Banco Filipino Savings Bank Closure Cases

EN BANC
[G.R. No. 70054. December 11, 1991.]
BANCO FILIPINO SAVINGS AND MORTGAGE BANK , petitioner, vs.

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

HON. INTERMEDIATE APPELLATE COURT AND CELESTINA S.
PAHIMUNTUNG, assisted by her husband , respondents.
[G.R. Nos. 77255-58. December 11, 1991.]
TOP MANAGEMENT PROGRAMS CORPORATION AND PILAR

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

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

OF APPEALS, CENTRAL BANK OF THE PHILIPPINES, JOSE B.
FERNANDEZ, JR., CARLOTA P. VALENZUELA, ARNULFO AURELLANO
AND RAMON TIAOQUI , respondents.
[G.R. No. 78894. December 11, 1991.]

COURT OF APPEALS, THE CENTRAL BANK OF THE PHILIPPINES,
JOSE B. FERNANDEZ, JR., CARLOTA P. VALENZUELA, ARNULFO B.
CD Technologies Asia, Inc. © 2016 cdasiaonline.com
AURELLANO AND RAMON TIAOQUI , respondents.
[G.R. No. 81303. December 11, 1991.]
PILAR DEVELOPMENT CORPORATION , petitioner, vs. COURT OF

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

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

COURT OF APPEALS, THE EXECUTIVE JUDGE of the Regional Trial
Court of Cavite, CLERK OF COURT and Ex-Of cio Sheriff
ADORACION VICTA, BANCO FILIPINO SAVINGS AND MORTGAGE
BANK, CARLOTA P. VALENZUELA AND SYCIP, SALAZAR,
HERNANDEZ AND GATMAITAN , respondents.
Panganiban, Benitez, Barinaga & Bautista Law Offices collaborating counsel for petitioner.
Florencio T. Domingo, Jr. and Crisanto S. Cornejo for intervenors.
DECISION
MEDIALDEA , J : p
This refers to nine (9) consolidated cases concerning the legality of the closure and
receivership of petitioner Banco Filipino Savings and Mortgage Bank (Banco Filipino for
brevity) pursuant to the order of respondent Monetary Board. Six (6) of these cases,
namely, G.R. Nos. 68878, 77255-58, 78766, 81303, 81304 and 90473 involve the common
issue of whether or not the liquidator appointed by the respondent Central Bank (CB for
brevity) has the authority to prosecute as well as to defend suits, and to foreclose
mortgages for and in behalf of the bank while the issue on the validity of the receivership
and liquidation of the latter is pending resolution in G.R. No. 70054. Corollary to this issue
is whether the CB can be sued to ful ll nancial commitments of a closed bank pursuant
to Section 29 of the Central Bank Act. On the other hand, the other three (3) cases, namely,
G.R. Nos. 70054, which is the main case, 78767 and 78894 all seek to annul and set aside
M.B. Resolution No. 75 issued by respondents Monetary Board and Central Bank on
January 25, 1985.
The antecedent facts of each of the nine (9) cases are as follows:
G.R. No. 68878
This is a motion for reconsideration, led by respondent Celestina Pahimuntung, of the
decision promulgated by this Court on April 8, 1986, granting the petition for review on
certiorari and reversing the questioned decision of respondent appellate court, which
annulled the writ of possession issued by the trial court in favor of petitioner.
The respondent-movant contends that the petitioner has no more personality to continue
prosecuting the instant case considering that petitioner bank was placed under
receivership since January 25, 1985 by the Central Bank pursuant to the resolution of the
Monetary Board.
G.R. Nos. 77255-58
Petitioners Top Management Programs Corporation (Top Management for brevity) and
Pilar Development Corporation (Pilar Development for brevity) are corporations engaged
in the business of developing residential subdivisions.
Top Management obtained a loan of P4,836,000 from Banco Filipino as evidenced by a
promissory note dated January 7, 1982 payable in three years from date. The loan was
secured by real estate mortgage in its various properties in Cavite. Likewise, Pilar
Development obtained loans from Banco Filipino between 1982 and 1983 in the principal
amounts of P6,000,000, P7,370,000 and P5,300,000 with maturity dates on December 28,
1984, January 5, 1985 and February 16, 1984, respectively. To secure the loan, Pilar
Development mortgaged to Banco Filipino various properties in Dasmariñas, Cavite. LLpr
On January 25, 1985, the Monetary Board issued a resolution nding 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 rm of Sycip, Salazar, et al. to represent Banco Filipino in all
litigations.
On March 26, 1985, Banco Filipino led 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 rm
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-Of cio 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 led 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-of cio sheriff of said court and Sycip, Salazar, et al.
from proceeding with foreclosure sale.
Similarly, Pilar Development defaulted in the payment of its loans. The law rm of Sycip,
Salazar, et al. led separate applications with the ex-of cio sheriff of the Regional Trial
Court of Cavite for the extra-judicial foreclosure of mortgage over its properties.
Hence, Pilar Development led with the respondent appellate court a petition for
prohibition with prayer for the issuance of a writ of preliminary injunction docketed as CA-
G.R. SP Nos. 08962-64 seeking to enjoin the same respondents from enforcing the
foreclosure sale of its properties. CA-G.R. SP Nos. 07892 and 08962-64 were
consolidated and jointly decided.
On October 30, 1986, the respondent appellate court rendered a decision dismissing the
aforementioned petitions.
Hence, this petition was led by the petitioners Top Management and Pilar Development
alleging that Carlota Valenzuela, who was appointed by the Monetary Board as liquidator
of Banco Filipino, has no authority to proceed with the foreclosure sale of petitioners'
properties or the ground that the resolution of the issue on the validity of the closure and
liquidation of Banco Filipino is still pending with this Court in G.R. 70054.
G.R. No. 78766
Petitioner El Grande Development Corporation (El Grande for brevity) is engaged in the
business of developing residential subdivisions. It was extended by respondent Banco
Filipino a credit accommodation to nance 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. cdphil
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, 19869 the Monetary Board con rmed 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-
of cio sheriff of RTC Cavite. Subsequently, on March 31, 1986, the ex-of cio sheriff issued
the notice of extra-judicial sale of the mortgaged properties of El Grande scheduled or
April 30, 1986.
In order to stop the public auction sale, petitioner El Grande led 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 led 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) led an action against Banco Filipino, the Central Bank and Carlota Valenzuela for
speci c 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 rm led an answer for Banco Filipino which
confessed judgment against Banco Filipino.
On June 17, 1986, petitioner led a second amended complaint. The Central Bank and
Carlota Valenzuela, thru the law rm Sycip, Salazar, Hernandez and Gatmaitan led an
answer to the complaint.
On June 23, 1986, Sycip, et al., acting for all the defendants including Banco Filipino moved
that the answer led by Quisumbing & Associates for defendant Banco Filipino be
expunged from the records. Despite opposition from Quisumbing & Associates, the trial
court granted the motion to expunge in an order dated March 17, 1987. Petitioner Pilar
Development moved to reconsider the order but the motion was denied.
Petitioner Pilar Development led with the respondent appellate court a petition for
certiorari and mandamus to annul the order of the trial court. The Court of Appeals
rendered a decision dismissing the petition. A petition was led with this Court but was
denied in a resolution dated March 22, 1988. Hence, this instant motion for
reconsideration.
G.R. No. 81304
On July 9, 1985, petitioner BF Homes Incorporated (BF Homes for brevity) led an action
with the trial court to compel the Central Bank to restore petitioner's nancing facility with
Banco Filipino.
The Central Bank led 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 led 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. LLjur
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 af rmed the
order of the trial court.
Hence, this petition for review on certiorari was led, 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 ve parcels
of land located in Cavite which were covered by Transfer Certi cate 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-of cio
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 ndings of examination on the nancial 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 ndings as of July 31, 1984, as shown earlier, indicate one of
insolvency and illiquidity and further con rms the above conclusion of the
Conservator.
"All the foregoing provides suf cient justi cation 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 of ce January 1985,
pursuant to Sec. 29 of RA. 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 bene t 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 of cers from Senior
Vice Presidents, as listed in the attached Annex 'A' be included in the watch
list 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 Of ce of
Special Investigation the report on the ndings on Banco Filipino for
investigation and possible prosecution of directors, of cers, and
employees for activities which led to its insolvent position." (pp. 61-62,
Rollo). LLpr
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 nding 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 R.A.
265, as amended, the Board decided:
1. To forbid Banco Filipino Savings and Mortgage Bank and all its branches
to do business in the Philippines;
2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor as Receiver who
is hereby directly vested with jurisdiction and authority to immediately take
charge of the bank's assets and liabilities, and as expeditiously as possible
collect and gather all the assets and administer the same for the bene t 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 led 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 led 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
insuf cient 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 the liquidation of the Bank;
3. The Statutory Receiver be designated as the Liquidator of said bank; and
4. Management be instructed to inform the stockholders of Banco Filipino

Savings & Mortgage Bark of the Monetary Board's decision to liquidate the Bank.
(p. 167, Rollo, Vol. I)
On July 23, 1985, petitioner led 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 of ce and 89 branches. This Court issued a resolution
on August 8, 1985 ordering the issuance of the aforesaid temporary restraining order.
On August 20, 1985, the case was submitted for resolution.
In a resolution dated August 29, 1985, this Court Resolved to direct the respondents
Monetary Board and Central Bank to hold hearings at which the petitioner should be heard,
and to terminate such hearings and submit its resolution within thirty (30) days. This Court
further resolved to issue a temporary restraining order enjoining the respondents from
executing further acts of liquidation of a bank. Acts such as receiving collectibles and
receivables or paying off creditors' claims and other transactions pertaining to normal
operations of a bank were not enjoined. The Central Bank was also ordered to designate a
comptroller for the petitioner BF. This Court also ordered the consolidation of Civil Cases
Nos. 8108, 9676 and 10183 in Branch 136 of the Regional Trial Court of Makati. llcd
However, on September 12, 1985, this Court in the meantime suspended the hearing it
ordered in its resolution of August 29, 1985.
On October 8, 1985, this Court submitted a resolution ordering Branch 136 of the Regional
Trial Court of Makati then presided over by Judge Ricardo Francisco to conduct the
hearing contemplated in the resolution of August 29, 1985 in the most expeditious manner
and to submit its resolution to this Court.
In the Court's resolution of February 19, 1987, the Court stated that the hearing
contemplated in the resolution of August 29, 1985, which is to ascertain whether
substantial 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 justi able reason to bar the former from conducting such hearing. Hence,
this Court directed Judge Manuel Cosico to expedite the hearing and submit his report to
this Court.
On February 20, 1988, Judge Manuel Cosico submitted his report to this Court with the
recommendation that the resolutions of respondents Monetary Board and Central Bank
authorizing the closure and liquidation of petitioner BF be upheld.
On October 21, 1988, petitioner BF led an urgent motion to reopen hearing to which
respondents led their comment on December 16, 1988. Petitioner led their reply to
respondent's comment of January 11, 1989. After having deliberated on the grounds
raised in the pleadings, this Court in its resolution dated August 3, 1989 declared that its
intention as expressed in its resolution of August 29, 1985 had not been faithfully adhered
to by the herein petitioner and respondents. The aforementioned resolution had ordered a
hearing on the reports that led respondents to order petitioner's closure and its alleged
preplanned liquidation. This Court noted that during the referral hearing however, a
different scheme was followed. Respondents merely submitted to the commissioner their
findings on the examinations conducted on petitioner, affidavits of the private respondents
relative to the findings, their reports to the Monetary Board and several other documents in
support of their position while petitioner had merely submitted objections to the ndings
of respondents, counter-af davits of its of cers 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 af davits 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 led in this case as follows: First, in G.R. No. 70054
led by Eduardo Rodriguez and Fortunato M. Dizon, stockholders of petitioner bank for
and on behalf of other stockholders of petitioner; second, in G.R. No. 78894, led 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:
"1) Had the Monetary Board observed the procedural requirements laid down
in Sec. 29 of R.A. 265, as amended to justify the closure of the Banco Filipino
Savings and Mortgage Bank?
"2) On the date of 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 Sec. 29 of the R.A. 265, as amended, BF's insolvency as of July 31, 1984 or
that its continuance in business thereafter would involve probable loss to its
depositors or creditors. On the contrary, the evidence indicates that BF was
solvent on July 31, 1984 and that on January 25, 1985, the day it was closed, its
insolvency was not clearly established;
"2. That consequently, BF's closure on January 25, 1985, not having satis ed
the requirements prescribed under Sec. 29 of RA 265, as amended, was null and
void. prcd
"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 led a motion for leave to le 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 led 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 con icting reports on the same subject, one upholding on all points
the Monetary Board's closure of petitioner, (Cosico Report dated February 19, 1988) and
the other (Santiago Report dated January 25, 1991) holding that petitioner's closure was
null and void because petitioner's insolvency was not clearly established before its closure;
and that such a hearing on oral argument will therefore allow the parties to directly
confront the issues before this Court.
On March 12, 1991 petitioner led 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 led 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 led 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) led 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 led 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 led 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 led by Banco Filipino with the trial court as well as the complaint in intervention
of petitioner Metropolis Development Corporation.
Hence this petition was led by Metropolis Development Corporation questioning the
decision of the respondent appellate court.
G.R. No. 78894
On February 2, 1985, a complaint was led with the trial court in the name of Banco Filipino
to annul the resolution of the Monetary Board dated January 25, 1985 which ordered the
closure of Banco Filipino and placed it under receivership. The receivers appointed by the
Monetary Board were Carlota Valenzuela, Arnulfo Aurellano and Ramon Tiaoqui.
On February 14, 1985, the Central Bank and the receivers led 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. cdphil
The Central Bank led a supplemental motion to dismiss which was denied. Hence, the
latter led 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 led 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 le 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;
3. In G.R. No. 78766, the petition, comment, reply and rejoinder;

4. In G.R. No. 81303, the petitioner's motion for reconsideration;
5. In G.R. No. 81304, the petition, comment and reply;
6. Finally, in G.R. No. 90473, the petition, comment and reply,.
We nd 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 bene t 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 con rm that the banking institution is insolvent or cannot
resume business with safety to depositors, creditors and the general public, it shall, if
public interest requires, order its liquidation and appoint a liquidator who shall take over
and continue the functions of the receiver previously appointed by Monetary Board. The
liquidator may, in the name of the bank and with the assistance of counsel as he may
retain, institute such actions as may be necessary in the appropriate court to collect and
recover accounts and assets of such institution or defend any action led against the
institution.
When the issue on the validity of the closure and receivership of Banco Filipino bank was
raised in G.R. No. 70054, the pendency of the case did not diminish the powers and
authority of the designated liquidator to effectuate and carry on the administration of the
bank. In fact when We adopted a resolution on August 25, 1985 and issued a restraining
order to respondents Monetary Board and Central Bank, We enjoined merely further acts
of liquidation. Such acts of liquidation, as explained in Sec. 29 of the Central Bank Act are
those which constitute the conversion of the assets of the banking institution to money or
the sale, assignment or disposition of the same to creditors and other parties for the
purpose of paying the debts of such institution. We did not prohibit however acts such as
receiving collectibles and receivables or paying off creditors' claims and other
transactions pertaining to normal operations of a bank. There is no doubt that the
prosecution of suits for collection and the foreclosure of mortgages against debtors of
the bank by the liquidator are among the usual and ordinary transactions pertaining to the
administration of a bank. Neither did Our order in the same resolution dated August 25,
1985 for the designation by the Central Bank of a comptroller for Banco Filipino alter the
powers and functions of the liquidator insofar as the management of the assets of the
bank is concerned. The mere duty of the comptroller is to supervise accounts and nances
undertaken by the liquidator and to determine the propriety of the latter's expenditures
incurred in behalf of the bank. Notwithstanding this, the liquidator is still empowered under
the law to continue the functions of the receiver in preserving and keeping intact the
assets of the bank in substitution of its former management, and to prevent the
dissipation of its assets to the detriment of the creditors of the bank. These powers and
functions of the liquidator in directing the operations of the bank in place of the former
management or former of cials of the bank include the retaining of counsel of his choice
in actions and proceedings for purposes of administration. prLL
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 ful ll nancial 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, nd 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
ndings 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 justi cation 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 of cer 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:
"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 nancial
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 nding the statements of the
department head to be true, forbid the institution to do business in the Philippines
and designate an of cial of the Central Bank or a person of recognized
competence in banking or nance, 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 bene ts 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 ful llment 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 con rm within the said period that the
bank or non-bank nancial 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, le 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 nancial 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 of cial 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 nancial intermediary performing quasi-banking
functions to money or sell, assign or otherwise dispose of the same to creditors
and other parties for the purpose of paying the debts of such institution and he
may, in the name of the bank or non-bank nancial 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 led 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, or execution. LLpr
"The provisions of any law to the contrary notwithstanding, the actions of the
Monetary Board under this Section, Section 28-A, and the second paragraph of
Section 34 of this Act shall be final and executory, and can be set abide by a court
only if there is convincing proof, after hearing, that the action is plainly arbitrary
and made in bad faith: Provided, That the same is raised in an appropriate
pleading led by the stockholders of record representing the majority of the
capital stock within ten (10) days from the date the receiver taxes charge of the
assets and liabilities of the bank or non-bank nancial intermediary performing
quasi-banking functions or, in case of conservator ship or liquidation, within ten
(10) days from receipt of notice by the said majority stockholders of said bark or
non-bank nancial intermediary of the order of its placement under conservator
ship or liquidation. No restraining order or injunction shall be issued by any court
enjoining the Central Bank from implementing its actions under this Section and
the second paragraph of Section 34 of this Act in the absence of any convincing
proof that the action of the Monetary Board is plainly arbitrary and made in bad
faith and the petitioner or plaintiff les a bond, executed in favor of the Central
Bank, in an amount to be xed by the court. The restraining order or injunction
shall be refused or, if granted, shall be dissolved upon ling by the Central Bank
of a bond, which shall be in the form of cash or Central Bank cashier's check, in
an amount twice the amount of the bond of the petitioner or plaintiff conditioned
that it will pay the damages which the petitioner or plaintiff may suffer by the
refusal or the dissolution of the injunction. The provisions of Rule 58 of the New
Rules of Court insofar as they are applicable and not inconsistent with the
provisions of this Section shall govern the issuance and dissolution of the
restraining order or injunction contemplated in this Section.
"xxx xxx xxx."
Based on the aforequoted provision, the Monetary Board may order the cessation of
operations of a bank in the Philippines and place it under receivership upon a nding of
insolvency or when its continuance in business would involve probable loss to its
depositors or creditors. If the Monetary Board shall determine and con rm 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.
Speci cally, 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
nding 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 ndings 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 rst requirement, the Tiaoqui report, submitted on January 23, 1985, revealed
that the nding of insolvency of petitioner was based on the partial list of exceptions and
ndings on the regular examination of the bank as of July 31, 1984 conducted by the
Supervision and Examination Sector II of the Central Bank (p. 1, Tiaoqui Report).
On December 17, 1984, this list of exceptions and ndings was submitted to the petitioner
bank (p. 6, Tiaoqui Report). This was attached to the letter dated December 17, 1984, of
examiner-in-charge Dionisio Domingo of SES Department II of the Central Bank to Teodoro
Arcenas, president of petitioner bank, which disclosed that the examination of the
petitioner bank as to its nancial condition as of July 31, 1984 was not yet completed or
nished on December 17, 1984 when the Central Bank submitted the partial list of ndings
of examination to the petitioner bank. The letter reads:
"In connection with the regular examination of your institution as of July 31, 1984,
we are submitting herewith a partial list of our exceptions/ ndings for your
comments.
"Please be informed that we have not yet of cially 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
ndings/observations are still being summarized including the classi cation 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 of cials of the latter and of petitioner bank. What transpired and what was
agreed upon during the conference was explained in the Tiaoqui report. LexLib
". . . The discussion centered on the substantial exposure of the bank to the
various entities which would have a relationship with the bank; the manner by
which some bank funds were made indirectly available to several entities within
the group; and the unhealthy nancial status of these rms in which the bank
was additionally exposed through new funds or re nancing accommodation
including accrued interest.
"Queried in the impact of these clean loans, on the bank solvency, Mr. Dizon (BF
Executive Vice President) intimated that, collectively, these corporations have
large undeveloped real estate properties in the suburbs which can be made
answerable for the unsecured loans as well as the Central Bank's credit
accommodations. A formal reply of the bank would still be forthcoming." (pp. 58-
59, Rollo, Vol. I; emphasis ours)
Clearly, Tiaoqui based his report on an incomplete examination of petitioner bank and
outrightly concluded therein that the latter's nancial 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 pro ts aggregated P351.8 million; that capital
adjustments, however, wiped out the capital accounts and placed the bank with a capital
de ciency amounting to P334.956 million; that the biggest adjustment which contributed
to the de cit is the provision for estimated losses on accounts classi ed 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 insuf ciency and unreliability of the ndings 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 nancial
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 of cially terminated . (p. 7. Tiaoqui report; p. 59, Rollo,
Vol. I).
In his testimony in the second referral hearing before Justice Santiago, Tiaoqui testi ed
that on January 21, 1985, he met with of cers of petitioner bank to discuss the advanced
ndings 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 Examiner-in-charge Dionisio Domingo submitted his nal 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 ndings in the examination of the bank, there
were still highly signi cant items to be weighed and determined such as the matter of
valuation reserves, before these can be considered in the nancial 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 insuf cient, 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 ndings on its
nancial 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
of cers/representatives of the institution on the ndings/exception, and a copy of the
summary of the ndings/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 arbitrarily 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. prLL
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 except 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 suf ciently 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 nancial position on January 23, 1985, as to justify its closure on January 25,
1985 cannot be given weight and nality 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 de nitely ascertainable as to extent, valuation
reserves of fifty per cent (50%) of the accounts should be recommended to be set up.
2. For loans classi ed 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 nancial condition of the
bank is based on Section 5 of RA 337, known as the General Banking Act which states:
"SECTION 5. The following terms shall be held to be synonymous and

interchangeable:
xxx xxx xxx
f. 'Unimpaired Capital and Surplus,' 'Combined capital accounts,' and 'Net

worth,' which terms shall mean for the purposes of this Act, the total of the
'unimpaired paid-in capital, surplus, and undivided pro ts 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 nancial
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 of cers 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 nancial
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 nancial 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 pro ts. (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 net
worth 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 re ect 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,
xed 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 certi ed checks, borrowings, due to head
of ce, 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 justi ed, are based however, on the
assumption that the bank or company will continue in business inde nitely, and therefore,
the net worth 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. cdrep
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 suf cient
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 less than its liabilities. Hence, a
bank is solvent if the fair cash value of all its assets, realizable within a reasonable time by
a reasonable prudent person, would equal or exceed its total liabilities exclusive of stock
liability; but if such fair cash value so realizable is not suf cient 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 insuf cient 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 re ective 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 con ne 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 veri cation (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 eld of fact- nding expertise of the Central
Bank and the Monetary Board. Notwithstanding the fact that the gures 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 gures
presented by the Tiaoqui Report in concluding insolvency as of July 31, 1984 and at the
gures presented by the CB authorized deputy receiver and by the Valenzuela, Aurellano
and Tiaoqui Report which recommended the liquidation of the bank by reason of
insolvency as of January 25, 1985.
The Tiaoqui report dated January 23, 1985, which was based on partial examination
ndings 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
gures will show that the liabilities of P5,282.1 million will not exceed the total assets
which will amount to P5,559.4 if the 612.2 million allotted to valuation reserves will not, be
deducted from the assets. There can be no basis therefore for both the conclusion of
insolvency and for the decision of the respondent Board to close petitioner bank and place
it under receivership.
Concerning the nancial 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 ndings 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 conservator ship no of cial 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, testi ed that the reason for petitioner bank's closure was
not unsound, unsafe and fraudulent banking practices but the alleged insolvency position
of the bank (TSN, August 3, 1990, p. 3315, Rollo, Vol. VIII).
Finally, another circumstance which point to the solvency of petitioner bank is the granting
by the Monetary Board in favor of the former a credit line in the amount of P3 billion along
with the placing of petitioner bank under conservator ship 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. cdll
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:
"SECTION 90. . . . In periods of emergency or of imminent nancial panic
which directly threaten monetary and banking stability, the Central Bank may
grant banking institutions extraordinary advances secured by any assets which
are de ned as acceptable security by a concurrent vote of at least ve 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 nancial condition or under serious nancial 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 ve
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 nancial 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 nancial confusion
involves the whole banking community and not one bank or institution only. The second
situation on the other hand, provides for a situation where the Central Bank grants a loan to
a bank with uncertain financial condition but not insolvent.
As alleged by the respondents, the following are the reasons of the Central Bank in
approving the resolution granting the P3 billion loan to petitioner bank and the latter's
reopening after a brief self-imposed banking holiday:
"WHEREAS, the closure by Banco Filipino Savings and Mortgage Bank of its
Banking of ces on its own initiative has worked serious hardships on its
depositors and has affected con dence levels in the banking system resulting in
a feeling of apprehension among depositors and unnecessary deposit
withdrawals;
"WHEREAS, the Central Bank is charged with the function of administering the
banking system;
"WHEREAS, the reopening of Banco Filipino would require additional credit
resources from the Central Bank as well as an independent management
acceptable to the Central Bank;
"WHEREAS, it is the desire of the Central Bank to rapidly diffuse the uncertainty
that presently exists;
". . ." (M.B. Min. No. 35 dated July 27, 1984 cited in Respondents' Objections to
Santiago Report, p. 26; p. 3387, Rollo, Vol. IX; Emphasis ours).
A perusal of the foregoing "Whereas" clauses unmistakably show that the clear reason for
the decision to grant the emergency loan to petitioner bank was that the latter was
suffering from nancial 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 nds 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 nancial
support to the latter and placed it under conservator ship, such actuation means that
petitioner bank could still be saved from its nancial 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 con dence in it ( Ramos v. Central Bank ,
No. L-29352, October 4, 1971, 41 SCRA 565).
In view of the foregoing premises, We believe that the closure of the petitioner bank was
arbitrary and committed with grave abuse of discretion. Granting in gratia argumenti that
the closure was based on justi ed grounds to protect the public, the fact that petitioner
bank was suffering from serious nancial 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 nancial 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 re ect on the Central
Bank's own viability. For one thing, the Central Bank and the Monetary Board should
exercise strict supervision over Banco Filipino. They should take all the necessary steps
not violative of the laws that will fully secure the repayment of the total financial assistance
that the Central Bank had already granted or would grant in the future.
ACCORDINGLY, decision is hereby rendered as follows:
1. The motion for reconsideration in G.R. Nos. 68878 and 81303, and the petitions in
G.R. Nos. 77255-58, 78766, 81304 and 90473 are DENIED;
2. The petitions in G.R. No. 70054, 78767 and 78894 are GRANTED and the assailed
order of the Central Bank and the Monetary Board dated January 25, 1985 is hereby
ANNULLED AND SET ASIDE. The Central Bank and the Monetary Board are ordered to
reorganize petitioner Banco Filipino Savings and Mortgage Bank and allow the latter to
resume business in the Philippines under the comptroller ship of both the Central Bank and
the Monetary Board and under such conditions as may be prescribed by the latter in
connection with its reorganization until such time that petitioner bank can continue in
business with safety to its creditors, depositors and the general public.
SO ORDERED.
Narvasa, C.J., Gutierrez, Jr., Cruz, Bidin and Regalado, JJ., concur.
Paras, Feliciano, Padilla, Davide, Jr. and Nocon, JJ., took no part.
Separate Opinions
MELENCIO-HERRERA, J ., dissenting :
I join Mme. Justice Carolina G. Aquino in her dissent and vote to deny the prayer, in G.R. No.
70054, to annul Monetary Board Resolution No. 75 placing Banco Filipino (BF) under
receivership.
Even assuming that the BF was not, as alleged, in a literal state of insolvency at the time of
the passage of said Resolution, there was a nding in the Teodoro report that, based on
that Bank's illiquidity, to have allowed it to continue in operation would have meant
probable loss to depositors and creditors. That is also a ground for placing the bank under
receivership, as a rst step, pursuant to Section 29 of the Central Bank Act (Rep. Act No.
265, as amended). The closure of BF, therefore, can not be said to have been arbitrary or
made in bad faith. There was suf cient justi cation, considering its inability to meet the
heavy withdrawals by its depositors and to pay its liabilities as they fell due, to forbid the
bank from further engaging in banking.
The matter of reopening, reorganization or rehabilitation of BF is not within the
competence of this Court to ordain but is better addressed to the Monetary Board and the
Central Bank considering the latter's enormous infusion of capital into BF to the tune of
approximately P3.5 Billion in total accommodations, after a thorough assessment of
whether or not BF is, indeed, possessed, as it stoutly contends, of suf cient assets and
capabilities with which to repay such huge indebtedness, and can operate without loss to
its many depositors and creditors.
GRIÑO-AQUINO, J ., dissenting in part.

Although these nine (9) Banco Filipino (BF) cases have been consolidated under one
ponencia, all of them except one, raise issues unrelated to the receivership and liquidation
of said bank. In fact, two of these cases (G.R. No. 68878 and 81303) have already been
decided by this Court and are only awaiting the resolution of the motions for
reconsideration led therein. Only G.R. No. 70054 "Banco Filipino Savings and Mortgage
Bank (BF) vs. the Monetary Board (MB), Central Bank of the Philippines (CB), et al.," is an
original action for mandamus and certiorari led in this Court by former of cials of BF to
annul the Monetary Board Resolution No. 75 dated January 25, 1985 (ordering the closure
of Banco Filipino [BF] and appointing Carlota Valenzuela as receiver of the bank) on the
ground that the resolution was issued "without affording BF a hearing on the reports" on
which the Monetary Board based its decision to close the bank, hence, without
"administrative due process." 1 The prayer of the petition reads:
"WHEREFORE, petitioner respectfully prays that a writ of mandamus be issued
commanding respondents immediately to furnish it copies of the reports of
examination of BF employed by respondent Monetary Board to support its
Resolution of January 25, 1985 and thereafter to afford it a hearing prior to any
resolution that may be issued under Section 29 of R.A. 265, meanwhile annulling
said Resolution of January 25, 1985 by writ of certiorari as made without or in
excess of jurisdiction or with grave abuse of discretion.
"So as to expedite proceedings, petitioner prays that the assessment of the

damages respondents should pay it be deferred and referred to commissioners.
"Petitioner prays for such other remedy as the Court may deem just and equitable
in the premises.
"Quezon City for Manila, February 28, 1985." (p. 8, Rollo I.)
and the prayer of the Supplement to Petition reads:

"WHEREFORE, in addition to its prayer for mandamus and certiorari contained in
its original petition, petitioner respectfully prays that Sections 28-A and 29 of the
Central Bank charter (R.A. 265) including its amendatory Presidential Decrees
Nos. 72, 1771, 1827 and 1937 be annulled as unconstitutional. prcd
"Quezon City for Manila, March 4, 1985." (p. 11-G, Rollo I.)
The other eight (8) cases merely involve transactions of BF with third persons and certain
"related" corporations which had defaulted on their loans and sought to prohibit the
extrajudicial foreclosure of the mortgages on their properties by the receiver of BF. These
eight (8) cases are:
1. G.R. No. 68878 "BF vs. Intermediate Appellate Court and Celestina Pahimutang "
involves the repossession by BF of a house and lot which the buyer (Pahimutang) claimed
to have completely paid for on the installment plan. The appellate court's judgment for the
buyer was reversed by this Court. The buyer's motion for reconsideration is awaiting
resolution by this Court;
2. G.R. Nos. 77255-58, "Top Management Programs Corporation and Pilar
Development Corporation vs. Court of Appeals, et al." (CA-G.R. SP No. 07892) and "Pilar
Development Corporation vs. Executive Judge, RTC, Cavite " (CA-G.R. SP Nos. 08962-64) is
a consolidated petition for review of the Court of Appeals' joint decision dismissing the
petitions for prohibition in which the petitioners seek to prevent the receiver/liquidator of
BF from extrajudicially foreclosing the P4.8 million mortgage on Top Management's
properties and the P18.67 million mortgage on Pilar Development properties. The Court of
Appeals dismissed the petitions on October 30, 1986 on the ground that "the functions of
the liquidator, as receiver under Section 29 (R.A. 265), include taking charge of the
insolvent's assets and administering the same for the bene t of its creditors and of
bringing suits and foreclosing mortgages in the name of the bank; "
3. G.R. No. 78766, "El Grande Corporation vs. Court of Appeals, et al.," is an appeal
from the Court of Appeals' decision in CA-G.R. SP No. 08809 dismissing El Grande's
petition for prohibition to prevent the foreclosure of BF's P8 million mortgage on El
Grande's properties;
4. G.R. No. 78894, "Banco Filipino Savings and Mortgage Bank vs. Court of Appeals, et
al." is an appeal of BF's old management (using the name of BF) from the decision of the
Court of Appeals in CA-G.R. SP No. 07503 entitled, "Central Bank, et al. vs. Judge Zoilo
Aguinaldo, et al." dismissing the complaint of "BF" to annul the receivership, for no suit may
be brought or defended in the name of the bank except by its receiver;
5. G.R. No. 87867, "Metropolis Development Corporation vs. Court of Appeals"
(formerly AC-G.R. No. 07503, "Central Bank, et al. vs. Honorable Zoilo Aguinaldo, et al.") is
an appeal of the intervenor (Metropolis) from the same Court of Appeals' decision subject
of G.R. No. 78894, which also dismissed Metropolis' complaint in intervention on the
ground that a stockholder (Metropolis) may not bring suit in the name of BF while the
latter is under receivership, without the authority of the receiver;
6. G.R. No. 81303, "Pilar Development Corporation vs. Court of Appeals, et al." is an
appeal from the decision dated October 22, 1987 of the Court of Appeals in CA-G.R. SP
No. 12368, "Pilar Development Corporation, et al. vs. Honorable Manuel Cosico, et al.,"
dismissing the petition for certiorari against Judge Manuel Cosico, Br. 136, RTC, Makati,
who dismissed the complaint led by Pilar Development Corporation against BF, for
speci c performance of certain developer contracts. An answer led by Norberto
Quisumbing and Associates, as BF's supposed counsel, virtually confessed judgment in
favor of Pilar Development. On motion of the receiver, the answer was expunged and the
complaint was dismissed. On a petition for certiorari in this Court, we held that: "As
liquidator of BF by virtue of a valid appointment from the Central Bank, private respondent
Carlota Valenzuela has the authority to direct the operation of the bank in substitution of
the former management, which authority includes the retainer of counsel to represent it in
bringing or resisting suits in connection with such liquidation and, in the case at bar, to
take the proper steps to prevent collusion, to the prejudice of the legitimate creditors,
between BF and the petitioners herein which appear to be owned and controlled by the
same interest controlling BF" (p. 49, Rollo). The petitioners' motion for reconsideration of
that decision is pending resolution.prcd
7. G.R. No. 81304, "BF Homes Development Corporation vs. Court of Appeals, et al." is
an appeal from the decision dated November 4, 1987 of the Court of Appeals in CA-G.R.
CV No. 08565 af rming the trial court's order dismissing BF Homes' action to compel the
Central Bank to restore the nancing facilities of BF, because the plaintiff (BF Homes) has
no cause of action against the CB.
8. G.R. No. 90473, "El Grande Development Corporation vs. Court of Appeals, et al.," is a
petition to review the decision dated June 6, 1989 in CA-G.R. SP No. 08676 dismissing El
Grande's petition for prohibition to stop foreclosure proceedings against it by the receiver
of BF.
As previously stated, G.R. No. 70054 "BF vs. Monetary Board, et al.," is an original special
civil action for certiorari and mandamus led in this Court by the old management of BF,
through their counsel, N.J. Quisumbing & Associates, using the name of the bank and
praying for the annulment of MB Resolution No. 75 which ordered the closure of BF and
placed it under receivership. It is a "forum-shopping" case because it was led here or
February 28, 1985 three weeks after they had led on February 2, 1985 Civil Case No. 9675
"Banco Filipino vs. Monetary Board, et al." in the Regional Trial Court of Makati, Br. 143
(presided over by Judge Zoilo Aguinaldo) for the same purpose of securing a declaration
of the nullity of MB Resolution No. 75 dated January 25, 1985.
On August 25, 1985, this Court ordered the transfer and consolidation of Civil Case No.
9675 (to annul the receivership) from Br. 143 to Br. 136 (Judge Manuel Cosico) of the
Makati Regional Trial Court where Civil Case No. 8108 (to annul the conservator ship) and
Civil Case No. 10183 (to annul the liquidation) of BF were and are still pending. All these
three (3) cases were archived on June 30, 1988 by Judge Cosico pending the resolution of
G.R. No. 70054 by this Court.
Because of my previous participation, as a former member of the Court of Appeals, in the
disposition of AC-G.R. No. 02617 (now G.R. No. 68378) and AC-G.R. SP No. 07503 (now
G.R. Nos. 78767 and 78894), I am taking no part in G.R. Nos. 68878, 78767 and 78894. It
may be mentioned in this connection that neither in AC-G.R. SP No. 02617, nor in AC-G.R.
SP No. 07503, did the Court of Appeals rule on the constitutionality of Sections 28-A and
29 of Republic Act 265 (Central Bank Act), as amended, and the validity of MB Resolution
No. 75, for those issues were not raised in the Court of Appeals.
I concur with the ponencia insofar as it denies the motion for reconsideration in G.R. No.
81303, and dismisses the petitions for review in G.R. Nos. 77255-58, 78766, 81304, and
90473.
I respectfully dissent from the majority opinion in G.R. No. 70054 annulling and setting
aside MB Resolution No. 75 and ordering the respondents, Central Bank of the Philippines
and the Monetary Board —
"to reorganize petitioner Banco Filipino Savings and Mortgage Bank, and allow
the latter to resume business in the Philippines under the comptroller ship of both
the Central Bank and the Monetary Board and under such conditions as may be
prescribed by the latter until such time that petitioner bank can continue in
business with safety to its creditors, depositors and the general public."
for I believe that this Court has neither the authority nor the competence to determine
whether or not, and under what conditions, BF should be reorganized and reopened.
That decision should be made by the Central Bank and the Monetary Board, not by this
Court. prLL
All that we may determine in this case is whether the actions of the Central Bank and the
Monetary Board in closing BF and placing it under receivership were "plainly arbitrary and
made in bad faith."
Section 29 of Republic Act No. 265 provides:
"SECTION 29. Proceedings upon insolvency. — Whenever, upon examination
by the head of the appropriate supervising and examining department or his
examiners or agents into the condition of any banking institution, it shall be
disclosed that the condition of the same is one of insolvency, or that its
continuance in business would involve probable loss to its depositors or creditors,
it shall be the duty of the department head concerned forthwith, in writing, to
inform the Monetary Board of the facts, and the Board may, upon nding the
statements of the department head to be true, forbid the institution to do business
in the Philippines and shall designate an of cial of the Central Bank as receiver to
immediately take charge of its assets and liabilities, as expeditiously as possible
collect and gather all the assets and administer the same for the bene t of its
creditors, exercising all the powers necessary for these purposes including, but
not limited to, bringing suits and foreclosing mortgages in the name of the
banking institution.
"The Monetary Board shall thereupon determine within sixty days whether the
institution may be reorganized or otherwise placed in such a condition so that it
may be permitted to resume business with safety to its depositors and creditors
and the general public and shall prescribe the conditions under which such
resumption of business shall take place as well as the time for ful llment of such
conditions. In such case, the expenses and fees in the collection and
administration of the assets of the institution shall be determined by the Board
and shall be paid to the Central Bank out of the assets of such banking
institution.
"If the Monetary Board shall determine and con rm within the said period that the
banking institution is insolvent or cannot resume business with safety to its
depositors, creditors and the general public, it shall, if the public interest requires,
order its liquidation, indicate the manner of its liquidation and approve a
liquidation plan. The Central Bank shall, by the Solicitor General, le a petition in
the Court of First Instance, reciting the proceedings which have been taken and
praying the assistance of the court in the liquidation of the banking institutions.
The court shall have jurisdiction in the same proceedings to adjudicate disputed
claims against the bank and enforce individual liabilities of the stockholders and
do all that is necessary to preserve the assets of the banking institution and to
implement the liquidation plan approved by the Monetary Board. The Monetary
Board shall designate an of cial of the Central Bank as liquidator who shall take
over the functions of the receiver previously appointed by the Monetary Board
under this section. The liquidator shall, with all convenient speed, convert the
assets of the banking institution to money or sell, assign or otherwise dispose of
the same to creditors and other parties for the purpose of paying the debts of
such bank and he may, in the name of the banking institution, institute such
actions as may be necessary in the appropriate court to collect and recover
accounts and assets of the banking institution.
"The provisions of any law to the contrary notwithstanding, the actions of the
Monetary Board under this section and the second paragraph of Section 34 of
this Act shall be nal 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 les with the clerk or judge of the court in which the action is pending a
bond executed in favor of the Central Bank, in an amount to be xed by the court.
The restraining order or injunction shall be refused or, if granted, shall be
dissolved upon ling by the Central Bank of a bond, which shall be in the form of
cash or Central Bank cashier's check, in an amount twice the amount of the bond
of the petitioner or plaintiff, conditioned that it will pay the damages which the
petitioner or plaintiff may suffer by the refusal or the dissolution of the injunction.
The provisions of Rule 58 of the new Rules of Court insofar as they are applicable
and not inconsistent with the provisions of this section shall govern the issuance
and dissolution of the restraining order or injunction contemplated in this section.
Insolvency, under this Act, shall be understood to mean the inability of a banking
institution to pay its liabilities as they fall due in the usual and ordinary course of
business, provided, however, that this shall not include the inability to pay of an
otherwise non-insolvent bank caused by extra-ordinary demands induced by
nancial panic commonly evidenced by a run on the banks in the banking
community." LLjur
The determinative factor in the closure, receivership, and liquidation of a bank is the
nding, upon examination by the SES of the Central Bank, that its condition "is one of
insolvency, or that its continuance in business would involve probable loss to its
depositors and creditors." (Sec. 29, R.A. 265.) It should be pointed out that insolvency is
not the only statutory ground for the closure of a bank. The other ground is when "its
continuance in business would involve probable loss to its depositors and creditors."
Was BF insolvent i.e., unable to pay its liabilities as they fell due in the usual and ordinary
course of business, on and for some time before January 25, 1985 when the Monetary
Board issued Resolution No. 75 closing the bank and placing it under receivership? Would
its continued operation involve probable loss to its depositors and creditors?
The answer to both questions is yes. Both the conservator Gilberto Teodoro and the head
of the SES (Supervision and Examination Sector) Ramon V. Tiaoqui opined that BF's
continuance in business would cause probable loss to depositors and creditors. Tiaoqui
further categorically found that BF was insolvent. Why was this so?
The Teodoro and Tiaoqui reports as well as the report of the receivers, Carlota Valenzuela,
Arnulfo B. Aurellano and Ramon V. Tiaoqui, showed that since the end of November 1983
BF had already been incurring "chronic reserve de ciencies" and experiencing severe
liquidity problems. So much so, that it had become "a substantial borrower in the call loans
market" and in June 1984 it obtained a P30 million emergency loan from the Central Bank.
(p. 2, Receiver's Report.) Additional emergency loans (a total of P119.7 millions) were
extended by the Central Bank to BF that month (MB Res. No. 839 dated June 29, 1984). On
July 12, 1984, BF's chairman, Anthony Aguirre, offered to "turn over the administration of
the affairs of the bank" to the Central Bank (Aguirre's letter to Governor Jose Fernandez,
Annex 7 of Manifestation dated May 3, 1991). On July 23, 1984, unable to meet heavy
deposit withdrawals, BF's management motu proprio, without obtaining the conformity of
the Central Bank, closed the bank and declared a bank holiday. On July 27, 1984, the CB,
responding to BF's pleas for additional nancial assistance, granted BF a P3 billion credit
line (MB Res. No. 934 of July 27, 1984) to enable it to reopen and resume business on
August 1, 1984. P2.3601 billions of the credit line were availed of by the end of 1984
exclusive of an overdraft of P932.4 millions (p. 2, Tiaoqui Report). Total accommodations
granted to BF amounted to P3.4122 billions (p. 19, Cosico Report).
Presumably to assure that the nancial assistance would be properly used, the MB
appointed Basilio Estanislao as conservator of the bank. A conservatorship team of 78
examiners and accountants was assigned at the bank to keep track of its activities and
ascertain its financial condition (p. 8, Tiaoqui Report).
Estanislao resigned after two weeks for health reasons. He was succeeded by Gilberto
Teodoro as conservator in August, 1984 up to January 8, 1985.
Besides the conservatorship team, Teodoro hired nancial consultants Messrs. Tirso G.
Santillan, Jr. and Plorido P. Casuela to make an analysis of BF's nancial condition.
Teodoro also engaged the accounting rm of Sycip, Gorres, Velayo and Company to make
an asset evaluation. The Philippine Appraisal Company (PAC) appraised BF's real estate
properties, acquired assets, and collaterals held. On January 9, 1985, Teodoro submitted
his Report. Three weeks later, on January 23, 1985, Tiaoqui also submitted his Report.
Both reports showed that, in violation of Section 37 of the General Banking Act (R.A. 337):
2
1. BF had been continually de cient in liquidity reserves (Teodoro Report).

The bank had been experiencing a severe drop in liquidity levels. The ratio of
liquid assets to deposits and borrowings plunged from about 20% at end-1983, to
about 8.6% by end-May 1984, much below the statutory requirements of 24% for
demand deposits/deposit substitutes and 14% for savings and time deposits. (p.
2, Tiaoqui Report.)
2. De ciencies in average daily legal reserves rose from P63.0 million during
the week of November 21-25, 1983 to a high of P435.9 million during the week of
June 11-15, 1984 (pp. 2-3, Tiaoqui Report). Accumulated penalties on reserve
de ciencies amounted to P37.4 million by July 31, and rose to P48 million by the
end of 1984. (Tiaoqui Report.)
3. Deposit levels, which were at P3,845 million at end-May 1984 (its last
"normal" month), dropped to P935 million at the end of November 1984 or a loss
of P2,910 million. This represented an average monthly loss of P485 million vs.
an average monthly gain of P26 million during the rst 5 months of 1984. (pp. 2-
3, Tiaoqui Report.)
4. Deposits had declined at the rate of P20 million during the month of
December 1984, but expenses of about P17 million per month were required to
maintain the bank's operations. (p. 5, Teodoro Report.)
5. Based on the projected outlook, the Bank's average yield on assets of

16.3% p.a., was insuf cient to meet the average cost of funds of 19.5% p.a. and
operating expenses of 4.8% p.a. (p. 5 Teodoro Report.)
6. An imprudently large proportion of assets were locked into long-term

applications. (Teodoro Report.) LLpr
7. BF overextended itself in lending to the real estate industry, committing as

much as 52% of its peso deposits to its af liates or "related accounts" to which it
continued lending even when it was already suffering from liquidity stresses.
(Teodoro Report.) This was done in violation of Section 38 of the General Banking
Act (R.A. 337). 3
8. During the period of marked decline in liquidity levels the loan portfolio
grew by P417.3 million in the rst ve months of 1984 — and by another P105.1
million in the next two months. (pp. 2-3, Tiaoqui Report.)
9. The loan portfolio stood at P3.679 billion at the end of July 1984, 56.2% of
it channeled to companies whose stockholders, directors and officers were related
to the of cers, directors, and some stockholders of BF. (p. 8, Tiaoqui Report.) Here
again BF violated the General Banking Act (R.A. 337). 4
10. Some of the loans were used to acquire preferred stocks of BF. Between
September 17, 1983 and February 10, 1984, P49.9 million of preferred non-
convertible stocks were issued. About 85% or P42.4 million was paid out of the
proceeds of loans to stockholders/borrowers with relationship to the bank (Annex
D). Around P18.8 million were issued in the name of an entity other than the
purchaser of the stocks. (Tiaoqui Report.)
11. Loans amounting to some P69.3 million were granted simply to pay-off
old loans including accrued interest, as an accommodation for the direct
maturing loans of some rms and as a way of paying-off loans of other borrower
rms which have their own credit lines with the bank. These helped to make
otherwise delinquent loans appear "current" and deceptively "improved" the
quality of the loan portfolio. (Tiaoqui Report.)
12. Examination of the collaterals for the loan accounts of 63 major
borrowers and 32 other selected borrowers as of July 31, 1984, showed that:
(a) 2,658 TCT's which BF evaluated to be worth P1,487 million

were appraised by PAC to be worth only P1,196 million, hence, de cient by
P291 million.
(b) Other properties (collaterals) supposedly worth P711 million

could not be evaluated by PAC because the details submitted by the bank
were insufficient;
(c) While P674 million in loans were supposedly guaranteed by
the Home Financing Corporation (HFC), the latter con rmed only P427
million. P247 million in loans were not guaranteed by HFC. (Teodoro
Report.)
(d) Per SGV's report, loans totalling P1.882 million including
accrued interest, were secured by collateral worth only P1.54 billion. Hence,
BF's unsecured exposure amounted to P586.2 million. BF Homes, Inc., a
related company which has led with the SEC a petition for suspension of
payments, owes P502 million to BF.
13. BF had been suffering heavy losses. —
a) For the eleven (11) months ended November 30, 1984, the
estimated net loss was P372.6 Million;
b) For the twelve (12) months from November 1984, the projected net
loss would be P390.7 Million and would continue unabated; (p. 2, Teodoro
Report)
c) Around 71.7% of the total accommodations of P2.0677

billions to the related/linked entities were adversely classi ed. Close to
33.7% or P697.1 millions were clean loans or against PNs (promissory
notes) of these entities. Of the latter, 52.6% were classi ed as loss." (p. 5,
Tiaoqui Report.)
d) The bank's nancial condition as of date of examination,
after setting up the additional valuation reserves of P612.2 millions and
accumulated net loss of P48.2 millions, indicates one of insolvency. Total
liabilities of P5,282.1 million exceeds total assets of P4,947.2 million by
6.8%. Total capital account of P334.9 million) is de cient by P322.7
million against the minimum capital required of P657.6 million (Annex F).
Capital to risk assets ratio is negative 10.33%.
e) Total loans and investment portfolio amounted to P3,914.3
millions (gross), of which P194.0 millions or 5.0% were past due and
P1,657.1 millions or 42.3% were adversely classi ed (Substandard —
P1,011.4 millions; Doubtful — P274.6 millions and Loss — P371.1
millions). Accounts adversely classi ed included unmatured loan of
P1,482.0 million to entities related with each other and to the bank, several
of which showed distressed conditions." (p. 7, Tiaoqui Report.).
Teodoro's conclusion was that "the continuance of the bank in business would involve
probable loss to its depositors and creditors." He recommended "that the Monetary Board
take a more effective and responsible action to protect the depositors and creditors . . . in
the light of the bank's worsening condition." (p. 5, Teodoro Report.) LLpr
On January 23, 1985, Tiaoqui submitted his report to the Monetary Board. Like Teodoro,
Tiaoqui believed that the principal cause of the bank's failure was that in violation of the
General Banking Law and CB rules and regulations, BF's major stockholders, directors and
of cers, through their "related" companies: (i.e. companies owned or controlled by them of
their relatives) had been "borrowing" huge chunks of the money of the depositors. His
Conclusion and Recommendations were:
"The Conservator, in his report to the Monetary Board dated January 8, 1985, has
stated that the continuance of the bank in business would involve probable loss
to its depositors and creditors. It has recommended that a more effective action
be taken to protect depositors and creditors.
"The examination ndings as of July 31, 1984 as shown earlier, indicate one of
insolvency and illiquidity and further con rms the above conclusion of the
Conservator.
"All the foregoing provides suf cient justi cation for forbidding the bank from
further 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 of ce on January,
1985, pursuant to Sec. 29 of R.A. No. 265, as amended;
"2. Designate the Head of the Conservator Team at the bank, as

Receiver of Banco Filipino Savings & 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 bene t 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 of cers from Senior
Vice President, as listed in the attached Annex 'A' be included in the watch
list 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 Of ce of
Special Investigation the report on the ndings on Banco Filipino for
investigation and possible prosecution of directors, officers and employees
for activities which led to its insolvent position." (pp. 9-10, Tiaoqui Report.).
On January 25, 1985 or two days after the submission of Tiaoqui's Report, and three
weeks after it received Teodoro's Report, the Monetary Board, then composed of:
Chairman: Jose B. Fernandez, Jr.
CB Governor.
Members:
1. Cesar E.A. Virata, Prime Minister & Concurrently Minister of Finance

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

Resolution reads as follows:
"After considering the report dated January 8, 1985 of the Conservator for Banco
Filipino Savings and Mortgage Bank that the continuance in business of the bank
would involve probable loss to its depositors and creditors, and after discussing
and nding to be true the statements of the Special Assistant to the Governor and
Head, Supervision and Examination Sector (SES) Department II, as recited in his
memorandum dated January 23, 1985, that the Banco Filipino Savings and
Mortgage Bank is insolvent and that its continuance in business would involve
probable loss to its depositors and creditors, and in pursuance of Section 29 of
R.A. No. 265, as amended, the Board decided: cdll
"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 mortgagee in the name of the bank;
"3. To designate Mr. Arnulfo B. Aurellano, Special Assistant to
the Governor, and Mr. Ramon V. Tiaoqui, Special Assistant to the Governor
and Head, Supervision and Examination Sector Department II, as Deputy
Receivers who are likewise hereby directly vested with jurisdiction and
authority to do all things necessary or proper to carry out the functions
entrusted to them by the Receiver and 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

conservator ship over Banco Filipino Savings and Mortgage Bank." (pp.
126-127, Rollo I.)
On March 19, 1985, the receiver, Carlota Valenzuela, and the deputy receivers, Arnulfo B.
Aurellano and Ramon V. Tiaoqui, submitted a report to the Monetary Board as required in
Section 29, 2nd paragraph of R.A 265 which provides that within sixty (60) days from date
of the receivership, the Monetary Board shall determine whether the bank may be
reorganized and permitted to resume business, or be liquidated. The receivers
recommended that BF be placed under litigation. For, among other things, they found that:
1. BF had been suffering a capital de ciency of P336.5 million as of July 31, 1984 (pp.
2 and 4, Receivers' Report).
2. The bank's weekly reserve de ciencies averaged P146.67 million from November
25, 1983 up to March 16, 1984, rising to a peak of P338.09 million until July 27, 1984. Its
reserve de ciencies against deposits and deposit substitutes began on the week ending
June 15, 1984 up to December 7, 1984, with average daily reserve de ciencies of P2.98
million.
3. Estimated losses or "unbooked valuation reserves" for loans to entities with
relationships to certain stockholders/directors and of cers of the bank amounted to
P600.5 million. Combined with other adjustments in the amount of P73.2 million, they will
entirely wipe out the bank's entire capital account and leave a capital de ciency of P336.5
million. The bank was already insolvent on July 31, 1984. The capital de ciency increased
to P908.4 million as of January 25, 1985 on account of unbooked penalties for
de ciencies in legal reserves (P49.07 million), unbooked interest on overdrawings,
emergency advance of P569.49 million from Central Bank, and additional valuation
reserves of P124.5 million. (pp. 3-4, Receivers' Report.)
The Receivers further noted that —

"After BF was closed as of January 25, 1985, there were no collections from loans
granted to rms related to each other and to BF classi ed as 'doubtful' or 'loss,'
there were no substantial improvements on other loans classi ed 'doubtful' or
'loss;' there was no further increase in the value of assets owned acquired
supported by new appraisals and there was no infusion of additional capital such
that the estimated realizable assets of BF remained at P3,909.23, (millions) while
the total liabilities amounted to P5,159.44 (millions). Thus, BF remains insolvent
with estimated deficiency to creditors of P1,250.21 (millions).
"Moreover, there were no efforts on the part of the stockholders of the bank to
improve its nancial condition and the possibility of rehabilitation has become
more remote." (p. 8, Receivers' Report.)
In the light of the results of the examination of BF by the Teodoro and Tiaoqui teams, I do
not nd that the CB's Resolution No. 75 ordering BF to cease banking operations and
placing it under receivership was "plainly arbitrary and made in bad faith." The receivership
was justi ed because BF was insolvent and its continuance in business would cause loss
to its depositors and creditors. Insolvency, as de ned in Rep. Act 265, means "the inability
of a banking institution to pay its liabilities as they fall due in the usual and ordinary course
of business. Since June 1984, BF had been unable to meet the heavy cash withdrawals of
its depositors and pay its liabilities to its creditors, the biggest of them being the Central
Bank, hence, the Monetary Board correctly found its condition to be one of insolvency. prcd
All the discussion in the Santiago Report concerning the bank's assets and liabilities as
determinants of BF's solvency or insolvency is irrelevant and inconsequential, for under
Section 29 of Rep. Act. 265, a bank's insolvency is not determined by its excess of
liabilities over assets, but by its "inability to pay its liabilities as they fall due in the ordinary
course of business" and it was abundantly shown that BF was unable to pay its liabilities to
depositors for over a six-month-period before it was placed under receivership.
Even if assets and liabilities were to be factored into a formula for determining whether or
not BF was already insolvent on or before January 25, 1985, the result would be no
different. The bank's assets as of the end of 1984 amounted to P4.891 billions (not P6
billions) according to the Report signed and submitted to the CB by BF's own president,
and its total liabilities were P4.478 billions (p. 58, Cosico Report). While Aguirre's Report
showed BF ahead with a net worth of P412.961 millions, said report did not make any
provision for estimated valuation reserves amounting to P600.5 millions, (50% of face
value of doubtful loans and 100% of face value of loss accounts) which BF had granted to
its related/linked companies. The estimated valuation reserves of P600.5 millions plus
BF's admitted liabilities of P4.478 billions, put together, would wipe out BF's realizable
assets of P4.891 billions and con rm its insolvent condition to the tune of P187.538
millions.
BF's and Judge (now CA Justice) Consuelo Y. Santiago's argument that valuation reserves
should not be considered because the matter was not discussed by Tiaoqui with BF
officials is not well taken for:
(1) The records of the defaulting debtors were in the possession of BF.
(2) The "adversely classi ed" loans were in fact included in the List of Exceptions and
Findings (of irregularities and violations of laws and CB rules and regulations) prepared by
the SES, a copy of which was furnished BF on December 17, 1984;
(3) A conference on the matter was held on January 21, 1985 with senior of cials of
BF headed by EVP F. Dizon,. (pp. 14-15, Cosico Report.) BF did not formally protest against
the CB's estimate of valuation reserves. The CB could not wait forever for BF to respond
for the CB had to act with reasonable promptness to protect the depositors and creditors
of BF because the bank continued to operate.
(4) Subsequent events proved correct the SES classi cation of the loan accounts as
"doubtful" or "loss" because as of January 25, 1985 none of the loans, except three, had
been paid either partially or in full, even if they had already matured (p. 53, Cosico Report).
The recommended provision for valuation reserves of P600.5 millions for "doubtful" and
"loss" accounts was a proper factor to consider in the capital adjustments of BF and was
in accordance with accounting rules. For, if the uncollectible loan accounts would be
entered in the assets column as "receivables," without a corresponding entry in the
liabilities column for estimated losses or valuation reserves arising from their
uncollectability, the result would be a gravely distorted picture of the nancial condition of
BF.
BF's strange argument that it was not insolvent for otherwise the CB would not have given
it nancial assistance does not merit serious consideration for precisely BF needed
financial assistance because it was insolvent.
Tiaoqui's admission that the examination of BF had "not yet been of cially terminated"
when he submitted his report on January 23, 1985 did not make the action of the Monetary
Board of closing the bank and appointing receivers for it, "plainly arbitrary and in bad faith."
For what had been examined by the SES was more than enough to warrant a nding that
the bank was "insolvent and could not continue in business without probable loss to its
depositors or creditors," and what had not been examined was negligible and would not
have materially altered the result. In any event, the of cial termination of the examination
with the submission by the Chief Examiner of his report to the Monetary Board in March
1985, did not contradict, but in fact confirmed, the findings in the Tiaoqui Report. LLphil
The responsibility of administering the Philippine monetary and banking systems is vested
by law in the Central Bank whose duty it is to use the powers granted to it under the law to
achieve the objective, among others, of maintaining monetary stability in the country (Sec.
2, Rep. Act 265). I do not think it would be proper and advisable for this Court to interfere
with the CB's exercise of its prerogative and duty to discipline banks which have
persistently engaged in illegal, unsafe, unsound and fraudulent banking practices causing
tremendous losses and unimaginable anxiety and prejudice to depositors and creditors
and generating widespread distrust and loss of con dence in the banking system. The
damage to the banking system and to the depositing public is bigger when the bank, like
Banco Filipino, is big. With 89 branches nationwide, 46 of them in Metro Manila alone,
pumping the hard-earned savings of 3 million depositors into the bank, BF had no reason
to go bankrupt if it were properly managed. The Central Bank had to infuse almost P3.5
billions into the bank in its endeavor to save it. But even this nancial assistance was
misused, for instead of satisfying the depositors' demands for the withdrawal of their
money, BF channeled and diverted a substantial portion of the funds into the coffers of its
related/linked companies. Up to this time, its of cers, directors and major stockholders
have neither repaid the Central Bank's P3.5 billion nancial assistance, nor put up adequate
collaterals therefor, nor submitted a credible plan for the rehabilitation of the bank. What
authority has this Court to require the Central Bank to reopen and rehabilitate the bank, and
in effect risk more of the Government's money in the moribund bank? I respectfully submit
that decision is for the Central Bank, not for this Court, to make.
WHEREFORE, I vote to dismiss the petition for certiorari and mandamus in G.R. No. 70054
for lack of merit.
Footnotes
GRIÑO-AQUINO, J.:
1. p. 3, Petition.
2. Sec. 37. All savings and mortgage banks shall maintain on deposit with the Central Bank
of the Philippines such reserves against their deposit liabilities as the Monetary Board
shall determine in accordance with the pertinent provisions of the Central Bank Act.
3. Sec. 38. Whenever there is a call by depositors of a savings bank for repayment of their
deposits and the call so made shall result in reducing its legal reserves below the
amount required by the Monetary Board, such bank shall not make any new loans or
investment of the funds of depositors or earnings of such funds until the call of the
depositors has been satis ed and its legal reserves have been restored to the required
minimum.
4. Sec. 83. No director or of cer of any banking institution shall, either directly or indirectly,
for himself or as the representative or agent of others, borrow any of the deposits of
funds of such bank . . .

Banco Filipino Savings Bank Closure Cases

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EN BANC

[G.R. No. 70054. December 11, 1991.]

BANCO FILIPINO SAVINGS AND MORTGAGE BANK , petitioner, vs.

[G.R. No. 68878. December 11, 1991.]

BANCO FILIPINO SAVINGS AND MORTGAGE BANK , petitioner, vs.

[G.R. Nos. 77255-58. December 11, 1991.]

TOP MANAGEMENT PROGRAMS CORPORATION AND PILAR

[G.R. No. 78766. December 11, 1991.]

EL GRANDE CORPORATION , petitioner, vs. THE COURT OF APPEALS,

[G.R. No. 78767. December 11, 1991.]

METROPOLIS DEVELOPMENT CORPORATION , petitioner, vs. COURT

[G.R. No. 78894. December 11, 1991.]

BANCO FILIPINO SAVINGS AND MORTGAGE BANK , petitioner, vs.

[G.R. No. 81303. December 11, 1991.]

PILAR DEVELOPMENT CORPORATION , petitioner, vs. COURT OF

[G.R. No. 81304. December 11, 1991.]

BF HOMES DEVELOPMENT CORPORATION , petitioner, vs. THE COURT

[G.R. No. 90473. December 11, 1991.]

EL GRANDE DEVELOPMENT CORPORATION , petitioner, vs. THE

"Foregoing considered, the following are recommended:

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

2. The Legal Department, through the Solicitor General, be authorized to file in

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

"3. That accordingly, by way of correction, BF should be allowed to re-open

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

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

6. Finally, in G.R. No. 90473, the petition, comment and reply,.

"The assets of an institution under receivership or liquidation shall be deemed in

"xxx xxx xxx."

"SECTION 5. The following terms shall be held to be synonymous and

f. 'Unimpaired Capital and Surplus,' 'Combined capital accounts,' and 'Net

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Respondents acknowledge that under the said CB manual, CB examiners must

On emergency loans and advances, Section 90 of RA 265 provides two types of

GRIÑO-AQUINO, J ., dissenting in part.

"So as to expedite proceedings, petitioner prays that the assessment of the

and the prayer of the Supplement to Petition reads:

1. BF had been continually de cient in liquidity reserves (Teodoro Report).

5. Based on the projected outlook, the Bank's average yield on assets of

6. An imprudently large proportion of assets were locked into long-term

7. BF overextended itself in lending to the real estate industry, committing as

(a) 2,658 TCT's which BF evaluated to be worth P1,487 million

(b) Other properties (collaterals) supposedly worth P711 million

c) Around 71.7% of the total accommodations of P2.0677

"2. Designate the Head of the Conservator Team at the bank, as

1. Cesar E.A. Virata, Prime Minister & Concurrently Minister of Finance

issued Resolution No. 75 closing BF and placing it under receivership. The MB

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"5. In consequence of the foregoing, to terminate the

The Receivers further noted that —

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