[G.R. No. 161276.
January 31, 2005] On the other hand, the 17th Division, in a decision dated 18 September 2003,[5]cralawreversed and set aside
BORLONGAN vs. REYES
THIRD DIVISION
Gentlemen:
Quoted hereunder, for your information, is a resolution of this Court dated JAN 31 2005.
G.R. No. 161276 (Teodoro C. Borlongan vs. Alberto V. Reyes, Ma. Dolores B. Yuviengco, Candon B.
Guerrero and Tomas S. Aure, Jr.)
At bar is this petition for review on certiorari filed by petitioner Teodoro C. Borlongan, assailing the decision
dated 18 September 2003[1] of the Court of Appeals in CA-G.R. SP No. 72234, reversing and setting aside
the Orders dated 2 July 2002 and 30 July 2002 of the Ombudsman in OMB-ADM-0-00-0867 which
respectively declared herein respondents guilty of simple neglect of duty, and denied both parties' separate
motions for reconsideration.
In a complaint-affidavit filed with Office of the Ombudsman and thereat docketed as OMB-ADM-0-00-0867,
petitioner Teodoro C. Borlongan, former president and chief executive officer of Union Bank, Inc. (UBI),
administratively charged herein respondent officials of the Bangko Sentral ng Pilipinas (BSP), for allegedly
falsifying statement of facts in the BSP Supervision and Examination Sector (SES) reports and tendering
incorrect and inaccurate reports and opinions to conjure false grounds for the closure of UBI and Urbancorp
Development Bank and placing them under receivership, to the detriment of their shareholders, officers and
employees.
In an Order dated 2 July 2002,[2]cralaw the Ombudsman found respondents guilty of simple neglect of duty
and imposed upon them the penalty of one (1) month and one (1) day suspension without pay. In a
subsequent Order dated 30 July 2002,[3]cralawthe Ombudsman denied both parties' motions for
reconsideration.
Therefrom, both parties interposed separate appellate recourses to the Court of Appeals.
Respondents were the first to appeal via a petition for review, which was docketed in the Court of Appeals
as CA-G.R. SP No. 72234 and raffled off to its 17th Division.
For his part, petitioner, also thru a petition for review, questioned before the Court of Appeals the
Ombudsman's absolution of the BSP Governor and its General Counsel from his affidavit-complaint, and
sought the imposition of a graver penalty against the herein respondents. Docketed as CA-G.R. SP No. 72270,
petitioner's appeal landed to the 5th Division of the appellate court.
Initially, petitioner filed a motion to consolidate the two (2) cases. Later, however, he not only withdrew said
motion but even vigorously opposed the consolidation.
Unconsolidated, the two (2) cases proceeded separately. And, as it turned out, the two (2) divisions of the
Court of Appeals rendered conflicting decisions.
Thus, in a decision dated 13 August 2003,[4] the 5th Division modified the questioned orders of the
Ombudsman by finding the herein respondents, including the BSP Governor, guilty of gross neglect of duty
and imposing on each of them the penalty of one (1) year suspension without pay.
the same assailed orders of the Ombudsman and dismissed the administrative complaints against the herein
respondents.
Petitioner filed a motion for reconsideration, imploring the 17th Division to set aside its September
18,2003 decision for being inconsistent with the August 13, 2003 decision of the 5th Division in CA-G.R. SP
No. 72270.
In a Resolution dated 17 December 2003,[6]cralaw the 17th Division denied petitioner's motion for
reconsideration, and, in the process, castigated petitioner for his refusal to have the two (2) cases consolidated:
Without a consolidation, there is no rule of law or jurisprudence that prevents us, the 17th Division, from
deciding SP 72234 according to our own independent judgment, any more than the 5 th Division can be
prevented from ruling upon SP 72270 according to their own independent judgment.
The records show that respondent had, indeed, filed with us a motion to consolidate SP 72270 with our SP
72234. But for reasons only known to him, he withdrew the motion for consolidation. He even said that the
5th Division had eventually denied the consolidation of the case with us, again for reasons we do not know.
Under these circumstances, without a consolidation, both divisions will have to decide their own cases, and
any resulting conflict in the decisions on similar issues of fact and law will have to be resolved ultimately by
the Supreme Court as the supreme arbiter of all justiciable controversies in this jurisdiction.
But for the respondent to make it appear as if we are to blame for the conflict between the two divisions of the
Court, after the respondent refused to consolidate the cases before us, is absurd and comical. Absurd, because
he is saying in so many words that we should not exercise an independent judgment in our case anymore after
the 5th Division happened to decide its case ahead of us and comical, because he has reduced the adjudicative
process into a race between the cases. If we had only known that this was the kind of ballgame he wanted us to
observe, we would have considered our case submitted for decision a long time ago, immediately after he filed
his comment, and bar the parties from filling replies, memoranda and other pleadings as a waste of our time.
This is how things would turn out if we pursued his line of thinking ad absurdum.
To repeat, the respondent refused to have his case in the 5 th Division consolidated before us. If he is to fault
anyone now for the consequence of this non-consolidation, he should point all his fingers to himself.
Later, or on June 14, 2004, the former 5 th Division of the Court of Appeals, this time acting as a Special
Division of Five in connection with the motions for reconsideration therein pending, came out with
an Amended Decision,[7]cralawamending the earlier decision of 12 August 2003 in CA-G.R. SP No. 72270
by dismissing the administrative complaint against all the respondents therein. Petitioner elevated the same
Amended Decision to this Court via a petition for review on certiorari in G.R. No. 163765.
In a Resolution promulgated on July 26, 2004,[8]cralaw the Court, thru its Third Division, denied the petition
in G.R. No. 163765 "for failure of the petitioner to show that a reversible error had been committed by the
appellate court". In a subsequent Resolution promulgated on October 1, 2004, the Court denied petitioner's
motion for reconsideration with finality "as no substantial arguments were raised to warrant a reconsideration
thereof".
Meanwhile, on February 13, 2004, petitioner filed the instant petition for review on certiorari, this time
assailing the 18 September 2003 decision of the 17th Decision of the Court of Appeals in CA-G.R. SP No.
72234.
Perusal of the present petition reveals that it raises substantially the same issues already passed upon by the
two (2) Divisions of the Court of Appeals and by this Court, no less, in G.R. No. 163765.
Chanting the same tone, the recourse is unavailing.
In Philippine Retirement Authority vs. Rupa,[9]cralaw we laid down the standard definition of simple neglect of
duty, as a disregard of a duty resulting from carelessness or indifference.
Here, we find that neither gross nor simple neglect of duty characterized the acts of the respondents. The
subject SES reports prepared by respondents and submitted to the Monetary Board were anything but
haphazardly or negligently made. As it were, the reports were a compendium of long years of monitoring by
the BSP of a problem bank, and assembled over a period of 15 hours after the respondents were instructed to
do so. The data contained therein had been patiently collected and analyzed.
Record reveals that UBI was being monitored by BSP officials for years. Respondent Dolores Yuvienco had
supervised the bank directly since 1999 as Director of DCB II
UBI had since given up its status as an expanded commercial bank and reverted to an ordinary commercial
bank because it could not meet the P3.5 billion minimum capital requirement for a universal bank. For two (2)
months prior to its closure, Urban Bank had been besieged by liquidity problems, and its declaration of a bank
holiday on April 25 only confirmed its decreasing ability to meet obligations on time.
Section 30(a) of RA 7653, otherwise known as the New Central Bank Act, is relevant. Under that law, the
Monetary Board may execute measures such those taken in this case, summarily and without need of prior
hearing:
Sec. 30. Proceedings in Receivership and Liquidation. -Whenever, upon report of the head of the supervising
and examining department, the Monetary Board finds that the Bank or quasi-bank:
The subject reports are only between the Monetary Board and the BSP officials who prepared and endorsed
them and may be rejected, modified or accepted by the Monetary Board. As far as this case is concerned, the
legal obligations of diligence and good faith that BSP officials owe to the public under Section 16 of the New
Central Act start with the official acts of the Monetary Board which, rightly or wrong, are the cause of loss or
injury to third parties, not any preparatory report or recommendation.
As earlier noted, UBI's own top management, specifically Bartolome III, its chairman of the Board, and the
petitioner himself, its president, continually provided the BSP the picture of the worsening situation of UBI in
the four (4) weeks from March 20, 2000 to April 25, 2000, leading to UBI's unilateral declaration of a bank
holiday on April 25, 2000.[12]cralaw Their constant reporting showed that UBI was "unable to pay its liabilities
as they become due in the ordinary course of business; (or that it) has insufficient realizable assets, as
determined by the Bangko Sentral, to meet its liabilities."[13]cralaw While other factors might have weighed in
the analysis of UBI's financial liquidity and in the preparation of the inevitable Supervisor and Examination
Sector (SES) reports, the MB considered the constant reports of UBI's own top management as the best proof
of its dire liquidity status.
Petitioner would have this Court review and reverse factual findings of the Court of Appeals. This, of course,
the Court cannot and will not do. Review of factual findings of the appellate court is not a function ordinarily
undertaken by this Court, the rule admitting only a few exceptions recognized in decisional law. The principle
is consistent with Rule 45 of the Rules of Court which categorically provides that a petition for review on
certiorari must raise "only questions of law which must be distinctly set forth" in the petition. Even then, the
review sought will be denied if the questions raised are "too unsubstantial to require consideration" or if the
Court is not convinced of the existence of "special and important reasons" to warrant review, of which none
exists in this case.

All told, we find that no reversible error was committed by the 17 th Division of Court of Appeals when it
(a) is unable to pay its liabilities as they become due in the ordinary course of business:Provided, that reversed and set aside the July 2, 2002 and July 30, 2002 Orders of the Ombudsman in OMB-ADM-0-00-
this shall not include inability to pay caused by extraordinary demands induced by financial panic in the 0867.
banking community;

WHEREFORE, the instant petition is hereby DENIED DUE COURSE.

(b) has insufficient realizable asset, as determined by the Bangko Sentral to meet its liabilities; or

SO ORDERED.
(c) cannot continue in business without involving probable losses to its creditors; or

(d) has willfully violated a cease and desist order under Section 37 that has become final, involving acts or
transactions which amount to fraud or a dissipation of the assets of the institution; in which cases, the
Monetary Board may summarily and without need for prior hearing forbid the institution from doing
business in the Philippines and designate the Philippine Deposit Insurance Corporation as receiver of
the Banking institution. xxx. (Emphasis supplied)

Pertinent, too, is Section 53 of Republic Act No. 8791,[10]cralaw since it underscores the summary character of
the MB's initiative of placing a bank under receivership. It provides that in case a bank or quasi-banknotifies
the BSP or publicly announces a bank holiday, or in any manner suspends the payment of its deposit liabilities
continuously for more than 30 days, the MB may summarily and without need of prior hearing close such
banking institution and place it under receivership of the PDIC.

This authority is beyond review by the courts except on a petition for certiorari. Here, it is worth to note even
the Ombudsman found significant evidence to rationalize the decision of the Monetary Board to place UBI
under receivership.

Likewise, we agree with the appellate court's 17th Division in its ratiocination that it is illogical to hold the
respondents administratively liable for the preparation of reports that are, in their nature, merely
recommendatory and have to be acted upon by superior officials. The reports were not the final action that
creates right and duties and affects the interest and fortunes of third parties. Courts do not interfere with any
administrative measure prior to its completion or finality, and when they do, what is actionable is not the
recommendation but the decision of the official with the competence under the law to issue it.[11]cralaw
 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..
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 This "close now and hear later" scheme is grounded on practical and legal considerations to prevent
sue in the name and corporate capacity of such bank, even after it had been ordered unwarranted dissipation of the bank's assets and as a valid exercise of police power to protect the depositors,
closed and placed under receivership.11 creditors, stockholders and the general public.

The respondents, on the other hand, allege inter alia that in the Banco Filipino case,12 We held that CB In Rural Bank of Buhi, Inc. v. Court of Appeals,19 We stated that —
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
. . . due process does not necessarily require a prior hearing; a hearing or an opportunity
parties in administrative proceedings. Since MB Resolution No. 596 was adopted without TSB being
to be heard may be subsequent to the closure. One can just imagine the dire
previously notified and heard, according to respondents, the same is void for want of due process;
consequences of a prior hearing: bank runs would be the order of the day, resulting in
consequently, the bank's management should be restored to its board of directors and officers. 13
panic and hysteria. In the process, fortunes may be wiped out and disillusionment will
run the gamut of the entire banking community.
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
We stressed in Central Bank of the Philippines v. Court of Appeals20 that —
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 . . . the banking business is properly subject to reasonable regulation under the police
that the legislative intent of Sec. 29 is to repose in the Monetary Board exclusive power to determine the power of the state because of its nature and relation to the fiscal affairs of the people
existence of statutory grounds for the closure and liquidation of banks, having the required expertise and and the revenues of the state (9 CJS 32). Banks are affected with public interest because
specialized competence to do so. 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
The first issue raised before Us is whether absence of prior notice and hearing may be considered acts of
meticulous care and utmost fidelity the accounts of those who have reposed their trust
arbitrariness and bad faith sufficient to annul a Monetary Board resolution enjoining a bank from doing
and confidence in them (Simex International [Manila], Inc., v. Court of Appeals, 183
business and placing it under receivership. Otherwise stated, is absence of prior notice and hearing constitutive
SCRA 360 [1990]).
of acts of arbitrariness and bad faith?

It is then the Government's responsibility to see to it that the financial interests of those
Under Sec. 29 of R.A. 265,15 the Central Bank, through the Monetary Board, is vested with exclusive authority
who deal with the banks and banking institutions, as depositors or otherwise, are
to assess, evaluate and determine the condition of any bank, and finding such condition to be one of
protected. In this country, that task is delegated to the Central Bank which, pursuant to
insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, forbid
its Charter (R.A. 265, as amended), is authorized to administer the monetary, banking
the bank or non-bank financial institution to do business in the Philippines; and shall designate an official of
and credit system of the Philippines. Under both the 1973 and 1987 Constitutions, the
the CB or other competent person as receiver to immediately take charge of its assets and liabilities. The
Central Bank is tasked with providing policy direction in the areas of money, banking
fourth paragraph,16 which was then in effect at the time the action was commenced, allows the filing of a case
and credit; corollarily, it shall have supervision over the operations of banks (Sec. 14,
to set aside the actions of the Monetary Board which are tainted with arbitrariness and bad faith.
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
Contrary to the notion of private respondent, Sec. 29 does not contemplate prior notice and hearing before a its continued operation would cause prejudice to its depositors, creditors and the general
bank may be directed to stop operations and placed under receivership. When par. 4 (now par. 5, as amended public as well. This power has been expressly recognized by this Court. In Philippine
by E.O. 289) provides for the filing of a case within ten (10) days after the receiver takes charge of the assets Veterans Bank Employees Union-NUBE v. Philippine Veterans Banks (189 SCRA 14
of the bank, it is unmistakable that the assailed actions should precede the filing of the case. Plainly, the [1990], this Court held that:
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.
. . . [u]nless adequate and determined efforts are taken by the
government against distressed and mismanaged banks, public
In the early case of Rural Bank of Lucena, Inc. v. Arca [1965], 17 We held that a previous hearing is nowhere faith in the banking system is certain to deteriorate to the
required in Sec. 29 nor does the constitutional requirement of due process demand that the correctness of the prejudice of the national economy itself, not to mention the losses
Monetary Board's resolution to stop operation and proceed to liquidation be first adjudged before making the suffered by the bank depositors, creditors, and stockholders, who
resolution effective. It is enough that a subsequent judicial review be provided. 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
Even in Banco Filipino, 18 We reiterated that Sec. 29 of R.A. 265 does not require a previous hearing before
of the Central Bank in such an event to step in and salvage the
the Monetary Board can implement its resolution closing a bank, since its action is subject to judicial scrutiny
remaining resources of the bank so that they may not continue to
as provided by law.
be dissipated or plundered by those entrusted with their
management.
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
Section 29 of R.A. 265 should be viewed in this light; otherwise, We would be subscribing to a situation
within ten (10) days from the date the receiver takes charge of the assets of the bank, resort to judicial review
where the procedural rights invoked by private respondent would take precedence over the substantive
may be had by filing an appropriate pleading with the court. Respondent TSB did in fact avail of this remedy
interests of depositors, creditors and stockholders over the assets of the bank.
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.
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 principally against acts of said Directors and officers which place the bank in a state of
stockholders, the bank itself, and the general public, and the summary closure pales in comparison to the continuing inability to maintain a condition of liquidity adequate to protect the interest
protection afforded public interest. At any rate, the bank is given full opportunity to of depositors and creditors. Indirectly, it is likewise intended to protect and safeguard
prove arbitrariness and bad faith in placing the bank under receivership, in which event, the resolution may be the rights and interests of the stockholders. Common sense and public policy dictate
properly nullified and the receivership lifted as the trial court may determine. 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
The heavy reliance of respondents on the Banco Filipino case is misplaced in view of factual circumstances
faith.
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 It is observed that the complaint in this case was filed on 11 June 1985 or two (2) years prior to 25 July 1987
closure. In other words, the arbitrariness, bad faith and abuse of discretion were determined only after the bank when E.O. 289 was issued, to be effective sixty (60) days after its approval (Sec. 5). The implication is that
was placed under conservatorship and evidence thereon was received by the trial court. As this Court found in before E.O
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
. 289, any party in interest could institute court proceedings to question a Monetary Board resolution placing a
amount as valuation reserve from the assets of the bank would merely result in its net worth or the unimpaired
bank under receivership. Consequently, since the instant complaint was filed by parties representing
capital and surplus; it did not reflect the total financial condition of Banco Filipino.
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
Furthermore, the same reports showed that the total assets of Banco Filipino far exceeded its total liabilities. therein should be followed and observed.
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
PREMISES considered, the Decision of the Court of Appeals in CA-G.R. SP No. 07867 is AFFIRMED,
manifest arbitrariness, abuse of discretion and bad faith in the closure of Banco Filipino by the Monetary
except insofar as it upholds the Order of the trial court of 11 November 1985 directing petitioner RAMON V.
Board. But, this is not the case before Us. For here, what is being raised as arbitrary by private respondent is
TIAOQUI to restore the management of TRIUMPH SAVINGS BANK to its elected Board of Directors and
the denial of prior notice and hearing by the Monetary Board, a matter long settled in this jurisdiction, and not
Officers, which is hereby SET ASIDE.
the arbitrariness which the conclusions of the Supervision and Examination Sector (SES), Department II, of
the Central Bank were reached.
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
Once again We refer to Rural Bank of Buhi, Inc. v. Court of Appeals,21 and reiterate Our pronouncement
and to decide the case accordingly.
therein that —

SO ORDERED.
. . . 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 G.R. No. 150886 February 16, 2007
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 RURAL BANK OF SAN MIGUEL, INC. and HILARIO P. SORIANO, in his capacity as majority
implementation or enforcement. It is presumed that such a resolution is directed stockholder in the Rural Bankof San Miguel, Inc., Petitioners,
 vs. MONETARY BOARD, BANGKO SENTRAL NG PILIPINAS and PHILIPPINE DEPOSIT
INSURANCE CORPORATION, Respondents.
DECISION
CORONA, J.:
This is a petition for review on certiorari1 of a decision2 and resolution3 of the Court of Appeals (CA) dated
March 28, 2000 and November 13, 2001, respectively, in CA-G.R. SP No. 57112.
Petitioner Rural Bank of San Miguel, Inc. (RBSM) was a domestic corporation engaged in banking. It started
operations in 1962 and by year 2000 had 15 branches in Bulacan. 4 Petitioner Hilario P. Soriano claims to be
the majority stockholder of its outstanding shares of stock.5
On January 21, 2000, respondent Monetary Board (MB), the governing board of respondent Bangko Sentral
ng Pilipinas (BSP), issued Resolution No. 105 prohibiting RBSM from doing business in the Philippines,
placing it under receivership and designating respondent Philippine Deposit Insurance Corporation (PDIC) as
receiver:
On the basis of the comptrollership/monitoring report as of October 31, 1999 as reported by Mr. Wilfredo B.
Domo-ong, Director, Department of Rural Banks, in his memorandum dated January 20, 2000, which report
showed that [RBSM] (a) is unable to pay its liabilities as they become due in the ordinary course of business;
(b) cannot continue in business without involving probable losses to its depositors and creditors; that the
management of the bank had been accordingly informed of the need to infuse additional capital to place the
bank in a solvent financial condition and was given adequate time within which to make the required infusion
and that no infusion of adequate fresh capital was made, the Board decided as follows:
1. To prohibit the bank from doing business in the Philippines and to place its assets and affairs
under receivership in accordance with Section 30 of [RA 7653];
On December 28, 1999, the MB approved the release of ₱26.189 [million] which is the last tranche of the
₱375 million emergency loan for the sole purpose of servicing and meeting the withdrawals of its depositors.
Of the ₱26.180 million, xxx ₱12.6 million xxx was not used to service withdrawals [and] remains unaccounted
for as admitted by [RBSM’s Treasury Officer and Officer-in-Charge of Treasury]. Instead of servicing
withdrawals of depositors, RBSM paid Forcecollect Professional Solution, Inc. and Surecollect Professional,
Inc., entities which are owned and controlled by Hilario P. Soriano and other RBSM officers.
On January 4, 2000, RBSM declared a bank holiday. RBSM and all of its 15 branches were closed from doing
business.
Alarmed and disturbed by the unilateral declaration of bank holiday, [BSP] wanted to examine the books and
records of RBSM but encountered problems.
Meanwhile, on November 10, 1999, RBSM’s designated comptroller, Ms. Zenaida Cabais of the BSP,
submitted to the Department of Rural Banks, BSP, a Comptrollership Report on her findings on the financial
condition and operations of the bank as of October 31, 1999. Another set of findings was submitted by said
comptroller [and] this second report reflected the financial status of RBSM as of December 31, 1999.
The findings of the comptroller on the financial state of RBSM as of October 31, 1999 in comparison with the
financial condition as of December 31, 1999 is summed up pertinently as follows:
FINANCIAL CONDITION OF RBSM
As of Oct. 31, 1999 As of Dec. 31, 1999
Total obligations/ ₱1,076,863,000.00 1,009,898,000.00
Liabilities
Realizable Assets 898,588,000.00 796,930,000.00

Deficit 178,275,000.00 212,968,000.00

2. To designate the [PDIC] as receiver of the bank;
Cash on Hand 101,441.547.00 8,266,450.00
xxx xxx xxx6

Required Capital Infusion ₱252,120,000.00

On January 31, 2000, petitioners filed a petition for certiorari and prohibition in the Regional Trial Court
(RTC) of Malolos, Branch 22 to nullify and set aside Resolution No. 105. 7 However, on February 7, 2000,
petitioners filed a notice of withdrawal in the RTC and, on the same day, filed a special civil action for Capital Infusion ₱5,000,000.00
certiorari and prohibition in the CA. On February 8, 2000, the RTC dismissed the case pursuant to Section 1,
Rule 17 of the Rules of Court.8
(On Dec. 20, 1999)
Actual Breakdown of Total Obligations:
The CA’s findings of facts were as follows.
1) Deposits of 20,000 depositors – ₱578,201,000.00
To assist its impaired liquidity and operations, the RBSM was granted emergency loans on different occasions
in the aggregate amount of ₱375 [million].
2) Borrowings from BSP – ₱320,907,000.00

As early as November 18, 1998, Land Bank of the Philippines (LBP) advised RBSM that it will terminate the
3) Unremitted withholding and gross receipt taxes – ₱57,403,000.00.9
clearing of RBSM’s checks in view of the latter’s frequent clearing losses and continuing failure to replenish
its Special Clearing Demand Deposit with LBP. The BSP interceded with LBP not to terminate the clearing
arrangement of RBSM to protect the interests of RBSM’s depositors and creditors. Based on these comptrollership reports, the director of the Department of Rural Banks Supervision and
Examination Sector, Wilfredo B. Domo-ong, made a report to the MB dated January 20, 2000.10 The MB,
after evaluating and deliberating on the findings and recommendation of the Department of Rural Banks
After a year, or on November 29, 1999, the LBP informed the BSP of the termination of the clearing facility of
Supervision and Examination Sector, issued Resolution No. 105 on January 21, 2000.11 Thereafter, PDIC
RBSM to take effect on December 29, 1999, in view of the clearing problems of RBSM.
implemented the closure order and took over the management of RBSM’s assets and affairs.
In their petition12 before the CA, petitioners claimed that respondents MB and BSP committed grave abuse of
discretion in issuing Resolution No. 105. The petition was dismissed by the CA on March 28, 2000. It held,
among others, that the decision of the MB to issue Resolution No. 105 was based on the findings and
recommendations of the Department of Rural Banks Supervision and Examination Sector, the comptroller
reports as of October 31, 1999 and December 31, 1999 and the declaration of a bank holiday. Such could be
considered as substantial evidence.13
Pertinently, on June 9, 2000, on the basis of reports prepared by PDIC stating that RBSM could not resume
business with sufficient assurance of protecting the interest of its depositors, creditors and the general public,
the MB passed Resolution No. 966 directing PDIC to proceed with the liquidation of RBSM under Section 30
of RA 7653.14
Hence this petition.
It is well-settled that the closure of a bank may be considered as an exercise of police power. 15 The action of
the MB on this matter is final and executory.16 Such exercise may nonetheless be subject to judicial inquiry
and can be set aside if found to be in excess of jurisdiction or with such grave abuse of discretion as to amount
to lack or excess of jurisdiction.17
Petitioners argue that Resolution No. 105 was bereft of any basis considering that no complete examination
had been conducted before it was issued. This case essentially boils down to one core issue: whether Section
30 of RA 7653 (also known as the New Central Bank Act) and applicable jurisprudence require a current and
complete examination of the bank before it can be closed and placed under receivership.
Section 30 of RA 7653 provides:
SECTION 30. Proceedings in Receivership and Liquidation. — Whenever, upon report of the head of the
supervising or examining department, the Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided,
That this shall not include inability to pay caused by extraordinary demands induced by financial
panic in the banking community;
(b) has insufficient realizable assets, as determined by the [BSP] to meet its liabilities; or
(c) cannot continue in business without involving probable losses to its depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has become final, involving
acts or transactions which amount to fraud or a dissipation of the assets of the institution; in which
cases, the Monetary Board may summarily and without need for prior hearing forbid the
institution from doing business in the Philippines and designate the Philippine Deposit
Insurance Corporation as receiver of the banking institution.
xxx xxx xxx
The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be final and
executory, and may not be restrained or set aside by the court except on petition for certiorari on the ground
that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack
or excess of jurisdiction. The petition for certiorari may only be filed by the stockholders of record
representing the majority of the capital stock within ten (10) days from receipt by the board of directors of the
institution of the order directing receivership, liquidation or conservatorship. (Emphasis supplied)
xxx xxx xxx
Petitioners contend that there must be a current, thorough and complete examination before a bank can be
closed under Section 30 of RA 7653. They argue that this section should be harmonized with Sections 25 and
28 of the same law:
SECTION 25. Supervision and Examination. — The [BSP] shall have supervision over, and conduct periodic
or special examinations of, banking institutions and quasi-banks, including their subsidiaries and affiliates
engaged in allied activities.
xxx xxx xxx
SECTION 28. Examination and Fees. — The supervising and examining department head, personally or
by deputy, shall examine the books of every banking institution once in every twelve (12) months, and at such
other time as the Monetary Board by an affirmative vote of five (5) members may deem expedient and to
make a report on the same to the Monetary Board: Provided that there shall be an interval of at least
twelve (12) months between annual examinations. (Emphasis supplied)
xxx xxx xxx
According to the petitioners, it is clear from these provisions that the "report of the supervising or examining
department" required under Section 30 refers to the report on the examination of the bank which, under
Section 28, must be made to the MB after the supervising or examining head conducts an examination
mandated by Sections 25 and 28.18 They cite Banco Filipino Savings & Mortgage Bank v. Monetary Board,
Central Bank of the Philippines19 wherein the Court ruled:
There is no question that under Section 29 of the Central Bank Act, the following are the mandatory
requirementsto 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.20 (Emphasis supplied)
Petitioners assert that an examination is necessary and not a mere report, otherwise the decision to close a
bank would be arbitrary.
Respondents counter that RA 7653 merely requires a report of the head of the supervising or examining
department. They maintain that the term "report" under Section 30 and the word "examination" used in
Section 29 of the old law are not synonymous. "Examination" connotes in-depth analysis, evaluation, inquiry
or investigation while "report" connotes a simple disclosure or narration of facts for informative purposes.21
Petitioners’ contention has no merit. Banco Filipino and other cases petitioners cited22 were decided using
Section 29 of the old law (RA 265):
SECTION 29. Proceedings upon insolvency. — Whenever, upon examination by the head of the
appropriate supervising or examining department or his examiners or agents into the condition of any
bank or non-bank financial intermediary performing quasi-banking functions, it shall be disclosed that the
condition of the same is one of insolvency, or that its continuance in business would involve probable loss to
its depositors or creditors, it shall be the duty of the department head concerned forthwith, in writing, to
inform the Monetary Board of the facts. The Board may, upon finding the statements of the department head
to be true, forbid the institution to do business in the Philippines and designate an official of the Central Bank
or a person of recognized competence in banking or finance, as receiver to immediately take charge of its
assets and liabilities, as expeditiously as possible collect and gather all the assets and administer the same for
the benefits of its creditors, and represent the bank personally or through counsel as he may retain in all
actions or proceedings for or against the institution, exercising all the powers necessary for these purposes
including, but not limited to, bringing and foreclosing mortgages in the name of the bank or non-bank
financial intermediary performing quasi-banking functions. (Emphasis supplied)
xxx xxx xxx
Thus in Banco Filipino, we ruled that an "examination [conducted] by the head of the appropriate supervising
or examining department or his examiners or agents into the condition of the bank" 23 is necessary before the
MB can order its closure.
However, RA 265, including Section 29 thereof, was expressly repealed by RA 7653 which took effect in
1993. Resolution No. 105 was issued on January 21, 2000. Hence, petitioners’ reliance on Banco
Filipino which was decided under RA 265 was misplaced.
In RA 7653, only a "report of the head of the supervising or examining department" is necessary. It is an
established rule in statutory construction that where the words of a statute are clear, plain and free from
ambiguity, it must be given its literal meaning and applied without attempted interpretation:24
This plain meaning rule or verba legis derived from the maxim index animi sermo est (speech is the index of
intention) rests on the valid presumption that the words employed by the legislature in a statute correctly
express its intention or will and preclude the court from construing it differently. The legislature is presumed
to know the meaning of the words, to have used words advisedly, and to have expressed its intent by use of
such words as are found in the statute. Verba legis non est recedendum, or from the words of a statute there
should be no departure.25
We thus rule that the MB had sufficient basis to arrive at a sound conclusion that there were grounds that
would justify RBSM’s closure. It relied on the report of Mr. Domo-ong, the head of the supervising or
examining department, with the findings that: (1) RBSM was unable to pay its liabilities as they became due in
the ordinary course of business and (2) that it could not continue in business without incurring probable losses
to its depositors and creditors.30 The report was a 50-page memorandum detailing the facts supporting those
grounds, an extensive chronology of events revealing the multitude of problems which faced RBSM and the
recommendations based on those findings.
In short, MB and BSP complied with all the requirements of RA 7653. By relying on a report before placing a
bank under receivership, the MB and BSP did not only follow the letter of the law, they were also faithful to
its spirit, which was to act expeditiously. Accordingly, the issuance of Resolution No. 105 was untainted with
arbitrariness.
Having dispensed with the issue decisive of this case, it becomes unnecessary to resolve the other minor issues
raised.31
WHEREFORE, the petition is hereby DENIED. The March 28, 2000 decision and November 13, 2001
resolution of the Court of Appeals in CA-G.R. SP No. 57112 are AFFIRMED.
Costs against petitioners.
SO ORDERED.

The word "report" has a definite and unambiguous meaning which is clearly different from "examination." A
report, as a noun, may be defined as "something that gives information" or "a usually detailed account or
statement."26 On the other hand, an examination is "a search, investigation or scrutiny."27

This Court cannot look for or impose another meaning on the term "report" or to construe it as synonymous
with "examination." From the words used in Section 30, it is clear that RA 7653 no longer requires that an
examination be made before the MB can issue a closure order. We cannot make it a requirement in the
absence of legal basis.

Indeed, the court may consider the spirit and reason of the statute, where a literal meaning would lead to
absurdity, contradiction, injustice, or would defeat the clear purpose of the lawmakers. 28 However, these
problems are not present here. Using the literal meaning of "report" does not lead to absurdity, contradiction or
injustice. Neither does it defeat the intent of the legislators. The purpose of the law is to make the closure of a
bank summary and expeditious in order to protect public interest. This is also why prior notice and hearing are
no longer required before a bank can be closed.29

Laying down the requisites for the closure of a bank under the law is the prerogative of the legislature and
what its wisdom dictates. The lawmakers could have easily retained the word "examination" (and in the
process also preserved the jurisprudence attached to it) but they did not and instead opted to use the word
"report." The insistence on an examination is not sanctioned by RA 7653 and we would be guilty of judicial
legislation were we to make it a requirement when such is not supported by the language of the law.

What is being raised here as grave abuse of discretion on the part of the respondents was the lack of an
examination and not the supposed arbitrariness with which the conclusions of the director of the Department
of Rural Banks Supervision and Examination Sector had been reached in the report which became the basis of
Resolution No. 105.1awphi1.net

The absence of an examination before the closure of RBSM did not mean that there was no basis for the
closure order. Needless to say, the decision of the MB and BSP, like any other administrative body, must have
something to support itself and its findings of fact must be supported by substantial evidence. But it is clear G.R. No. 70054 December 11, 1991
under RA 7653 that the basis need not arise from an examination as required in the old law.
 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. 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.
MEDIALDEA, J.:

G.R. No. 77255-58 December 11, 1991 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
TOP MANAGEMENT PROGRAMS CORPORATION AND PILAR DEVELOPMENT
involve the common issue of whether or not the liquidator appointed by the respondent Central Bank (CB for
CORPORATION, petitioners,
brevity) has the authority to prosecute as well as to defend suits, and to foreclose mortgages for and in behalf
vs. THE COURT OF APPEALS, The Executive Judge of the Regional Trial Court of Cavite, Ex-Officio
of the bank while the issue on the validity of the receivership and liquidation of the latter is pending resolution
Sheriff REGALADO E. EUSEBIO, BANCO FILIPINO SAVINGS AND MORTGAGE BANK,
in G.R. No. 7004. Corollary to this issue is whether the CB can be sued to fulfill financial commitments of a
CARLOTA P. VALENZUELA AND SYCIP, SALAZAR, HERNANDEZ AND
closed bank pursuant to Section 29 of the Central Bank Act. On the other hand, the other three (3) cases,
GATMAITAN, respondents.
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.
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-
The antecedent facts of each of the nine (9) cases are as follows:
Officio Sheriff REGALADO E. EUSEBIO, BANCO FILIPINO SAVINGS AND MORTGAGE BANK,
CARLOTA P. VALENZUELA AND SYCIP, SALAZAR, FELICIANO AND
HERNANDEZ, respondents. G.R No. 68878

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
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.

BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner

G.R. Nos. 77255-58
vs. COURT OF APPEALS, THE CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ,
JR., CARLOTA P. VALENZUELA, ARNULFO B. AURELLANO AND RAMON
TIAOQUI, respondents. 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.
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.
Top Management obtained a loan of P4,836,000 from Banco Filipino as evidenced by a promissory note dated
January 7, 1982 payable in three years from date. The loan was secured by real estate mortgage in its various
properties in Cavite. Likewise, Pilar Development obtained loans from Banco Filipino between 1982 and 1983
in the principal amounts of P6,000,000, P7,370,000 and P5,300,000 with maturity dates on December 28,
1984, January 5, 1985 and February 16, 1984, respectively. To secure the loan, Pilar Development mortgaged
to Banco Filipino various properties in Dasmariñas, Cavite.
On January 25, 1985, the Monetary Board issued a resolution finding Banco Filipino insolvent and unable to
do business without loss to its creditors and depositors. It placed Banco Filipino under receivership of Carlota
Valenzuela, Deputy Governor of the Central Bank.
On March 22, 1985, the Monetary Board issued another resolution placing the bank under liquidation and
designating Valenzuela as liquidator. By virtue of her authority as liquidator, Valenzuela appointed the law
firm of Sycip, Salazar, et al. to represent Banco Filipino in all litigations.
On March 26, 1985, Banco Filipino filed the petition for certiorari in G.R. No. 70054 questioning the validity
of the resolutions issued by the Monetary Board authorizing the receivership and liquidation of Banco
Filipino.
In a resolution dated August 29, 1985, this Court in G.R. No. 70054 resolved to issue a temporary restraining
order, effective during the same period of 30 days, enjoining the respondents from executing further acts of
liquidation of the bank; that acts such as receiving collectibles and receivables or paying off creditors' claims
and other transactions pertaining to normal operations of a bank are not enjoined. The Central Bank is 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.
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.

Similarly, Pilar Development defaulted in the payment of its loans. The law firm of Sycip, Salazar, et al. filed
On June 17, 1986, petitioner filed a second amended complaint. The Central Bank and Carlota Valenzuela,
separate applications with the ex-officio sheriff of the Regional Trial Court of Cavite for the extra-judicial
thru the law firm Sycip, Salazar, Hernandez and Gatmaitan filed an answer to the complaint.
foreclosure of mortgage over its properties.

On June 23, 1986, Sycip, et al., acting for all the defendants including Banco Filipino moved that the answer
Hence, Pilar Development filed with the respondent appellate court a petition for prohibition with prayer for
filed by Quisumbing & Associates for defendant Banco Filipino be expunged from the records. Despite
the issuance of a writ of preliminary injunction docketed as CA-G.R SP Nos. 08962-64 seeking to enjoin the
opposition from Quisumbing & Associates, the trial court granted the motion to expunge in an order dated
same respondents from enforcing the foreclosure sale of its properties. CA-G.R. SP Nos. 07892 and 08962-64
March 17, 1987. Petitioner Pilar Development moved to reconsider the order but the motion was denied.
were consolidated and jointly decided.

Petitioner Pilar Development filed with the respondent appellate court a petition for certiorari and mandamus
On October 30, 1986, the respondent appellate court rendered a decision dismissing the aforementioned
to annul the order of the trial court. The Court of Appeals rendered a decision dismissing the petition. A
petitions.
petition was filed with this Court but was denied in a resolution dated March 22, 1988. Hence, this instant
motion for reconsideration.
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
G.R. No. 81304
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.
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.
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.
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:
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:

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;
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.

WHEREAS, it is the desire of the Central Bank to rapidly diffuse the

SO ORDERED.
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).
GENERAL BANK AND TRUST COMPANY, G.R. No. 152551 3. The matter of overdraft accommodations to Filcapital
Petitioner, had been the subject of several memoranda and letters of the
Department of Commercial and Savings Bank [DCSB] to Genbank,
Present: the same being in violation of Section 23, R.A. 337 (maximum loan
PUNO, J., Chairperson limit); of Section 83, R.A. 337, as amended (requiring written Board
- versus - SANDOVAL-GUTIERREZ, approval); and of Memorandum To All Banks dated November 15,
CORONA, 1976 (prohibiting Temporary Overdrawings) [Id.].
AZCUNA, and
GARCIA, JJ. 4. On December 14, 1976, the [CB] required Genbank to
CENTRAL BANK OF THE PHILIPPINES and stop its unsound banking practice of incurring daily overdrawings. On
ARNULFO B. AURELLANO in his capacity as December 15, 1976, Genbank returned Filcapital checks
Liquidator of General Bank and Trust Company, aggregating P28.7 million and sold to the [CB] government securities
Respondents. Promulgated: aggregating P49 million under a repurchase agreement, in order to
cover its overdraft with the [CB]. The return of the Filcapital checks
June 15, 2006 to the different collecting banks precipitated a run on the bank starting
on December 16, 1976 which necessitated the release by the [CB]
x---------------------------------------------------------------------------------x Governor of an initial emergency advance of P16 million [Id.].
5. In his letter dated December 17, 1976 [Exh. H-1], Dr.
DECISION Clarencio Yujuico, Chairman of the Board and President of Genbank,
reported that the bank was experiencing heavy withdrawals and its
GARCIA, J.: liquidity position had continuously deteriorated and will inevitably be
needing immediate [CB] support. He urgently requested that Genbank
be allowed to draw cash of P20 million to be spread out to its branch
offices. Since it was expected that the drawdowns on deposits and
deposit substitutes would continue which would necessitate further
[CB] advances, and considering that the collateral submitted was
Under consideration is this petition for review under Rule 45 of the Rules of Court to nullify and set insufficient, coupled with the need to give a new image to the bank, it
was decided that as a condition to further [CB] advances, the
aside the following issuances of the Court of Appeals (CA) in CA-G.R. CV No. 39939, to wit: stockholders of Genbank owning at least two-thirds (2/3) of the
outstanding capital should execute irrevocable proxies in favor of
Land Bank [Id..].
As a measure calculated to restore the liquidity of and
1. Decision dated December 6, 1999,[1] reversing the Decision dated December 2, confidence in Genbank, Dr. Yujuico informed the [CB] Governor of
1992 of the Regional Trial Court of Manila, Branch 37, in Special Proceedings the agreement of the principal officers and stockholders and the
(SP Proc.) No. 107812 entitled Petition for Assistance in the Liquidation of approval by the Genbank Board of Directors with respect to the
General Bank & Trust Company, Central Bank of the Philippines and Arnulfo B. guidelines under which Land Bank was invited to participate in the
Aurellano, in his capacity as Liquidator of General Bank & Trust Company, equity of the bank, some salient points of which were as follows: (a)
Petitioners; and Land Bank will acquire two-thirds interest in the bank; xxx [Id.; tsn,
Dec. 7, 1990, pp. 41-42].
2. Resolution dated March 12, 2002,[2] denying petitioners motion for
reconsideration. 6. On December 20, 1976, the Monetary Board in its
Resolution No. 2553 [Exh. H-4] decided to grant Genbank an
emergency loan under Section 90 of the Central Bank Charter in an
amount not exceeding P150 million and to ratify the action taken by
the Governor on December 20, 1976 in releasing an emergency
advance of P165 million to Genbank. It also designated Arnulfo B.
The material facts, as stated in the appealed CA decision are, as follows:
Aurellano, Assistant to the Governor, to act as Comptroller [Id.,
tsn, December 7, 1960, pp. 23-24].
1. From December 3 to 14, 1976, General Bank and Trust
Company (Genbank) incurred overdrafts in its current account with 7. On December 23, 1976, the President of Genbank
the Central Bank [CB], starting from P478,000 on December 3, executed a Deed of Assignment [Exh. H-5] of the general assets of
1976 and increasing daily to reach P54.9 million on December 14, the Bank in favor of the [CB]. As of that date, [CB] emergency
1976. These daily overdrawings were covered up to the next banking advances to Genbank amounted to P116 million which were not
day by check deposits, thru daycall borrowings, obtained from sufficiently collateralized by Genbank [Id.].
various commercial banks (7-page Aide Memoire, Exh. H).
8. On December 27, 1976, the [CB] Governor invited the
2. A verification of the accounts showed that the Board of Directors of Genbank to a meeting to discuss the affairs of
overdrawings of Genbank were due to the all-out financial support it the Bank with particular reference to the loans to directors, officers,
extended to Filcapital Development Corporation (a related interest of stockholders and related interests (DOSRI). The Board was informed
the Yujuico Family Group and the directors and officers of Genbank) of the magnitude of DOSRI loans which as of that date
to meet maturing obligations. On December 14, 1976, Filcapital totalled P172.3 million or 59.4% thereof was classified as doubtful
overdraft balance with Genbank totaled P55.8 million, in violation of and P0.505 million as uncollectible. P158.1 million or 91.7% of
existing CB regulations which was financed by overdrawings DOSRI accounts was unsecured while only 8% was secured [Id.].
of P54.9 million from CB [Id.].
 9. At the said meeting, the Governor indicated that
Genbank should immediately take the following [indispensable]
steps: (a) clean [DOSRI] loans should be collected or collateralized;
(b) pending formal execution of the collateral instruments, the
borrower must undertake to execute the required mortgage and other
security instruments; and (c) before full collateralization, the affected
director, officer or stockholder shall assume joint and several liability
with the borrower (related interest) for the payment of the loan or
credit accommodation. xxx [Id, Exh. H-7], xxx..
10. Since the compliance with the directives in his letter
dated December 27, 1976 had been incomplete, the [CB] Governor
stressed to the Genbank Board of Directors that the undertaking to
collateralize the loans concerned and the sureties are merely steps to
be taken prior to the full collateralization of the accounts concerned,
the more important thing being the actual collateralization which must
be done immediately [Id., Exh. H-9].
11. As of year-end 1976, emergency advances
totalled P154.521 million . In view of the continuous drawdowns,
[CB] advances reached P170.227 million on January 5,
1977 exceeding the level of P150 million previously approved. The
Monetary Board in its Resolution No. 90 dated January 7, 1977 [Exh.
H-8] authorized Management to extend continued support to Genbank
to meet further drawdowns on its deposits and deposit substitutes
[Id.].
12. On January 10, 1977, at a meeting of the Board of
Directors , seven nominees of Land Bank were elected members of
the Board, namely . The four others came from the old Board. This
was done to carry out the understanding that Land Bank shall
participate in the management of Genbank. xxx (Id., Exh. H-10].
At said meeting, Dr. Yujuico advised that the controlling
stockholders were negotiating for the sale of their stockholdings and
requested that he be retained as President to give him personality and
leverage during the negotiations, [Id., Exh. H-10; Exh. H-11].
13. In an office Order No. 12 dated January 14,
1977 [Exh. H-12], the [CB] Governor created a Special Committee to
act as observers and advisers in the negotiations for the proposed
purchase of the outstanding shares of Genbank or all its assets and
assumption of all its liabilities [tsn, Dec. 7, 1990, pp. 34-36]. All the
prospective buyers were requested by the Committee to submit formal
written offers to the sellers. Five (5) written offers were received from
the following:
a. Philippine Bank of Communications
b. Paramount Finance Corporation
c. Willy Co/Lucio Tan, et al.
d. Gotianun Group/Family Savings Bank
e. Morris Carpo Group
[Id.; p. 4, Exh. E]
14. At various dates from January 26 to February 7, 1977,
the Committee convoked meetings with all the [interested] groups
primarily to advise them that the [CB] emergency advances must be
amply protected and that the sellers group must submit the final
results of their negotiations on or before February 10, 1977, the
deadline set by the Governor and agreed to by Dr. Yujuico and his
colleagues in the old Board of Genbank [Id.; Tsn., December 7, 1990,
pp. 57-58].
15. By January 31, 1997, [CB] emergency advances to
Genbank had increased to P272.465 million [Id.].
In his report dated February 10, 1977, on the operations
of Genbank for the month of January, 1977, the [CB] Comptroller
reported that the deposits and deposit substitutes decreased
by P22.328 million and P125.128 million, respectively. xxx [Id.; Exh.
H-15].
16. On February 10, 1977, the deadline set for completion
of the negotiations for the sale of Genbank shares, the representatives
of the sellers group reported (Exh. H-16) that the offer of the Lucio
Tan group, Paramount Finance Corporation and PB Communications
were to be presented to the shareholders with their recommendations
[Id.].
17. The Special Committee submitted its report on the
evaluation of the offers to buy Genbank shares indicating that the
Lucio Tan offer was the most advantageous insofar as the [CB] is
concerned because it offered the best collateral for the [CB] advances
[Id.]. Acting on said report, the Monetary Board, in its Resolution No.
449 dated February 25, 1977 [Exh. H-17], authorized the sellers
group to discuss further with the Lucio Tan group the price of the
shares, and prescribed the minimum conditions for the approval of
any sale of the controlling shares of Genbank. The representatives of
the sellers group were duly advised of the resolution [Exh. H-18].
18. By February 28, 1977, [CB] advances to Genbank
totaled P300.961 million which showed an increase of P28.496
million compared to January 31, 1977 [Id.].
In the report of the [CB] Comptroller dated March 11,
1977 [Exh. H-19] on the operations of the bank for February 1977, it
was reported that the decrease in deposits and deposit substitutes for
the month was P5.124 million and P35.694 million, respectively. The
loan portfolio of which 57% was in past due status or in litigation,
was reduced by P19.822 million.
It was also reported that from December 31,
1976 to February 28, 1977, the reduction on [DOSRI] loans amounted
to P6.918 million only, from P172.354 million to P165.436 million.
Of this amount P127.494 million or 77% belonged to the Yujuico
group; . Of the loans of the Yujuico group, P126.608 million or
99.3% was unsecured or uncollateralized. Furthermore, of the
Yujuico loans, 88.4% was in past due status [Id.].
19. The Monetary Board, in its Resolution No. 502
dated March 4, 1977 [Exh. H-21], decided to instruct the Yujuico
negotiators to inform all prospective sellers and buyers of the
additional valuation reserves required to be booked in view of the
pertinence of such information to the ongoing negotiations. The
Chairman of the Genbank Board was duly advised of the said
Resolution of the Monetary Board in a letter dated March 7,
1977 [Exh. H-22].
20. The Lucio Tan group and the sellers representatives
continued their negotiations on March 4 to 5, 1977 but could not
reach an agreement, . In view of the non-acceptance by the sellers
group of the offer of the Lucio Tan group, the Governor informed the
representatives of the sellers group that they may consider the offer of
Paramount Finance Corporation and at the same time conveyed the
conditions for [CB] approval of the sale [Id.].
21. On the matter of collateralization of the [DOSRI]
loans , the Governor on March 10, 1977 wrote individually nine
(9) members of the Yujuico family calling attention to his directive to
collateralize their loans and requested them to give the matter their
immediate and serious attention [Id.; Exh. H-25].
22. The sellers representatives, in a letter dated March 14,
1977 [Exh. H-26], submitted an Agreement to Buy and Sell Genbank
shares between them and Paramount Finance Corporation. The
Special Committee reported [Exh. H-27] that since it is unlikely that
Paramount will be able to comply with the [CB] requirements and at
the same time be in a position to inject fresh funds to make the bank
viable, the Committee felt that the [CB] should explore alternative
courses of action.
In a letter dated March 20, 1977 [Exh. H-28], Paramount
advised that collateralizing the emergency advances with standby
letters credit would be too heavy a financial burden for the bank to
bear, the hold-out on the concessional loan of their foreign partner
met with resistance from the investor as being unusual and onerous on
them, and the proxies to be held by Land Bank was difficult to
explain to prospective investors.
The Governor replied on March 22,1977 [Exh.H-29]
advising that it is not the interest of the [CB] to accept a proposal
which offers a security inferior to that offered by another interested
buyer, .
23. Central Bank advances as of March 22,
1977 totaled P305.918 million [Id.].
24. On March 23, 1977, the Governor together with other
[CB] officials and Genbank directors, had a meeting with Messrs.
Clarencio Yujuico, [and seven others] , stockholders of Genbank who
represented stockholders owning at least two-thirds (2/3) of the
outstanding shares. They were given copies of the aide-memoire for
the meeting [Exh. H-30] which outlined developments regarding
Genbank particularly the [DOSRI] loans, the negotiations for the sale
of Genbank shares, (the Lucio Tan Group was willing to comply with
all the conditions of the [CB] for the approval of the sale but could
meet the price of the selling group; the Paramount Finance Group
could not comply with all the conditions prescribed to secure [CB]
advances and the interest of Genbank creditors and depositors, but
this group and the selling group could agree on the price), and the
valuation reserves and resulting net worth of the bank after valuation
reserve was less than P20 per share. The stockholders were advised
by the Governor that public interest required that the [CB] should not
continuously extend further credit assistance to Genbank and that a
rehabilitation program instead be immediately implemented [tsn, Dec.
7, 1990, pp. 58-59]. Genbank stockholders were told to submit
before 10:00 a.m., Friday, March 25, 1977, either of the following:
a) firm commitment to purchase the controlling
shares of Genbank by a private group or to
undertake a merger with another bank, which is
willing and capable to comply with all the
conditions of the [CB] conveyed previously to
representatives of the controlling stockholders and
whose price is acceptable to sellers.
b) a written decision of the stockholders owning at
least two-thirds (2/3) of the outstanding shares to
reduce the par value and a commitment of the Land
Bank or a private group to put up the additional
equity and a commitment to comply with the
conditions prescribed by the [CB].
25. As there was no compliance with either of said
requirements, and finding the report of Director [Antonio Castro],
Department of Commercial and Savings Banks [DCSB] that Genbank
was insolvent within the meaning of Section 29 of R.A. 265 (Central
Bank Act), as amended, and that Genbanks continuance in business
would involve losses to its depositors and creditors - to be true, the
Monetary Board adopted Resolution No. 675 on March 25,
1977 [Exh. I-1] forbidding Genbank to do business in
the Philippines and designating Arnulfo B. Aurellano as receiver.
In a letter dated March 25, 1977, Governor Licaros
informed the Genbank Board of Directors of such action.
26. On March 26, 1977, a Bid Committee met with
representatives of the four interested groups , and informed them that
the [CB] would accept bids for the acquisition of all the assets and
assumption of all the liabilities of Genbank, subject to certain
conditions. The deadline for submission of sealed bids was 7:00
p.m., March 28, 1977 [Exh. E-2].
As of the said deadline, the only bid received was that of
the Lucio Tan group. It advised that it was prepared to acquire the
assets and assumed all the liabilities of Genbank subject to the terms
and conditions enumerated in the letter [Exh. E-2; Exh. E-2-a].
27. Pursuant to the Memorandum of the Director,
[DCSB], dated March 28, 1977 stating that
As of March 24, 1977, the Banks liquid assets
of P28 million, together with collections from its loan
portfolio, will not be enough to meet expected further
withdrawal of deposits and deposit substitutes of P235.4
million. The Banks operation may be expected to result
into losses of at least P2.9 million per month and these
loans will dissipate the Banks remaining capital accounts
of P10.9 million. The Bank therefore may not be
permitted to resume business with safety to its depositors,
creditors, and the general public
and recommending certain actions, the Monetary Board adopted
Resolution No. 677 on March 29, 1977 [Exh. I-2] determining and
confirming that Genbank was insolvent and could not resume
business with safety to its depositors, creditors and general public,
and ordering the liquidation of Genbank, the designation of Arnulfo
B. Aurellano as Liquidator and the approval of a liquidation plan
whereby all the assets of Genbank should be purchased by the Lucio
Tan Group which should also assume all the liabilities under certain
terms and conditions.
28. In his letters dated March 29, 1977 to the Genbank
stockholders and Dr. Yujuico , Governor Licaros informed them that
the Monetary Board had ordered the liquidation of Genbank [Exhs. I-
15 and I-15-a].
29. On May 9,1977, the Liquidator ; Allied Banking
Corporation ; and the individual members of the Lucio Tan Willy Co
group executed a Memorandum of Agreement [Exh. I-26] in
implementation of Monetary Board Resolution No. 677 dated March
27, 1977 (sic) [Exh. I-2], whereby the Liquidator sold and transferred
to Allied Bank all the assets of Genbank and Allied Bank assumed all
the liabilities of Genbank, subject to certain terms and conditions,
among which were:
(a) payment by Allied Bank to the
Liquidator of an initial amount of P500,000.00;
(b) xxx;
(c) payment to the [CB] of its emergency advances
to Genbank in the amount of P310 million within a period
of two (2) years from date of opening for business of
Allied Bank, with 12% interest per annum;
 (d) no deferment in the payment by Allied Bank of
deposits and deposit substitutes in Genbank; and
(e) xxx money market placements by the Lucio Tan
Willy Co group in an amount not less than P100 million
which placements shall remain with Allied Bank from the
opening and commencement of operations until
normalization of operations as determined by the [CB], so
that during said period, Allied Bank shall have fresh
funds of at least P200 million to meet any withdrawal
contingencies.
30. Acting on the letter dated June 9, 1977 of Lucio Tan,
to Governor Licaros [Exh. I-4-a], the Monetary Board, in its
Resolution No. 1214 dated June 17, 1977 [Exh. I-4], decided as
follows:
1. To authorize the Allied Banking
Corporation (ABC) to increase its paid-up capital
from P100 million to P200 million, ;
2. To approve the deletion of Paragraph
H, Page 5 of the [MOA] dated May 9, 1977 which
requires the Lucio Tan and Willy Co group to make
money market placements in ABC ; and
3. xxx.
31. Pursuant to the recommendation of Arnulfo B.
Aurellano the Monetary Board, in its Resolution No. 1245 dated July
1, 1977 [Exh. I-5], decided to amend par. F, page 5 of the
[MOA]dated May 9, 1977, so as:
1. To dispense with the requirement that Allied
Bank and Lucio Tan group submit a standby irrevocable
letter of credit to secure the emergency advances assumed
by Allied Bank, subject to the following conditions:
xxx xxx xxx
2. To extend from two (2) years to five
years the period of payment of the balance of the
emergency advances assumed by Allied Bank, to be paid
in twenty (20) equal quarterly installments beginning
October 15, 1977, with interest at twelve percent (12%)
per annum and said balance to be secured by the
mortgages mentioned above.
32. Allied Bank was able to comply with all the
conditions laid down in Resolution No. 1245. It paid to the [CB] P100
million of the total emergency advances on July 15, 1977 [Exh. K;
Exh. P], and effected full payment of [CB] emergency advances
on November 28, 1980 [Exh. L], causing the discharge and release of
the mortgages on the real and personal properties which served as
security for the payment of said advances [Exhs. L-1, L-2, and L-3].
(Appellants Brief, pp. 11-34)
On April 1, 1977, [CB and Arnulfo B. Aurellano, as Genbank Liquadator]
initiated Sp. Proc. No. 107812 before the then Court of First Instance (CFI) of Manila, Branch
IV, pursuant to Section 29, RA 265, as amended.
On May 5, 1982, appellees Worldwide Insurance & Surety Company , Midland
Insurance Corporation , and Standard Insurance Co., Inc. filed a motion for intervention in Sp.
Proc. No. 107812. Said motion alleged that the closure and liquidation of [Genbank] were
done arbitrarily and in bad faith. On May 7, 1982, the court a quo issued an order approving
the intervention.
About a couple of years later, appellee Genbank joined the intervention . Said
intervention was approved by the Court a quo in its Order dated March 15, 1984.
Subsequently, [CB et al., as petitioners before the CFI), instead of presenting
evidence to support their petition in Sp. Proc. No. 107892, questioned the court a
quos jurisdiction to determine the validity of the liquidation of Genbank before this Court
[CA], by way of a Petition for Certiorari and Prohibition with Preliminary Injunction and
Restraining Order docketed as CA G.R. SP No. 03180. However, said petition became moot
and academic when the court a quo rendered a Decision dated April 24, 1984, a day before it
was served a copy of the [TRO] dated April 24, 1984, and when [CB et al.] appealed said
decision to this Court [CA] [which] disposed of said appeal in favor of appellees-
[intervenors]. However, upon [CBs] motion for reconsideration, the Court [CA] reconsidered
said decision in its Resolution dated July 19, 1986, and remanded the case to the court of
origin for the reception of appellants evidence. (Underlining in the original; Words in bracket
and underscoring added.)
On November 5, 1992, the trial court rendered a decision,[3] the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered against the Petitioners [CB et al.]
and in favor of Intervenors as follows:
First: That the closure of Genbank under Monetary Board Resolution No.
675, March 25, 1977 (Petitioners Exh. I-1) and the adoption of the Lucio Tan Group as the
liquidation plan of Genbank under Monetary Board Resolution No. 677, March 29, 1977
(Intervenors Exh. 1-2) are hereby annulled and set aside as being plainly arbitrary and made
in bad faith as provided under Section 29, RA No. 265, as amended.
Second: That Petitioner [CB] is hereby ordered and directed to restore the license
and authorization of Genbank to operate and conduct business as a commercial bank and trust
corporation and to restore Genbanks banking network of Head Office, 23 branches and 1
extension office.
Third: That Petitioner [CB] is hereby ordered and directed to pay Intervenor
Genbank the amount of P103,984,477.55 representing Genbanks capital account which was
the excess of Genbanks assets over this liabilities as shown in the Consolidated Statement of
Condition of Genbank as of March 25, 1977 (Petitioners Exh. I-26-A) plus damages by way
of unrealized earnings at 5% interest per annum of said amount of P103,984,477.55 starting
from May 7, 1982 until fully paid; and
Fourth: That Petitioner [CB] is likewise ordered and directed to pay Intervenor
Genbank costs of the suit in accordance with the Rules of Court.
SO ORDERED.
Therefrom, herein respondents CB and the Liquidator-designate appealed to the CA where their recourse
was docketed as CA G.R. CV No. 39939.
 On December 6, 1999, the appellate court rendered judgment setting aside the decision of the trial petitioner Genbank is insolvent constitutes grave abuse of discretion. In support of its contention of not being

court.[4] With the denial of its motion for reconsideration by the same court in its resolution ofMarch 12, 2002, insolvent during the period material, petitioner Genbank cites Central Bank of the Philippines vs. Court of

petitioner is now with us via the present recourse, submitting that the CA erred when - Appeals[6] and Banco Filipino Savings & Mortgage Bank vs. The Monetary Board [7].

1. It ruled that Petitioner Bank was insolvent thus paving the way for Respondent CB, however, retorted that the above-cited cases do not apply, albeit, there, the Court struck
its closure and eventual liquidation.
down as null and void the closure of what CB then considered as insolvent banks, referring to Banco Filipino Savings
2. It ruled that the property rights of Petitioner Bank was not trampled
upon despite the fact that respondent Central Bank maliciously and arbitrarily and in bad faith & Mortgage Bank and Triumph Savings Bank, despite their respective total assets being more than their total
ordered its closure on March 25, 1977 and its liquidation and bidding three (3) days later on
March 28, 1977 which is tantamount to denial of due process and equal protection clause of
the Constitution. liabilities. As respondent CB argued, the closure of Banco Filipino and Triumph Savings Bank on January 25,

3. It failed to apply Sec. 29 of R.A. 265 which laid down the procedure 1985 and May 31, 1985, respectively, were effected under the aegis of Section 29 of RA 265, as amended by PD
to be followed for insolvency cases of banking institutions.
1007, after it was further amended by PD 1937 in June 1984. Under the latter amendment, a banking institution is

deemed insolvent when [its] realizable assets as determined by the Central Bank are insufficient to meet its
The petition has no merit.
liabilities. Thus, this Court ruled that there was no valid basis for the closure of both banks on the ground of

insolvency, the total assets of either bank exceeding as it were their respective liabilities.
The three (3) assigned errors ultimately boil down to the issue of whether or not respondent CB violated

any existing procedural or substantive law when its Monetary Board (MB) issued Resolution No. 675 dated March Unlike the cases referred to above, however, Genbank was ordered closed by the CB on March 25, 1977,

25, 1977 ordering the closure of Genbank, and eventually MB Resolution No. 677 dated March 29, 1977, adopting when insolvency was defined under Section 29 of RA 265, as amended on September 22, 1976 by PD 1007, where

the Lucio Tan Groups bid as liquidation plan of petitioner Genbank, or otherwise committed grave abuse of discretion and when the insolvency concept carried a slightly different but contextually significant connotation. As thus then

which will justify reversal of the assailed MB resolutions. defined, insolvency was understood to mean as the inability of a banking institution to pay its liabilities as they fall

due in the ordinary course of business. Respondent CB found Genbank undoubtedly incapable to generate liquid
At the outset, it bears to stress that the underlying governing law, Republic Act (RA) 265 [5], underwent
funds by itself in order to meet drawdowns on its deposits and deposit substitutes and to pay for other maturing
several amendments. Among the amendatory laws are Presidential Decree (PD) Nos. 1007 and 1937 which took
obligations, as well as advances from the Central Bank. Respondent CB, therefore, concluded that Genbank was
effect in September 1976 and June 1984, respectively.
insolvent under the obtaining definition of said term, with the CA eventually sustaining the posture of respondent CB.

Petitioner Genbank claims that it was not insolvent when Resolution No. 675 was issued on March 25,
After a review of all the arguments of the parties in the light of the laws and jurisprudence applicable
1977, its assets at that time standing at P599,743,639.00, while its total liabilities only amounted to P586,640,450.00,
thereto, this Court finds no reversible error committed by the Court of Appeals when it sustained the validity of the
thus having surplus assets over liabilities in the amount of P13,103,189.00. Plodding on, it insists that the definition of
MB resolutions resolving the issue of insolvency against petitioner Genbank.
insolvency in Section 29 of RA 265, as amended by PD 1937, should have been made the tipping factor

for determining on whether or not the declaration made by respondent CB, acting through the Monetary Board, that

It cannot be overemphasized that Resolution No. 675 prohibiting Genbank to do business in the
Philippines and designating Arnulfo B. Aurellano as receiver was issued in March 1977, when the definition of the
term insolvency under the last paragraph of Section 29, of RA 265, as amended by PD No. 1007, was as follows:
Sec. 29. Proceedings upon insolvency. x x x.
xxxxxxxxx
Insolvency, under this Act, shall be understood to mean the inability of a
banking institution to pay its liabilities as they fall due in the usual and ordinary course
of business, provided, however, that this shall not include the inability to pay of an otherwise
non-insolvent bank caused by extraordinary demands induced by financial panic commonly
evidenced by a run on the bank in the banking community. (Emphasis supplied.)
And by the terms of the same Section 29 of RA 265, as amended by PD No. 1007, Resolution No. 675 is
deemed final and executory, to wit:
The provisions of any law to the contrary notwithstanding, the actions of the
Monetary Board under this Section and the second paragraph of Section 34 of this Act
shall be final and executory, and can be set aside by the court only if there is convincing
proof that the action is plainly arbitrary and made in bad faith. No restraining order or
injunction shall be issued by the court enjoining the Central Bank from implementing its
actions under this section and the second paragraph of Section 34 of this Act, unless there is
convincing proof that the action of the Monetary Board is plainly arbitrary and made in bad
faith and the petitioner or plaintiff files with the clerk of court or judge of the court in which
the action is pending a bond executed in favor of the Central Bank, in an amount to be fixed
by the court. xxx.. (Emphasis supplied.)
The burden thus rests upon petitioner Genbank to prove the mala fides of the Monetary Board in issuing
Resolution No. 675. The present petition cites no concrete proof to convincingly show that the pertinent findings and
recommendation of Antonio Castro, then Director of CBs DCSB whence Resolution No. 675 emanated were factually
infirm. The Castro report stated thus:
Summary Comments
1. As of Feb. 28, 1977, the Banks liquid assets amounted to P33.5
million only. On the other hand, total deposit and deposit substitutes which had to be paid
amounted to P269.563 million. Total advances from the CB amounted to P300.961 million, of
which P252.365 million (unsecured overdrawing) is payable on demand. Considering the
poor quality of the Banks loan portfolio, the bank cannot expect to generate enough funds out
of these loans to meet payment of said obligations. In view hereof, the bank is insolvent
within the meaning of Sec. 29, R.A. 265, as amended.
2. As of February 28, 1977, the Banks capital accounts after adjustment
for provision for bad debts and interest on OD and CB and penalties for reserve deficiencies
amounted to P14.1 million only which amount would be eaten up completely within a period
of less than five (5) months considering the average monthly operating loss of P2.868
million. In view of this, the Banks continuance in business would involve losses to its
depositors and creditors.
Recommendation
In view of the foregoing, it is recommended that in accordance with the provisions of Sec. 29,
R.A. 265, as amended, the General Bank and Trust Co. be forbidden to do business in the
Philippines considering that it is insolvent and its continued operation would involve probable
loss to its depositors and creditors and that a receiver be designated to take charge
immediately of the Banks assets and liabilities.
Instead of directly controverting the factual basis of the MB resolutions, petitioner Genbank would simply
insist on owning more realizable assets than liabilities and ergo essentially solvent per the definition of insolvency
under the PD 1937 amendment which, to stress, took effect only in 1984. To a redundant point, the PD 1937
amendment defines insolvency as follows:
Insolvency, under this 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.
Petitioners recourse of insisting on the meaning of insolvency other than the current definition thereof is,
at the minimum, a recognition, plain and simple, that under the applicable definition of the term insolvency under the
last paragraph of Section 29, of RA 265, as amended in 1976 by PD No. 1007, the Monetary Board could not have
erred in ruling that petitioner Genbank was indeed insolvent, justifying its closure under the same Section 29, of RA
265, as amended. Petitioner Genbank cannot plausibly be allowed to adopt a statutory definition of insolvency which
was not set forth in the law when Resolution No. 675 was issued. The Monetary Boards action could not have run
counter to a legal provision inexistent at the time when it issued the resolution in question.
Perhaps realizing the flaw in its argument, petitioner Genbank now cites the definition of insolvency
under PD No. 1007 but this time faulting the CA for allegedly truncating the same by glossing over the proviso
portion which contextually excluded from the coverage of the term insolvency the inability to pay of an otherwise
non-insolvent bank caused by extraordinary demands induced by financial panic commonly evidenced by a run on the
bank in the banking community. While conceding that it was then not in a position to generate funds by itself in order
to meet drawdowns on its deposits and deposit substitutes and to pay for other maturing obligations, as well as its
advances from the Central Bank, petitioner Genbank nonetheless argues that it did not fall within the concept of
insolvency contemplated in the amendatory PD No. 1007 since what it was then experiencing was a liquidity problem
attributed to a bank run.
The Court is still unconvinced.
The aforementioned proviso thus relied upon by petitioner Genbank excludes from the definition of
insolvency, the inability to pay of an otherwise non-insolvent bank caused by extraordinary demands induced by
financial panic commonly evidenced by a run on the bank in the banking community. As it were, the applicability of
that proviso presupposes that the struggling bank, Genbank in this case, should, in the first place be an otherwise
non-insolvent bank and the existence of a bank run is the sole and exclusive cause of its inability to pay its
obligations. In other words, the existence of a bank run is not, without more, a saving grace for any bank, absolutely
preventing the CB or the Monetary Board from ordering its closure due to insolvency. If the bank is not non-insolvent
in contemplation of the definition under Section 29 of RA 265, as amended by PD No. 1007, because it cannot pay its
liabilities as they fall due in the ordinary course of business, the presence or absence of a bank run is of no
determinative moment on the issue of the justifiability of an order of closure. The CB had, as it were, ample basis
other than the bank run to consider petitioner Genbank insolvent. Upon the issuance of an order of closure, which by
express provision of law is final and executory, the burden of proving non-insolvency is upon the bank which
challenges the validity of such closure.
 For sure, this issue of whether or not petitioner Genbanks inability to pay may be solely and exclusively
attributable to the bank run necessarily requires passing upon and evaluating the evidence presented during the trial. It
should be made perfectly clear, however, that the Courts jurisdiction in appellate proceedings under Rule 45 of the
Rules of Court is, as a rule, limited to reviewing only errors of law, it not being a trier of facts. And it is a settled
doctrine that findings of fact of the CA are basically binding and not be disturbed except for very compelling reasons,
such as when: (1) the conclusion is a finding grounded entirely on speculation, surmise and conjecture; (2) the
inference made is manifestly mistaken; (3) there is grave abuse of discretion; (4) the judgment is based on a
misapprehension of facts; (5) the findings of fact of the CA are contrary to those of the trial court; (6) said findings of
fact are conclusions without citation of specific evidence on which they are based; (7) the findings of fact of the CA
are premised on the supposed absence of evidence and contradicted by the evidence on record.[8] The Court finds no
cogent reason to take exception from the general rule.
Even then, a review of the pleadings on record shows no signs that the CA erred in not finding that the
Monetary Board violated any substantial or procedural law when it issued the two assailed resolutions. Moreover, the
CA cannot also be faulted in sustaining the MB resolutions, or, to be precise, in not finding arbitrariness and
capriciousness in the closure of petitioner bank. For, as the CA aptly explained:
1. Even before the Genbank President requested for emergency
advances, the [CB] gave P16 million on December 16, 1976. After the request was made
on December 17, 1976, additional emergency was extended to Genbank. In MB Resolution
No. 90 dated January 7, 1977 [Exh. H-8], the [CB] decided to extend continued support to
Genbank to meet further drawdowns on its deposits and deposit substitutes. These advances
reached P272.467 million in January 31, 1977[Exh. H-15], and P302.095,746.28 on March
25, 1977 [Exh. I-26-a]. The graph [Exh. E-1] shows steep upward climb in the amount of
advances from December 17, 1976 up to March 25, 1977.
2. Aside from the emergency advances given to Genbank, the [CB]
encouraged and assisted the controlling stockholders in negotiating with various groups that
could put in new funds to help restore Genbank to full health. This indicates the [CB] earnest
desire to find a solution to Genbanks difficulties.
3. Aside from the [CB] and Genbank, there is a third party involved
here. This is one vital aspect that distinguishes this case from all other liquidation cases
handled by the [CB] [tsn., Feb. 15, 1991, p. 33]. What does this mean?Since a third party has
assumed all liabilities of Genbank, payment of deposits and other obligations of the bank has
been guaranteed. If this had been ordinary bank liquidation where there is no assumption of
liabilities by a third party, the depositors and creditors could not have retrieved the full face
value of their deposits and credits. But here, all depositors and creditors have actually been
paid in full by Allied Bank.[9] (Words in bracket added.)
Now, as regards the supposed denial of its right to due process, petitioner Genbank relies on the following
chain of events:
1. March 23, 1977:
x x x the Governor together with other Central Bank officials and Genbank
directors, had a meeting with Messrs. Clarencio Yujuico, [et al.], stockholders of Genbank
who, according to the Corporate Secretary, represented stockholders owning at least two-
thirds (2/3) of the outstanding shares. They were given copies of the aide-memoire for the
meeting (Exh. H-30) which outlined developments regarding Genbank particularly the
[DOSRI]loans , the negotiations for the sale of Genbank shares, (the Lucio Tan Group was
willing to comply with all the conditions of the [CB] for the approval of the sale but could not
meet the price of the selling group; the Paramount Finance Group could not comply with all
the [CB] conditions prescribed to secure [CB] advances and the interest of Genbank creditors
and depositors, but this group and the selling group could agree on the price), and the
valuation reserves and resulting net worth of the bank after valuation reserve was less
than P20 per share. The stockholders were advised by the Governor that public interest
required that the [CB] should not continuously extend further credit assistance to Genbank
and that a rehabilitation program instead be immediately implemented [tsn, Dec. 7, 1990, pp.
58-59]. Genbank stockholders were told to submit before 10:00 a.m., Friday, March 25, 1977,
either of the following:
a) firm commitment to purchase the controlling
shares of Genbank by a private group or to undertake a merger with
another bank, which is willing and capable to comply with all the
conditions of the [CB] conveyed previously to representatives of the
controlling stockholders and whose price is acceptable to sellers
b) a written decision of the stockholders owning at
least two-thirds (2/3) of the outstanding shares to reduce the par value
and a commitment of the Land Bank or a private group to put up the
additional equity and a commitment to comply with the conditions
prescribed by the [CB].
2. March 25, 1977:
As there was no compliance with either of said requirements, and finding the
report of the Director, Department of Commercial and Savings Banks that Genbank was
insolvent within the meaning of Section 29 of R.A. 265 (Central Bank Act), as amended, and
that Genbanks continuance in business would involve losses to its depositors and creditors (as
recited in his Memorandum dated March 24, 1977, Exh. D), - to be true, the Monetary
Board adopted Resolution No. 675 on March 25, 1977 [Exh. I-1] forbidding Genbank to do
business in the Philippines and designating Arnulfo B. Aurellano as receiver.
xxx xxx xxx.
3. March 26, 1977:
On March 26, 1977, a Bid Committee met with representatives of the four
interested groups and informed them that the [CB] would accept bids for the acquisition of
all the assets and assumption of all the liabilities of Genbank, subject to certain conditions.
The deadline for submission of sealed bids was 7:00 p.m., March 28, 1977 [Exh. E-2].
5. March 29, 1977:
As of the said deadline [March 28, 1977], the only bid received was that of the
Lucio Tan group. It advised that it was prepared to acquire the assets and assumed all the
liabilities of Genbank subject to the terms and conditions enumerated in the letter [Exh. E-2;
Exh. E-2-a].
Pursuant to the Memorandum of the Director, Department of Commercial and
Savings Banks, dated March 28, 1977 [Exh. E] stating that
As of March 24, 1977, the Banks liquid assets of P28
million, together with collections from its loan portfolio, will not be
enough to meet expected further withdrawal of deposits and deposit
substitute of P235.4 million. The Banks operation may be expected to
result into losses of at least P2.9 million per month and these loans
will dissipate the Banks remaining capital accounts of P10.9
million. The Bank therefore may not be permitted to resume business
with safety to its depositors, creditors, and the general public
and recommending certain actions, the Monetary Board adopted Resolution No. 677
on March 29, 1977 [Exh. I-2] determining and confirming that Genbank was insolvent and
could not resume business with safety to its depositors, creditors and general public,
and ordering the liquidation of Genbank, the designation of Arnulfo B. Aurellano as
Liquidator and the approval of a liquidation plan whereby all the assets of Genbank
should be purchased by the Lucio Tan Group which should also assume all the liabilities
under certain terms and conditions.
 In his letters dated March 29, 1977 to the Genbank stockholders and Dr. Yujuico
(received by the addressees on April 1, 1977), Governor Licaros informed them that the
Monetary Board had ordered the liquidation of Genbank [Exhs. I-15 and I-15-a].

In short, petitioner Genbank would claim that in a span of just two (2) days from the time it called a
meeting with the board of directors of Genbank on March 23, 1977, or on March 25, 1977, the Monetary Board
issued the resolution finding petitioner Genbank insolvent and prohibiting it from further conducting business; and
only another four (4) days thereafter, or on March 29, 1977, it ordered its liquidation, thereby denying sufficient time
for petitioner Genbank to comply with its directives.

We are not persuaded.

It must be stressed that petitioner Genbanks financial predicament did not crop up overnight, nor is it a
product of a single financial indiscretion, so to speak. The root of its problem and eventual downfall is traceable to
unsound banking practices employed by management. Mentioned in this regard may be made of the all-out financial
support given to Filcapital Development Corporation (a related interest of the Yujuico Family Group and directors
and officers of Genbank) and the standing practice of extending DOSRI loans which, at one point, reached a peak
of P172.3 million or 26% of the total loan portfolio of P666.78 million. Of the final figure, 59.4% thereof was
classified as doubtful and P0.505 million as uncollectible. And 91.7% of such DOSRI accounts were unsecured
leaving only 8% thereof secured. All these unsound practices occurred way before their resulting crippling effects
became manifest sometime in December 1976, further leading the bank to resort to other unsound banking practices,
like incurring daily overdrafts. These problems, as earlier narrated in the assailed CA decision, were taken up by the
then CB Governor with the Board of Directors of Genbank in a meeting held on December 27, 1976. Thus, when the
crucial March 23, 1977 meeting was held, there can be no doubt that petitioner Genbank was totally aware of the
predicament it has gotten itself into and the conditions which the CB had imposed to address the situation for the
protection of the depositors and the banking public. It is not as if CB sprang a surprise on petitioner Genbank when
Resolution 675 was issued on March 25, 1977 declaring Genbank insolvent. Petitioner Genbanks posture that it was
given only two (2) days to remedy the situation is specious at best.

Finally, as to petitioner Genbanks lament about the Monetary Board acting, under the premises, in bad
faith or committing grave abuse of discretion in approving the liquidation plan of the Lucio Tan Group, suffice it to
restate what the CA wrote in this regard:

Indeed, that the Genbank, Now Allied Bank, was able to resume normal banking
operations immediately on June 2, 1977, thereafter meeting all the demands for deposit
withdrawals and paying off all CB emergency advances to Genbank (Exh. K, L, and P), is a
strong indication that the Central Bank performed its duty to maintain public confidence in
the banking system, x x x.

Absent, in sum, of compelling proof to becloud the bona fides of the decision of the Central Bank to close
and order the liquidation of Genbank pursuant to Monetary Board Resolution Nos. 675 and 677, the Court, as the CA
before it, loathes to interfere with what basically is the exercise by the Central Bank of its mandate as administrator
of the banking system.

WHEREFORE, the petition is hereby DISMISSED for lack of merit, with costs against petitioner.

SO ORDERED.
 G.R. No. 191424 August 7, 2013
ALFEO D. VIVAS, ON HIS BEHALF AND ON BEHALF OF THE SHAREHOLDERS OF
EUROCREDIT COMMUNITY BANK, PETITIONER,
vs. THE MONETARY BOARD OF THE BANGKO SENTRAL NG PILIPINAS AND THE
PHILIPPINE DEPOSIT INSURANCE CORPORATION, RESPONDENTS.
DECISION
MENDOZA, J.:
This is a petition for prohibition with prayer for the issuance of a status quo ante order or writ of preliminary
injunction ordering the respondents to desist from closing EuroCredit Community Bank, Incorporated (ECBI)
and from pursuing the receivership thereof. The petition likewise prays that the management and operation of
ECBI be restored to its Board of Directors (BOD) and its officers.
The Facts
The Rural Bank of Faire, Incorporated (RBFI) was a duly registered rural banking institution with principal
office in Centro Sur, Sto. Niño, Cagayan. Record shows that the corporate life of RBFI expired on May 31,
2005.1Notwithstanding, petitioner Alfeo D. Vivas (Vivas) and his principals acquired the controlling interest
in RBFI sometime in January 2006. At the initiative of Vivas and the new management team, an internal audit
was conducted on RBFI and results thereof highlighted the dismal operation of the rural bank. In view of those
findings, certain measures calculated to revitalize the bank were allegedly introduced. 2 On December 8, 2006,
the Bangko Sentral ng Pilipinas (BSP) issued the Certificate of Authority extending the corporate life of RBFI
for another fifty (50) years. The BSP also approved the change of its corporate name to EuroCredit
Community Bank, Incorporated, as well as the increase in the number of the members of its BOD, from five
(5) to eleven (11).3
Pursuant to Section 28 of Republic Act (R.A.) No. 7653, otherwise known as The New Central Bank Act, the
Integrated Supervision Department II (ISD II) of the BSP conducted a general examination on ECBI with the
cut-off date of December 31, 2007. Shortly after the completion of the general examination, an exit conference
was held on March 27, 2008 at the BSP during which the BSP officials and examiners apprised Vivas, the
Chairman and President of ECBI, as well as the other bank officers and members of its BOD, of the advance
findings noted during the said examination. The ECBI submitted its comments on BSP’s consolidated findings
and risk asset classification through a letter, dated April 8, 2008.4
Sometime in April 2008, the examiners from the Department of Loans and Credit of the BSP arrived at the
ECBI and cancelled the rediscounting line of the bank. Vivas appealed the cancellation to BSP. 5 Thereafter,
the Monetary Board (MB) issued Resolution No. 1255, dated September 25, 2008, placing ECBI under
Prompt Corrective Action (PCA) framework because of the following serious findings and supervisory
concerns noted during the general examination: 1] negative capital of ?14.674 million and capital adequacy
ratio of negative 18.42%; 2] CAMEL (Capital Asset Management Earnings Liquidity) composite rating of "2"
with a Management component rating of "1"; and 3] serious supervisory concerns particularly on activities
deemed unsafe or unsound.6 Vivas claimed that the BSP took the above courses of action due to the joint
influence exerted by a certain hostile shareholder and a former BSP examiner.7
Through its letter, dated September 30, 2008, the BSP furnished ECBI with a copy of the Report of
Examination (ROE) as of December 31, 2007. In addition, the BSP directed the bank’s BOD and senior
management to: 1] infuse fresh capital of ?22.643 million; 2] book the amount of ?28.563 million representing
unbooked valuation reserves on classified loans and other risks assets on or before October 31, 2008; and 3]
take appropriate action necessary to address the violations/exceptions noted in the examination.8
Vivas moved for a reconsideration of Resolution No. 1255 on the grounds of non-observance of due process
and arbitrariness. The ISD II, on several instances, had invited the BOD of ECBI to discuss matters pertaining
to the placement of the bank under PCA framework and other supervisory concerns before making the
appropriate recommendations to the MB. The proposed meeting, however, did not materialize due to
postponements sought by Vivas.9
In its letter, dated February 20, 2009, the BSP directed ECBI to explain why it transferred the majority shares
of RBFI without securing the prior approval of the MB in apparent violation of Subsection X126.2 of the
Manual of Regulation for Banks (MORB).10 Still in another letter,11 dated March 31, 2009, the ISD II required
ECBI to explain why it did not obtain the prior approval of the BSP anent the establishment and operation of
the bank’s sub-offices.
Also, the scheduled March 31, 2009 general examination of the books, records and general condition of ECBI
with the cut-off date of December 31, 2008, did not push through. According to Vivas, ECBI asked for the
deferment of the examination pending resolution of its appeal before the MB. Vivas believed that he was
being treated unfairly because the letter of authority to examine allegedly contained a clause which pertained
to the Anti-Money Laundering Law and the Bank Secrecy Act.12
The MB, on the other hand, posited that ECBI unjustly refused to allow the BSP examiners from examining
and inspecting its books and records, in violation of Sections 25 and 34 of R.A. No. 7653. In its letter, 13 dated
May 8, 2009, the BSP informed ECBI that it was already due for another annual examination and that the
pendency of its appeal before the MB would not prevent the BSP from conducting another one as mandated by
Section 28 of R.A. No. 7653.
In view of ECBI’s refusal to comply with the required examination, the MB issued Resolution No.
726,14 dated May 14, 2009, imposing monetary penalty/fine on ECBI, and referred the matter to the Office of
the Special Investigation (OSI) for the filing of appropriate legal action. The BSP also wrote a letter, 15 dated
May 26, 2009, advising ECBI to comply with MB Resolution No. 771, which essentially required the bank to
follow its directives. On May 28, 2009, the ISD II reiterated its demand upon the ECBI BOD to allow the BSP
examiners to conduct a general examination on June 3, 2009.16
In its June 2, 2009 Letter-Reply,17 ECBI asked for another deferment of the examination due to the pendency
of certain unresolved issues subject of its appeal before the MB, and because Vivas was then out of the
country. The ISD II denied ECBI’s request and ordered the general examination to proceed as previously
scheduled.18
Thereafter, the MB issued Resolution No. 823,19 dated June 4, 2009, approving the issuance of a cease and
desist order against ECBI, which enjoined it from pursuing certain acts and transactions that were considered
unsafe or unsound banking practices, and from doing such other acts or transactions constituting fraud or
might result in the dissipation of its assets.
On June 10, 2009, the OSI filed with the Department of Justice (DOJ) a complaint for Estafa Through
Falsification of Commercial Documents against certain officials and employees of ECBI. Meanwhile, the MB
issued Resolution No. 1164,20 dated August 13, 2009, denying the appeal of ECBI from Resolution No. 1255
which placed it under PCA framework. On November 18, 2009, the general examination of the books and
records of ECBI with the cut-off date of September 30, 2009, was commenced and ended in December 2009.
Later, the BSP officials and examiners met with the representatives of ECBI, including Vivas, and discussed
their findings.21 On December 7, 2009, the ISD II reminded ECBI of the non-submission of its financial audit
reports for the years 2007 and 2008 with a warning that failure to submit those reports and the written
explanation for such omission shall result in the imposition of a monetary penalty. 22 In a letter, dated February
1, 2010, the ISD II informed ECBI of MB Resolution No. 1548 which denied its request for reconsideration of
Resolution No. 726.
On March 4, 2010, the MB issued Resolution No. 276 23 placing ECBI under receivership in accordance with
the recommendation of the ISD II which reads:
On the basis of the examination findings as of 30 September 2009 as reported by the Integrated Supervision
Department (ISD) II, in its memorandum dated 17 February 2010, which findings showed that the Eurocredit
Community Bank, Inc. – a Rural Bank (Eurocredit Bank) (a) is unable to pay its liabilities as they become due
in the ordinary course of business; (b) has insufficient realizable assets to meet liabilities; (c) cannot continue The Court’s Ruling
in business without involving probable losses to its depositors and creditors; and (d) has willfully violated a
cease and desist order of the Monetary Board for acts or transactions which are considered unsafe and unsound
The petition must fail.
banking practices and other acts or transactions constituting fraud or dissipation of the assets of the institution,
and considering the failure of the Board of Directors/management of Eurocredit Bank to restore the bank’s
financial health and viability despite considerable time given to address the bank’s financial problems, and Vivas Availed of the Wrong Remedy
that the bank had been accorded due process, the Board, in accordance with Section 30 of Republic Act No.
7653 (The New Central Bank Act), approved the recommendation of ISD II as follows:
To begin with, Vivas availed of the wrong remedy. The MB issued Resolution No. 276, dated March 4, 2010,
in the exercise of its power under R.A. No. 7653. Under Section 30 thereof, any act of the MB placing a bank
To prohibit the Eurocredit Bank from doing business in the Philippines and to place its assets and affairs under under conservatorship, receivership or liquidation may not be restrained or set aside except on a petition for
receivership; and certiorari. Pertinent portions of R.A. 7653 read:

To designate the Philippine Deposit Insurance Corporation as Receiver of the bank. Section 30. –

Assailing MB Resolution No. 276, Vivas filed this petition for prohibition before this Court, ascribing grave x x x x.
abuse of discretion to the MB for prohibiting ECBI from continuing its banking business and for placing it
under receivership. The petitioner presents the following
The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be final and
executory, and may not be restrained or set aside by the court except on petition for certiorari on the ground
ARGUMENTS: that the action taken was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack
or excess of jurisdiction. The petition for certiorari may only be filed by the stockholders of record
representing the majority of the capital stock within ten (10) days from receipt by the board of directors of the
(a)
institution of the order directing receivership, liquidation or conservatorship.

It is grave abuse of discretion amounting to loss of jurisdiction to apply the general law embodied in Section
x x x x. [Emphases supplied]
30 of the New Central Bank Act as opposed to the specific law embodied in Sections 11 and 14 of the Rural
Banks Act of 1992.
Prohibition is already unavailing
(b)
Granting that a petition for prohibition is allowed, it is already an ineffective remedy under the circumstances
obtaining. Prohibition or a "writ of prohibition" is that process by which a superior court prevents inferior
Even if it assumed that Section 30 of the New Central Bank Act is applicable, it is still the gravest abuse of
courts, tribunals, officers, or persons from usurping or exercising a jurisdiction with which they have not been
discretion amounting to lack or excess of jurisdiction to execute the law with manifest arbitrariness, abuse of
vested by law, and confines them to the exercise of those powers legally conferred. Its office is to restrain
discretion, and bad faith, violation of constitutional rights and to further execute a mandate well in excess of
subordinate courts, tribunals or persons from exercising jurisdiction over matters not within its cognizance or
its parameters.
exceeding its jurisdiction in matters of which it has cognizance. 26 In our jurisdiction, the rule on prohibition is
enshrined in Section 2, Rule 65 of the Rules on Civil Procedure, to wit:
(c)
Sec. 2. Petition for prohibition - When the proceedings of any tribunal, corporation, board, officer or person,
The power delegated in favor of the Bangko Sentral ng Pilipinas to place rural banks under receiverships is whether exercising judicial, quasi-judicial or ministerial functions, are without or in excess of its or his
unconstitutional for being a diminution or invasion of the powers of the Supreme Court, in violation of Section jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no
2, Article VIII of the Philippine Constitution.24 appeal or any other plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved
thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that the
judgment be rendered commanding the respondent to desist from further proceedings in the action or matter
Vivas submits that the respondents committed grave abuse of discretion when they erroneously applied
specified therein, or otherwise granting such incidental reliefs as the law and justice require.
Section 30 of R.A. No. 7653, instead of Sections 11 and 14 of the Rural Bank Act of 1992 or R.A. No. 7353.
He argues that despite the deficiencies, inadequacies and oversights in the conduct of the affairs of ECBI, it
has not committed any financial fraud and, hence, its placement under receivership was unwarranted and x x x x.
improper. He posits that, instead, the BSP should have taken over the management of ECBI and extended
loans to the financially distrained bank pursuant to Sections 11 and 14 of R.A. No. 7353 because the BSP’s
Indeed, prohibition is a preventive remedy seeking that a judgment be rendered which would direct the
power is limited only to supervision and management take-over of banks.
defendant to desist from continuing with the commission of an act perceived to be illegal. 27 As a rule, the
proper function of a writ of prohibition is to prevent the doing of an act which is about to be done. It is not
He contends that the implementation of the questioned resolution was tainted with arbitrariness and bad faith, intended to provide a remedy for acts already accomplished. 28
stressing that ECBI was placed under receivership without due and prior hearing in violation of his and the
bank’s right to due process. He adds that respondent PDIC actually closed ECBI even in the absence of any
Though couched in imprecise terms, this petition for prohibition apparently seeks to prevent the acts of closing
directive to this effect. Lastly, Vivas assails the constitutionality of Section 30 of R.A. No. 7653 claiming that
of ECBI and placing it under receivership. Resolution No. 276, however, had already been issued by the MB
said provision vested upon the BSP the unbridled power to close and place under receivership a hapless rural
and the closure of ECBI and its placement under receivership by the PDIC were already accomplished.
bank instead of aiding its financial needs. He is of the view that such power goes way beyond its constitutional
Apparently, the remedy of prohibition is no longer appropriate. Settled is the rule that prohibition does not lie
limitation and has transformed the BSP to a sovereign in its own "kingdom of banks." 25
to restrain an act that is already a fait accompli.29
The Petition Should Have Been Filed in the CA
Even if treated as a petition for certiorari, the petition should have been filed with the CA. Section 4 of Rule
65 reads:
Section 4. When and where petition filed. — The petition shall be filed not later than sixty (60) days from
notice of the judgment, order or resolution. In case a motion for reconsideration or new trial is timely filed,
whether such motion is required or not, the sixty (60) day period shall be counted from notice of the denial of
said motion.
The petition shall be filed in the Supreme Court or, if it relates to the acts or omissions of a lower court or of a
corporation, board, officer or person, in the Regional Trial Court exercising jurisdiction over the territorial
area as defined by the Supreme Court. It may also be filed in the Court of Appeals whether or not the same is
in aid of its appellate jurisdiction, or in the Sandiganbayan if it is in aid of its appellate jurisdiction. If it
involves the acts or omissions of a quasi-judicial agency, unless otherwise provided by law or these Rules, the
petition shall be filed in and cognizable only by the Court of Appeals. [Emphases supplied]
That the MB is a quasi-judicial agency was already settled and reiterated in the case of Bank of Commerce v.
Planters Development Bank And Bangko Sentral Ng Pilipinas.30
Doctrine of Hierarchy of Courts
Even in the absence of such provision, the petition is also dismissible because it simply ignored the doctrine of
hierarchy of courts. True, the Court, the CA and the RTC have original concurrent jurisdiction to issue writs of
certiorari, prohibition and mandamus. The concurrence of jurisdiction, however, does not grant the party
seeking any of the extraordinary writs the absolute freedom to file a petition in any court of his choice. The
petitioner has not advanced any special or important reason which would allow a direct resort to this Court.
Under the Rules of Court, a party may directly appeal to this Court only on pure questions of law. 31 In the case
at bench, there are certainly factual issues as Vivas is questioning the findings of the investigating team.
Strict observance of the policy of judicial hierarchy demands that where the issuance of the extraordinary writs
is also within the competence of the CA or the RTC, the special action for the obtainment of such writ must be
presented to either court. As a rule, the Court will not entertain direct resort to it unless the redress desired
cannot be obtained in the appropriate lower courts; or where exceptional and compelling circumstances, such
as cases of national interest and with serious implications, justify the availment of the extraordinary remedy of
writ of certiorari, prohibition, or mandamus calling for the exercise of its primary jurisdiction.32 The judicial
policy must be observed to prevent an imposition on the precious time and attention of the Court.
The MB Committed No Grave Abuse of Discretion
In any event, no grave abuse of discretion can be attributed to the MB for the issuance of the assailed
Resolution No. 276.
Vivas insists that the circumstances of the case warrant the application of Section 11 of R.A. No. 7353, which
provides:
Sec. 11. The power to supervise the operation of any rural bank by the Monetary Board as herein indicated
shall consist in placing limits to the maximum credit allowed to any individual borrower; in prescribing the
interest rate, in determining the loan period and loan procedures, in indicating the manner in which technical
assistance shall be extended to rural banks, in imposing a uniform accounting system and manner of keeping
the accounts and records of rural banks; in instituting periodic surveys of loan and lending procedures, audits,
test-check of cash and other transactions of the rural banks; in conducting training courses for personnel of
rural banks; and, in general, in supervising the business operations of the rural banks.
The Central Bank shall have the power to enforce the laws, orders, instructions, rules and regulations
promulgated by the Monetary Board, applicable to rural banks; to require rural banks, their directors, officers
and agents to conduct and manage the affairs of the rural banks in a lawful and orderly manner; and, upon
proof that the rural bank or its Board of Directors, or officers are conducting and managing the affairs of the
bank in a manner contrary to laws, orders, instructions, rules and regulations promulgated by the Monetary
Board or in a manner substantially prejudicial to the interest of the Government, depositors or creditors, to
take over the management of such bank when specifically authorized to do so by the Monetary Board after due
hearing process until a new board of directors and officers are elected and qualified without prejudice to the
prosecution of the persons responsible for such violations under the provisions of Sections 32, 33 and 34 of
Republic Act No. 265, as amended.
x x x x.
The thrust of Vivas’ argument is that ECBI did not commit any financial fraud and, hence, its placement under
receivership was unwarranted and improper. He asserts that, instead, the BSP should have taken over the
management of ECBI and extended loans to the financially distrained bank pursuant to Sections 11 and 14 of
R.A. No. 7353 because the BSP’s power is limited only to supervision and management take-over of banks,
and not receivership.
Vivas argues that implementation of the questioned resolution was tainted with arbitrariness and bad faith,
stressing that ECBI was placed under receivership without due and prior hearing, invoking Section 11 of R.A.
No. 7353 which states that the BSP may take over the management of a rural bank after due hearing. 33 He adds
that because R.A. No. 7353 is a special law, the same should prevail over R.A. No. 7653 which is a general
law.
The Court has taken this into account, but it appears from all over the records that ECBI was given every
opportunity to be heard and improve on its financial standing. The records disclose that BSP officials and
examiners met with the representatives of ECBI, including Vivas, and discussed their findings. 34 There were
also reminders that ECBI submit its financial audit reports for the years 2007 and 2008 with a warning that
failure to submit them and a written explanation of such omission shall result in the imposition of a monetary
penalty.35 More importantly, ECBI was heard on its motion for reconsideration. For failure of ECBI to
comply, the MB came out with Resolution No. 1548 denying its request for reconsideration of Resolution No.
726. Having been heard on its motion for reconsideration, ECBI cannot claim that it was deprived of its right
under the Rural Bank Act.
Close Now, Hear Later
At any rate, if circumstances warrant it, the MB may forbid a bank from doing business and place it under
receivership without prior notice and hearing. Section 30 of R.A. No. 7653 provides, viz:
Sec. 30. Proceedings in Receivership and Liquidation. – Whenever, upon report of the head of the supervising
or examining department, the Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided,
That this shall not include inability to pay caused by extraordinary demands induced by financial
panic in the banking community;
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or
(c) cannot continue in business without involving probable losses to its depositors or creditors; or
(d) has wilfully violated a cease and desist order under Section 37 that has become final, involving
acts or transactions which amount to fraud or a dissipation of the assets of the institution; in which
cases, the Monetary Board may summarily and without need for prior hearing forbid the institution
 from doing business in the Philippines and designate the Philippine Deposit Insurance Corporation
as receiver of the banking institution. [Emphases supplied.]
x x x x.
In light of the circumstances obtaining in this case, the application of the corrective measures enunciated in
Section 30 of R.A. No. 7653 was proper and justified. Management take-over under Section 11 of R.A. No.
7353 was no longer feasible considering the financial quagmire that engulfed ECBI showing serious
conditions of insolvency and illiquidity. Besides, placing ECBI under receivership would effectively put a stop
to the further draining of its assets.

Accordingly, there is no conflict which would call for the application of the doctrine that a special law should
No Undue Delegation of Legislative Power
prevail over a general law. It must be emphasized that R.A .No. 7653 is a later law and under said act, the
power of the MB over banks, including rural banks, was increased and expanded. The Court, in several cases,
upheld the power of the MB to take over banks without need for prior hearing. It is not necessary inasmuch as Lastly, the petitioner challenges the constitutionality of Section 30 of R.A. No. 7653, as the legislature granted
the law entrusts to the MB the appreciation and determination of whether any or all of the statutory grounds the MB a broad and unrestrained power to close and place a financially troubled bank under receivership. He
for the closure and receivership of the erring bank are present. The MB, under R.A. No. 7653, has been claims that the said provision was an undue delegation of legislative power. The contention deserves scant
invested with more power of closure and placement of a bank under receivership for insolvency or illiquidity, consideration.
or because the bank’s continuance in business would probably result in the loss to depositors or creditors. In
the case of Bangko Sentral Ng Pilipinas Monetary Board v. Hon. Antonio-Valenzuela,36 the Court reiterated
Preliminarily, Vivas’ attempt to assail the constitutionality of Section 30 of R.A. No. 7653 constitutes
the doctrine of "close now, hear later," stating that it was justified as a measure for the protection of the public
collateral attack on the said provision of law. Nothing is more settled than the rule that the constitutionality of
interest. Thus:
a statute cannot be collaterally attacked as constitutionality issues must be pleaded directly and not
collaterally.41 A collateral attack on a presumably valid law is not permissible. Unless a law or rule is annulled
The "close now, hear later" doctrine has already been justified as a measure for the protection of the public in a direct proceeding, the legal presumption of its validity stands.42
interest. Swift action is called for on the part of the BSP when it finds that a bank is in dire straits. Unless
adequate and determined efforts are taken by the government against distressed and mismanaged banks, public
Be that as it may, there is no violation of the non-delegation of legislative power.1âwphi1 The rationale for the
faith in the banking system is certain to deteriorate to the prejudice of the national economy itself, not to
constitutional proscription is that "legislative discretion as to the substantive contents of the law cannot be
mention the losses suffered by the bank depositors, creditors, and stockholders, who all deserve the protection
delegated. What can be delegated is the discretion to determine how the law may be enforced, not what the
of the government.37[Emphasis supplied]
law shall be. The ascertainment of the latter subject is a prerogative of the legislature. This prerogative cannot
be abdicated or surrendered by the legislature to the delegate."43
In Rural Bank of Buhi, Inc. v. Court of Appeals,38 the Court also wrote that
"There are two accepted tests to determine whether or not there is a valid delegation of legislative power, viz,
x x x due process does not necessarily require a prior hearing; a hearing or an opportunity to be heard may be the completeness test and the sufficient standard test. Under the first test, the law must be complete in all its
subsequent to the closure. One can just imagine the dire consequences of a prior hearing: bank runs would be terms and conditions when it leaves the legislature such that when it reaches the delegate the only thing he will
the order of the day, resulting in panic and hysteria. In the process, fortunes may be wiped out and have to do is enforce it. Under the sufficient standard test, there must be adequate guidelines or stations in the
disillusionment will run the gamut of the entire banking community. 39 law to map out the boundaries of the delegate's authority and prevent the delegation from running riot. Both
tests are intended to prevent a total transference of legislative authority to the delegate, who is not allowed to
step into the shoes of the legislature and exercise a power essentially legislative."44
The doctrine is founded on practical and legal considerations to obviate 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.40 Swift, adequate and determined actions must be taken against financially distressed and mismanaged In this case, under the two tests, there was no undue delegation of legislative authority in the issuance of R.A.
banks by government agencies lest the public faith in the banking system deteriorate to the prejudice of the No. 7653. To address the growing concerns in the banking industry, the legislature has sufficiently empowered
national economy. the MB to effectively monitor and supervise banks and financial institutions and, if circumstances warrant, to
forbid them to do business, to take over their management or to place them under receivership. The legislature
has clearly spelled out the reasonable parameters of the power entrusted to the MB and assigned to it only the
Accordingly, the MB can immediately implement its resolution prohibiting a banking institution to do
manner of enforcing said power. In other words, the MB was given a wide discretion and latitude only as to
business in the Philippines and, thereafter, appoint the PDIC as receiver. The procedure for the involuntary
how the law should be implemented in order to attain its objective of protecting the interest of the public, the
closure of a bank is summary and expeditious in nature. Such action of the MB shall be final and executory,
banking industry and the economy.
but may be later subjected to a judicial scrutiny via a petition for certiorari to be filed by the stockholders of
record of the bank representing a majority of the capital stock. Obviously, this procedure is designed to protect
the interest of all concerned, that is, the depositors, creditors and stockholders, the bank itself and the general WHEREFORE, the petition for prohibition is DENIED.
public. The protection afforded public interest warrants the exercise of a summary closure.
SO ORDERED.
In the case at bench, the ISD II submitted its memorandum, dated February 17, 2010, containing the findings
noted during the general examination conducted on ECBI with the cut-off date of September 30, 2009. The
memorandum underscored the inability of ECBI to pay its liabilities as they would fall due in the usual course
of its business, its liabilities being in excess of the assets held. Also, it was noted that ECBI’s continued
banking operation would most probably result in the incurrence of additional losses to the prejudice of its
depositors and creditors. On top of these, it was found that ECBI had willfully violated the cease-and-desist
order of the MB issued in its June 24, 2009 Resolution, and had disregarded the BSP rules and directives. For
said reasons, the MB was forced to issue the assailed Resolution No. 276 placing ECBI under receivership. In
addition, the MB stressed that it accorded ECBI ample time and opportunity to address its monetary problem
and to restore and improve its financial health and viability but it failed to do so.
 G.R. No. 95326 March 11, 1999 xxx xxx xxx

ROMEO P. BUSUEGO, CATALINO F. BANEZ and RENATO F. LIM, petitioners, 5. To include the names of Mr. Catalino Banez, Mr. Romeo
vs. THE HONORABLE COURT OF APPEALS and THE MONETARY BOARD OF THE CENTRAL Busuego and Mr. Renato Lim in the Sector's watchlist to prevent
BANK OF THE PHILIPPINES, respondents. them from holding responsible positions in any institution under
Central Bank supervision;
PURISIMA, J.:
6. To require PESALA to enforce collection of the overpayment
to the Vista Grande Management and Development Corporation
This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking a reversal of the
and to require the accounting of P12.28 million unaccounted and
Decision, 1dated September 14, 1990, of the Court of Appeals in CA-G.R. CV No. 23656.
unremitted bank loan proceeds and P3.9 million other
unsupported cash disbursements from the responsible directors
As culled from the records; the facts of the case are as follows: and officers; or to properly charge these against their respective
accounts, if necessary;
The 16th regular examination of the books and records of the PAL Employees Savings and Loan Association,
Inc. ("PESALA") was conducted from March 14 to April 16, 1988 by a team of CB examiners headed by 7. To require the board of directors of PESALA to file civil and
Belinda Rodriguez. Following the said examination, several anomalies and irregularities committed by the criminal cases against Messrs. Catalino Banez, Romeo Busuego
herein petitioners; PESALA's directors and officers, were uncovered, among which are: and Renato Lim for all the misfeasance and malfeasance
committed by them, as warranted by the evidence;
1. Questionable investment in a multi-million peso real estate
project (Pesalaville). 8. To require the board of directors of PESALA to improve the
operations of the Association; correct all violations noted, and
adopt internal control measures to prevent the recurrence of
2. Conflict of interest in the conduct of business. similar incidents as shown in Annex E of the subject
memorandum of the Director, SES Department IV; 3
3. Unwarranted declaration and payment of dividends.
xxx xxx xxx
4. Commission of unsound and unsafe business practices.
On January 23, 1989, petitioners filed a Petition for Injunction with Prayer for the Immediate Issuance of a
On July 19, 1988, Central Bank ("CB") Supervision and Examination Section ("SES") Department IV Director Temporary Restraining Order 4 docketed as Civil Case No. Q-89-1617 before Branch 104 of the Regional
Ricardo F. Lirio sent a letter to the Board of Directors of PESALA inviting them to a conference on July 21, Trial Court of Quezon City.
1988 to discuss subject findings noted in the said 16th regular examination, but petitioners did not attend such
conference. On January 26, 1989, the said court issued. a temporary restraining
order 5 enjoining the defendant, the Monetary Board of the Central Bank, (now Banko Sentral ng Pilipinas)
On July 28, 1988, petitioner Renato Lim wrote the PESALA's Board of Directors explaining his side on the from including the names of petitioners in the watchlist.
said examination of PESALA's records and requesting that a copy .of his letter be furnished the CB, which
was forthwith made by the Board. 2 On February 10, 1989, the same trial Court issued a writ of preliminary injunction, 6 conditioned upon the
filing by petitioners of a bond in the amount of Ten Thousand (P10,000.00) Pesos each. The Monetary Board
On July 29, 1988, PESALA's Board of Directors sent to Director Lirio a letter concerning the 16th regular presented a Motion for Reconsideration 7 of the said Order, but the same was denied.
examination of PESALA's records.
On September 11, 1999, the trial court handed down its Decision, 8 disposing thus:
On September 9, 1988, the Monetary Board adopted and issued MB Resolution No. 805 the pertinent
provisions of which are as follows:
WHEREFORE, judgment is hereby rendered declaring Monetary
Board Resolution No. 805 as void and in existent. The writ of
1. To note the report on the examination of the PAL Employees' preliminary prohibitory injunctions issued on February 10, 1989
Savings and Loan Association, Inc. (PESALA) as of December is deemed permanent. Costs against respondent.
31, 1987, as submitted in a memorandum of the Director,
Supervision and Examination Section (SES) Department IV, The Monetary Board appealed the aforesaid Decision to the Court of Appeals which came out with a
dated August 19, 1988;
Decision 9 of reversal on September 14, 1990, the decretal portion of which is to the following effect:

2. To require the board of directors of PESALA to immediately WHEREFORE, the decision appealed from is hereby reversed
inform the members of PESALA of the results of the "Central
and another one entered dismissing the petition for injunction.
Bank examination. and their effects on the financial condition of
the Association;
Dissatisfied with the said Decision of the Court of Appeals, petitioners have come to this Court via the present 2. Petitioner Renato Lim's letter of July 28, 1988 to PESALA.'s Board of Directors, explaining his side of the
petition for review on certiorari. controversy, was forwarded to the Monetary Board which the latter considered in adopting Monetary Board
Resolution No. 805; and
On June 5, 1992, petitioners filed an "Urgent Motion for the Immediate Issuance of a Temporary Restraining
Order and/or Writ of Preliminary Injunction against the Secretary of Justice and the City Prosecutor of 3. PESALA's Board of Director's letter, dated July 29, 1988, to Monetary Board, explaining the Board's side
Pasay" 10 stating that several complaints were lodged against the petitioners before the Office of the City of the controversy was properly considered in the adoption of Monetary Board Resolution No. 805.
Prosecutor of Pasay City pursuant to Monetary Board Resolution No. 805; that the said complaints were
dismissed, by the City Prosecutor and the dismissals were appealed to the Secretary of Justice for review,
Petitioners therefore cannot complain of deprivation of their right to due process, as they were given ample
some of which have been reversed already. Petitioners prayed that Temporary Restraining Order and/or Writ
opportunity by the Monetary Board to air their submission and defenses as to the findings of irregularity
of Preliminary Injunction issue "restraining and enjoining the Secretary of Justice and the City Prosecutor of
during the said 16th regular examination. The essence of due process is to be afforded a reasonable
Pasay City from proceeding and taking further actions, and more specially from filing Information's in I.S.
opportunity to be heard and to submit any evidence one may have in support of his defense 13 What is
Nos. 90-1836; 90- 1831; 90-1835; 90-1832; 90-1248; 90-1249; 90-3031; 90-3032; 90- 1837; 90-1834,
offensive to due process is the denial of the opportunity to be heard. 14 Petitioner having availed of their
pending the final resolution of the case at bar . . ." However, in the Resolution 11 dated September 9, 1992, the
opportunity to present their position to the Monetary Board by their letters-explanation, they were not denied
court denied the said motion.
due process. 15

The petition poses as issues for resolution:

Petitioners cite Ang Tibay v. CIR 16 and assert that the following requisites of procedural due process were not
observed by the Monetary Board:
I
1. The right to a hearing, which includes the right to present one's case and submit
WHETHER OR NOT THE PETITIONERS WERE DEPRIVED OF THEIR RIGHT evidence in support thereof;
TO A NOTICE AND THE OPPORTUNITY TO BE HEARD BY THE MONETARY
BOARD PRIOR TO ITS ISSUANCE OF MONETARY BOARD RESOLUTION NO.
2. The tribunal must consider the evidence presented;
805.

3. The decision must have something to support itself;

II

4. The evidence must be substantial;

WHETHER OR NOT THE RESPONDENT BOARD IS LEGALLY BOUND TO
OBSERVE THE ESSENTIAL REQUIREMENTS OF DUE PROCESS OF A VALID
CHARGE, NOTICE AND OPPORTUNITY TO BE HEARD INSOFAR AS THE 5. The decision must be rendered on the evidence presented at the hearing, or at least
PETITIONERS SUBJECT CASE IS CONCERNED. contained in the record and disclosed to the parties affected;

III
WHETHER OR NOT MONETARY BOARD RESOLUTION NO. 805 IS NULL AND
VOID FOR BEING VIOLATIVE OF PETITIONERS' RIGHTS TO DUE PROCESS.
With respect to the first issue, the trial court said:
6. The tribunal or body or any of its judges must act on its or his own independent
consideration of the law and facts of the controversy and not simply accept the view of
a subordinate in arriving at a decision;
7. The board or body should, in all controversial question, renders its decision in such
manner that the parties to the proceedings can know the various issues involved and the
reason for the decision rendered.

The evidence submitted Preponderates in favor of petitioners. The deprivation of

petitioners' rights in the Resolution undermines the constitutional guarantee of due
process. Petitioners were never notified that they were being investigated, much so, they
were not informed of any charges against them and were not afforded the opportunity to
adduce countervailing evidence so as to deserve the punitive measures promulgated in
Resolution No. 805 of the Monetary Board . . . 12
The foregoing disquisition by the trial court is untenable under the facts and circumstances of the case.
Petitioners were duly afforded their right to due process by the Monetary Board, it appearing that:
1. Petitioners were invited by Director Lirio to a conference scheduled for July 21, 1988 to discuss the
findings made in the 16th regular examination of PESALA's records. Petitioners did not attend said
conference;
Contrary to petitioners' allegation, it appears that the requisites of procedural due process were complied with
by the Monetary Board before it issued the questioned Monetary Board Resolution No. 805. Firstly, the
petitioner were invited to a conference to discuss the findings gathered during the 16th regular examination of
PESALA's records. (The requirement of a hearing is complied with as long as there was an opportunity to be
heard, and not necessarily that an actual hearing was conducted. 17) Secondly, the Monetary Board considered
the evidence presented. Thirdly, fourthly, and fifthly, Monetary Board Resolution No. 805 was adopted on the
basis of said findings unearthed during the 16th regular examination of PESALA's records and derived from
the letter-comments submitted by the parties. Sixthly, the members of the Monetary Board acted
independently on their own in issuing subject Resolution, placing reliance on the said findings made during
the 16th regular examination. Lastly, the reason for the issuance of Monetary Board Resolution No. 805 is
readily apparent, which is to prevent further irregularities from being committed and to prosecute the officials
responsible therefor.
With respect to the second issue, there is tenability in petitioners' contention that the Monetary Board, as an
administrative agency, is legally bound to observe due process, although they are free from the rigidity of
certain procedural requirements. As held in Adamson and Adamson, Inc. v. Amores. 18
 While administrative tribunals exercising quasi-judicial functions are free from the
rigidity of certain procedural requirements they are bound by law and practice to
observe the fundamental and essential requirements of due process in justiciable cases
presented before them. However, the standard of due process that must be met in
administrative tribunals allows a certain latitude as long as the element of fairness is not
ignored. Hence, there is no denial of due process where records show that hearings were
held with prior notice to adverse parties. But even in the absence of previous notice,
there is no denial of procedural due process as long as the parties are given the
opportunity to be heard.
Even Section 28, (c) and (d), of Republic Act No. 3779 ("RA 1779") delineating the powers of the Monetary
Board over savings and loan associations, require observance of due process in the exercise of its powers:
xxx xxx xxx
(c) To conduct at least once every year, and whenever necessary, any inspection,
examination or investigation of the books and records, business affairs, administration,
and financial condition of any savings and loan association with or without prior notice
but always with fairness and reasonable opportunity for the association or any of its
officials to give their side of the case. . .
(d) After proper notice and hearing, to suspend a savings and loan association for
violation of law, for unsafe and unsound practices or for reason of insolvency. . .
xxx xxx xxx
(f) To decide, after appropriate notice and hearings any controversy as to the rights or
obligations of the savings and loan association, its directors, officers, stockholders and
members under its charter, and, by order, to enforce the same;
xxx xxx xxx (emphasis supplied)
Anent the third issue, petitioners theorize that Monetary Board Resolution No. 805 is null and void for being
violative of petitioners' right to due process. To support their stance, they cite the trial court's ruling, to wit:
A reading of Monetary Board Resolution No. 805 discloses that it imposes
administrative sanctions against petitioners. In fact, it does not only penalize petitioners
by including them in the "watchlist to prevent them from holding responsible positions
in any institution under Central Bank supervision," it mandates the PESALA Board of
Directors as well to file Civil and Criminal charges against them 'for all the misfeasance
and malfeasance committed by them, as warranted by the evidence.' Monetary Board
Resolution No. 805 virtually deprives petitioners their respective gainful employment,
and at the same time marks them for judicial prosecution. The crucial question here is
that were petitioners afforded due process in the investigations conducted which
prompted the issuance of Monetary Board Resolution No. 805?
. . . Although the Monetary Board is free from the rigidity of certain procedural
requirements, it failed "to observe the essential requirement of due process" (Adamson
and Adamson, Inc. v. Amores, 152 SCRA 237) specifically its failure to afford
petitioners the opportunity to be heard. In short, there is a clear showing of arbitrariness
resulting in an irreparable injury against petitioners as the Resolution certainly affects
their "life, liberty and property.
Monetary Board Resolution No. 805 violates basic and essential requirements. It must
therefore be, as it is hereby, declared, as void and inexistent because among other
things, it openly derogates the fundamental rights of petitioners.
Petitioners opine that with the issuance of Monetary Board Resolution No. 805, "they are now
barred from being elected or designated as officers again of PESALA, and are likewise prevented
from future engagements or employments in all institutions under the supervision of the Central
Bank thereby virtually depriving them of the opportunity to seek employments in the field which
they can excel and are best fitted." According to them, the Monetary Board is not vested with "the
authority to disqualify persons from occupying positions in institutions under the supervision of the
Central Bank without proper notice and hearing" nor is it vested with authority "to file civil and
criminal cases against its officers directors for suspected fraudulent acts."
Petitioners' contentions are untenable. It must be remembered that the Central Bank of the Philippines (now
Bangko Sentral ng Pilipinas), through the Monetary Board, is the government agency charged with the
responsibility of administering the monetary, banking and credit system of the country 19 and is granted the
power of supervision and examination over banks and non-bank financial institutions performing quasi-
banking functions of which savings and loan associations, such as PESALA, from part of.20
The special law governing savings and loan associations is Republic Act No. 3779, as amended, otherwise
known as the "Savings and Loan Association Act." Said law authorizes the Monetary Board to conduct regular
yearly examinations of the books and records of savings and loans associations, to suspend a savings and loan
association for violation of law, to decide any controversy over the obligations and duties of directors and
officers, and to take remedial measures, among others. Section 28 of Rep. Act No. 3779, reads;
Sec. 28. Supervisory powers over savings and loan associations. — In addition to
whatever powers have been conferred by the foregoing provisions, the Monetary Board
shall have the power to exercise the following.
xxx xxx xxx
(c) To conduct atleast once every year, and whenever necessary, any inspection,
examination or investigation of the books and records, business affairs, administration,
and financial condition of any savings and loan association with or without prior notice
but always with fairness and reasonable opportunity for the association or any of its
official to give their side of the case. Whenever an inspection, examination or
investigation is conducted under this grant power, the person authorized to do so may
seize books and records and keep them under his custody after giving proper receipts
therefor; may make any marking or notation on any paper, record, document or book to
show that it has been examined and verified; and may padlock or seal shelves, vaults,
safes, receptacles or similar container and prohibit the opening thereof without first
securing authority therefor, for as long as may be necessary in connection with the
investigation or examination being conducted. The official of the Central Bank in
charge of savings and loan associations and his deputies are hereby authorized to
administer oaths to any directors, officer or employee of any association under the
supervision of the Monetary Board;
xxx xxx xxx
(d) After proper notice and hearing, to suspend a savings and loan association for
violation of law, for unsafe and unsound practices or for reason of insolvency. The
Monetary Board may likewise, upon the proof that a savings and loan association or its
board or directors or officers are conducting and managing its affairs in a manner
contrary to laws, orders, instruction, rules and regulations promulgated by the Monetary
Board or in a manner substantially prejudicial to the interest of the government,
depositors or creditors, take over the management of the savings and loan association
after due hearing, until a new board of directors and officers are elected and qualified
 without prejudice to the prosecution of the persons responsible for such violations. The
management by the Monetary Board shall be without expense to the savings and loan
association, except such as is actually necessary for its operation, pending the election
and qualification of a new board of directors and officers to take the place of those
responsible for the violation or acts contrary to the interest of the government,
depositors or creditors;

xxx xxx xxx

(f) To decide, after appropriate notice and hearings any controversy as to the rights or
obligations of the savings and loan association, its directors, officers, stockholders and
members under its charter, and, by order, to enforce the same;

xxx xxx xxx

(I) To conduct such investigations, take such remedial measures, exercise all powers
which are now or may hereafter be conferred upon it by Republic Act Numbered Two
Hundred sixty-five in the enforcement of this legislation, and impose upon associations,
whether stock or non-stock their directors and/or officers administrative sanctions under
Sections 34-A or 34-B of Republic Act Two Hundred sixty-five, as amended.

From the foregoing, it is gleanable that the Central Bank, through the Monetary Board, is empowered to
conduct investigations and examine the records of savings and loan associations. If any irregularity is
discovered in the process, the Monetary Board may impose appropriate sanctions, such as suspending the
offender from holding office or from being employed with the Central Bank, or placing the names of the
offenders in a watchlist.

The requirement of prior notice is also relaxed under Section 28 (c) of RA 3779 as investigations or
examinations may be conducted with or without prior notice "but always with fairness and reasonable
opportunity for the association or any of its officials to give their side." As may be gathered from the records,
the said requirement was properly complied with by the respondent Monetary Board.

We sustain the ruling of the Court of Appeals that petitioners' suspension was only preventive in nature and
therefore, no notice or hearing was necessary. Until such time that the petitioners have proved their innocence,
they may be preventively suspended from holding office so as not to influence the conduct of investigation,
and to prevent the commission of further irregularities.

Neither were petitioners deprived of their lawful calling as they are free to look for another employment so
long as the agency or company involved is not subject to Central Bank control and supervision. Petitioners can
still practise their profession or engage in business as long as these are not within the ambit of Monetary Board
Resolution No. 805.

All thing studiedly considered, the court upholds the validity of Monetary Board Resolution No. 805 and
affirms the decision of the respondent court.

WHEREFORE, the petition is DENIED, and the assailed Decision dated September 14, 1996 of the
AFFIRMED. No pronouncement as to costs.

SO ORDERED.