by the OBM pending study and verification thereof; and

(2) Directed the CB management to require the OBM:

(a) Not to convert deposits from one type to another:

(b) To return all incoming checks and items from

clearing which were drawn against accounts in the
unrecorded transactions, against demand deposits
which were converted from time or savings deposits,
and, as already instructed, against overdraft lines and
against accounts with insufficient balances; and

(c) To take all precautions, measures and steps

necessary to prevent further deterioration of the
 overdrawn clearing balance with the CB which as of
November 7, 1967 amounted to P28.437 million.

(g) Emerito M. Ramos, Sr. procrastinated in the final execution of the voting trust
agreement. In the meantime, the overdrawings increased from P21.2 million on
October 13, 1967 to P33.62 million on November 20, 1967.

Finally, on November 17, 1967, the Monetary Board, in its Resolution No. 2190,
instructed the CB management:

(1) To require the stockholders of the OBM representing a substantial

majority of the stock thereof to sign, not later than Monday morning,
November 20, 1967, a voting trust agreement in favor of the
Superintendent of Banks, called for under Resolution No. 2020 dated
October 20, 1967;

(2) To deny to the OBM access to CB clearing beginning Monday

afternoon, November 20, 1967, should such voting trust agreement
not be signed by that time; and

(3) To return all incoming checks and items from clearing which were
drawn against accounts in the unrecorded or falsely recorded
transactions in the OBM.

(h) Resolution No. 2252 dated November 23, 1967 instructed the CB management to
take immediate action so that increases in overdrawings in the CB would be reflected
in corresponding decrease in "recorded" deposit liabilities, impressing upon all those
concerned that the unrecorded or falsely recorded transactions in the OBM were not
to be recognized or honored, although evidence purporting to establish the legitimacy
of such supposed transactions could be received by the CB. All transactions were to
be passed upon by the Comptroller designated by the CB.

6. On November 20, 1967, the voting trust agreement between Emerito M. Ramos, Sr., et al., as
trustor, and the Superintendent of Banks, as trustee, was executed.

7. It took a considerable length of time, or up to July 23,.1968, before all the properties deemed
acceptable as collateral by the Monetary Board were mortgaged/assigned in favor of the CB.
Contrary to the belief that the CB withheld funds from the OBM, the advances by way of
overdrawings on any one date were always more than the appraised value of collateral
mortgaged/assigned on the same day. The CB later liberally changed this basis of valuation, to be
able to extend more advances by way of overdrawings to the OBM.

8. As of July 2, 1968, the balance of the overdrawings in the OBM's clearing account amounted to
P51,661,774.90, whereas the loan value of the collaterals put up by Emerito M. Ramos, Sr., et
al., computed liberally at 90% of the average PNB and DBP market values, amounted to
P51,127,290, with a resulting collateral deficiency of P534,484.90. Having been apprised that no
further acceptable collateral of appreciable value had been offered by the controlling stockholders
and no additional fresh capital funds of the magnitude necessary to bail out the very distressed
condition of the OBM was expected from the controlling stockholders, the Monetary Board was
constrained to take drastic action and on July 30, 1968, under its Resolution No. 1263, decided to
exclude the OBM from clearing with the CB, effective immediately. Two days Later, the Monetary
Board, under its Resolution No. 1290 dated August 1, 1968, further decided to authorize the Board
of Directors of the OBM to suspend the operations of the OBM.

9. At the time of the execution of the voting agreement on November 20, 1967, the overdrawings in
the OBM's clearing account amounted to P33,624,743.68; as of August 13, 1968, they amounted to
P51,925,381.90, or an increase of P18,300,638.22.

All the above demonstrates that the CB extended P18.3 million additional financial assistance to the
OBM from November 21, 1967 to August 13, 1968, or during the period of almost nine (9) months
following the date of the execution of the voting trust agreement.

The crucial portion of the decision relative to the alleged obligation of the CB to "rehabilitate,
normalize and stabilize" the OBM is found on p. 16 thereof, the pertinent portion of which reads as
follows:

... the record becomes clear that, in consideration of the execution of the voting trust
agreement by the petitioner stockholders of OBM, and of the mortgage or
assignment of their personal properties to the CB (Res. No. 2015, 16 October 1967,
Annex "F", Petition), the CB had agreed to announce its readiness to support the
new management "in order to allay the fears of depositors and creditors" (Annex
"B"), and to "stave off liquidation" by providing adequate funds for "the rehabilitation,
normalization and stabilization" of the OBM, in a manner similar to what the CB had
previously done with the Republic Bank (Petition, Annex "G", ante).

While no express terms in the documents refer to the provision of funds by CB for the purpose, the
same is necessarily implied, for in no other way could it rehabilitate, normalize and stabilize a
distressed bank. (Emphasis supplied)

As I have already stressed, the CB did not commit itself to rehabilitate, normalize and stabilize the
OBM. But even assuming that there was in fact such a commitment, it is obvious to me that the
same cannot be unqualified. The limits thereof must be ascertained in the light of existing statutes,
more particularly, the pertinent provisions of the Civil Code of the Philippines, in relation to the
pertinent provisions of the Central Bank Charter.

In this connection, Article 1306 Of the Civil Code provides as follows:

ART. 1306. The contracting parties may establish such stipulations, clauses, terms
and conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy. (Emphasis supplied)

Thus, assuming that the CB is legally committed under the voting trust agreement to rehabilitated
the OBM, any action of the CB in respect thereto must have to be particularly what it can perform
within the periphery of the law.

The only way by which the CB can succeed in rehabilitating the OBM, under present conditions, is to
extend financial assistance through loans of astronomical magnitude granted to the latter. In this
respect, section 90 of the Central Bank Charter provides as follows:

SEC. 90. Emergency loans and advances. In periods of emergency or 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
prior authorization of the Monetary Board. (Emphasis supplied)

It would be in palpable violation of the provisions of section 90 if the CB were to grant the OBM
further loans and advances, considering that neither the OBM nor its stockholders can put in the
required additional capital nor submit collaterals acceptable to at least five (5) members of the
Monetary Board. Nowhere in the voting trust agreement is it provided that the CB bound itself to
bring about the rehabilitation, normalization and stabilization of the OBM at all cost.

The decision of this Court further states that the CB should rehabilitate the OBM in a manner similar
to what the CB had previously done with the Republic Bank. The rationale of this statement, found
on p. 15 of the decision, reads:

CB Resolution No. 2015 of 16 October 3331967 (Petition, Annex `F'), in addition to

requiring a mortgage or assignment of petitioner's personal properties to CB,
confirmed the quoted memorandum by requiring the stockholders of OBM to
subscribe to an appropriate trust agreement, with the only difference that instead of
the Philippine National Bank, the trust would be executed in favor of the CB as
trustee "to enable it to reorganize and transfer management to a nominee of the
Monetary Board." Two weeks later, on 30 October 1967, after a conference at
Malacaang, the CB governor once more wrote to Ramos that the Monetary Board

decided that, as a measure to stave off liquidation, a voting trust

agreement should be executed by you and your family and the
corporations controlled by you in favor of the Superintendent of
Banks, in an instrument similar to the one executed by stockholders
of the Republic Bank in favor of the Philippine National Bank.

The reference to the case of the Republic Bank clarifies the purpose and scope of
the demand for a voting trust agreement "as a measure to stave off liquidation"; for it
is well-known, and it is not denied, that when the Republic Bank previously became
distressed, the CB had advanced funds to rehabilitate it and allow it to resume
operating.

The above statements are without support in the record of this case. First: It will be clearly seen that
reference was made to the Republic Bank merely for the purpose of describing the "instrument" to
be executed by the OBM stockholders (which must be "similar to the one executed by the
stockholders of the Republic Bank.") On the basis of such reference, one cannot logically and
immediately reach the conclusion that because the instrument (form) may be similar, the obligations
(substance) would necessarily be similar, such that if the CB had indeed advanced funds to the
Republic Bank, it is likewise obligated to advance funds to the OBM. Second: The statement that
"when the Republic Bank previously become distressed, the CB had advanced funds to rehabilitate it
and allow it to resume operating," appears to me to be gratuitous. There is nothing in the pleadings
which shows as a fact that the CB had advanced funds to the Republic Bank, nor, if it did so, how
much and for what specific purposes or ends.

I have earlier stated that the mortgages or assignments of properties to the CB by the OBM
stockholders were not a consideration of their entering in to the voting trust agreement. However, the
decision appears to imply that the said mortgages were executed by the OBM stockholders because
they were "induced" by the CB and "misled" into believing that such conveyances would "stave off
liquidation."

The pleadings of the respondent CB have uniformly maintained that the OBM stockholders were
required to effect the mortgages in question precisely and solely because of the requirements of
section 90 of the Central Bank Charter. The OBM had incurred, long before the execution of the
voting trust agreement, overdrawings amounting to tens of millions of pesos; section 90 of the
Central Bank Charter requires that these overdrawings be secured by collaterals acceptable to the
Monetary Board. On November 20, 1967, the date the voting trust agreement was entered into, the
OBM's overdrawings in its clearing account with the CB amounted to P33,624,743.68. Emerito
Ramos had been promising the Monetary Board that fresh capital would be put into the bank, but
these promises remained unfulfilled, notwithstanding repeated demands made on him by the CB,
such that with the revelation of the unrecorded huge deposits in the OBM, it became obvious that
Ramos could never fulfill his promises.

Logic cannot sustain the statement that the OBM stockholders were induced into mortgaging their
properties for the purpose of staving off liquidation. There was a moral and legal obligation on the
part of the OBM to execute such mortgage because of its huge overdrawings which were not
secured by sufficient and acceptable collaterals. The CB could legally demand the execution of such
mortgages without need of providing any enticement or inducement to the OBM stockholders. It is,
therefore, grossly erroneous to state that the execution of such mortgages was the consideration of
the voting trust agreement. .

The decision further states that the CB is now reneging on its commitments and on page 22 thereof,
observes that the CB excuses itself by pleading that the OBM officers had resorted to non-recording
of time deposits in the Bank's books and diverting such deposits to accounts controlled by certain
bank officials, and other irregularities.

True it is that, in its pleadings, the CB dwelt lengthily on the irregularities and anomalies, committed
by the OBM management. This was done, however, not for the purpose of "excusing" itself from
rehabilitating the OBM, but to show the imperativeness of the execution of the voting trust
agreement as engendered by the critical condition of the OBM.

I find it difficult to understand, therefore, why the majority of the Court would brush aside as being
inconsequential the serious irregularities and anomalies committed by the OBM official's and
stockholders, and instead "censure" the CB in deciding to liquidate the OBM.

The decision further observes that "the CB made express representations to petitioners herein that it
would support the OBM, and avoid its liquidation if the petitioners would execute (a) the Voting Trust
Agreement turning over the management of OBM to the CB or its nominees, and (b) mortgage or
assign their properties to the Central Bank to cover the overdraft balance of OBM. The petitioners
having complied with these conditions and parted with value to profit of the CB (which thus acquired
additional security for its own advances), the CB may not now renege on its representations and
liquidation the OBM, to the detriment of its stockholders, depositors and other creditors, under the
rule of promissory estoppel."

As may be seen, however, the real situation is widely disparate. The CB required a change of
management of the OBM by means of the voting agreement, because it had lost its confidence in
the former one and it required the owners of the bank to collateralize all its obligations to the CB
because that is what the law ordains. With the putting up of additional capital by the owners of the
OBM and the financial assistance extended by the CB in the form of overdrawings in the OBM's
clearing account, it was hoped that the OBM would be able to rehabilitate, normalize and stabilize
itself. Unfortunately these expectations did not materialize partly because the owners of the OBM
failed to produce the needed additional capital and the necessary collaterals for further loans from
the CB. As already repeatedly stated, the conveyances of properties made by the petitioners were
required by the CB in order to secure the huge amounts of loans and overdrawings which had been
advanced to the OBM long before the voting trust agreement was executed.

Under these circumstances, how can it be asserted that the CB is now "estopped" from "reneging"
on its promise to rehabilitate, normalize and stabilize the OBM?

The doctrine of "promissory estoppel" is discussed in Corpus Juris Secundum,

which, in this connection, states,

Of course, a promise cannot be the basis of an estoppel if any other essential

element is lacking ...Justifiable reliance and irreparable detriment to the promisee are
requisite factors. (31 C.J.S. 291) .

Certainly the petitioners could not have justifiably relied upon any "promise" of the CB to rehabilitate
the OBM, assuming that there was such promise, if in the fulfillment thereof the CB would have to
extend further financial assistance in the form of loans, without the requisite corresponding
collaterals from the OBM, or to contribute to the capital of the said bank. For these would be in
flagrant violation of section 90 and 133 of the Central Bank Charter, which are mandatorily
prescriptive, and would in effect compel the CB to dole out public funds in the hundreds of millions of
pesos in cynical contravention of the law.

It is, therefore, incomprehensible to me how the doctrine of "promissory estoppel" can be made to
apply.

Bad faith and abuse of discretion are imputed by the majority of the Court to the CB for ordering the
liquidation of the OBM, in obedience to the mandate of section 29 Of the Central Bank Charter. To
demonstrate that this charge is groundless, I quote excerpts (which are self-explanatory) from the
memorandum dated July 23, 1968 of the Superintendent of Banks to the Monetary Board. Thus:

... The Bank cannot be rehabilitated unless its operational losses are stopped. As of
June 30, 1968, the accumulated losses of the Bank per its books stood at P6.9
million exclusive of estimated losses on loans. In order to at least break even in its
operations (that is, that there be no net profit or net loss), the Bank must be able to
lend in such a magnitude as to be able to cover the large operational expenses,
particularly interest on deposits and borrowings.

... However ... the Bank must put up additional capital in order to meet the
requirements of Section 22 of Republic Act No. 337 and to support the necessary
expansion in risk assets. Therefore, the fresh funds needed in order to break even in
operations must consist not only of borrowed funds but also of additional capital
contribution. On this basis, the Bank will need a total of P126.334 million of loanable
funds, which must be composed of P40.730 million additional capital (P21.780 million
needed for risk assets as of June 30, 1968 plus P18.950 million to support the
expansion in risk assets of P126.334 million) and P85.604 million of borrowed
funds ...

xxx xxx xxx

 And even granting that the Bank can obtain the required loanable funds in order to
break even in its operations, it cannot legally invest all the funds unless its capital
structure is also increased to support the necessary expansion in risk assets. Section
22 of Republic Act No. 337 requires that the combined capital accounts of a
commercial bank shall not be less than 15% of its total risk assets. As of June 30,
1968, the required minimum capital of the bank was P19.142 million while its
combined capital accounts per books were only P14.356 million thus showing a
capital deficiency of P4.786 million.

After considering (1) the Examiners' provision for estimated losses on the recorded
loans and receivables of P13.766 million (exclusive of estimated losses of P13.243
million on "unrecorded" loans and receivables), plus 2(a) the accrued interest on the
emergency loans by, and overdrawings with, the Central Bank, and 2(b) penalties
payable on deposit reserve deficiencies aggregating P3.228 million, or a total of
P16.994 million, all of these not yet taken up in the books, the bank's capital
accounts per books of P14.356 million as of June 30, 1968, would be wiped out
resulting in an estimated deficiency to creditors of P2.638 million. Since the minimum
capital required under Section 22 of Republic Act No. 337 as of June 30, 1968 is
P19.142 million, the amount of fresh capital needed to be put up to comply with the
minimum capital requirement as of June 30, 1968 would be P21.780 million. In
addition, P18.950 million of new capital must be put up by the Bank to support the
necessary expansion in risk assets of P126.334 million in order to break even in its
operations. Therefore, the total fresh capital which the Bank must put up to meet the
requirements of Section 22 of RA No. 337, after considering the estimated losses on
loans and other expenses not yet taken up in the books, as well as the necessary
expansion in risk assets so as to break even in its operations, would be P40.730
million.

xxx xxx xxx

If the capital structure cannot be strengthened to meet the requirements of Section

22 of RA No. 337, and massive financing cannot be given to enable the Bank to
expand its risk assets to the level at which it can break even in operations, then there
seems to be no other alternative except to liquidate the Bank under Section 29 of RA
No. 265.

Unlike the majority of the Court, I recognize the existence of numerous shifting imponderables
always attendant to the superintendence of the banking and monetary systems, the solutions to or
resolutions of which lie peculiarly within the expertise of the CB, but assuredly beyond the ken,
beyond the competence, of any member of this Tribunal or of even the entire judicial collegium that
is the Supreme Court. For my part, I refuse to be simplistic; I dare not substitute my own personal
judgments or predilections or predilections for the judicious exercise by the CB of the specialized
discretion vested in it by law.

It is thus that I cannot discern what act done or step taken by the CB in relation to the OBM, when
tested against the postulates of the law and of public morality, can be condemned as deceptive or
oppressive, or as amounting to bad faith or abuse of discretion.

Reference was made in our deliberations on the case at bar to an offer supposedly made by a
number of depositors as a partial solution to alleviate the grave situation that now besets the OBM,
which in general outline is to the effect that their deposits be converted into shares of stock of the
OBM. But I am not told nor does the record anywhere disclose, the names of these venturesome
depositors, or the amounts of their respective deposits, or the precise meaning and details of such
offer. Verily, everything about this "proposition" is a disembodied blur.

I well understand the overriding concern of the majority of the Court for the plight of the innocent
depositors and creditors of the OBM. I share that concern, I, too, want to see all of them retrieve the
full face value of their deposits and credits. As it is, the prejudice that they have already suffered is
nigh incalculable. The deposits were made and the credits were extended at a time when the foreign
exchange rate was four pesos to one US dollar. When these shall be returned, if at all, the rate of
exchange will probably have risen to more than the present floating rate of about six and one half
pesos to one US dollar, and the purchasing power of the will have been considerably watered down.
In the meantime, these depositors and creditors have been, and will continue to be, effectively
prevented from investing their OBM money (which has not earned nor is now earning interest) in
profitable ventures or stocks. If, on some future but highly uncertain day, fifty percent of such
deposits and credits will be returned, the depositors and creditors of the OBM might well regarded
what they will get as veritable manna from heaven.

At all events, I should think that if and when the OBM by the grace of the majority opinion, shall have
resumed operations, even under the protective solicitude of the CB, the be-all and end-all concern of
most of the OBM depositors and creditors will be to extricate from the OBM, soonest possible and
not to the last centavo, all their deposits and credits. More likely than not, they will not thereafter
like many perceptive observers on the outside looking in touch the OBM again, not even with the
proverbial ten-foot pole.

Finally, I must articulate a query which, as far as I am able to perceive, the Central Bank has not
explored in depth, but which the majority of the Court have apparently confidently answered in the
affirmative: In the face of the well-known constraints of public policy and high public morality, is it
the real amendment of the Central Bank Charter and other pertinent laws that the Central Bank must
run to the total rescue of any and every private banking institution which is in extremis due to causes
other than inept but bona fide management?
G.R. No. 97218 May 17, 1993

PROVIDENT SAVINGS BANK, petitioner,

vs.
COURT OF APPEALS, Former SPECIAL EIGHTH DIVISION and WILSON CHUA, respondents.

Gonzales, Batiller, Bilog & Associates for petitioner.

Resty R. Villanueva for private respondent.

MELO, J.:

The error, if error it be, of respondent Court of Appeals which petitioner seeks to rectify via the
petitioner for certiorari before us refers to respondent court's major conclusion arrived at in CA-G.R.
CV No. 21312 (Javellana (P), Kalalo, Dayrit, JJ) barring petitioner from foreclosing the subject realty
on account of prescription. Petitioner begs to differ, insisting that the period during which it was
placed under receivership by the Central Bank is akin to a caso fortuito and should not thus be
reckoned against it.

Both petitioner and private respondent accepted the synthesized factual backdrop formulated by
respondent court, to wit:

This an appeal by both plaintiff and defendant from the decision of the Regional Trial
Court of the National Capital Judicial 29 September 1988, in Civil Case No. 977-NW,
which directed plaintiff-appellant to pay defendant-appellant the personal obligation
of the spouses Guarin to defendant-appellant in the amount of P62,500.00, together
with the interest, penalties, and bank charges due thereon, and ordering defendant-
appellant thereafter to: (1) release the real estate mortgage executed by the spouses
Lorenzo K. Guarin and Liwayway J. Guarin in favor of defendant bank on 16
February 1967; (2) return to surrender to plaintiff-appellant, as successor-in-interest
of the spouses Guarin, the latter's Owner's Duplicate of Title No. 177014; (3) pay
plaintiff-appellant P20,000.00 as and for attorney's fees; and, (4) pay the costs of
suit.

The established fact are:

On 16 February 1967, the spouses Lorenzo K. Guarin and Liwayway J. Guarin

(Guarins) obtained a loan from defendant-appellant in the amount of P62,500.00
payable on or before 20 June 1967. As security for the loan, they executed a real
estate mortgage in favor of defendant-appellant over a parcel of land covered by
TCT No. 177014. (Exhs. C and D).

In September, 1972, defendant-appellant was placed under receivership by the

Central Bank of the Philippines until 27 July 1981 when the receivership was set
aside by the Honorable Supreme Court.

On 11 December 1984, Lorenzo K. Guarin, in reply to the letter of latter's counsel

informing that the mortgaged property would be sold at public auction on 27
December 1984, assured he and his wife had every intention of paying their
obligation and requesting for a recomputation of their account and a postponement of
the foreclosure sale. (Exh. 1).

On 10 February 1986, the Guarins received a Statement of Account from defendant-

appellant showing two outstanding accounts as of 15 February 1986. One was
account of Lorenzo K. Guarin in the amount of P591,088.80, and the other was the
account of L.K. Guarin Manufacturing Co., Inc. in the amount of P6,287,380.27
(Attachment to Exh. 2)

On 26 February 1986, Lorenzo K. Guarin wrote defendant-appellant stating that he

was ready and willing to pay his obligation in the total amount of P591,088.80 as
recomputed by defendant-appellant whenever defendant-appellant was already to
receive the payment and inquiring as to when his mortgaged title would be available
for him to pick up. (Exh. 2)

Defendant-appellant replied on 27 February 1986 that Lorenzo K. Guarin may make

payment at its office in Makati, Metro Manila, but that the mortgaged title could not be
released to him even after the payment of the obligation of P591,088.80 as it also
served as security for the indebtedness of L.Y. Guarin Manufacturing Co., Inc., to
defendant-appellant which was undertaken by Lorenzo K. Guarin in his personal
capacity and as president of the corporation. (Exh. 3)

On 20 May 1986, plaintiff-appellant wrote defendant-appellant saying that the

mortgaged property of the Guarins had been offered to him as payment of the
judgment he obtained against the Guarins in Civil Case No. Q-47465 entitled,
"Wilson Chua vs. Lorenzo K. Guarin", and requesting for defendant-appellant's
conformity to the assignment and expressing his willingness to pay for the obligation
of Mr. Guarin so that the title could be released by defendant-appellant. (Exh. 4)

On 10 July 1986, the Guarins and plaintiff-appellant executed a Deed of Absolute

Sale With Assumption of Mortgaged whereby the Guarins sold the mortgaged
property to Guarins sold the appellant for the sum of P250,000.00 and plaintiff-
appellant undertook to assume the mortgaged obligation of the Guarins with
defendant-appellant which as of 15 February 1985 amounted to P591,088.80.(Exh.
B).

On 5 August 1986, plaintiff-appellant informed defendant-appellant that as a result of

the judgment in Civil Case No. Q-47645, the mortgaged property had been sold to
him by the Guarins, as evidenced by the Deed of Sale enclosed for guidance and
information of defendant-appellant. He requested that he be allowed to pay the loan
secured by the mortgaged, otherwise, he would be constrained to bring the matter to
court. (Exh. 5) In reply, defendant-appellant, on 11 August 1986, informed plaintiff-
appellant that his request could be granted if he would settle the obligation of L.K.
Guarin Manufacturing Co., Inc., as well and defendant-appellant's letter to Mr. Guarin
dated 27 February 1986. (Exh. 6)

On 3 August 1987, counsel for plaintiff-appellant addressed a letter to defendant-

appellant informing that plaintiff-appellant had purchased the mortgaged property
from the Guarin's and requesting that the owner's copy of TCT No. 177014 in the
possession of defendant-appellant be released to him so that he can register the sale
and have the title to the property transferred in his name. He likewise, informed
defendant-appellant that it had lost whatever right or action had against the Guarins
 because of prescription. (Exh. E) Defendant-appellant replied on 10 August 1987
stating the reasons why they could not comply with plaintiff-appellant's demands.
(Exh. F)

On 21 August 1986, plaintiff-appellant filed a complaint against defendant-appellant

to compel the latter to: (1) release the real estate mortgaged executed by the
Guarins in favor of defendant-appellant on 16 February 1967; (2) return or surrender
to plaintiff-appellant, as successor-in-interest of the Guarins, the latter's owner's
duplicate of TCT No. 177014; and (3) pay plaintiff-appellant P2,750,000.00 as actual
and/or consequential damages, moral damages as may be proved during the trial,
exemplary damages as may be reasonably assessed by the court, and attorney's
fees of P50,00.00. Defendant-appellant answered the complaint thereof and setting
up special and affirmative defenses. After trial, judgment was rendered as stated in
the opening paragraph hereof from which both parties appealed . . . . (pp. 35-
37, Rollo.)

Concerning the challenge posed by Provident Saving Bank against the personality of Wilson Chua to
initiate the action to compel the release of the real estate mortgage and the delivery of the owner's
duplicate copy of the certificate of title, respondent court noted that Wilson Chua can be considered
a real-property-in-interest because he is the successor-in-interest of the Guarins who is naturally
entitled to the realty as against the so-called right of Provident Savings Bank, as mortgagee, to
foreclose the mortgage which had become stale through sheer lapse of time. The matter of novation
in the form of substitution of the debtor without corresponding acquiesence of the mortgagee was
viewed by respondent court to be legally inconsequential due to the demeanor of the mortgagee-
bank in requiring Wilson Chua to pay the indebtedness of Lorenzo Guarin, posterior to the change of
obligors, which act was construed as equivalent to consent.

To the question of whether petitioner can still foreclose the subject realty, respondent court gave a
negative response on account of the absence of proof to indicate that the bank was precluded from
collecting indebtedness while it was under receivership from September, 1972 until July 20,1981.
Thus, there was no legal interruption of the pres-criptive period to speak of, said respondent court,
which intervened between June 20, 1967, the date the mortgage matured, and June 20, 1977 the
last day within which petitioner could have foreclosed the mortgage.

Respondent court did not also heed the suggestion of the petitioner bank to interpret Wilson Chua's
assumption of the mortgage on July 10, 1986 as tantamount to an explicit acknowledgement that the
obligation was outstanding and had not yet prescribed.

As a result of these observations, respondent court reversed the decision of the trial court insofar as
it ordered Wilson Chua to pay the sum of P591,088.80 to the bank and affirmed the other
dispositions made the court of origin (p. 42, Rollo).

Following the unfavorable judgment, the bank filed a motion for reconsideration and a motion for
new trial premised on newly discovered evidence relative to a statement of account unearthed by the
bank's liaison officer from the loose folders on October 18, 1990 which it believed to be of legal
significance to the case. But respondent court was unperturbed, observing that the vital piece of
document could have been located in the course of trial had the slightest degree of prudence been
exercised, considering that the statement of account sprouted the same day the liaison officer was
advised to take an inventory of the records ( p. 45, Rollo).

Hence, the petitioner at bar.

Consistent with its theory premised on fuerza major, petitioner insists that it can not be blamed for
not lifting a finger, so speak, during the period when it was enjoined by the Central Bank on
September 15, 1972 from transacting business until this Court affirmed on July 27,1981 the decision
of the Court of Appeals annulling the proscription against petitioner in Central Bank vs. Court of
Appeals (106 SCRA 143 [1981]. We are not unaware of the rule laid down in Teal Motor Co. vs.
Court of First Instance of Manila (51 Phil. 549 [1928]; Martin, Commentaries and Jurisprudence on
the Philippine Commercial Laws, 1986 Revised ed., p.125) that the appointment of a receiver does
not dissolve the corporation nor does it interfere with the exercise of its corporate rights. But this
principles is, of course, applicable to a situation where there is no restraint imposed on the
corporation, unlike in the case at bar where petitioner Provident Savings Bank was specifically
forbidden and immobilized from doing business in the Philippines on September 15, 1972 through
Monetary Board Resolution No. 1766 until 1981 when the decision in Central Bank vs. Court of
Appeals (supra, at p. 150) was rendered. The question which immediately crops up is whether a
foreclose proceeding falls within the purview of the phrase "doing business". In Mentholatum Co.,
Inc., et al. vs. Mangaliman, et al. (72 Phil. 524 [1941]; Moreno, Philippine Law Dictionary, Second
ed., 1972, p. 186), the term was construed by Justice Laurel to refer to:

. . . a continuity of commercial dealings and arrangements, and contemplates to that

extent, the exercise of some of the words or the normally incident to, and in
progressive prosecution of, the purpose ands object of its organizations. (p. 528;
emphasis supplied.)

Withal, we believe that a foreclose is deemed embraced by the phrase "doing business" as a
preparatory measure to acquiring or holding property for petitioner as a saving bank under Section
34 of the General Banking Act. Like any other banking institution, petitioner is vested with the usual
attributes and powers of a corporation under Section 36 of the Corporation Code (Vitug, Pandect of
Commercial Law and Jurisprudence, 1990 ed., p. 475). The prerogative of a bank to foreclose is
implicit from and is even necessary to enforce collection of secured debts under Section 36(11) and
45 of the Corporation Code, in conjunction with Section 29 of the General Banking Act (6 Fletcher,
206; Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, 1990
ed., p. 325).

When a bank is prohibited to do business by the Central Bank and a receiver is appointed for such
bank, that bank would not be able to do new business, i.e., to grant new loans or to
accept new deposits. However, the receiver of the bank is obliged to collect debts owing to the bank,
which debts form part of the assets of the bank. The receiver must assemble the assets and pay the
obligation of the bank under receivership, and take steps to prevent dissipation of such assets.
Accordingly, the the receiver of the bank is obliged to collect pre-existing debts due to the bank, and
in connection therewith, to foreclose mortgages securing debts. This is not to ignore The Philippine
Trust Co. vs. HSBC (67 Phil. 204 [1939], for in that case, the Court simply rejected the objections of
certain creditors to the report of a receiver, that is, objections that the receiver did not report the
collection made before the beginning of his receivership. It would follow that the bank is bound by
the acts, or failure to act, of the receiver. At the same time, the receiver is liable to the bank for
culpable or negligent failure to collect the assets of such bank and to safeguard said assets.

Having arrived at the conclusion that the foreclosure is part of bank's business activity which could
not have been pursued by the receiver then because of the circumstances discussed in the Central
Bank case, we are thus convinced that the prescriptive period was legally interrupted by fuerza
mayor in 1972 on account on the prohibition imposed by the Monetary Board against petitioner from
transacting business, until the directive of the board was nullified in 1981. Indeed, the period during
which the obligee was prevented by a caso fortuito from enforcing his right is not reckoned against
him (Article 1154, New Civil Code). When prescription is interrupted, all the benefits acquired so far
from the possession cease and when prescription starts anew, it will be entirely a new one. This
concept should not be equated with suspension where the past period is included in the computation
being added to the period after prescription is resumed (4 Tolentino, Commentaries and
Jurisprudence on the Civil Code of the Philippines, 1991 ed., pp. 18-19). Consequently, when the
closure of was set aside in 1981, the period of ten years within which to foreclose under Article 1142
of the New Civil Code began to run again and, therefore, the action filed on August 21, 1986 to
compel petitioner to release the mortgage carried with it the mistaken notion that petitioner's own suit
foreclosure had prescribed. What exacerbates the situation is the letter of private respondent
requesting petitioner on August 6, 1986 that private respondent be allowed to pay the loan secured
by the mortgage as the result of the Deed of Sale executed by the Guarins in his favor on July 10,
1986 (pp. 36-37, Rollo). In point of law, this written communication is synonymous to an express
acknowledgment of the obligation and had the effect of interrupting the prescription for the second
time (Article 1155, New Civil Code; Osmea vs. Rama, 14 Phil. 99 [1909]; 4 Tolentino, supra at p.
50). And this piece of document necessarily estops private respondent from setting up
prescription vis-a-vis his unfounded supposition that acknowledgment of the debt is of no moment
because the right of the petitioner to foreclose had long prescribed in 1977 (p. 13, Petition; p. 7,
Comment; pp. 19 and 58, Rollo).

Contrary to respondent court's prescription of the existence of novation, the evidence at hand does
not buttress a finding along this line from the mere fact that petitioner supposedly did not question
the substitution when the bank reacted to private respondent's offer to pay the loan (p. 39, Rollo).
What seems to have escaped respondent court's attention was the condition imposed by the
petitioner that it will grant private respondent's request if the latter will also shoulder the obligation
incurred by Lorenzo Guarin in his capacity as president of the corporation (p.37, Rollo). The consent
of the petitioner to the substitution, as creditor, was thus erroneously appreciated.

With the conclusions reached, we need not discuss the other issues raised in the petition.

WHEREFORE, the petition is hereby GRANTED. The decision dated August 31, 1990, including the
resolution dated February 6, 1991 of respondent court are hereby set aside and another one entered
dismissing Wilson Chua's complaint. No special pronouncement is made to costs.

Bidin, Davide, Jr., and Romero, JJ., concur.

Feliciano, J., concurs in the result.

G.R. No. L-38427 March 12, 1975

CENTRAL BANK OF THE PHILIPPINES as Liquidator of the FIDELITY SAVINGS

BANK, petitioner,
vs.
HONORABLE JUDGE JESUS P. MORFE, as Presiding Judge of Branch XIII, Court of First
Instance of Manila, Spouses AUGUSTO and ADELAIDA PADILLA and Spouses MARCELA
and JOB ELIZES, respondents.

F.E. Evangelista and Agapito S. Fajardo for petitioner.

Juan C. Nabong, Jr. for respondent Spouses Augusto and Adelaida Padilla.

Albert R. Palacio for respondent spouses Marcela and Job Elizes.

AQUINO, J.: + . wph!1

This case involves the question of whether a final judgment for the payment of a time deposit in a
savings bank which judgment was obtained after the bank was declared insolvent, is a preferred
claim against the bank. The question arises under the following facts:

On February 18,1969 the Monetary Board found the Fidelity Savings Bank to be insolvent. The
Board directed the Superintendent of Banks to take charge of its assets, forbade it to do business
and instructed the Central Bank Legal Counsel to take legal actions (Resolution No. 350).

On December 9, 1969 the Board involved to seek the court's assistant and supervision in the
liquidation of the ban The resolution implemented only on January 25, 1972, when his Central Bank
of the Philippines filed the corresponding petition for assistance and supervision in the Court of First
Instance of Manila (Civil Case No. 86005 assigned to Branch XIII).

Prior to the institution of the liquidation proceeding but after the declaration of insolvency, or,
specifically, sometime in March, 1971, the spouses Job Elizes and Marcela P. Elizes filed a
complaint in the Court of First Instance of Manila against the Fidelity Savings Bank for the recovery
of the sum of P50, 584 as the balance of their time deposits (Civil Case No. 82520 assigned to
Branch I).

In the judgment rendered in that case on December 13, 1972 the Fidelity Savings Bank was ordered
to pay the Elizes spouses the sum of P50,584 plus accumulated interest.

In another case, assigned to Branch XXX of the Court of First Instance of Manila, the spouses
Augusta A. Padilla and Adelaida Padilla secured on April 14, 1972 a judgment against the Fidelity
Savings Bank for the sums of P80,000 as the balance of their time deposits, plus interests, P70,000
as moral and exemplary damages and P9,600 as attorney's fees (Civil Case No. 84200 where the
action was filed on September 6, 1971).

In its orders of August 20, 1973 and February 25, 1974, the lower court (Branch XIII having
cognizance of the liquidation proceeding), upon motions of the Elizes and Padilla spouses and over
the opposition of the Central Bank, directed the latter as liquidator, to pay their time deposits
as preferred judgments, evidenced by final judgments,within the meaning of article 2244(14)(b) of
the Civil Code, if there are enough funds in the liquidator's custody in excess of the credits more
preferred under section 30 of the Central Bank Law in relation to articles 2244 and 2251 of the Civil
Code.

From the said order, the Central Bank appealed to this Court by certiorari. It contends that the final
judgments secured by the Elizes and Padilla spouses do not enjoy any preference because (a) they
were rendered after the Fidelity Savings Bank was declared insolvent and (b) under the charter of
the Central Bank and the General Banking Law, no final judgment can be validly obtained against an
insolvent bank.

Republic Act No. 265 provides: t.hqw

SEC. 29. Proceeding upon insolvency.Whenever upon examination by the

Superintendent or his examiners or agents into the condition of any banking
institution, it shall be disclosed that the condition of the same is one of insolvency, or
that its continuance in business would involve probable loss to its depositors or
creditors, it shall be the duty of the Superintendent forthwith, in writing to inform the
Monetary Board of the facts, and the Board, upon finding the statements of the
Superintendent to be true, shall forthwith forbid the institution to do business in the
Philippines and shall take charge of its assets and proceeds according to law.

The Monetary Board shall thereupon determine within thirty days whether the
institution may be reorganized or otherwise placed in such a condition so that it may
be permitted to resume business with safety to its creditors and shall prescribe the
conditions under which such resumption of business shall take place. In such case
the expenses and fees in the administration of the institution shall be determined by
the Board and shall be paid to the Central Bank out of the assets of such banking
institution.

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

If the Monetary Board shall determine that the banking institution cannot resume
business with safety to its creditors, it shall, by the Office of the Solicitor General, file
a petition in the Court of First Instance reciting the proceedings which have been
taken and praying the assistance and supervision of the court in the liquidation of the
affairs of the same. The Superintendent shall thereafter, upon order of the Monetary
Board and under the supervision of the court and with all convenient speed, convert
the assets of the banking institution to money.

SEC. 30. Distribution of assets.In case of liquidation of a banking institution, after

payment of the costs of the proceedings, including reasonable expenses and fees of
the Central Bank to be allowed by the court, the Central Bank shall pay the debts of
such institution, under the order of the court, in accordance with their legal priority.

The General Banking Act, Republic Act No. 337, provides: t.hqw

SEC. 85. Any director or officer of any banking institution who receives or permits or
causes to be received in said bank any deposit, or who pays out or permits or causes
 to be paid out any funds of said bank, or who transfers or permits or causes to be
transferred any securities or property of said bank, after said bank becomes
insolvent, shall be punished by fine of not less than one thousand nor more than ten
thousand pesos and by imprisonment for not less than two nor more than ten years.

The Civil Code provides: t.hqw

ART. 2237. Insolvency shall be governed by special laws insofar as they are not
inconsistent with this Code. (n)

ART. 2244. With reference to other property, real and personal, of the debtor, the
following claims or credits shall be preferred in the order named:

xxx xxx xxx

(14) Credits which, without special privilege, appear in (a) a public instrument; or (b)
in a final judgment, if they have been the subject of litigation. These credits shall
have preference among themselves in the order of priority of the dates of the
instruments and of the judgments, respectively. (1924a)

ART. 2251. Those credits which do not enjoy any preference with respect to specific
property, and those which enjoy preference, as to the amount not paid, shall be
satisfied according to the following rules:

(1) In the order established in article 2244;

(2) Common credits referred to in article 2245 shall be paid pro rata regardless of
dates. (1929a)

The trial court or, to be exact, the liquidation court noted that there is no provision in the charter of
the Central Bank in the General Banking Law (Republic Acts Nos. 265 and 337, respectively) which
suspends or abates civil actions against an insolvent bank pending in courts other than the
liquidation court. It reasoned out that, because such actions are not suspended, judgments against
insolvent banks could be considered as preferred credits under article 2244(14)(b) of the Civil Code.
It further noted that, in contrast with the Central Act, section 18 of the Insolvency Law provides that
upon the issuance by the court of an order declaring a person insolvent "all civil proceedings against
the said insolvent shall be stayed."

The liquidation court directed the Central Bank to honor the writs of execution issued by Branches I
and XXX for the enforcement of the judgments obtained by the Elizes and Padilla spouses. It
suggested that, after satisfaction of the judgment the Central Bank, as liquidator, should include said
judgments in the list of preferred credits contained in the "Project of Distribution" "with the notation
"already paid" "

On the other hand, the Central Bank argues that after the Monetary Board has declared that a bank
is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets "for
the equal benefit of all the creditors, including the depositors". The Central Bank cites the ruling that
"the assets of an insolvent banking institution are held in trust for the equal benefit of all creditors,
and after its insolvency, one cannot obtain an advantage or a preference over another by an
attachment, execution or otherwise" (Rohr vs. Stanton Trust & Savings Bank, 76 Mont. 248, 245
Pac. 947).
The stand of the Central Bank is that all depositors and creditors of the insolvent bank should file
their actions with the liquidation court. In support of that view it cites the provision that the Insolvency
Law does not apply to banks (last sentence, sec. 52 of Act No. 1956).

It also invokes the provision penalizing a director officer of a bank who disburses, or allows
disbursement, of the funds of the bank after it becomes insolvent (Sec. 85, General Banking Act,
Republic Act No. 337). It cites the ruling that "a creditor of an insolvent state bank in the hands of a
liquidator who recovered a judgment against it is not entitled to a preference for (by) the mere fact
that he is a judgment creditor" (Thomas H. Briggs & Sons, Inc. vs. Allen, 207 N. Carolina 10, 175 S.
E. 838, Braver Liquidation of Financial Institutions, p. 922).

It should be noted that fixed, savings, and current deposits of money in banks and similar institutions
are not true deposits. They are considered simple loans and, as such, are not preferred credits (Art.
1980, Civil Code; In re Liquidation of Mercantile Bank of China: Tan Tiong Tick vs. American
Apothecaries Co., 65 Phil. 414; Pacific Coast Biscuit Co. vs. Chinese Grocers Association, 65 Phil.
375; Fletcher American National Bank vs. Ang Cheng Lian, 65 Phil. 385; Pacific Commercial Co. vs.
American Apothecaries Co., 65 Phil. 429; Gopoco Grocery vs. Pacific Coast Biscuit Co., 65 Phil.
443).

The aforequoted section 29 of the Central Bank's charter explicitly provides that when a bank is
found to be insolvent, the Monetary Board shall forbid it to do business and shall take charge of its
assets. The Board in its Resolution No. 350 dated February 18,1969 banned the Fidelity Savings
Bank from doing business. It took charge of the bank's assets. Evidently, one purpose in prohibiting
the insolvent bank from doing business is to prevent some depositors from having an undue or
fraudulent preference over other creditors and depositors.

That purpose would be nullified if, as in this case, after the bank is declared insolvent, suits by some
depositors could be maintained and judgments would be rendered for the payment of their deposits
and then such judgments would be considered preferred credits under article 2244 (14) (b) of the
Civil Code.

We are of the opinion that such judgments cannot be considered preferred and that article
2244(14)(b) does not apply to judgments for the payment of the deposits in an insolvent savings
bank which were obtained after the declaration of insolvency.

A contrary rule or practice would be productive of injustice, mischief and confusion. To recognize
such judgments as entitled to priority would mean that depositors in insolvent banks, after learning
that the bank is insolvent as shown by the fact that it can no longer pay withdrawals or that it has
closed its doors or has been enjoined by the Monetary Board from doing business, would rush to the
courts to secure judgments for the payment of their deposits.

In such an eventuality, the courts would be swamped with suits of that character. Some of the
judgments would be default judgments. Depositors armed with such judgments would pester the
liquidation court with claims for preference on the basis of article 2244(14)(b). Less alert depositors
would be prejudiced. That inequitable situation could not have been contemplated by the framers of
section 29.

The Rohr case (supra) supplies some illumination on the disposition of the instant case. It appears in
that case that the Stanton Trust & Savings Bank of Great Falls closed its doors to business on July
9, 1923. On November 7,1924 the bank (then already under liquidation) issued to William Rohr a
certificate stating that he was entitled to claim from the bank $1,191.72 and that he was entitled to
dividends thereon. Later, Rohr sued the bank for the payment of his claim. The bank demurred to
the complaint. The trial court sustained the demurrer. Rohr appealed. In affirming the order
sustaining the demurrer, the Supreme Court of Montana said: t.hqw

The general principle of equity that the assets of an insolvent are to he distributed
ratably among general creditors applies with full force to the distribution of the assets
of a bank. A general depositor of a bank is merely a general creditor, and, as such, is
not entitled to any preference or priority over other general creditors.

The assets of a bank in process of liquidation are held in trust for the equal benefit of
all creditors, and one cannot be permitted to obtain an advantage or preference over
another by an attachment, execution or otherwise. A disputed claim of a creditor may
be adjudicated, but those whose claims are recognized and admitted may not
successfully maintain action thereon. So to permit would defeat the very purpose of
the liquidation of a bank whether being voluntarily accomplished or through the
intervention of a receiver.

xxx xxx xxx

The available assets of such a bank are held in trust, and so conserved that each
depositor or other creditor shall receive payment or dividend according to the amount
of his debt, and that none of equal class shall receive any advantage or preference
over another.

And with respect to a national bank under voluntary liquidation, the court noted in the Rohr case that
the assets of such a bank "become a trust fund, to be administered for the benefit of all creditors pro
rata and, while the bank retains its corporate existence, and may be sued, the effect of a judgment
obtained against it by a creditor is only tofix the amount of debt. He can acquire no lien which will
give him any preference or advantage over other general creditors. (245 Pac. 249). *

Considering that the deposits in question, in their inception, were not preferred credits, it does not seem logical and just that they should be
raised to the category of preferred credits simply because the depositors, taking advantage of the long interval between the declaration of
insolvency and the filing of the petition for judicial assistance and supervision, were able to secure judgments for the payment of their time
deposits.

The judicial declaration that the said deposits were payable to the depositors, as indisputably they
were due, could not have given the Elizes and Padilla spouses a priority over the other depositors
whose deposits were likewise indisputably due and owing from the insolvent bank but who did not
want to incur litigation expenses in securing a judgment for the payment of the deposits.

The circumstance that the Fidelity Savings Bank, having stopped operations since February 19,
1969, was forbidden to do business (and that ban would include the payment of time deposits)
implies that suits for the payment of such deposits were prohibited. What was directly prohibited
should not be encompassed indirectly. (See Maurello vs. Broadway Bank & Trust Co. of Paterson
176 Atl. 391, 114 N.J.L. 167).

It is noteworthy that in the trial court's order of October 3, 1972, which contains the Bank Liquidation
Rules and Regulations, it indicated in step III the procedure for processing the claims against the
insolvent bank. In Step IV, the court directed the Central Bank, as liquidator, to submit a Project of
Distribution which should include "a list of the preferred credits to be paid in full in the order of
priorities established in Articles 2241, 2242, 2243, 2246 and 2247" of the Civil Code (note that article
2244 was not mentioned). There is no cogent reason why the Elizes and Padilla spouses should not
adhere to the procedure outlined in the said rules and regulations.
WHEREFORE, the lower court's orders of August 20, 1973 and February 25, 1974 are reversed and
set aside. No costs.

SO ORDERED.

Makalintal, C.J., Fernando, Barredo, and Fernandez, JJ., concur. 1w ph1.t

Antonio, J., took no part.

Footnotes t.hqw

* "It must be borne in mind that the predominant policy of the insolvent system is
intended to secure an equality among creditors, and to prohibit all preferences
except such as are expressly permitted. When, therefore, doubtful or ambiguous
provisions of the enactments making up the system are to be construed, that
interpretation which best comforts with and gives effect to the ultimate and controlling
purpose of the statute must be adopted and applied, rather than one which totally, or
even partially, defeat or thwart that design. And this is but another way of saying that
preferences which do not clearly and unequivocally appear to be authorized ought
not to be created by mere construction, since the tendency of all preferences is to
frustrate, to some extent, equality among creditors, and thus to disturb the very policy
which lies at the root of all the insolvent laws." (Roberts vs. Edie 85 Md 181, 36 Atl.
820, 822).

"When control of a bank for liquidation purposes is taken by the superintendent of

banks, the question of preference creates in reality a controversy between the
depositor claiming a preference and the other depositors who are general creditors,
inasmuch as the assets in which all are to participate are diminished to the extent of
whatever preferences are allowed. The creation of preferences, generally speaking,
should therefore be discouraged except in cases where the right thereto is clearly
established. As said in Cavin v. Gleason, 105 N.Y. 256, at page 262, 11 N.E.
504,506:

"The equitable doctrine that, as between creditors, equality is equity, admits, so far
as we know, of no exception founded on the greater supposed sacredness of one
debt, or that it arose out of a violation of duty, or that its loss involves greater
apparent hardship in one case than another, unless it appears, in addition, that there
is some specific recognized equity founded on some agreement, or the relation of the
debt to the assigned property, which entitles the claimant, according to equitable
principles, to preferential payment". (Ramisch vs. Fulton, 41 Ohio App. 443,180 N.E.
735).

"Ordinary deposit becomes bank's money and creates debtor-creditor relation,

precluding preference as against hank's receive (Annex v. Union Savings Bank &
Trust Co. of Davenport, 220 Iowa 712, 263 N.W. 495).

"Where judgment was rendered against bank after bank was in custody of liquidator,
judgment creditor was not entitled to preference of liquidator, judgment" (Thomas H.
Briggs & Sons, Inc. vs. Allen, 207 N. C. 10, 175 S. E. 838).