Banking Law Cases
training materials containing two case studies on RBSMIs financial distress was
[G.R. No. 154499. February 27, 2004]
ALBERTO V. REYES, WILFREDO B. DOMO-ONG and HERMINIO C.
PRINCIPIO, petitioners, vs. RURAL BANK OF SAN MIGUEL
(BULACAN), INC., represented by HILARIO P. SORIANO, President
and Principal Stockholder, respondent.
RESOLUTION
Tinga, J.:
This deals with the Motion for Reconsideration of petitioners Alberto V. Reyes
and Wilfredo B. Domo-ong, both Bangko Sentral ng Pilipinas (BSP) officials,[1] and
the Motion for Partial Reconsideration of respondent Rural Bank of San Miguel
(Bulacan), Inc.
In the Decision[2] of March 14, 2003, this Court found Deputy Governor Reyes and
Director Domo-ong liable for violation of the standards of professionalism prescribed
by the Code of Conduct and Ethical Standards for Public Officials and Employees
(Republic Act No. 6713) in that they used the distressed financial condition of
respondent Rural Bank of San Miguel (Bulacan), Inc. (RBSMI) as the subject of a case
study in one of the BSP seminars and did the brokering of the sale of RBSMI. The
Court modified the Decisionof the Court of Appeals in CA-GR SP No. 60184[3] by
reducing the penalty imposed by the appellate court from a fine equivalent to six
months salary to a fine of two months salary for Reyes and one month salary for Domo-
ong.
In the Decision, the Court exonerated petitioner Herminio C. Principio[4] of the
administrative charges. The exoneration is the subject of RBSMIs Motion For Partial
Reconsideration.
The Motion for Reconsideration of Reyes and Domo-ong is anchored on the
following grounds: (1) it was not under their auspices that the seminar which used
conducted but under that of another department and other officials of BSP; and, (2)
they did not do any act which constituted brokering of the sale of RBSMI or deviated
from the standards of professionalism.
A brief revisit of the operative milieu is warranted to gain the needed perspective.
In a letter dated May 19, 1999, addressed to then BSP Governor Singson, RBSMI
charged the petitioners with violation of Republic Act No. 6713 (Code of Conduct and
Ethical Standards for Public Officials and Employees). The Monetary Board (MB) of
the BSP created an Ad Hoc Committee to investigate the matter.
The ensuing investigation disclosed that sometime in September 1996, RBSMI,
which had a history of major violations/exceptions dating back to 1995, underwent
periodic examination by the BSP. The examination team headed by Principio noted 20
serious exceptions/violations and deficiencies of RBSMI.[5]
Through Resolution No. 96, the MB required RBSMI to submit within 15 days a
written explanation with respect to the findings of the examiner. It also directed the
Department of Rural Banks (DRB), to verify, monitor and report to the Deputy
Governor, Supervision and Examination Sector (SES) on the findings/exceptions
noted, until the same shall have been corrected.
As directed by the MB, another examination team conducted a special examination
on RBSMI. RBSMI President Hilario Soriano claimed that he was pressured into
issuing a memorandum to the bank employees authorizing the team to review the banks
accounting and internal control system.
Soriano also alleged that sometime in March 1997, Reyes started urging him to
consider selling the bank. He specified that on May 28, 1997, Reyes introduced him
through telephone to Mr. Exequiel Villacorta, President and Chief Executive Officer
of the TA Bank.They agreed to meet on the following day. In his Affidavit,[6] Villacorta
confirmed that he and Soriano indeed met but the meeting never got past the
exploratory stage since he (Villacorta) immediately expressed disinterest because
Soriano wanted to sell all his equity shares while he was merely contemplating a
possible buy-in.
Soriano further alleged that when the talks with Villacorta failed, Reyes asked him
whether he wanted to meet another buyer, to which he answered in the
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Banking Law Cases

affirmative. Thereafter, Reyes introduced him by telephone to Benjamin P. Castillo of extent. Petitioner Reyes, as Head of the BSP Supervision and Examination Sector,
the Export and Industry Bank (EIB), whom he met on June 26, 1997. No negotiation and petitioner Domo-ong, as Director of the BSP Department of Rural Banks, should
took place because Soriano desired a total sale while EIB merely desired a joint venture have exercised their power of control and supervision so that the incident could
arrangement or a buy-in to allow EIB to gain control of RBSMI. have been prevented or at the very least remedied. (Emphasis supplied)
Meanwhile, on June 13, 1997, the MB approved Resolution No. 724[7] ordering
Plainly, conclusion on petitioners culpability is grounded, not on an established
RBSMI to correct the major exceptions noted within 30 days from receipt of the advice,
fact but on a mere inference that the seminar was conducted under their
and to remit to the BSP the amount of P2,538,483.00 as fines and penalties for incurring
auspices. Indeed, the pronouncement on the petitioners role is evidently conjectural
deficiencies in reserves against deposit liabilities.
and evaluation of the extent of their responsibility admittedly uncertain.
On July 21, 1997, Soriano submitted RBSMIs answers to the BSP
It is conceded that there was no evidence that the seminar was conducted under
exceptions/findings mentioned. He stated that the actions taken or to be taken by the
petitioners patronage. And it was assumed, as indeed there was absolutely paucity of
bank (RBSMI) were deliberated and ratified by the Board of Directors in its regular
proof, that they exercised supervision and control over the persons responsible in
meeting held on July 9, 1997. Among the board approved actions was the banks request
organizing the seminar. On the contrary, as shown in the Motion For Reconsideration,
addressed to Domo-ong for BSP to debit the demand deposit of the bank in the amount
it was the Bangko Sentral ng Pilipinas Institute (BSPI), an office separate and
of P2,538,483.00 representing the payment of fines and penalties.
independent from the SES which is directly under the control and supervision
More than a year after, however, the RBSMI asked for a reconsideration of of another Deputy Governor, that for the Resource Management Sector
MB Resolution No. 724 insofar as the imposition of fine amounting (RMS)[9] which is charged with conducting seminars and lectures for the BSP,
to P2,538,483.00. On January 21, 1999, the MB adopted Resolution No. including the seminar involved in this case.
71,[8] authorizing the conditional reversal of sixty percent (60%) of the penalty pending
In its Comment,[10] RBSMI argues that since information on the state of its finances
resolution of the dispute on the findings on reserve deficiency. Subsequently, on April
found its way as a training material of RMS, the event could have transpired only
7, 1999, the MB approved the interim reversal of the entire amount of the penalty
because the SES permitted it. Even if the subordinates of petitioners were the source of
pending the outcome of the study on the legal and factual basis for the imposition of
information, RBSMI further claims in ostensible reference to the principle of command
the penalty.
responsibility, petitioners could be held liable for negligence.
The above incidents, particularly the alleged brokering by Reyes and the
It is noteworthy again that petitioners alleged role in the disclosure of information
petitioners unsupported recommendation to impose a penalty of P2,538,483.00 for
is not anchored on any concrete piece of evidence. That explains the RBSMIs effort to
legal reserve deficiency, prompted the respondent to file the letter-complaint charging
cast liability vicariously on the petitioners by a superficial resort to the principle of
the petitioners with unprofessionalism.
command responsibility which this Court did not reject. But neither the principle itself
The Motion for Reconsideration bid of Reyes and Domo-ong is meritorious. which is an accepted notion in military or police structural dynamics or its counterpart
of respondent superior in the law on quasi-delicts[11] would be relevant in this case,
In pinning liability on Reyes and Domo-ong for the seminar which used the rural
involving as it does the actual performance in office of the petitioners and given the
bank as a case study, the court made this ratiocination, viz:
fact that petitioners are high ranking officers of the countrys central monetary
authority. Indeed, as such officers, petitioners cannot be expected to monitor the
(W)hile there was indeed no evidence showing that either petitioner Reyes or activities of their subalterns. In Arias v. Sandiganbayan,[12] this Court held that all
petitioner Domo-ong distributed or used the materials, the very fact that the seminar
heads of offices have to rely to a reasonable extent on the good faith of their
was conducted under their auspices is enough to make them liable to a certain
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Banking Law Cases
subordinates. The case specifically involved the liability of the head of office in the
preparation of bids, purchase of supplies and contract negotiations done by his
subordinates. In the same fashion, petitioners in this case owing to their high ranks
cannot be expected to acquaint themselves with such minutiae as the flow of files and
documents which leave their desks. Myriad details such as those are, by office practice,
left to subalterns and minor employees. Delegation of function is part of sound
management.
From another perspective, the negligence of the subordinate cannot be ascribed to
his superior in the absence of evidence of the latters own negligence. Indeed, the
negligence of the subordinate is not tantamount to negligence of the superior official
so the Court ruled in a case[13] where the mandated responsibilities of the superior do
not include actual monitoring of projects. In another case,[14] this Court rejected the
principle of command responsibility although the case involved a provincial
constabulary commander, aptly noting that there was neither allegation nor proof that
he had been in any way guilty of fault or negligence in connection with the unlawful
raid and arrest effected by his subordinates.
The immunity of public officers from liability for the non-feasances, negligence
or omissions of duty of their official subordinates and even for the latters misfeasances
or positive wrongs rests, according to Mechem, upon obvious considerations of public
policy, the necessities of the public service and the perplexities and embarrassments of
a contrary doctrine.[15] These official subordinates, he notes further, are themselves
public officers though of an inferior grade, and therefore directly liable in the cases in
which any public officer is liable, for their own misdeeds or defaults.[16]
Significantly, Mechems disquisition provides the mooring of the Administrative
Code of 1987 which provides that a head of a department or a superior officer shall not
be civilly liable for the wrongful acts, omissions of duty, negligence, or misfeasance of
his subordinates, unless he has actually authorized by written order the specific act or
misconduct complained of.[17]
Now, the label of unprofessionalism bestowed by the Court on the petitioners at
the instance of RBSMI.
In the assailed Decision, the Court categorized Reyes telephone introduction of
officials of other banks to RBSMIs President in connection with the latters expressed
desire to sell the bank as brokering which in turn constitutes, according to the Court,
violation of the standards of professionalism. The standards are set forth in Section 4
(A) (b) of Republic Act 6713, as follows:
Sec. 4. Norms of Conduct of Public Officials and Employees. (A) Every public
official and employee shall observe the following as standards of personal conduct in
the discharge and execution of official duties:
...
(b) Professionalism. Public officials and employees shall perform and discharge their
duties with the highest degree of excellence, professionalism, intelligence and
skill. They shall enter public service with utmost devotion and dedication to
duty. They shall endeavor to discourage wrong perceptions of their roles as
dispensers or peddlers of undue patronage.
The Court equates brokering with unprofessionalism. According to Websters
Third New International Dictionary, professionalism means the conduct, aims, or
qualities that characterize or mark a profession. Any standard thesaurus defines a
professional as a person who engages in an activity with great competence. Indeed, to
call a person a professional is to describe him as competent, efficient, experienced,
proficient or polished.
The crucial question, therefore, is whether Reyes conducted himself in an
unprofessional manner in doing the acts imputed to him.
The Court rules in the negative.
In the first place, the acts of Reyes do not constitute brokering. Case law[18] defines
a broker as one who is engaged, for others, on a commission, negotiating contracts
relative to property with the custody of which he has no concern; the negotiator
between other parties, never acting in his own name but in the name of those who
employed him. . . . a broker is one whose occupation is to bring the parties together, in
matters of trade, commerce or navigation. According to Bouviers Law Dictionary,
brokerage refers to the trade or occupation of a broker; the commissions paid to a broker
for his services, while brokers are those who are engaged for others on the negotiation
of contracts relative to property, with the custody of which they have no concern.[19]
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Banking Law Cases

Thus, the word brokering clearly indicates the performance of certain acts for RBSMI three consecutive times. RBSMIs arguments are not new, they having been
monetary consideration or compensation. To give it another definition such as that previously presented to and squarely ruled upon by the Court.
imputed by RBSMI to the acts of Reyes is to distort the accepted jurisprudential
In closing, it cannot be overemphasized that the BSP is an independent body
meaning of the term.
corporate bestowed under its charter[21] with fiscal and administrative autonomy. As
From the evidence, all that Reyes did was to introduce RBSMIs President to the such, its officials should be granted a certain degree of flexibility in the performance
President of TA Bank and EIB. Nothing more. There was not even a hint that he was of their duties and provided insulation from interference and vexatious suits, especially
motivated by monetary consideration or swayed by any personal interest in doing what when moves of the kind are resorted to as counterfoil to the exercise of their regulatory
he did. mandate. Elsewise, the institutional independence and autonomy of the BSP as the
central mandatory authority would be rendered illusory.
On his part, Soriano who is RBSMIs President himself admitted that the talks with
Villacorta and Castillo never got past the exploratory stage because the two wanted a IN VIEW OF THE FOREGOING, the Court RESOLVES to GRANT
buy-in while he was for a total sell-out. This is an indelible indication that Reyes was the Motion for Reconsideration of the petitioners Deputy Governor Alberto V. Reyes
not personally involved in the transaction. If he were, he would at least have an inkling and Director Wilfredo B. Domo-ong. The Decision dated March 14, 2003 is SET
of the plans of Villacorta and Castillo; otherwise, he would not have wasted his time ASIDE and another entered, DISMISSING the administrative complaint and
introducing them to Soriano. EXONERATING all the petitioners. The Motion for Partial Reconsideration of the
respondent Rural Bank of San Miguel (Bulacan), Inc. is DENIED.
Indeed, RBSMI miserably failed to establish that Reyes had breached the standard
of professional conduct required of a public servant. It appears to the Court that in SO ORDERED.
keeping with the standards of professionalism and heeding the mandate of his position,
he made the telephone introductions for no other purpose but to pave the way for a
possible consolidation or merger of RBSMI with interested banks. As this Court found
in its Decision, it is indeed the policy of the BSP to promote mergers and consolidations
by providing incentives to banks that would undergo such corporate
combinations.[20] To effectively implement the policy, it was necessary that the banks
be advised and assisted by a person knowledgeable about the transactions like
Reyes. The benefits which may ultimately arise out of any preliminary facilitation step
such as what Reyes undertook will not accrue to the facilitator but to the parties to the
transaction themselves and, of course, the institution whose policy initiative is being
carried out.
All told, there is neither legal nor factual support for holding Reyes and Domo-
ong liable.
As to the motion for partial reconsideration filed by RBSMI, it is argued that
Principio should be administratively penalized for his undue haste in submitting his
report to the MB, in making an unsupported recommendation for imposition of
penalties for legal reserve deficiencies, and for taking charge of the examinations of
4
Banking Law Cases

UNITED COCONUT PLANTERS G.R. No. 168859

BANK, JERONIMO U. KILAYKO, DECISION
LORENZO V. TAN, ENRIQUE L.
GANA, JAIME W. JACINTO and
EMILY R. LAZARO,
Petitioners, CHICO-NAZARIO, J.:

- versus - These are two consolidated[1] Petitions for Review on Certiorari under Rule 45 of the
1997 Revised Rules of Civil Procedure.
E. GANZON, INC.,
Respondent. United Coconut Planters Bank (UCPB) is a universal bank duly organized and
existing under Philippine Laws. In G.R. No. 168859, UCPB and its corporate
x---------------------x
E. GANZON, INC., officers, i.e., Jeronimo U. Kilayko, Lorenzo V. Tan, Enrique L. Gana, Jaime W. Jacinto
Petitioner, and Emily R. Lazaro (UCPB, et al.) seek the reversal and setting aside of the
G.R. No. 168897 Decision[2] dated 14 October 2004 and Resolution[3] dated 7 July 2005 of the Court of
Present: Appeals in CA-G.R. SP No. 81385 and the affirmation, instead, of the letter-
- versus - decision[4] dated 16 September 2003 of the Monetary Board of the Bangko Sentral ng
YNARES-SANTIAGO, J., Pilipinas (BSP). The Court of Appeals, in its assailed Decision, set aside the aforesaid
Chairperson,
CHICO-NAZARIO, letter-decision of the BSP Monetary Board and remanded the case to the latter for
UNITED COCONUT PLANTERS VELASCO, JR., further proceedings; and in its questioned Resolution, denied for lack of merit the
BANK, JAIME W. JACINTO and NACHURA, and Motion for Reconsideration of UCPB, et al., as well as the Partial Motion for
EMILY R. LAZARO, PERALTA, JJ.
Reconsideration of E. Ganzon, Inc. (EGI).
Respondents.
Promulgated:
On the other hand, EGI is a corporation duly organized and existing under
June 30, 2009
Philippine laws and engaged in real estate construction and development
business. In G.R. No. 168897, EGI prays for this Court to review the same Decision
dated 14 October 2004 and Resolution dated 7 July 2005 of the Court of Appeals in
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x CA-G.R. SP No. 81385, and to order the appellate court to (1) act on its findings in the

5
Banking Law Cases
case instead of remanding the same to the BSP Monetary Board for further proceedings;
(2) direct the BSP Monetary Board to impose the applicable administrative sanctions
upon UCPB, et al.; and (3) to amend its assailed Decision and Resolution by deleting
therefrom the statements requiring the BSP Monetary Board to scrutinize and dig
deeper into the acts of UCPB, et al., and to determine if, indeed, there were irregular
and unsound practices in its business dealings with EGI.
The factual antecedents of these consolidated petitions are as follows:
Beginning 1995 to 1998, EGI availed itself of credit facilities from UCPB to finance
its business expansion. To secure said credit facilities, EGI mortgaged to UCPB its
condominium unit inventories in EGI Rufino Plaza, located at the intersection of
Buendia and Taft Avenues, Manila.
Initially, EGI was able to make periodic amortization payments of its loans to
UCPB. When the negative effects of the Asian economic crisis on the property
development sector finally caught up with the corporation in the middle of 1998, EGI
started defaulting in its payment of amortizations, thus, making all of its obligations
due and demandable. Subsequently, EGI was declared in default by UCPB in its letters
dated 2 October 1998[5] and 16 February 1999.[6] Thereafter, UCPB stopped sending
EGI monthly statements of its accounts.
In 1999, EGI and UCPB explored the possibility of using the mortgaged condominium
unit inventories of EGI in EGI Rufino Plaza as payment for the loans of EGI to
UCPB. Upon agreeing on the valuation of said mortgaged properties, EGI and UCPB
entered into a Memorandum of Agreement (MOA)[7] on 28 December 1998 in
settlement of the loans of EGI from UCPB. Based on this MOA, the outstanding loan
obligations of EGI with UCPB amounted to P915,838,822.50, inclusive of all interest,
charges and fees. UCPB, through its corporate officers, assured EGI that the said
amount already represented the total loan obligations of EGI to UCPB.
On 18 January 2000, EGI and UCPB executed an Amendment of
Agreement[8] to reflect the true and correct valuation of the properties of EGI listed in
the MOA that would be transferred to UCPB in settlement of the total loan obligations
of the former with the latter. The properties of EGI to be used in paying for its debt
with UCPB were valued at P904,491,052.00.
According to the MOA and its amendments, titles to the properties of EGI shall be
transferred to UCPB by the following modes: (1) foreclosure of mortgage; (2) dacion
en pago; (3) creation of a holding company; and (4) use of other alternatives as may be
deemed appropriate by UCPB.
UCPB proceeded to foreclose some of the properties of EGI listed in the MOA. Per the
Certificate of Sale[9] dated 13 April 2000, the foreclosure proceeds of said properties
amounted only to P723,592,000.00, less than the value of the properties of EGI
stipulated in its amended MOA with UCPB.
UCPB applied the entire foreclosure proceeds of P723,592,000.00 to the principal
amount of the loan obligations of EGI, pursuant to BSP Circular No. 239,[10] which
provided that partial property payments shall first be applied to the principal. After
deducting the said amount from the total loan obligations of EGI, there was still an
unpaid balance of P192,246,822.50.
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Banking Law Cases
On 8 May 2001, some of the other properties of EGI at EGI Rufino Plaza, valued
at P166,127,369.50, were transferred by way of dacion en pago to UCPB. However,
during the signing of the transaction papers for the dacion en pago, EGI Senior Vice-
President, Architect Grace S. Layug (Layug), noticed that said papers stated that the
remaining loan balance of EGI in the amount of P192,246,822.50 had increased
to P226,963,905.50. The increase was allegedly due to the addition of the transaction
costs amounting to P34,717,083.00. EGI complained to UCPB about the increase, yet
UCPB did not take any action on the matter.
This prompted EGI President Engineer Eulalio Ganzon (Ganzon) and Senior Vice-
President Layug to review their files to verify the figures on the loan obligations of EGI
as computed by UCPB. In the process, they discovered the UCPB Internal
Memorandum dated 22 February 2001,[11] signed by UCPB corporate officers. The
said Internal Memorandum presented two columns, one with the heading ACTUAL
and the other DISCLOSED TO EGI. The figures in the two columns were
conflicting. The figures in the DISCLOSED TO EGI column computed the unpaid
balance of the loan obligations of EGI to be P226,967,194.80, the amount which UCPB
actually made known to and demanded from EGI. The figures in the ACTUAL column
calculated the remaining loan obligations of EGI to be only P146,849,412.58.
Consequently, EGI wrote UCPB a letter dated 21 May 2001,[12] which included, among
other demands, the refund by UCPB to EGI of the over-payment
of P83,000,000.00;[13] return to EGI of all the remaining Transfer Certificates of Title
(TCTs)/Condominium Certificates of Title (CCTs) in the possession of UCPB; and cost
of damage to EGI for the delay in the release of its certificates of title.
In response, UCPB explained[14] that the ACTUAL column in its Internal
Memorandum dated 22 February 2001 contained the same amounts reflected or
recorded in its financial statements, in accordance with the Manual of Accounts for
Banks, Manual of Regulations for Banks[15] and BSP Circular No. 202,[16] Series of
1999. In contrast, the DISCLOSED TO EGI column showed the total amount still due
from EGI, including the total principal, interests, transaction and other costs after the
foreclosure, whether reflected in the financial books of UCPB or not. Further, UCPB
maintained that the difference in the figures in the two columns was because BSP
Circular No. 202 and Section X305.4 of the Manual of Regulations for Bank disallowed
banks from accruing in its books interest on loans which had become non-performing.
Despite the explanation of UCPB, EGI insisted that the figures appearing in the
ACTUAL column of the formers Internal Memorandum dated 22 February
2001 revealed the true and actual amount of its loan obligations to
UCPB, P146,849,412.58.
EGI Senior Vice-President Layug met with UCPB Vice-President, Jaime W.
Jacinto (Jacinto) to discuss the demand of EGI for the return of its overpayment. UCPB
Vice-President Jacinto, however, refused to concede that UCPB had any obligation to
make a refund to EGI and, instead, insisted that EGI Senior Vice-President Layug
disclose who gave her a copy of the UCPB Internal Memorandum dated 22 February
2001.
Based on the possession by EGI of the UCPB Internal Memorandum dated 22 February
2001, UCPB filed a criminal case for theft and/or discovery of secrets against EGI
President Ganzon and Senior Vice-President Layug, but the said case was dismissed.[17]
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Banking Law Cases
On 5 November 2002, EGI, also on the basis of the UCPB Internal
Memorandum dated 22 February 2001, EGI filed with the BSP an administrative
complaint[18] against UCPB, et al., for violation of Sections 36[19] and 37,[20] Article IV
of Republic Act No. 7653,[21] in relation to Section 55.1(a)[22] of Republic Act No.
8791;[23] and for the commission of irregularities and conducting business in an unsafe
or unsound manner.
[24]
In a letter-decision dated 16 September 2003, the BSP Monetary Board dismissed
the administrative complaint of EGI, holding as follows:
Please be informed that the Monetary Board decided to dismiss the complaint
based on the evaluation conducted by the Supervision and Examination
Department I and the Office of the General Counsel and Legal Services
to the effect that:
1. UCPB computed interest on the loans based on BSP rules and regulations
which prohibit banks from accruing interest on loans that have become
non-performing (BSP Circular No. 202). This is different from interest
which may have run and accrued based on the promissory notes/loan
documents from the date of default up to settlement date.
2. Fair market value of assets to be foreclosed is different from the bid price
submitted during foreclosure and there is no statutory obligation for the latter
to be equivalent to the former.
3. Regarding the alleged P145,163,000.00 fabricated loan, the documents
showed that there were the EGI Board Resolution to borrow, promissory note
signed by Mr. Eulalio Ganzon, and Loan Agreement stating that the proceeds
shall be used to pay outstanding availments and interest servicing.
4. There is no finding by Supervision and Examination Department I on the
alleged double charging and/or padding of transaction costs.[25]
EGI filed a Motion for Reconsideration and a Supplemental Motion for
Reconsideration of the aforequoted letter-decision of the BSP Monetary Board. The
BSP Monetary Board denied both motions in its letter[26] dated 8 December 2003 as
there was no sufficient basis to grant the same.
EGI then filed a Petition for Review under Rule 43 of the 1997 Revised Rules of Civil
Procedure with the Court of Appeals raising the sole issue of whether the Bangko
Sentral ng Pilipinas erred in dismissing the administrative complaint filed by EGI
against UCPB, et al. The case was docketed as CA-G.R. SP No. 81385.
On 14 October 2004, the Court of Appeals rendered its assailed Decision granting the
Petition for Review of EGI, thus, setting aside the BSP letter-decision dated 16
September 2003 and remanding the case to the BSP Monetary Board for further
proceedings.
UCPB, et al., moved for the reconsideration of the 14 October 2004 Decision of the
appellate court, praying for a new judgment dismissing the appeal of EGI for lack of
jurisdiction and/or lack of merit. EGI also filed a Partial Motion for Reconsideration of
the same Court of Appeals Decision, with the prayer that the appellate court, instead of
still remanding the case to the BSP Monetary Board for further proceedings, already
direct the latter to impose the applicable administrative sanctions upon UCPB, et al.,.
In a Resolution dated 7 July 2005, the Court of Appeals denied for lack of merit both
the Motion for Reconsideration of UCPB, et al. and the Motion for Partial
Reconsideration of EGI.
G.R. No. 168859
8
Banking Law Cases
Aggrieved by the 14 October 2004 Decision and 7 July 2005 Resolution of the Court
of Appeals, UCPB, et al. comes before this Court, via a Petition for Review
on Certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure, based on
the following assignment of errors:
I. THE HONORABLE COURT OF APPEALS
ACTED WITHOUT JURISDICTION AND GRAVELY
ERRED IN HOLDING THAT IT HAS APPELLATE
JURISDICTION OVER DECISIONS OF THE
BSP/MONETARY BOARD.
II. THE HONORABLE COURT OF APPEALS
GRAVELY ERRED IN HOLDING THAT THE BANGKO
SENTRAL SUMMARILY DISMISSED THE COMPLAINT
OF [EGI].
III. THE HONORABLE COURT OF APPEALS
GRAVELY ERRED IN DISREGARDING THE FINDINGS
OF FACT OF THE BANGKO SENTRAL AND IN HOLDING
THAT [UCPB, et al.] COMMITTED IRREGULAR AND
UNSOUND BANKING PRACTICES IN THE SUBJECT
TRANSACTIONS.[27]
The Petition is docketed as G.R. No. 168859.
UCPB, et al., aver that the Court of Appeals has no appellate jurisdiction over
decisions, orders and/or resolutions of the BSP Monetary Board on administrative
matters. The BSP Monetary Board is not among the quasi-judicial agencies enumerated
under Rule 43 of the 1997 Revised Rules of Civil Procedure, over which the Court of
Appeals has appellate jurisdiction. Further, there is nothing in Republic Act No. 7653
or in Republic Act No. 8791 which explicitly allows an appeal of the decisions or orders
of the BSP Monetary Board to the Court of Appeals. Resultantly, the Court of Appeals
has no power to review, much less set aside, the findings of fact of the BSP Monetary
Board as contained in its letter-decision dated 16 September 2003.
UCPB, et al. also claim that, contrary to the ruling of the Court of Appeals, the letter-
decision dated 16 September 2003 of the BSP Monetary Board plainly reveals that the
administrative complaint of EGI against UCPB, et al. was not summarily
dismissed. The charges of EGI against UCPB, et al. was resolved only after the BSP
Monetary Board thoroughly reviewed pertinent bank records and studied the arguments
raised by EGI in its complaint and Motion for Partial Reconsideration. In its letter-
decision dated 16 September 2003, the BSP Monetary Board stated in no uncertain
terms that the dismissal of the complaint of EGI was based on the evaluation conducted
by its Supervision and Examination Department I and the Office of the General Counsel
and Legal Services. Also, in its letter dated 8 December 2003, the BSP Monetary Board
denied the Motion for Reconsideration and Supplemental Motion for Reconsideration
of EGI because the latter did not present any new evidence in support of its
motions. Hence, there is no basis for the claim of EGI that the BSP Monetary Board
overlooked and completely ignored its accusations of irregular and unsound banking
practice against UCPB, et al.
Finally, UCPB, et al., maintain that the findings of fact of administrative bodies like
the BSP Monetary Board are accorded great respect, if not finality, especially if
supported by substantial evidence. Such findings are to be respected by the courts,
especially in the absence of grave abuse of discretion or grave errors by the BSP
Monetary Board. No other office, much less an appellate tribunal, can substitute its
own findings of fact over that of the concerned administrative agency in view of the
expertise and specialized knowledge acquired by it on matters falling within its areas
9
Banking Law Cases
of concern. UCPB, et al. insist that it is the BSP which has the necessary expertise to
draft guidelines for the evaluation of the performance and conduct of banks.Thus, the
Court of Appeals committed grave error in disregarding the findings of fact of the BSP
Monetary Board which justified the latters dismissal of the administrative complaint of
EGI against UCPB, et al.
The issue of jurisdiction of the Court of Appeals over appeals of decisions, orders
and/or resolutions of the BSP Monetary Board on administrative matters must first be
resolved, before the other issues raised herein by UCPB, et al.
Truly, there is nothing in Republic Act No. 7653 or in Republic Act No. 8791
which explicitly allows an appeal of the decisions of the BSP Monetary Board to the
Court of Appeals. However, this shall not mean that said decisions are beyond judicial
review.
Section 9(3) of Batas Pambansa Blg. 129, otherwise known as The Judiciary
Reorganization Act of 1980, as amended, reads:
SEC. 9. Jurisdiction. The Court of Appeals shall exercise:
xxxx
(3) Exclusive appellate jurisdiction over all final judgments,
decisions, resolutions, orders or awards of Regional Trial Courts
and quasi-judicial agencies, instrumentalities, boards or
commissions, including the Securities and Exchange Commission, the
Social Security Commission, the Employees Compensation
Commission and the Civil Service Commission, except those falling
within the appellate jurisdiction of the Supreme Court in accordance
with the Constitution, the Labor Code of the Philippines under
Presidential Decree No. 442, as amended, the provisions of this Act, and
of subparagraph (1) of the third paragraph and subparagraph 4 of the
fourth paragraph of Section 17 of the Judiciary Act of 1948. (Emphasis
ours.)
In accordance with the afore-quoted provision, Rule 43 of the 1997 Revised
Rules of Civil Procedure, on Appeals from the Court of Tax Appeals and Quasi-Judicial
Agencies to the Court of Appeals, defines its scope as follows:
SECTION 1. Scope. - This Rule shall apply to appeals from judgments or
final orders of the Court of Tax Appeals and from awards, judgments,
final orders or resolutions of or authorized by any quasi-judicial
agency in the exercise of its quasi-judicial functions. Among these
agencies are the Civil Service Commission, Central Board of
Assessment Appeals, Securities and Exchange Commission, Office of
the President, Land Registration Authority, Social Security
Commission, Civil Aeronautics Board, Bureau of Patents, Trademarks
and Technology Transfer, National Electrification Administration,
Energy Regulatory Board, National Telecommunications Commission,
Department of Agrarian Reform under Republic Act No. 6657,
Government Service Insurance System, Employees Compensation
Commission, Agricultural Inventions Board, Insurance Commission,
Philippine Atomic Energy Commission, Board of Investments,
Construction Industry Arbitration Commission, and voluntary
arbitrators authorized by law. (Emphasis ours.)
A perusal of Section 9(3) of Batas Pambansa Blg. 129, as amended, and Section 1, Rule
43 of the 1997 Revised Rules of Civil Procedure reveals that the BSP Monetary Board
is not included among the quasi-judicial agencies explicitly named therein, whose final
judgments, orders, resolutions or awards are appealable to the Court of Appeals. Such
omission, however, does not necessarily mean that the Court of Appeals has no
10
Banking Law Cases
appellate jurisdiction over the judgments, orders, resolutions or awards of the BSP
Monetary Board.
It bears stressing that Section 9(3) of Batas Pambansa Blg. 129, as amended, on
the appellate jurisdiction of the Court of Appeals, generally refers to quasi-judicial
agencies, instrumentalities, boards, or commissions. The use of the word including in
the said provision, prior to the naming of several quasi-judicial agencies, necessarily
conveys the very idea of non-exclusivity of the enumeration. The principle of expressio
unius est exclusio alterius does not apply where other circumstances indicate that the
enumeration was not intended to be exclusive, or where the enumeration is by way of
example only.[28]
Similarly, Section 1, Rule 43 of the 1997 Revised Rules of Civil Procedure
merely mentions several quasi-judicial agencies without exclusivity in its
phraseology.[29] The enumeration of the agencies therein mentioned is not
exclusive.[30] The introductory phrase [a]mong these agencies are preceding the
enumeration of specific quasi-judicial agencies only highlights the fact that the list is
not meant to be exclusive or conclusive. Further, the overture stresses and
acknowledges the existence of other quasi-judicial agencies not included in the
enumeration but should be deemed included.[31]
A quasi-judicial agency or body is an organ of government other than a court
and other than a legislature, which affects the rights of private parties through either
adjudication or rule-making.[32] The very definition of an administrative agency
includes its being vested with quasi-judicial powers. The ever increasing variety of
powers and functions given to administrative agencies recognizes the need for the
active intervention of administrative agencies in matters calling for technical
knowledge and speed in countless controversies which cannot possibly be handled by
regular courts.[33] A "quasi-judicial function" is a term which applies to the action,
discretion, etc., of public administrative officers or bodies, who are required to
investigate facts, or ascertain the existence of facts, hold hearings, and draw
conclusions from them, as a basis for their official action and to exercise discretion of
a judicial nature.[34]
Undoubtedly, the BSP Monetary Board is a quasi-judicial agency exercising
quasi-judicial powers or functions. As aptly observed by the Court of Appeals, the BSP
Monetary Board is an independent central monetary authority and a body corporate
with fiscal and administrative autonomy, mandated to provide policy directions in the
areas of money, banking and credit.[35] It has power to issue subpoena, to sue for
contempt those refusing to obey the subpoena without justifiable reason,[36] to
administer oaths and compel presentation of books, records and others, needed in its
examination,[37] to impose fines and other sanctions and to issue cease and desist
order.[38] Section 37 of Republic Act No. 7653,[39] in particular, explicitly provides that
the BSP Monetary Board shall exercise its discretion in determining whether
administrative sanctions should be imposed on banks and quasi-banks, which
necessarily implies that the BSP Monetary Board must conduct some form of
investigation or hearing regarding the same.
Having established that the BSP Monetary Board is indeed a quasi-judicial
body exercising quasi-judicial functions; then as such, it is one of those quasi-judicial
agencies, though not specifically mentioned in Section 9(3) of Batas Pambansa Blg.
129, as amended, and Section 1, Rule 43 of the 1997 Revised Rules of Civil Procedure,
are deemed included therein. Therefore, the Court of Appeals has appellate jurisdiction
over final judgments, orders, resolutions or awards of the BSP Monetary Board on
administrative complaints against banks and quasi-banks, which the former acquires
11
Banking Law Cases
through the filing by the aggrieved party of a Petition for Review under Rule 43 of the
1997 Revised Rules of Civil Procedure.
As a futile effort of UCPB, et al. to convince this Court that the Court of
Appeals has no appellate jurisdiction over the final judgments, orders, resolutions or
awards of the BSP Monetary Board, it cited Salud v. Central Bank of the Philippines.[40]
The invocation of UCPB, et al. of Salud is evidently misplaced.
The present case involves a decision of the BSP Monetary Board as regards an
administrative complaint against a bank and its corporate officers for the alleged
violation of Sections 36 and 37, Article IV of Republic Act No. 7653, in relation to
Section 55.1(a) of Republic Act No. 8791, and for the commission of irregularity
and unsafe or unsound banking practice. There is nothing in the aforesaid laws
which state that the final judgments, orders, resolutions or awards of the BSP Monetary
Board on administrative complaints against banks or quasi-banks shall be final and
executory and beyond the subject of judicial review. Without being explicitly excepted
or exempted, the final judgments, orders, resolutions or awards of the BSP Monetary
Board are among those appealable to the Court of Appeals by way of Petition for
Review, as provided in Section 9(3) of Batas Pambansa Blg. 129, as amended, and
Section 1, Rule 43 of the 1997 Revised Rules of Civil Procedure.
Although in Salud, this Court declared that the Intermediate Appellate Court
(now Court of Appeals) has no appellate jurisdiction over resolutions or orders of the
Monetary Board of the Central Bank of the Philippines (CBP, now BSP), because no
law prescribes any mode of appeal therefrom, the factual settings of the said case are
totally different from the one presently before us. Salud involved a resolution issued by
the Monetary Board, pursuant to Section 29 of Republic Act No. 265, otherwise
known as the old Central Bank Act, forbidding banking institutions to do business
on account of a "condition of insolvency" or because "its continuance in business would
involve probable loss to depositors or creditors;" or appointing a receiver to take charge
of the assets and liabilities of the bank; or determining whether the banking institutions
should be rehabilitated or liquidated, and if in the latter case, appointing a liquidator
towards this end. The said Section 29 of the old Central Bank Act was explicit that the
determination by the Monetary Board of whether a banking institution is insolvent, or
should be rehabilitated or liquidated, is final and executory. However, said
determination could be set aside by the trial court if there was convincing proof that
the Monetary Board acted arbitrarily or in bad faith. Under the circumstances
obtaining in Salud, it is apparent that our ruling therein is limited to cases of
insolvency, and not to all cases cognizable by the Monetary Board.
At any rate, under the new law, i.e., Section 30 of Republic Act No. 7653,
otherwise known as The New Central Bank Act, which took effect on 3 July 1993, the
order of the BSP Monetary Board, even regarding the liquidation of a bank, can be
questioned via a Petition for Certiorari before a court when the same was issued in
excess of jurisdiction or with such grave abuse of discretion as to amount to lack or
excess of jurisdiction. The court referred to therein can be construed to mean the Court
of Appeals because it is in the said court where a Petition for Certiorari can be filed
following the hierarchy of courts.
12
Banking Law Cases
Moreover, the appellate jurisdiction of the Court of Appeals over the final
judgments, orders, resolutions or awards of the BSP Monetary Board in administrative
cases involving directors and officers of banks, quasi-banks, and trust entities, is
affirmed in BSP Circular No. 477, Series of 2005. The said BSP Circular expressly
provides that the resolution rendered by the BSP Monetary Board in administrative
cases may be appealed to the Court of Appeals within the period and the manner
provided under Rule 43 of the 1997 Revised Rules of Civil Procedure.
With all the foregoing, it cannot now be questioned that the Court of Appeals
has appellate jurisdiction over the final judgments, orders, resolutions or awards
rendered by the BSP Monetary Board in administrative cases against banks and their
directors and officers, such as UCPB, et al.
The Court then proceeds to resolve the issue of whether the Court of Appeals erred in
holding that the BSP Monetary Board summarily dismissed the administrative
complaint of EGI against UCPB, et al.
After a meticulous scrutiny of the 16 September 2003 letter-decision of the BSP
Monetary Board, this Court rules in the negative and affirms the finding of the Court
of Appeals that the BSP Monetary Board did, indeed, summarily dismiss administrative
complaint of EGI against UCPB, et al., for violation of Sections 36 and 37, Article IV
of Republic Act No. 7653, in relation to Section 55.1(a) of Republic Act No. 8791, and
for the commission of irregularity and unsafe or unsound banking practice.
Given the gravity and seriousness of the charges of EGI against UCPB, et al., the
sweeping statement of the BSP Monetary Board that it was inclined to dismiss the
complaint of EGI based on the evaluation made by its Supervision and Examination
Department I and Office of the General Counsel and Legal Services, is simply
insufficient and unsatisfactory. Worse, the BSP Monetary Board merely presented the
following conclusions without bothering to explain its bases for the same: (1) UCPB
computed interest on loans based on BSP rules and regulations which prohibit banks
from accruing interest on loans that have become non-performing (BSP Circular No.
202); (2) fair market value of assets to be foreclosed is different from the bid price
submitted during foreclosure and there is no statutory obligation for the latter to be
equivalent to the former; (3) regarding the alleged P145,163,000.00 fabricated loan, the
documents showed that there were the EGI Board resolution to borrow, promissory
note signed by Mr. Eulalio Ganzon, and Loan Agreement stating the proceeds shall be
used to pay outstanding availments and interest servicing; and (4) there is no finding
by Supervision and Examination Department I on the alleged double charging and/or
padding of transaction costs.
Further, in resolving the matter before it, the BSP Monetary Board never considered
the UCPB Internal Memorandum dated 22 February 2001, which was the heart of the
administrative complaint of EGI against UCPB, et al. The BSP Monetary Board did
not even attempt to establish whether it was regular or sound practice for a bank to keep
a record of its borrowers loan obligations with two different sets of figures, one higher
than the other; and to disclose to the borrower only the higher figures.The explanation
of UCPB, et al., adopted by the BSP Monetary Board that the figures in the ACTUAL
column were lower than those in the DISCLOSED TO EGI column because the former
was computed in accordance with BSP rules and regulations prohibiting the accrual of
interest on loans that have become non-performing gives rise to more questions than
answers. Examples of some of these questions would be whether the loan obligations
of EGI have become non-performing; whether the differences between the figures in
13
Banking Law Cases
the ACTUAL and DISCLOSED TO EGI columns indeed corresponded to the interest
that should be excluded from the figures in the first column per BSP rules and
regulations; and whether the computations of the figures in both columns should have
been freely disclosed and sufficiently explained to EGI in the name of transparency.
The BSP Monetary Board similarly failed to clarify whether UCPB can
foreclose the mortgaged properties of EGI in amounts that were less than the values of
the said properties as determined and stipulated by EGI and UCPB in their amended
MOA. The Court once more agrees in the ruling of the Court of Appeals that the MOA
entered into by EGI and UCPB serves as a contract between them, and it is the law that
should govern their relationship, which neither of the parties can simply abrogate,
violate, or disregard. Unfortunately, the BSP Monetary Board never even referred to
the MOA executed by the parties in its letter-decision dated 16 September 2003.
Moreover, the BSP Monetary Board found that the P145,163,000.00 loan of
EGI from UCPB was not fabricated based on several documents. However, there is
absolute lack of explanation by the BSP Monetary Board as to why said documents
deserved more weight vis--vis evidence of EGI of suspicious circumstances
surrounding the said loan, such as UCPB granting EGI said loan even when the latter
was already in default on its prior loan obligations, and without requiring additional
security, detailed business plan, and financial projections from EGI.
The disregard by BSP Monetary Board of all the foregoing facts and issues in its letter-
decision dated 16 September 2003 leads this Court to declare that it summarily
dismissed the administrative complaint of EGI against UCPB, et al. There can be no
complete resolution of the administrative complaint of EGI without consideration of
these facts and judgment on said issues.
Finally, there is no merit in the assertion of UCPB, et al. that the Court of Appeals erred
in disregarding the findings of fact of the BSP Monetary Board in the absence of grave
abuse of discretion or lack of basis for the same.
Although, as a general rule, findings of facts of an administrative agency, which has
acquired expertise in the particular field of its endeavor, are accorded great weight on
appeal, such rule cannot be applied with respect to the assailed findings of the BSP
Monetary Board in this case. Rather, what applies is the recognized exception that if
such findings are not supported by substantial evidence, the Court can make its own
independent evaluation of the facts.[41]
The standard of substantial evidence required in administrative proceedings is
more than a mere scintilla. It means such relevant evidence as a reasonable mind might
accept as adequate to support a conclusion. While rules of evidence prevailing in courts
of law and equity shall not be controlling, the obvious purpose being to free
administrative boards from the compulsion of technical rules so that the mere
admission of matter which would be deemed incompetent in judicial proceedings
would not invalidate the administrative order, this assurance of a desirable flexibility
in administrative procedure does not go so far as to justify orders without basis in
evidence having rational probative force.[42]
It cannot be convincingly said herein that the factual findings of the BSP
Monetary Board in its letter-decision dated 16 September 2003 was supported by
substantial evidence since (1) most of the findings were not supported by references to
specific evidence; and (2) the findings were made without consideration of the primary
14
Banking Law Cases

evidence presented by EGI (i.e., the MOA and its amendments and the UCPB Internal
IV. Whether or not the Honorable Court of Appeals
Memorandum dated 22 February 2001). committed patent, grave, and reversible error in not directing
the [BSP] to impose the appropriate penalties against [UCPB, et
Even then, the Court of Appeals stopped short of categorically ruling that UCPB, et al. al.].[43]
committed irregularities, or unsound or unsafe banking practice in its transactions with
EGI. What the Court of Appeals positively pronounced was that the BSP Monetary
The Petition is docketed as G.R. No. 168897.
Board failed to give the necessary consideration to the administrative complaint of EGI,
Since the first two issues have already been addressed by this Court in its previous
summarily dismissing the same in its 16 September 2003 letter-decision. The 14
discussion herein on G.R. No. 168859, we now proceed to resolve the next two issues
October 2004 Decision of the Court of Appeals clearly remanded the case to the BSP
raised by EGI in its Petition in G.R. No. 168897.
for further proceedings since the BSP, with its specialized knowledge and expertise on
EGI avers that the Court of Appeals committed reversible error when it remanded the
banking matters, is more up to task to receive evidence, hold hearings, and thereafter
case to the BSP for further proceedings instead of directing the BSP to impose the
resolve the issues based on its findings of fact and law.
applicable sanctions on UCPB, et al. EGI reasons that the appellate court, in its
G.R. No. 168897
Decision dated 14 October 2004, already found that UCPB had committed several acts
Also unsatisfied with the Decision dated 14 October 2004 and Resolution dated 7 July
of serious irregularity and conducted business in an unsafe and unsound manner. By
2005 of the Court of Appeals, EGI filed with this Court its own Petition for Review
reason thereof, there was no more need for the Court of Appeals to remand this case to
on Certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure, raising the
the BSP for a further determination of whether there were irregular and unsound
following issues:
practices by UCPB, et al. in its dealings with EGI. Should this case be remanded to the
BSP, there would be nothing to prevent the BSP from ruling again that UCPB, et al.,
I. The Honorable Court of Appeals does have
appellate jurisdiction over decisions, orders, and resolutions of did not commit any irregularity and unsafe or unsound business practice. To require
the BSP/Monetary Board. that this case be reviewed by the BSP would only lead to multiplicity of suits, promote
unnecessary delay and negate the constitutional rights of all persons to a speedy
II. The Honorable Court of Appeals was correct in
FINDING that the [BSP] summarily dismissed the complaint of disposition of their cases before all judicial, quasi-judicial or administrative bodies.
EGI.
The Court reiterates that the Court of Appeals did not yet make conclusive findings in
III. Whether or not the Honorable Court of Appeals
committed patent, grave, and reversible error when it remanded its Decision dated 14 October 2004, that UCPB, et al., committed irregularities and
the case to the [BSP] for further proceedings instead of acting unsound or unsafe banking practices in their business dealings with EGI. The appellate
upon its findings as narrated in its Decision. court only adjudged that the BSP Monetary Board summarily dismissed the
15
Banking Law Cases

administrative complaint of EGI, without fully appreciating the facts and evidence WHEREFORE, premises considered, the Petition for Review on Certiorari of United
presented by the latter. Given the seriousness of the charges of EGI against UCPB, et Coconut Planters Bank, Jeronimo U. Kilayko, Lorenzo V. Tan, Enrique L. Gana, Jaime
al., the BSP Monetary Board should have conducted a more intensive inquiry and W. Jacinto and Emily R. Lazaro, in G.R. No. 168859; as well as the Petition for Review
rendered a more comprehensive decision. on Certiorari of E. Ganzon, Inc. in G.R. No. 168897, are hereby DENIED. The
Decision dated 14 October 2004 and Resolution dated 7 July 2005 of the Court of
By remanding the case to the BSP Monetary Board, the Court of Appeals only acted in Appeals in CA-G.R. SP No. 81385 are hereby AFFIRMED in toto. No costs.
accordance with Republic Act No. 7653 and Republic Act No. 8791, which tasked the SO ORDERED.
BSP, through the Monetary Board, to determine whether a particular act or omission,
which is not otherwise prohibited by any law, rule or regulation affecting banks, quasi-
banks or trust entities, may be deemed as conducting business in an unsafe or unsound
manner. Also, the BSP Monetary Board is the proper body to impose the necessary
administrative sanctions for the erring bank and its directors or officers.

The Court of Appeals did not deem it appropriate, on appeal, to outright reverse the
judgment of the BSP Monetary Board. The Court of Appeals held that the BSP
Monetary Board did not have sufficient basis for dismissing the administrative
complaint of EGI in its 16 September 2003 letter-decision; yet, the appellate court
likewise did not find enough evidence on record to already resolve the administrative
complaint in favor of EGI and against UCPB, et al., precisely the reason why it still
remanded the case to the BSP Monetary Board for further proceedings. The Court of
Appeals never meant to give EGI an assurance of a favorable judgment; it only ensured
that the BSP Monetary Board shall accord all parties concerned to equal opportunity
for presentation and consideration of their allegations, arguments, and evidence. While
the speedy disposition of cases is a constitutionally mandated right, the paramount duty
of the courts, as well as quasi-judicial bodies, is to render justice by following the basic
rules and principles of due process and fair play.

16
Banking Law Cases
G.R. No. L-14279 October 31, 1961
THE COMMISSIONER OF CUSTOMS and THE COLLECTOR OF
CUSTOMS, petitioners,
vs.
EASTERN SEA TRADING, respondent.
Office of the Solicitor General for petitioners.
Valentin Gutierrez for respondent.
CONCEPCION, J.:
Petition for review of a judgment of the Court of Tax Appeals reversing a decision of
the Commissioner of Customs.
Respondent Eastern Sea Trading was the consignee of several shipments of onion and
garlic which arrived at the Port of Manila from August 25 to September 7, 1954.
Some shipments came from Japan and others from Hong Kong. In as much as none of
the shipments had the certificate required by Central Bank Circulars Nos. 44 and 45
for the release thereof, the goods thus imported were seized and subjected to
forfeiture proceedings for alleged violations of section 1363(f) of the Revised
Administrative Code, in relation to the aforementioned circulars of the Central Bank.
In due course, the Collector of Customs of Manila rendered a decision on September
4, 1956, declaring said goods forfeited to the Government and — the goods having
been, in the meantime, released to the consignees on surety bonds, filed by the same,
as principal, and the Alto Surety & Insurance Co., Inc., as surety, in compliance with
orders of the Court of First Instance of Manila, in Civil Cases Nos. 23942 and 23852
thereof — directing that the amounts of said bonds be paid, by said principal and
surety, jointly and severally, to the Bureau of Customs, within thirty (30) days from
notice.
On appeal taken by the consignee, said decision was affirmed by the Commissioner
of Customs on December 27, 1956. Subsequently, the consignee sought a review of
the decision of said two (2) officers by the Court of Tax Appeals, which reversed the
decision of the Commissioner of Customs and ordered that the aforementioned bonds
be cancelled and withdrawn. Hence, the present petition of the Commissioner of
Customs for review of the decision of the Court of Tax Appeals.
The latter is based upon the following premises, namely: that the Central Bank has no
authority to regulate transactions not involving foreign exchange; that the shipments
in question are in the nature of "no-dollar" imports; that, as such, the aforementioned
shipments do not involve foreign exchange; that, insofar as a Central Bank license
and a certificate authorizing the importation or release of the goods under
consideration are required by Central Bank Circulars Nos. 44 and 45, the latter are
null and void; and that the seizure and forfeiture of the goods imported from Japan
cannot be justified under Executive Order No. 328,1 not only because the same seeks
to implement an executive agreement2 — extending the effectivity of our3 Trades and
Financial Agreements4 with Japan — which (executive agreement), it believed, is of
dubious validity, but, also, because there is no governmental agency authorized to
issue the import license required by the aforementioned executive order.
The authority of the Central Bank to regulate no-dollar imports and the validity of the
aforementioned Circulars Nos. 44, and 45 have already been passed upon and
repeatedly upheld by this Court (Pascual vs. Commissioner of Customs, L-10979
[June 30, 1959]; Acting Commissioner of Customs vs. Leuterio, L-9142 [October 17,
1959] Commissioner of Customs vs. Pascual, L-9836 [November 18, 1959];
Commissioner of Customs vs. Serree Investment Co., L-12007 [May 16, 1960];
Commissioner of Customs vs. Serree Investment Co., L-14274 [November 29,
1960]), for the reason that the broad powers of the Central Bank, under its charter, to
maintain our monetary stability and to preserve the international value of our
currency, under section 2 of Republic Act No. 265, in relation to section 14 of said
Act — authorizing the bank to issue such rules and regulations as it may consider
necessary for the effective discharge of the responsibilities and the exercise of the
powers assigned to the Monetary Board and to the Central Bank — connote the
authority to regulate no-dollar imports, owing to the influence and effect that the
same may and do have upon the stability of our peso and its international value.
17
Banking Law Cases
The Court of Tax Appeals entertained doubts on the legality of the executive
agreement sought to be implemented by Executive Order No. 328, owing to the fact
that our Senate had not concurred in the making of said executive agreement. The
concurrence of said House of Congress is required by our fundamental law in the
making of "treaties" (Constitution of the Philippines, Article VII, Section 10[7]),
which are, however, distinct and different from "executive agreements," which may
be validly entered into without such concurrence.
Treaties are formal documents which require ratification with the approval of
two thirds of the Senate. Executive agreements become binding through
executive action without the need of a vote by the Senate or by Congress.
xxx xxx xxx
. . . the right of the Executive to enter into binding agreements without the
necessity of subsequent Congressional approval has been confirmed by long
usage. From the earliest days of our history we have entered into executive
agreements covering such subjects as commercial and consular relations,
most-favored-nation rights, patent rights, trademark and copyright protection,
postal and navigation arrangements and the settlement of claims. The validity
of these has never been seriously questioned by our courts.
xxx xxx xxx
Agreements with respect to the registration of trade-marks have been
concluded by the Executive with various countries under the Act of Congress
of March 3, 1881 (21 Stat. 502). Postal conventions regulating the reciprocal
treatment of mail matters, money orders, parcel post, etc., have been
concluded by the Postmaster General with various countries under
authorization by Congress beginning with the Act of February 20, 1792 (1
Stat. 232, 239). Ten executive agreements were concluded by the President
pursuant to the McKinley Tariff Act of 1890 (26 Stat. 567, 612), and nine
such agreements were entered into under the Dingley Tariff Act 1897 (30 Stat.
151, 203, 214). A very much larger number of agreements, along the lines of
the one with Rumania previously referred to, providing for most-favored-
nation treatment in customs and related matters have been entered into since
the passage of the Tariff Act of 1922, not by direction of the Act but in
harmony with it.
xxx xxx xxx
International agreements involving political issues or changes of national
policy and those involving international arrangements of a permanent
character usually take the form of treaties. But international agreements
embodying adjustments of detail carrying out well-established national
policies and traditions and those involving arrangements of a more or less
temporary nature usually take the form of executive agreements.
xxx xxx xxx
Furthermore, the United States Supreme Court has expressly recognized the
validity and constitutionality of executive agreements entered into without
Senate approval. (39 Columbia Law Review, pp. 753-754) (See, also, U.S. vs.
Curtis-Wright Export Corporation, 299 U.S. 304, 81 L. ed. 255; U.S. vs.
Belmont, 301 U.S. 324, 81 L. ed. 1134; U.S. vs. Pink, 315 U.S. 203, 86 L. ed.
796; Ozanic vs. U.S., 188 F. 2d. 288; Yale Law Journal, Vol. 15, pp. 1905-
1906; California Law Review, Vol. 25, pp. 670-675; Hyde on International
Law [Revised Edition], Vol. 2, pp. 1405, 1416-1418; Willoughby on the U.S.
Constitutional Law, Vol. I [2d ed.], pp. 537-540; Moore, International Law
Digest, Vol. V, pp. 210-218; Hackworth, International Law Digest, Vol. V,
pp. 390-407). (Emphasis supplied.)
In this connection, Francis B. Sayre, former U.S. High Commissioner to the
Philippines, said in his work on "The Constitutionality of Trade Agreement Acts":
Agreements concluded by the President which fall short of treaties are
commonly referred to as executive agreements and are no less common in our
scheme of government than are the more formal instruments — treaties and
conventions. They sometimes take the form of exchanges of notes and at other
times that of more formal documents denominated "agreements" time or
"protocols". The point where ordinary correspondence between this and other
governments ends and agreements — whether denominated executive
18
Banking Law Cases

agreements or exchanges of notes or otherwise — begin, may sometimes be accomplishment of said objectives had merely to be discharged directly by the
difficult of ready ascertainment. It would be useless to undertake to discuss Monetary Board and the Central Bank, even if the aforementioned Executive Order
here the large variety of executive agreements as such, concluded from time to had been silent thereon.
time. Hundreds of executive agreements, other than those entered into under
the trade-agreements act, have been negotiated with foreign governments. . . . WHEREFORE, the decision appealed from is hereby reversed and another one shall
It would seem to be sufficient, in order to show that the trade agreements be entered affirming that of the Commissioner of Customs, with cost against
under the act of 1934 are not anomalous in character, that they are not treaties, respondents defendant-appellee, Eastern Sea Trading.
and that they have abundant precedent in our history, to refer to certain classes
of agreements heretofore entered into by the Executive without the approval It is so ordered.
of the Senate. They cover such subjects as the inspection of vessels,
navigation dues, income tax on shipping profits, the admission of civil
aircraft, customs matters, and commercial relations generally, international
claims, postal matters, the registration of trademarks and copyrights, etcetera.
Some of them were concluded not by specific congressional authorization but
in conformity with policies declared in acts of Congress with respect to the
general subject matter, such as tariff acts; while still others, particularly those
with respect of the settlement of claims against foreign governments, were
concluded independently of any legislation." (39 Columbia Law Review, pp.
651, 755.)

The validity of the executive agreement in question is thus patent. In fact, the so-
called Parity Rights provided for in the Ordinance Appended to our Constitution
were, prior thereto, the subject of an executive agreement, made without the
concurrence of two-thirds (2/3) of the Senate of the United States.

Lastly, the lower court held that it would be unreasonable to require from respondent-
appellee an import license when the Import Control Commission was no longer in
existence and, hence, there was, said court believed, no agency authorized to issue the
aforementioned license. This conclusion is untenable, for the authority to issue the
aforementioned licenses was not vested exclusively upon the Import Control
Commission or Administration. Executive Order No. 328 provided for export or
import licenses "from the Central Bank of the Philippines or the Import Control
Administration" or Commission. Indeed, the latter was created only to perform the
task of implementing certain objectives of the Monetary Board and the Central
Bank, which otherwise had to be undertaken by these two (2) agencies. Upon the
abolition of said Commission, the duty to provide means and ways for the
19
Banking Law Cases
[G.R. No. 88435.January 16, 2002]
DEVELOPMENT BANK OF THE PHILIPPINES, JESUS P. ESTANISLAO,
DOLORES A. SANTIAGO, LYNN H. CATUNCAN, NORMA O.
TERREL, MA. ANTONIA G. REBUENO, petitioners, vs. COMMISSION
ON AUDIT, respondent.
DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari[1] of the letter-decision of the Chairman
of the Commission on Audit[2] (COA for brevity) and the letter-decision of the COA en
banc[3], prohibiting the Development Bank of the Philippines (DBP for brevity) from
hiring a private external auditor.This petition raises a question of first impression,
whether or not the constitutional power of the COA to examine and audit the DBP is
exclusive and precludes a concurrent audit of the DBP by a private external auditor.
The Antecedent Facts
In 1986, the Philippine government, under the administration of then President
Corazon C. Aquino, obtained from the World Bank an Economic Recovery Loan (ERL
for brevity) in the amount of US$310 million. The ERL was intended to support the
recovery of the Philippine economy, at that time suffering severely from the financial
crisis that hit the country during the latter part of the Marcos regime.
As a condition for granting the loan, the World Bank required the Philippine
government to rehabilitate the DBP which was then saddled with huge non-performing
loans. Accordingly, the government committed to rehabilitate the DBP to make it a
viable and self-sustaining financial institution in recognition of its developmental role
in the economy. The DBP was expected to continue providing principally medium and
long-term financing to projects with risks higher than the private sector may be willing
to accept under reasonable terms.[4] The governments commitment was embodied in
the Policy Statement for the Development Bank of the Philippines which stated in part:
4. Furthermore, like all financial institutions under Central Bank supervision, DBP
will now be required to have a private external audit, and its Board of Directors will
now be opened to adequate private sector representation. It is hoped that with these
commitments, DBP can avoid the difficulties of the past and can function as a
competitive and viable financial institution within the Philippine financial
system.[5] (Emphasis supplied)
On November 28, 1986, the Monetary Board adopted Resolution No. 1079
amending the Central Banks Manual of Regulations for Banks and other Financial
Intermediaries, in line with the governments commitment to the World Bank to require
a private external auditor for DBP. Thus, on December 5, 1986, the Central Bank
Governor issued Central Bank Circular No. 1124, providing that:
SECTION 1. Subsection 1165.5 (Book I) is amended to read as follows:
1165.5 Financial Audit. - Each Bank, whether Government-owned or controlled or
private, shall cause an annual financial audit to be conducted by an external
independent auditor not later than thirty (30) days after the close of the calendar year
or the fiscal year adopted by the bank. x x x.
x x x The Audit of a Government-owned or controlled bank by an external
independent auditor shall be in addition to and without prejudice to that conducted by
the Commission on Audit in the discharge of its mandate under existing law. x x x.
xxx
SECTION 3. The requirement for an annual financial audit by an external
independent auditor shall extend to specialized and unique government banks such as
the Land Bank of the Philippines and the Development Bank of the Philippines.[6]
20
Banking Law Cases
On December 12, 1986, pursuant to Central Bank Circular No. 1124 and the
governments commitment to the World Bank, DBP Chairman Jesus Estanislao wrote
the COA seeking approval of the DBPs engagement of a private external auditor in
addition to the COA.[7]
On January 2, 1987, to formalize its request for the ERL, the Philippine
government sent the World Bank a letter assuring the World Bank that pursuant to
Central Bank Circular No. 1124, all Banks, including government banks, shall be fully
audited by external independent auditors x x x in addition to that provided by the
Commission on Audit. The letter was signed by the Central Bank Governor and the
Ministers of Finance, Trade and Industry, and Economic Planning of the Philippine
government. [8]
On January 8, 1987, the Philippine government and World Bank negotiating panels
reached final agreement on the private audit of the DBP, as follows:
13. With respect to the draft Policy Statement, it was agreed that Sections 4, 7 and 11
would be amended as follows:
x x x (iii) Section 11 should in line with the letter of Development Policy, confirm
that the external independent audits would commence with a balance sheet audit as of
December 31, 1986 and a full financial audit, including income statements, starting
with the period July 1 to December 31, 1986. A copy of COAs letter (referred to in
par. 1, a draft of which is attached as Annex VIII) regarding DBPs appointment of a
private external auditor will be sent to the Bank before the distribution of the loan
documents to the Banks Board, along with a copy of the scope of audit as approved
by COA and satisfactory to the Bank.
With regard to the scope of the audit to be undertaken by the private external auditors,
the terms of reference which will be issued to the selected auditors should be
generally consistent with the attached model terms of reference for financial audits
(Annex IX). These general terms of reference were discussed during negotiations and
form a part of the World Banks guidelines for financial information on financial
institutions.[9]
On January 20, 1987, then COA Chairman Teofisto Guingona, Jr. replied to the
December 12, 1986 letter of the DBP Chairman. The COA Chairmans reply stated that:
x x x the Commission on Audit (COA) will interpose no objection to your
engagement of a private external auditor as required by the Economic Recovery
Program Loan Agreements of 1987 provided that the terms for said audit are first
reviewed and approved by the Commission.[10]
The following day, the COA Chairman also informed the Consultant of the Central
Bank that the COA interposed no objection to the proposed scope of audit services to
be undertaken by the private external auditors to be engaged by the DBP. [11]
On February 18, 1987, the Board of Directors of the DBP approved the hiring of
Joaquin Cunanan & Co. as the DBPs private external auditor for calendar year 1986 as
required by Central Bank Circular No. 1124 and the World Bank. The DBP Board of
Directors placed a ceiling on the amount of reimbursable out-of-pocket expenses that
could be charged by the private auditor.[12]
On February 23, 1987, the World Bank President, in his Report to the Banks
Executive Directors on the Philippine governments application for the ERL, certified
that the Philippine government was complying with the requirement of a private
external auditor. The World Bank Presidents certification stated that:
74. Accounting and Auditing. All banks both government and private are now subject
to accounting and auditing standards as established by the Central Bank. To ensure
full public accountability, the Monetary Board now requires that all government
banks be subject to annual audits by independent private auditing firms, in addition to
those normally undertaken by the Governments Commission on Audit. DBP and PNB
have already selected private auditors, and audited accounts for 1986 and 1987 will
be a requirement for the releases of the second and third tranches, respectively, of the
ERL.[13]
However, a change in the leadership of the COA suddenly reversed the course of
events. On April 27, 1987, the new COA Chairman, Eufemio Domingo, wrote the
Central Bank Governor protesting the Central Banks issuance of Circular No. 1124
which allegedly encroached upon the COAs constitutional and statutory power to audit
government agencies. The COA Chairmans letter informed the Governor that:
This Commission hereby registers its strong objection to that portion of the CBP
Circular No. 1124 which requires government banks to engage private auditors in
21
Banking Law Cases
addition to that conducted by the Commission on Audit, and urges the immediate
amendment thereof. It is the position of this Commission that the said requirement:
(a) infringes on Article IX-D of the Philippine Constitution; (b) violates Section 26
and 32 of the Government Auditing Code of the Philippines; (c) exposes the financial
programs and strategies of the Philippine Government to high security risks; (d)
allows the unnecessary and unconscionable expenditure of government funds; and (e)
encourages unethical encroachment among professionals.[14]
On May 13, 1987, after learning that the DBP had signed a contract with a private
auditing firm for calendar year 1986, the new COA Chairman wrote the DBP Chairman
that the COA resident auditors were under instructions to disallow any payment to the
private auditor whose services were unconstitutional, illegal and unnecessary.[15]
On July 1, 1987, the DBP Chairman sent to the COA Chairman a copy of the DBPs
contract with Joaquin Cunanan & Co., signed four months earlier on March 5,
1987. The DBP Chairmans covering handwritten note sought the COAs concurrence
to the contract.[16]
During the pendency of the DBP Chairmans note-request for concurrence, the DBP
paid the billings of the private auditor in the total amount of P487,321.14[17] despite the
objection of the COA. On October 30, 1987, the COA Chairman issued a Memorandum
disallowing the payments, and holding the following persons personally liable for such
payment:
SVP Fajardo who approved the voucher for payment; VP Santiago who certified that
the expenditure was authorized, necessary and lawful; SM Terrel, Catuncan and
Rebueno who signed the checks; and the head of office who signed the contract and
who is immediately and primarily responsible for the funds of the Bank.[18]
On January 19, 1988, the DBP Chairman wrote the COA Chairman seeking
reconsideration of the COA Chairmans Memorandum.[19] However, the DBP received
no response until August 29, 1988 when the COA Chairman issued a letter-decision
denying petitioners July 1, 1987 note-request for concurrence. The letter-decision, one
of the two COA decisions assailed in this petition, declared in part as follows:
(a) In the letter to the Central Bank Governor x x x, this Commission clearly stated its
non-negotiable stand on the issue in the following terms:
x x x the very essence of the Commission on Audit as an independent constitutional
commission in the total scheme of Government, is its singular function to [E]xamine,
audit, and settle x x x all accounts pertaining to x x x the Government, or any of its
subdivisions, x x x including government-owned or controlled corporations. To allow
private firms to interfere in this governmental audit domain would be to derogate the
Constitutional supremacy of State audit as the Governments guardian of the peoples
treasury, and as the prime advocate of economy in the use of government resources.
xxx
(c) In the letter to the Secretary of Finance dated January 28, 1988 x x x, this
Commission maintains:
1. COA is in no way prepared to permit use of private auditors except
insofar as the law allows, which is to deputize and retain in the name
of the Commission such certified public accountants and other
licensed professionals not in the public service as it may deem
necessary to assist government auditors in undertaking specialized
audit engagements (Sec. 31, PD No 1445). Outside of this, the
Commission does not consider the matter of hiring private auditing
firms a negotiable matter, and this we want to emphasize to avoid
future embarrassment to the Government. The Commission on Audit
is a constitutionally-created independent and separate body, and
neither Congress nor the Executive Department has the power to
detract from its mandated duties, functions, and powers.
2. Since the proceeds of the proposed loan accrue to the Republic of the
Philippines as borrower, it follows that its accounting and audit must
comply with the laws of this country. To specify in the Loan
Agreement that the loan account, once released to the Government,
shall be audited by independent auditors acceptable to the Bank is
not only to entirely by-pass this Commission but to ignore as well
the Constitution and the laws of this country which vests in this
Commission the power, authority, and duty to examine, audit, and
settle all accounts pertaining to the revenue and receipts of, and
22
Banking Law Cases
expenditures or uses of funds and property x x x pertaining to the
Government. (Sec. 2, Art. IX-D, Phil. Const.).
Such brazen disregard of the fundamental law of this country cannot
be countenanced by this Commission.
In view of all the foregoing, you are hereby advised:
1. To desist from proceeding with the audit of Joaquin Cunanan & Co. of the Banks
financial statements for the year ending December 31, 1987.
2. To refrain from making any payments out of the funds of the Development Bank of
the Philippines, in the event that such audit services have already been rendered,
attention being invited to the following provisions of the Government Auditing Code
of the Philippines:
Sec. 108. General liability for unlawful expenditures Expenditures of government
funds or uses of government property in violation of law or regulations shall be a
personal liability of the official or employee found to be directly responsible
therefore.
3. To restitute, within thirty (30) days from receipt hereof, the total amount
of P513,549.24 under CV Nos. 9136, 5014, 6201 and 4082 for professional services
rendered in the audit of the 1986 financial operations of the Bank. Pursuant to the
aforequoted provisions of law, such unlawful expenditure is the personal liability of
the official directly responsible therefore.
Please be guided accordingly.[20]
On September 26, 1988, the DBP Chairman appealed the letter-decision to the
COA en banc. On May 20, 1989, the COA en banc, in a letter-decision, denied the
DBPs appeal. This letter-decision, now also assailed by the DBP, held that:
Upon a circumspect evaluation of the grounds upon which your instant request is
predicated, this Commission finds the same to be devoid of merit. As hereunder
demonstrated, the justifications offered do not inspire rational belief in the mind of
this Commission.
First, it bears stress that CB Circular No. 1124, series of 1986, which has earlier been
shown to be constitutionally and legally infirm, cannot by any means possess any
binding and conclusive effect upon this Commission and, hence, may not be properly
invoked in support of the instant appeal.
Secondly, it was not the International Bank for Reconstruction and Development
which required the audit of government banks by private auditing firm, but the
Central Bank itself.
Thirdly, insofar as this Commission is concerned, PD 2029 is an anachronism of sorts
if viewed in the light of the present Constitution recognizing this Commission as the
supreme and exclusive audit institution of the government. This is necessarily implicit
from the bare language of Section 2(1), Article IX-D thereof which, despite the
absence of the qualifying adjective exclusive that anyway would be a surplusage,
ought to be reasonably construed as vesting in this Commission the power, authority,
and duty to audit all government accounts to the exclusion of any other person or
entity, whether in the public or the private sector. Expressio unius est exclusio
alterius. A contrary interpretation, such as that being pressed upon this Commission,
would reduce this constitutional ordinance to an absurdity (reductio ad absurdum) as
it thereby would give rise to the rather confusing spectacle, as it were, of a
government agency or corporation being audited not only by this Commission but
also and in addition thereto by one or two or several private accounting firms
certainly a situation never intended by the framers of the Constitution.
Lastly, while this Commission has not lost sight of the letter of then COA Chairman
Guingona, Jr. to the DBP Chairman, dated January 20, 1987, it has opted to be guided
and influenced by the more persuasive and controlling COA Circular No. 860254
dated March 24, 1986, which in categorical and precise terms ordained that:
Accordingly, by way of reassertion and reaffirmation of its primary audit jurisdiction,
as herein above defined, the Commission on Audit hereby issues the following
directives:
23
Banking Law Cases
1. Any ongoing audit of a government-owned and/or controlled corporation or any of
its subsidiaries or corporate offsprings being conducted by a private auditor or
accounting firm shall cease and terminate on April 15, 1986. Henceforth, from and
after said date, the audit of said corporate entity shall be undertaken solely and
exclusively by the Commission on Audit. x x x.
Premises considered, it is regretted that your instant request for reconsideration has to
be, as it is hereby, denied.[21]
Hence, on June 14, 1989 the DBP filed this petition for review with prayer for a
temporary restraining order, assailing the two COA letter-decisions for being contrary
to the Constitution and existing laws. On June 15, 1989 this Court issued a temporary
restraining order directing the COA to cease and desist from enforcing its challenged
letter-decisions. The Office of the Solicitor General, in a Manifestation dated October
18, 1989, declined to appear on behalf of the COA on the ground that the Solicitor
General was taking a position adverse to that of the COA. Consequently, a private
counsel on pro bono basis represented the COA.
The Issues
The DBPs petition raises the following issues:
1. Does the Constitution vest in the COA the sole and exclusive power to
examine and audit government banks so as to prohibit concurrent audit by
private external auditors under any circumstance?
2. Is there an existing statute that prohibits government banks from hiring
private auditors in addition to the COA? If there is none, is there an existing
statute that authorizes government banks to hire private auditors in addition
to the COA?
3. If there is no legal impediment to the hiring by government banks of a
private auditor, was the hiring by the DBP of a private auditor in the case
at bar necessary, and were the fees paid by DBP to the private auditor
reasonable, under the circumstances?
The Courts Ruling
The DBPs petition is meritorious.
First Issue: Power of COA to Audit under the Constitution
The resolution of the primordial issue of whether or not the COA has the sole and
exclusive power to examine and audit government banks involves an interpretation of
Section 2, Article IX-D of the 1987 Constitution. This Section provides as follows:
Sec. 2. (1) The Commission on Audit shall have the power, authority, and
duty to examine, audit, and settle all accounts pertaining to the revenue and
receipts of, and expenditures or uses of funds and property, owned and held in
trust by, or pertaining to, the Government, or any of its subdivisions, agencies,
or instrumentalities, including government-owned or controlled corporations
with original charters, x x x.
(2) The Commission shall have the exclusive authority, subject to the
limitations in this Article, to define the scope of its audit and examination,
establish the techniques and methods required therefore, and promulgate
accounting and auditing rules and regulations, including those for the
prevention and disallowance of irregular, unnecessary, excessive, extravagant,
or unconscionable expenditures, or uses of government funds and properties.
(Emphasis supplied)
The COA vigorously asserts that under the first paragraph of Section 2, the COA
enjoys the sole and exclusive power to examine and audit all government agencies,
including the DBP. The COA contends this is similar to its sole and exclusive authority,
under the second paragraph of the same Section, to define the scope of its audit,
promulgate auditing rules and regulations, including rules on the disallowance of
unnecessary expenditures of government agencies. The bare language of Section 2,
however, shows that the COAs power under the first paragraph is not declared
24
Banking Law Cases
exclusive, while its authority under the second paragraph is expressly declared
exclusive. There is a significant reason for this marked difference in language.
During the deliberations of the Constitutional Commission, Commissioner Serafin
Guingona proposed the addition of the word exclusive in the first paragraph of Section
2, thereby granting the COA the sole and exclusive power to examine and audit all
government agencies. However, the Constitutional Commission rejected the addition
of the word exclusive in the first paragraph of Section 2 and Guingona was forced to
withdraw his proposal. Commissioner Christian Monsod explained the rejection in this
manner:
MR. MONSOD. Earlier Commissioner Guingona, in withdrawing his
amendment to add EXCLUSIVE made a statement about the preponderant right
of COA.
For the record, we would like to clarify the reason for not including the word.
First, we do not want an Article that would constitute a disincentive or an
obstacle to private investment. There are government institutions with private
investments in them, and some of these investors -Filipinos, as well as in some
cases, foreigners - require the presence of private auditing firms, not exclusively,
but concurrently. So this does not take away the power of the Commission on
Audit. Second, there are certain instances where private auditing may be
required, like the listing in the stock exchange. In other words, we do not want
this provision to be an unnecessary obstacle to privatization of these companies
or attraction of investments.[22] (Emphasis supplied)
Shortly thereafter, Commissioner Guingona attempted to resurrect his amendment
by proposing the following provision:
Private auditing firms may not examine or audit accounts pertaining to the revenue
and receipts of, and expenditures or uses of funds and property owned or held in trust
by or pertaining to the Government or any of its subdivisions, agencies or
instrumentalities.[23]
Guingona argued that a private audit in addition to the COA audit would be a useless
duplication and an unnecessary expense on the part of government.
The Constitutional Commission also rejected this proposed provision, after
Commissioner Monsod made the following explanation:
MR. MONSOD. x x x But it is also a fact that even government agencies,
instrumentalities and subdivisions sometimes borrow money from abroad. And if
we are at all going to preclude the possibility of any concurrent auditing, if that is
required, and insist that it is only exclusively the government which can audit,
we may be unnecessarily tying their hands without really accomplishing much
more than what we want. As long as the COA is there, and the COAs power
cannot be eliminated by law, by decree or anything of that sort, then the
government funds are protected.
As far as the question of fees is concerned, this is always negotiable. Besides, if
one talks about auditing fees, these are governed by certain regulations within
the auditing profession, beyond which auditing firms cannot go. Furthermore, the
government can always refuse to pay unconscionable fees. So, that matter really
is not that relevant. But I think what we want to insist on is that there should be
some flexibility so that a procedural requirement does not impede a substantive
transaction as long as COA is there.[24] (Emphasis supplied)
The rejection of Guingonas second proposal put an end to all efforts to grant the COA
the sole and exclusive power to examine and audit government agencies.
In sharp contrast, the Constitutional Commission placed the word exclusive to
qualify the authority of the COA under the second paragraph of the same Section 2. The
word exclusive did not appear in the counterpart provisions of Section 2 in the 1935
and 1973 Constitutions.[25] There is no dispute that the COAs authority under the
second paragraph of Section 2 is exclusive as the language of the Constitution admits
of no other meaning. Thus, the COA has the exclusive authority to decide on
disallowances of unnecessary government expenditures. Other government agencies
and their officials, as well as private auditors engaged by them, cannot in any way
intrude into this exclusive function of the COA.
The qualifying word exclusive in the second paragraph of Section 2 cannot be
applied to the first paragraph which is another sub-section of Section 2. A qualifying
word is intended to refer only to the phrase to which it is immediately associated, and
not to a phrase distantly located in another paragraph or sub-section.[26] Thus, the first
25
Banking Law Cases
paragraph of Section 2 must be read the way it appears, without the word exclusive,
signifying that non-COA auditors can also examine and audit government
agencies. Besides, the framers of the Constitution intentionally omitted the word
exclusive in the first paragraph of Section 2 precisely to allow concurrent audit by
private external auditors.
The clear and unmistakable conclusion from a reading of the entire Section 2 is
that the COAs power to examine and audit is non-exclusive. On the other hand, the
COAs authority to define the scope of its audit, promulgate auditing rules and
regulations, and disallow unnecessary expenditures is exclusive.
Moreover, as the constitutionally mandated auditor of all government agencies, the
COAs findings and conclusions necessarily prevail over those of private auditors, at
least insofar as government agencies and officials are concerned. The superiority or
preponderance of the COA audit over private audit can be gleaned from the records of
the Constitutional Commission, as follows:
MR. GUINGONA. Madam President, after consultation with the honorable
members of the Committee, I have amended my proposed amendment by
deleting the word EXCLUSIVE because I was made to understand that the
Commission on Audit will still have the preponderant power and authority to
examine, audit and settle.[27] (Emphasis supplied)
The findings and conclusions of the private auditor may guide private investors or
creditors who require such private audit. Government agencies and officials, however,
remain bound by the findings and conclusions of the COA, whether the matter falls
under the first or second paragraph of Section 2, unless of course such findings and
conclusions are modified or reversed by the courts.
The power of the COA to examine and audit government agencies, while non-
exclusive, cannot be taken away from the COA. Section 3, Article IX-D of the
Constitution mandates that:
Sec. 3. No law shall be passed exempting any entity of the Government or its
subsidiary in any guise whatsoever, or any investment of public funds, from the
jurisdiction of the Commission on Audit.
The mere fact that private auditors may audit government agencies does not divest the
COA of its power to examine and audit the same government agencies. The COA is
neither by-passed nor ignored since even with a private audit the COA will still conduct
its usual examination and audit, and its findings and conclusions will still bind
government agencies and their officials. A concurrent private audit poses no danger
whatsoever of public funds or assets escaping the usual scrutiny of a COA audit.
Manifestly, the express language of the Constitution, and the clear intent of its
framers, point to only one indubitable conclusion - the COA does not have the exclusive
power to examine and audit government agencies. The framers of the Constitution were
fully aware of the need to allow independent private audit of certain government
agencies in addition to the COA audit, as when there is a private investment in a
government-controlled corporation, or when a government corporation is privatized or
publicly listed, or as in the case at bar when the government borrows money from
abroad.
In these instances the government enters the marketplace and competes with the
rest of the world in attracting investments or loans. To succeed, the government must
abide with the reasonable business practices of the marketplace. Otherwise no investor
or creditor will do business with the government, frustrating government efforts to
attract investments or secure loans that may be critical to stimulate moribund industries
or resuscitate a badly shattered national economy as in the case at bar. By design the
Constitution is flexible enough to meet these exigencies. Any attempt to nullify this
flexibility in the instances mentioned, or in similar instances, will be ultra vires, in the
absence of a statute limiting or removing such flexibility.
The deliberations of the Constitutional Commission reveal eloquently the intent of
Section 2, Article IX-D of the Constitution. As this Court has ruled repeatedly, the
intent of the law is the controlling factor in the interpretation of the law.[28] If a law
needs interpretation, the most dominant influence is the intent of the law.[29] The intent
of the law is that which is expressed in the words of the law, which should be discovered
within its four corners aided, if necessary, by its legislative history.[30] In the case of
Section 2, Article IX-D of the Constitution, the intent of the framers of the Constitution
is evident from the bare language of Section 2 itself. The deliberations of the
Constitutional Commission confirm expressly and even elucidate further this intent
beyond any doubt whatsoever.
26
Banking Law Cases
There is another constitutional barrier to the COAs insistence of exclusive power
to examine and audit all government agencies. The COAs claim clashes directly with
the Central Banks constitutional power of supervision over banks under Section 20,
Article XII of the Constitution. This provision states as follows:
Sec. 20. The Congress shall establish an independent central monetary authority, the
members of whose governing board must be natural-born Filipino citizens, of known
probity, integrity, and patriotism, the majority of whom shall come from the private
sector. They shall also be subject to such other qualifications and disabilities as may
be prescribed by law. The authority shall provide policy direction in the areas of
money, banking, and credit. It shall have supervision over the operations of banks and
exercise such regulatory powers as may be provided by law over the operations of
finance companies and other institutions performing similar functions. (Emphasis
supplied)
Historically, the Central Bank has been conducting periodic and special
examination and audit of banks to determine the soundness of their operations and the
safety of the deposits of the public. Undeniably, the Central Banks power of
supervision includes the power to examine and audit banks, as the banking laws have
always recognized this power of the Central Bank.[31] Hence, the COAs power to
examine and audit government banks must be reconciled with the Central Banks power
to supervise the same banks. The inevitable conclusion is that the COA and the Central
Bank have concurrent jurisdiction, under the Constitution, to examine and audit
government banks.
However, despite the Central Banks concurrent jurisdiction over government
banks, the COAs audit still prevails over that of the Central Bank since the COA is the
constitutionally mandated auditor of government banks. And in matters falling under
the second paragraph of Section 2, Article IX-D of the Constitution, the COAs
jurisdiction is exclusive. Thus, the Central Bank is devoid of authority to allow or
disallow expenditures of government banks since this function belongs exclusively to
the COA.
Second Issue: Statutes Prohibiting or Authorizing Private Auditors
The COA argues that Sections 26, 31 and 32 of PD No. 1445, otherwise known as
the Government Auditing Code of the Philippines, prohibit the hiring of private
auditors by government agencies. Section 26 of PD No. 1445 provides that:
Section 26. General Jurisdiction. The authority and powers of the Commission shall
extend to and comprehend all matters relating to auditing procedures, systems and
controls, the keeping of the general accounts of the Government, the preservation of
vouchers pertaining thereto for a period of ten years, the examination and inspection
of the books, records, and papers relating to those accounts; and the audit and
settlement of the accounts of all persons respecting funds or property received or held
by them in an accountable capacity, as well as the examination, audit, and settlement
of all debts and claims of any sort due or owing to the Government or any of its
subdivisions, agencies or instrumentalities. The said jurisdiction extends to all
government-owned or controlled corporations, including their subsidiaries, and other
self-governing boards, commissions, or agencies of the Government, and as herein
prescribed, including non-governmental entities subsidized by the government, those
funded by donations through the government, those required to pay levies or
government share, and those for which the government has put up a counterpart fund
or those partly funded by the government.
Section 26 defines the extent and scope of the powers of the COA. Considering
the comprehensive definition in Section 26, the COAs jurisdiction covers all
government agencies, offices, bureaus and units, including government-owned or
controlled corporations, and even non-government entities enjoying subsidy from the
government. However, there is nothing in Section 26 that states, expressly or impliedly,
that the COAs power to examine and audit government banks is exclusive, thereby
preventing private audit of government agencies concurrently with the COA audit.
Section 26 is a definition of the COAs general jurisdiction. Jurisdiction may be
exclusive or concurrent. Section 26 of PD No. 1445 does not state that the COAs
jurisdiction is exclusive, and there are other laws providing for concurrent jurisdiction.
Thus, Section 26 must be applied in harmony with Section 58[32] of the General
Banking Law of 2000 (RA No. 8791) which authorizes unequivocally the Monetary
Board to require banks to hire independent auditors. Section 58 of the General Banking
Law of 2000 states as follows:
27
Banking Law Cases
Section 58. Independent Auditor. - The Monetary Board may require a bank, quasi-
bank or trust entity to engage the services of an independent auditor to be chosen by
the bank, quasi-bank or trust entity concerned from a list of certified public
accountants acceptable to the Monetary Board.The term of the engagement shall be as
prescribed by the Monetary Board which may either be on a continuing basis where
the auditor shall act as resident examiner, or on the basis of special engagements; but
in any case, the independent auditor shall be responsible to the banks, quasi-banks or
trust entitys board of directors. A copy of the report shall be furnished to the
Monetary Board. x x x. (Emphasis supplied)
Moreover, Section 26 must also be applied in conformity with Sections 25 and
28[33] of the New Central Bank Act (RA No. 7653) which authorize expressly the
Monetary Board to conduct periodic or special examination of all banks. Sections 25
and 28 of the New Central Bank Act state as follows:
Sec. 25. Supervision and Examination. The Bangko Sentral shall have
supervision over, and conduct periodic or special examinations of, banking
institutions x x x. (Emphasis supplied)
xxx
Sec. 28. Examination and Fees. The supervising and examining department head,
personally or by deputy, shall examine the books of every banking
institution once in every twelve (12) months, and at such other time as the
Monetary Board by an affirmative vote of five (5) members may deem expedient
and to make a report on the same to the Monetary Board: x x x. (Emphasis
supplied)
The power vested in the Monetary Board under Section 58 of the General Banking
Law of 2000, and Sections 25 and 28 of the New Central Bank Act, emanates from the
Central Banks explicit constitutional mandate to exercise supervision over the
operations of banks. Under Section 4 of the General Banking Law of 2000, the term
supervision[34] is defined as follows:
Section 4. Supervisory Powers. The operations and activities of banks shall be
subject to supervision of the Bangko Sentral. Supervision shall include the
following:
xxx
4.2. The conduct of examination to determine compliance with laws and regulations
if the circumstances so warrant as determined by the Monetary Board;
xxx
4.4. Regular investigation which shall not be oftener than once a year from the last
date of examination to determine whether an institution is conducting its business on
a safe or sound basis: Provided, That the deficiencies/irregularities found by or
discovered by an audit shall immediately be addressed;
x x x. (Emphasis supplied)
Clearly, under existing laws, the COA does not have the sole and exclusive power
to examine and audit government banks. The Central Bank has concurrent jurisdiction
to examine and audit, or cause the examination and audit, of government banks.
Section 31 of PD No. 1445, another provision of law claimed by the COA to
prohibit the hiring of private auditors by government agencies, provides as follows:
Section 31. Deputization of private licensed professionals to assist government
auditors. - (1) The Commission may, when the exigencies of the service so
require, deputize and retain in the name of the Commission such certified public
accountants and other licensed professionals not in the public service as it may
deem necessary to assist government auditors in undertaking specialized audit
engagements.
(2) The deputized professionals shall be entitled to such compensation and
allowances as may be stipulated, subject to pertinent rules and regulations on
compensation and fees.
28
Banking Law Cases
According to the COA, Section 31 is the maximum extent that private auditors can
participate in auditing government agencies and anything beyond this is without legal
basis. Hence, the COA maintains that the hiring of private auditors who act in their own
name and operate independently of the COA is unlawful.
Section 31 is bereft of any language that prohibits, expressly or impliedly, the
hiring of private auditors by government agencies. This provision of law merely grants
authority to the COA to hire and deputize private auditors to assist the COA in the
auditing of government agencies. Such private auditors operate under the authority of
the COA. By no stretch of statutory construction can this provision be interpreted as an
absolute statutory ban on the hiring of private auditors by government
agencies. Evidently, the language of the law does not support the COAs claim.
Moreover, the COA further contends that Section 32 of PD No. 1445 is another
provision of law that prohibits the hiring of private auditors by government
agencies. Section 32 provides as follows:
Section 32. Government contracts for auditing, accounting, and related
services. (1) No government agency shall enter into any contract with any private
person or firm for services to undertake studies and services relating to
government auditing, including services to conduct, for a fee, seminars or
workshops for government personnel on these topics, unless the proposed
contract is first submitted to the Commission to enable it to determine if it has
the resources to undertake such studies or services. The Commission may engage
the services of experts from the public or private sector in the conduct of these
studies.
(2) Should the Commission decide not to undertake the study or service, it shall
nonetheless have the power to review the contract in order to determine the
reasonableness of its costs. (Emphasis supplied)
Section 32 refers to contracts for studies and services relating to government
auditing which the COA may or may not want to undertake itself for a government
agency. Stated another way, Section 32 speaks of studies and services that the COA
may choose not to render to a government agency. Obviously, the subject of these
contracts is not the audit itself of a government agency because the COA is compelled
to undertake such audit and cannot choose not to conduct such audit. The Constitution
and existing law mandate the COA to audit all government agencies. Section 2, Article
IX-D of the Constitution commands that the COA shall have the x x x duty to examine,
audit, and settle all accounts of government agencies (Emphasis supplied). Similarly,
the Revised Administrative Code of 1987 directs that the Commission on Audit shall
have the x x x duty to examine, audit, and settle all accounts[35] of government agencies
(Emphasis supplied). Hence, the COA cannot refuse to audit government agencies
under any circumstance.
The subject of the contracts referred to in Section 32 is necessarily limited to
studies, seminars, workshops, researches and other services on government auditing
which the COA may or may not undertake at its discretion, thereby excluding the audit
itself of government agencies. Since the COA personnel have the experience on
government auditing and are in fact the experts on this subject, it is only proper for the
COA to be granted the right of first refusal to undertake such services if required by
government agencies. This is what Section 32 is all about and nothing more.Plainly,
there is nothing in Section 32 which prohibits the hiring of private auditors to audit
government agencies concurrently with the COA audit.
On the other hand, the DBP cites Central Bank Circular No. 1124[36] as legal basis
for hiring a private auditor. This Circular amended Subsection 1165.5 (Book I) of
the Manual of Regulations for Banks and other Financial Intermediaries to require
[E]ach bank, whether government-owned or controlled or private, x x x (to) cause an
annual financial audit to be conducted by an external auditor x x x. Moreover, the
Circular states that the audit of a government-owned or controlled bank by an external
independent auditor shall be in addition to and without prejudice to that conducted by
the Commission on Audit in the discharge of its mandate under existing
law. Furthermore, the Circular provides that the requirement for an annual audit by an
external independent auditor shall extend to specialized and unique government banks
such as the Land Bank of the Philippines and the Development Bank of the Philippines.
The Central Bank promulgated Circular No. 1124 on December 5, 1986 pursuant
to its power under the Freedom Constitution, the fundamental law then in force, as well
as pursuant to its general rule making authority under the General Banking Act (RA
No. 337), the banking law in effect at that time. Under the Freedom Constitution, the
Central Bank exercised supervisory authority over the banking system. Section 14,
Article XV of the 1973 Constitution, which was re-adopted in the Freedom
Constitution, provided as follows:
29
Banking Law Cases
SEC. 14. The Batasang Pambansa shall establish a central monetary authority
which shall provide policy direction in the areas of money, banking and credit. It
shall have supervisory authority over the operations of banks and exercise such
regulatory authority as may be provided by law over the operations of finance
companies and other institutions performing similar functions. Until the
Batasang Pambansa shall otherwise provide, the Central Bank of the Philippines,
operating under existing laws, shall function as the central monetary authority.
(Emphasis supplied)
Section 6-D of the General Banking Act (RA No. 337) vested the Monetary Board with
the specific power to require a bank to engage the services of an independent auditor
to be chosen by the bank concerned from a list of certified public accountants
acceptable to the Monetary Board.
The 1987 Constitution created an independent central monetary authority with
substantially the same powers as the Central Bank under the 1973 Constitution and the
Freedom Constitution. Section 20, Article XII of the 1987 Constitution provides that
the Monetary Board shall have supervision over the operations of banks. The specific
power of the Central Bank under the General Banking Act (RA No. 337) to require an
independent audit of banks was re-enacted in Section 58 of the General Banking Law
of 2000 (RA No. 8791).
Indubitably, the Central Bank had the express constitutional and statutory power
to promulgate Circular No. 1124 on December 5, 1986. The power granted to the
Central Bank to issue Circular No. 1124 with respect to the independent audit of banks
is direct, unambiguous, and beyond dispute. The Bangko Sentral ng Pilipinas, which
succeeded the Central Bank, retained under the 1987 Constitution and the General
Banking Law of 2000 (RA No. 8791) the same constitutional and statutory power the
Central Bank had under the Freedom Constitution and the General Banking Act (RA
No. 337) with respect to the independent audit of banks.
Circular No. 1124 has the force and effect of law. In a long line of decisions,[37] this
Court has held consistently that the rules and regulations issued by the Central Bank
pursuant to its supervisory and regulatory powers have the force and effect of law. The
DBP, being a bank under the constitutional and statutory supervision of the Central
Bank, was under a clear legal obligation to comply with the requirement of Circular
No. 1124 on the private audit of banks. Refusal by the DBP to comply with the Circular
would have rendered the DBP and its officers liable to the penal provisions of the
General Banking Act,[38] as well as the administrative and penal sanctions under the
Central Bank Act.[39]
The DBP also relies on Section 8 of PD No. 2029 as its statutory basis for hiring a
private auditor. This Section states in part as follows:
The audit of government corporations by the Commission on Audit shall not preclude
government corporations from engaging the services of private auditing firms:
Provided, however, that even if the services of the latter are availed of, the audit
report of the Commission on Audit shall serve as the report for purposes of
compliance with audit requirements as required of government corporations under
applicable law.
Section 8 of PD No. 2029, however, also provides that the policy of withdrawal of
resident auditors shall be fully implemented x x x. Section 2 of the same decree also
excludes from the term government-owned or controlled corporation two classes of
corporations. The first are originally private corporations the majority of the shares of
stock of which are acquired by government financial institutions through foreclosure
or dacion en pago. The second are subsidiary corporations of government corporations,
which subsidiaries are organized exclusively to own, manage or lease physical assets
acquired by government financial institutions through foreclosure or dacion en
pago. Claiming that PD No. 2029 operates to exempt certain government-owned
corporations from the COAs jurisdiction in violation of Section 3, Article IX-D of the
Constitution, the COA is questioning the constitutionality of PD No. 2029.
There is, however, no compelling need to pass upon the constitutionality of PD
No. 2029 because the Constitution and existing banking laws allow such hiring. The
issues raised in this case can be resolved adequately without resolving the
constitutionality of PD No. 2029. This Court will leave the issue of the constitutionality
of PD No. 2029 to be settled in another case where its resolution is an absolute
necessity.[40]
Third Issue: Necessity of Private Auditor and Reasonableness of the Fees
30
Banking Law Cases

The remaining issue to be resolved is whether or not the DBPs hiring of a private covenant with the World Bank, it was also necessary because it was mandated by
auditor was necessary and the fees it paid reasonable under the circumstances. The Central Bank Circular No. 1124 under pain of administrative and penal sanctions.
hiring by the DBP of a private auditor was a condition imposed by the World Bank for
The last matter to determine is the reasonableness of the fees charged by Joaquin
the grant to the Philippine government in early 1987 of a US$310 million Economic
C. Cunanan & Co., the private auditor hired by the DBP. The COA describes the private
Recovery Loan, at a time when the government desperately needed funds to revive a
auditors fees as an excessive, extravagant or unconscionable expenditure of
badly battered economy. One of the salient objectives of the US$310 million loan was
government funds. For the audit of the DBPs financial statements in 1986, the private
the rehabilitation of the DBP which was then burdened with enormous bad loans. The
auditor billed the DBP the amount of P487,321.14.[43] In 1987, the private auditor
rehabilitation of the DBP was important in the overall recovery of the national
billed the DBP the amount of P529,947.00.[44] In comparison, the COA billed the DBP
economy.
an audit fee of P27,015,963.00[45] in 1988, and P15,421,662.00[46] in 1989.Even
On February 23, 1986, the World Bank President reported to the Banks Executive granting that the COAs scope of audit services was broader,[47] still it could not be said
Directors that the privately audited accounts of the DBP for 1986 and 1987 will be that the private auditors fees are excessive, extravagant or unconscionable compared to
a requirement for the releases of the second and third tranches, respectively, of the ERL the COAs billings.
(Emphasis supplied). Moreover, the Agreed Minutes of Negotiations on the Philippine
The hiring of a private auditor by the DBP being a condition of the US$310 million
Economic Recovery Program[41] signed by the Philippine government and World Bank
World Bank loan to the Philippine government, the fees of such private auditor are in
negotiating panels on January 8, 1987, required that a copy of COAs letter x x x
reality part of the governments cost of borrowing from the World Bank. The audit
regarding DBPs appointment of a private external auditor will be sent to the (World)
report of the private auditor is primarily intended for the World Banks
Bank before the distribution of the loan documents to the Banks Board, along with a
information[48] on the financial status of the DBP whose rehabilitation was one of the
copy of the scope of audit as approved by COA and satisfactory to the Bank (Emphasis
objectives of the loan. An annual private audit fee of about half a million pesos added
supplied).
to the interest on a US$310 million loan would hardly make the cost of borrowing
As a creditor, the World Bank needed the private audit for its own information to excessive, extravagant or unconscionable. Besides, the condition imposed by a lender,
monitor the progress of the DBPs rehabilitation. This is apparent from the said Agreed whose money is at risk, requiring the borrower or its majority-owned subsidiaries to
Minutes which provided that the general terms of reference (for the hiring of private submit to audit by an independent public accountant, is a reasonable and normal
external audit) were discussed during the negotiations and form part of the World business practice.
Banks guidelines for financial information on financial institutions[42] (Emphasis
WHEREFORE, the petition is hereby GRANTED. The letter-decision of the
supplied).
Chairman of the Commission on Audit dated August 29, 1988, and the letter-decision
The hiring of a private auditor being an express condition for the grant of the promulgated by the Commission on Audit en banc dated May 20, 1989, are hereby SET
US$310 million Economic Recovery Loan, a major objective of which was the DBPs ASIDE, and the temporary restraining order issued by the court enjoining respondent
rehabilitation, the same was a necessary corporate act on the part of the DBP. The Commission on Audit from enforcing the said decisions is hereby made
national government, represented by the Central Bank Governor, as well as the PERMANENT.
Ministers of Finance, Trade, and Economic Planning, had already committed to the
SO ORDERED.
hiring by all government banks of private auditors in addition to the COA. For the DBP
to refuse to hire a private auditor would have aborted the vital loan and derailed the
national economic recovery, resulting in grave consequences to the entire nation. The
hiring of a private auditor was not only necessary based on the governments loan
31
Banking Law Cases
G.R. No. L-41480 April 30, 1976
GONZALO SY, doing business under the name and style of GONZALO SY
TRADING, petitioner-appellant,
vs.
CENTRAL BANK OF THE PHILIPPINES, respondent-appellee.
De Santos, Balgos & Perez for petitioner-appellant.
F. E. Evangelista & Glecerio T. Orsolino for respondent-appellee.
MARTIN, J.:
This is an appeal from the decision of the Court of First Instance of Manila in its Civil
Case No. 81051, which was certified to Us by the Court of Appeals on August 28,
1975, raising the question of whether or not petitioner-appellant's Special Import
Permit granted by the Central Bank of the Philippines authorizing it to import fresh
fruits from Japan on a "no-dollar" basis has already expired when it made the
importations under litigation.
The petitioner-appellant is a trading company engaged in the importation of fresh
fruits like oranges, grapes, apples and lemons from the different parts of the world for
the last nineteen years. On September 28, 1968, it wrote to the Deputy Governor of
the Central Bank of the Philippines, Mr. Amado R. Briñas requesting authority to
import from the country of Japan on "no-dollar" basis fresh fruits in the total amount
of US$715,000.00. The pertinent portions of petitioner-appellant's letter 1 read.
We are importers for the last 19 years. Our line of business is the
importation of fresh fruits like fresh oranges, grapes and apples from
various parts of the world.
We are fully aware of the Central Bank policies and regulations with
respect to imports particularly the effects of Central Bank Circular 260
to authorized agent banks. Our item of importations which is fresh
fruits calls for 175% Special Time Deposit for 120-days. With the fast
approaching Christmas season we are certain we cannot cope with the
demands of our buyers of fresh fruits under this requirement imposed
on importers. We have brought this matter to the attention of our
various shippers of fresh apples from Japan for their proper guidance.
xxx xxx xxx
In this connection, we respectfully request your good office for an
authority or issue us Special Import Permit on No-Dollar Basis, to
enable us to receive the goods from our reliable and helpful suppliers
who have complete trust and confidence in us. As manifested in their
respective letters to us, we can pay or remit them the payment of the
fruits shipped to us even after the season, which is around April of
next year, and if our dollar position is favorable. We honestly believe,
that this offer from our suppliers is very inducive and if possible, we
would not like to miss this opportunity.
On October 2, 1968, Mr. Julian D. Mercado, the Executive Assistant to Deputy
Governor Briñas denied the request, stating that "... since only the transactions
specifically enumerated in Central Bank Circular No. 247 dated July 21, 1967 are
allowed as 'no-dollar importation', we regret to advise that your request cannot be
given due course by this office." 2
Petitioner-appellant sought a reconsideration of this denial on October 22, 1968 thru
Deputy Governor Amado R. Briñas explaining that their "... case is a very special one
and different from regular importation," at the same time reminding that "... this item
of fresh apples is very much needed in the coming Christmas season and we are
confident that if our request be given consideration, we will be able to put good stock
of fresh apples in the market at a cheaper cost for the benefit of the consuming
public." 3
Another letter was coursed by petitioner-appellant on November 6, 1968 to the
Monetary Board of the Central Bank thru Deputy Governor Amado R. Briñas
requesting "your good office for an authority to import on no Letter of Credit basis, or
issue us Special Import Permit for the amount of US$715,000.00 on No-Dollar Basis,
32
Banking Law Cases
to enable us to import the fresh fruits which we need for Christmas, from our reliable
and helpful suppliers." In this letter, petitioner-appellant points out that "the items
called for such as apples, oranges and grapes are perishable in nature and can not be
stored for a longer period of time, and the main purpose of this importation is to serve
the requirements during the Christmas Season." 4
On November 19, 1968, the Monetary Board of the Central Bank issued Resolution
No. 2038 approving petitioner-appellant's request for Special Import Permit on No-
Dollar Basis, 5 thus:
The Board, by unanimous vote, authorized Gonzalo Sy Trading to
import on a no- dollar basis, without letters of credit, fresh fruits from
Japan valued at $35000.00, subject to the special time deposit of
100% which shall be held by the bank concerned for a period of 120
days as well as to the normal customs duties and taxes. It is understood
that there shall be no commitment on the part of the Central Bank to
provide foreign exchange to cover the said importation.
Deputy Governor Amado R. Briñas communicated this approval of the request to
petitioner-appellant, thru its Assistant Manager, Mr. E. B. Pidlaoan on November 21,
1968. 6
On November 27, 1968, petitioner-appellant sent a letter 7 to the then Chairman of the
Monetary Board, Mr. Eduardo Romualdez, reading:
Thank you very much for your approval to our request for special
permit to import on no-dollar basis, without letter of credit fresh fruits
valued at US$350,000.00.
We noted however, that 100% special time deposit for 120 days is
required. We beg to point out that this particular importation is only
for the Christmas Season, and if we will deposit the amount of about
P1,400,000.00 which will not be touched for 120 days, and
considering the fact that on this importation alone, we will pay the
government in the form of customs taxes and duties, no less than
P700,000.00, then we will be needing more than P3,000,000.00.
We beg to request therefore, for a reconsideration by your good office,
and allow us to put up 20% special time deposit for 120 days instead
of 100%.
The request was denied by Deputy Governor Briñas in a letter, dated December 9,
1968. 8
Thereafter, on February 25, 1969, petitioner-appellant made his first importation
from Japan. 9 The bulk of the importations from August 7, 1969 thru November 5,
1969 came from San Francisco, California and Australia. 10 The importation on
January 5, 1970, consisting of fresh oranges and lychees came from Taipei,
Taiwan, 11 while those of March 16, 1970, consisting of fresh oranges, came from
Israel. 12 For these importations, the Prudential Bank and Trust Company acted as the
agent of the Central Bank in the issuance of the corresponding release certificates for
the entry of the goods. By the beginning of June, 1970, the total amount used out of
the $350,000.00 Special Import Permit was already $314,142.51, leaving a balance of
$35,857.49. 13
As early as October 30, 1969, petitioner-appellant requested from Deputy Governor
Amado R. Briñas 14 "an amendment of the country of origin of our importations to
include other countries except communist countries" since the fresh fruits from Japan
"are seasonal (and) our shippers cannot fully fill up our requirements to comply with
their total commitments to us without procuring from other sources like Australia,
Taiwan, U.S.A. and other countries with whom we have trade relations."
On November 19, 1969, the Deputy Governor, Mr. Amado R. Briñas replied: 15
This has reference to your letter dated October 30, 1969 requesting
amendment of the country of origin of your importations of fresh fruits
from Japan to include other countries except communist countries as
authorized by Monetary Board Resolution No. 2038 dated November
19, 1968.
We regret to inform you that the authority granted to you by the
Monetary Board per above-stated MB Resolution No. 2038, was
intended only for the Christmas season of 1968 and does not extend
33
Banking Law Cases
through 1969. Furthermore, under existing regulations, importations of
fruits are covered by the moratorium on the opening of letters of
credit.
It so happened that two days after or on November 21 1969, Director A. V.
Antiporda, of the Foreign Exchange Department of the Central Bank, wrote to Mr.
Renato L. Santos, Assistant Vice-President of the Prudential Bank and Trust
Company, in reply to the letters of the latter, dated November 14 and 19,
1969, 16 furnishing the Foreign Exchange Department copies of the release
certificates the Prudential Bank and Trust Company issued to Gonzalo Sy Trading.
The pertinent portion of Antiporda's letter 17 reads:
On the basis of your report that the total value of the shipments so far
made by your client against the $350,000.00 grant amounts to
$144,306.15 only, you may continue to issue release certificates to
cover the No-Dollar importations of fresh fruits by your client, subject
to the same and conditions imposed by Monetary Board under the
abovementioned resolution.
Then, on April 17, 1970, the Assistant to the Governor, Mr. Cesar Lomotan, informed
the Prudential Bank and Trust Company 18 that the authority granted to petitioner-
appellant under MB Resolution No. 2038 was intended only for the Christmas season
of 1968 and does not extend through 1969, enclosing therewith the letter, dated
November 19, 1969, of Deputy Governor Briñas.
On May 27, 1970, petitioner-appellant notified Mr. Cesar Lomotan that the Prudential
Bank and Trust Company refused to issue them any release certificate for their
importations due to his letter of April 17, 1970. On June 3, 1970, petitioner-appellant
sent a follow-up letter to Mr. Lomotan, reiterating "our request for a reconsideration
on the matter and to allow us utilize the balance of our Permit in the amount of
$35,857.49." In the same letter, petitioner-appellant advised that "we have shipments
coming on June 4th and June 6th respectively which is within the balance of our
permit."
On June 10, 1970, Deputy Governor Amado R. Briñas wrote petitioner-appellant that
its request cannot be given due course, inviting attention to the basic letter of
November 19, 1969, informing it that the Special Import Permit was intended only
for the Christmas season of 1968 and does not extend through 1969. 19
On June 5 and 16, 1970, the Collector of Customs for the Port of Manila, Mr. Jose T.
Viduya, issued warrants of seizure and detention against:
1. 700 Cartons of Fresh Oranges, on board SS "Taviata";
2. 1,000 Cartons of Fresh Oranges, on board SS "Fernlake";
3. 500 Cartons of Fresh Oranges, on board SS "Arizona";
4. 100 Cartons of Fresh Lemons and 1000 Cartons of Fresh Oranges,
on board SS "Turandot";
5. 560 Cartons of Fresh Apples on board SS "Anshun" and
6. 1,662 Cartons of Fresh Apples on board SS "Anshun.";
consigned to petitioner-appellant, with a total FOB value of US$17,568.49, "for
having been imported in violation of Central Bank Circular No. 289, in relation to
Section 2530 (f) of the Tariff and Customs Code." 20
On July 17, 1970, Deputy Governor Amado R. Briñas wrote to the Commissioner of
customs: 21
Since fresh fruits are classified as Non-Essential Consumer goods, and
therefore banned under Circular No. 289 dated February 21, 1970, it
is requested that the above shipments (fresh oranges, lemons and
apples with total value of $21,763.00) be subject to appropriate seizure
proceedings. Likewise, all other importations of fresh fruits now under
Customs custody should be subjected to appropriate seizure
proceedings and any release certificates issued by the banks for such
importations should be disregarded.
34
Banking Law Cases
On July 30, 1970, the Collector of Customs issued a notice for the auction sale of the
confiscated June 1970 shipment on the following August 12. Whereupon, petitioner-
appellant, along with another importer, Tomas Y. de Leon, commenced an injunction
suit before the Court of First Instance of Manila, docketed as Civil Case No. 80655,
against the Commissioner and Collector of Customs for the Port of Manila. On
August 26, 1970, the Manila Court of First Instance, presided over by trial Judge
Federico C. Alikpala, ordered the release of the seized goods under bonds totalling
P513,865.46. However, the Commissioner and Collector of Customs elevated the
matter to this Court, seeking to have the August 26, 1970 order declared null and
void. 22
Meanwhile, the second shipment consigned to petitioner-appellant arrived at the Port
of Manila on September 6 and 15, 1970. This shipment consisted of 1,000 cartons of
fresh sunkist oranges, 1,000 cartons of fresh grapes and 100 cartons of fresh lemons,
all valued at P71,549.49. Like the June, 1970 importation, this September, 1970
shipment was also seized by the Customs authorities.
On September 21, 1970, petitioner-appellant instituted before the Court of First
Instance of Manila the subject petition for mandamus with damages which was
docketed as Civil Case No. 81051. This case was consolidated with Civil Case No.
80655 assigned to the sala, of trial Judge Federico C. Alikpala upon motion of
petitioner-appellant. 23In this petition, petitioner-appellant prayed for the issuance of a
writ of mandamus to direct the Central Bank of the Philippines to release the
imported fruits and to provide the necessary release certificates therefor. Likewise, it
prayed for the award of damages amounting to P838,495.28.
On November 26, 1970, this Court promulgated its decision in
the Alikpala case 24 sustaining the Order of August 26, 1970, ordering the release of
the June, 1970 importation upon bond, with a directive to the importers, Gonzalo Sy
Trading and Tomas Y. de Leon, to cause the reinsurance of the bonds amounting to
more than P340,000.00 not covered by reinsurance or to put up other surety bonds
acceptable to the Collector of Customs. In the following month, December, 1970, the
June, 1970 shipment was released to petitioner-appellant on bond.
On November 27, 1971, Judge Alikpala rendered judgment in Civil Case No. 81051
dismissing petitioner-appellant's complaint for mandamus with damages and ordering
the Collector of Customs to proceed with the seizure proceedings it initiated against
the June, 1970 importation and, if favorable to the government, to enforce the same
against the surety bonds of petitioner-appellant posted upon the release of the goods
in December, 1970. The shipment of September, 1970 was condemned and only the
recovery of whatever charges and/or penalties against petitioner-appellant was
ordered.
From this adverse judgment, petitioner-appellant appealed to the Court of Appeals,
but the Appellate Court certified the case to Us as involving only pure questions of
law.
We rule that the Special Import Permit granted to petitioner-appellant on November
19, 1968, allowing it to import fresh fruits from Japan on a "no-dollar" basis, has
already lost its validity when the questioned importations of June and September,
1970 were made.
1. It is one of the first principles in the field of administrative law that a license or a
permit is not a contract between the sovereignty and the licensee or permitee, and is
not a property in any constitutional sense, as to which the constitutional prescription
against impairment of the obligation of contracts may extend. A license is rather in
the nature of a special privilege, of a permission or authority to do what is within its
terms. 25 It is not in any way vested, permanent, or absolute. A license granted by the
State is always revocable. As a necessary consequence of its main power to grant
license or permit, the State or its instrumentalities have the correlative power to
revoke or recall the same. And this power to revoke can only be restrained by
an explicit contract upon good consideration to that effect. 26 The absence of an
expiry date in, a license does not make it perpetual. Notwithstanding that absence, the
license cannot last beyond the life of the basic authority — under which it was
issued. 27
The series of correspondence exchanged between petitioner-appellant and
respondent-appellee in the case at bar plainly reveals that the Special Import Permit
granted to petitioner-appellant covers only the Christmas season of 1968. As reflected
in its first letter, dated September 28, 1968, the cause or the compelling reason why
petitioner-appellant sought for the Special Import Permit on No-Dollar Basis was
because the importation of fresh fruits calls for 175% Special Time Deposit for 120
35
Banking Law Cases
days and "(w)ith the fast approaching Christmas season," petitioner-appellant
"cannot cope with the demands of [its] buyers of fresh fruits under this requirement
imposed on importers." Upon denial of its request, petitioner-appellant explained to
Deputy Governor Amado R. Briñas in its letter of October 22, 1968 that their "...,
case is a very special one" and that "... this item of fresh apples is very much needed
in the coming Christmas season ..." Complementary to this letter, petitioner-appellant
pointed out to the Monetary Board in its letter of November 6, 1968 that "the items
called for such as apples, oranges and grapes are perishable in nature and cannot be
stored for a longer period of time, and the main purpose of this importation is to serve
the requirements during the Christmas Season." After the Special Import Permit was
granted by the Monetary Board on November 19, 1968, petitioner-appellant
expressed its gratitude to the then Chairman of the Monetary Board, Mr. Eduardo
Romualdez, in a letter of November 27, 1968 and, at the same time, requested that it
be allowed "to put up 20% special time deposit for 120 days instead of 100%. again
pointing out that "this particular importation is only for the Christmas season ..." It
was upon all these representations and assurances by petitioner-appellant that the
Monetary Board of the Central Bank finally issued the Special Import Permit. As a
result, the conclusion becomes inevitable that the Special Import Permit thus granted
lasts only until the Christmas Season of 1968.
The omission of an expiry date in the Special Import Permit affords no legal basis for
petitioner-appellant to conclude that the said permit is impressed with continuous
validity, i.e., not merely limited to the Christmas season of 1968. The totality of
petitioner appellant's representations which led to the issuance of the permit cannot be
lightly glossed over. It was petitioner-appellant itself which furnished the life span of
the permit, consistently pointing out that "the main purpose of this importation is to
serve the requirements during the Christmas Season" of 1968. In the logical sequence
of things, no imperative reason arises for the Monetary Board to still specify the
expiry date of the permit. It would far-fetched for the Monetary Board to grant more
than what was asked for, considering that it was opposed to the granting of the permit
from the very start, in view of the existing stringent policies against "no-dollar"
importation of "non-essential consumer' goods like fresh fruits. That is why, the
Monetary Board, while it thus issued the Special Import Permit, subjected the same to
a "special time deposit of 100% which shall be held by the bank concerned for a
period of 120 days as well as to the normal customs duties and taxes." This
requirement was maintained by the' Monetary Board even after petitioner-appellant
sought for a reconsideration thereof. Withal, it can be gleaned that petitioner-
appellant's Special Import Permit bears all the marks of a mere special
concession from the issuing authority, to the effect that no extensive privileges are
licitly inferrable from it.
Petitioner-appellant mistakenly asserts that the continuous validity of its Special
Import Permit has already been passed upon by this Court in Commissioner of
Customs v. Alikpala. 28 What was raised in that case is the question of whether the
Collector of Customs for the Port of Manila has observed the rediments of
administrative due process in ordering the seizure and sale at public auction of
petitioner-appellant's imported goods in particular that arrived in June, 1970, as well
as the question of the legality of the Collector's order requiring only cash bond, surety
bond not accepted, for the release of the goods. The Court made no ruling on the
continuity of petitioner-appellant's Special Import Permit after the Christmas season
of 1968. Petitioner-appellant's referral 29 to the statement of the Court that the
November 21, 1969 letter of Mr. A. V. Antiporda, Director of the Foreign Exchange
Department, authorized the Prudential Bank and Trust Company to 94 continue to
issue release certificates to cover the No-Dollar importations of fresh fruits by your
client" misses the preceding prefatory statement of the Court in regard to the details
of the case, thus: "For a proper understanding and resolution of the issues it is
necessary to state the facts in greater detail, as they appear from the pleadings and
memoranda submitted by the parties as well as from the different documents attached
thereto marked as annexes." In other words, the subsequent statement of the Court on
the Antiporda letter is but a portion of its recital of the facts involved without
necessarily making a resolution thereon.
2. Controversy rises between petitioner-appellant and respondent-appellee on the
receipt of Deputy Governor Briñas letter, dated November 19, 1969, purportedly
informing petitioner-appellant that its Special Import Permit "was intended only for
Christmas season of 1968 and does not extend through 1969." While petitioner-
appellant contends that the said letter was never served upon it, respondent-appellee
maintains that it is quite surprising for petitioner-appellant to disclaim receipt thereof
when all prior and subsequent letters from the Central Bank have been satisfactorily
received by it. This question is not of decisive import. The all-governing point is
the reasonable assumptions of petitioner-appellant's knowledge or awareness of the
duration of its Special Import Permit, since it was petitioner-appellant itself which
36
Banking Law Cases
established the terminal date of its permit representing that "the main purpose of this
importation is to serve the requirements during the Christmas season" of 1968, upon
which representationthe Monetary Board finally granted the permit. The equitable
principle of estoppel forbids petitioner-appellant from taking an inconsistent position
now and claims that the permit extends beyond the period it itself asked for. Where
conduct or representation has induced another to change its position in good faith or
the same is such that reasonable man would rely thereon, the consequences of such
conduct or representation cannot later on be disowned. 30 The preliminary
representations and assurances of petitioner-appellant, most important of which is the
life span of the permit, are deemed incorporated into the Special Import Permit
subsequently issued. At most, the letter of Deputy Governor Briñas may serve only to
remind petitioner-appellant of the resolutory period of its permit. Whether there was
such letter or not, the time limit proffered by petitioner-appellant and approved by the
Central Bank controls.
3. The doctrine of "promissory estoppel" is invoked by, petitioner-appellant to
preclude respondent-appellee from contesting the legality of its importations.
Petitioner-appellant draws authority from the letter of Director A. V. Antiporda, dated
November 21, 1969, informing the Prudential Bank and Trust Company that it "may
continue to issue release certificates to cover the No-Dollar Importations of fresh
fruits by your client" after noting that only $144,306.15 has been utilized out of the
$350,000.00-permit. According to that doctrine, "an estoppel may arise from the
making of a promise even though without consideration, if it was intended that the
promise should be relied upon and in fact it was relied upon, and if a refusal to
enforce it would be virtually to sanction the perpetration of fraud or would result in
other injustice." 31 Like the related principles of volenti non fit injuria (consent to
injury), waiver, and acquiescence, it finds its origin generally in the equitable notion
that one may not change his position and profit from his own wrongdoing when he
has caused another to suffer a detriment by relying on his former promises or
representations. 32 But, a promise cannot be the basis of an estoppel if any other
essential element is lacking. Justifiable reliance or irreparable detriment to the
promises are requisite factors. 33 We failed to see in Antiporda's letter the making of a
promise upon which petitioner-appellant could justifiably rely. On the contrary, while
the letter advised the agent bank that it may continue issuing release certificates to
cover petitioner-appellant's "no-dollar" importations of fresh fruits, it at the same time
subjects the issuance of release certificates "to the same terms and conditions
imposed by the Monetary board" on the Special Import Permit, one of which is the
resolutory term of 1968. That is the import of the Antiporda's letter ex vi
termini. Director Antiporda could not have modified the Special Import Permit by
creating a longer period, for the plain reason that no such authority resides in him. An
administrative officer has only such powers as are expressly granted to him and those
necessarily implied in the exercise thereof. 34 As earlier pointed out, it was the
Monetary Board which issued the permit; correspondingly, it too posseses
the sole power to modify the same.
On the gratuitous assumption that the Antiporda's letter purported to impress, albeit
erroneously, that further importations could be made by petitioner-appellant beyond
the Christmas season of 1968, the same produces no estoppel against the issuing
authority. The long- settled jurisprudence states that the "doctrine of estoppel" does
not operate against the Government, of which the Central Bank is an instrumentality,
in its capacity as sovereign or asserting governmental rights; the Government is never
estopped by the mistake or errors on the part of its agents. Moreover, estoppel cannot
give validity to an act that is prohibited by law or against public policy. 35 The
erroneous application of the statute and enforcement of the law do not block
subsequent correct application thereof 36 or bar a future action in accordance with
law. 37 To hold that merely the Antiporda's letter could be the basis for such estoppel
would be going in the direction of suspending and repealing the conditions or terms
of the Special Import Permit without any action on the part of the Monetary Board. 38
4. The cases of Ramos v. Central Bank 39 and Commissioner of Customs v. Auyong
Hian 40 cannot be relied upon by petitioner-appellant to fore close the issue on the
continuous validity of its Special Import Permit. In Ramos, the Court held that after
the Central Bank has made express commitments to petitioners therein that it would
support the Overseas Bank of Manila, and avoid its liquidation if the petitioners
would execute (a) the Voting Trust Agreement turning over the management of OBM
to the CB or its nominees, and (b) mortgage or assign their properties to the Central
Bank to cover the overdraft balance of OBM which petitioners did, the. Central Bank
may not retreat from its representations and liquidate the Overseas Bank of Manila, to
the prejudice of petitioners, depositors and other creditors, under the rule of
"promissory estoppel." The Central Bank cannot just unilaterally disregard its
representations and promises to rehabilitate and normalize the financial condition of
the OBM without violating Article 1159 of the Civil Code of the Philippines, which
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Banking Law Cases
provides that "(o)bligations arising from contractshave the force of law between the
contracting parties and should be complied with in good faith," as well as Article
1315, stating that "(c)ontracts are perfected by mere consent, and from that moment
the parties are bound not only to the fulfillment of what has been expressly stipulated
but also to all the consequences which, according to their nature, may be in keeping
with good faith, usage and law." In other words, by making the foregoing
representations and commitments to the OBM the Central Bank had thereby assumed
a contractual obligation in favor of the OBM such that it cannot unceremoniously
ignore the same. No such kind of contractual obligation or commitments have been
perfected between the Central Bank and the petitioner-appellant in the present case.
The issuance of the Special Import Permit by the Monetary Board to the petitioner-
appellant can hardly be considered as constitutive of a contractual obligation assumed
by the Central Bank in favor of petitioner-appellant. This is because a permit is not,
by its very nature, a contract but a mere special privilege. For a permit to be
impressed with a contractual character, it must be categorically demonstrated that the
very administrative agency, which is the source of the permit, would place such a
burden on itself.41 Auyong Hian on the other hand, tells of an importation of old
newspapers in four shipments under a "no-dollar" arrangement, pursuant to a license
issued by the Import Control Commission. When the last shipment arrived in Manila,
the Customs authorities seized the same on the ground that the importation was made
without the license required under Central Bank Circular No. 45. 42 While the seizure
proceedings were pending before the Collector of Customs, the President of the
Philippines, acting through its Cabinet, cancelled the aforesaid license for the reason
that it was illegally issued "in that no fixed date of expiration is stipulated." On
review, the Court held that the cancellation of the license on the sole ground that it
does not bear ay expiry date even if the importation had already been accomplished
was inequitable. In the present case, however, no such cancellation of license or
permit appears the legality of the issuance of petitioner-appellant's Special Import
Permit is not in question. On the contrary, what is being sought in this case is
the enforcement of the terms and conditions of the Special Import Permit, one of
which, is the resolutory period of 1968. As earlier discussed, after the lapse of this
period, the permit can no longer yield valid effect.
5. The authority of the Central Bank to regulate "no-dollar" imports, owing to the
influence and effect that the same may exert upon the stability of our peso and its
international value, cannot be seriously contested. Such authority clearly emanates
from its broad powers to maintain our monetary stability and to preserve the
international value of our currency 43 as well as its corollary power to issue such rules
and regulations for the effective discharge of its responsibilities and exercise of
powers. 44 On February 31, 1970, the Central Bank promulgated its Circular No. 269,
prohibiting the importation of "non-essential consumer" goods like fresh fruits.
Section 5 thereof directs that "(a)uthorized agent banks may sell foreign exchange for
imports except those falling under the UC, SUC and NECcategories, without prior
specific approval of the Central Bank." In the recent case of Balmaceda vs.
Corominas 45We ruled that "the entry of NEC ("non-essential commodities") is thus
halted at bay." With regard to "no- dollar" imports, the Central Bank promulgated
Circular No. 247 on July 21, 1967, specifically enumerating the items exempted from
the requirement of release certificates. The enumeration mostly refers to personal
effects and gifts of returning residents, tourists, immigrants, etc. Fresh fruits are not
included. Circular No. 247 was amended by Circular No. 294 on March 10, 1970,
providing that "(n)o-dollar imports not covered by Circular No. 247 shall not be
issued any release certificates and shall be referred to the Central Bank for
official transmittal to the Bureau of Customs for appropriate seizure proceedings. "
On March 20, 1970, Circular No. 295 was passed. This circular reiterates the
exemption of the "no-dollar" imports enumerated under Circular No. 247 from the
release certificate requirements, but imposes an express ban on all other "no-dollar"
imports not covered by Circular No. 247. These include "fresh fruits" like fresh
apples oranges, grapes, and lemons. 46 It can thus be readily seen that petitioner-
appellant's "fresh fruits" importations of June and September, 1970 violate the quoted
Central Bank Circulars, hence, liable to seizure action by the Customs authorities.
While the said goods may not be considered "merchandise of prohibited importation,"
they nevertheless fall within the other category of merchandise imported "contrary to
law", because regulations issued pursuant to "customs law" form part thereof. The
term "customs law" includes not only the provisions of said law proper but also any
regulations made pursuant thereto like the aforementioned Central Bank
circulars, 47 which also have the force and effect of law. 48 Consequently, violation of
these circulars comes within the purview of Section 2530 (f) of the Tariff and
Customs Code, which authorizes the forfeiture of "(a)ny article the importation or
exportation of which is effected or attempted contrary to law." 49
6. Petitioner-appellant disputes the disposition of the trial court directing the Collector
of Customs to proceed against the surety bonds it posted for the release of its June,
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Banking Law Cases

1970 importation sometime in December, 1970. There is no doubt that the surety
bonds were posted by petitioner-appellant in Civil Case No. 80655, which was
terminated by the mutual agreement of the parties 50 after the Court has handed down
its decision thereon on appeal. 51 However, it must be remembered that the said surety
bonds were undertaken by petitioner-appellant for the release of its June, 1970
importation. A fortiori in any litigation where in any litigation where the release of
this June, 1970 shipment is involved, the said surety bonds are answerable. The
statutory undertaking of a bond is to answer for all damages that may result from an
injunction should the court finally decide that the injunction was not proper or that the
party in whose favor the injunctive writ was issued was not entitled
thereto. 52 Although petitioner-appellant's surety bonds were filed in Civil Case No.
80655, the undertaking therein to answer for damages in case the release of the June,
1970 shipment is found improper attaches to the present case, Civil Case No. 81051.
The case where the Surety bonds were posted is but incidental. The all-important
factor to consider is the event or judicial action secured by the bonds. Since the surety
bonds in question were intended to secure the liabilities which petitioner-appellant
may incur for the release of its June, 1970 importation, the said bonds can be
proceeded against in any case where the propriety of impropriety of said release has
been resolved. The bonds become immediately answerable for the undertaking once
this condition has occurred. 53 It would be a useless expense of judicial time and
effort if the surety bonds were yet to be litigated in another suit just to enforce the
undertaking therein. This is specially true when the sufficiency or solvency of the
bonds has been previously passed upon by the same trial judge hearing the second
case. Besides, Civil Case No. 80655 has already been terminated by the mutual
agreement of the parties such that no enforcement of the undertaking of the bonds
could be easily made therein. 54

ACCORDINGLY, the judgment of the lower court, subject matter of this present
review, is hereby affirmed. Costs against petitioner-appellant.

SO ORDERED.

39
Banking Law Cases
G.R. No. 91636 April 23, 1992
PETER JOHN D. CALDERON, petitioner,
vs.
BARTOLOME CARALE, in his capacity as Chairman of the National Labor
Relations Commission, EDNA BONTO PEREZ, LOURDES C. JAVIER,
ERNESTO G. LADRIDO III, MUSIB M. BUAT, DOMINGO H. ZAPANTA,
VICENTE S.E. VELOSO III, IRENEO B. BERNARDO, IRENEA E. CENIZA,
LEON G. GONZAGA, JR., ROMEO B. PUTONG, ROGELIO I. RAYALA,
RUSTICO L. DIOKNO, BERNABE S. BATUHAN and OSCAR N. ABELLA, in
their capacity as Commissioners of the National Labor Relations Commission,
and GUILLERMO CARAGUE, in his capacity as Secretary of Budget and
Management, respondents.
PADILLA, J.:
Controversy is focused anew on Sec. 16, Art. VII of the 1987 Constitution which
provides:
Sec. 16. The President shall nominate and, with the consent of the
Commission on Appointments, appoint the heads of the executive
departments, ambassadors, other public ministers and consuls, or
officers of the armed forces from the rank of colonel or naval captain,
and other officers whose appointments are vested in him in this
Constitution. He shall also appoint all other officers of the
Government whose appointments are not otherwise provided for by
law, and those whom he may be authorized by law to appoint. The
Congress may, by law, vest the appointment of other officers lower in
rank in the President alone, in the courts, or in the heads of
departments, agencies, commissions, or boards.
The President shall have the power to make appointments during the
recess of the Congress, whether voluntary or compulsory, but such
appointments shall be effective only until disapproval by the
Commission on Appointments or until the next adjournment of the
Congress. 1
The power of the Commission on Appointments (CA for brevity) to confirm
appointments, contained in the aforequoted paragraph 1 of Sec. 16, Art. VII, was first
construed in Sarmiento III vs. Mison 2 as follows:
. . . it is evident that the position of Commissioner of the Bureau of
Customs (a bureau head) is not one of those within the first group of
appointments where the consent of the Commission on Appointments
is required. As a matter of fact, as already pointed out, while the 1935
Constitution includes "heads of bureaus" among those officers whose
appointments need the consent of the Commission on Appointments,
the 1987 Constitution, on the other hand, deliberately excluded the
position of "heads of bureaus" from appointments that need the
consent (confirmation) of the Commission on Appointments.
. . . Consequently, we rule that the President of the Philippines acted
within her constitutional authority and power in appointing respondent
Salvador Mison, Commissioner of the Bureau of Customs, without
submitting his nomination to the Commission on Appointments for
confirmation. . . .
. . . In the 1987 Constitution, however, as already pointed out, the
clear and expressed intent of its framers was to exclude presidential
appointments from confirmation by the Commission on Appointments,
except appointments to offices expressly mentioned in the first
sentence of Sec. 16, Art.VII. Consequently, there was no reason to use
in the third sentence of Sec. 16, Article VII the word "alone" after the
word "President" in providing that Congress may by law vest the
appointment of lower-ranked officers in the President alone, or in the
courts, or in the heads of departments, because the power to appoint
officers whom he (the president) may be authorized by law to appoint
is already vested in the President, without need of confirmation by the
Commission on Appointments, in the second sentence of the same Sec.
16, Article VII." (emphasis supplied)
40
Banking Law Cases
Next came Mary Concepcion Bautista v. Salonga, 3 this time involving the
appointment of the Chairman of the Commission on Human Rights. Adhering to the
doctrine in Mison, the Court explained:
. . . Since the position of Chairman of the Commission on Human
Rights is not among the positions mentioned in the first sentence of
Sec. 16, Art. VII of the 1987 Constitution, appointments to which are
to be made with the confirmation of the Commission on
Appointments, it follows that the appointment by the President of the
Chairman of the CHR is to be made without the review or participation
of the Commission on Appointments. To be more precise, the
appointment of the Chairman and Members of the Commission on
Human Rights is not specifically provided for in the Constitution
itself, unlike the Chairmen and Members of the Civil Service
Commission, the Commission on Elections and the Commission on
Audit, whose appointments are expressly vested by the Constitution in
the president with the consent of the Commission on Appointments.
The president appoints the Chairman and Members of The
Commission on Human Rights pursuant to the second sentence in
Section 16, Art. VII, that is, without the confirmation of the
Commission on Appointments because they are among the officers of
government "whom he (the President) may be authorized by law to
appoint." And Section 2(c), Executive Order No. 163, 5 May 1987,
authorizes the President to appoint the Chairman and Members of the
Commission on Human Rights.
Consistent with its rulings in Mison and Bautista, in Teresita Quintos Deles, et
al. v. The Commission on Constitutional Commissions, et al.,4 the power of
confirmation of the Commission on Appointments over appointments by the
President of sectoral representatives in Congress was upheld because:
. . . Since the seats reserved for sectoral representatives in paragraph 2,
Section 5, Art. VI may be filled by appointment by the President by
express provision of Section 7, Art. XVIII of the Constitution, it is
indubitable that sectoral representatives to the House of
Representatives are among the "other officers whose appointments are
vested in the President in this Constitution," referred to in the first
sentence of Section 16, Art. VII whose appointments are subject to
confirmation by the Commission on Appointments.
From the three (3) cases above-mentioned, these doctrines are deducible:
1. Confirmation by the Commission on Appointments is required only for presidential
appointees mentioned in the first sentence of Section 16, Article VII, including, those
officers whose appointments are expressly vested by the Constitution itself in the
president (like sectoral representatives to Congress and members of the constitutional
commissions of Audit, Civil Service and Election).
2. Confirmation is not required when the President appoints other government
officers whose appointments are not otherwise provided for by law or those officers
whom he may be authorized by law to appoint (like the Chairman and Members of
the Commission on Human Rights). Also, as observed in Mison, when Congress
creates inferior offices but omits to provide for appointment thereto, or provides in an
unconstitutional manner for such appointments, the officers are considered as among
those whose appointments are not otherwise provided for by law.
Sometime in March 1989, RA 6715 (Herrera-Veloso Law), amending the Labor Code
(PD 442) was approved. It provides in Section 13 thereof as follows:
xxx xxx xxx
The Chairman, the Division Presiding Commissioners and other
Commissioners shall all be appointed by the President, subject to
confirmation by the Commission on Appointments. Appointments to
any vacancy shall come from the nominees of the sector which
nominated the predecessor. The Executive Labor Arbiters and Labor
Arbiters shall also be appointed by the President, upon
recommendation of the Secretary of Labor and Employment, and shall
be subject to the Civil Service Law, rules and regulations. 5
Pursuant to said law (RA 6715), President Aquino appointed the Chairman and
Commissioners of the NLRC representing the public, workers and employers sectors.
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Banking Law Cases
The appointments stated that the appointees may qualify and enter upon the
performance of the duties of the office. After said appointments, then Labor Secretary
Franklin Drilon issued Administrative Order No. 161, series of 1989, designating the
places of assignment of the newly appointed commissioners.
This petition for prohibition questions the constitutionality and legality of the
permanent appointments extended by the President of the Philippines to the
respondents Chairman and Members of the National Labor Relations Commission
(NLRC), without submitting the same to the Commission on Appointments for
confirmation pursuant to Art. 215 of the Labor Code as amended by said RA 6715.
Petitioner insists on a mandatory compliance with RA 6715 which has in its favor the
presumption of validity. RA 6715 is not, according to petitioner, an encroachment on
the appointing power of the executive contained in Section 16, Art. VII, of the
Constitution, as Congress may, by law, require confirmation by the Commission on
Appointments of other officers appointed by the President additional to those
mentioned in the first sentence of Section 16 of Article VII of the Constitution.
Petitioner claims that the Mison and Bautista rulings are not decisive of the issue in
this case for in the case at bar, the President issued permanent appointments to the
respondents without submitting them to the CA for confirmation despite passage of a
law (RA 6715) which requires the confirmation by the Commission on Appointments
of such appointments.
The Solicitor General, on the other hand, contends that RA 6715 which amended the
Labor Code transgressesSection 16, Article VII by expanding the confirmation
powers of the Commission on Appointments without constitutional
basis. Mison and Bautista laid the issue to rest, says the Solicitor General, with the
following exposition:
As interpreted by this Honorable Court in the Mison case,
confirmation by the Commission on Appointments is required
exclusively for the heads of executive departments, ambassadors,
public ministers, consuls, officers of the armed forces from the rank of
colonel or naval captain, and other officers whose appointments are
vested in the President by the Constitution, such as the members of the
various Constitutional Commissions. With respect to the other officers
whose appointments are not otherwise provided for by the law and to
those whom the President may be authorized by law to appoint, no
confirmation by the Commission on Appointments is required.
Had it been the intention to allow Congress to expand the list of
officers whose appointments must be confirmed by the Commission
on Appointments, the Constitution would have said so by adding the
phrase "and other officers required by law" at the end of the first
sentence, or the phrase, "with the consent of the Commission on
Appointments" at the end of the second sentence. Evidently, our
Constitution has significantly omitted to provide for such additions.
The original text of Section 16 of Article VII of the present
Constitution as embodied in Resolution No. 517 of the Constitutional
Commission reads as follows:
"The President shall nominate and, with the consent of
the Commission on Appointments, shall appoint the
heads of the executive departments and bureaus,
ambassadors, other public ministers and consuls, or
officers of the armed forces from the rank of captain or
commander, and all other officers of the Government
whose appointments are not herein otherwise provided
for by law, and those whom he may be authorized by
law to appoint. The Congress may by law vest the
appointment of inferior officers in the President alone,
in the courts or in the heads of the department."
Three points should be noted regarding sub-section 3 of Section 10 of
Article VII of the 1935 Constitution and in the original text of Section
16 of Article VII of the present Constitution as proposed in Resolution
No. 517.
First, in both of them, the appointments of heads of bureaus were
required to be confirmed by the Commission on Appointments.
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Banking Law Cases
Second, in both of them, the appointments of other officers, "whose
appointments are not otherwise provided for by law to appoint" are
expressly made subject to confirmation by the Commission on
Appointments. However, in the final version of Resolution No. 517, as
embodied in Section 16 of Article VII of the present Constitution, the
appointment of the above mentioned officers (heads of bureaus; other
officers whose appointments are not provided for by law; and those
whom he may be authorized by law to appoint) are excluded from the
list of those officers whose appointments are to be confirmed by the
Commission on Appointments. This amendment, reflected in Section
16 of Article VII of the Constitution, clearly shows the intent of the
framers to exclude such appointments from the requirement of
confirmation by the Commission on Appointments.
Third, under the 1935 Constitution the word "nominate" qualifies the
entire Subsection 3 of Section 10 of Article VII thereof.
Respondent reiterates that if confirmation is required, the three (3)
stage process of nomination, confirmation and appointment operates.
This is only true of the first group enumerated in Section 16, but the
word nominate does not any more appear in the 2nd and 3rd sentences.
Therefore, the president's appointment pursuant to the 2nd and 3rd
sentences needs no confirmation. 6
The only issue to be resolved by the Court in the present case is whether or not
Congress may, by law, require confirmation by the Commission on Appointments of
appointments extended by the president to government officers additional to those
expressly mentioned in the first sentence of Sec. 16, Art. VII of the Constitution
whose appointments require confirmation by the Commission on Appointments.
To resolve the issue, we go back to Mison where the Court stated:
. . . there are four (4) groups of officers whom the President shall
appoint. These four (4) groups, to which we will hereafter refer from
time to time, are:
First, the heads of the executive departments,
ambassadors, other public ministers and consuls,
officers of the armed forces from the rank of colonel or
naval captain, and other officers whose appointments
are vested in him in this Constitution;
Second, all other officers of the Government whose
appointments are not otherwise provided for by law;
Third, those whom the president may be authorized by
law to appoint;
Fourth, officers lower in rank whose appointments the
Congress may by law vest in the President alone. 7
Mison also opined:
In the course of the debates on the text of Section 16, there were two
(2) major changes proposed and approved by the Commission. These
were (1) the exclusion of the appointments of heads of bureaus from
the requirement of confirmation by the Commission on Appointments;
and (2) the exclusion of appointments made under the second sentence
of the section from the same requirement. . . .
The second sentence of Sec. 16, Art. VII refers to all other officers of the government
whose appointments are not otherwise provided for by law and those whom the
President may be authorized by law to appoint.
Indubitably, the NLRC Chairman and Commissioners fall within the second sentence
of Section 16, Article VII of the Constitution, more specifically under the "third
groups" of appointees referred to in Mison, i.e. those whom the President may be
authorized by law to appoint. Undeniably, the Chairman and Members of the NLRC
are not among the officers mentioned in the first sentence of Section 16, Article VII
whose appointments requires confirmation by the Commission on Appointments. To
the extent that RA 6715 requires confirmation by the Commission on Appointments
43
Banking Law Cases
of the appointments of respondents Chairman and Members of the National Labor
Relations Commission, it is unconstitutional because:
1) it amends by legislation, the first sentence of Sec. 16, Art. VII of the Constitution
by adding thereto appointments requiring confirmation by the Commission on
Appointments; and
2) it amends by legislation the second sentence of Sec. 16, Art. VII of the
Constitution, by imposing the confirmation of the Commission on Appointments on
appointments which are otherwise entrusted only with the President.
Deciding on what laws to pass is a legislative prerogative. Determining their
constitutionality is a judicial function. The Court respects the laudable intention of the
legislature. Regretfully, however, the constitutional infirmity of Sec. 13 of RA 6715
amending Art. 215 of the Labor Code, insofar as it requires confirmation of the
Commission on Appointments over appointments of the Chairman and Member of
the National Labor Relations Commission (NLRC) is, as we see it, beyond
redemption if we are to render fealty to the mandate of the Constitution in Sec. 16,
Art. VII thereof.
Supreme Court decisions applying or interpreting the Constitution shall form part of
the legal system of the Philippines.8 No doctrine or principle of law laid down by the
Court in a decision rendered en banc or in division may be modified or reversed
except by the Court sitting en banc.9
. . . The interpretation upon a law by this Court constitutes, in a way, a
part of the law as of the date that law was originally passed, since this
Court's construction merely establishes the contemporaneous
legislative intent that the law thus construed intends to effectuate. The
settled rule supported by numerous authorities is a restatement of the
legal maxim "legis interpretado legis vim obtinent" — the
interpretation placed upon the written law by a competent court has the
force of law. 10
The rulings in Mison, Bautista and Quintos-Deles have interpreted Art. VII, Sec. 16
consistently in one manner. Can legislation expand a constitutional provision after the
Supreme Court has interpreted it?
In Endencia and Jugo vs. David, 11 the Court held:
By legislative fiat as enunciated in Section 13, Republic Act No. 590,
Congress says that taxing the salary of a judicial officer is not a
decrease of compensation. This is a clear example of interpretation or
ascertainment of the meaning of the phrase "which shall not be
diminished during their continuance in office," found in Section 9,
Article VIII of the Constitution, referring to the salaries of judicial
officers.
xxx xxx xxx
The rule is recognized elsewhere that the legislature
cannot pass any declaratory act, or act declaratory of
what the law was before its passage, so as to give it any
binding weight with the courts. A legislative definition
of a word as used in a statute is not conclusive of its
meaning as used elsewhere; otherwise, the legislature
would be usurping a judicial function in defining a
term. (11 Am. Jur., 914, emphasis supplied).
The legislature cannot, upon passing law which violates
a constitutional provision, validate it so as to prevent an
attack thereon in the courts, by a declaration that it shall
be so construed as not to violate the constitutional
inhibition. (11 Am., Jur., 919, emphasis supplied).
We have already said that the Legislature under our form of
government is assigned the task and the power to make and enact laws,
but not to interpret them. This is more true with regard to the
interpretation of the basic law, the Constitution, which is not within
the sphere of the Legislative department. If the Legislature may
44
Banking Law Cases
declare what a law means, or what a specific portion of the
Constitution means, especially after the courts have in actual case
ascertained its meaning by interpretation and applied it in a decision,
this would surely cause confusion and instability in judicial processes
and court decisions. Under such a system, a final court determination
of a case based on a judicial interpretation of the law or of the
Constitution may be undermined or even annulled by a subsequent and
different interpretation of the law or of the Constitution by the
Legislative department that would be neither wise nor desirable, being
clearly violative of the fundamental principles of our constitutional
system of government, particularly those governing the separation of
powers. 14(Emphasis supplied)
Congress, of course, must interpret the Constitution, must estimate the scope of its
constitutional powers when it sets out to enact legislation and it must take into
account the relevant constitutional prohibitions. 15
. . . The Constitution did not change with public opinion.
It is not only the same words, but the same in meaning . . . and as long
as it it speaks not only in the same words, but with the same meaning
and intent with which it spoke when it came from the hands of its
framers, and was voted and adopted by the people . . . 16
The function of the Court in passing upon an act of Congress is to "lay the article of
the Constitution which is invoked beside the statute which is challenged and to decide
whether the latter squares with the former" and to "announce its considered judgment
upon the question." 17
It can not be overlooked that Sec. 16, Art. VII of the 1987 Constitution was
deliberately, not unconsciously, intended by the framers of the 1987 Constitution to
be a departure from the system embodied in the 1935 Constitution where the
Commission on Appointments exercised the power of confirmation over almost all
presidential appointments, leading to many cases of abuse of such power of
confirmation. Subsection 3, Section 10, Art. VII of the 1935 Constitution provided:
3. The President shall nominate and with the consent of the
Commission on Appointments, shall appoint the heads of the executive
departments and bureaus, officers of the Army from the rank of
colonel, of the Navy and Air Forces from the rank of captain or
commander, and all other officers of the Government whose
appointments are not herein otherwise provided for, and those whom
he may be authorized by law to appoint; . . .
The deliberate limitation on the power of confirmation of the Commission on
Appointments over presidential appointments, embodied in Sec. 16, Art. VII of the
1987 Constitution, has undoubtedly evoked the displeasure and disapproval of
members of Congress. The solution to the apparent problem, if indeed a problem, is
not judicial or legislative but constitutional. A future constitutional convention or
Congress sitting as a constituent (constitutional) assembly may then consider either a
return to the 1935 Constitutional provisions or the adoption of a hybrid system
between the 1935 and 1987 constitutional provisions. Until then, it is the duty of the
Court to apply the 1987 Constitution in accordance with what it says and not in
accordance with how the legislature or the executive would want it interpreted.
WHEREFORE, the petition is DISMISSED. Art. 215 of the Labor Code as amended
by RA 6715 insofar as it requires the confirmation of the Commission on
Appointments of appointments of the Chairman and Members of the National Labor
Relations Commission (NLRC) is hereby declared unconstitutional and of no legal
force and effect.
SO ORDERED.
45
Banking Law Cases
G.R. No. L-2181 April 30, 1966
ARMANDO ESPERANZA, petitioner,
vs.
ANDRES CASTILLO, in his official capacity as Governor of the Central Bank;
ZENON V. SEBASTIAN, BIENVENIDO D. RUIZ, EMILIANO A. TAN
CHICO, in their official capacity as Chairman and Members of the Investigating
Committee; and ABELARDO SUBIDO, as Acting Commissioner of Civil
Service, respondents.
Juan T. David, for appellant.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Pacifico
P. de Castro, Solicitor F. J. Bautista and R. R. Villones for appellee Commissioner of
Civil Service.
Natalio M. Balboa, F. E. Evangelista, J. C. Guerrero and S. V. Reyes for appellee
Central Bank of the Philippines.
CONCEPCION, J.:
This is an appeal from a decision of the Court of First Instance of Manila, dismissing
the petition for certiorari filed by herein appellant, Armando Esperanza.
The latter was, on December 29, 1953 appointed janitor-messenger of the Central
Bank and had performed his duties as such thereafter. On October 13 and 27, 1961,
he received from Mario P. Marcos, as officer-in-charge of the Central Bank,1 two, (2)
letters referring to him (Esperanza) several official communications from other
officers of the government imputing to him dishonesty and violation of regulations
and requiring him to show cause why disciplinary action should not be taken against
him. No explanation having been forthcoming from Esperanza within the period
given him therefor, on November 9, 1961, Mr. Marcos formally charged him with
dishonesty and violation of regulations, as set forth in the aforementioned
communications. Soon thereafter, or on November 24, 1963, Mr. Marcos designated
Zenon B. Sebastian, as chairman, and Bienvenido D. Ruiz and Emilio A. Tan Chico,
as members of a committee to investigate the charges against Esperanza, who was
suspended on December 18, 1961. On the same date, he moved to dismiss the
administrative complaint against him upon the ground that the same was not sworn to
by complainant Marcos. This motion having been denied by said Committee,
Esperanza sought a reconsideration, to no avail. Esperanza appealed to the
Commissioner of Civil Service, who sustained the action taken by the committee. As
the Commissioner of Civil Service refused to reconsider his view thereon, Esperanza
instituted the present action for certiorari with preliminary injunction against the
Central Bank Governor, the chairman and members of said investigating committee
and the Commissioner of Civil Service, with the result stated in the opening
paragraph of this decision.
Petitioner-appellant maintains that the administrative proceeding against him should
be quashed because the formal complaint filed by Mario P. Marcos, as officer-in-
charge of the Central Bank, is not sworn to and because, although, as such officer-in-
charge, he had all the authority of the Central Bank Governor, insofar, at least, as the
administrative charges against the petitioner are concerned, the Governor of the
Central Bank, petitioner claims, does not perform the role of a department head.
The first issue has been adversely decided by this Court in several cases, particularly,
in Bautista vs. Negado, L-14319 (May 26, 1960), Castillo vs. Bayona, L-14375
(January 30, 1960), and Pastoriza vs. Division Superintendent of Schools, L-14233
(September 23, 1959), in which we held that an administrative complaint filed by the
head of a department or office, pursuant to Executive Order No. 370, series of
1941,2 need not be sworn to, despite the proviso in Section 32 of Republic Act No.
2260, to the effect that "no complaint against a civil service official or employee shall
be given due course unless the same is in writing and subscribed and sworn to by the
complainant."
In connection with the operation of said Executive Order No. 370 and the authority to
create committees to investigate administrative charges under Section 79(c) of the
Revised Administrative Code3 it is urged, however, that the Central Bank Governor
—and, hence, the officer-in-charge of the Central Bank — is not a department head,
insofar as the Bank is concerned, because this role, petitioner alleges, is vested by law
in the Monetary Board. In support of this pretense, petitioner cites Castillo vs.
Bayona, supra, in which we upheld tire authority of the Monetary Board to create
such an investigating committee, upon the ground that said Board "may be regarded
as a department head" as regards the Central Bank. Our decision in said case does not
necessarily negate, however, that the Governor of the Central Bank is, in fact or in
46
Banking Law Cases

effect, its department head. Indeed, the charter of the Central Bank (Republic Act No.
265) explicitly provides4 that the "Governor of the Central Bank shall be the principal
representative of the Monetary Board and of the Bank", and that5 he "shall be the
chief executive of the Central Bank" with authority inter alia "to direct and supervise
the operations and internal administration" of the Bank. It is obvious that, whereas
the functions of the Monetary Board may be compared to those of the Board of
Directors of a corporation, the role of the Governor of the Central Bank may, in turn,
be likened to that of president and general manager of such corporation, with the
duties and responsibilities of a department head of the government. In fact, the
Governor's duty to direct and supervise the operations and internal administration of
the bank logically entails the power to prefer charges against erring officials of the
Bank and to see to it that said charges are properly investigated, this being an intrinsic
element of the internal administration of said institution.1äwphï1.ñët

Wherefore, the decision appealed from is hereby affirmed, with costs against the
petitioner. It is so ordered.

47
Banking Law Cases
G.R. No. 111243 May 25, 1994
JESUS ARMANDO A.R. TARROSA, petitioner,
vs.
GABRIEL C. SINGSON and HON. SALVADOR M. ENRIQUEZ
III, respondents
Marlon B. Llaunder for petitioner.
QUIASON, J.:
This is a petition for prohibition filed by petitioner as a "taxpayer," questioning the
appointment of respondent Gabriel Singson as Governor of the Bangko Sentral Ng
Pilipinas for not having been confirmed by the Commission on Appointments. The
petition seeks to enjoin respondent Singson from the performance of his functions as
such official until his appointment is confirmed by the Commission on Appointments
and respondent Salvador M. Enriquez, Secretary of Budget and Management, from
disbursing public funds in payment of the salaries and emoluments of respondent
Singson.
I Commission on Appointments, appoint the heads of the executive
Respondent Singson was appointed Governor of the Bangko Sentral by President
Fidel V. Ramos on July 2, 1993, effective on July 6, 1993 (Rollo, p. 10).
Petitioner argues that respondent Singson's appointment is null and void since it was
not submitted for confirmation to the Commission on Appointments. The petition is
anchored on the provisions of Section 6 of R.A. No. 7653, which established the
Bangko Sentral as the Central Monetary Authority of the Philippines. Section 6,
Article II of R.A. No. 7653 provides:
Sec. 6. Composition of the Monetary Board. The powers and functions
of the Bangko Sentral shall be exercised by the Bangko Sentral
Monetary Board, hereafter referred to as the Monetary Board,
composed of seven (7) members appointed by the President of the
Philippines for a term of six (6) years.
The seven (7) members are:
(a) The Governor of the Bangko Sentral, who shall be the Chairman of
the Monetary Board. The Governor of the Bangko Sentral shall be
head of a department and his appointment shall be subject to
confirmation by the Commission on Appointments. Whenever the
Governor is unable to attend a meeting of the Board, he shall designate
a Deputy Governor to act as his alternate: Provided, That in such
event, the Monetary Board shall designate one of its members as
acting Chairman . . . (Emphasis supplied).
In their comment, respondents claim that Congress exceeded its legislative powers in
requiring the confirmation by the Commission on Appointments of the appointment
of the Governor of the Bangko Sentral. They contend that an appointment to the said
position is not among the appointments which have to be confirmed by the
Commission on Appointments, citing Section 16 of Article VII of the Constitution
which provides that:
Sec. 16. The President shall nominate and, with the consent of the
departments, ambassadors, other public ministers and consuls, or
officers of the armed forces from the rank of colonel or naval captain,
and other officers whose appointments are vested in him in this
Constitution. He shall also appoint all other officers of the
Government whose appointments are not otherwise provided for by
law, and those whom he may be authorized by law to appoint. The
Congress may, by law, vest the appointment of other officers lower in
rank in the President alone, in the courts, or in the heads of
department, agencies, commissions, or boards . . . (Emphasis
supplied).
48
Banking Law Cases

Respondents also aver that the Bangko Sentral has its own budget and accordingly, its in deference to the principle that bars a judicial inquiry into a constitutional question
budgetary requirements are not subject to the provisions of the General unless the resolution thereof is indispensable for the determination of the case
Appropriations Act. (Fernandez v. Torres, 215 SCRA 489 [1992]).

We dismiss the petition.
II
The instant petition is in the nature of a quo warranto proceeding as it seeks the
ouster of respondent Singson and alleges that the latter is unlawfully holding or
exercising the powers of Governor of the Bangko Sentral (Cf. Castro v. Del Rosario,
19 SCRA 196 [1967]). Such a special civil action can only be commenced by the
Solicitor General or by a "person claiming to be entitled to a public office or position
unlawfully held or exercised by another" (Revised Rules of Court, Rule 66, Sec. 6;
Acosta v. Flor, 5 Phil. 18 [1905]).
However for the information of all concerned, we call attention to our decision
in Calderon v. Carale, 208 SCRA 254 (1992), with Justice Isagani A. Cruz
dissenting, where we ruled that Congress cannot by law expand the confirmation
powers of the Commission on Appointments and require confirmation of appointment
of other government officials not expressly mentioned in the first sentence of Section
16 of Article VII of the Constitution.
WHEREFORE, the petition is DENIED. No pronouncement as to costs.
SO ORDERED.

In Sevilla v. Court of Appeals, 209 SCRA 637 (1992), we held that the petitioner
therein, who did not aver that he was entitled to the office of the City Engineer of
Cabanatuan City, could not bring the action for quo warranto to oust the respondent
from said office as a mere usurper.

Likewise in Greene v. Knox, 175 N.Y. 432 (1903), 67 N.E. 910, it was held that the
question of title to an office, which must be resolved in a quo warranto proceeding,
may not be determined in a suit to restrain the payment of salary to the person holding
such office, brought by someone who does not claim to be the one entitled to occupy
the said office.

It is obvious that the instant action was improvidently brought by petitioner. To

uphold the action would encourage every disgruntled citizen to resort to the courts,
thereby causing incalculable mischief and hindrance to the efficient operation of the
governmental machinery (See Roosevelt v. Draper, 7 Abb. Pr. 108, 23 N.Y. 218).

Its capstone having been removed, the whole case of petitioner collapses. Hence,
there is no need to resolve the question of whether the disbursement of public funds
to pay the salaries and emoluments of respondent Singson can be enjoined. Likewise,
the Court refrains from passing upon the constitutionality of Section 6, R.A. No. 7653
49
Banking Law Cases
[G.R. No. 148208. December 15, 2004]
CENTRAL BANK (now Bangko Sentral ng Pilipinas) EMPLOYEES
ASSOCIATION, INC., petitioner, vs. BANGKO SENTRAL NG
PILIPINAS and the EXECUTIVE SECRETARY, respondents.
DECISION
PUNO, J.:
Can a provision of law, initially valid, become subsequently unconstitutional, on
the ground that its continued operation would violate the equal protection of the law?
We hold that with the passage of the subsequent laws amending the charter of seven
(7) other governmental financial institutions (GFIs), the continued operation of the
last proviso of Section 15(c), Article II of Republic Act (R.A.) No. 7653, constitutes
invidious discrimination on the 2,994 rank-and-file employees of the Bangko Sentral
ng Pilipinas (BSP).
I.
The Case
First the facts.
On July 3, 1993, R.A. No. 7653 (the New Central Bank Act) took effect. It
abolished the old Central Bank of the Philippines, and created a new BSP.
On June 8, 2001, almost eight years after the effectivity of R.A. No. 7653,
petitioner Central Bank (now BSP) Employees Association, Inc., filed a petition for
prohibition against BSP and the Executive Secretary of the Office of the President, to
restrain respondents from further implementing the last proviso in Section 15(c),
Article II of R.A. No. 7653, on the ground that it is unconstitutional.
Article II, Section 15(c) of R.A. No. 7653 provides:
Section 15. Exercise of Authority - In the exercise of its authority, the Monetary Board
shall:
xxx xxx xxx
(c) establish a human resource management system which shall govern the
selection, hiring, appointment, transfer, promotion, or dismissal of all
personnel. Such system shall aim to establish professionalism and excellence
at all levels of the Bangko Sentralin accordance with sound principles of
management.
A compensation structure, based on job evaluation studies and wage surveys
and subject to the Boards approval, shall be instituted as an integral component
of the Bangko Sentrals human resource development
program: Provided, That the Monetary Board shall make its own system
conform as closely as possible with the principles provided for under Republic
Act No. 6758 [Salary Standardization Act]. Provided, however, That
compensation and wage structure of employees whose positions fall under
salary grade 19 and below shall be in accordance with the rates prescribed
under Republic Act No. 6758. [emphasis supplied]
The thrust of petitioners challenge is that the above proviso makes
an unconstitutional cut between two classes of employees in the BSP, viz: (1) the
BSP officers or those exempted from the coverage of the Salary Standardization Law
(SSL) (exempt class); and (2) the rank-and-file (Salary Grade [SG] 19 and below), or
those not exempted from the coverage of the SSL (non-exempt class). It is contended
that this classification is a classic case of class legislation, allegedly not based on
substantial distinctions which make real differences, but solely on the SG of the BSP
personnels position. Petitioner also claims that it is not germane to the purposes of
Section 15(c), Article II of R.A. No. 7653, the most important of which is to establish
professionalism and excellence at all levelsin the BSP.[1] Petitioner offers the
following sub-set of arguments:
a. the legislative history of R.A. No. 7653 shows that the
questioned proviso does not appear in the original and amended versions
50
Banking Law Cases
of House Bill No. 7037, nor in the original version of Senate Bill No.
1235; [2]
b. subjecting the compensation of the BSP rank-and-file employees to the rate
prescribed by the SSL actually defeats the purpose of the law[3] of
establishing professionalism and excellence at all levels in the
BSP; [4] (emphasis supplied)
c. the assailed proviso was the product of amendments introduced during the
deliberation of Senate Bill No. 1235, without showing its relevance to the
objectives of the law, and even admitted by one senator as discriminatory
against low-salaried employees of the BSP;[5]
d. GSIS, LBP, DBP and SSS personnel are all exempted from the coverage of
the SSL; thus within the class of rank-and-file personnel of government
financial institutions (GFIs), the BSP rank-and-file are also discriminated
upon;[6] and
e. the assailed proviso has caused the demoralization among the BSP rank-
and-file and resulted in the gross disparity between their compensation and
that of the BSP officers.[7]
In sum, petitioner posits that the classification is not reasonable but arbitrary and
capricious, and violates the equal protection clause of the Constitution.[8] Petitioner
also stresses: (a) that R.A. No. 7653 has a separability clause, which will allow the
declaration of the unconstitutionality of the proviso in question without affecting the
other provisions; and (b) the urgency and propriety of the petition, as some 2,994 BSP
rank-and-file employees have been prejudiced since 1994 when the proviso was
implemented. Petitioner concludes that: (1) since the inequitable proviso has no force
and effect of law, respondents implementation of such amounts to lack of jurisdiction;
and (2) it has no appeal nor any other plain, speedy and adequate remedy in the ordinary
course except through this petition for prohibition, which this Court should take
cognizance of, considering the transcendental importance of the legal issue involved.[9]
[10]
Respondent BSP, in its comment, contends that the provision does not violate
the equal protection clause and can stand the constitutional test, provided it is construed
in harmony with other provisions of the same law, such as fiscal and administrative
autonomy of BSP, and the mandate of the Monetary Board to establish professionalism
and excellence at all levels in accordance with sound principles of management.
The Solicitor General, on behalf of respondent Executive Secretary, also defends
the validity of the provision. Quite simplistically, he argues that the classification is
based on actual and real differentiation, even as it adheres to the enunciated policy of
R.A. No. 7653 to establish professionalism and excellence within the BSP subject to
prevailing laws and policies of the national government.[11]
II.
Issue
Thus, the sole - albeit significant - issue to be resolved in this case is whether the
last paragraph of Section 15(c), Article II of R.A. No. 7653, runs afoul of the
constitutional mandate that "No person shall be. . . denied the equal protection of the
laws."[12]
III.
Ruling
A. UNDER THE PRESENT STANDARDS OF EQUAL
PROTECTION, SECTION 15(c), ARTICLE II OF R.A. NO. 7653
IS VALID.
Jurisprudential standards for equal protection challenges indubitably show that the
classification created by the questioned proviso, on its face and in its operation, bears
no constitutional infirmities.
It is settled in constitutional law that the "equal protection" clause does not prevent
the Legislature from establishing classes of individuals or objects upon which different
rules shall operate - so long as the classification is not unreasonable. As held
in Victoriano v. Elizalde Rope Workers Union,[13] and reiterated in a long line of
cases:[14]
51
Banking Law Cases
The guaranty of equal protection of the laws is not a guaranty of equality in the
application of the laws upon all citizens of the state. It is not, therefore, a requirement,
in order to avoid the constitutional prohibition against inequality, that every man,
woman and child should be affected alike by a statute. Equality of operation of statutes
does not mean indiscriminate operation on persons merely as such, but on persons
according to the circumstances surrounding them. It guarantees equality, not identity
of rights. The Constitution does not require that things which are different in fact be
treated in law as though they were the same. The equal protection clause does not forbid
discrimination as to things that are different. It does not prohibit legislation which is
limited either in the object to which it is directed or by the territory within which it is
to operate.
The equal protection of the laws clause of the Constitution allows classification.
Classification in law, as in the other departments of knowledge or practice, is the
grouping of things in speculation or practice because they agree with one another in
certain particulars. A law is not invalid because of simple inequality. The very idea of
classification is that of inequality, so that it goes without saying that the mere fact of
inequality in no manner determines the matter of constitutionality. All that is required
of a valid classification is that it be reasonable, which means that the classification
should be based on substantial distinctions which make for real differences, that it must
be germane to the purpose of the law; that it must not be limited to existing conditions
only; and that it must apply equally to each member of the class. This Court has held
that the standard is satisfied if the classification or distinction is based on a reasonable
foundation or rational basis and is not palpably arbitrary.
In the exercise of its power to make classifications for the purpose of enacting laws
over matters within its jurisdiction, the state is recognized as enjoying a wide range of
discretion. It is not necessary that the classification be based on scientific or marked
differences of things or in their relation. Neither is it necessary that the classification
be made with mathematical nicety. Hence, legislative classification may in many cases
properly rest on narrow distinctions, for the equal protection guaranty does not preclude
the legislature from recognizing degrees of evil or harm, and legislation is addressed to
evils as they may appear. (citations omitted)
Congress is allowed a wide leeway in providing for a valid classification.[15] The
equal protection clause is not infringed by legislation which applies only to those
persons falling within a specified class.[16] If the groupings are characterized by
substantial distinctions that make real differences, one class may be treated and
regulated differently from another.[17] The classification must also be germane to the
purpose of the law and must apply to all those belonging to the same class.[18]
In the case at bar, it is clear in the legislative deliberations that the exemption of
officers (SG 20 and above) from the SSL was intended to address the BSPs lack of
competitiveness in terms of attracting competent officers and executives. It was not
intended to discriminate against the rank-and-file. If the end-result did in fact lead to a
disparity of treatment between the officers and the rank-and-file in terms of salaries
and benefits, the discrimination or distinction has a rational basis and is not palpably,
purely, and entirely arbitrary in the legislative sense. [19]
That the provision was a product of amendments introduced during the
deliberation of the Senate Bill does not detract from its validity. As early as 1947 and
reiterated in subsequent cases,[20] this Court has subscribed to the conclusiveness of an
enrolled bill to refuse invalidating a provision of law, on the ground that the bill from
which it originated contained no such provision and was merely inserted by the
bicameral conference committee of both Houses.
Moreover, it is a fundamental and familiar teaching that all reasonable doubts
should be resolved in favor of the constitutionality of a statute.[21] An act of the
legislature, approved by the executive, is presumed to be within constitutional
limitations.[22] To justify the nullification of a law, there must be a clear and
unequivocal breach of the Constitution, not a doubtful and equivocal breach.[23]
B. THE ENACTMENT, HOWEVER, OF SUBSEQUENT LAWS -
EXEMPTING ALL OTHER RANK-AND-FILE EMPLOYEES
OF GFIs FROM THE SSL - RENDERS THE CONTINUED
APPLICATION OF THE CHALLENGED PROVISION
A VIOLATION OF THE EQUAL PROTECTION CLAUSE.
While R.A. No. 7653 started as a valid measure well within the legislatures power,
we hold that the enactment of subsequent laws exempting all rank-and-file
employees of other GFIs leeched all validity out of the challenged proviso.
52
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1. The concept of relative constitutionality. and oppressive. It noted the subsequent changes in the countrys business, industry
and agriculture. Thus, the law was set aside because its continued operation would be
The constitutionality of a statute cannot, in every instance, be determined by a
grossly discriminatory and lead to the oppression of the creditors. The landmark ruling
mere comparison of its provisions with applicable provisions of the Constitution, since
states:[31]
the statute may be constitutionally valid as applied to one set of facts and invalid in its
application to another.[24]
The question now to be determined is, is the period of eight (8) years which Republic
A statute valid at one time may become void at another time because of altered Act No. 342 grants to debtors of a monetary obligation contracted before the last global
circumstances.[25] Thus, if a statute in its practical operation becomes arbitrary or war and who is a war sufferer with a claim duly approved by the Philippine War
confiscatory, its validity, even though affirmed by a former adjudication, is open to Damage Commission reasonable under the present circumstances?
inquiry and investigation in the light of changed conditions.[26]
It should be noted that Republic Act No. 342 only extends relief to debtors of prewar
Demonstrative of this doctrine is Vernon Park Realty v. City of Mount
obligations who suffered from the ravages of the last war and who filed a claim for
Vernon,[27] where the Court of Appeals of New York declared as unreasonable and
their losses with the Philippine War Damage Commission. It is therein provided that
arbitrary a zoning ordinance which placed the plaintiff's property in a residential
said obligation shall not be due and demandable for a period of eight (8) years from
district, although it was located in the center of a business area. Later amendments to
and after settlement of the claim filed by the debtor with said Commission. The purpose
the ordinance then prohibited the use of the property except for parking and storage of
of the law is to afford to prewar debtors an opportunity to rehabilitate themselves by
automobiles, and service station within a parking area. The Court found the ordinance
giving them a reasonable time within which to pay their prewar debts so as to prevent
to constitute an invasion of property rights which was contrary to constitutional due
them from being victimized by their creditors. While it is admitted in said law that since
process. It ruled:
liberation conditions have gradually returned to normal, this is not so with regard to
those who have suffered the ravages of war and so it was therein declared as a policy
While the common council has the unquestioned right to enact zoning laws respecting
that as to them the debt moratorium should be continued in force (Section 1).
the use of property in accordance with a well-considered and comprehensive plan
designed to promote public health, safety and general welfare, such power is subject to
But we should not lose sight of the fact that these obligations had been pending since
the constitutional limitation that it may not be exerted arbitrarily or unreasonably and
1945 as a result of the issuance of Executive Orders Nos. 25 and 32 and at present their
this is so whenever the zoning ordinance precludes the use of the property for any
enforcement is still inhibited because of the enactment of Republic Act No. 342 and
purpose for which it is reasonably adapted. By the same token, an ordinance valid
would continue to be unenforceable during the eight-year period granted to prewar
when adopted will nevertheless be stricken down as invalid when, at a later time,
debtors to afford them an opportunity to rehabilitate themselves, which in plain
its operation under changed conditions proves confiscatory such, for instance, as
language means that the creditors would have to observe a vigil of at least twelve (12)
when the greater part of its value is destroyed, for which the courts will afford relief in
years before they could effect a liquidation of their investment dating as far back as
an appropriate case.[28] (citations omitted, emphasis supplied)
1941. his period seems to us unreasonable, if not oppressive. While the purpose of
Congress is plausible, and should be commended, the relief accorded works injustice
In the Philippine setting, this Court declared the continued enforcement of a valid
to creditors who are practically left at the mercy of the debtors. Their hope to effect
law as unconstitutional as a consequence of significant changes in circumstances.
collection becomes extremely remote, more so if the credits are unsecured. And the
Rutter v. Esteban[29] upheld the constitutionality of the moratorium law - its enactment
injustice is more patent when, under the law, the debtor is not even required to pay
and operation being a valid exercise by the State of its police power[30] - but also ruled
interest during the operation of the relief, unlike similar statutes in the United States.
that the continued enforcement of the otherwise valid law would be unreasonable
53
Banking Law Cases
xxx xxx xxx
In the face of the foregoing observations, and consistent with what we believe to be as
the only course dictated by justice, fairness and righteousness, we feel that the only
way open to us under the present circumstances is to declare that the continued
operation and enforcement of Republic Act No. 342 at the present time is
unreasonable and oppressive, and should not be prolonged a minute longer, and,
therefore, the same should be declared null and void and without effect. (emphasis
supplied, citations omitted)
2. Applicability of the equal protection clause.
In the realm of equal protection, the U.S. case of Atlantic Coast Line R. Co. v.
Ivey[32] is illuminating. The Supreme Court of Florida ruled against the continued
application of statutes authorizing the recovery of double damages plus attorney's fees
against railroad companies, for animals killed on unfenced railroad right of way without
proof of negligence. Competitive motor carriers, though creating greater hazards, were
not subjected to similar liability because they were not yet in existence when the
statutes were enacted. The Court ruled that the statutes became invalid as denying equal
protection of the law, in view of changed conditions since their enactment.
In another U.S. case, Louisville & N.R. Co. v. Faulkner,[33] the Court of Appeals
of Kentucky declared unconstitutional a provision of a statute which imposed a duty
upon a railroad company of proving that it was free from negligence in the killing or
injury of cattle by its engine or cars. This, notwithstanding that the constitutionality
of the statute, enacted in 1893, had been previously sustained. Ruled the Court:
The constitutionality of such legislation was sustained because it applied to all similar
corporations and had for its object the safety of persons on a train and the protection of
property. Of course, there were no automobiles in those days.
The subsequent inauguration and development of transportation by motor vehicles on
the public highways by common carriers of freight and passengers created even greater
risks to the safety of occupants of the vehicles and of danger of injury and death of
domestic animals. Yet, under the law the operators of that mode of competitive
transportation are not subject to the same extraordinary legal responsibility for killing
such animals on the public roads as are railroad companies for killing them on their
private rights of way.
The Supreme Court, speaking through Justice Brandeis in Nashville, C. & St. L. Ry.
Co. v. Walters, 294 U.S. 405, 55 S.Ct. 486, 488, 79 L.Ed. 949, stated, A statute valid
when enacted may become invalid by change in the conditions to which it is
applied. The police power is subject to the constitutional limitation that it may not be
exerted arbitrarily or unreasonably. A number of prior opinions of that court are cited
in support of the statement. The State of Florida for many years had a statute, F.S.A.
356.01 et seq. imposing extraordinary and special duties upon railroad companies,
among which was that a railroad company was liable for double damages and an
attorney's fee for killing livestock by a train without the owner having to prove any act
of negligence on the part of the carrier in the operation of its train. In Atlantic Coast
Line Railroad Co. v. Ivey, it was held that the changed conditions brought about by
motor vehicle transportation rendered the statute unconstitutional since if a common
carrier by motor vehicle had killed the same animal, the owner would have been
required to prove negligence in the operation of its equipment. Said the court, This
certainly is not equal protection of the law.[34] (emphasis supplied)
Echoes of these rulings resonate in our case law, viz:
[C]ourts are not confined to the language of the statute under challenge in determining
whether that statute has any discriminatory effect. A statute nondiscriminatory on its
face may be grossly discriminatory in its operation. Though the law itself be fair on
its face and impartial in appearance, yet, if it is applied and administered by public
authority with an evil eye and unequal hand, so as practically to make unjust and illegal
discriminations between persons in similar circumstances, material to their rights, the
denial of equal justice is still within the prohibition of the Constitution.[35] (emphasis
supplied, citations omitted)
[W]e see no difference between a law which denies equal protection and a law
which permits of such denial. A law may appear to be fair on its face and impartial in
appearance, yet, if it permits of unjust and illegal discrimination, it is within the
constitutional prohibition.. In other words, statutes may be adjudged unconstitutional
because of their effect in operation. If a law has the effect of denying the equal
protection of the law it is unconstitutional. .[36] (emphasis supplied, citations omitted
3. Enactment of R.A. Nos. 7907 + 8282 + 8289 + 8291 + 8523 + 8763
+ 9302 = consequential unconstitutionality of challenged proviso.
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Banking Law Cases
According to petitioner, the last proviso of Section 15(c), Article II of R.A. No.
7653 is also violative of the equal protection clause because after it was enacted, the
charters of the GSIS, LBP, DBP and SSS were also amended, but the personnel of the
latter GFIs were all exempted from the coverage of the SSL.[37] Thus, within the class
of rank-and-file personnel of GFIs, the BSP rank-and-file are also discriminated upon.
Indeed, we take judicial notice that after the new BSP charter was enacted in 1993,
Congress also undertook the amendment of the charters of the GSIS, LBP, DBP and
SSS, and three other GFIs, from 1995 to 2004, viz:
1. R.A. No. 7907 (1995) for Land Bank of the Philippines (LBP);
2. R.A. No. 8282 (1997) for Social Security System (SSS);
3. R.A. No. 8289 (1997) for Small Business Guarantee and Finance
Corporation, (SBGFC);
4. R.A. No. 8291 (1997) for Government Service Insurance System (GSIS);
5. R.A. No. 8523 (1998) for Development Bank of the Philippines (DBP);
6. R.A. No. 8763 (2000) for Home Guaranty Corporation (HGC);[38] and
7. R.A. No. 9302 (2004) for Philippine Deposit Insurance Corporation
(PDIC).
It is noteworthy, as petitioner points out, that the subsequent charters of the
seven other GFIs share this common proviso: a blanket exemption of all their
employees from the coverage of the SSL, expressly or impliedly, as illustrated below:
1. LBP (R.A. No. 7907)
Section 10. Section 90 of [R.A. No. 3844] is hereby amended to read as follows:
Section 90. Personnel. -
xxx xxx xxx
All positions in the Bank shall be governed by a compensation, position classification
system and qualification standards approved by the Banks Board of Directors based on
a comprehensive job analysis and audit of actual duties and responsibilities. The
compensation plan shall be comparable with the prevailing compensation plans in the
private sector and shall be subject to periodic review by the Board no more than once
every two (2) years without prejudice to yearly merit reviews or increases based on
productivity and profitability. The Bank shall therefore be exempt from existing
laws, rules and regulations on compensation, position classification and
qualification standards. It shall however endeavor to make its system conform as
closely as possible with the principles under Republic Act No. 6758. (emphasis
supplied)
xxx xxx xxx
2. SSS (R.A. No. 8282)
Section 1. [Amending R.A. No. 1161, Section 3(c)]:
xxx xxx xxx
(c)The Commission, upon the recommendation of the SSS President, shall appoint an
actuary and such other personnel as may [be] deemed necessary; fix their reasonable
compensation, allowances and other benefits; prescribe their duties and establish such
methods and procedures as may be necessary to insure the efficient, honest and
economical administration of the provisions and purposes of this Act: Provided,
however, That the personnel of the SSS below the rank of Vice President shall be
appointed by the SSS President: Provided, further, That the personnel appointed by the
SSS President, except those below the rank of assistant manager, shall be subject to the
confirmation by the Commission; Provided further, That the personnel of the SSS shall
be selected only from civil service eligibles and be subject to civil service rules and
regulations: Provided, finally, That the SSS shall be exempt from the provisions of
Republic Act No. 6758 and Republic Act No. 7430. (emphasis supplied)
3. SBGFC (R.A. No. 8289)
Section 8. [Amending R.A. No. 6977, Section 11]:
xxx xxx xxx
55
Banking Law Cases
The Small Business Guarantee and Finance Corporation shall:
xxx xxx xxx
(e) notwithstanding the provisions of Republic Act No. 6758, and Compensation
Circular No. 10, series of 1989 issued by the Department of Budget and
Management, the Board of Directors of SBGFC shall have the authority to extend
to the employees and personnel thereof the allowance and fringe benefits similar
to those extended to and currently enjoyed by the employees and personnel of
other government financial institutions. (emphases supplied)
4. GSIS (R.A. No. 8291)
Section 1. [Amending Section 43(d)].
xxx xxx xxx
Sec. 43. Powers and Functions of the Board of Trustees. - The Board of Trustees shall
have the following powers and functions:
xxx xxx xxx
(d) upon the recommendation of the President and General Manager, to approve the
GSIS organizational and administrative structures and staffing pattern, and to establish,
fix, review, revise and adjust the appropriate compensation package for the officers and
employees of the GSIS with reasonable allowances, incentives, bonuses, privileges and
other benefits as may be necessary or proper for the effective management, operation
and administration of the GSIS, which shall be exempt from Republic Act No. 6758,
otherwise known as the Salary Standardization Law and Republic Act No. 7430,
otherwise known as the Attrition Law. (emphasis supplied)
xxx xxx xxx
5. DBP (R.A. No. 8523)
Section 6. [Amending E.O. No. 81, Section 13]:
Section 13. Other Officers and Employees. - The Board of Directors shall provide for
an organization and staff of officers and employees of the Bank and upon
recommendation of the President of the Bank, fix their remunerations and other
emoluments. All positions in the Bank shall be governed by the compensation, position
classification system and qualification standards approved by the Board of Directors
based on a comprehensive job analysis of actual duties and responsibilities. The
compensation plan shall be comparable with the prevailing compensation plans in the
private sector and shall be subject to periodic review by the Board of Directors once
every two (2) years, without prejudice to yearly merit or increases based on the Banks
productivity and profitability. The Bank shall, therefore, be exempt from existing
laws, rules, and regulations on compensation, position classification and
qualification standards. The Bank shall however, endeavor to make its system
conform as closely as possible with the principles under Compensation and
Position Classification Act of 1989 (Republic Act No. 6758, as amended). (emphasis
supplied)
6. HGC (R.A. No. 8763)
Section 9. Powers, Functions and Duties of the Board of Directors. - The Board shall
have the following powers, functions and duties:
xxx xxx xxx
(e) To create offices or positions necessary for the efficient management, operation and
administration of the Corporation: Provided, That all positions in the Home Guaranty
Corporation (HGC) shall be governed by a compensation and position classification
system and qualifications standards approved by the Corporations Board of Directors
based on a comprehensive job analysis and audit of actual duties and
responsibilities: Provided, further, That the compensation plan shall be comparable
with the prevailing compensation plans in the private sector and which shall be
exempt from Republic Act No. 6758, otherwise known as the Salary
Standardization Law, and from other laws, rules and regulations on salaries and
compensations; and to establish a Provident Fund and determine the Corporations and
the employees contributions to the Fund; (emphasis supplied)
xxx xxx xxx
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Banking Law Cases
7. PDIC (R.A. No. 9302)
Section 2. Section 2 of [Republic Act No. 3591, as amended] is hereby further amended
to read:
xxx xxx xxx
3.
xxx xxx xxx
A compensation structure, based on job evaluation studies and wage surveys and
subject to the Boards approval, shall be instituted as an integral component of the
Corporations human resource development program: Provided, That all positions in the
Corporation shall be governed by a compensation, position classification system and
qualification standards approved by the Board based on a comprehensive job analysis
and audit of actual duties and responsibilities. The compensation plan shall be
comparable with the prevailing compensation plans of other government financial
institutions and shall be subject to review by the Board no more than once every two
(2) years without prejudice to yearly merit reviews or increases based on productivity
and profitability. The Corporation shall therefore be exempt from existing laws,
rules and regulations on compensation, position classification and qualification
standards. It shall however endeavor to make its system conform as closely as possible
with the principles under Republic Act No. 6758, as amended. (emphases supplied)
Thus, eleven years after the amendment of the BSP charter, the rank-and-file
of seven other GFIs were granted the exemption that was specifically denied to
the rank-and-file of the BSP. And as if to add insult to petitioners injury, even the
Securities and Exchange Commission (SEC) was granted the same blanket exemption
from the SSL in 2000![39]
The prior view on the constitutionality of R.A. No. 7653 was confined to an
evaluation of its classification between the rank-and-file and the officers of the
BSP, found reasonable because there were substantial distinctions that made real
differences between the two classes.
The above-mentioned subsequent enactments, however, constitute significant
changes in circumstance that considerably alter the reasonability of the continued
operation of the last proviso of Section 15(c), Article II of Republic Act No. 7653,
thereby exposing the proviso to more serious scrutiny. This time, the scrutiny relates
to the constitutionality of the classification - albeit made indirectly as a consequence of
the passage of eight other laws - between the rank-and-file of the BSP and the seven
other GFIs. The classification must not only be reasonable, but must also apply
equally to all members of the class. The proviso may be fair on its face and impartial
in appearance but it cannot be grossly discriminatory in its operation, so as
practically to make unjust distinctions between persons who are without differences.[40]
Stated differently, the second level of inquiry deals with the following questions:
Given that Congress chose to exempt other GFIs (aside the BSP) from the coverage of
the SSL, can the exclusion of the rank-and-file employees of the BSP stand
constitutional scrutiny in the light of the fact that Congress did not exclude the rank-
and-file employees of the other GFIs? Is Congress power to classify so unbridled as to
sanction unequal and discriminatory treatment, simply because the inequity manifested
itself, not instantly through a single overt act, but gradually and progressively, through
seven separate acts of Congress? Is the right to equal protection of the law bounded in
time and space that: (a) the right can only be invoked against a classification made
directly and deliberately, as opposed to a discrimination that arises indirectly, or as a
consequence of several other acts; and (b) is the legal analysis confined to determining
the validity within the parameters of the statute or ordinance (where the inclusion or
exclusion is articulated), thereby proscribing any evaluation vis--vis the grouping, or
the lack thereof, among several similar enactments made over a period of time?
In this second level of scrutiny, the inequality of treatment cannot be justified on
the mere assertion that each exemption (granted to the seven other GFIs) rests on a
policy determination by the legislature. All legislative enactments necessarily rest on
a policy determination - even those that have been declared to contravene the
Constitution. Verily, if this could serve as a magic wand to sustain the validity of a
statute, then no due process and equal protection challenges would ever prosper. There
is nothing inherently sacrosanct in a policy determination made by Congress or by the
Executive; it cannot run riot and overrun the ramparts of protection of the Constitution.
In fine, the policy determination argument may support the inequality of treatment
between the rank-and-file and the officers of the BSP, but it cannot justify the inequality
57
Banking Law Cases

of treatment between BSP rank-and-file and other GFIs who are similarly situated. It
fails to appreciate that what is at issue in the second level of scrutiny is not
the declared policy of each law per se, but the oppressive results of Congress
inconsistent and unequal policy towards the BSP rank-and-file and those of the seven
other GFIs. At bottom, the second challenge to the constitutionality of Section 15(c),
Article II of Republic Act No. 7653 is premised precisely on the irrational
discriminatory policy adopted by Congress in its treatment of persons similarly
situated. In the field of equal protection, the guarantee that "no person shall be denied
the equal protection of the laws includes the prohibition against enacting laws that
allow invidious discrimination, directly or indirectly. If a law has the effect of
denying the equal protection of the law, or permits such denial, it is unconstitutional.[41]
It is against this standard that the disparate treatment of the BSP rank-and-file from
the other GFIs cannot stand judicial scrutiny. For as regards the exemption from the
coverage of the SSL, there exist no substantial distinctions so as to differentiate, the
BSP rank-and-file from the other rank-and-file of the seven GFIs. On the contrary, our
legal history shows that GFIs have long been recognized as comprising one distinct
class, separate from other governmental entities.
Before the SSL, Presidential Decree (P.D.) No. 985 (1976) declared it as a State
policy (1) to provide equal pay for substantially equal work, and (2) to base differences
in pay upon substantive differences in duties and responsibilities, and qualification
requirements of the positions. P.D. No. 985 was passed to address disparities in pay
among similar or comparable positions which had given rise to dissension among
government employees. But even then, GFIs and government-owned and/or
controlled corporations (GOCCs) were already identified as a distinct class among
government employees. Thus, Section 2 also provided, [t]hat notwithstanding a
standardized salary system established for all employees, additional financial
incentives may be established by government corporation and financial institutions for
their employees to be supported fully from their corporate funds and for such technical
positions as may be approved by the President in critical government agencies.[42]
The same favored treatment is made for the GFIs and the GOCCs under the SSL.
Section 3(b) provides that one of the principles governing the Compensation and
Position Classification System of the Government is that: [b]asic compensation for all
personnel in the government and government-owned or controlled corporations and
financial institutions shall generally be comparable with those in the private sector
doing comparable work, and must be in accordance with prevailing laws on minimum
wages.
Thus, the BSP and all other GFIs and GOCCs were under the unified
Compensation and Position Classification System of the SSL,[43] but rates of pay under
the SSL were determined on the basis of, among others, prevailing rates in the private
sector for comparable work. Notably, the Compensation and Position Classification
System was to be governed by the following principles: (a) just and equitable wages,
with the ratio of compensation between pay distinctions maintained at equitable
levels;[44] and (b) basic compensation generally comparable with the private sector, in
accordance with prevailing laws on minimum wages.[45] Also, the Department of
Budget and Management was directed to use, as guide for preparing the Index of
Occupational Services, the Benchmark Position Schedule, and the following factors:[46]
(1) the education and experience required to perform the duties and
responsibilities of the positions;
(2) the nature and complexity of the work to be performed;
(3) the kind of supervision received;
(4) mental and/or physical strain required in the completion of the work;
(5) nature and extent of internal and external relationships;
(6) kind of supervision exercised;
(7) decision-making responsibility;
(8) responsibility for accuracy of records and reports;
(9) accountability for funds, properties and equipment; and
(10) hardship, hazard and personal risk involved in the job.
The Benchmark Position Schedule enumerates the position titles that fall within
Salary Grades 1 to 20.
Clearly, under R.A. No. 6758, the rank-and-file of all GFIs were similarly situated
in all aspects pertaining to compensation and position classification, in consonance
with Section 5, Article IX-B of the 1997 Constitution.[47]
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Banking Law Cases
Then came the enactment of the amended charter of the BSP, implicitly
exempting the Monetary Board from the SSL by giving it express authority to
determine and institute its own compensation and wage structure. However, employees
whose positions fall under SG 19 and below were specifically limited to the rates
prescribed under the SSL.
Subsequent amendments to the charters of other GFIs followed. Significantly,
each government financial institution (GFI) was not only expressly authorized to
determine and institute its own compensation and wage structure, but also explicitly
exempted - without distinction as to salary grade or position - all employees of the
GFI from the SSL.
It has been proffered that legislative deliberations justify the grant or withdrawal
of exemption from the SSL, based on the perceived need to fulfill the mandate of the
institution concerned considering, among others, that: (1) the GOCC or GFI is
essentially proprietary in character; (2) the GOCC or GFI is in direct competition with
their [sic] counterparts in the private sector, not only in terms of the provisions of
goods or services, but also in terms of hiring and retaining competent personnel; and
(3) the GOCC or GFI are or were [sic] experiencing difficulties filling up plantilla
positions with competent personnel and/or retaining these personnel. The need for the
scope of exemption necessarily varies with the particular circumstances of each
institution, and the corresponding variance in the benefits received by the employees
is merely incidental.
The fragility of this argument is manifest. First, the BSP is the central monetary
authority,[48] and the banker of the government and all its political
subdivisions.[49] It has the sole power and authority to issue currency;[50] provide
policy directions in the areas of money, banking, and credit; and supervise banks and
regulate finance companies and non-bank financial institutions performing quasi-
banking functions, including the exempted GFIs.[51] Hence, the argument that the
rank-and-file employees of the seven GFIs were exempted because of the importance
of their institutions mandate cannot stand any more than an empty sack can stand.
Second, it is certainly misleading to say that the need for the scope of exemption
necessarily varies with the particular circumstances of each institution. Nowhere in
the deliberations is there a cogent basis for the exclusion of the BSP rank-and-file from
the exemption which was granted to the rank-and-file of the other GFIs and the SEC.
As point in fact, the BSP and the seven GFIs are similarly situated in so far as Congress
deemed it necessary for these institutions to be exempted from the SSL. True, the SSL-
exemption of the BSP and the seven GFIs was granted in the amended charters of each
GFI, enacted separately and over a period of time. But it bears emphasis that, while
each GFI has a mandate different and distinct from that of another, the deliberations
show that the raison dtre of the SSL-exemption was inextricably linked to and for the
most part based on factors common to the eight GFIs, i.e., (1) the pivotal role they play
in the economy; (2) the necessity of hiring and retaining qualified and effective
personnel to carry out the GFIs mandate; and (3) the recognition that the compensation
package of these GFIs is not competitive, and fall substantially below industry
standards. Considering further that (a) the BSP was the first GFI granted SSL
exemption; and (b) the subsequent exemptions of other GFIs did not distinguish
between the officers and the rank-and-file; it is patent that the classification made
between the BSP rank-and-file and those of the other seven GFIs was inadvertent,
and NOT intended, i.e., it was not based on any substantial distinction vis--vis the
particular circumstances of each GFI. Moreover, the exemption granted to two GFIs
makes express reference to allowance and fringe benefits similar to those extended to
and currently enjoyed by the employees and personnel of other GFIs,[52] underscoring
that GFIs are a particular class within the realm of government entities.
It is precisely this unpremeditated discrepancy in treatment of the rank-and-file of
the BSP - made manifest and glaring with each and every consequential grant of blanket
exemption from the SSL to the other GFIs - that cannot be rationalized or justified.
Even more so, when the SEC - which is not a GFI - was given leave to have a
compensation plan that shall be comparable with the prevailing compensation plan in
the [BSP] and other [GFIs],[53] then granted a blanket exemption from the SSL, and its
rank-and-file endowed a more preferred treatment than the rank-and-file of the BSP.
The violation to the equal protection clause becomes even more pronounced when
we are faced with this undeniable truth: that if Congress had enacted a law for the sole
purpose of exempting the eight GFIs from the coverage of the SSL, the exclusion of
the BSP rank-and-file employees would have been devoid of any substantial or material
basis. It bears no moment, therefore, that the unlawful discrimination was not a direct
result arising from one law. Nemo potest facere per alium quod non potest facere per
directum.No one is allowed to do indirectly what he is prohibited to do directly.
It has also been proffered that similarities alone are not sufficient to support the
conclusion that rank-and-file employees of the BSP may be lumped together with
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Banking Law Cases
similar employees of the other GOCCs for purposes of compensation, position
classification and qualification standards. The fact that certain persons have some
attributes in common does not automatically make them members of the same class
with respect to a legislative classification. Cited is the ruling in Johnson v.
Robinson:[54] this finding of similarity ignores that a common characteristic shared by
beneficiaries and nonbeneficiaries alike, is not sufficient to invalidate a statute when
other characteristics peculiar to only one group rationally explain the statutes different
treatment of the two groups.
The reference to Johnson is inapropos. In Johnson, the US Court sustained the
validity of the classification as there were quantitative and qualitative distinctions,
expressly recognized by Congress, which formed a rational basis for the
classificationlimiting educational benefits to military service veterans as a means of
helping them readjust to civilian life. The Court listed the peculiar characteristics as
follows:
First, the disruption caused by military service is quantitatively greater than that caused
by alternative civilian service. A conscientious objector performing alternative service
is obligated to work for two years. Service in the Armed Forces, on the other hand,
involves a six-year commitment
xxx xxx xxx
Second, the disruptions suffered by military veterans and alternative service performers
are qualitatively different. Military veterans suffer a far greater loss of personal
freedom during their service careers. Uprooted from civilian life, the military veteran
becomes part of the military establishment, subject to its discipline and potentially
hazardous duty. Congress was acutely aware of the peculiar disabilities caused by
military service, in consequence of which military servicemen have a special need for
readjustment benefits[55](citations omitted)
In the case at bar, it is precisely the fact that as regards the exemption from the
SSL, there are no characteristics peculiar only to the seven GFIs or their rank-
and-file so as to justify the exemption which BSP rank-and-file employees were
denied (not to mention the anomaly of the SEC getting one). The distinction made by
the law is not only superficial,[56] but also arbitrary. It is not based on substantial
distinctions that make real differences between the BSP rank-and-file and the seven
other GFIs.
Moreover, the issue in this case is not - as the dissenting opinion of Mme. Justice
Carpio-Morales would put it - whether being an employee of a GOCC or GFI is
reasonable and sufficient basis for exemption from R.A. No. 6758. It is Congress itself
that distinguished the GFIs from other government agencies, not once but eight
times, through the enactment of R.A. Nos. 7653, 7907, 8282, 8289, 8291, 8523, 8763,
and 9302. These laws may have created a preferred sub-class within government
employees, but the present challenge is not directed at the wisdom of these laws.
Rather, it is a legal conundrum involving the exercise of legislative power, the validity
of which must be measured not only by looking at the specific exercise in and by
itself (R.A. No. 7653), but also as to the legal effects brought about by seven separate
exercises - albeit indirectly and without intent.
Thus, even if petitioner had not alleged a comparable change in the factual milieu
as regards the compensation, position classification and qualification standards of the
employees of the BSP (whether of the executive level or of the rank-and-file) since the
enactment of the new Central Bank Act is of no moment. In GSIS v.
Montesclaros,[57] this Court resolved the issue of constitutionality notwithstanding that
claimant had manifested that she was no longer interested in pursuing the case, and
even when the constitutionality of the said provision was not squarely raised as an issue,
because the issue involved not only the claimant but also others similarly situated and
whose claims GSIS would also deny based on the challenged proviso. The Court held
that social justice and public interest demanded the resolution of the constitutionality
of the proviso. And so it is with the challenged proviso in the case at bar.
It bears stressing that the exemption from the SSL is a privilege fully within the
legislative prerogative to give or deny. However, its subsequent grant to the rank-and-
file of the seven other GFIs and continued denial to the BSP rank-and-file employees
breached the latters right to equal protection. In other words, while the granting of a
privilege per se is a matter of policy exclusively within the domain and prerogative of
Congress, the validity or legality of the exercise of this prerogative is subject to judicial
review.[58] So when the distinction made is superficial, and not based on substantial
distinctions that make real differences between those included and excluded, it
becomes a matter of arbitrariness that this Court has the duty and the power to
correct.[59] As held in the United Kingdom case of Hooper v. Secretary of State for
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Work and Pensions,[60] once the State has chosen to confer benefits, discrimination
contrary to law may occur where favorable treatment already afforded to one group is
refused to another, even though the State is under no obligation to provide that
favorable treatment. [61]
The disparity of treatment between BSP rank-and-file and the rank-and-file of the
other seven GFIs definitely bears the unmistakable badge of invidious discrimination -
no one can, with candor and fairness, deny the discriminatory character of the
subsequent blanket and total exemption of the seven other GFIs from the SSL when
such was withheld from the BSP. Alikes are being treated as unalikes without any
rational basis.
Again, it must be emphasized that the equal protection clause does not demand
absolute equality but it requires that all persons shall be treated alike, under like
circumstances and conditions both as to privileges conferred and liabilities
enforced.Favoritism and undue preference cannot be allowed. For the principle is that
equal protection and security shall be given to every person under circumstances which,
if not identical, are analogous. If law be looked upon in terms of burden or charges,
those that fall within a class should be treated in the same fashion; whatever restrictions
cast on some in the group is equally binding on the rest.[62]
In light of the lack of real and substantial distinctions that would justify the unequal
treatment between the rank-and-file of BSP from the seven other GFIs, it is clear that
the enactment of the seven subsequent charters has rendered the continued application
of the challenged proviso anathema to the equal protection of the law, and the same
should be declared as an outlaw.
IV.
Equal Protection Under
International Lens
In our jurisdiction, the standard and analysis of equal protection challenges in the
main have followed the rational basis test, coupled with a deferential attitude to
legislative classifications[63] and a reluctance to invalidate a law unless there is a
showing of a clear and unequivocal breach of the Constitution. [64]
A. Equal Protection
in the United States
In contrast, jurisprudence in the U.S. has gone beyond the static rational basis
test. Professor Gunther highlights the development in equal protection jurisprudential
analysis, to wit: [65]
Traditionally, equal protection supported only minimal judicial intervention in most
contexts. Ordinarily, the command of equal protection was only that government must
not impose differences in treatment except upon some reasonable differentiation fairly
related to the object of regulation. The old variety of equal protection scrutiny focused
solely on the means used by the legislature: it insisted merely that the classification in
the statute reasonably relates to the legislative purpose. Unlike substantive due
process, equal protection scrutiny was not typically concerned with identifying
fundamental values and restraining legislative ends. And usually the rational
classification requirement was readily satisfied: the courts did not demand a tight fit
between classification and purpose; perfect congruence between means and ends was
not required.
xxx xxx xxx
[From marginal intervention to major cutting edge: The Warren Courts new equal
protection and the two-tier approach.]
From its traditional modest role, equal protection burgeoned into a major
intervention tool during the Warren era, especially in the 1960s. The Warren Court
did not abandon the deferential ingredients of the old equal protection: in most areas of
economic and social legislation, the demands imposed by equal protection remained as
minimal as everBut the Court launched an equal protection revolution by finding large
new areas for strict rather than deferential scrutiny. A sharply differentiated two-tier
approach evolved by the late 1960s: in addition to the deferential old equal protection,
a new equal protection, connoting strict scrutiny, arose. The intensive review
associated with the new equal protection imposed two demands - a demand not only
as to means but also one as to ends. Legislation qualifying for strict scrutiny required
a far closer fit between classification and statutory purpose than the rough and ready
flexibility traditionally tolerated by the old equal protection: means had to be shown
necessary to achieve statutory ends, not merely reasonably related ones. Moreover,
equal protection became a source of ends scrutiny as well: legislation in the areas of
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Banking Law Cases
the new equal protection had to be justified by compelling state interests, not merely
the wide spectrum of legitimate state ends.
The Warren Court identified the areas appropriate for strict scrutiny by searching
for two characteristics: the presence of a suspect classification; or an impact on
fundamental rights or interests. In the category of suspect classifications, the Warren
Courts major contribution was to intensify the strict scrutiny in the traditionally
interventionist area of racial classifications. But other cases also suggested that there
might be more other suspect categories as well: illegitimacy and wealth for example.
But it was the fundamental interests ingredient of the new equal protection that proved
particularly dynamic, open-ended, and amorphous.. [Other fundamental interests
included voting, criminal appeals, and the right of interstate travel .]
xxx xxx xxx
The Burger Court and Equal Protection.
The Burger Court was reluctant to expand the scope of the new equal protection,
although its best established ingredient retains vitality. There was also mounting
discontent with the rigid two-tier formulations of the Warren Courts equal protection
doctrine. It was prepared to use the clause as an interventionist tool without resorting
to the strict language of the new equal protection. [Among the fundamental interests
identified during this time were voting and access to the ballot, while suspect
classifications included sex, alienage and illegitimacy.]
xxx xxx xxx
Even while the two-tier scheme has often been adhered to in form, there has also been
an increasingly noticeable resistance to the sharp difference between deferential old
and interventionist new equal protection. A number of justices sought formulations that
would blur the sharp distinctions of the two-tiered approach or that would narrow the
gap between strict scrutiny and deferential review. The most elaborate attack came
from Justice Marshall, whose frequently stated position was developed most
elaborately in his dissent in the Rodriguez case: [66]
The Court apparently seeks to establish [that] equal protection cases fall into one of
two neat categories which dictate the appropriate standard of review - strict scrutiny
or mere rationality. But this (sic) Courts [decisions] defy such easy categorization. A
principled reading of what this Court has done reveals that it has applied a spectrum of
standards in reviewing discrimination allegedly violative of the equal protection clause.
This spectrum clearly comprehends variations in the degree of care with which Court
will scrutinize particular classification, depending, I believe, on the constitutional and
societal importance of the interests adversely affected and the recognized invidiousness
of the basis upon which the particular classification is drawn.
Justice Marshalls sliding scale approach describes many of the modern decisions,
although it is a formulation that the majority refused to embrace. But the Burger
Courts results indicate at least two significant changes in equal protection
law: First,invocation of the old equal protection formula no longer signals, as it did
with the Warren Court, an extreme deference to legislative classifications and a
virtually automatic validation of challenged statutes. Instead, several cases, even while
voicing the minimal rationality hands-off standards of the old equal protection, proceed
to find the statute unconstitutional. Second, in some areas the modern Court has put
forth standards for equal protection review that, while clearly more intensive than the
deference of the old equal protection, are less demanding than the strictness of the new
equal protection. Sex discrimination is the best established example of an intermediate
level of review. Thus, in one case, the Court said that classifications by gender must
serve important governmental objectives and must be substantially related to
achievement of those objectives. That standard is intermediate with respect to both ends
and means: where ends must be compelling to survive strict scrutiny and merely
legitimate under the old mode, important objectives are required here; and where means
must be necessary under the new equal protection, and merely rationally related under
the old equal protection, they must be substantially related to survive the intermediate
level of review. (emphasis supplied, citations omitted)
B. Equal Protection
in Europe
The United Kingdom and other members of the European Community have
also gone forward in discriminatory legislation and jurisprudence. Within the United
Kingdom domestic law, the most extensive list of protected grounds can be found
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Banking Law Cases
in Article 14 of the European Convention on Human Rights (ECHR). It prohibits
discrimination on grounds such as sex, race, colour, language, religion, political or
other opinion, national or social origin, association with a national minority, property,
birth or other status. This list is illustrative and not exhaustive. Discrimination on the
basis of race, sex and religion is regarded as grounds that require strict scrutiny. A
further indication that certain forms of discrimination are regarded as particularly
suspect under the Covenant can be gleaned from Article 4, which, while allowing states
to derogate from certain Covenant articles in times of national emergency, prohibits
derogation by measures that discriminate solely on the grounds of race, colour,
language, religion or social origin.[67]
Moreover, the European Court of Human Rights has developed a test of
justification which varies with the ground of discrimination. In the Belgian
Linguistics case[68] the European Court set the standard of justification at a low level:
discrimination would contravene the Convention only if it had no legitimate aim, or
there was no reasonable relationship of proportionality between the means employed
and the aim sought to be realised.[69] But over the years, the European Court has
developed a hierarchy of grounds covered by Article 14 of the ECHR, a much
higher level of justification being required in respect of those regarded as suspect
(sex, race, nationality, illegitimacy, or sexual orientation) than of others. Thus,
in Abdulaziz, [70] the European Court declared that:
. . . [t]he advancement of the equality of the sexes is today a major goal in the member
States of the Council of Europe. This means that very weighty reasons would have to
be advanced before a difference of treatment on the ground of sex could be regarded as
compatible with the Convention.
And in Gaygusuz v. Austria,[71] the European Court held that very weighty
reasons would have to be put forward before the Court could regard a difference of
treatment based exclusively on the ground of nationality as compatible with the
Convention.[72]The European Court will then permit States a very much narrower
margin of appreciation in relation to discrimination on grounds of sex, race, etc., in
the application of the Convention rights than it will in relation to distinctions drawn by
states between, for example, large and small land-owners. [73]
C. Equality under
International Law
The principle of equality has long been recognized under international law. Article
1 of the Universal Declaration of Human Rights proclaims that all human beings
are born free and equal in dignity and rights. Non-discrimination, together with
equality before the law and equal protection of the law without any discrimination,
constitutes basic principles in the protection of human rights. [74]
Most, if not all, international human rights instruments include some
prohibition on discrimination and/or provisions about equality.[75] The general
international provisions pertinent to discrimination and/or equality are the International
Covenant on Civil and Political Rights (ICCPR);[76] the International Covenant on
Economic, Social and Cultural Rights (ICESCR); the International Convention on the
Elimination of all Forms of Racial Discrimination (CERD);[77] the Convention on the
Elimination of all Forms of Discrimination against Women (CEDAW); and the
Convention on the Rights of the Child (CRC).
In the broader international context, equality is also enshrined in regional
instruments such as the American Convention on Human Rights;[78] the African
Charter on Human and People's Rights;[79] the European Convention on Human
Rights;[80] the European Social Charter of 1961 and revised Social Charter of 1996; and
the European Union Charter of Rights (of particular importance to European states).
Even the Council of the League of Arab States has adopted the Arab Charter on Human
Rights in 1994, although it has yet to be ratified by the Member States of the League.[81]
The equality provisions in these instruments do not merely function as
traditional "first generation" rights, commonly viewed as concerned only with
constraining rather than requiring State action. Article 26 of the ICCPR requires
guarantee[s] of equal and effective protection against discrimination while Articles 1
and 14 of the American and European Conventions oblige States Parties to ensure ...
the full and free exercise of [the rights guaranteed] ... without any discrimination and
to secure without discrimination the enjoyment of the rights guaranteed.[82] These
provisions impose a measure of positive obligation on States Parties to take steps to
eradicate discrimination.
In the employment field, basic detailed minimum standards ensuring equality and
prevention of discrimination, are laid down in the ICESCR[83] and in a very large
number of Conventions administered by the International Labour Organisation, a
United Nations body. [84] Additionally, many of the other international and regional
human rights instruments have specific provisions relating to employment.[85]
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Banking Law Cases

The United Nations Human Rights Committee has also gone beyond the and in consonance with the progressive trend of other jurisdictions and in
earlier tendency to view the prohibition against discrimination (Article 26) as international law. There should be no hesitation in using the equal protection clause
confined to the ICCPR rights.[86] In Broeks[87] and Zwaan-de Vries,[88] the issue as a major cutting edge to eliminate every conceivable irrational discrimination in our
before the Committee was whether discriminatory provisions in the Dutch society. Indeed, the social justice imperatives in the Constitution, coupled with the
Unemployment Benefits Act (WWV) fell within the scope of Article 26. The Dutch special status and protection afforded to labor, compel this approach.[92]
government submitted that discrimination in social security benefit provision was not
Apropos the special protection afforded to labor under our Constitution and
within the scope of Article 26, as the right was contained in the ICESCR and not the
international law, we held in International School Alliance of Educators v.
ICCPR. They accepted that Article 26 could go beyond the rights contained in the
Quisumbing: [93]
Covenant to other civil and political rights, such as discrimination in the field of
taxation, but contended that Article 26 did not extend to the social, economic, and
That public policy abhors inequality and discrimination is beyond contention. Our
cultural rights contained in ICESCR. The Committee rejected this argument. In its
Constitution and laws reflect the policy against these evils. The Constitution in the
view, Article 26 applied to rights beyond the Covenant including the rights in other
Article on Social Justice and Human Rights exhorts Congress to "give highest priority
international treaties such as the right to social security found in ICESCR:
to the enactment of measures that protect and enhance the right of all people to human
dignity, reduce social, economic, and political inequalities." The very broad Article 19
Although Article 26 requires that legislation should prohibit discrimination, it does not
of the Civil Code requires every person, "in the exercise of his rights and in the
of itself contain any obligation with respect to the matters that may be provided for by
performance of his duties, [to] act with justice, give everyone his due, and observe
legislation. Thus it does not, for example, require any state to enact legislation to
honesty and good faith."
provide for social security. However, when such legislation is adopted in the exercise
of a State's sovereign power, then such legislation must comply with Article 26 of the
International law, which springs from general principles of law, likewise proscribes
Covenant.[89]
discrimination. General principles of law include principles of equity, i.e., the general
principles of fairness and justice, based on the test of what is reasonable. The Universal
Breaches of the right to equal protection occur directly or indirectly. A
Declaration of Human Rights, the International Covenant on Economic, Social, and
classification may be struck down if it has the purpose or effect of violating the right
Cultural Rights, the International Convention on the Elimination of All Forms of Racial
to equal protection. International law recognizes that discrimination may occur
Discrimination, the Convention against Discrimination in Education, the Convention
indirectly, as the Human Rights Committee[90] took into account the definitions of
(No. 111) Concerning Discrimination in Respect of Employment and Occupation - all
discrimination adopted by CERD and CEDAW in declaring that:
embody the general principle against discrimination, the very antithesis of fairness and
justice. The Philippines, through its Constitution, has incorporated this principle as part
. . . discrimination as used in the [ICCPR] should be understood to imply any
of its national laws.
distinction, exclusion, restriction or preference which is based on any ground such
as race, colour, sex, language, religion, political or other opinion, national or social
In the workplace, where the relations between capital and labor are often skewed in
origin, property, birth or other status, and which has the purpose or effect of
favor of capital, inequality and discrimination by the employer are all the more
nullifying or impairing the recognition, enjoyment or exercise by all persons, on an
reprehensible.
equal footing, of all rights and freedoms. [91] (emphasis supplied)
The Constitution specifically provides that labor is entitled to "humane conditions of
Thus, the two-tier analysis made in the case at bar of the challenged provision,
work." These conditions are not restricted to the physical workplace - the factory, the
and its conclusion of unconstitutionality by subsequent operation, are in cadence
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office or the field - but include as well the manner by which employers treat their
employees.
The Constitution also directs the State to promote "equality of employment
opportunities for all." Similarly, the Labor Code provides that the State shall "ensure
equal work opportunities regardless of sex, race or creed." It would be an affront to
both the spirit and letter of these provisions if the State, in spite of its primordial
obligation to promote and ensure equal employment opportunities, closes its eyes to
unequal and discriminatory terms and conditions of employment.
xxx xxx xxx
Notably, the International Covenant on Economic, Social, and Cultural Rights, in
Article 7 thereof, provides:
The States Parties to the present Covenant recognize the right of everyone to the
enjoyment of just and [favorable] conditions of work, which ensure, in particular:
a. Remuneration which provides all workers, as a minimum, with:
i. Fair wages and equal remuneration for work of equal value without
distinction of any kind, in particular women being guaranteed
conditions of work not inferior to those enjoyed by men, with
equal pay for equal work;
xxx xxx xxx
The foregoing provisions impregnably institutionalize in this jurisdiction the long
honored legal truism of "equal pay for equal work." Persons who work with
substantially equal qualifications, skill, effort and responsibility, under similar
conditions, should be paid similar salaries. (citations omitted)
Congress retains its wide discretion in providing for a valid classification, and its
policies should be accorded recognition and respect by the courts of justice except when
they run afoul of the Constitution.[94] The deference stops where the classification
violates a fundamental right, or prejudices persons accorded special protection by
the Constitution. When these violations arise, this Court must discharge its primary
role as the vanguard of constitutional guaranties, and require a stricter and more
exacting adherence to constitutional limitations. Rational basis should not suffice.
Admittedly, the view that prejudice to persons accorded special protection by the
Constitution requires a stricter judicial scrutiny finds no support in American or English
jurisprudence. Nevertheless, these foreign decisions and authorities are not per
se controlling in this jurisdiction. At best, they are persuasive and have been used to
support many of our decisions.[95] We should not place undue and fawning reliance
upon them and regard them as indispensable mental crutches without which we cannot
come to our own decisions through the employment of our own endowments. We live
in a different ambience and must decide our own problems in the light of our own
interests and needs, and of our qualities and even idiosyncrasies as a people, and always
with our own concept of law and justice.[96] Our laws must be construed in accordance
with the intention of our own lawmakers and such intent may be deduced from the
language of each law and the context of other local legislation related thereto. More
importantly, they must be construed to serve our own public interest which is the be-
all and the end-all of all our laws. And it need not be stressed that our public interest is
distinct and different from others.[97]
In the 2003 case of Francisco v. House of Representatives, this Court has stated
that: [A]merican jurisprudence and authorities, much less the American Constitution,
are of dubious application for these are no longer controlling within our jurisdiction
and have only limited persuasive merit insofar as Philippine constitutional law is
concerned....[I]n resolving constitutional disputes, [this Court] should not be beguiled
by foreign jurisprudence some of which are hardly applicable because they have been
dictated by different constitutional settings and needs.[98] Indeed, although the
Philippine Constitution can trace its origins to that of the United States, their paths of
development have long since diverged. [99]
Further, the quest for a better and more equal world calls for the use of equal
protection as a tool of effective judicial intervention.
Equality is one ideal which cries out for bold attention and action in the Constitution.
The Preamble proclaims equality as an ideal precisely in protest against crushing
inequities in Philippine society. The command to promote social justice in Article II,
Section 10, in all phases of national development, further explicitated in Article XIII,
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are clear commands to the State to take affirmative action in the direction of greater
equality. [T]here is thus in the Philippine Constitution no lack of doctrinal support for
a more vigorous state effort towards achieving a reasonable measure of equality.[100]
Our present Constitution has gone further in guaranteeing vital social and
economic rights to marginalized groups of society, including labor.[101] Under the
policy of social justice, the law bends over backward to accommodate the interests of
the working class on the humane justification that those with less privilege in life
should have more in law.[102] And the obligation to afford protection to labor is
incumbent not only on the legislative and executive branches but also on the judiciary
to translate this pledge into a living reality.[103] Social justice calls for the humanization
of laws and the equalization of social and economic forces by the State so that justice
in its rational and objectively secular conception may at least be approximated.[104]
V.
A Final Word
Finally, concerns have been raised as to the propriety of a ruling voiding the
challenged provision. It has been proffered that the remedy of petitioner is not with this
Court, but with Congress, which alone has the power to erase any inequity perpetrated
by R.A. No. 7653. Indeed, a bill proposing the exemption of the BSP rank-and-file
from the SSL has supposedly been filed.
Under most circumstances, the Court will exercise judicial restraint in deciding
questions of constitutionality, recognizing the broad discretion given to Congress in
exercising its legislative power. Judicial scrutiny would be based on the rational basis
test, and the legislative discretion would be given deferential treatment. [105]
But if the challenge to the statute is premised on the denial of a fundamental
right, or the perpetuation of prejudice against persons favored by the Constitution
with special protection, judicial scrutiny ought to be more strict. A weak and
watered down view would call for the abdication of this Courts solemn duty to strike
down any law repugnant to the Constitution and the rights it enshrines. This is true
whether the actor committing the unconstitutional act is a private person or the
government itself or one of its instrumentalities. Oppressive acts will be struck down
regardless of the character or nature of the actor. [106]
Accordingly, when the grant of power is qualified, conditional or subject to limitations,
the issue on whether or not the prescribed qualifications or conditions have been met,
or the limitations respected, is justiciable or non-political, the crux of the problem being
one of legality or validity of the contested act, not its wisdom. Otherwise, said
qualifications, conditions or limitations - particularly those prescribed or imposed by
the Constitution - would be set at naught. What is more, the judicial inquiry into such
issue and the settlement thereof are the main functions of courts of justice under the
Presidential form of government adopted in our 1935 Constitution, and the system of
checks and balances, one of its basic predicates. As a consequence, We have neither
the authority nor the discretion to decline passing upon said issue, but are under
the ineluctable obligation - made particularly more exacting and peremptory by
our oath, as members of the highest Court of the land, to support and defend the
Constitution - to settle it. This explains why, in Miller v. Johnson, it was held that
courts have a "duty, rather than a power", to determine whether another branch of the
government has "kept within constitutional limits." Not satisfied with this postulate,
the court went farther and stressed that, if the Constitution provides how it may be
amended - as it is in our 1935 Constitution - "then, unless the manner is followed, the
judiciary as the interpreter of that constitution, will declare the amendment invalid." In
fact, this very Court - speaking through Justice Laurel, an outstanding authority on
Philippine Constitutional Law, as well as one of the highly respected and foremost
leaders of the Convention that drafted the 1935 Constitution - declared, as early as July
15, 1936, that "(i)n times of social disquietude or political excitement, the great
landmarks of the Constitution are apt to be forgotten or marred, if not entirely
obliterated. In cases of conflict, the judicial department is the only constitutional organ
which can be called upon to determine the proper allocation of powers between the
several departments" of the government.[107] (citations omitted; emphasis supplied)
In the case at bar, the challenged proviso operates on the basis of the salary grade
or officer-employee status. It is akin to a distinction based on economic class and
status, with the higher grades as recipients of a benefit specifically withheld from the
lower grades. Officers of the BSP now receive higher compensation packages that are
competitive with the industry, while the poorer, low-salaried employees are limited to
the rates prescribed by the SSL. The implications are quite disturbing: BSP rank-and-
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file employees are paid the strictly regimented rates of the SSL while employees higher
in rank - possessing higher and better education and opportunities for career
advancement - are given higher compensation packages to entice them to
stay. Considering that majority, if not all, the rank-and-file employees consist of
people whose status and rank in life are less and limited, especially in terms of job
marketability, it is they - and not the officers - who have the real economic and
financial need for the adjustment This is in accord with the policy of the Constitution
"to free the people from poverty, provide adequate social services, extend to them a
decent standard of living, and improve the quality of life for all.[108] Any act of
Congress that runs counter to this constitutional desideratum deserves strict
scrutiny by this Court before it can pass muster.
To be sure, the BSP rank-and-file employees merit greater concern from this
Court. They represent the more impotent rank-and-file government employees who,
unlike employees in the private sector, have no specific right to organize as a collective
bargaining unit and negotiate for better terms and conditions of employment, nor the
power to hold a strike to protest unfair labor practices. Not only are they impotent as a
labor unit, but their efficacy to lobby in Congress is almost nil as R.A. No. 7653
effectively isolated them from the other GFI rank-and-file in compensation. These BSP
rank-and-file employees represent the politically powerless and they should not
be compelled to seek a political solution to their unequal and iniquitous
treatment. Indeed, they have waited for many years for the legislature to act. They
cannot be asked to wait some more for discrimination cannot be given any waiting time.
Unless the equal protection clause of the Constitution is a mere platitude, it is the Courts
duty to save them from reasonless discrimination.
IN VIEW WHEREOF, we hold that the continued operation and implementation
of the last proviso of Section 15(c), Article II of Republic Act No. 7653 is
unconstitutional.

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CENTRAL BANK OF G.R. No. 141835 On July 15, 1977, Flores presented for payment to petitioners Senior Teller
THE PHILIPPINES,
Petitioner, Present: Iluminada dela Cruz (Iluminada) two Citytrust checks of even date, payable to
Citytrust, one in the amount of P850,000 and the other in the amount of P900,000, both
CARPIO MORALES,* J., Acting of which were signed and indorsed by Citytrusts authorized signatory-drawers.
Chairperson,
- versus - TINGA,
NAZARIO, After the checks were certified by petitioners Accounting Department,
NACHURA,** and Iluminada verified them, prepared the cash transfer slip on which she affixed her
BRION, JJ. signature, stamped the checks with the notation Received Payment and asked Flores to,
CITYTRUST BANKING
CORPORATION, as he did, sign on the space above such notation. Instead of signing his name,
Respondent. Promulgated: however, Flores signed as Rosauro C. Cayabyab a fact Iluminada failed to notice.
February 4, 2009
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
Iluminada thereupon sent the cash transfer slip and checks to petitioners Cash
DECISION Department where an officer verified and compared the drawers signatures on the
checks against their specimen signatures provided by Citytrust, and finding the same
CARPIO MORALES, J.: in order, approved the cash transfer slip and paid the corresponding amounts to
Pursuant to Republic Act No. 625, the old Central Bank Law, respondent Flores. Petitioner then debited the amount of the checks totaling P1,750,000 from
Citytrust Banking Corporation (Citytrust), formerly Feati Bank, maintained a demand Citytrusts demand deposit account.
deposit account with petitioner Central Bank of the Philippines, now Bangko Sentral
ng Pilipinas. More than a year and nine months later, Citytrust, by letter dated April 23, 1979,
alleging that the checks were already cancelled because they were stolen, demanded
As required, Citytrust furnished petitioner with the names and corresponding petitioner to restore the amounts covered thereby to its demand deposit
signatures of five of its officers authorized to sign checks and serve as drawers and account.Petitioner did not heed the demand, however.
indorsers for its account. And it provided petitioner with the list and corresponding
signatures of its roving tellers authorized to withdraw, sign receipts and perform other Citytrust later filed a complaint for estafa, with reservation on the filing of a
transactions on its behalf. Petitioner later issued security identification cards to the separate civil action, against Flores. Flores was convicted.
roving tellers one of whom was Rounceval Flores (Flores).

68
Banking Law Cases
Citytrust thereafter filed before the Regional Trial Court (RTC) of Manila a
complaint for recovery of sum of money with damages against petitioner which it
alleged erred in encashing the checks and in charging the proceeds thereof to its
account, despite the lack of authority of Rosauro C. Cayabyab.
By Decision[1] of November 13, 1991, Branch 32 of the RTC of Manila found
both Citytrust and petitioner negligent and accordingly held them equally liable for the
loss. Both parties appealed to the Court of Appeals which, by Decision[2]dated July 16,
1999, affirmed the trial courts decision, it holding that both parties contributed equally
to the fraudulent encashment of the checks, hence, they should equally share the loss
in consonance with Article 2179[3] vis a vis Article 1172[4] of the Civil Code.
In arriving at its Decision, the appellate court noted that while Citytrust failed
to take adequate precautionary measures to prevent the fraudulent encashment of its
checks, petitioner was not entirely blame-free in light of its failure to verify the
signature of Citytrusts agent authorized to receive payment.
Brushing aside petitioners contention that it cannot be sued, the appellate court
held that petitioners Charter specifically clothes it with the power to sue and be sued.
Also brushing aside petitioners assertion that Citytrusts reservation of the filing
of a separate civil action against Flores precluded Citytrust from filing the civil action
against it, the appellate court held that the action for the recovery of sum of money is
separate and distinct and is grounded on a separate cause of action from that of the
criminal case for estafa.
Hence, the present appeal, petitioner maintaining that Flores having been an
authorized roving teller, Citytrust is bound by his acts. Also maintaining that it was not
negligent in releasing the proceeds of the checks to Flores, the failure of its teller to
properly verify his signature notwithstanding, petitioner contends that verification
could be dispensed with, Flores having been known to be an authorized roving teller of
Citytrust who had had numerous transactions with it (petitioner) on its (Citytrusts)
behalf for five years prior to the questioned transaction.
Attributing negligence solely to Citytrust, petitioner harps on Citytrusts
allowing Flores to steal the checks and failing to timely cancel them; allowing Flores
to wear the issued identification card issued by it (petitioner); failing to report Flores
absence from work on the day of the incident; and failing to explain the circumstances
surrounding the supposed theft and cancellation of the checks.
Drawing attention to Citytrusts considerable delay in demanding the restoration
of the proceeds of the checks, petitioners argue that, assuming arguendo that its teller
was negligent, Citytrusts negligence, which preceded that committed by the teller, was
the proximate cause of the loss or fraud.
The petition is bereft of merit.
Petitioners teller Iluminada did not verify Flores signature on the flimsy excuse
that Flores had had previous transactions with it for a number of years. That
circumstance did not excuse the teller from focusing attention to or at least glancing at
Flores as he was signing, and to satisfy herself that the signature he had just affixed
matched that of his specimen signature. Had she done that, she would have readily been
put on notice that Flores was affixing, not his but a fictitious signature.
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Banking Law Cases
Given that petitioner is the government body mandated to supervise and
regulate banking and other financial institutions, this Courts ruling in Consolidated
Bank and Trust Corporation v. Court of Appeals[5] illumines:
The contract between the bank and its depositor is governed by
the provisions of the Civil Code on simple loan. Article 1980 of the Civil
Code expressly provides that x x x savings x x x deposits of money in
banks and similar institutions shall be governed by the provisions
concerning simple loan. There is a debtor-creditor relationship between
the bank and its depositor. The bank is the debtor and the depositor is
the creditor. The depositor lends the bank money and the bank agrees to
pay the depositor on demand. The savings deposit agreement between
the bank and the depositor is the contract that determines the rights and
obligations of the parties.
The law imposes on banks high standards in view of the
fiduciary nature of banking. Section 2 of Republic Act No. 8791 (RA
8791), which took effect on 13 June 2000, declares that the State
recognizes the fiduciary nature of banking that requires high standards
of integrity and performance. This new provision in the general banking
law, introduced in 2000, is a statutory affirmation of Supreme Court
decisions, starting with the 1990 case of Simex International v. Court of
Appeals, holding that the bank is under obligation to treat the accounts
of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship.
This fiduciary relationship means that the banks obligation
to observe high standards of integrity and performance is deemed
written into every deposit agreement between a bank and its
depositor. The fiduciary nature of banking requires banks
to assume a degree of diligence higher than that of a good father of
a family. Article 1172 of the Civil Code states that the degree of
diligence required of an obligor is that prescribed by law or contract,
and absent such stipulation then the diligence of a good father of a
family. Section 2 of RA 8791 prescribes the statutory diligence required
from banks that banks must observe high standards of integrity and
performance in servicing their depositors. Although RA 8791 took
effect almost nine years after the unauthorized withdrawal of
the P300,000 from L.C. Diazs savings account, jurisprudence at the
time of the withdrawal already imposed on banks the same high
standard of diligence required under RA No. 8791. (Emphasis
supplied)
Citytrusts failure to timely examine its account, cancel the checks and notify
petitioner of their alleged loss/theft should mitigate petitioners liability, in accordance
with Article 2179 of the Civil Code which provides that if the plaintiffs negligence was
only contributory, the immediate and proximate cause of the injury being the
defendants lack of due care, the plaintiff may recover damages, but the courts shall
mitigate the damages to be awarded. For had Citytrust timely discovered the loss/theft
and/or subsequent encashment, their proceeds or part thereof could have been
recovered.
In line with the ruling in Consolidated Bank, the Court deems it proper to
allocate the loss between petitioner and Citytrust on a 60-40 ratio.
WHEREFORE, the assailed Court of Appeals Decision of July 16, 1999 is
hereby AFFIRMED with MODIFICATION, in that petitioner and Citytrust should
bear the loss on a 60-40 ratio.
SO ORDERED.
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Banking Law Cases

Chowking Food Corporation (Chowking) the amount corresponding to five (5)

PHILIPPINE SAVINGS BANK, G.R. No. 177526 illegally encashed checks.
Petitioner,
Present: The Facts
YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ, Between March 15, 1989 and August 10, 1989, Joe Kuan Food Corporation issued in
CHICO-NAZARIO, favor of Chowking five (5) PSBank checks with the following numbers, dates and
NACHURA, and denominations:
REYES, JJ.

CHOWKING FOOD Promulgated: Check No. Amount Date

CORPORATION, 017069 P 44,120.00 15 March 1989
Respondent. July 4, 2008 053528 P135,052.87 09 May 1989
074602 P160,138.12 08 August 1989
x--------------------------------------------------x 074631 P159,634.13 08 August 1989
017096 P 60,036.74 10 August 1989[2]
DECISION
The total amount of the subject checks reached P556,981.86.
REYES, R.T., J.:
On the respective due dates of each check, Chowkings acting accounting manager,
Rino T. Manzano, endorsed and encashed said checks with the Bustos branch
IT is the peculiar quality of a fool to perceive the fault of others and to forget his
of respondent PSBank.[3]
own. Ang isang kakatuwang katangian ng isang hangal ay punahin ang kamalian
ng iba at kalimutan naman ang sa kanya.
All the five checks were honored by defendant Santos, even with only the endorsement
of Manzano approving them. The signatures of the other authorized officers
This is a petition for review on certiorari of the Decision[1] of the Court of Appeals
of respondent corporation were absent in the five (5) checks, contrary to usual banking
(CA) reinstating the Decision of the Regional Trial Court
practice.[4] Unexpectedly, Manzano absconded with and misappropriated the check
(RTC), Manila, Branch 5. The RTC ordered petitioner Philippine Savings Bank
proceeds.[5]
(PSBank) and its Bustos Branch Head, Erlinda O. Santos, to reimburse respondent

71
Banking Law Cases
When Chowking found out Manzanos scheme, it demanded reimbursement from
PSBank.[6] When PSBank refused to pay, Chowking filed a complaint[7] for a sum of
money with damages before the RTC. Likewise impleaded were PSBankspresident,
Antonio S. Abacan, and Bustos branch head, Santos.[8]
Both PSBank and Santos filed cross claims and third party complaints against
[9]
Manzano. Despite all diligent efforts, summonses were not served upon third party
defendant Manzano. Santos did not take any further action and her third party
complaint was archived.[10]
Meanwhile, petitioner caused the service of its summons on the cross-claim and third
party complaints through publication. On its subsequent motion, Manzano was
declared in default for failure to file a responsive pleading.[11]
Respondent filed a motion for summary judgment. Petitioner opposed the
motion. On February 1, 1995, the trial court denied the motion via an order of even
date.[12]
In its Answer, petitioner did not controvert the foregoing facts, but denied liability to
respondent for the encashed checks.[13] Petitioner bank maintained it exercised due
diligence in the supervision of all its employees. It even dismissed
defendant Santos after she was found guilty of negligence in the performance of her
duties.[14]
Defendant Santos, on the other hand, denied that she had been negligent in her job. She
averred that she merely followed the banks practice of honoring respondents checks
even if accompanied only by Manzanos endorsement.[15]
Defendant Abacan likewise denied any liability to respondent. He alleged that, as
president and officer of petitioner bank, he played no role in the transactions
complained of.[16] Thus, respondent has no cause of action against him.
Petitioner, Santos and Abacan were unanimous in asserting that respondent is
estopped from claiming reimbursement and damages since it was negligent in allowing
Manzano to take hold, endorse, and encash its checks. Petitioner pointed out that the
proximate cause of respondents loss was its own negligence.[17]
RTC Disposition
On August 24, 1998, the RTC rendered judgment in favor of respondent, the
dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of plaintiff and as against defendant Philippine Savings Bank and
Erlinda O. Santos ordering the said defendants to pay plaintiff, jointly
and severally:
1. The amount of P556,981.86 plus interest at the rate of
12% per annum from August 15, 1989 until said
amount shall have been paid;
2. 20% of the total amount due plaintiff as attorneys fees;
3. The sum of P100,000.00 as exemplary damages;
4. The sum of P1,000,000.00 for plaintiffs unrealized
profits.
The complaint with respect to defendant Antonio Abacan, Jr. as
well as his counterclaim and cross claim are hereby DISMISSED.
72
Banking Law Cases

With respect to the cross claim of defendant PSBank against c. To pay an amount of P100,000.00 the
Erlinda Santos and its third-party complaint against Rino T. Manzano, plaintiff for actual and compensatory
both Santos and Manzano are hereby ordered to jointly and severally, damages, plus the costs of this suit.
reimburse defendant PSBank whatever amount the latter shall be
constrained to pay plaintiff in connection with this case. SO ORDERED.[19]

SO ORDERED.[18]
Dissatisfied with the modified ruling of the RTC, respondent appealed to the CA.

CA Disposition
Aggrieved, petitioner filed a motion for reconsideration. Through an Order
dated January 11, 1999, the RTC reversed its earlier ruling and held that it was
In its appeal, respondent Chowking contended, inter alia, that the RTC erred in
respondents own negligence that was the proximate cause of the loss. The fallo of the
ruling that the proximate cause of the loss was its own negligence; and that its claim
amended RTC decision now reads:
was barred by estoppel.
In light of the foregoing grounds and observations, the Decision
of August 24, 1998, by this Court is accordingly modified as follows:

1. Ordering the dismissal of the complaint by the

plaintiff Chowking Food Corporation against the
defendants, Philippine Savings Bank (PSBank) and
Erlinda Santos for lack of basis in fact and law;
2. Ordering the third party defendant, Regino or Rino T.
Manzano to pay the plaintiff Chowking Food
Corporation, the following:
On January 31, 2007, the CA granted the appeal, disposing as follows:
WHEREFORE, the instant appeal is GRANTED. The order
appealed from is hereby SET ASIDE and the 24 August 1998 decision
is consequently REINSTATED with modification that the awards of
attorneys fees, exemplary damages, and alleged P1,000,000.00
unrealized profits of the appellant are DELETED.

a. To reimburse the plaintiff the amount IT IS SO ORDERED.[20]

of P556,981.86 plus interest at the rate of
12% per annum from August 15, 1989, The CA held that both petitioner PSBank and Santos should bear the loss. Said
until said amount has been fully satisfied;
the appellate court:
b. To pay an attorneys fee equivalent to 20% of
the total amount due the plaintiff; It is admitted that PSB cashed, over the counter, the checks of
the appellant indorsed by Manzano alone. Since there is no more dispute
73
Banking Law Cases
on the negligent act of Santos in honoring the appellants checks, over
the counter, despite the proper indorsements, the categorical finding of
negligence against her, remaining unrebutted, is deemed
established. This in effect warrants a finding that Santos is liable for
damages to the appellant. The lower court therefore erred in dismissing
the complaint against her.[21]
Further, the CA held that:
Contrary to PSBs contention that it should not be held liable
because it neither consented to nor had knowledge of Santos (sic)
violations, such liability of Santos is solidary with PSB pursuant to
Article 2176 in relation to Article 2180 of the Civil Code which states:
Art. 2176. Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to pay
for the damage done....
Art. 2180. The obligation imposed by Art. 2176 is
demandable not only for one's own acts or omissions but
also for those of persons for whom one is responsible.
xxxx
Employers shall be liable for the damage caused by their
employees and household helpers acting within the
scope of their assigned tasks even though the former are
not engaged in any business or activity.
xxxx
The responsibility treated of in this article shall cease
when the persons herein mentioned prove that they
observed all the diligence of a good father of a family to
prevent damage.
x x x However, with banks like PSB, the degree of diligence required is
more than that of a good father of a family considering that the business
of banking is imbued with public interest due to the nature of its
functions. Highest degree of diligence is needed which PSB, in this
case, failed to observe.
x x x Its argument that it should no be held responsible for the negligent
acts of Santos because those were independent acts x x x perpetrated
without its knowledge and consent is without basis in fact and in
law. Assuming that PSB did not err in hiring Santos for her position, its
lack of supervision over her made it solidarily liable for the
unauthorized encashment of the checks involved. In the supervision of
employees, the employer must formulate standard operating procedures,
monitor their implementation and impose disciplinary measures for the
breach thereof. The appellee, in this case, presented no evidence that it
formulated rules/guidelines for the proper performance of functions of
its employees and that it strictly implemented and monitored
compliance therewith. x x x[22]
The CA also disagreed with petitioners contention that respondents own negligence
was the proximate cause of its loss. The CA opined that even assuming that respondent
was also negligent in allowing Manzano to encash its checks, petitioner had the last
clear chance to avert injury and loss to respondent. This could have been done if
petitioner, through Santos, faithfully and carefully observed its encashment rules and
procedures.
The CA ratiocinated:
x x x Had Santos not been remiss in verifying the indorsements of the
checks involved, she would not have cashed the same because Manzano,
whose only signature appears therein, is apparently not an authorized
signatory of the appellant x x x had every means to determine the
validity of those indorsements but for one reason or another she was
neglectful of her duty x x x as admitted by PSB, such over the counter
74
Banking Law Cases
encashments are not even sanctioned by its policies but Santos simply
ignored the same. It appears clear that Santos let the opportunity slip by
when an exercise of ordinary prudence expected of bank employees
would have sufficed to prevent the loss.[23]
Issues
Petitioner has resorted to the present recourse and assigns to the CA the
following errors:
I subsequently attempts to assert; (b) intent, or at least expectation that
THE HONORABLE COURT OF APPEALS ERRED IN NOT
RULING THAT RESPONDENT WAS ESTOPPED FROM
ASSERTING ITS CLAIM AGAINST PETITIONER.
II
THE HONORABLE COURT OF APPEALS ERRED WHEN IT DID
NOT RULE THAT RESPONDENT'S NEGLIGENCE WAS THE
PROXIMATE CAUSE OF ITS OWN LOSS. (Underscoring supplied)
Our Ruling
The doctrine of equitable estoppel or estoppel in pais finds no application in the
present case. The equitable doctrine of estoppel was explained by this Court in Caltex
(Philippines), Inc. v. Court of Appeals:[24]
Under the doctrine of estoppel, an admission or representation is
rendered conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon. A party may not go
back on his own acts and representations to the prejudice of the other
party who relied upon them. In the law of evidence, whenever a party
has, by his own declaration, act, or omission, intentionally and
deliberately led another to believe a particular thing true, to act upon
such belief, he cannot, in any litigation arising out of such declaration,
act, or omission, be permitted to falsify it.[25]
The principle received further elaboration in Maneclang v. Baun:[26]
In estoppel by pais, as related to the party sought to be estopped,
it is necessary that there be a concurrence of the following requisites: (a)
conduct amounting to false representation or concealment of material
facts or at least calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party
this conduct shall be acted upon, or at least influenced by the other party;
and (c) knowledge, actual or constructive of the actual facts.[27]
Estoppel may vary somewhat in definition, but all authorities agree that a party
invoking the doctrine must have been misled to ones prejudice. That is the final and, in
reality, most important of the elements of equitable estoppel.[28] It is this element that
is lacking here.
We agree with the CA that Chowking did not make any false representation or
concealment of material facts in relation to the encashments of the previous checks. As
adverted to earlier, respondent may have allowed Manzano to previously encash its
checks, but it has always been accompanied with the endorsements of the other
authorized signatories. Respondent did not allow petitioner to have its
checks encashed without the signature of all of its authorized signatories.
The CA pointed out:
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Banking Law Cases
We find at the back of those checks, whereon indorsement
usually appears, the signature of Manzano together with other
signature/signatures though mostly are illegible. It appears then that,
assuming the appellant impliedly tolerated the act of Manzano in
indorsing the checks, it did not allow Manzano alone to indorse its
checks as what actually happened in this case because his previous
indorsements were coupled with other indorsements of the
appellants signatories. There is, therefore, no sufficient evidence to
sustain PSBs submission.On this score alone, the defense of estoppel
must fail.[29] (Underscoring and emphasis supplied)
Neither can estoppel be appreciated in relation to petitioner itself. In Kalalo v.
Luz,[30] the Court enumerated the elements of estoppel in this wise:
x x x As related to the party claiming the estoppel, the essential
elements are (1) lack of knowledge and of the means of knowledge of
the truth as the facts in question; (2) reliance, in good faith, upon the
conduct and statements of the party to be estopped; (3) action or inaction
based thereon of such character as to change the position or status of the
party claiming the estoppel, to his injury, detriment or prejudice.[31]
Here, the first two elements are wanting. Petitioner has knowledge of the truth and the
means to it as to the proper endorsements necessary in encashing respondents
checks. Respondent has an account with petitioner bank and, as such, is privy to the
proper signatories to endorse respondents checks.
Neither can petitioner claim good faith.
It is elementary that estoppel cannot be sustained in doubtful inference. Absent the
conclusive proof that its essential elements are present, estoppel must fail. Because
estoppel, when misapplied, becomes a most effective weapon to accomplish an
injustice, inasmuch as it shuts a mans mouth from speaking the truth.[32]
Petitioner failed to prove that it has observed the due diligence required of banks
under the law. Contrary to petitioners view, its negligence is the proximate cause of
respondents loss.
It cannot be over emphasized that the banking business is impressed with public
interest. Of paramount importance is the trust and confidence of the public in general
in the banking industry. Consequently, the diligence required of banks is more than that
of a Roman pater familias or a good father of a family.[33] The highest degree of
diligence is expected.[34]
In its declaration of policy, the General Banking Law of 2000[35] requires of
banks the highest standards of integrity and performance. Needless to say, a bank is
under obligation to treat the accounts of its depositors with meticulous care.[36] The
fiduciary nature of the relationship between the bank and the depositors must always
be of paramount concern.[37]
Petitioner, through Santos, was clearly negligent when it honored respondents
checks with the lone endorsement of Manzano. In the similar case of Philippine Bank
of Commerce v. Court of Appeals,[38] an employee of Rommels Marketing Corporation
(RMC) was able to illegally deposit in a different account the checks of the
76
Banking Law Cases
corporation. This Court found that it was the bank tellers failure to exercise
extraordinary diligence to validate the deposit slips that caused the crime to be
perpetrated.
The Court held thus:
Negligence here lies not only on the part of Ms. Mabayad but also on
the part of the bank itself in its lackadaisical selection and supervision
of Ms. Mabayad. This was exemplified in the testimony of Mr. Romeo
Bonifacio, then Manager of the Pasig Branch of the petitioner bank and
now its Vice-President, to the effect that, while he ordered the
investigation of the incident, he never came to know that blank deposit
slips were validated in total disregard of the bank's validation
procedures, viz.:
Q: Did he ever tell you that one of your cashiers affixed
the stamp mark of the bank on the deposit slips and
they validated the same with the machine, the fact
that those deposit slips were unfilled up, is there any
report similar to that?
A: No, it was not the cashier but the teller.
Q: The teller validated the blank deposit slip?
A: No it was not reported.
Q: You did not know that any one in the bank tellers or
cashiers validated the blank deposit slip?
A: I am not aware of that.
Q: It is only now that you are aware of that?
A: Yes, Sir.
xxxx
It was this negligence x x x coupled by the negligence of the
petitioner bank in the selection and supervision of its bank teller, which
was the proximate cause of the loss suffered by private respondent, and
not the latters act of entrusting cash to a dishonest employee, as insisted
by the petitioners.[39]
Proximate cause is determined by the facts of the case. It is that cause which, in
natural and continuous sequence, unbroken by any efficient intervening cause,
produces the injury, and without which the result would not have occurred.[40]
Measured by the foregoing yardstick, the proximate cause of the loss is not
respondents alleged negligence in allowing Manzano to take hold and encash
respondents checks. The proximate cause is petitioners own negligence in the
supervision of its employees when it overlooked the irregular practice of encashing
checks even without the requisite endorsements.
In Bank of the Philippine Islands v. Casa Montessori Internationale,[41] this
Court similarly held:
For allowing payment on the checks to a wrongful and fictitious
payee, BPI the drawee bank becomes liable to its depositor-
drawer. Since the encashing bank is one of its branches, BPI can easily
go after it and hold it liable for reimbursement. x x x In both law and
equity, when one of two innocent persons must suffer by the wrongful
act of a third person, the loss must be borne by the one whose negligence
was the proximate cause of the loss or who put it into the power of the
third person to perpetrate the wrong.[42]
Further, the Court ruled:
Pursuant to its prime duty to ascertain well the genuineness of
the signatures of its client-depositors on checks being encashed, BPI is
expected to use reasonable business prudence. In the performance of
that obligation, it is bound by its internal banking rules and regulations
that form part of the contract it enters into with its depositors.
77
Banking Law Cases

Unfortunately, it failed in that regard. x x x Without exercising

the required prudence on its part, BPI accepted and encashed the eight
checks presented to it. As a result, it proximately contributed to the
fraud and should be held primarily liable for the negligence of its
officers or agents when acting within the course and scope of their
employment. It must bear the loss.[43]

WHEREFORE, the petition is DENIED for lack of merit.

SO ORDERED.

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Banking Law Cases
BORLONGAN vs. REYES
THIRD DIVISION
Gentlemen:
Quoted hereunder, for your information, is a resolution of this Court
dated JAN 31 2005.
G.R. No. 161276 (Teodoro C. Borlongan vs. Alberto V. Reyes, Ma. Dolores B.
Yuviengco, Candon B. Guerrero and Tomas S. Aure, Jr.)
At bar is this petition for review on certiorari filed by petitioner Teodoro C.
Borlongan, assailing the decision dated 18 September 2003[1] of the Court of
Appeals in CA-G.R. SP No. 72234, reversing and setting aside the Orders dated 2 July
2002 and 30 July 2002 of the Ombudsman in OMB-ADM-0-00-0867 which
respectively declared herein respondents guilty of simple neglect of duty, and denied
both parties' separate motions for reconsideration.
In a complaint-affidavit filed with Office of the Ombudsman and thereat docketed as
OMB-ADM-0-00-0867, petitioner Teodoro C. Borlongan, former president and chief
executive officer of Union Bank, Inc. (UBI), administratively charged herein
respondent officials of the Bangko Sentral ng Pilipinas (BSP), for allegedly falsifying
statement of facts in the BSP Supervision and Examination Sector (SES) reports and
tendering incorrect and inaccurate reports and opinions to conjure false grounds for the
closure of UBI and Urbancorp Development Bank and placing them under
receivership, to the detriment of their shareholders, officers and employees.
In an Order dated 2 July 2002,[2]cralaw the Ombudsman found respondents guilty of
simple neglect of duty and imposed upon them the penalty of one (1) month and one
(1) day suspension without pay. In a subsequent Order dated 30 July
2002,[3]cralawthe Ombudsman denied both parties' motions for reconsideration.
Therefrom, both parties interposed separate appellate recourses to the Court of Appeals.
Respondents were the first to appeal via a petition for review, which was docketed in
the Court of Appeals as CA-G.R. SP No. 72234 and raffled off to its 17th Division.
For his part, petitioner, also thru a petition for review, questioned before the Court of
Appeals the Ombudsman's absolution of the BSP Governor and its General Counsel
from his affidavit-complaint, and sought the imposition of a graver penalty against the
herein respondents. Docketed as CA-G.R. SP No. 72270, petitioner's appeal landed to
the 5th Division of the appellate court.
Initially, petitioner filed a motion to consolidate the two (2) cases. Later, however, he
not only withdrew said motion but even vigorously opposed the consolidation.
Unconsolidated, the two (2) cases proceeded separately. And, as it turned out, the two
(2) divisions of the Court of Appeals rendered conflicting decisions.
Thus, in a decision dated 13 August 2003,[4] the 5th Division modified the questioned
orders of the Ombudsman by finding the herein respondents, including the BSP
Governor, guilty of gross neglect of duty and imposing on each of them the penalty of
one (1) year suspension without pay.
On the other hand, the 17th Division, in a decision dated 18 September
2003,[5]cralawreversed and set aside the same assailed orders of the Ombudsman and
dismissed the administrative complaints against the herein respondents.
Petitioner filed a motion for reconsideration, imploring the 17th Division to set aside
its September 18,2003 decision for being inconsistent with the August 13,
2003 decision of the 5th Division in CA-G.R. SP No. 72270.
In a Resolution dated 17 December 2003,[6]cralaw the 17th Division denied petitioner's
motion for reconsideration, and, in the process, castigated petitioner for his refusal to
have the two (2) cases consolidated:
Without a consolidation, there is no rule of law or jurisprudence that prevents us, the
17th Division, from deciding SP 72234 according to our own independent judgment,
any more than the 5th Division can be prevented from ruling upon SP 72270 according
to their own independent judgment.
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Banking Law Cases
The records show that respondent had, indeed, filed with us a motion to consolidate SP
72270 with our SP 72234. But for reasons only known to him, he withdrew the motion
for consolidation. He even said that the 5th Division had eventually denied the
consolidation of the case with us, again for reasons we do not know.
Under these circumstances, without a consolidation, both divisions will have to decide
their own cases, and any resulting conflict in the decisions on similar issues of fact and
law will have to be resolved ultimately by the Supreme Court as the supreme arbiter of
all justiciable controversies in this jurisdiction.
But for the respondent to make it appear as if we are to blame for the conflict between
the two divisions of the Court, after the respondent refused to consolidate the cases
before us, is absurd and comical. Absurd, because he is saying in so many words that
we should not exercise an independent judgment in our case anymore after the
5th Division happened to decide its case ahead of us and comical, because he has
reduced the adjudicative process into a race between the cases. If we had only known
that this was the kind of ballgame he wanted us to observe, we would have considered
our case submitted for decision a long time ago, immediately after he filed his
comment, and bar the parties from filling replies, memoranda and other pleadings as a
waste of our time. This is how things would turn out if we pursued his line of thinking
ad absurdum.
To repeat, the respondent refused to have his case in the 5th Division consolidated
before us. If he is to fault anyone now for the consequence of this non-consolidation,
he should point all his fingers to himself.
Later, or on June 14, 2004, the former 5th Division of the Court of Appeals, this time
acting as a Special Division of Five in connection with the motions for reconsideration
therein pending, came out with an Amended Decision,[7]cralawamending the earlier
decision of 12 August 2003 in CA-G.R. SP No. 72270 by dismissing the administrative
complaint against all the respondents therein. Petitioner elevated the same Amended
Decision to this Court via a petition for review on certiorari in G.R. No. 163765.
In a Resolution promulgated on July 26, 2004,[8]cralaw the Court, thru its Third
Division, denied the petition in G.R. No. 163765 "for failure of the petitioner to show
that a reversible error had been committed by the appellate court". In a subsequent
Resolution promulgated on October 1, 2004, the Court denied petitioner's motion for
reconsideration with finality "as no substantial arguments were raised to warrant a
reconsideration thereof".
Meanwhile, on February 13, 2004, petitioner filed the instant petition for review on
certiorari, this time assailing the 18 September 2003 decision of the 17th Decision of
the Court of Appeals in CA-G.R. SP No. 72234.
Perusal of the present petition reveals that it raises substantially the same issues already
passed upon by the two (2) Divisions of the Court of Appeals and by this Court, no
less, in G.R. No. 163765.
Chanting the same tone, the recourse is unavailing.
In Philippine Retirement Authority vs. Rupa,[9]cralaw we laid down the standard
definition of simple neglect of duty, as a disregard of a duty resulting from carelessness
or indifference.
Here, we find that neither gross nor simple neglect of duty characterized the acts of the
respondents. The subject SES reports prepared by respondents and submitted to the
Monetary Board were anything but haphazardly or negligently made. As it were, the
reports were a compendium of long years of monitoring by the BSP of a problem bank,
and assembled over a period of 15 hours after the respondents were instructed to do so.
The data contained therein had been patiently collected and analyzed.
Record reveals that UBI was being monitored by BSP officials for years. Respondent
Dolores Yuvienco had supervised the bank directly since 1999 as Director of DCB II
UBI had since given up its status as an expanded commercial bank and reverted to an
ordinary commercial bank because it could not meet the P3.5 billion minimum capital
requirement for a universal bank. For two (2) months prior to its closure, Urban Bank
had been besieged by liquidity problems, and its declaration of a bank holiday on April
25 only confirmed its decreasing ability to meet obligations on time.
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Banking Law Cases
Section 30(a) of RA 7653, otherwise known as the New Central Bank Act, is relevant.
Under that law, the Monetary Board may execute measures such those taken in this
case, summarily and without need of prior hearing:
Sec. 30. Proceedings in Receivership and Liquidation. -Whenever, upon report of the
head of the supervising and examining department, the Monetary Board finds that the
Bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary course of
business:Provided, that this shall not include inability to pay caused by extraordinary
demands induced by financial panic in the banking community;
(b) has insufficient realizable asset, as determined by the Bangko Sentral to meet its
liabilities; or
(c) cannot continue in business without involving probable losses to its creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has become
final, involving acts or transactions which amount to fraud or a dissipation of the assets
of the institution; in which cases, the Monetary Board may summarily and without
need for prior hearing forbid the institution from doing business in the Philippines
and designate the Philippine Deposit Insurance Corporation as receiver of the
Banking institution. xxx. (Emphasis supplied)
Pertinent, too, is Section 53 of Republic Act No. 8791,[10]cralaw since it underscores
the summary character of the MB's initiative of placing a bank under receivership. It
provides that in case a bank or quasi-banknotifies the BSP or publicly announces a
bank holiday, or in any manner suspends the payment of its deposit liabilities
continuously for more than 30 days, the MB may summarily and without need of prior
hearing close such banking institution and place it under receivership of the PDIC.
This authority is beyond review by the courts except on a petition for certiorari. Here,
it is worth to note even the Ombudsman found significant evidence to rationalize the
decision of the Monetary Board to place UBI under receivership.
Likewise, we agree with the appellate court's 17th Division in its ratiocination that it is
illogical to hold the respondents administratively liable for the preparation of reports
that are, in their nature, merely recommendatory and have to be acted upon by superior
officials. The reports were not the final action that creates right and duties and affects
the interest and fortunes of third parties. Courts do not interfere with any administrative
measure prior to its completion or finality, and when they do, what is actionable is not
the recommendation but the decision of the official with the competence under the law
to issue it.[11]cralaw
The subject reports are only between the Monetary Board and the BSP officials who
prepared and endorsed them and may be rejected, modified or accepted by the
Monetary Board. As far as this case is concerned, the legal obligations of diligence and
good faith that BSP officials owe to the public under Section 16 of the New Central
Act start with the official acts of the Monetary Board which, rightly or wrong, are the
cause of loss or injury to third parties, not any preparatory report or recommendation.
As earlier noted, UBI's own top management, specifically Bartolome III, its chairman
of the Board, and the petitioner himself, its president, continually provided the BSP the
picture of the worsening situation of UBI in the four (4) weeks from March 20, 2000
to April 25, 2000, leading to UBI's unilateral declaration of a bank holiday on April 25,
2000.[12]cralaw Their constant reporting showed that UBI was "unable to pay its
liabilities as they become due in the ordinary course of business; (or that it) has
insufficient realizable assets, as determined by the Bangko Sentral, to meet its
liabilities."[13]cralaw While other factors might have weighed in the analysis of UBI's
financial liquidity and in the preparation of the inevitable Supervisor and Examination
Sector (SES) reports, the MB considered the constant reports of UBI's own top
management as the best proof of its dire liquidity status.
Petitioner would have this Court review and reverse factual findings of the Court of
Appeals. This, of course, the Court cannot and will not do. Review of factual findings
of the appellate court is not a function ordinarily undertaken by this Court, the rule
admitting only a few exceptions recognized in decisional law. The principle is
consistent with Rule 45 of the Rules of Court which categorically provides that a
petition for review on certiorari must raise "only questions of law which must be
distinctly set forth" in the petition. Even then, the review sought will be denied if the
questions raised are "too unsubstantial to require consideration" or if the Court is not
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Banking Law Cases

convinced of the existence of "special and important reasons" to warrant review, of

which none exists in this case.

All told, we find that no reversible error was committed by the 17th Division of Court
of Appeals when it reversed and set aside the July 2, 2002 and July 30, 2002 Orders of
the Ombudsman in OMB-ADM-0-00-0867.

WHEREFORE, the instant petition is hereby DENIED DUE COURSE.

SO ORDERED.

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Banking Law Cases
[G.R. No. 115849. January 24, 1996]
FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of
the Philippines) and MERCURIO RIVERA, petitioners, vs. COURT OF
APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO
DEMETRIA, and JOSE JANOLO, respondents.
DECISION
PANGANIBAN, J.:
In the absence of a formal deed of sale, may commitments given by bank officers
in an exchange of letters and/or in a meeting with the buyers constitute a perfected and
enforceable contract of sale over 101 hectares of land in Sta. Rosa, Laguna? Does the
doctrine of apparent authority apply in this case? If so, may the Central Bank-appointed
conservator of Producers Bank (now First Philippine International Bank) repudiate
such apparent authority after said contract has been deemed perfected? During the
pendency of a suit for specific performance, does the filing of a derivative suit by
the majority shareholders and directors of the distressed bank to prevent the
enforcement or implementation of the sale violate the ban against forum-shopping?
Simply stated, these are the major questions brought before this Court in the instant
Petition for review on certiorari under Rule 45 of the Rules of Court, to set aside the
Decision promulgated January 14, 1994 of the respondent Court of Appeals[1] in CA-
G.R. CV No. 35756 and the Resolution promulgated June 14, 1994 denying the motion
for reconsideration. The dispositive portion of the said Decision reads:
WHEREFORE, the decision of the lower court is MODIFIED by the elimination of
the damages awarded under paragraphs 3, 4 and 6 of its dispositive portion and the
reduction of the award in paragraph 5 thereof to P75,000.00, to be assessed against
defendant bank. In all other aspects, said decision is hereby AFFIRMED.
All references to the original plaintiffs in the decision and its dispositive portion are
deemed, herein and hereafter, to legally refer to the plaintiff-appellee Carlos C.
Ejercito.
Costs against appellant bank.
The dispositive portion of the trial courts[2] decision dated July 10, 1991, on the
other hand, is as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiffs and against the defendants as follows:
1. Declaring the existence of a perfected contract to buy and sell over the six (6)
parcels of land situated at Don Jose, Sta. Rosa, Laguna with an area of 101 hectares,
more or less, covered by and embraced in Transfer Certificates of Title Nos. T-
106932 to T-106937, inclusive, of the Land Records of Laguna, between the plaintiffs
as buyers and the defendant Producers Bank for an agreed price of Five and One Half
Million (P5,500,000.00) Pesos;
2. Ordering defendant Producers Bank of the Philippines, upon finality of this
decision and receipt from the plaintiffs the amount of P5.5 Million, to execute in
favor of said plaintiffs a deed of absolute sale over the aforementioned six (6) parcels
of land, and to immediately deliver to the plaintiffs the owners copies of T.C.T. Nos.
T-106932 to T-106937, inclusive, for purposes of registration of the same deed and
transfer of the six (6) titles in the names of the plaintiffs;
3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and
Demetrio Demetria the sums of P 200,000.00 each in moral damages;
4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P
100,000.00 as exemplary damages;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of
P400,000.00 for and by way of attorneys fees;
6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and
moderate damages in the amount of P20,000.00;
With costs against the defendants.
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Banking Law Cases

After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply to
sur-rejoinder, the petition was given due course in a Resolution dated January 18, 1995.
Thence, the parties filed their respective memoranda and reply memoranda. The First
Division transferred this case to the Third Division per resolution dated October 23,
1995. After carefully deliberating on the aforesaid submissions, the Court assigned the
case to the undersigned ponente for the writing of this Decision.
(2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME
Investments legal counsel, Jose Fajardo, met with defendant Mercurio Rivera,
Manager of the Property Management Department of the defendant bank. The
meeting was held pursuant to plaintiffs plan to buy the property (TSN of Jan. 16,
1990, pp. 7-10). After the meeting, plaintiff Janolo, following the advice of defendant
Rivera, made a formal purchase offer to the bank through a letter dated August 30,
1987 (Exh. B), as follows:

The Parties August 30, 1987

The Producers Bank of the Philippines

Petitioner First Philippine International Bank (formerly Producers Bank of Makati, Metro Manila
the Philippines; petitioner Bank, for brevity) is a banking institution organized and
existing under the laws of the Republic of the Philippines. Petitioner Mercurio Rivera Attn. Mr. Mercurio Q. Rivera
(petitioner Rivera, for brevity) is of legal age and was, at all times material to this case, Manager, Property Management Dept.
Head Manager of the Property Management Department of the petitioner Bank.
Gentlemen:
Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is
the assignee of original plaintiffs-appellees Demetrio Demetria and Jose Janolo. I have the honor to submit my formal offer to purchase your properties covered by
Respondent Court of Appeals is the court which issued the Decision and titles listed hereunder located at Sta. Rosa, Laguna, with a total area of 101 hectares,
Resolution sought to be set aside through this petition. more or less.

TCT NO. AREA

The Facts
T-106932 113,580 sq.m.
T-106933 70,899 sq.m.
The facts of this case are summarized in the respondent Courts Decision,[3] as T-106934 52,246 sq.m.
follows: T-106935 96,768 sq.m.
T-106936 187,114 sq.m.
(1) In the course of its banking operations, the defendant Producer Bank of the T-106937 481,481 sq.m.
Philippines acquired six parcels of land with a total area of 101 hectares located at
Don Jose, Sta. Rosa, Laguna, and covered by Transfer Certificates of Title Nos. T- My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND
106932 to T-106937. The property used to be owned by BYME Investment and (P3,500,000.00) PESOS, in cash.
Development Corporation which had them mortgaged with the bank as collateral fora
loan. The original plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted to Kindly contact me at Telephone Number 921-1344.
purchase the property and thus initiated negotiations for that purpose.

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Banking Law Cases

(3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal In reply to your letter regarding my proposal to purchase your 101-hectare lot
reply by letter which is hereunder quoted (Exh. C): located at Sta. Rosa Laguna, I would like to amend my previous offer and I now
propose to buy the said lot at P4.250 million in CASH.
September 1, 1987
Hoping that this proposal meets your satisfaction.
J-P M-P GUTIERREZ ENTERPRISES
142 Charisma St., Doa Andres II (5) There was no reply to Janolos foregoing letter of September 17, 1987. What took
Rosario, Pasig, Metro Manila place was a meeting on September 28, 1987 between the plaintiffs and Luis Co, the
Senior Vice-President of defendant bank. Rivera as well as Fajardo, the BYME
Attention: JOSE O. JANOLO Dear Sir: lawyer, attended the meeting. Two days later, or on September 30, 1987, plaintiff
Janolo sent to the bank, through Rivera, the following letter (Exh. E):
Dear Sir:
The Producers Bank of the Philippines
Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa, Paseo de Roxas, Makati
Laguna (formerly owned by Byme industrial Corp.). Please be informed however that Metro Manila
the banks counter-offer is at P5.5 million for more than 101 hectares on lot basis.
Attention: Mr. Mercurio Rivera
We shall be very glad to hear your position on the matter.
Re: 101 Hectares of Land in Sta. Rosa, Laguna
Best regards.
Gentlemen:
(4)On September 17, 1987, plaintiff Janolo, responding to Riveras aforequoted reply,
wrote (Exh. Pursuant to our discussion last 28 September 1987, we are pleased to inform you that
we are accepting your offer for us to purchase the property at Sta. Rosa, Laguna,
September 17, 1987 formerly owned by Byme In-vestment, for a total price of PESOS: FIVE MILLION
FIVE HUNDRED THOUSAND (P5,500,000.00).
Producers Bank
Paseo de Roxas Thank you.
Makati, Metro Manila
(6) On October 12, 1987, the conservator of the bank (which has been placed under
Attention: Mr. Mercurio Rivera conservatorship by the Central Bank since 1984) was replaced by an Acting
Conservator in the person of defendant Leonida T. Encarnacion. On November 4,
Gentlemen: 1987, defendant Rivera wrote plaintiff Demetria the following letter (Exh. F):

Attention: Atty. Demetrio Demetria

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Banking Law Cases
Dear Sir:
Your proposal to buy the properties the bank foreclosed from Byme Investment Corp.
located at Sta. Rosa, Laguna is under study yet as of this time by the newly created
committee for submission to the newly designated Acting Conservator of the bank.
For your information.
(7) What thereafter transpired was a series of demands by the plaintiffs for
compliance by the bank with what plaintiff considered as a perfected contract of sale,
which demands were in one form or another refused by the bank. As detailed by the
trial court in its decision, on November 17, 1987, plaintiffs through a letter to
defendant Rivera (Exhibit G) tendered payment of the amount of P5.5 million
pursuant to (our) perfected sale agreement. Defendants refused to receive both the
payment and the letter. Instead, the parcels of land involved in the transaction were
advertised by the bank for sale to any interested buyer (Exhs. H and H-1). Plaintiffs
demanded the execution by the bank of the documents on what was considered as a
perfected agreement. Thus:
Mr. Mercurio Rivera
Manager, Producers Bank
Paseo de Roxas, Makati
Metro Manila
Dear Mr. Rivera:
This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your
101-hectare lot located in Sta. Rosa, Laguna, and which are covered by TCT No. T-
106932 to 106937.
From the documents at hand, it appears that your counter-offer dated September 1,
1987 of this same lot in the amount of P5.5 million was accepted by our client thru a
letter dated September 30, 1987 and was received by you on October 5, 1987.
In view of the above circumstances, we believe that an agreement has been perfected.
We were also informed that despite repeated follow-up to consummate the purchase,
you now refuse to honor your commitment. Instead, you have advertised for sale the
same lot to others.
In behalf of our client, therefore, we are making this formal demand upon you to
consummate and execute the necessary actions/documentation within three (3) days
from your receipt hereof We are ready to remit the agreed amount of P5.5 million at
your advice. Otherwise, we shall be constrained to file the necessary court action to
protect the interest of our client.
We trust that you will be guided accordingly.
(8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing
letter and stated, in its communication of December 2, 1987 (Exh. I), that said letter
has been referred x x x to the office of our Conservator for proper disposition.
However, no response came from the Acting Conservator. On December 14, 1987,
the plaintiffs made a second tender of payment (Exhs. L and L-1), this time through
the Acting Conservator, defendant Encarnacion. Plaintiffs letter reads:
PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila
Attn.: Atty. NIDA ENCARNACION Central Bank Conservator
Gentlemen:
We are sending you herewith, in-behalf of our client, Mr. JOSE O. JANOLO, MBTC
Check No. 258387 in the amount of P5.5 million as our agreed purchase price of the
101-hectare lot covered by TCT Nos. 106932, 106933, 106934, 106935, 106936 and
106937 and registered under Producers Bank.
This is in connection with the perfected agreement consequent from your offer of P5.5
Million as the purchase price of the said lots. Please inform us of the date of
documentation of the sale immediately.
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Banking Law Cases
Kindly acknowledge receipt of our payment.
(9) The foregoing letter drew no response for more than four months. Then, on May
3, 1988, plaintiff, through counsel, made a final demand for compliance by the bank
with its obligations under the considered perfected contract of sale (Exhibit N). As
recounted by the trial court (Original Record, p. 656), in a reply letter dated May 12,
1988 (Annex 4 of defendants answer to amended complaint), the defendants through
Acting Conservator Encarnacion repudiated the authority of defendant Rivera and
claimed that his dealings with the plaintiffs, particularly his counter-offer of P5.5
Million are unauthorized or illegal. On that basis, the defendants justified the refusal
of the tenders of payment and the non-compliance with the obligations under what the
plaintiffs considered to be a perfected contract of sale.
(10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages
against the bank, its Manager Rivera and Acting Conservator Encarnacion. The basis
of the suit was that the transaction had with the bank resulted in a perfected contract
of sale. The defendants took the position that there was no such perfected sale
because the defendant Rivera is not authorized to sell the property, and that there was
no meeting of the minds as to the price.
On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip
Salazar Hernandez and Gatmaitan, filed a motion to intervene in the trial court,
alleging that as owner of 80% of the Banks outstanding shares of stock, he had a
substantial interest in resisting the complaint. On July 8, 1991, the trial court issued
an order denying the motion to intervene on the ground that it was filed after trial had
already been concluded. It also denied a motion for reconsideration filed thereafter.
From the trial courts decision, the Bank, petitioner Rivera and conservator
Encarnacion appealed to the Court of Appeals which subsequently affirmed with
modification the said judgment. Henry Co did not appeal the denial of his motion for
intervention.
In the course of the proceedings in the respondent Court, Carlos Ejercito was
substituted in place of Demetria and Janolo, in view of the assignment of the latters
rights in the matter in litigation to said private respondent.
On July 11, 1992, during the pendency of the proceedings in the Court of Appeals,
Henry Co and several other stockholders of the Bank, through counsel Angara Abello
Concepcion Regala and Cruz, filed an action (hereafter, the Second Case) -purportedly
a derivative suit - with the Regional Trial Court of Makati, Branch 134, docketed as
Civil Case No. 92-1606, against Encarnacion, Demetria and Janolo to declare any
perfected sale of the property as unenforceable and to stop Ejercito from enforcing or
implementing the sale.[4] In his answer, Janolo argued that the Second Case was barred
by litis pendentia by virtue of the case then pending in the Court of Appeals. During
the pre-trial conference in the Second Case, plaintiffs filed a Motion for Leave of Court
to Dismiss the Case Without Prejudice. Private respondent opposed this motion on the
ground, among others, that plaintiffs act of forum shopping justifies the dismissal of
both cases, with prejudice.[5] Private respondent, in his memorandum, averred that this
motion is still pending in the Makati RTC.
In their Petition[6] and Memorandum,[7] petitioners summarized their position as
follows:
I.
The Court of Appeals erred in declaring that a contract of sale was perfected between
Ejercito (in substitution of Demetria and Janolo) and the bank.
II.
The Court of Appeals erred in declaring the existence of an enforceable contract of
sale between the parties.
III.
The Court of Appeals erred in declaring that the conservator does not have the power
to overrule or revoke acts of previous management.
IV.
The findings and conclusions of the Court of Appeals do not conform to the evidence
on record.
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Banking Law Cases
On the other hand, private respondents prayed for dismissal of the instant suit on
the ground[8] that:
I.
Petitioners have engaged in forum shopping.
II.
The factual findings and conclusions of the Court of Appeals are supported by the
evidence on record and may no longer be questioned in this case.
III.
The Court of Appeals correctly held that there was a perfected contract between
Demetria and Janolo (substituted by respondent Ejercito) and the bank.
IV.
The Court of Appeals has correctly held that the conservator, apart from being
estopped from repudiating the agency and the contract, has no authority to revoke the
contract of sale.
The Issues
From the foregoing positions of the parties, the issues in this case may be summed
up as follows:
1) Was there forum-shopping on the part of petitioner Bank?
2) Was there a perfected contract of sale between the parties?
3) Assuming there was, was the said contract enforceable under the statute of
frauds?
4) Did the bank conservator have the unilateral power to repudiate the authority of
the bank officers and/or to revoke the said contract?
5) Did the respondent Court commit any reversible error in its findings of facts?
The First Issue: Was There Forum-Shopping?
In order to prevent the vexations of multiple petitions and actions, the Supreme
Court promulgated Revised Circular No. 28-91 requiring that a party must certify under
oath x x x [that] (a) he has not (t)heretofore commenced any other action or proceeding
involving the same issues in the Supreme Court, the Court of Appeals, or any other
tribunal or agency; (b) to the best of his knowledge, no such action or proceeding is
pending in said courts or agencies. A violation of the said circular entails sanctions that
include the summary dismissal of the multiple petitions or complaints. To be sure,
petitioners have included a VERIFICATION/CERTIFICATION in their Petition
stating for the record(,) the pendency of Civil Case No. 92-1606 before the Regional
Trial Court of Makati, Branch 134, involving a derivative suit filed by stockholders of
petitioner Bank against the conservator and other defendants but which is the subject
of a pending Motion to Dismiss Without Prejudice.[9]
Private respondent Ejercito vigorously argues that in spite of this verification,
petitioners are guilty of actual forum shopping because the instant petition pending
before this Court involves identical parties or interests represented, rights asserted and
reliefs sought (as that) currently pending before the Regional Trial Court, Makati
Branch 134 in the Second Case. In fact, the issues in the two cases are so intertwined
that a judgment or resolution in either case will constitute res judicata in the other.[10]
On the other hand, petitioners explain[11] that there is no forum-shopping because:
1) In the earlier or First Case from which this proceeding arose, the Bank was
impleaded as a defendant, whereas in the Second Case (assuming the Bank is the real
party in interest in a derivative suit), it was the plaintiff;
2) The derivative suit is not properly a suit for and in behalf of the corporation under
the circumstances;
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Banking Law Cases
3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank
president and attached to the Petition identifies the action as a derivative suit, it does
not mean that it is one and (t)hat is a legal question for the courts to decide;
4) Petitioners did not hide the Second Case as they mentioned it in the said
VERIFICATION/CERTIFICATION.
We rule for private respondent.
To begin with, forum-shopping originated as a concept in private international
law,[12] where non-resident litigants are given the option to choose the forum or place
wherein to bring their suit for various reasons or excuses, including to secure
procedural advantages, to annoy and harass the defendant, to avoid overcrowded
dockets, or to select a more friendly venue. To combat these less than honorable
excuses, the principle of forum non conveniens was developed whereby a court, in
conflicts of law cases, may refuse impositions on its jurisdiction where it is not the
most convenient or available forum and the parties are not precluded from seeking
remedies elsewhere.
In this light, Blacks Law Dictionary[13] says that forum-shopping occurs when a
party attempts to have his action tried in a particular court or jurisdiction where he feels
he will receive the most favorable judgment or verdict. Hence, according to Words and
Phrases,[14] a litigant is open to the charge of forum shopping whenever he chooses a
forum with slight connection to factual circumstances surrounding his suit, and litigants
should be encouraged to attempt to settle their differences without imposing undue
expense and vexatious situations on the courts.
In the Philippines, forum-shopping has acquired a connotation encompassing not
only a choice of venues, as it was originally understood in conflicts of laws, but also to
a choice of remedies. As to the first (choice of venues), the Rules of Court, for example,
allow a plaintiff to commence personal actions where the defendant or any of the
defendants resides or may be found, or where the plaintiff or any of the plaintiffs
resides, at the election of the plaintiff (Rule 4, Sec. 2 [b]). As to remedies, aggrieved
parties, for example, are given a choice of pursuing civil liabilities independently of the
criminal, arising from the same set of facts. A passenger of a public utility vehicle
involved in a vehicular accident may sue on culpa contractual, culpa aquiliana or culpa
criminal - each remedy being available independently of the others - although he cannot
recover more than once.
In either of these situations (choice of venue or choice of remedy), the litigant
actually shops for a forum of his action. This was the original concept of the term
forum shopping.
Eventually, however, instead of actually making a choice of the forum of their
actions, litigants, through the encouragement of their lawyers, file their actions in all
available courts, or invoke all relevant remedies simultaneously. This practice had not
only resulted to (sic) conflicting adjudications among different courts and consequent
confusion enimical (sic) to an orderly administration of justice. It had created extreme
inconvenience to some of the parties to the action.
Thus, forum-shopping had acquired a different concept - which is unethical
professional legal practice. And this necessitated or had given rise to the formulation
of rules and canons discouraging or altogether prohibiting the practice.[15]
What therefore originally started both in conflicts of laws and in our domestic law
as a legitimate device for solving problems has been abused and misused to assure
scheming litigants of dubious reliefs.
To avoid or minimize this unethical practice of subverting justice, the Supreme
Court, as already mentioned, promulgated Circular 28-91. And even before that, the
Court had proscribed it in the Interim Rules and Guidelines issued on January 11,
1983 and had struck down in several cases[16] the inveterate use of this insidious
malpractice. Forum-shopping as the filing of repetitious suits in different courts has
been condemned by Justice Andres R. Narvasa (now Chief Justice) in Minister of
Natural Resources, et al. vs. Heirs of Orval Hughes, et al., as a reprehensible
manipulation of court processes and proceedings x x x.[17] When does forum-shopping
take place?
There is forum-shopping whenever, as a result of an adverse opinion in one forum, a
party seeks a favorable opinion (other than by appeal or certiorari) in another. The
principle applies not only with respect to suits filed in the courts but also in
connection with litigations commenced in the courts while an administrative
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proceeding is pending, as in this case, in order to defeat administrative processes and
in anticipation of an unfavorable administrative ruling and a favorable court ruling.
This is specially so, as in this case, where the court in which the second suit was
brought, has no jurisdiction [18]
The test for determining whether a party violated the rule against forum-shopping
has been laid down in the 1986 case of Buan vs. Lopez,[19] also by Chief Justice
Narvasa, and that is, forum-shopping exists where the elements of litis pendentia are
present or where a final judgment in one case will amount to res judicata in the other,
as follows:
There thus exists between the action before this Court and RTC Case No. 86-36563
identity of parties, or at least such parties as represent the same interests in both
actions, as well as identity of rights asserted and relief prayed for, the relief being
founded on the same facts, and the identity on the two preceding particulars is such
that any judgment rendered in the other action, will, regardless of which party is
successful, amount to res adjudicata in the action under consideration: all the
requisites, in fine, of auter action pendant.
xxx xxx xxx
As already observed, there is between the action at bar and RTC Case No. 86-36563,
an identity as regards parties, or interests represented, rights asserted and relief
sought, as well as basis thereof, to a degree sufficient to give rise to the ground for
dismissal known as auter action pendant or lis pendens. That same identity puts into
operation the sanction of twin dismissals just mentioned. The application of this
sanction will prevent any further delay in the settlement of the controversy which
might ensue from attempts to seek reconsideration of or to appeal from the Order of
the Regional Trial Court in Civil Case No. 86-36563 promulgated on July 15, 1986,
which dismissed the petition upon grounds which appear persuasive.
Consequently, where a litigant (or one representing the same interest or person)
sues the same party against whom another action or actions for the alleged violation of
the same right and the enforcement of the same relief is/are still pending, the defense
of litis pendencia in one case is a bar to the others; and, a final judgment in one would
constitute res judicata and thus would cause the dismissal of the rest. In either case,
forum shopping could be cited by the other party as a ground to ask for summary
dismissal of the two[20] (or more) complaints or petitions, and for the imposition of the
other sanctions, which are direct contempt of court, criminal prosecution, and
disciplinary action against the erring lawyer.
Applying the foregoing principles in the case before us and comparing it with the
Second Case, it is obvious that there exist identity of parties or interests represented,
identity of rights or causes and identity of reliefs sought.
Very simply stated, the original complaint in the court a quo which gave rise to the
instant petition was filed by the buyer (herein private respondent and his predecessors-
in-interest) against the seller (herein petitioners) to enforce the alleged perfected sale
of real estate. On the other hand, the complaint[21] in the Second Case seeks to declare
such purported sale involving the same real property as unenforceable as against the
Bank, which is the petitioner herein. In other words, in the Second Case, the majority
stockholders, in representation of the Bank, are seeking to accomplish what the Bank
itself failed to do in the original case in the trial court. In brief, the objective or the
relief being sought, though worded differently, is the same, namely, to enable the
petitioner Bank to escape from the obligation to sell the property to respondent.
In Danville Maritime, Inc. vs. Commission on Audit,[22] this Court ruled that the filing
by a party of two apparently different actions, but with the same objective, constituted
forum shopping:
In the attempt to make the two actions appear to be different, petitioner impleaded
different respondents therein - PNOC in the case before the lower court and the COA
in the case before this Court and sought what seems to be different reliefs. Petitioner
asks this Court to set aside the questioned letter-directive of the COA dated October
10, 1988 and to direct said body to approve the Memorandum of Agreement entered
into by and between the PNOC and petitioner, while in the complaint before the
lower court petitioner seeks to enjoin the PNOC from conducting a rebidding and
from selling to other parties the vessel T/T Andres Bonifacio, and for an extension of
time for it to comply with the paragraph 1 of the memorandum of agreement and
damages. One can see that although the relief prayed for in the two (2) actions are
ostensibly different, the ultimate objective in both actions is the same, that is, the
approval of the sale of vessel in favor of petitioner, and to overturn the letter-
directive of the COA of October 10, 1988 disapproving the sale. (italics supplied)
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In an earlier case,[23] but with the same logic and vigor, we held:
In other words, the filing by the petitioners of the instant special civil action
for certiorari and prohibition in this Court despite the pendency of their action in the
Makati Regional Trial Court, is a species of forum-shopping. Both actions
unquestionably involve the same transactions, the same essential facts and
circumstances. The petitioners claim of absence of identity simply because the PCGG
had not been impleaded in the RTC suit, and the suit did not involve certain acts
which transpired after its commencement, is specious. In the RTC action, as in the
action before this Court, the validity of the contract to purchase and sell of September
1, 1986, i.e., whether or not it had been efficaciously rescinded, and the propriety of
implementing the same (by paying the pledgee banks the amount of their loans,
obtaining the release of the pledged shares, etc.) were the basic issues. So, too, the
relief was the same: the prevention of such implementation and/or the restoration of
the status quo ante. When the acts sought to be restrained took place anyway despite
the issuance by the Trial Court of a temporary restraining order, the RTC suit did not
become functus oflcio. It remained an effective vehicle for obtention of relief; and
petitioners remedy in the premises was plain and patent: the filing of an amended and
supplemental pleading in the RTC suit, so as to include the PCGG as defendant and
seek nullification of the acts sought to be enjoined but nonetheless done. The remedy
was certainly not the institution of another action in another forum based on
essentially the same facts. The adoption of this latter recourse renders the petitioners
amenable to disciplinary action and both their actions, in this Court as well as in the
Court a quo, dismissible.
In the instant case before us, there is also identity of parties, or at least, of interests
represented. Although the plaintiffs in the Second Case (Henry L. Co. et al.) are not
name parties in the First Case, they represent the same interest and entity, namely,
petitioner Bank, because:
Firstly, they are not suing in their personal capacities, for they have no direct personal
interest in the matter in controversy. They are not principally or even subsidiarily
liable; much less are they direct parties in the assailed contract of sale; and
Secondly, the allegations of the complaint in the Second Case show that the
stockholders are bringing a derivative suit. In the caption itself, petitioners claim to
have brought suit for and in behalf of the Producers Bank of
the Philippines.[24] Indeed, this is the very essence of a derivative suit:
An individual stockholder is permitted to institute a derivative suit on behalf of the
corporation wherein he holds stock in order to protect or vindicate corporate rights,
whenever the officials of the corporation refuse to sue, or are the ones to be sued or
hold the control of the corporation. In such actions, the suing stockholder is regarded
as a nominal party, with the corporation as the real party in interest. (Gamboa v.
Victoriano, 90 SCRA 40, 47 [1979]; italics supplied).
In the face of the damaging admissions taken from the complaint in the Second
Case, petitioners, quite strangely, sought to deny that the Second Case was a derivative
suit, reasoning that it was brought, not by the minority shareholders, but by Henry Co
et al., who not only own, hold or control over 80% of the outstanding capital stock, but
also constitute the majority in the Board of Directors of petitioner Bank. That being so,
then they really represent the Bank. So, whether they sued derivatively or directly, there
is undeniably an identity of interests/entity represented.
Petitioner also tried to seek refuge in the corporate fiction that the personality of
the Bank is separate and distinct from its shareholders. But the rulings of this Court are
consistent: When the fiction is urged as a means of perpetrating a fraud or an illegal act
or as a vehicle for the evasion of an existing obligation, the circumvention of statutes,
the achievement or perfection of a monopoly or generally the perpetration of knavery
or crime, the veil with which the law covers and isolates the corporation from the
members or stockholders who compose it will be lifted to allow for its consideration
merely as an aggregation of individuals.[25]
In addition to the many cases[26] where the corporate fiction has been disregarded,
we now add the instant case, and declare herewith that the corporate veil cannot be used
to shield an otherwise blatant violation of the prohibition against forum-shopping.
Shareholders, whether suing as the majority in direct actions or as the minority in a
derivative suit, cannot be allowed to trifle with court processes, particularly where, as
in this case, the corporation itself has not been remiss in vigorously prosecuting or
defending corporate causes and in using and applying remedies available to it. To rule
otherwise would be to encourage corporate litigants to use their shareholders as fronts
to circumvent the stringent rules against forum shopping.
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Finally, petitioner Bank argued that there cannot be any forum shopping, even
assuming arguendo that there is identity of parties, causes of action and reliefs sought,
because it (the Bank) was the defendant in the (first) case while it was the plaintiff in
the other (Second Case), citing as authority Victronics Computers, Inc. vs. Regional
Trial Court, Branch 63, Makati, etc. et al.,[27] where the Court held:
The rule has not been extended to a defendant who, for reasons known only to him,
commences a new action against the plaintiff - instead of filing a responsive pleading
in the other case - setting forth therein, as causes of action, specific denials, special
and affirmative defenses or even counterclaims. Thus, Velhagens and Kings motion
to dismiss Civil Case No. 91-2069 by no means negates the charge of forum-shopping
as such did not exist in the first place. (italics supplied)
Petitioner pointed out that since it was merely the defendant in the original case, it
could not have chosen the forum in said case.
Respondent, on the other hand, replied that there is a difference in factual setting
between Victronics and the present suit. In the former, as underscored in the above-
quoted Court ruling, the defendants did not file any responsive pleading in the first
case. In other words, they did not make any denial or raise any defense or counter-claim
therein. In the case before us however, petitioners filed a responsive pleading to the
complaint - as a result of which, the issues were joined.
Indeed, by praying for affirmative reliefs and interposing counter-claims in their
responsive pleadings, the petitioners became plaintiffs themselves in the original case,
giving unto themselves the very remedies they repeated in the Second Case.
Ultimately, what is truly important to consider in determining whether forum-
shopping exists or not is the vexation caused the courts and parties-litigant by a party
who asks different courts and/or administrative agencies to rule on the same or related
causes and/or to grant the same or substantially the same reliefs, in the process creating
the possibility of conflicting decisions being rendered by the different fora upon the
same issue. In this case, this is exactly the problem: a decision recognizing the
perfection and directing the enforcement of the contract of sale will directly conflict
with a possible decision in the Second Case barring the parties from enforcing or
implementing the said sale. Indeed, a final decision in one would constitute res
judicata in the other.[28]
The foregoing conclusion finding the existence of forum-shopping
notwithstanding, the only sanction possible now is the dismissal of both cases with
prejudice, as the other sanctions cannot be imposed because petitioners present counsel
entered their appearance only during the proceedings in this Court, and the Petitions
VERIFICATION/CERTIFICATION contained sufficient allegations as to the
pendency of the Second Case to show good faith in observing Circular 28-91. The
lawyers who filed the Second Case are not before us; thus the rudiments of due process
prevent us from motu propio imposing disciplinary measures against them in this
Decision. However, petitioners themselves (and particularly Henry Co, et al.) as
litigants are admonished to strictly follow the rules against forum-shopping and not to
trifle with court proceedings and processes. They are warned that a repetition of the
same will be dealt with more severely.
Having said that, let it be emphasized that this petition should be dismissed not
merely because of forum-shopping but also because of the substantive issues raised, as
will be discussed shortly.
The Second Issue: Was The Contract Perfected?
The respondent Court correctly treated the question of whether or not there was,
on the basis of the facts established, a perfected contract of sale as the ultimate issue.
Holding that a valid contract has been established, respondent Court stated:
There is no dispute that the object of the transaction is that property owned by the
defendant bank as acquired assets consisting of six (6) parcels of land specifically
identified under Transfer Certificates of Title Nos. T-106932 to T-106937. It is
likewise beyond cavil that the bank intended to sell the property. As testified to by the
Banks Deputy Conservator, Jose Entereso, the bank was looking for buyers of the
property. It is definite that the plaintiffs wanted to purchase the property and it was
precisely for this purpose that they met with defendant Rivera, Manager of the
Property Management Department of the defendant bank, in early August 1987. The
procedure in the sale of acquired assets as well as the nature and scope of the
authority of Rivera on the matter is clearly delineated in the testimony of Rivera
himself, which testimony was relied upon by both the bank and by Rivera in their
appeal briefs. Thus (TSN of July 30, 1990. pp. 19-20):
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Banking Law Cases

A: The procedure runs this way: Acquired assets was turned over to me and then I Q: Please answer the question.
published it in the form of an inter-office memorandum distributed to all branches
A: He did not say that he had the authority(.) But he said he would refer the
that these are acquired assets for sale. I was instructed to advertise acquired assets for
matter to the committee and he would relay the decision to me and he did
sale so on that basis, I have to entertain offer; to accept offer, formal offer and upon
just like that.
having been offered, I present it to the Committee. I provide the Committee with
necessary information about the property such as original loan of the borrower, bid
Parenthetically, the Committee referred to was the Past Due Committee of which Luis
price during the foreclosure, total claim of the bank, the appraised value at the time
Co was the Head, with Jose Entereso as one of the members.
the property is being offered for sale and then the information which are relative to
the evaluation of the bank to buy which the Committee considers and it is the
What transpired after the meeting of early August 1987 are consistent with the
Committee that evaluate as against the exposure of the bank and it is also the
authority and the duties of Rivera and the banks internal procedure in the matter of
Committee that submit to the Conservator for final approval and once approved, we
the sale of banks assets. As advised by Rivera, the plaintiffs made a formal offer by a
have to execute the deed of sale and it is the Conservator that sign the deed of sale,
letter dated August 20, 1987 stating that they would buy at the price of P3.5 Million
sir.
in cash. The letter was for the attention of Mercurio Rivera who was tasked to convey
and accept such offers. Considering an aspect of the official duty of Rivera as some
The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of
sort of intermediary between the plaintiffs-buyers with their proposed buying price on
buying the property, dealt with and talked to the right person. Necessarily, the agenda
one hand, and the bank Committee, the Conservator and ultimately the bank itself
was the price of the property, and plaintiffs were dealing with the bank official
with the set price on the other, and considering further the discussion of price at the
authorized to entertain offers, to accept offers and to present the offer to the
meeting of August resulting in a formal offer of P3.5 Million in cash, there can be no
Committee before which the said official is authorized to discuss information relative
other logical conclusion than that when, on September 1, 1987, Rivera informed
to price determination. Necessarily, too, it being inherent in his authority, Rivera is
plaintiffs by letter that the banks counter-offer is at P5.5 Million for more than 101
the officer from whom official information regarding the price, as determined by the
hectares on lot basis, such counter-offer price had been determined by the Past Due
Committee and approved by the Conservator, can be had. And Rivera confirmed his
Committee and approved by the Conservator after Rivera had duly presented
authority when he talked with the plaintiff in August 1987. The testimony of plaintiff
plaintiffs offer for discussion by the Committee of such matters as original loan of
Demetria is clear on this point (TSN of May 31, 1990, pp. 27-28):
borrower, bid price during foreclosure, total claim of the bank, and market value.
Tersely put, under the established facts, the price of P5.5 Million was, as clearly
Q: When you went to the Producers Bank and talked with Mr. Mercurio
worded in Riveras letter (Exh. E), the official and definitive price at which the bank
Rivera, did you ask him point-blank his authority to sell any property?
was selling the property.
A: No, sir. Not point blank although it came from him. (W)hen I asked him
how long it would take because he was saying that the matter of pricing There were averments by defendants below, as well as before this Court, that the P5.5
will be passed upon by the committee. And when I asked him how long Million price was not discussed by the Committee and that it was merely quoted to
it will take for the committee to decide and he said the committee meets start negotiations regarding the price. As correctly characterized by the trial court, this
every week. If I am not mistaken Wednesday and in about two weeks is not credible. The testimonies of Luis Co and Jose Entereso on this point are at best
(sic) time, in effect what he was saying he was not the one who was to equivocal and considering the gratuitous and self-serving character of these
decide. But he would refer it to the committee and he would relay the declarations, the banks submission on this point does not inspire belief. Both Co and
decision of the committee to me. Entereso, as members of the Past Due Committee of the bank, claim that the offer of
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Banking Law Cases
the plaintiff was never discussed by the Committee. In the same vein, both Co and
Entereso openly admit that they seldom attend the meetings of the Committee. It is
important to note that negotiations on the price had started in early August and the
plaintiffs had already offered an amount as purchase price, having been made to
understand by Rivera, the official in charge of the negotiation, that the price will be
submitted for approval by the bank and that the banks decision will be relayed to
plaintiffs. From the facts, the amount of P5.5 Million has a definite significance. It is
the official bank price. At any rate, the bank placed its official, Rivera, in a position
of authority to accept offers to buy and negotiate the sale by having the offer
officially acted upon by the bank. The bank cannot turn around and later say, as it
now does, that what Rivera states as the banks action on the matter is not in fact so. It
is a familiar doctrine, the doctrine of ostensible authority, that if a corporation
knowingly permits one of its officers, or any other agent, to do acts within the scope
of an apparent authority, and thus holds him out to the public as possessing power to
do those acts, the corporation will, as against any one who has in good faith dealt with
the corporation through such agent, he estopped from denying his authority
(Francisco v. GSIS, 7 SCRA 577, 583-584; PNB v. Court of Appeals, 94 SCRA 357,
369-370; Prudential Bank v. Court of Appeals, G.R. No. 103957, June 14, 1993).[29]
Article 1318 of the Civil Code enumerates the requisites of a valid and perfected
contract as follows: (1) Consent of the contracting parties; (2) Object certain which is
the subject matter of the contract; (3) Cause of the obligation which is established.
There is no dispute on requisite no. 2. The object of the questioned contract
consists of the six (6) parcels of land in Sta. Rosa, Laguna with an aggregate area of
about 101 hectares, more or less, and covered by Transfer Certificates of Title Nos. T-
106932 to T-106937. There is, however, a dispute on the first and third requisites.
Petitioners allege that there is no counter-offer made by the Bank, and any
supposed counter-offer which Rivera (or Co) may have made is unauthorized. Since
there was no counter-offer by the Bank, there was nothing for Ejercito (in substitution
of Demetria and Janolo) to accept.[30] They disputed the factual basis of the respondent
Courts findings that there was an offer made by Janolo for P3.5 million, to which the
Bank counter-offered P5.5 million. We have perused the evidence but cannot find fault
with the said Courts findings of fact. Verily, in a petition under Rule 45 such as this,
errors of fact -if there be any - are, as a rule, not reviewable. The mere fact that
respondent Court (and the trial court as well) chose to believe the evidence presented
by respondent more than that presented by petitioners is not by itself a reversible error.
in fact, such findings merit serious consideration by this Court, particularly where, as
in this case, said courts carefully and meticulously discussed their findings. This is
basic.
Be that as it may, and in addition to the foregoing disquisitions by the Court of
Appeals, let us review the question of Riveras authority to act and petitioners
allegations that the P5.5 million counter-offer was extinguished by the P4.25 million
revised offer of Janolo. Here, there are questions of law which could be drawn from
the factual findings of the respondent Court. They also delve into the contractual
elements of consent and cause.
The authority of a corporate officer in dealing with third persons may be actual or
apparent. The doctrine of apparent authority, with special reference to banks, was laid
out in Prudential Bank vs. Court of Appeals,[31] where it was held that:
Conformably, we have declared in countless decisions that the principal is liable for
obligations contracted by the agent. The agents apparent representation yields to the
principals true representation and the contract is considered as entered into between
the principal and the third person (citing National Food Authority vs. Intermediate
Appellate Court, 184 SCRA 166).
A bank is liable for wrongful acts of its officers done in the interests of the bank or in
the course of dealings of the officers in their representative capacity but not for acts
outside the scope of their authority (9 C.J.S., p. 417). A bank holding out its officers
and agents as worthy of confidence will not be permitted to profit by the frauds they
may thus be enabled to perpetrate in the apparent scope of their employment; nor will
it be permitted to shirk its responsibility for such frauds, even though no benefit may
accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking
corporation is liable to innocent third persons where the representation is made in the
course of its business by an agent acting within the general scope of his authority
even though, in the particular case, the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or some other person, for his own
ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR
1021).
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Banking Law Cases
Application of these principles is especially necessary because banks have a fiduciary
relationship with the public and their stability depends on the confidence of the
people in their honesty and efficiency. Such faith will be eroded where banks do not
exercise strict care in the selection and supervision of its employees, resulting in
prejudice to their depositors.
From the evidence found by respondent Court, it is obvious that petitioner Rivera
has apparent or implied authority to act for the Bank in the matter of selling its acquired
assets. This evidence includes the following:
(a) The petition itself in par. II-1 (p. 3) states that Rivera was at all times material to
this case, Manager of the Property Management Department of the Bank. By his own
admission, Rivera was already the person in charge of the Banks acquired assets
(TSN, August 6, 1990, pp. 8-9);
(b) As observed by respondent Court, the land was definitely being sold by the Bank.
And during the initial meeting between the buyers and Rivera, the latter suggested
that the buyers offer should be no less than P3.3 million (TSN, April 26, 1990, pp.
16-17);
(c) Rivera received the buyers letter dated August 30, 1987 offering P3.5 million
(TSN, 30 July 1990, p. 11);
(d) Rivera signed the letter dated September 1, 1987 offering to sell the property for
P5.5 million (TSN, July 30, p. 11);
(e) Rivera received the letter dated September 17, 1987 containing the buyers
proposal to buy the property for P4.25 million (TSN, July 30, 1990, p. 12);
(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final
price of the Bank (TSN, January 16, 1990, p. 18);
(g) Rivera arranged the meeting between the buyers and Luis Co on September 28,
1987, during which the Banks offer of P5.5 million was confirmed by Rivera (TSN,
April 26, 1990, pp. 34-35). At said meeting, Co, a major shareholder and officer of
the Bank, confirmed Riveras statement as to the finality of the Banks counter-offer of
P5.5 million (TSN, January 16, 1990, p. 21; TSN, April 26, 1990, p. 35);
(h) In its newspaper advertisements and announcements, the Bank referred to Rivera
as the officer acting for the Bank in relation to parties interested in buying assets
owned/acquired by the Bank. In fact, Rivera was the officer mentioned in the Banks
advertisements offering for sale the property in question (cf. Exhs. S and S-I).
In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et
al.,[32] the Court, through Justice Jose A. R. Melo, affirmed the doctrine of apparent
authority as it held that the apparent authority of the officer of the Bank of P.I. in charge
of acquired assets is borne out by similar circumstances surrounding his dealings with
buyers.
To be sure, petitioners attempted to repudiate Riveras apparent authority through
documents and testimony which seek to establish Riveras actual authority. These
pieces of evidence, however, are inherently weak as they consist of Riveras self-serving
testimony and various inter-office memoranda that purport to show his limited actual
authority, of which private respondent cannot be charged with knowledge. In any event,
since the issue is apparent authority, the existence of which is borne out by the
respondent Courts findings, the evidence of actual authority is immaterial insofar as the
liability of a corporation is concerned.[33]
Petitioners also argued that since Demetria and Janolo were experienced lawyers
and their law firm had once acted for the Bank in three criminal cases, they should be
charged with actual knowledge of Riveras limited authority. But the Court of Appeals
in its Decision (p. 12) had already made a factual finding that the buyers had no notice
of Riveras actual authority prior to the sale. In fact, the Bank has not shown that they
acted as its counsel in respect to any acquired assets; on the other hand, respondent has
proven that Demetria and Janolo merely associated with a loose aggrupation of lawyers
(not a professional partnership), one of whose members (Atty. Susana Parker) acted in
said criminal cases.
Petitioners also alleged that Demetrias and Janolos P4.25 million counter-offer in
the letter dated September 17, 1987 extinguished the Banks offer of P5.5
million.[34] They disputed the respondent Courts finding that there was a meeting of
minds when on 30 September 1987 Demetria and Janolo through Annex L (letter dated
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Banking Law Cases
September 30, 1987) accepted Riveras counter offer of P5.5 million under Annex J
(letter dated September 17, 1987), citing the late Justice Paras,[35] Art. 1319 of the Civil
Code[36] and related Supreme Court rulings starting with Beaumont vs. Prieto.[37]
However, the above-cited authorities and precedents cannot apply in the instant
case because, as found by the respondent Court which reviewed the testimonies on this
point, what was accepted by Janolo in his letter dated September 30, 1987 was the
Banks offer of P5.5 million as confirmed and reiterated to Demetria and Atty. Jose
Fajardo by Rivera and Co during their meeting on September 28, 1987. Note that the
said letter of September 30, 1987 begins with (p)ursuant to our discussion last 28
September 1987 x x x.
Petitioners insist that the respondent Court should have believed the testimonies of
Rivera and Co that the September 28, 1987 meeting was meant to have the offerors
improve on their position of P5.5 million.[38] However, both the trial court and the Court
of Appeals found petitioners testimonial evidence not credible, and we find no basis
for changing this finding of fact.
Indeed, we see no reason to disturb the lower courts (both the RTC and the CA)
common finding that private respondents evidence is more in keeping with truth and
logic - that during the meeting on September 28, 1987, Luis Co and Rivera confirmed
that the P5.5 million price has been passed upon by the Committee and could no longer
be lowered (TSN of April 27, 1990, pp. 34-35).[39] Hence, assuming arguendo that the
counter-offer of P4.25 million extinguished the offer of P5.5 million, Luis Cos
reiteration of the said P5.5 million price during the September 28,
1987 meeting revived the said offer. And by virtue of the September 30, 1987 letter
accepting this revived offer, there was a meeting of the minds, as the acceptance in said
letter was absolute and unqualified.
We note that the Banks repudiation, through Conservator Encarnacion, of Riveras
authority and action, particularly the latters counter-offer of P5.5 million, as being
unauthorized and illegal came only on May 12, 1988 or more than seven (7) months
after Janolos acceptance. Such delay, and the absence of any circumstance which might
have justifiably prevented the Bank from acting earlier, clearly characterizes the
repudiation as nothing more than a last-minute attempt on the Banks part to get out of
a binding contractual obligation.
Taken together, the factual findings of the respondent Court point to an implied
admission on the part of the petitioners that the written offer made on September 1,
1987 was carried through during the meeting of September 28, 1987. This is the
conclusion consistent with human experience, truth and good faith.
It also bears noting that this issue of extinguishment of the Banks offer of P5.5
million was raised for the first time on appeal and should thus be disregarded.
This Court in several decisions has repeatedly adhered to the principle that points of
law, theories, issues of fact and arguments not adequately brought to the attention of
the trial court need not be, and ordinarily will not be, considered by a reviewing court,
as they cannot be raised for the first time on appeal (Santos vs. IAC, No. 74243,
November 14, 1986, 145 SCRA 592).[40]
xxx It is settled jurisprudence that an issue which was neither averred in the
complaint nor raised during the trial in the court below cannot be raised for the first
time on appeal as it would be offensive to the basic rules of fair play, justice and due
process (Dihiansan vs. CA, 153 SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA 434
[1987]; Dulos Realty & Development Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs.
IAC, 175 SCRA 70 [1989]; Gevero vs. IAC, G.R. 77029, August 30, 1990).[41]
Since the issue was not raised in the pleadings as an affirmative defense, private
respondent was not given an opportunity in the trial court to controvert the same
through opposing evidence. Indeed, this is a matter of due process. But we passed upon
the issue anyway, if only to avoid deciding the case on purely procedural grounds, and
we repeat that, on the basis of the evidence already in the record and as appreciated by
the lower courts, the inevitable conclusion is simply that there was a perfected contract
of sale.
The Third Issue: Is the Contract Enforceable?
The petition alleged:[42]
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Banking Law Cases
Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million
during the meeting of 28 September 1987, and it was this verbal offer that Demetria
and Janolo accepted with their letter of 30 September 1987, the contract produced
thereby would be unenforceable by action - there being no note, memorandum or
writing subscribed by the Bank to evidence such contract. (Please see Article 1403[2],
Civil Code.)
Upon the other hand, the respondent Court in its Decision (p. 14) stated:
x x x Of course, the banks letter of September 1, 1987 on the official price and the
plaintiffs acceptance of the price on September 30, 1987, are not, in themselves,
formal contracts of sale. They are however clear embodiments of the fact that a
contract of sale was perfected between the parties, such contract being binding in
whatever form it may have been entered into (case citations omitted). Stated simply,
the banks letter of September 1, 1987, taken together with plaintiffs letter
dated September 30, 1987, constitute in law a sufficient memorandum of a perfected
contract of sale.
The respondent Court could have added that the written communications
commenced not only from September 1, 1987 but from Janolos August 20, 1987 letter.
We agree that, taken together, these letters constitute sufficient memoranda - since they
include the names of the parties, the terms and conditions of the contract, the price and
a description of the property as the object of the contract.
But let it be assumed arguendo that the counter-offer during the meeting
on September 28, 1987 did constitute a new offer which was accepted by Janolo
on September 30, 1987. Still, the statute of frauds will not apply by reason of the failure
of petitioners to object to oral testimony proving petitioner Banks counter-offer of P5.5
million. Hence, petitioners - by such utter failure to object - are deemed to have waived
any defects of the contract under the statute of frauds, pursuant to Article 1405 of the
Civil Code:
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article
1403, are ratified by the failure to object to the presentation of oral evidence to prove
the same, or by the acceptance of benefits under them.
As private respondent pointed out in his Memorandum, oral testimony on the
reaffirmation of the counter-offer of P5.5 million is aplenty -and the silence of
petitioners all throughout the presentation makes the evidence binding on them thus:
A - Yes, sir. I think it was September 28, 1987 and I was again present because
Atty. Demetria told me to accompany him and we were able to meet Luis
Co at the Bank.
xxx xxx xxx
Q - Now, what transpired during this meeting with Luis Co of the Producers
Bank?
A - Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.
Q - What price?
A - The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr.
Mercurio Rivera is the final price and that is the price they intends (sic)
to have, sir.
Q - What do you mean?
A - That is the amount they want, sir.
Q - What is the reaction of the plaintiff Demetria to Luis Cos statment (sic)
that the defendant Riveras counter-offer of 5.5 million was the defendants
bank (sic) final offer?
A - He said in a day or two, he will make final acceptance, sir.
Q - What is the response of Mr. Luis Co?
A - He said he will wait for the position of Atty. Demetria, sir.
[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]
----0----
Q - What transpired during that meeting between you and Mr. Luis Co of the
defendant Bank?
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Banking Law Cases
A - We went straight to the point because he being a busy person, I told him
if the amount of P5.5 million could still be reduced and he said that was
already passed upon by the committee. What the bank expects which was
contrary to what Mr. Rivera stated. And he told me that is the final offer
of the bank P5.5 million and we should indicate our position as soon as
possible.
Q - What was your response to the answer of Mr. Luis Co?
A - I said that we are going to give him our answer in a few days and he said
that was it. Atty. Fajardo and I and Mr. Mercurio [Rivera] was with us at
the time at his office.
Q - For the record, your Honor please, will you tell this Court who was with
Mr. Co in his Office in Producers Bank Building during this meeting?
A - Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.
Q - By Mr. Co you are referring to?
A - Mr. Luis Co.
Q - After this meeting with Mr. Luis Co, did you and your partner accede on
(sic) the counter offer by the bank?
A - Yes, sir, we did. Two days thereafter we sent our acceptance to the bank
which offer we accepted, the offer of the bank which is P5.5 million.
[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]
---- 0 ----
Q - According to Atty. Demetrio Demetria, the amount of P5.5 million was
reached by the Committee and it is not within his power to reduce this
amount. What can you say to that statement that the amount of P5.5
million was reached by the Committee?
A - It was not discussed by the Committee but it was discussed initially by
Luis Co and the group of Atty. Demetrio Demetria and Atty. Pajardo
(sic), in that September 28, 1987 meeting, sir.
[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]
The Fourth Issue: May the Conservator Revoke
the Perfected and Enforceable Contract?
It is not disputed that the petitioner Bank was under a conservator placed by the
Central Bank of the Philippines during the time that the negotiation and perfection of
the contract of sale took place. Petitioners energetically contended that the conservator
has the power to revoke or overrule actions of the management or the board of directors
of a bank, under Section 28-A of Republic Act No. 265 (otherwise known as the Central
Bank Act) as follows:
Whenever, on the basis of a report submitted by the appropriate supervising or
examining department, the Monetary Board finds that a bank or a non-bank financial
intermediary performing quasi - banking functions is in a state of continuing inability
or unwillingness to maintain a state of liquidity deemed adequate to protect the
interest of depositors and creditors, the Monetary Board may appoint a conservator to
take charge of the assets, liabilities, and the management of that institution, collect all
monies and debts due said institution and exercise all powers necessary to preserve
the assets of the institution, reorganize the management thereof, and restore its
viability. He shall have the power to overrule or revoke the actions of the previous
management and board of directors of the bank or non-bank financial intermediary
performing quasi-banking functions, any provision of law to the contrary
notwithstanding, and such other powers as the Monetary Board shall deem necessary.
In the first place, this issue of the Conservators alleged authority to revoke or
repudiate the perfected contract of sale was raised for the first time in this Petition - as
this was not litigated in the trial court or Court of Appeals. As already stated earlier,
issues not raised and/or ventilated in the trial court, let alone in the Court of Appeals,
cannot be raised for the first time on appeal as it would be offensive to the basic rules
of fair play, justice and due process.[43]
In the second place, there is absolutely no evidence that the Conservator, at the
time the contract was perfected, actually repudiated or overruled said contract of sale.
The Banks acting conservator at the time, Rodolfo Romey, never objected to the sale
of the property to Demetria and Janolo. What petitioners are really referring to is the
98
Banking Law Cases
letter of Conservator Encarnacion, who took over from Romey after the sale was
perfected on September 30, 1987 (Annex V, petition) which unilaterally repudiated -
not the contract - but the authority of Rivera to make a binding offer - and which
unarguably came months after the perfection of the contract. Said letter dated May 12,
1988 is reproduced hereunder:
May 12, 1988
Atty. Noe C. Zarate
Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building
Ayala Avenue, Makati, Metro Manila
Dear Atty. Zarate:
This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and
Demetria regarding the six (6) parcels of land located at Sta. Rosa, Laguna.
We deny that Producers Bank has ever made a legal counter-offer to any of your
clients nor perfected a contract to sell and buy with any of them for the following
reasons.
In the Inter-Office Memorandum dated April 25, 1986 addressed to and approved by
former Acting Conservator Mr. Andres I. Rustia, Producers Bank Senior Manager
Perfecto M. Pascua detailed the functions of Property Management Department
(PMD) staff and officers (Annex A), you will immediately read that Manager Mr.
Mercurio Rivera or any of his subordinates has no authority, power or right to make
any alleged counter-offer. In short, your lawyer-clients did not deal with the
authorized officers of the bank.
Moreover, under Secs. 23 and 36 of the Corporation Code of the Philippines (Batas
Pambansa Blg. 68) and Sec. 28-A of the Central Bank Act (Rep. Act No. 265, as
amended), only the Board of Directors/Conservator may authorize the sale of any
property of the corporation/bank.
Our records do not show that Mr. Rivera was authorized by the old board or by any
of the bank conservators (starting January, 1984) to sell the aforesaid property to any
of your clients. Apparently, what took place were just preliminary discussions/
consultations between him and your clients, which everyone knows cannot bind the
Banks Board or Conservator.
We are, therefore, constrained to refuse any tender of payment by your clients, as the
same is patently violative of corporate and banking laws. We believe that this is more
than sufficient legal justification for refusing said alleged tender.
Rest assured that we have nothing personal against your clients. All our acts are
official, legal and in accordance with law. We also have no personal interest in any
of the properties of the Bank.
Please be advised accordingly.
Very truly yours,
(Sgd.) Leonida T.
Encarnacion
LEONIDA T.
ENCARNACION
Acting Conservator
In the third place, while admittedly, the Central Bank law gives vast and far-
reaching powers to the conservator of a bank, it must be pointed out that such powers
must be related to the (preservation of) the assets of the bank, (the reorganization of)
the management thereof and (the restoration of) its viability. Such powers, enormous
and extensive as they are, cannot extend to the post-facto repudiation of perfected
transactions, otherwise they would infringe against the non-impairment clause of the
Constitution.[44] If the legislature itself cannot revoke an existing valid contract, how
can it delegate such non-existent powers to the conservator under Section 28-A of said
law?
Obviously, therefore, Section 28-A merely gives the conservator power to revoke
contracts that are, under existing law, deemed to be defective - i.e., void, voidable,
unenforceable or rescissible. Hence, the conservator merely takes the place of a banks
99
Banking Law Cases
board of directors. What the said board cannot do - such as repudiating a contract
validly entered into under the doctrine of implied authority - the conservator cannot do
either. Ineluctably, his power is not unilateral and he cannot simply repudiate valid
obligations of the Bank. His authority would be only to bring court actions to assail
such contracts - as he has already done so in the instant case. A contrary understanding
of the law would simply not be permitted by the Constitution. Neither by common
sense. To rule otherwise would be to enable a failing bank to become solvent, at the
expense of third parties, by simply getting the conservator to unilaterally revoke all
previous dealings which had one way or another come to be considered unfavorable to
the Bank, yielding nothing to perfected contractual rights nor vested interests of the
third parties who had dealt with the Bank.
The Fifth Issue: Were There Reversible Errors of Fact?
Basic is the doctrine that in petitions for review under Rule 45 of the Rules of
Court, findings of fact by the Court of Appeals are not reviewable by the Supreme
Court. In Andres vs. Manufacturers Hanover & Trust Corporation,[45] we held:
x x x. The rule regarding questions of fact being raised with this Court in a petition
for certiorari under Rule 45 of the Revised Rules of Court has been stated in
Remalante vs. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus:
The rule in this jurisdiction is that only questions of law may be raised in a petition
for certiorari under Rule 45 of the Revised Rules of Court. The jurisdiction of the
Supreme Court in cases brought to it from the Court of Appeals is limited to
reviewing and revising the errors of law imputed to it, its findings of the fact being
conclusive [Chan vs. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA
737, reiterating a long line of decisions]. This Court has emphatically declared that it
is not the function of the Supreme Court to analyze or weigh such evidence all
over again, its jurisdiction being limited to reviewing errors of law that might have
been committed by the lower court (Tiongco v. De la Merced, G.R. No. L-24426, July
25, 1974, 58 SCRA 89; Corona vs. Court of Appeals, G.R. No. L-62482, April 28,
1983, 121 SCRA 865; Baniqued vs. Court of Appeals, G.R. No. L-47531, February
20, 1984, 127 SCRA 596). Barring, therefore, a showing that the findings complained
of are totally devoid of support in the record, or that they are so glaringly erroneous
as to constitute serious abuse of discretion, such findings must stand, for this Court is
not expected or required to examine or contrast the oral and documentary evidence
submitted by the parties [Santa Ana, Jr. vs. Hernandez, G.R. No. L-16394, December
17, 1966, 18 SCRA 973] [at pp. 144-145.]
Likewise, in Bernardo vs. Court of Appeals,[46] we held:
The resolution of this petition invites us to closely scrutinize the facts of the case,
relating to the sufficiency of evidence and the credibility of witnesses presented. This
Court so held that it is not the function of the Supreme Court to analyze or weigh
such evidence all over again. The Supreme Courts jurisdiction is limited to reviewing
errors of law that may have been committed by the lower court. The Supreme Court is
not a trier of facts. x x x
As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock
Construction and Development Corp.:[47]
The Court has consistently held that the factual findings of the trial court, as well as
the Court of Appeals, are final and conclusive and may not be reviewed on appeal.
Among the exceptional circumstances where a reassessment of facts found by the
lower courts is allowed are when the conclusion is a finding grounded entirely on
speculation, surmises or conjectures; when the inference made is manifestly absurd,
mistaken or impossible; when there is grave abuse of discretion in the appreciation of
facts; when the judgment is premised on a misapprehension of facts; when the
findings went beyond the issues of the case and the same are contrary to the
admissions of both appellant and appellee. After a careful study of the case at bench,
we find none of the above grounds present to justify the re-evaluation of the findings
of fact made by the courts below.
In the same vein, the ruling of this Court in the recent case of South Sea Surety
and Insurance Company, Inc. vs. Hon. Court of Appeals, et al.[48] is equally applicable
to the present case:
We see no valid reason to discard the factual conclusions of the appellate court. x x x
(I)t is not the function of this Court to assess and evaluate all over again the evidence,
100
Banking Law Cases

testimonial and documentary, adduced by the parties, particularly where, such as and self-serving character of these declarations, the banks submissions on this point do
here, the findings of both the trial court and the appellate court on the matter coincide. not inspire belief.
(italics supplied)
To become credible and unequivocal, petitioners should have presented then
Conservator Rodolfo Romey to testify on their behalf, as he would have been in the
Petitioners, however, assailed the respondent Courts Decision as fraught with
best position to establish their thesis. Under the rules on evidence,[51] such suppression
findings and conclusions which were not only contrary to the evidence on record but
gives rise to the presumption that his testimony would have been adverse, if produced.
have no bases at all, specifically the findings that (1) the Banks counter-offer price of
P5.5 million had been determined by the past due committee and approved by The second point was squarely raised in the Court of Appeals, but petitioners
conservator Romey, after Rivera presented the same for discussion and (2) the meeting evidence was deemed insufficient by both the trial court and the respondent Court, and
with Co was not to scale down the price and start negotiations anew, but a meeting on instead, it was respondents submissions that were believed and became bases of the
the already determined price of P5.5 million. Hence, citing Philippine National Bank conclusions arrived at.
vs. Court of Appeals,[49] petitioners are asking us to review and reverse such factual
In fine, it is quite evident that the legal conclusions arrived at from the findings of
findings.
fact by the lower courts are valid and correct. But the petitioners are now asking this
The first point was clearly passed upon by the Court of Appeals,[50] thus: Court to disturb these findings to fit the conclusion they are espousing. This we cannot
do.
There can be no other logical conclusion than that when, on September 1, 1987,
To be sure, there are settled exceptions where the Supreme Court may disregard
Rivera informed plaintiffs by letter that the banks counter-offer is at P5.5 Million for
findings of fact by the Court of Appeals.[52] We have studied both the records and the
more than 101 hectares on lot basis, such counter-offer price had been determined by
CA Decision and we find no such exceptions in this case. On the contrary, the findings
the Past Due Committee and approved by the Conservator after Rivera had duly
of the said Court are supported by a preponderance of competent and credible evidence.
presented plaintiffs offer for discussion by the Committee x x x. Tersely put, under
The inferences and conclusions are reasonably based on evidence duly identified in the
the established fact, the price of P5.5 Million was, as clearly worded in Riveras letter
Decision. Indeed, the appellate court patiently traversed and dissected the issues
(Exh. E), the official and definitive price at which the bank was selling the property.
presented before it, lending credibility and dependability to its findings. The best that
(p. 11, CA Decision)
can be said in favor of petitioners on this point is that the factual findings of respondent
Court did not correspond to petitioners claims, but were closer to the evidence as
xxx xxx xxx
presented in the trial court by private respondent. But this alone is no reason to reverse
or ignore such factual findings, particularly where, as in this case, the trial court and
xxx. The argument deserves scant consideration. As pointed out by plaintiff, during
the appellate court were in common agreement thereon. Indeed, conclusions of fact of
the meeting of September 28, 1987 between the plaintiffs, Rivera and Luis Co, the
a trial judge - as affirmed by the Court of Appeals - are conclusive upon this Court,
senior vice-president of the bank, where the topic was the possible lowering of the
absent any serious abuse or evident lack of basis or capriciousness of any kind, because
price, the bank official refused it and confirmed that the P5.5 Million price had been
the trial court is in a better position to observe the demeanor of the witnesses and their
passed upon by the Committee and could no longer be lowered (TSN of April 27,
courtroom manner as well as to examine the real evidence presented.
1990, pp. 34-35) (p. 15, CA Decision).

The respondent Court did not believe the evidence of the petitioners on this point,
characterizing it as not credible and at best equivocal, and considering the gratuitous Epilogue

101
Banking Law Cases

In summary, there are two procedural issues involved - forum-shopping and the WHEREFORE, finding no reversible error in the questioned Decision and
raising of issues for the first time on appeal [viz., the extinguishment of the Banks offer Resolution, the Court hereby DENIES the petition. The assailed Decision is
of P5.5 million and the conservators powers to repudiate contracts entered into by the AFFIRMED. Moreover, petitioner Bank is REPRIMANDED for engaging in forum-
Banks officers] - which per se could justify the dismissal of the present case. We did shopping and WARNED that a repetition of the same or similar acts will be dealt with
not limit ourselves thereto, but delved as well into the substantive issues - the perfection more severely. Costs against petitioners.
of the contract of sale and its enforceability, which required the determination of
SO ORDERED.
questions of fact. While the Supreme Court is not a trier of facts and as a rule we are
not required to look into the factual bases of respondent Courts decisions and
resolutions, we did so just the same, if only to find out whether there is reason to disturb
any of its factual findings, for we are only too aware of the depth, magnitude and vigor
by which the parties, through their respective eloquent counsel, argued their positions
before this Court.
We are not unmindful of the tenacious plea that the petitioner Bank is operating
abnormally under a government-appointed conservator and there is need to rehabilitate
the Bank in order to get it back on its feet x x x as many people depend on (it) for
investments, deposits and well as employment. As of June 1987, the Banks overdraft
with the Central Bank had already reached P1.023 billion x x x and there were (other)
offers to buy the subject properties for a substantial amount of money.[53]
While we do not deny our sympathy for this distressed bank, at the same time, the
Court cannot emotionally close its eyes to overriding considerations of substantive and
procedural law, like respect for perfected contracts, non-impairment of obligations and
sanctions against forum-shopping, which must be upheld under the rule of law and
blind justice.
This Court cannot just gloss over private respondents submission that, while the
subject properties may currently command a much higher price, it is equally true that
at the time of the transaction in 1987, the price agreed upon of P5.5 million was
reasonable, considering that the Bank acquired these properties at a foreclosure sale for
no more than P 3.5 million.[54] That the Bank procrastinated and refused to honor its
commitment to sell cannot now be used by it to promote its own advantage, to enable
it to escape its binding obligation and to reap the benefits of the increase in land values.
To rule in favor of the Bank simply because the property in question has algebraically
accelerated in price during the long period of litigation is to reward lawlessness and
delays in the fulfillment of binding contracts. Certainly, the Court cannot stamp its
imprimatur on such outrageous proposition.
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Banking Law Cases
G.R. No. L-21146 September 20, 1965
RURAL BANK OF LUCENA, INC., petitioner,
vs.
HON. FRANCISCO ARCA, as Judge of the Court of First Instance of Manila,
Branch 1, and CENTRAL BANK OF THE PHILIPPINES, respondents.
Norberto J. Quisumbing for petitioner.
Nat. M. Balboa, F. E. Evangelista and Solicitor General for respondents.
REYES, J.B.L., J.:
The Rural Bank of Lucena, Inc., a banking corporation organized under Republic Act
No. 720, instituted, on June 22, 1961, in the Court of First Instance of Manila (Civil
Case No. 47345) an action to collect damages and to enjoin the Central Bank from
enforcing Resolution No. 928 of its Monetary Board, finding that the Rural Bank of
Lucena (Lucena for short), through its officers, directors, and employees, had
committed acts substantially prejudicial to the Government, depositors, and creditors,
and directing Lucena to reorganize its board of directors; to refrain from granting or
renewing loans, or accept new deposits, and not to issue drafts or make disbursements
without the approval of the supervising Central Bank examiners, and threatening
Lucena that its management would be taken over if the latter should fail to comply
with the resolution. After issue joined and trial of the case, and while the litigation
was still undecided by the Court of First Instance, the Monetary Board, having been
informed that the Director of its Department of Rural Banks recommended the
liquidation of the Rural Bank of Lucena, adopted on February 2, 1962 its Resolution
No. 122 (Petition, Annex "C") —
To request the Solicitor General, pursuant to Section 29 of Republic Act No.
265, to file a petition in the proper courts for the liquidation of the affairs of
the Rural Bank of Lucena, Inc.
Notice was given by Central Bank officials, on February 10, 1962 that the Lucena
bank was temporarily closed pending final decision of the Court, and that business be
transacted with Central Bank representatives only.
Two days later (February 12, 1962), the Lucena bank filed suit in the Court of First
Instance of Quezon (Tayabas) annual Resolution 122 of the Monetary Board (Case
No. 6471) and enjoin its enforcement; and on February 14 the court issued ex parte a
writ of preliminary injunction to such effect.
On the same day, the Court of First Instance of Manila, per Judge, now Court of
Appeals Justice, Magno Gatmaitan of Branch XIV, decided Case No. 47345,
enjoining enforcement of Resolution No. 928 of the Monetary Board, for having been
issued without the prior hearing prescribed by section 10 of the Rural Bank Act, and
ordering the Central Bank to pay P5,000.00 damages and costs. The Central Bank
appealed.
Upon the other hand, the Court of First Instance of Quezon Province, in its Case No.
6741, on February, 24, 1962, dissolved its preliminary injunction against the
enforcement of Resolution 122 of the Monetary Board. Other than filing a motion for
reconsideration (ultimately denied on January 9, 1963) the Lucena bank took no other
steps to prosecute the case it had filed.
On the 31st of March 1962, invoking section 29 of Republic Act 265, the Central
Bank, as liquidator, petitioned the Court of First Instance of Manila for assistance in
the liquidation of the Lucena bank (Civil Case No. 50019). Upon motion, and after
hearing the parties, Judge Arca issued on interlocutory order on March 28, 1963, the
dispositive portion of which is to the following effect (Petition, Annex "D"):
The Rural Bank of Lucena thru its duly authorized officers or representatives,
is hereby ordered to turn over to the Central Bank, thru its duly authorized
representative, within a period of five (5) days from receipt of copy of this
order, the physical possession of all of said Rural Bank of Lucena's assets,
properties and papers. Should the Rural Bank of Lucena or its officers fail to
comply with the above order within the period indicated herein, the Central
Bank, thru its authorized representatives, is hereby authorized to take actual
and physical possession of all said assets, properties and papers of the Rural
103
Banking Law Cases
Bank of Lucena, duly inventoried in the presence of the Provincial Fiscal, the
Provincial Commander, the Provincial Treasurer, and the Provincial Auditor
of Quezon province, or their duly authorized representatives.
The Rural Bank of Lucena resorted to this Court on certiorari, claiming that Judge
Arca gravely abused his discretion in issuing the above order, in that —
(a) it interferes with the immediately executory judgment of Judge Gatmaitan
in Case No. 47345 of the Court of First Instance of Manila;
(b) Section 29 of the Central Bank Act (R.A. 265) does not apply;
(c) there was no prior valid take over of assets nor due hearing of the
liquidated Bank;
(d) Judge Gatmaitan's decision constitutes a judicial review of the Monetary
Board's action that cannot be nullified by the challenged order of Judge Area;
and
(e) the turn over should not be ordered before trial on the merits.1awphîl.nèt
This Court issued a temporary restraining order until April 25, 1963, but the same
was not renewed when it expired.
We see no irreconcilable conflict between section 10 (as amended) of Republic Act
No. 720 (Rural Banks Act) and section 29 of Republic Act No. 265 (Central Bank
Act). The former provides in substance as follows:
The director of the Department of the Central Bank designated by the
Monetary Board to supervise Rural Banks ... upon proof that the Rural Bank
or its board of directors or officers are conducting and managing the affairs of
the bank in a manner contrary to laws, orders, instructions, rules and
regulations promulgated by the Monetary Board or in any manner
substantially prejudicial to the interests of the government, depositors or
creditors, to take over the management of such bank when specifically
authorized to do so by the Monetary Board after due hearing until a new board
of directors and officers are elected and qualified. ...
It is easily seen that what this section authorized is the take over of the
management by the Central Bank, until the governing body of the offending Rural
Bank is recognized with a view to assuring compliance by it with the laws and
regulations.
Upon the other hand, section 29 6f the Central Bank Act (R. A. 265) has in view a
much more drastic step, the liquidation of a rural bank by taking over its assets and
converting them into money to pay off its creditors. Said section prescribes:
SEC. 29. Proceedings upon insolvency. — Whenever, upon examination by
the Superintendent or his examiners or agents into the condition of any
banking institution, it shall be disclosed that the condition of the same is one
of insolvency, or that its continuance in business would involve probable loss
to its depositors or creditors, it shall be the duty of the Superintendent
forthwith, in writing, to inform the Monetary Board of the facts, and the
Board, upon finding the statement of the Superintendent to be true, shall
forthwith forbid the institution to do business in the Philippines and shall take
charge of its assets and proceeds according to law.
The Monetary Board shall thereupon determine within thirty days whether the
institution may be reorganized or otherwise placed in such a condition so that
it may be permitted to resume business with safety to its creditors and shall
prescribe the conditions under which such resumption of business shall take
place. In such case the expenses and fee in the administration of the institution
shall be determined by the Board and shall be paid to the Central Bank out of
the assets of such banking institution.
At any time within ten days after the Monetary Board has taken charge of the
assets of any banking institution, such institution may apply to the Court of
First Instance for an order requiring the Monetary Board to show cause why it
should not be enjoined from continuing such charge of its assets, and the court
may direct the Board to refrain from further proceedings and to surrender
charge of its assets.
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If the Monetary Board shall determine that the banking institution cannot
resume business with safety to its creditors, it shall, by the Solicitor General,
file a petition in the Court of First Instance reciting the proceedings which
have been taken and praying the assistance and supervision of the court in the
liquidation of the affairs of the same. The Superintendent shall thereafter,
upon order of the Monetary Board and under the supervision of the court and
with all convenient speed, convert the assets of the banking institution to
money.
Considering that section 27 of the Rural Banks law (R.A. No. 720) expressly declares
that —
The provisions of Republic Acts numbered 265 and 337, in so far as
applicable and not in conflict with any provision of this Act, are hereby made
a part of this Act.
we find no room for questioning the applicability of section 29 of Republic Act No.
265 (Central Bank Act) to rural banks organized under Republic Act 720, whenever
the Monetary Board should find that the rural bank affected is insolvent, or that its
continuance in business would involve probable loss to its depositors or creditors, and
that it cannot resume business with safety.
It follows that on the assumption that under section 10 of the Rural Banks Act the
Monetary Board may not take over the management of a rural bank without giving
the latter a hearing, i.e., an opportunity to rebut the charge that it has contravened
applicable laws, rules and regulations to the substantial prejudice of the government,
its depositors and creditors, such a previous hearing is nowhere required by section 29
of the Central Bank Law. Manifestly, whether a rural bank's "continuance in business
would involve probable loss" to its clients or creditors and that it "cannot resume
business with safety," is a matter of appreciation and judgment that the law entrusts
primarily to the Monetary Board. Equally apparent is that if the rural bank affected is
in the condition previously adverted to, every minute of delay in securing its assets
from dissipation inevitably increases the danger to the creditors. For this reason, the
statute has provided for a subsequent judicial review of the Monetary Board, in lieu
of a previous hearing.
In point of fact, the petitioner Rural Bank of Lucena did file a petition (Annex "G")
for judicial review in the Court of First Instance of Quezon Province, dated February
12, 1962, and challenged the validity of Resolution No. 122 of the Monetary Board
(Case No. 6471) ; but the Court of First Instance of Quezon dissolved the preliminary
injunction issued in that case and allowed Resolution No. 122 to take effect, without
any steps being taken for a review of such action. This being the case, and in view of
the manifest reluctance the Lucena bank's officials to comply with the Monetary
Board's resolution, the Central Bank had cause to seek judicial assistance for the
discharge of its duties as liquidator.
The petitioner rural bank seems to take the view that the proceedings had before
Judge Gatmaitan in Case No. 47345, Branch XIV, of the Court of First Instance of
Manila constituted the judicial review required by section 29 of Republic Act No.
265, the Central Bank Act. Such a stand is untenable, for the case tried and decided
by Judge Gatmaitan concerned an attempt by the Central Bank to take over
management under section 10 of the Rural Banks law (R.A. No. 720) in connection
with the Monetary Board's resolution No. 928 of June 16, 1961. Even more
conclusive is the consideration that said action (Case No. 47345) was filed on June
22, 1961, and could not possibly be a judicial review of the Resolution No. 122
adopted eight months later, on February 2, 1962. A review cannot precede the
adoption of the resolution being reviewed. This proposition requires no
demonstration.
The narrated events also rebut the contention that the order of Judge Area, issued on
March 28, 1963, in Case No. 50019, constitutes unlawful interference with the
enforcement of Judge Gatmaitan's decision of February 14, 1962, the issues involved
being different in each case. As heretofore pointed out one involved a take over of
management under section 10 of the Rural Banks Act, and the other a seizure of
assets and liquidation under section 29 of the Central Bank law (R.A. 265).
Nor can the proceedings before Judge Area be deemed judicial review of the 1962
resolution No. 122 of the Monetary Board, if only because by law (section 29, R. A.
265) such review must be asked within 10 days from notice of the resolution of the
Board. Between the adoption of Resolution No. 122 and the challenged order of
Judge Arca, more than one year had elapsed. Hence, the validity of the Monetary
Board's resolution can no longer be litigated before Judge Arca, whose role under the
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fourth paragraph of section 29 is confined to assisting and supervising the liquidation

of the Lucena bank.

Whether or not the Central Bank acted with arbitrariness or bad faith in decreeing that
circumstances called for the liquidation of the Lucena Rural Bank, and should be
answerable in damages, should be threshed out and determined, not by Judge Arca
but in Case No. 6471 of the Court of First Instance of Quezon Province, which was
filed within the 10-day period prescribed by the Central Bank law, and which appears
to be still pending, unless the Lucena bank had abandoned such litigation, a fact that
we need not decide at present. Suffice it to say that Judge Arca had no reason to
inquire into the merits of the case before issuing the disputed order requiring the
surrender of the assets and papers of the Lucena bank, because: (1) neither the statute
(sec. 29, R.A. 265) nor the constitutional requirement of due process demand that the
correctness of the Monetary Board's resolution to stop operation and proceed to the
liquidation of the Lucena Rural Bank should first be adjudged before making the
resolution effective, it being enough that a subsequent judicial review by provided
(section 29, R.A. 265; 12 Am. Jur. 305, sec. 611; Bourjois vs. Chapman, 301 U.S.
183, 81 Law Ed. 1027, 1032; American Surety Co. vs. Baldwin, 77 Law Ed. 231, 86
ALR 307; Wilson vs. Standefer, 46 Law Ed. 612); (2) the period for asking such
judicial review had elapsed with excess between the adoption of the Monetary Board
Resolution No. 122 and the filing of the case by the Central Bank in the Court of First
Instance of Manila; (3) the correctness of said resolution had already been put in issue
before the Court of Quezon Province; (4) because the latter court had refused to stop
implementation of the Resolution of the Monetary Board when it dissolved its own
preliminary injunction; and (5) because the Lucena Bank had apparently acquiesced
in the action taken by the Court of Quezon Province, since the rural bank had not
sought that the action of the Quezon court be set aside by a higher court.

IN VIEW OF THE FOREGOING, the writ applied for is denied with costs against
the petitioner Lucena Rural Bank, Inc.

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Banking Law Cases
G.R. No. L-61689 June 20, 1988
RURAL BANK OF BUHI, INC., and HONORABLE JUDGE CARLOS R.
BUENVIAJE, petitioners,
vs.
HONORABLE COURT OF APPEALS, CENTRAL BANK OF THE
PHILIPPINES and CONSOLACION ODRA, respondents.
Manuel B. Tomacruz and Rustico Pasilavan for petitioners.
I.B. Regalado, Jr. and Pacifica T. Torres for respondents.
PARAS, J.:
This is a petition for review on certiorari with preliminary mandatory injunction
seeking the reversal of the orders of the Court of Appeals dated March 19, 1982 and
March 24, 1982 and its decision * (HATOL) promulgated on June 17,1982 in CA-
G.R. No. 13944 entitled "Banko Central ng Pilipinas at Consolacion Odra Laban Kina
Rural Bank of Buhi (Camarines Sur), Inc." and praying for a restraining order or a
preliminary mandatory injunction to restrain respondents from enforcing aforesaid
orders and decision of the respondent Court, and to give due course to the petitioners'
complaint in IR-428, pending before Hon. Judge Carlos R. Buenviaje of Branch VII,
CFI, Camarines Sur.
The decretal portion of the appealed decision reads:
DAHIL DITO, ang utos ng pinasasagot sa Hukom noong ika-9 ng
Marso, 1982, ay isinasang-tabi. Kapalit nito, isang utos and ipinalabas
na nag-uutos sa pinasasagot sa Hukom na itigil ang anumang
pagpapatuloy o pagdidinig kaugnay sa usaping IR-428 na
pinawawalang saysay din ng Hukumang ito.
SIYANG IPINAG-UUTOS.
The antecedent facts of the case are as follows:
The petitioner Rural Bank of Buhi, Inc. (hereinafter referred to as Buhi) is a juridical
entity existing under the laws of the Philippines. Buhi is a rural bank that started its
operations only on December 26,1975 (Rollo, p. 86).
In 1980, an examination of the books and affairs of Buhi was ordered conducted by
the Rural Banks and Savings and Loan Association (DRBSLA), Central Bank of the
Philippines, which by law, has charge of the supervision and examination of rural
banks and savings and loan associations in the Philippines. However, said petitioner
refused to be examined and as a result thereof, financial assistance was suspended.
On January 10, 1980, a general examination of the bank's affairs and operations was
conducted and there were found by DRBSLA represented by herein respondent,
Consolacion V. Odra, Director of DRBSLA, among others, massive irregularities in
its operations consisting of loans to unknown and fictitious borrowers, where the sum
of P 1,704,782.00 was past due and another sum of P1,130,000.00 was also past due
in favor of the Central Bank (Rollo, p. 86). The promissory notes evidencing these
loans were rediscounted with the Central Bank for cash. As a result thereof, the bank
became insolvent and prejudiced its depositors and creditors.
Respondent, Consolacion V. Odra, submitted a report recommending to the Monetary
Board of the Central Bank the placing of Buhi under receivership in accordance with
Section 29 of Republic Act No. 265, as amended, the designation of the Director,
DRBSLA, as receiver thereof. On March 28, 1980, the Monetary Board, finding the
report to be true, adopted Resolution No. 583 placing Buhi, petitioner herein, under
receivership and designated respondent, Consolacion V. Odra, as Receiver, pursuant
to the provisions of Section 29 of Republic Act No. 265 as amended (Rollo, p. 111).
In a letter dated April 8, 1980, respondent Consolacion V. Odra, as receiver,
implemented and carried out said Monetary Board Resolution No. 583 by authorizing
deputies of the receiver to take control, possession and charge of Buhi, its assets and
liabilities (Rollo, p. 109).
Imelda del Rosario, Manager of herein petitioner Buhi, filed a petition for injunction
with Restraining Order dated April 23, 1980, docketed as Special Proceedings IR-428
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Banking Law Cases
against respondent Consolacion V. Odra and DRBSLA deputies in the Court of First
Instance of Camarines Sur, Branch VII, Iriga City, entitled Rural Bank of Buhi vs.
Central Bank, which assailed the action of herein respondent Odra in recommending
the receivership over Buhi as a violation of the provisions of Sections 28 and 29 of
Republic Act No. 265 as amended, and Section 10 of Republic Act No. 720 (The
Rural Banks Act) and as being ultra vires and done with grave abuse of discretion
and in excess of jurisdiction (Rollo, p. 120).
Respondents filed their motion to dismiss dated May 27, 1980 alleging that the
petition did not allege a cause of action and is not sufficient in form and substance
and that it was filed in violation of Section 29, Republic Act No. 265 as amended by
Presidential Decree No. 1007 (Rollo, p. 36).
Petitioners, through their counsel, filed an opposition to the motion to dismiss dated
June 17, 1980 averring that the petition alleged a valid cause of action and that
respondents have violated the due process clause of the Constitution (Rollo, p. 49).
Later, respondents filed a reply to the opposition dated July 1, 1980, claiming that the
petition is not proper; that Imelda del Rosario is not the proper representative of the
bank; that the petition failed to state a cause of action; and, that the provisions of
Section 29 of Republic Act No. 265 had been faithfully observed (Rollo, p. 57).
On August 22, 1980, the Central Bank Monetary Board issued a Resolution No. 1514
ordering the liquidation of the Rural Bank of Buhi (Rollo, p. 108).
On September 1, 1981, the Office of the Solicitor General, in accordance with
Republic Act No. 265, Section 29, filed in the same Court of First Instance of
Camarines Sur, Branch VII, a petition for Assistance in the Liquidation of Buhi,
which petition was docketed as SP-IR-553, pursuant to the Monetary Board
Resolution No. 1514 (Rollo, pp. 89; 264).
Meanwhile, respondent Central Bank filed on September 15, 1981, in Civil Case No.
IR-428 a Supplemental Motion To Dismiss on the ground that the receivership
of Buhi, in view of the issuance of the Monetary Board Resolution No. 1514 had
completely become moot and academic (Rollo, p. 68) and the fact that Case SP-IR-
553 for the liquidation of Buhi was already pending with the same Court (Rollo, p.
69).
On October 16, 1981, petitioners herein filed their amended complaint in Civil Case
No. IR-428 alleging that the issuance of Monetary Board Resolution No. 583 was
plainly arbitrary and in bad faith under aforequoted Section 29 of Republic Act No.
265 as amended, among others (Rollo, p. 28). On the same day, petitioner herein filed
a rejoinder to its opposition to the motion to dismiss (Rollo, p. 145).
On March 9,1982, herein petitioner Judge Buenviaje, issued an order denying the
respondents' motion to dismiss, supplemental motion to dismiss and granting a
temporary restraining order enjoining respondents from further managing and
administering the Rural Bank of Buhi and to deliver the possession and control
thereof to the petitioner Bank under the same conditions and with the same financial
status as when the same was taken over by herein respondents (defendants) on April
16, 1980 and further enjoining petitioner to post a bond in the amount of three
hundred thousand pesos (P300,000.00) (Rollo, p. 72).
The dispositive portion of said decision reads:
WHEREFORE, premises considered, the motion to dismiss and
supplemental motion to dismiss, in the light of petitioners' opposition,
for want of sufficient merit is denied. Respondents are hereby directed
to file their answer within ten (10) days from receipt of a copy of this
order. (Rollo, p. 4).
On March 11, 1982, petitioner Buhi through counsel, conformably with the above-
mentioned order, filed a Motion to Admit Bond in the amount of P300,220.00 (Rollo,
pp. 78-80).
On March 15,1982, herein petitioner Judge issued the order admitting the bond of
P300,220.00 filed by the petitioner, and directing the respondents to surrender the
possession of the Rural Bank of Buhi, together with all its equipments, accessories,
etc. to the petitioners (Rollo, p. 6).
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Banking Law Cases
Consequently, on March 16, 1982, herein petitioner Judge issued the writ of
execution directing the Acting Provincial Sheriff of Camarines Sur to implement the
Court's order of March 9, 1982 (Rollo, p. 268). Complying with the said order of the
Court, the Deputy Provincial Sheriff went to the Buhi premises to implement the writ
of execution but the vault of the petitioner bank was locked and no inventory was
made, as evidenced by the Sheriffs Report (Rollo, pp. 83-84). Thus, the petitioner
herein filed with the Court an "Urgent Ex-Parte Motion to Allow Sheriff Calope to
Force Open Bank Vault" on the same day (Rollo, p. 268). Accordingly, on March 17,
1982, herein petitioner Judge granted the aforesaid Ex-Parte Motion to Force Open
the Bank Vault (Rollo, p. 269).
On March 18, 1982, counsel for petitioner filed another "Urgent Ex-Parte Motion to
Order Manager of City Trust to Allow Petitioner to Withdraw Rural Bank Deposits"
while a separate "Urgent Ex-Parte Motion to Order Manager of Metrobank to Release
Deposits of Petitioners" was filed on the same date. The motion was granted by the
Court in an order directing the Manager of Metro Bank-Naga City (Rollo, p. 269) to
comply as prayed for.
In view thereof, herein respondents filed in the Court of Appeals a petition for
certiorari and prohibition with preliminary injunction docketed as CA-G.R. No.
13944 against herein petitioners, seeking to set aside the restraining order and
reiterating therein that petitioner Buhi's complaint in the lower court be dismissed
(Rollo, p. 270).
On March 19, 1982, the Court of Appeals issued a Resolution (KAPASIYAHAN) in
tagalog, restraining the Hon. Judge Carlos R. Buenviaje, from enforcing his order of
March 9,1982 and suspending further proceedings in Sp. Proc. No. IR-428 pending
before him while giving the Central Bank counsel, Atty. Ricardo Quintos, authority to
carry out personally said orders and directing the "Punong Kawani" of the Court of
Appeals to send telegrams to the Office of the President and the Supreme Court
(Rollo, p. 168).
Herein petitioners did not comply with the Court of Appeals' order of March 19,
1982, but filed instead on March 21, 1982 a motion for reconsideration of said order
of the Court of Appeals, claiming that the lower court's order of March 9, 1982
referred only to the denial of therein respondents' motion to dismiss and supplemental
motion to dismiss and that the return of Buhi to the petitioners was already an
accomplished fact. The motion was denied by the respondent court in a resolution
dated June 1, 1982 (Rollo, p. 301).
In view of petitioners' refusal to obey the Court of Appeals' Order of March 19, 1982,
herein respondents filed with the Court of Appeals a Motion to Cite Petitioners in
Contempt, dated April 22, 1982 (Rollo, p. 174).
The Court of Appeals issued on May 24, 1982 an order requiring herein petitioner
Rural Bank of Buhi, Inc., through its then Acting Manager, Imelda del Rosario and
herein petitioner Judge Carlos Buenviaje, as well as Manuel Genova and Rodolfo
Sosa, to show cause within ten (10) days from notice why they should not be held in
contempt of court and further directing the Ministry of National Defense or its
representative to cause the return of possession and management of the Rural Bank to
the respondents Central Bank and Consolacion Odra (Rollo, p. 180).
On June 9, 1982, petitioners filed their objection to respondents' motion for contempt
dated June 5, 1982 claiming that the properties, subject of the order, had already been
returned to the herein petitioners who are the lawful owners thereof and that the
returning could no longer be undone (Rollo, p. 181).
Later, petitioners filed another motion dated June 17, 1982 for the reconsideration of
the resolution of June 1, 1982 of the Court of Appeals alleging that the same
contravened and departed from the rulings of the Supreme Court that consummated
acts or acts already done could no longer be the subject of mandatory injunction and
that the respondent Court of Appeals had no jurisdiction to issue the order unless it
was in aid of its appellate jurisdiction, claiming that the case (CA-G.R. No. 13944)
did not come to it on appeal (Rollo, p. 302).
As aforestated, on June 17, 1982, respondent Court of Appeals rendered its decision
(HATOL) setting aside the lower court's restraining order dated March 9,1982 and
ordering the dismissal of herein petitioners' amended complaint in Civil Case No. IR-
428 (Rollo, p. 186).
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Banking Law Cases
On July 9, 1982, petitioners (respondents in CA-G.R. No. 13944) filed a Motion for
Reconsideration of the Decision dated June 17, 1982 insofar as the complaint with the
lower court (Civil Case No. IR-428 was ordered dismissed (Rollo, p. 305).
On August 23, 1982, the respondent Court of Appeals issued its Resolution denying
for lack of merit, herein petitioners' motion for reconsideration of the resolution
issued by the respondent Court of Appeals on June 1, 1982 and set on August 31,
1982 the hearing of the motion to cite the respondents in CA-G.R. No. SP-13944
(herein petitioner) for contempt (Rollo, p. 193).
At said hearing, counsel for Rural Bank of Buhi agreed and promised in open court to
restore and return to the Central Bank the possession and control of the Bank within
three (3) days from August 31, 1982.
However on September 3,1982, Rosalia Guevara, Manager thereof, vigorously and
adamantly refused to surrender the premises unless she received a written order from
the Court.
In a subsequent hearing of the contempt incident, the Court of Appeals issued its
Order dated October 13,1982, but Rosalia Guevara still refused to obey, whereupon
she was placed under arrest and the Court of Appeals ordered her to be detained until
she decided to obey the Court's Order (Rollo, pp. 273-274).
Earlier, on September 14, 1982 petitioners had filed this petition even while a motion
for reconsideration of the decision of June 17,1982 was still pending consideration in
the Court of Appeals.
In the resolution of October 20, 1982, the Second Division of this Court without
giving due course to the petition required respondents to COMMENT (Rollo, p. 225).
Counsel for respondents manifested (Rollo, p. 226) that they could not file the
required comment because they were not given a copy of the petition. Meanwhile,
they filed an urgent motion dated October 28, 1982 with the Court of Appeals to
place the bank through its representatives in possession of the Rural Bank of Buhi
(Camarines Sur), Inc. (Rollo, p. 237).
On December 9, 1982, petitioners filed a Supplemental Petition with urgent motion
for the issuance of a restraining order dated December 2, 1982 praying that the
restraining order be issued against respondent court (Rollo, p. 229).
In the resolution of December 15,1982, the Court resolved to require petitioners to
furnish the respondents with a copy of the petition and to require the respondents to
comment on both the original and the supplemental petitions (Rollo, p. 243).
In a resolution of February 21, 1983, the Court NOTED Rosalia V. Guevara's letter
dated February 4, 1983 (Rollo, p. 252) addressed to Hon. Chief Justice Enrique M.
Fernando, requesting that she be allowed to file a petition for the issuance of a writ
of habeas corpus (Rollo, p. 256).
At the hearing of the said petition on February 23, 1983 where the counsel of both
parties appeared, this Court noted the Return of the Writ of Habeas Corpus as well as
the release of petitioner Rosalia V. Guevara from detention by the National Bureau of
Investigation. After hearing aforesaid counsel and petitioner herself, and it appearing
that the latter had resigned since January 18,1983 as Manager of the Rural Bank of
Buhi, Inc. and that the Central Bank might avail of more than adequate legal
measures to take over the management, possession and control of the said bank (and
not through contempt proceedings and detention and confinement of petitioner), with
Assistant Solicitor General Andin manifesting that respondents were not insisting on
the continued detention of petitioner, the Court Resolved to SET the petitioner at
liberty and to consider the contempt incident closed (Rollo, p. 339).
On April 11, 1983, respondents filed their comment on the original and supplemental
petitions.
Meanwhile, the Court of Appeals, acting on respondents' urgent motion filed on
October 28, 1982 ordered on April 13, 1983 the return to the petitioners (herein
respondents) or their duly authorized representatives of the possession, management
and control of subject Rural Bank (Rollo, p. 319), together with its properties.
On April 28, 1983, petitioner filed an urgent motion: (1) to give due course to the
petition and (2) for immediate issuance of a Restraining Order against the respondent
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Banking Law Cases
court to prevent it from enforcing its aforesaid resolution dated April 13, 1983 and
from further proceeding in AC-G.R. No. 13944-SP (Rollo, p. 315).
On May 16, 1983, this Court resolved to deny the petition for lack of merit (Rollo, p.
321). On July 25, 1983, petitioners filed their verified Motion for Reconsideration
(Rollo, p. 337) praying that the HATOL dated June 17, 1982 of the Court of Appeals
be set aside as null and void and that Special Proceedings No. IR-428 of CFI-
Camarines Sur, Iriga City, Branch VII, be ordered remanded to the RTC of
Camarines Sur, Iriga City, for further proceedings.
A Motion for Early Resolution was filed by herein petitioners on March 12,1984
(Rollo, p. 348).
Petitioners raised the following legal issues in their motion for reconsideration:
I. UNDER SEC. 29, R.A. 265, AS AMENDED, MAY THE MONETARY BOARD
(MB) OF THE CENTRAL BANK (CB) PLACE A RURAL BANK UNDER
RECEIVERSHIP WITHOUT PRIOR NOTICE TO SAID RURAL BANK TO
ENABLE IT TO BE HEARD ON THE GROUND RELIED UPON FOR SUCH
RECEIVERSHIP?
II. UNDER THE SAME SECTION OF SAID LAW, WHERE THE MONETARY
BOARD (MB) OF THE CENTRAL BANK (CB) HAS PLACED A RURAL BANK
UNDER RECEIVERSHIP, IS SUCH ACTION OF THE MONETARY BOARD
(MB) SUBJECT TO JUDICIAL REVIEW? IF SO, WHICH COURT MAY
EXERCISE SUCH POWER AND WHEN MAY IT EXERCISE THE SAME?
III. UNDER THE SAID SECTION OF THE LAW, SUPPOSE A CIVIL CASE IS
INSTITUTED SEEKING ANNULMENT OF THE RECEIVERSHIP ON THE
GROUND OF ARBITRARINESS AND BAD FAITH ON THE PART OF THE
MONETARY BOARD (MB), MAY SUCH CASE BE DISMISSED BY THE IAC
(THEN CA) ON THE GROUND OF INSUFFICIENCY OF EVIDENCE EVEN IF
THE TRIAL COURT HAS NOT HAD A CHANCE YET TO RECEIVE
EVIDENCE AND THE PARTIES HAVE NOT YET PRESENTED EVIDENCE
EITHER IN THE TRIAL COURT OR IN SAID APPELLATE COURT? (Rollo, pp.
330-331).
I. Petitioner Rural Bank's position is to the effect that due process was not observed
by the Monetary Board before said bank was placed under receivership. Said Rural
Bank claimed that it was not given the chance to deny and disprove such claim of
insolvency and/or any other ground which the Monetary Board used in justification of
its action.
Relative thereto, the provision of Republic Act No. 265 on the proceedings upon
insolvency reads:
SEC. 29. Proceedings upon insolvency.— Whenever, upon
examination by the head of the appropriate supervising and examining
department or his examiners or agents into the condition of any
banking institution, it shall be disclosed that the condition of the same
is one of insolvency, or that its continuance in business would involve
probable loss to its depositors or creditors, it shall be the duty of the
department head concerned forthwith, in writing, to inform the
Monetary Board of the facts, and the Board may, upon finding the
statements of the department head to be true, forbid the institution to
do business in the Philippines and shall designate an official of the
Central Bank, or a person of recognized competence in banking, as
receiver to immediately take charge of its assets and liabilities, as
expeditiously as possible collect and gather all the assets and
administer the same for the benefit of its creditors, exercising all the
powers necessary for these purposes including, but not limited to,
bringing suits and foreclosing mortgages in the name of the banking
institution.
The Monetary Board shall thereupon determine within sixty days
whether the institution may be recognized or otherwise placed in such
a condition so that it may be permitted to resume business with safety
to its depositors and creditors and the general public and shall
prescribe the conditions under which such redemption of business
shall take place as the time for fulfillment of such conditions. In such
case, the expenses and fees in the collection and administration of the
assets of the institution shall be determined by the Board and shall be
paid to the Central Bank out of the assets of such banking institution.
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Banking Law Cases
If the Monetary Board shall determine and confirm within the said
period that the banking institution is insolvent or cannot resume
business with safety to its depositors, creditors and the general public,
it shall, if the public interest requires, order its liquidation, indicate the
manner of its liquidation and approve a liquidation plan. The Central
Bank shall, by the Solicitor General, file a petition in the Court of First
Instance reciting the proceedings which have been taken and praying
the assistance of the court in the liquidation of the banking institution.
The Court shall have jurisdiction in the same proceedings to adjudicate
disputed claims against the bank and enforce individual liabilities of
the stockholders and do all that is necessary to preserve the assets of
the banking institution and to implement the liquidation plan approved
by the Monetary Board. The Monetary Board shall designate an
official of the Central Bank or a person of recognized competence in
banking, as liquidator who shall take over the functions of the receiver
previously appointed by the Monetary Board under this Section. The
liquidator shall, with all convenient speed, convert the assets of the
banking institution to money or sell, assign or otherwise dispose of the
same to creditors and other parties for the purpose of paying the debts
of such bank and he may, in the name of the banking institution,
institute such actions as may be necessary in the appropriate court to
collect and recover accounts and assets of the banking institution.
The provisions of any law to the contrary notwithstanding the actions
of the Monetary Board under this Section and the second paragraph of
Section 34 of this Act shall be final and executory, and can be set aside
by the court only if there is convincing proof that the action is plainly
arbitrary and made in bad faith. No restraining order or injunction shall
be issued by the court enjoining the Central Bank from implementing
its actions under this Section and the second paragraph of Section 34
of this Act, unless there is convincing proof that the action of the
Monetary Board is plainly arbitrary and made in bad faith and the
petitioner or plaintiff files with the clerk or judge of the court in which
the action is pending a bond executed in favor of the Central Bank, in
an amount to be fixed by the court. The restraining order or injunction
shall be refused or, if granted, shall be dissolved upon filing by the
Central Bank of a bond, which shall be in the form of cash or Central
Bank cashier's check, in an amount twice the amount of the bond of
the petitioner, or plaintiff conditioned that it will pay the damages
which the petitioner or plaintiff may suffer by the refusal or the
dissolution of the injunction. The provisions of Rule 58 of the New
Rules of Court insofar as they are applicable and not inconsistent with
the provisions of this Section shall govern the issuance and dissolution
of the restraining order or injunction contemplated in this Section.
Insolvency, under this Act, shall be understood to mean the inability of
a banking institution to pay its liabilities as they fall due in the usual
and ordinary course of business: Provided, however, that this shall not
include the inability to pay of an otherwise non-insolvent bank caused
by extraordinary demands induced by financial panic commonly
evidenced by a run on the banks in the banking community.
The appointment of a conservator under Section 28-A of this Act or
the appointment of receiver under this Section shall be vested
exclusively with the Monetary Board, the provision of any law,
general or special, to the contrary not withstanding.
It will be observed from the foregoing provision of law, that there is no requirement
whether express or implied, that a hearing be first conducted before a banking
institution may be placed under receivership. On the contrary, the law is explicit as to
the conditions prerequisite to the action of the Monetary Board to forbid the
institution to do business in the Philippines and to appoint a receiver to immediately
take charge of the bank's assets and liabilities. They are: (a) an examination made by
the examining department of the Central Bank; (b) report by said department to the
Monetary Board; and (c) prima facie showing that the bank is in a condition of
insolvency or so situated that its continuance in business would involve probable loss
to its depositors or creditors.
Supportive of this theory is the ruling of this Court, which established the authority of
the Central Bank under the foregoing circumstances, which reads:
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Banking Law Cases
As will be noted, whenever it shall appear prima facie that a banking
institution is in "a condition of insolvency" or so situated "that its
continuance in business would involved probable loss to its depositors
or creditors," the Monetary Board has authority:
First, to forbid the institution to do business and appoint a receiver
therefor; and
Second, to determine, within 60 days, whether or not:
1) the institution may be reorganized and rehabilitated
to such an extent as to be permitted to resume business
with safety to depositors, creditors and the general
public; or
2) it is indeed insolvent or cannot resume business with
safety to depositors, creditors and the general public,
and public interest requires that it be liquidated.
In this latter case (i.e., the bank can no longer resume business with safety to
depositors, creditors and the public, etc.) its liquidation will be ordered and a
liquidator appointed by the Monetary Board. The Central Bank shall thereafter file a
petition in the Regional Trial Court praying for the Court's assistance in the
liquidation of the bank." ... (Salud vs. Central Bank, 143 SCRA 590 [1986]).
Petitioner further argues, that there is also that constitutional guarantee that no
property shall be taken without due process of law, so that Section 29, R.A. 265, as
amended, could not have intended to disregard and do away with such constitutional
requirement when it conferred upon the Monetary Board the power to place Rural
Banks under receivership (Rollo, p. 333).
The contention is without merit. It has long been established and recognized in this
jurisdiction that the closure and liquidation of a bank may be considered as an
exercise of police power. Such exercise may, however, be subject to judicial inquiry
and could be set aside if found to be capricious, discriminatory, whimsical, arbitrary,
unjust or a denial of the due process and equal protection clauses of the Constitution
(Central Bank vs. Court of Appeals, 106 SCRA 155 [1981]).
The evident implication of the law, therefore, is that the appointment of a receiver
may be made by the Monetary Board without notice and hearing but its action is
subject to judicial inquiry to insure the protection of the banking institution. Stated
otherwise, due process does not necessarily require a prior hearing; a hearing or an
opportunity to be heard may be subsequent to the closure. One can just imagine the
dire consequences of a prior hearing: bank runs would be the order of the day,
resulting in panic and hysteria. In the process, fortunes may be wiped out, and
disillusionment will run the gamut of the entire banking community.
In Mendiola vs. Court of Appeals, (106 SCRA 130), the Supreme Court held:
The pivotal issue raised by petitioner is whether or not the
appointment of a receiver by the Court of First Instance on January 14,
1969 was in order.
Respondent Court correctly stated that the appointment of a receiver
pendente lite is a matter principally addressed to and resting largely on
the sound discretion of the court to which the application is made. This
Tribunal has so held in a number of cases. However, receivership
being admittedly a harsh remedy, it should be granted with extreme
caution. Sound reasons for receivership must appear of record, and
there should be a clear showing of a necessity therefor. Before
granting the remedy, the court is advised to consider the consequence
or effects thereof in order to avoid irreparable injustice or injury to
others who are entitled to as much consideration as those seeking it.
xxx xxx xxx
This is not to say that a hearing is an indispensable requirement for the
appointment of a receiver. As petitioner correctly contends in his first
assignment of error, courts may appoint receivers without prior
presentation of evidence and solely on the basis of the averments of
113
Banking Law Cases
the pleadings. Rule 59 of the Revised Rules of Court allows the
appointment of a receiver upon an ex parte application.
There is no question that the action of the Monetary Board in this regard may be
subject to judicial review. Thus, it has been held that the courts may interfere with the
Central Bank's exercise of discretion in determining whether or not a distressed bank
shall be supported or liquidated. Discretion has its limits and has never been held to
include arbitrariness, discrimination or bad faith (Ramos vs. Central Bank of the
Philippines, 41 SCRA 567 [1971]).
It has likewise been held that resolutions of the Monetary Board under Section 29 of
the Central Bank Act, such as: forbidding bank institutions to do business on account
of a "condition of insolvency" or because its continuance in business would involve
probable loss to depositors or creditors; or appointing a receiver to take charge of the
bank's assets and liabilities, or determining whether the bank may be rehabilitated or
should be liquidated and appointing a liquidator for that purpose, are under the law
"final and executory" and may be set aside only on one ground, that is "if there is
convincing proof that the action is plainly arbitrary and made in bad faith" (Salud vs.
Central Bank, supra).
There is no dispute that under the above-quoted Section 29 of the Central Bank Act,
the Regional Trial Court has jurisdiction to adjudicate the question of whether or not
the action of the Monetary Board directing the dissolution of the subject Rural Bank
is attended by arbitrariness and bad faith. Such position has been sustained by this
Court in Salud vs. Central Bank of the Philippines (supra).
In the same case, the Court ruled further that a banking institution's claim that a
resolution of the Monetary Board under Section 29 of the Central Bank Act should be
set aside as plainly arbitrary and made in bad faith, may be asserted as an affirmative
defense (Sections 1 and 4[b], Rule 6, Rules of Court) or a counterclaim (Section 6,
Rule 6; Section 2, Rule 72 of the Rules of Court) in the proceedings for assistance in
liquidation or as a cause of action in a separate and distinct action where the latter
was filed ahead of the petition for assistance in liquidation (ibid; Central Bank vs.
Court of Appeals, 106 SCRA 143 [1981]).
III. It will be noted that in the issuance of the Order of the Court of First Instance of
Camarines Sur, Branch VII, Iriga City, dated March 9, 1982 (Rollo, pp. 72-77), there
was no trial on the merits. Based on the pleadings filed, the Court merely acted on the
Central Bank's Motion to Dismiss and Supplemental Motion to Dismiss, denying both
for lack of sufficient merit. Evidently, the trial court merely acted on an incident and
has not as yet inquired, as mandated by Section 29 of the Central Bank Act, into the
merits of the claim that the Monetary Board's action is plainly arbitrary and made in
bad faith. It has not appreciated certain facts which would render the remedy of
liquidation proper and rehabilitation improper, involving as it does an examination of
the probative value of the evidence presented by the parties properly belonging to the
trial court and not properly cognizable on appeal (Central Bank vs. Court of
Appeals, supra, p. 156).
Still further, without a hearing held for both parties to substantiate their allegations in
their respective pleadings, there is lacking that "convincing proof" prerequisite to
justify the temporary restraining order (mandatory injunction) issued by the trial court
in its Order of March 9, 1982.
PREMISES CONSIDERED, the decision of the Court of Appeals is MODIFIED; We
hereby order the remand of this case to the Regional Trial Court for further
proceedings, but We LIFT the temporary restraining order issued by the trial court in
its Order dated March 9, 1982.
SO ORDERED.
114
Banking Law Cases
G.R. No. 76118 March 30, 1993
THE CENTRAL BANK OF THE PHILIPPINES and RAMON V.
TIAOQUI, petitioners,
vs.
COURT OF APPEALS and TRIUMPH SAVINGS BANK, respondents.
Sycip, Salazar, Hernandez & Gatmaitan for petitioners.
Quisumbing, Torres & Evangelista for Triumph Savings Bank.
BELLOSILLO, J.:
May a Monetary Board resolution placing a private bank under receivership be
annulled on the ground of lack of prior notice and hearing?
This petition seeks review of the decision of the Court of Appeals in CA G.R. S.P.
No. 07867 entitled "The Central Bank of the Philippines and Ramon V. Tiaoqui vs.
Hon. Jose C. de Guzman and Triumph Savings Bank," promulgated 26 September
1986, which affirmed the twin orders of the Regional Trial Court of Quezon City
issued 11 November 19851 denying herein petitioners' motion to dismiss Civil Case
No. Q-45139, and directing petitioner Ramon V. Tiaoqui to restore the private
management of Triumph Savings Bank (TSB) to its elected board of directors and
officers, subject to Central Bank comptrollership.2
The antecedent facts: Based on examination reports submitted by the Supervision and
Examination Sector (SES), Department II, of the Central Bank (CB) "that the
financial condition of TSB is one of insolvency and its continuance in business would
involve probable loss to its depositors and creditors,"3 the Monetary Board (MB)
issued on 31 May 1985 Resolution No. 596 ordering the closure of TSB, forbidding it
from doing business in the Philippines, placing it under receivership, and appointing
Ramon V. Tiaoqui as receiver. Tiaoqui assumed office on 3 June 1985.4
On 11 June 1985, TSB filed a complaint with the Regional Trial Court of Quezon
City, docketed as Civil Case No. Q-45139, against Central Bank and Ramon V.
Tiaoqui to annul MB Resolution No. 596, with prayer for injunction, challenging in
the process the constitutionality of Sec. 29 of R.A. 269, otherwise known as "The
Central Bank Act," as amended, insofar as it authorizes the Central Bank to take over
a banking institution even if it is not charged with violation of any law or regulation,
much less found guilty thereof.5
On 1 July 1985, the trial court temporarily restrained petitioners from implementing
MB Resolution No. 596 "until further orders", thus prompting them to move for the
quashal of the restraining order (TRO) on the ground that it did not comply with said
Sec. 29, i.e., that TSB failed to show convincing proof of arbitrariness and bad faith
on the part of petitioners;' and, that TSB failed to post the requisite bond in favor of
Central Bank.
On 19 July 1985, acting on the motion to quash the restraining order, the trial court
granted the relief sought and denied the application of TSB for injunction. Thereafter,
Triumph Savings Bank filed with Us a petition for certiorariunder Rule 65 of the
Rules of Court6 dated 25 July 1985 seeking to enjoin the continued implementation of
the questioned MB resolution.
Meanwhile, on 9 August 1985; Central Bank and Ramon Tiaoqui filed a motion to
dismiss the complaint before the RTC for failure to state a cause of action, i.e., it did
not allege ultimate facts showing that the action was plainly arbitrary and made in
bad faith, which are the only grounds for the annulment of Monetary Board
resolutions placing a bank under conservatorship, and that TSB was without legal
capacity to sue except through its receiver.7
On 9 September 1985, TSB filed an urgent motion in the RTC to direct receiver
Ramon V. Tiaoqui to restore TSB to its private management. On 11 November 1985,
the RTC in separate orders denied petitioners' motion to dismiss and ordered receiver
Tiaoqui to restore the management of TSB to its elected board of directors and
officers, subject to CB comptrollership.
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Banking Law Cases
Since the orders of the trial court rendered moot the petition for certiorari then
pending before this Court, Central Bank and Tiaoqui moved on 2 December 1985 for
the dismissal of G.R. No. 71465 which We granted on 18 December 1985.8
Instead of proceeding to trial, petitioners elevated the twin orders of the RTC to the
Court of Appeals on a petition for certiorari and prohibition under Rule 65.9 On 26
September 1986, the appellate court, upheld the orders of the trial court thus —
Petitioners' motion to dismiss was premised on two grounds, namely,
that the complaint failed to state a cause of action and that the Triumph
Savings Bank was without capacity to sue except through its appointed
receiver.
Concerning the first ground, petitioners themselves admit that the
Monetary Board resolution placing the Triumph Savings Bank under
the receivership of the officials of the Central Bank was done without
prior hearing, that is, without first hearing the side of the bank. They
further admit that said resolution can be the subject of judicial review
and may be set aside should it be found that the same was issued with
arbitrariness and in bad faith.
The charge of lack of due process in the complaint may be taken as
constitutive of allegations of arbitrariness and bad faith. This is not of
course to be taken as meaning that there must be previous hearing
before the Monetary Board may exercise its powers under Section 29
of its Charter. Rather, judicial review of such action not being
foreclosed, it would be best should private respondent be given the
chance to show and prove arbitrariness and bad faith in the issuance of
the questioned resolution, especially so in the light of the statement of
private respondent that neither the bank itself nor its officials were
even informed of any charge of violating banking laws.
In regard to lack of capacity to sue on the part of Triumph Savings
Bank, we view such argument as being specious, for if we get the drift
of petitioners' argument, they mean to convey the impression that only
the CB appointed receiver himself may question the CB resolution
appointing him as such. This may be asking for the impossible, for it
cannot be expected that the master, the CB, will allow the receiver it
has appointed to question that very appointment. Should the argument
of petitioners be given circulation, then judicial review of actions of
the CB would be effectively checked and foreclosed to the very bank
officials who may feel, as in the case at bar, that the CB action ousting
them from the bank deserves to be set aside.
xxx xxx xxx
On the questioned restoration order, this Court must say that it finds
nothing whimsical, despotic, capricious, or arbitrary in its issuance,
said action only being in line and congruent to the action of the
Supreme Court in the Banco Filipino Case (G.R. No. 70054) where
management of the bank was restored to its duly elected directors and
officers, but subject to the Central Bank comptrollership.10
On 15 October 1986, Central Bank and its appointed receiver, Ramon V. Tiaoqui,
filed this petition under Rule 45 of the Rules of Court praying that the decision of the
Court of Appeals in CA-G.R. SP No. 07867 be set aside, and that the civil case
pending before the RTC of Quezon City, Civil Case No.
Q-45139, be dismissed. Petitioners allege that the Court of Appeals erred —
(1) in affirming that an insolvent bank that had been summarily closed
by the Monetary Board should be restored to its private management
supposedly because such summary closure was "arbitrary and in bad
faith" and a denial of "due process";
(2) in holding that the "charge of lack of due process" for "want of
prior hearing" in a complaint to annul a Monetary Board receivership
resolution under Sec. 29 of R.A. 265 "may be taken as . . allegations of
arbitrariness and bad faith"; and
(3) in holding that the owners and former officers of an insolvent bank
may still act or sue in the name and corporate capacity of such bank,
even after it had been ordered closed and placed under receivership.11
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Banking Law Cases
The respondents, on the other hand, allege inter alia that in the Banco
Filipino case,12 We held that CB violated the rule on administrative due process laid
down in Ang Tibay vs. CIR (69 Phil. 635) and Eastern Telecom Corp. vs. Dans, Jr.
(137 SCRA 628) which requires that prior notice and hearing be afforded to all
parties in administrative proceedings. Since MB Resolution No. 596 was adopted
without TSB being previously notified and heard, according to respondents, the same
is void for want of due process; consequently, the bank's management should be
restored to its board of directors and officers.13
Petitioners claim that it is the essence of Sec. 29 of R.A. 265 that prior notice and
hearing in cases involving bank closures should not be required since in all
probability a hearing would not only cause unnecessary delay but also provide bank
"insiders" and stockholders the opportunity to further dissipate the bank's resources,
create liabilities for the bank up to the insured amount of P40,000.00, and even
destroy evidence of fraud or irregularity in the bank's operations to the prejudice of its
depositors and creditors. 14 Petitioners further argue that the legislative intent of Sec.
29 is to repose in the Monetary Board exclusive power to determine the existence of
statutory grounds for the closure and liquidation of banks, having the required
expertise and specialized competence to do so.
The first issue raised before Us is whether absence of prior notice and hearing may be
considered acts of arbitrariness and bad faith sufficient to annul a Monetary Board
resolution enjoining a bank from doing business and placing it under receivership.
Otherwise stated, is absence of prior notice and hearing constitutive of acts of
arbitrariness and bad faith?
Under Sec. 29 of R.A. 265,15 the Central Bank, through the Monetary Board, is vested
with exclusive authority to assess, evaluate and determine the condition of any bank,
and finding such condition to be one of insolvency, or that its continuance in business
would involve probable loss to its depositors or creditors, forbid the bank or non-bank
financial institution to do business in the Philippines; and shall designate an official
of the CB or other competent person as receiver to immediately take charge of its
assets and liabilities. The fourth paragraph,16 which was then in effect at the time the
action was commenced, allows the filing of a case to set aside the actions of the
Monetary Board which are tainted with arbitrariness and bad faith.
Contrary to the notion of private respondent, Sec. 29 does not contemplate prior
notice and hearing before a bank may be directed to stop operations and placed under
receivership. When par. 4 (now par. 5, as amended by E.O. 289) provides for the
filing of a case within ten (10) days after the receiver takes charge of the assets of the
bank, it is unmistakable that the assailed actions should precede the filing of the case.
Plainly, the legislature could not have intended to authorize "no prior notice and
hearing" in the closure of the bank and at the same time allow a suit to annul it on the
basis of absence thereof.
In the early case of Rural Bank of Lucena, Inc. v. Arca [1965],17 We held that a
previous hearing is nowhere required in Sec. 29 nor does the constitutional
requirement of due process demand that the correctness of the Monetary Board's
resolution to stop operation and proceed to liquidation be first adjudged before
making the resolution effective. It is enough that a subsequent judicial review be
provided.
Even in Banco Filipino, 18 We reiterated that Sec. 29 of R.A. 265 does not require a
previous hearing before the Monetary Board can implement its resolution closing a
bank, since its action is subject to judicial scrutiny as provided by law.
It may be emphasized that Sec. 29 does not altogether divest a bank or a non-bank
financial institution placed under receivership of the opportunity to be heard and
present evidence on arbitrariness and bad faith because within ten (10) days from the
date the receiver takes charge of the assets of the bank, resort to judicial review may
be had by filing an appropriate pleading with the court. Respondent TSB did in fact
avail of this remedy by filing a complaint with the RTC of Quezon City on the 8th
day following the takeover by the receiver of the bank's assets on 3 June 1985.
This "close now and hear later" scheme is grounded on practical and legal
considerations to prevent unwarranted dissipation of the bank's assets and as a valid
exercise of police power to protect the depositors, creditors, stockholders and the
general public.
In Rural Bank of Buhi, Inc. v. Court of Appeals,19 We stated that —
117
Banking Law Cases
. . . due process does not necessarily require a prior hearing; a hearing
or an opportunity to be heard may be subsequent to the closure. One
can just imagine the dire consequences of a prior hearing: bank runs
would be the order of the day, resulting in panic and hysteria. In the
process, fortunes may be wiped out and disillusionment will run the
gamut of the entire banking community.
We stressed in Central Bank of the Philippines v. Court of Appeals20 that —
. . . the banking business is properly subject to reasonable regulation
under the police power of the state because of its nature and relation to
the fiscal affairs of the people and the revenues of the state (9 CJS 32).
Banks are affected with public interest because they receive funds
from the general public in the form of deposits. Due to the nature of
their transactions and functions, a fiduciary relationship is created
between the banking institutions and their depositors. Therefore, banks
are under the obligation to treat with meticulous care and utmost
fidelity the accounts of those who have reposed their trust and
confidence in them (Simex International [Manila], Inc., v. Court of
Appeals, 183 SCRA 360 [1990]).
It is then the Government's responsibility to see to it that the financial
interests of those who deal with the banks and banking institutions, as
depositors or otherwise, are protected. In this country, that task is
delegated to the Central Bank which, pursuant to its Charter (R.A. 265,
as amended), is authorized to administer the monetary, banking and
credit system of the Philippines. Under both the 1973 and 1987
Constitutions, the Central Bank is tasked with providing policy
direction in the areas of money, banking and credit; corollarily, it shall
have supervision over the operations of banks (Sec. 14, Art. XV, 1973
Constitution, and Sec. 20, Art. XII, 1987 Constitution). Under its
charter, the CB is further authorized to take the necessary steps against
any banking institution if its continued operation would cause
prejudice to its depositors, creditors and the general public as well.
This power has been expressly recognized by this Court. In Philippine
Veterans Bank Employees Union-NUBE v. Philippine Veterans Banks
(189 SCRA 14 [1990], this Court held that:
. . . [u]nless adequate and determined efforts are taken
by the government against distressed and mismanaged
banks, public faith in the banking system is certain to
deteriorate to the prejudice of the national economy
itself, not to mention the losses suffered by the bank
depositors, creditors, and stockholders, who all deserve
the protection of the government. The government
cannot simply cross its arms while the assets of a bank
are being depleted through mismanagement or
irregularities. It is the duty of the Central Bank in such
an event to step in and salvage the remaining resources
of the bank so that they may not continue to be
dissipated or plundered by those entrusted with their
management.
Section 29 of R.A. 265 should be viewed in this light; otherwise, We would be
subscribing to a situation where the procedural rights invoked by private respondent
would take precedence over the substantive interests of depositors, creditors and
stockholders over the assets of the bank.
Admittedly, the mere filing of a case for receivership by the Central Bank can trigger
a bank run and drain its assets in days or even hours leading to insolvency even if the
bank be actually solvent. The procedure prescribed in Sec. 29 is truly designed to
protect the interest of all concerned, i.e., the depositors, creditors and stockholders,
the bank itself, and the general public, and the summary closure pales in comparison
to the protection afforded public interest. At any rate, the bank is given full
opportunity to prove arbitrariness and bad faith in placing the bank under
receivership, in which event, the resolution may be properly nullified and the
receivership lifted as the trial court may determine.
The heavy reliance of respondents on the Banco Filipino case is misplaced in view of
factual circumstances therein which are not attendant in the present case. We ruled
in Banco Filipino that the closure of the bank was arbitrary and attendant with grave
118
Banking Law Cases
abuse of discretion, not because of the absence of prior notice and hearing, but that
the Monetary Board had no sufficient basis to arrive at a sound conclusion of
insolvency to justify the closure. In other words, the arbitrariness, bad faith and abuse
of discretion were determined only after the bank was placed under conservatorship
and evidence thereon was received by the trial court. As this Court found in that case,
the Valenzuela, Aurellano and Tiaoqui Reports contained unfounded assumptions and
deductions which did not reflect the true financial condition of the bank. For instance,
the subtraction of an uncertain amount as valuation reserve from the assets of the
bank would merely result in its net worth or the unimpaired capital and surplus; it did
not reflect the total financial condition of Banco Filipino.
Furthermore, the same reports showed that the total assets of Banco Filipino far
exceeded its total liabilities. Consequently, on the basis thereof, the Monetary Board
had no valid reason to liquidate the bank; perhaps it could have merely ordered its
reorganization or rehabilitation, if need be. Clearly, there was in that case a manifest
arbitrariness, abuse of discretion and bad faith in the closure of Banco Filipino by the
Monetary Board. But, this is not the case before Us. For here, what is being raised as
arbitrary by private respondent is the denial of prior notice and hearing by the
Monetary Board, a matter long settled in this jurisdiction, and not the arbitrariness
which the conclusions of the Supervision and Examination Sector (SES), Department
II, of the Central Bank were reached.
Once again We refer to Rural Bank of Buhi, Inc. v. Court of Appeals,21 and reiterate
Our pronouncement therein that —
. . . the law is explicit as to the conditions prerequisite to the action of
the Monetary Board to forbid the institution to do business in the
Philippines and to appoint a receiver to immediately take charge of the
bank's assets and liabilities. They are: (a) an examination made by the
examining department of the Central Bank; (b) report by said
department to the Monetary Board; and (c) prima facie showing that
its continuance in business would involve probable loss to its
depositors or creditors.
In sum, appeal to procedural due process cannot just outweigh the evil sought to be
prevented; hence, We rule that Sec. 29 of R.A. 265 is a sound legislation promulgated
in accordance with the Constitution in the exercise of police power of the state.
Consequently, the absence of notice and hearing is not a valid ground to annul a
Monetary Board resolution placing a bank under receivership. The absence of prior
notice and hearing cannot be deemed acts of arbitrariness and bad faith. Thus, an MB
resolution placing a bank under receivership, or conservatorship for that matter, may
only be annulled after a determination has been made by the trial court that its
issuance was tainted with arbitrariness and bad faith. Until such determination is
made, the status quo shall be maintained, i.e., the bank shall continue to be under
receivership.
As regards the second ground, to rule that only the receiver may bring suit in behalf
of the bank is, to echo the respondent appellate court, "asking for the impossible, for
it cannot be expected that the master, the CB, will allow the receiver it has appointed
to question that very appointment." Consequently, only stockholders of a bank could
file an action for annulment of a Monetary Board resolution placing the bank under
receivership and prohibiting it from continuing operations.22 In Central Bank v. Court
of Appeals, 23 We explained the purpose of the law —
. . . in requiring that only the stockholders of record representing the
majority of the capital stock may bring the action to set aside a
resolution to place a bank under conservatorship is to ensure that it be
not frustrated or defeated by the incumbent Board of Directors or
officers who may immediately resort to court action to prevent its
implementation or enforcement. It is presumed that such a resolution is
directed principally against acts of said Directors and officers which
place the bank in a state of continuing inability to maintain a condition
of liquidity adequate to protect the interest of depositors and creditors.
Indirectly, it is likewise intended to protect and safeguard the rights
and interests of the stockholders. Common sense and public policy
dictate then that the authority to decide on whether to contest the
resolution should be lodged with the stockholders owning a majority
of the shares for they are expected to be more objective in determining
whether the resolution is plainly arbitrary and issued in bad faith.
119
Banking Law Cases

It is observed that the complaint in this case was filed on 11 June 1985 or two (2)
years prior to 25 July 1987 when E.O. 289 was issued, to be effective sixty (60) days
after its approval (Sec. 5). The implication is that before E.O

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

PREMISES considered, the Decision of the Court of Appeals in CA-G.R. SP No.

07867 is AFFIRMED, except insofar as it upholds the Order of the trial court of 11
November 1985 directing petitioner RAMON V. TIAOQUI to restore the
management of TRIUMPH SAVINGS BANK to its elected Board of Directors and
Officers, which is hereby SET ASIDE.

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

SO ORDERED.

120
Banking Law Cases
(no Argent Construction vs The Manila Banking)
G.R. No. 150886 February 16, 2007
RURAL BANK OF SAN MIGUEL, INC. and HILARIO P. SORIANO, in his
capacity as majority stockholder in the Rural Bankof San Miguel,
Inc., Petitioners,
vs.
MONETARY BOARD, BANGKO SENTRAL NG PILIPINAS and
PHILIPPINE DEPOSIT INSURANCE CORPORATION, Respondents.
DECISION
CORONA, J.:
This is a petition for review on certiorari1 of a decision2 and resolution3 of the Court
of Appeals (CA) dated March 28, 2000 and November 13, 2001, respectively, in CA-
G.R. SP No. 57112.
Petitioner Rural Bank of San Miguel, Inc. (RBSM) was a domestic corporation
engaged in banking. It started operations in 1962 and by year 2000 had 15 branches in
Bulacan.4 Petitioner Hilario P. Soriano claims to be the majority stockholder of its
outstanding shares of stock.5
On January 21, 2000, respondent Monetary Board (MB), the governing board of
respondent Bangko Sentral ng Pilipinas (BSP), issued Resolution No. 105 prohibiting
RBSM from doing business in the Philippines, placing it under receivership and
designating respondent Philippine Deposit Insurance Corporation (PDIC) as receiver:
On the basis of the comptrollership/monitoring report as of October 31, 1999 as
reported by Mr. Wilfredo B. Domo-ong, Director, Department of Rural Banks, in his
memorandum dated January 20, 2000, which report showed that [RBSM] (a) is
unable to pay its liabilities as they become due in the ordinary course of business; (b)
cannot continue in business without involving probable losses to its depositors and
creditors; that the management of the bank had been accordingly informed of the
need to infuse additional capital to place the bank in a solvent financial condition and
was given adequate time within which to make the required infusion and that no
infusion of adequate fresh capital was made, the Board decided as follows:
1. To prohibit the bank from doing business in the Philippines and to place its
assets and affairs under receivership in accordance with Section 30 of [RA
7653];
2. To designate the [PDIC] as receiver of the bank;
xxx xxx xxx6
On January 31, 2000, petitioners filed a petition for certiorari and prohibition in the
Regional Trial Court (RTC) of Malolos, Branch 22 to nullify and set aside Resolution
No. 105.7 However, on February 7, 2000, petitioners filed a notice of withdrawal in
the RTC and, on the same day, filed a special civil action for certiorari and
prohibition in the CA. On February 8, 2000, the RTC dismissed the case pursuant to
Section 1, Rule 17 of the Rules of Court.8
The CA’s findings of facts were as follows.
To assist its impaired liquidity and operations, the RBSM was granted emergency
loans on different occasions in the aggregate amount of ₱375 [million].
As early as November 18, 1998, Land Bank of the Philippines (LBP) advised RBSM
that it will terminate the clearing of RBSM’s checks in view of the latter’s frequent
clearing losses and continuing failure to replenish its Special Clearing Demand
Deposit with LBP. The BSP interceded with LBP not to terminate the clearing
arrangement of RBSM to protect the interests of RBSM’s depositors and creditors.
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After a year, or on November 29, 1999, the LBP informed the BSP of the termination Total obligations/ ₱1,076,863,000.00 1,009,898,000.00
of the clearing facility of RBSM to take effect on December 29, 1999, in view of the Liabilities
clearing problems of RBSM.
Realizable Assets 898,588,000.00 796,930,000.00
On December 28, 1999, the MB approved the release of ₱26.189 [million] which is
the last tranche of the ₱375 million emergency loan for the sole purpose of servicing Deficit 178,275,000.00 212,968,000.00
and meeting the withdrawals of its depositors. Of the ₱26.180 million, xxx ₱12.6 Cash on Hand 101,441.547.00 8,266,450.00
million xxx was not used to service withdrawals [and] remains unaccounted for as
admitted by [RBSM’s Treasury Officer and Officer-in-Charge of Treasury]. Instead
of servicing withdrawals of depositors, RBSM paid Forcecollect Professional Required Capital Infusion ₱252,120,000.00
Solution, Inc. and Surecollect Professional, Inc., entities which are owned and
controlled by Hilario P. Soriano and other RBSM officers. Capital Infusion ₱5,000,000.00

On January 4, 2000, RBSM declared a bank holiday. RBSM and all of its 15 branches (On Dec. 20, 1999)
were closed from doing business. Actual Breakdown of Total Obligations:

Alarmed and disturbed by the unilateral declaration of bank holiday, [BSP] wanted to
examine the books and records of RBSM but encountered problems.
Meanwhile, on November 10, 1999, RBSM’s designated comptroller, Ms. Zenaida
Cabais of the BSP, submitted to the Department of Rural Banks, BSP, a
Comptrollership Report on her findings on the financial condition and operations of
the bank as of October 31, 1999. Another set of findings was submitted by said
comptroller [and] this second report reflected the financial status of RBSM as of
December 31, 1999.
The findings of the comptroller on the financial state of RBSM as of October 31,
1999 in comparison with the financial condition as of December 31, 1999 is summed
up pertinently as follows:
1) Deposits of 20,000 depositors – ₱578,201,000.00
2) Borrowings from BSP – ₱320,907,000.00
3) Unremitted withholding and gross receipt taxes – ₱57,403,000.00.9
Based on these comptrollership reports, the director of the Department of Rural
Banks Supervision and Examination Sector, Wilfredo B. Domo-ong, made a report to
the MB dated January 20, 2000.10 The MB, after evaluating and deliberating on the
findings and recommendation of the Department of Rural Banks Supervision and
Examination Sector, issued Resolution No. 105 on January 21, 2000.11 Thereafter,
PDIC implemented the closure order and took over the management of RBSM’s
assets and affairs.

FINANCIAL CONDITION OF RBSM In their petition12 before the CA, petitioners claimed that respondents MB and BSP
committed grave abuse of discretion in issuing Resolution No. 105. The petition was
dismissed by the CA on March 28, 2000. It held, among others, that the decision of
As of Oct. 31, 1999 As of Dec. 31, 1999 the MB to issue Resolution No. 105 was based on the findings and recommendations
of the Department of Rural Banks Supervision and Examination Sector, the

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Banking Law Cases
comptroller reports as of October 31, 1999 and December 31, 1999 and the
declaration of a bank holiday. Such could be considered as substantial evidence.13
Pertinently, on June 9, 2000, on the basis of reports prepared by PDIC stating that
RBSM could not resume business with sufficient assurance of protecting the interest
of its depositors, creditors and the general public, the MB passed Resolution No. 966
directing PDIC to proceed with the liquidation of RBSM under Section 30 of RA
7653.14
Hence this petition.
It is well-settled that the closure of a bank may be considered as an exercise of police
power.15 The action of the MB on this matter is final and executory.16 Such exercise
may nonetheless be subject to judicial inquiry and can be set aside if found to be in
excess of jurisdiction or with such grave abuse of discretion as to amount to lack or
excess of jurisdiction.17
Petitioners argue that Resolution No. 105 was bereft of any basis considering that no
complete examination had been conducted before it was issued. This case essentially
boils down to one core issue: whether Section 30 of RA 7653 (also known as the New
Central Bank Act) and applicable jurisprudence require a current and
complete examination of the bank before it can be closed and placed under
receivership.
Section 30 of RA 7653 provides:
SECTION 30. Proceedings in Receivership and Liquidation. — Whenever, upon
report of the head of the supervising or examining department, the Monetary
Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary course of
business: Provided, That this shall not include inability to pay caused by
extraordinary demands induced by financial panic in the banking community;
(b) has insufficient realizable assets, as determined by the [BSP] to meet its
liabilities; or
(c) cannot continue in business without involving probable losses to its
depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has
become final, involving acts or transactions which amount to fraud or a
dissipation of the assets of the institution; in which cases, the Monetary
Board may summarily and without need for prior hearing forbid the
institution from doing business in the Philippines and designate the
Philippine Deposit Insurance Corporation as receiver of the banking
institution.
xxx xxx xxx
The actions of the Monetary Board taken under this section or under Section 29 of
this Act shall be final and executory, and may not be restrained or set aside by the
court except on petition for certiorari on the ground that the action taken was in
excess of jurisdiction or with such grave abuse of discretion as to amount to lack or
excess of jurisdiction. The petition for certiorari may only be filed by the stockholders
of record representing the majority of the capital stock within ten (10) days from
receipt by the board of directors of the institution of the order directing receivership,
liquidation or conservatorship. (Emphasis supplied)
xxx xxx xxx
Petitioners contend that there must be a current, thorough and complete examination
before a bank can be closed under Section 30 of RA 7653. They argue that this
section should be harmonized with Sections 25 and 28 of the same law:
SECTION 25. Supervision and Examination. — The [BSP] shall have supervision
over, and conduct periodic or special examinations of, banking institutions and
quasi-banks, including their subsidiaries and affiliates engaged in allied activities.
xxx xxx xxx
SECTION 28. Examination and Fees. — The supervising and examining
department head, personally or by deputy, shall examine the books of every banking
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Banking Law Cases
institution once in every twelve (12) months, and at such other time as the Monetary
Board by an affirmative vote of five (5) members may deem expedient and to make
a report on the same to the Monetary Board: Provided that there shall be an
interval of at least twelve (12) months between annual examinations. (Emphasis
supplied)
xxx xxx xxx
According to the petitioners, it is clear from these provisions that the "report of the
supervising or examining department" required under Section 30 refers to the report
on the examination of the bank which, under Section 28, must be made to the MB
after the supervising or examining head conducts an examination mandated by
Sections 25 and 28.18 They cite Banco Filipino Savings & Mortgage Bank v.
Monetary Board, Central Bank of the Philippines19 wherein the Court ruled:
There is no question that under Section 29 of the Central Bank Act, the following are
the mandatory requirementsto be complied with before a bank found to be
insolvent is ordered closed and forbidden to do business in the Philippines: Firstly,
an examination shall be conducted by the head of the appropriate supervising or
examining department or his examiners or agents into the condition of the bank;
secondly, it shall be disclosed in the examination that the condition of the bank is one
of insolvency, or that its continuance in business would involve probable loss to its
depositors or creditors; thirdly, the department head concerned shall inform the
Monetary Board in writing, of the facts; and lastly, the Monetary Board shall find the
statements of the department head to be true.20 (Emphasis supplied)
Petitioners assert that an examination is necessary and not a mere report, otherwise
the decision to close a bank would be arbitrary.
Respondents counter that RA 7653 merely requires a report of the head of the
supervising or examining department. They maintain that the term "report" under
Section 30 and the word "examination" used in Section 29 of the old law are not
synonymous. "Examination" connotes in-depth analysis, evaluation, inquiry or
investigation while "report" connotes a simple disclosure or narration of facts for
informative purposes.21
Petitioners’ contention has no merit. Banco Filipino and other cases petitioners
cited22 were decided using Section 29 of the old law (RA 265):
SECTION 29. Proceedings upon insolvency. — Whenever, upon examination by
the head of the appropriate supervising or examining department or his
examiners or agents into the condition of any bank or non-bank financial
intermediary performing quasi-banking functions, it shall be disclosed that the
condition of the same is one of insolvency, or that its continuance in business would
involve probable loss to its depositors or creditors, it shall be the duty of the
department head concerned forthwith, in writing, to inform the Monetary Board of the
facts. The Board may, upon finding the statements of the department head to be true,
forbid the institution to do business in the Philippines and designate an official of the
Central Bank or a person of recognized competence in banking or finance, as receiver
to immediately take charge of its assets and liabilities, as expeditiously as possible
collect and gather all the assets and administer the same for the benefits of its
creditors, and represent the bank personally or through counsel as he may retain in all
actions or proceedings for or against the institution, exercising all the powers
necessary for these purposes including, but not limited to, bringing and foreclosing
mortgages in the name of the bank or non-bank financial intermediary performing
quasi-banking functions. (Emphasis supplied)
xxx xxx xxx
Thus in Banco Filipino, we ruled that an "examination [conducted] by the head of the
appropriate supervising or examining department or his examiners or agents into the
condition of the bank"23 is necessary before the MB can order its closure.
However, RA 265, including Section 29 thereof, was expressly repealed by RA 7653
which took effect in 1993. Resolution No. 105 was issued on January 21, 2000.
Hence, petitioners’ reliance on Banco Filipino which was decided under RA 265 was
misplaced.
In RA 7653, only a "report of the head of the supervising or examining department"
is necessary. It is an established rule in statutory construction that where the words of
a statute are clear, plain and free from ambiguity, it must be given its literal meaning
and applied without attempted interpretation:24
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Banking Law Cases
This plain meaning rule or verba legis derived from the maxim index animi sermo
est (speech is the index of intention) rests on the valid presumption that the words
employed by the legislature in a statute correctly express its intention or will and
preclude the court from construing it differently. The legislature is presumed to know
the meaning of the words, to have used words advisedly, and to have expressed its
intent by use of such words as are found in the statute. Verba legis non est
recedendum, or from the words of a statute there should be no departure.25
The word "report" has a definite and unambiguous meaning which is clearly different
from "examination." A report, as a noun, may be defined as "something that gives
information" or "a usually detailed account or statement."26 On the other hand, an
examination is "a search, investigation or scrutiny."27
This Court cannot look for or impose another meaning on the term "report" or to
construe it as synonymous with "examination." From the words used in Section 30, it
is clear that RA 7653 no longer requires that an examination be made before the MB
can issue a closure order. We cannot make it a requirement in the absence of legal
basis.
Indeed, the court may consider the spirit and reason of the statute, where a literal
meaning would lead to absurdity, contradiction, injustice, or would defeat the clear
purpose of the lawmakers.28 However, these problems are not present here. Using the
literal meaning of "report" does not lead to absurdity, contradiction or injustice.
Neither does it defeat the intent of the legislators. The purpose of the law is to make
the closure of a bank summary and expeditious in order to protect public interest.
This is also why prior notice and hearing are no longer required before a bank can be
closed.29
Laying down the requisites for the closure of a bank under the law is the prerogative
of the legislature and what its wisdom dictates. The lawmakers could have easily
retained the word "examination" (and in the process also preserved the jurisprudence
attached to it) but they did not and instead opted to use the word "report." The
insistence on an examination is not sanctioned by RA 7653 and we would be guilty of
judicial legislation were we to make it a requirement when such is not supported by
the language of the law.
What is being raised here as grave abuse of discretion on the part of the respondents
was the lack of an examination and not the supposed arbitrariness with which the
conclusions of the director of the Department of Rural Banks Supervision and
Examination Sector had been reached in the report which became the basis of
Resolution No. 105.1awphi1.net
The absence of an examination before the closure of RBSM did not mean that there
was no basis for the closure order. Needless to say, the decision of the MB and BSP,
like any other administrative body, must have something to support itself and its
findings of fact must be supported by substantial evidence. But it is clear under RA
7653 that the basis need not arise from an examination as required in the old law.
We thus rule that the MB had sufficient basis to arrive at a sound conclusion that
there were grounds that would justify RBSM’s closure. It relied on the report of Mr.
Domo-ong, the head of the supervising or examining department, with the findings
that: (1) RBSM was unable to pay its liabilities as they became due in the ordinary
course of business and (2) that it could not continue in business without incurring
probable losses to its depositors and creditors.30 The report was a 50-page
memorandum detailing the facts supporting those grounds, an extensive chronology
of events revealing the multitude of problems which faced RBSM and the
recommendations based on those findings.
In short, MB and BSP complied with all the requirements of RA 7653. By relying on
a report before placing a bank under receivership, the MB and BSP did not only
follow the letter of the law, they were also faithful to its spirit, which was to act
expeditiously. Accordingly, the issuance of Resolution No. 105 was untainted with
arbitrariness.
Having dispensed with the issue decisive of this case, it becomes unnecessary to
resolve the other minor issues raised.31
WHEREFORE, the petition is hereby DENIED. The March 28, 2000 decision and
November 13, 2001 resolution of the Court of Appeals in CA-G.R. SP No. 57112
are AFFIRMED.
Costs against petitioners.
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Banking Law Cases
SO ORDERED.
G.R. No. 70054 December 11, 1991
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner,
vs.
THE MONETARY BOARD, CENTRAL BANK OF THE PHILIPPINES, JOSE
B. FERNANDEZ, CARLOTA P. VALENZUELA, ARNULFO B. AURELLANO
and RAMON V. TIAOQUI, respondents.
G.R. No. 68878 December 11, 1991
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and CELESTINA S.
PAHIMUNTUNG, assisted by her husband,respondents.
G.R. No. 77255-58 December 11, 1991
TOP MANAGEMENT PROGRAMS CORPORATION AND PILAR
DEVELOPMENT CORPORATION, petitioners,
vs.
THE COURT OF APPEALS, The Executive Judge of the Regional Trial Court
of Cavite, Ex-Officio Sheriff REGALADO E. EUSEBIO, BANCO FILIPINO
SAVINGS AND MORTGAGE BANK, CARLOTA P. VALENZUELA AND
SYCIP, SALAZAR, HERNANDEZ AND GATMAITAN, respondents.
G.R. No. 78766 December 11, 1991
EL GRANDE CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, THE EXECUTIVE JUDGE of The Regional Trial
Court and Ex-Officio Sheriff REGALADO E. EUSEBIO, BANCO FILIPINO
SAVINGS AND MORTGAGE BANK, CARLOTA P. VALENZUELA AND
SYCIP, SALAZAR, FELICIANO AND HERNANDEZ, respondents.
G.R. No. 78767 December 11, 1991
METROPOLIS DEVELOPMENT CORPORATION, petitioner,
vs.
COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES, JOSE B.
FERNANDEZ, JR., CARLOTA P. VALENZUELA, ARNULFO AURELLANO
AND RAMON TIAOQUI, respondents.
G.R. No. 78894 December 11, 1991
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner
vs.
COURT OF APPEALS, THE CENTRAL BANK OF THE PHILIPPINES,
JOSE B. FERNANDEZ, JR., CARLOTA P. VALENZUELA, ARNULFO B.
AURELLANO AND RAMON TIAOQUI, respondents.
G.R. No. 81303 December 11, 1991
PILAR DEVELOPMENT CORPORATION, petitioner
vs.
COURT OF APPEALS, HON. MANUEL M. COSICO, in his capacity as
Presiding Judge of Branch 136 of the Regional Trial Court of Makati,
CENTRAL BANK OF THE PHILIPPINES AND CARLOTA P.
VALENZUELA,respondents.
G.R. No. 81304 December 11, 1991
BF HOMES DEVELOPMENT CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, CENTRAL BANK AND CARLOTA P.
VALENZUELA, respondents.
G.R. No. 90473 December 11, 1991
EL GRANDE DEVELOPMENT CORPORATION, petitioner,
vs.
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Banking Law Cases
THE COURT OF APPEALS, THE EXECUTIVE JUDGE of the Regional Trial
Court of Cavite, CLERK OF COURT and Ex-Officio Sheriff ADORACION
VICTA, BANCO FILIPINO SAVINGS AND MORTGAGE BANK, CARLOTA
P. VALENZUELA AND SYCIP, SALAZAR, HERNANDEZ AND
GATMAITAN, respondents.
Panganiban, Benitez, Barinaga & Bautista Law Offices collaborating counsel for
petitioner.
Florencio T. Domingo, Jr. and Crisanto S. Cornejo for intervenors.
MEDIALDEA, J.:
This refers to nine (9) consolidated cases concerning the legality of the closure and
receivership of petitioner Banco Filipino Savings and Mortgage Bank (Banco Filipino
for brevity) pursuant to the order of respondent Monetary Board. Six (6) of these
cases, namely, G.R. Nos. 68878, 77255-68, 78766, 81303, 81304 and 90473 involve
the common issue of whether or not the liquidator appointed by the respondent
Central Bank (CB for brevity) has the authority to prosecute as well as to defend
suits, and to foreclose mortgages for and in behalf of the bank while the issue on the
validity of the receivership and liquidation of the latter is pending resolution in G.R.
No. 7004. Corollary to this issue is whether the CB can be sued to fulfill financial
commitments of a closed bank pursuant to Section 29 of the Central Bank Act. On the
other hand, the other three (3) cases, namely, G.R. Nos. 70054, which is the main
case, 78767 and 78894 all seek to annul and set aside M.B. Resolution No. 75 issued
by respondents Monetary Board and Central Bank on January 25, 1985.
The antecedent facts of each of the nine (9) cases are as follows:
G.R No. 68878
This is a motion for reconsideration, filed by respondent Celestina Pahimuntung, of
the decision promulgated by thisCourt on April 8, 1986, granting the petition for
review on certiorari and reversing the questioned decision of respondent appellate
court, which annulled the writ of possession issued by the trial court in favor of
petitioner.
The respondent-movant contends that the petitioner has no more personality to
continue prosecuting the instant case considering that petitioner bank was placed
under receivership since January 25, 1985 by the Central Bank pursuant to the
resolution of the Monetary Board.
G.R. Nos. 77255-58
Petitioners Top Management Programs Corporation (Top Management for brevity)
and Pilar Development Corporation (Pilar Development for brevity) are corporations
engaged in the business of developing residential subdivisions.
Top Management obtained a loan of P4,836,000 from Banco Filipino as evidenced by
a promissory note dated January 7, 1982 payable in three years from date. The loan
was secured by real estate mortgage in its various properties in Cavite. Likewise,
Pilar Development obtained loans from Banco Filipino between 1982 and 1983 in the
principal amounts of P6,000,000, P7,370,000 and P5,300,000 with maturity dates on
December 28, 1984, January 5, 1985 and February 16, 1984, respectively. To secure
the loan, Pilar Development mortgaged to Banco Filipino various properties in
Dasmariñas, Cavite.
On January 25, 1985, the Monetary Board issued a resolution finding Banco Filipino
insolvent and unable to do business without loss to its creditors and depositors. It
placed Banco Filipino under receivership of Carlota Valenzuela, Deputy Governor of
the Central Bank.
On March 22, 1985, the Monetary Board issued another resolution placing the bank
under liquidation and designating Valenzuela as liquidator. By virtue of her authority
as liquidator, Valenzuela appointed the law firm of Sycip, Salazar, et al. to represent
Banco Filipino in all litigations.
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Banking Law Cases
On March 26, 1985, Banco Filipino filed the petition for certiorari in G.R. No. 70054
questioning the validity of the resolutions issued by the Monetary Board authorizing
the receivership and liquidation of Banco Filipino.
In a resolution dated August 29, 1985, this Court in G.R. No. 70054 resolved to issue
a temporary restraining order, effective during the same period of 30 days, enjoining
the respondents from executing further acts of liquidation of the bank; that acts such
as receiving collectibles and receivables or paying off creditors' claims and other
transactions pertaining to normal operations of a bank are not enjoined. The Central
Bank is ordered to designate a comptroller for Banco Filipino.
Subsequently, Top Management failed to pay its loan on the due date. Hence, the law
firm of Sycip, Salazar, et al. acting as counsel for Banco Filipino under authority of
Valenzuela as liquidator, applied for extra-judicial foreclosure of the mortgage over
Top Management's properties. Thus, the Ex-Officio Sheriff of the Regional Trial
Court of Cavite issued a notice of extra-judicial foreclosure sale of the properties on
December 16, 1985.
On December 9, 1985, Top Management filed a petition for injunction and
prohibition with the respondent appellate court docketed as CA-G.R. SP No. 07892
seeking to enjoin the Regional Trial Court of Cavite, the ex-officio sheriff of said
court and Sycip, Salazar, et al. from proceeding with foreclosure sale.
Similarly, Pilar Development defaulted in the payment of its loans. The law firm of
Sycip, Salazar, et al. filed separate applications with the ex-officio sheriff of the
Regional Trial Court of Cavite for the extra-judicial foreclosure of mortgage over its
properties.
Hence, Pilar Development filed with the respondent appellate court a petition for
prohibition with prayer for the issuance of a writ of preliminary injunction docketed
as CA-G.R SP Nos. 08962-64 seeking to enjoin the same respondents from enforcing
the foreclosure sale of its properties. CA-G.R. SP Nos. 07892 and 08962-64 were
consolidated and jointly decided.
On October 30, 1986, the respondent appellate court rendered a decision dismissing
the aforementioned petitions.
Hence, this petition was filed by the petitioners Top Management and Pilar
Development alleging that Carlota Valenzuela, who was appointed by the Monetary
Board as liquidator of Banco Filipino, has no authority to proceed with the
foreclosure sale of petitioners' properties on the ground that the resolution of the issue
on the validity of the closure and liquidation of Banco Filipino is still pending with
this Court in G.R. 70054.
G.R. No. 78766
Petitioner El Grande Development Corporation (El Grande for brevity) is engaged in
the business of developing residential subdivisions. It was extended by respondent
Banco Filipino a credit accommodation to finance its housing program. Hence,
petitioner was granted a loan in the amount of P8,034,130.00 secured by real estate
mortgages on its various estates located in Cavite.
On January 15, 1985, the Monetary Board forbade Banco Filipino to do business,
placed it under receivership and designated Deputy Governor Carlota Valenzuela as
receiver. On March 22, 1985, the Monetary Board confirmed Banco Filipino's
insolvency and designated the receiver Carlota Valenzuela as liquidator.
When petitioner El Grande failed to pay its indebtedness to Banco Filipino, the latter
thru its liquidator, Carlota Valenzuela, initiated the foreclosure with the Clerk of
Court and Ex-officio sheriff of RTC Cavite. Subsequently, on March 31, 1986, the
ex-officio sheriff issued the notice of extra-judicial sale of the mortgaged properties
of El Grande scheduled on April 30, 1986.
In order to stop the public auction sale, petitioner El Grande filed a petition for
prohibition with the Court of Appeals alleging that respondent Carlota Valenzuela
could not proceed with the foreclosure of its mortgaged properties on the ground that
this Court in G.R. No. 70054 issued a resolution dated August 29, 1985, which
restrained Carlota Valenzuela from acting as liquidator and allowed Banco Filipino to
resume banking operations only under a Central Bank comptroller.
On March 2, 1987, the Court of Appeals rendered a decision dismissing the petition.
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Banking Law Cases
Hence this petition for review on certiorari was filed alleging that the respondent
court erred when it held in its decision that although Carlota P. Valenzuela was
restrained by this Honorable Court from exercising acts in liquidation of Banco
Filipino Savings & Mortgage Bank, she was not legally precluded from foreclosing
the mortgage over the properties of the petitioner through counsel retained by her for
the purpose.
G.R. No. 81303
On November 8, 1985, petitioner Pilar Development Corporation (Pilar Development
for brevity) filed an action against Banco Filipino, the Central Bank and Carlota
Valenzuela for specific performance, docketed as Civil Case No. 12191. It appears
that the former management of Banco Filipino appointed Quisumbing & Associates
as counsel for Banco Filipino. On June 12, 1986 the said law firm filed an answer for
Banco Filipino which confessed judgment against Banco Filipino.
On June 17, 1986, petitioner filed a second amended complaint. The Central Bank
and Carlota Valenzuela, thru the law firm Sycip, Salazar, Hernandez and Gatmaitan
filed an answer to the complaint.
On June 23, 1986, Sycip, et al., acting for all the defendants including Banco Filipino
moved that the answer filed by Quisumbing & Associates for defendant Banco
Filipino be expunged from the records. Despite opposition from Quisumbing &
Associates, the trial court granted the motion to expunge in an order dated March 17,
1987. Petitioner Pilar Development moved to reconsider the order but the motion was
denied.
Petitioner Pilar Development filed with the respondent appellate court a petition
for certiorari and mandamus to annul the order of the trial court. The Court of
Appeals rendered a decision dismissing the petition. A petition was filed with this
Court but was denied in a resolution dated March 22, 1988. Hence, this instant
motion for reconsideration.
G.R. No. 81304
On July 9, 1985, petitioner BF Homes Incorporated (BF Homes for brevity) filed an
action with the trial court to compel the Central Bank to restore petitioner's; financing
facility with Banco Filipino.
The Central Bank filed a motion to dismiss the action. Petitioner BF Homes in a
supplemental complaint impleaded as defendant Carlota Valenzuela as receiver of
Banco Filipino Savings and Mortgage Bank.
On April 8, 1985, petitioner filed a second supplemental complaint to which
respondents filed a motion to dismiss.
On July 9, 1985, the trial court granted the motion to dismiss the supplemental
complaint on the grounds (1) that plaintiff has no contractual relation with the
defendants, and (2) that the Intermediate Appellate Court in a previous decision in
AC-G.R. SP. No. 04609 had stated that Banco Filipino has been ordered closed and
placed under receivership pending liquidation, and thus, the continuation of the
facility sued for by the plaintiff has become legally impossible and the suit has
become moot.
The order of dismissal was appealed by the petitioner to the Court of Appeals. On
November 4, 1987, the respondent appellate court dismissed the appeal and affirmed
the order of the trial court.
Hence, this petition for review on certiorari was filed, alleging that the respondent
court erred when it found that the private respondents should not be the ones to
respond to the cause of action asserted by the petitioner and the petitioner did not
have any cause of action against the respondents Central Bank and Carlota
Valenzuela.
G.R. No. 90473
Petitioner El Grande Development Corporation (El Grande for brevity) obtained a
loan from Banco Filipino in the amount of P8,034,130.00, secured by a mortgage
over its five parcels of land located in Cavite which were covered by Transfer
Certificate of Title Nos. T-82187, T-109027, T-132897, T-148377, and T-79371 of
the Registry of Deeds of Cavite.
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Banking Law Cases
When Banco Filipino was ordered closed and placed under receivership in 1985, the
appointed liquidator of BF, thru its counsel Sycip, Salazar, et al. applied with the ex-
officio sheriff of the Regional Trial Court of Cavite for the extrajudicial foreclosure
of the mortgage constituted over petitioner's properties. On March 24, 1986, the ex-
officio sheriff issued a notice of extrajudicial foreclosure sale of the properties of
petitioner.
Thus, petitioner filed with the Court of Appeals a petition for prohibition with prayer
for writ of preliminary injunction to enjoin the respondents from foreclosing the
mortgage and to nullify the notice of foreclosure.
On June 16, 1989, respondent Court of Appeals rendered a decision dismissing the
petition.
Not satisfied with the decision, petitioner filed the instant petition for review
on certiorari.
G.R. No. 70054
Banco Filipino Savings and Mortgage Bank was authorized to operate as such under
M.B. Resolution No. 223 dated February 14, 1963. It commenced operations on July
9, 1964. It has eighty-nine (89) operating branches, forty-six (46) of which are in
Manila, with more than three (3) million depositors.
As of July 31, 1984, the list of stockholders showed the major stockholders to be:
Metropolis Development Corporation, Apex Mortgage and Loans Corporation,
Filipino Business Consultants, Tiu Family Group, LBH Inc. and Anthony Aguirre.
Petitioner Bank had an approved emergency advance of P119.7 million under M.B.
Resolution No. 839 dated June 29, 1984. This was augmented with a P3 billion credit
line under M.B. Resolution No. 934 dated July 27, 1984.
On the same date, respondent Board issued M.B. Resolution No. 955 placing
petitioner bank under conservatorship of Basilio Estanislao. He was later replaced by
Gilberto Teodoro as conservator on August 10, 1984. The latter submitted a report
dated January 8, 1985 to respondent Board on the conservatorship of petitioner bank,
which report shall hereinafter be referred to as the Teodoro report.
Subsequently, another report dated January 23, 1985 was submitted to the Monetary
Board by Ramon Tiaoqui, Special Assistant to the Governor and Head, SES
Department II of the Central Bank, regarding the major findings of examination on
the financial condition of petitioner BF as of July 31, 1984. The report, which shall be
referred to herein as the Tiaoqui Report contained the following conclusion and
recommendation:
The examination findings as of July 31, 1984, as shown earlier, indicate one
of insolvency and illiquidity and further confirms the above conclusion of the
Conservator.
All the foregoing provides sufficient justification for forbidding the bank from
engaging in banking.
Foregoing considered, the following are recommended:
1. Forbid the Banco Filipino Savings & Mortgage Bank to do business
in the Philippines effective the beginning of office January 1985,
pursuant to Sec. 29 of R.A No. 265, as amended;
2. Designate the Head of the Conservator Team at the bank, as
Receiver of Banco Filipino Savings & Mortgage Bank, to immediately
take charge of the assets and liabilities, as expeditiously as possible
collect and gather all the assets and administer the same for the benefit
of all the creditors, and exercise all the powers necessary for these
purposes including but not limited to bringing suits and foreclosing
mortgages in the name of the bank.
3. The Board of Directors and the principal officers from Senior Vice
Presidents, as listed in the attached Annex "A" be included in the
watchlist of the Supervision and Examination Sector until such time
that they shall have cleared themselves.
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4. Refer to the Central Bank's Legal Department and Office of Special
Investigation the report on the findings on Banco Filipino for
investigation and possible prosecution of directors, officers, and
employees for activities which led to its insolvent position. (pp- 61-62,
Rollo)
On January 25, 1985, the Monetary Board issued the assailed MB Resolution
No. 75 which ordered the closure of BF and which further provides:
After considering the report dated January 8, 1985 of the Conservator
for Banco Filipino Savings and Mortgage Bank that the continuance in
business of the bank would involve probable loss to its depositors and
creditors, and after discussing and finding to be true the statements of
the Special Assistant to the Governor and Head, Supervision and
Examination Sector (SES) Department II as recited in his
memorandum dated January 23, 1985, that the Banco Filipino Savings
& Mortgage Bank is insolvent and that its continuance in business
would involve probable loss to its depositors and creditors, and in
pursuance of Sec. 29 of RA 265, as amended, the Board decided:
1. To forbid Banco Filipino Savings and Mortgage Bank and
all its branches to do business in the Philippines;
2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor
as Receiver who is hereby directly vested with jurisdiction and
authority to immediately take charge of the bank's assets and
liabilities, and as expeditiously as possible collect and gather
all the assets and administer the same for the benefit of its
creditors, exercising all the powers necessary for these
purposes including but not limited to, bringing suits and
foreclosing mortgages in the name of the bank;
3. To designate Mr. Arnulfo B. Aurellano, Special Assistant to
the Governor, and Mr. Ramon V. Tiaoqui, Special Assistant to
the Governor and Head, Supervision and Examination Sector
Department II, as Deputy Receivers who are likewise hereby
directly vested with jurisdiction and authority to do all things
necessary or proper to carry out the functions entrusted to them
by the Receiver and otherwise to assist the Receiver in carrying
out the functions vested in the Receiver by law or Monetary
Board Resolutions;
4. To direct and authorize Management to do all other things
and carry out all other measures necessary or proper to
implement this Resolution and to safeguard the interests of
depositors, creditors and the general public; and
5. In consequence of the foregoing, to terminate the
conservatorship over Banco Filipino Savings and Mortgage
Bank. (pp. 10-11, Rollo, Vol. I)
On February 2, 1985, petitioner BF filed a complaint docketed as Civil
Case No. 9675 with the Regional Trial Court of Makati to set aside the
action of the Monetary Board placing BF under receivership.
On February 28, 1985, petitioner filed with this Court the instant
petition for certiorari and mandamus under Rule 65 of the Rules of
Court seeking to annul the resolution of January 25, 1985 as made
without or in excess of jurisdiction or with grave abuse of discretion,
to order respondents to furnish petitioner with the reports of
examination which led to its closure and to afford petitioner BF a
hearing prior to any resolution that may be issued under Section 29 of
R.A. 265, also known as Central Bank Act.
On March 19, 1985, Carlota Valenzuela, as Receiver and Arnulfo
Aurellano and Ramon Tiaoqui as Deputy Receivers of Banco Filipino
submitted their report on the receivership of BF to the Monetary
Board, in compliance with the mandate of Sec. 29 of R.A. 265 which
provides that the Monetary Board shall determine within sixty (60)
days from date of receivership of a bank whether such bank may be
reorganized/permitted to resume business or ordered to be liquidated.
The report contained the following recommendation:
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In view of the foregoing and considering that the condition of
the banking institution continues to be one of insolvency, i.e.,
its realizable assets are insufficient to meet all its liabilities and
that the bank cannot resume business with safety to its
depositors, other creditors and the general public, it is
recommended that:
1. Banco Filipino Savings & Mortgage Bank be liquidated pursuant to
paragraph 3, Sec. 29 of RA No. 265, as amended;
2. The Legal Department, through the Solicitor General, be authorized
to file in the proper court a petition for assistance in th liquidation of
the Bank;
3. The Statutory Receiver be designated as the Liquidator of said bank;
and
4. Management be instructed to inform the stockholders of Banco
Filipino Savings & Mortgage Bank of the Monetary Board's decision
liquidate the Bank. (p. 167, Rollo, Vol. I)
On July 23, 1985, petitioner filed a motion before this Court praying
that a restraining order or a writ of preliminary injunction be issued to
enjoin respondents from causing the dismantling of BF signs in its
main office and 89 branches. This Court issued a resolution on August
8, 1985 ordering the issuance of the aforesaid temporary restraining
order.
On August 20, 1985, the case was submitted for resolution.
In a resolution dated August 29, 1985, this Court Resolved direct the
respondents Monetary Board and Central Bank hold hearings at which
the petitioner should be heard, and terminate such hearings and submit
its resolution within thirty (30) days. This Court further resolved to
issue a temporary restraining order enjoining the respondents from
executing further acts of liquidation of a bank. Acts such as receiving
collectibles and receivables or paying off creditors' claims and other
transactions pertaining to normal operations of a bank were no
enjoined. The Central Bank was also ordered to designate comptroller
for the petitioner BF. This Court also ordered th consolidation of Civil
Cases Nos. 8108, 9676 and 10183 in Branch 136 of the Regional Trial
Court of Makati.
However, on September 12, 1985, this Court in the meantime
suspended the hearing it ordered in its resolution of August 29, 1985.
On October 8, 1985, this Court submitted a resolution order ing
Branch 136 of the Regional Trial Court of Makati the presided over by
Judge Ricardo Francisco to conduct the hear ing contemplated in the
resolution of August 29, 1985 in the most expeditious manner and to
submit its resolution to this Court.
In the Court's resolution of February 19, 1987, the Court stated that the
hearing contemplated in the resolution of August 29, 1985, which is to
ascertain whether substantial administrative due process had been
observed by the respondent Monetary Board, may be expedited by
Judge Manuel Cosico who now presides the court vacated by Judge
Ricardo Francisco, who was elevated to the Court of Appeals, there
being no legal impediment or justifiable reason to bar the former from
conducting such hearing. Hence, this Court directed Judge Manuel
Cosico to expedite the hearing and submit his report to this Court.
On February 20, 1988, Judge Manuel Cosico submitted his report to
this Court with the recommendation that the resolutions of respondents
Monetary Board and Central Bank authorizing the closure and
liquidation of petitioner BP be upheld.
On October 21, 1988, petitioner BF filed an urgent motion to reopen
hearing to which respondents filed their comment on December 16,
1988. Petitioner filed their reply to respondent's comment of January
11, 1989. After having deliberated on the grounds raised in the
pleadings, this Court in its resolution dated August 3, 1989 declared
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that its intention as expressed in its resolution of August 29, 1985 had
not been faithfully adhered to by the herein petitioner and respondents.
The aforementioned resolution had ordered a healing on the reports
that led respondents to order petitioner's closure and its alleged pre-
planned liquidation. This Court noted that during the referral hearing
however, a different scheme was followed. Respondents merely
submitted to the commissioner their findings on the examinations
conducted on petitioner, affidavits of the private respondents relative
to the findings, their reports to the Monetary Board and several other
documents in support of their position while petitioner had merely
submitted objections to the findings of respondents, counter-affidavits
of its officers and also documents to prove its claims. Although the
records disclose that both parties had not waived cross-examination of
their deponents, no such cross-examination has been conducted. The
reception of evidence in the form of affidavits was followed
throughout, until the commissioner submitted his report and
recommendations to the Court. This Court also held that the
documents pertinent to the resolution of the instant petition are the
Teodoro Report, Tiaoqui Report, Valenzuela, Aurellano and Tiaoqui
Report and the supporting documents which were made as the bases
by the reporters of their conclusions contained in their respective
reports. This Court also Resolved in its resolution to re-open the
referral hearing that was terminated after Judge Cosico had submitted
his report and recommendation with the end in view of allowing
petitioner to complete its presentation of evidence and also for
respondents to adduce additional evidence, if so minded, and for both
parties to conduct the required cross-examination of
witnesses/deponents, to be done within a period of three months. To
obviate all doubts on Judge Cosico's impartiality, this Court designated
a new hearing commissioner in the person of former Judge Consuelo
Santiago of the Regional Trial Court, Makati, Branch 149 (now
Associate Justice of the Court of Appeals).
Three motions for intervention were filed in this case as follows: First,
in G.R. No. 70054 filed by Eduardo Rodriguez and Fortunate M.
Dizon, stockholders of petitioner bank for and on behalf of other
stockholders of petitioner; second, in G.R. No. 78894, filed by the
same stockholders, and, third, again in G.R. No. 70054 by BF
Depositors' Association and others similarly situated. This Court, on
March 1, 1990, denied the aforesaid motions for intervention.
On January 28, 1991, the hearing commissioner, Justice Consuelo
Santiago of the Court of Appeals submitted her report and
recommendation (to be hereinafter called, "Santiago Report") on the
following issues stated therein as follows:
l) Had the Monetary Board observed the procedural
requirements laid down in Sec. 29 of R.A. 265, as amended to
justify th closure of the Banco Filipino Savings and Mortgage
Bank?
2) On the date of BF's closure (January 25, 1985) was its
condition one of insolvency or would its continuance in
business involve probable loss to its depositors or creditors?
The commissioner after evaluation of the evidence presented found
and recommended the following:
1. That the TEODORO and TIAOQUI reports did not establish
in accordance with See. 29 of the R.A. 265, as amended, BF's
insolvency as of July 31, 1984 or that its continuance in
business thereafter would involve probable loss to its
depositors or creditors. On the contrary, the evidence indicates
that BF was solvent on July 31, 1984 and that on January 25,
1985, the day it was closed, its insolvency was not clearly
established;
2. That consequently, BF's closure on January 25, 1985, not
having satisfied the requirements prescribed under Sec. 29 of
RA 265, as amended, was null and void.
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3. That accordingly, by way of correction, BF should be
allowed to re-open subject to such laws, rules and regulations
that apply to its situation.
Respondents thereafter filed a motion for leave to file objections to the
Santiago Report. In the same motion, respondents requested that the
report and recommendation be set for oral argument before the Court.
On February 7, 1991, this Court denied the request for oral argument
of the parties.
On February 25, 1991, respondents filed their objections to the
Santiago Report. On March 5, 1991, respondents submitted a motion
for oral argument alleging that this Court is confronted with two
conflicting reports on the same subject, one upholding on all points the
Monetary Board's closure of petitioner, (Cosico Report dated February
19, 1988) and the other (Santiago Report dated January 25, 1991)
holding that petitioner's closure was null and void because petitioner's
insolvency was not clearly established before its closure; and that such
a hearing on oral argrument will therefore allow the parties to directly
confront the issues before this Court.
On March 12, 1991 petitioner filed its opposition to the motion for oral
argument. On March 20, 1991, it filed its reply to respondents'
objections to the Santiago Report.
On June 18, 1991, a hearing was held where both parties were heard
on oral argument before this Court. The parties, having submitted their
respective memoranda, the case is now submitted for decision.
G.R. No. 78767
On February 2, 1985, Banco Filipino filed a complaint with the trial
court docketed as Civil Case No. 9675 to annul the resolution of the
Monetary Board dated January 25, 1985, which ordered the closure of
the bank and placed it under receivership.
On February 14, 1985, the Central Bank and the receivers filed a
motion to dismiss the complaint on the ground that the receivers had
not authorized anyone to file the action. In a supplemental motion to
dismiss, the Central Bank cited the resolution of this Court dated
October 15, 1985 in G.R. No. 65723 entitled, "Central Bank et al. v.
Intermediate Appellate Court" whereby We held that a complaint
questioning the validity of the receivership established by the Central
Bank becomes moot and academic upon the initiation of liquidation
proceedings.
While the motion to dismiss was pending resolution, petitioner herein
Metropolis Development Corporation (Metropolis for brevity) filed a
motion to intervene in the aforestated civil case on the ground that as a
stockholder and creditor of Banco Filipino, it has an interest in the
subject of the action.
On July 19, 1985, the trial court denied the motion to dismiss and also
denied the motion for reconsideration of the order later filed by
Central Bank. On June 5, 1985, the trial court allowed the motion for
intervention.
Hence, the Central Bank and the receivers of Banco Filipino filed a
petition for certiorari with the respondent appellate court alleging that
the trial court committed grave abuse of discretion in not dismissing
Civil Case No. 9675.
On March 17, 1986, the respondent appellate court rendered a decision
annulling and setting aside the questioned orders of the trial court, and
ordering the dismissal of the complaint filed by Banco Filipino with
the trial court as well as the complaint in intervention of petitioner
Metropolis Development Corporation.
Hence this petition was filed by Metropolis Development Corporation
questioning the decision of the respondent appellate court.
G.R. No. 78894
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On February 2, 1985, a complaint was filed with the trial court in the
name of Banco Filipino to annul the resolution o the Monetary Board
dated January 25, 1985 which ordered the closure of Banco Filipino
and placed it under receivership. The receivers appointed by the
Monetary Board were Carlota Valenzuela, Arnulfo Aurellano and
Ramon Tiaoqui.
On February 14, 1985, the Central Bank and the receiver filed a
motion to dismiss the complaint on the ground that the receiver had
not authorized anyone to file the action.
On March 22, 1985, the Monetary Board placed the bank under
liquidation and designated Valenzuela as liquidator and Aurellano and
Tiaoqui as deputy liquidators.
The Central Bank filed a supplemental motion to dismiss which was
denied. Hence, the latter filed a petition for certiorari with the
respondent appellate court to set aside the order of the trial court
denying the motion to dismiss. On March 17, 1986, the respondent
appellate court granted the petition and dismissed the complaint of
Banco Filipino with the trial court.
Thus, this petition for certiorari was filed with the petitioner
contending that a bank which has been closed and placed under
receivership by the Central Bank under Section 29 of RA 265 could
file suit in court in its name to contest such acts of the Central Bank,
without the authorization of the CB-appointed receiver.
After deliberating on the pleadings in the following cases:
1. In G.R. No. 68878, the respondent's motion for
reconsideration;
2. In G.R. Nos. 77255-58, the petition, comment, reply,
rejoinder and sur-rejoinder;
2. In G.R. No. 78766, the petition, comment, reply and
rejoinder;
3. In G.R. No. 81303, the petitioner's motion for
reconsideration;
4. In G.R.No. 81304, the petition, comment and reply;
5. Finally, in G.R. No. 90473, the petition comment and reply.
We find the motions for reconsideration in G.R. Nos. 68878 and 81303
and the petitions in G.R. Nos. 77255-58, 78766, 81304 and 90473
devoid of merit.
Section 29 of the Republic Act No. 265, as amended known as the
Central Bank Act, provides that when a bank is forbidden to do
business in the Philippines and placed under receivership, the person
designated as receiver shall immediately take charge of the bank's
assets and liabilities, as expeditiously as possible, collect and gather
all the assets and administer the same for the benefit of its creditors,
and represent the bank personally or through counsel as he may retain
in all actions or proceedings for or against the institution, exercising
all the powers necessary for these purposes including, but not limited
to, bringing and foreclosing mortgages in the name of the bank. If the
Monetary Board shall later determine and confirm that banking
institution is insolvent or cannot resume business safety to depositors,
creditors and the general public, it shall, public interest requires, order
its liquidation and appoint a liquidator who shall take over and
continue the functions of receiver previously appointed by Monetary
Board. The liquid for may, in the name of the bank and with the
assistance counsel as he may retain, institute such actions as may
necessary in the appropriate court to collect and recover a counts and
assets of such institution or defend any action ft against the institution.
When the issue on the validity of the closure and receivership of
Banco Filipino bank was raised in G.R. No. 70054, pendency of the
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case did not diminish the powers and authority of the designated
liquidator to effectuate and carry on the a ministration of the bank. In
fact when We adopted a resolute on August 25, 1985 and issued a
restraining order to respondents Monetary Board and Central Bank,
We enjoined me further acts of liquidation. Such acts of liquidation, as
explained in Sec. 29 of the Central Bank Act are those which
constitute the conversion of the assets of the banking institution to
money or the sale, assignment or disposition of the s to creditors and
other parties for the purpose of paying debts of such institution. We
did not prohibit however acts a as receiving collectibles and
receivables or paying off credits claims and other transactions
pertaining to normal operate of a bank. There is no doubt that the
prosecution of suits collection and the foreclosure of mortgages
against debtors the bank by the liquidator are among the usual and
ordinary transactions pertaining to the administration of a bank. their
did Our order in the same resolution dated August 25, 1985 for the
designation by the Central Bank of a comptroller Banco Filipino alter
the powers and functions; of the liquid insofar as the management of
the assets of the bank is concerned. The mere duty of the comptroller
is to supervise counts and finances undertaken by the liquidator and to
d mine the propriety of the latter's expenditures incurred behalf of the
bank. Notwithstanding this, the liquidator is empowered under the law
to continue the functions of receiver is preserving and keeping intact
the assets of the bank in substitution of its former management, and to
prevent the dissipation of its assets to the detriment of the creditors of
the bank. These powers and functions of the liquidator in directing the
operations of the bank in place of the former management or former
officials of the bank include the retaining of counsel of his choice in
actions and proceedings for purposes of administration.
Clearly, in G.R. Nos. 68878, 77255-58, 78766 and 90473, the
liquidator by himself or through counsel has the authority to bring
actions for foreclosure of mortgages executed by debtors in favor of
the bank. In G.R. No. 81303, the liquidator is likewise authorized to
resist or defend suits instituted against the bank by debtors and
creditors of the bank and by other private persons. Similarly, in G.R.
No. 81304, due to the aforestated reasons, the Central Bank cannot be
compelled to fulfill financial transactions entered into by Banco
Filipino when the operations of the latter were suspended by reason of
its closure. The Central Bank possesses those powers and functions
only as provided for in Sec. 29 of the Central Bank Act.
While We recognize the actual closure of Banco Filipino and the
consequent legal effects thereof on its operations, We cannot uphold
the legality of its closure and thus, find the petitions in G.R. Nos.
70054, 78767 and 78894 impressed with merit. We hold that the
closure and receivership of petitioner bank, which was ordered by
respondent Monetary Board on January 25, 1985, is null and void.
It is a well-recognized principle that administrative and discretionary
functions may not be interfered with by the courts. In general, courts
have no supervising power over the proceedings and actions of the
administrative departments of the government. This is generally true
with respect to acts involving the exercise of judgment or discretion,
and findings of fact. But when there is a grave abuse of discretion
which is equivalent to a capricious and whimsical exercise of
judgment or where the power is exercised in an arbitrary or despotic
manner, then there is a justification for the courts to set aside the
administrative determination reached (Lim, Sr. v. Secretary of
Agriculture and Natural Resources, L-26990, August 31, 1970, 34
SCRA 751)
The jurisdiction of this Court is called upon, once again, through these
petitions, to undertake the delicate task of ascertaining whether or not
an administrative agency of the government, like the Central Bank of
the Philippines and the Monetary Board, has committed grave abuse of
discretion or has acted without or in excess of jurisdiction in issuing
the assailed order. Coupled with this task is the duty of this Court not
only to strike down acts which violate constitutional protections or to
nullify administrative decisions contrary to legal mandates but also to
prevent acts in excess of authority or jurisdiction, as well as to correct
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Banking Law Cases
manifest abuses of discretion committed by the officer or tribunal
involved.
The law applicable in the determination of these issues is Section 29 of
Republic Act No. 265, as amended, also known as the Central Bank
Act, which provides:
SEC. 29. Proceedings upon insolvency. — Whenever, upon
examination by the head of the appropriate supervising or
examining department or his examiners or agents into the
condition of any bank or non-bank financial intermediary
performing quasi-banking functions, it shall be disclosed that
the condition of the same is one of insolvency, or that its
continuance in business would involve probable loss to its
depositors or creditors, it shall be the duty of the department
head concerned forthwith, in writing, to inform the Monetary
Board of the facts. The Board may, upon finding the statements
of the department head to be true, forbid the institution to do
business in the Philippines and designate an official of the
Central Bank or a person of recognized competence in banking
or finance, as receiver to immediately take charge of its assets
and liabilities, as expeditiously as possible collect and gather
all the assets and administer the same for the benefit's of its
creditors, and represent the bank personally or through counsel
as he may retain in all actions or proceedings for or against the
institution, exercising all the powers necessary for these
purposes including, but not limited to, bringing and foreclosing
mortgages in the name of the bank or non-bank financial
intermediary performing quasi-banking functions.
The Monetary Board shall thereupon determine within sixty
days whether the institution may be reorganized or otherwise
placed in such a condition so that it may be permitted to
resume business with safety to its depositors and creditors and
the general public and shall prescribe the conditions under
which such resumption of business shall take place as well as
the time for fulfillment of such conditions. In such case, the
expenses and fees in the collection and administration of the
assets of the institution shall be determined by the Board and
shall be paid to the Central Bank out of the assets of such
institution.
If the Monetary Board shall determine and confirm within the
said period that the bank or non-bank financial intermediary
performing quasi-banking functions is insolvent or cannot
resume business with safety to its depositors, creditors, and the
general public, it shall, if the public interest requires, order its
liquidation, indicate the manner of its liquidation and approve a
liquidation plan which may, when warranted, involve
disposition of any or all assets in consideration for the
assumption of equivalent liabilities. The liquidator designated
as hereunder provided shall, by the Solicitor General, file a
petition in the regional trial court reciting the proceedings
which have been taken and praying the assistance of the court
in the liquidation of such institutions. The court shall have
jurisdiction in the same proceedings to assist in the
adjudication of the disputed claims against the bank or non-
bank financial intermediary performing quasi-banking
functions and in the enforcement of individual liabilities of the
stockholders and do all that is necessary to preserve the assets
of such institutions and to implement the liquidation plan
approved by the Monetary Board. The Monetary Board shall
designate an official of the Central bank or a person of
recognized competence in banking or finance, as liquidator
who shall take over and continue the functions of the receiver
previously appointed by the Monetary Board under this
Section. The liquidator shall, with all convenient speed,
convert the assets of the banking institutions or non-bank
financial intermediary performing quasi-banking function to
money or sell, assign or otherwise dispose of the same to
creditors and other parties for the purpose of paying the debts
of such institution and he may, in the name of the bank or non-
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Banking Law Cases
bank financial intermediary performing quasi-banking
functions and with the assistance of counsel as he may retain,
institute such actions as may be necessary in the appropriate
court to collect and recover accounts and assets of such
institution or defend any action filed against the institution:
Provided, However, That after having reasonably established
all claims against the institution, the liquidator may, with the
approval of the court, effect partial payments of such claims for
assets of the institution in accordance with their legal priority.
The assets of an institution under receivership or liquidation
shall be deemed in custodia legis in the hands of the receiver or
liquidator and shall from the moment of such receivership or
liquidation, be exempt from any order of garnishment, levy,
attachment, orexecution.
The provisions of any law to the contrary notwithstanding, the
actions of the Monetary Board under this Section, Section 28-
A, an the second paragraph of Section 34 of this Act shall be
final an executory, and can be set aside by a court only if there
is convince proof, after hearing, that the action is plainly
arbitrary and made in bad faith: Provided, That the same is
raised in an appropriate pleading filed by the stockholders of
record representing the majority of th capital stock within ten
(10) days from the date the receiver take charge of the assets
and liabilities of the bank or non-bank financial intermediary
performing quasi-banking functions or, in case of
conservatorship or liquidation, within ten (10) days from
receipt of notice by the said majority stockholders of said bank
or non-bank financial intermediary of the order of its
placement under conservatorship o liquidation. No restraining
order or injunction shall be issued by an court enjoining the
Central Bank from implementing its actions under this Section
and the second paragraph of Section 34 of this Act in th
absence of any convincing proof that the action of the
Monetary Board is plainly arbitrary and made in bad faith and
the petitioner or plaintiff files a bond, executed in favor of the
Central Bank, in an amount be fixed by the court. The
restraining order or injunction shall be refused or, if granted,
shall be dissolved upon filing by the Central Bank of a bond,
which shall be in the form of cash or Central Bank cashier's
check, in an amount twice the amount of the bond of th
petitioner or plaintiff conditioned that it will pay the damages
which the petitioner or plaintiff may suffer by the refusal or the
dissolution of the injunction. The provisions of Rule 58 of the
New Rules of Court insofar as they are applicable and not
inconsistent with the provision of this Section shall govern the
issuance and dissolution of the re straining order or injunction
contemplated in this Section.
xxx xxx xxx
Based on the aforequoted provision, the Monetary Board may order
the cessation of operations of a bank in the Philippine and place it
under receivership upon a finding of insolvency or when its
continuance in business would involve probable loss its depositors or
creditors. If the Monetary Board shall determine and confirm within
sixty (60) days that the bank is insolvent or can no longer resume
business with safety to its depositors, creditors and the general public,
it shall, if public interest will be served, order its liquidation.
Specifically, the basic question to be resolved in G.R. Nos. 70054,
78767 and 78894 is whether or not the Central Bank and the Monetary
Board acted arbitrarily and in bad faith in finding and thereafter
concluding that petitioner bank is insolvent, and in ordering its closure
on January 25, 1985.
As We have stated in Our resolution dated August 3, 1989, the
documents pertinent to the resolution of these petitions are the
Teodoro Report, Tiaoqui Report, and the Valenzuela, Aurellano and
Tiaoqui Report and the supporting documents made as bases by the
supporters of their conclusions contained in their respective reports.
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Banking Law Cases
We will focus Our study and discussion however on the Tiaoqui
Report and the Valenzuela, Aurellano and Tiaoqui Report. The former
recommended the closure and receivership of petitioner bank while the
latter report made the recommendation to eventually place the
petitioner bank under liquidation. This Court shall likewise take into
consideration the findings contained in the reports of the two
commissioners who were appointed by this Court to hold the referral
hearings, namely the report by Judge Manuel Cosico submitted
February 20, 1988 and the report submitted by Justice Consuelo
Santiago on January 28, 1991.
There is no question that under Section 29 of the Central Bank Act, the
following are the mandatory requirements to be complied with before
a bank found to be insolvent is ordered closed and forbidden to do
business in the Philippines: Firstly, an examination shall be conducted
by the head of the appropriate supervising or examining department or
his examiners or agents into the condition of the bank; secondly, it
shall be disclosed in the examination that the condition of the bank is
one of insolvency, or that its continuance in business would involve
probable loss to its depositors or creditors; thirdly, the department
head concerned shall inform the Monetary Board in writing, of the
facts; and lastly, the Monetary Board shall find the statements of the
department head to be true.
Anent the first requirement, the Tiaoqui report, submitted on January
23, 1985, revealed that the finding of insolvency of petitioner was
based on the partial list of exceptions and findings on the regular
examination of the bank as of July 31, 1984 conducted by the
Supervision and Examination Sector II of the Central Bank of the
PhilippinesCentral Bank (p. 1, Tiaoqui Report).
On December 17, 1984, this list of exceptions and finding was
submitted to the petitioner bank (p. 6, Tiaoqui Report) This was
attached to the letter dated December 17, 1984, of examiner-in-charge
Dionisio Domingo of SES Department II of the Central Bank to
Teodoro Arcenas, president of petitione bank, which disclosed that the
examination of the petitioner bank as to its financial condition as of
July 31, 1984 was not yet completed or finished on December 17,
1984 when the Central Bank submitted the partial list of findings of
examination to th petitioner bank. The letter reads:
In connection with the regular examination of your institution a
of July 31, 1984, we are submitting herewith a partial list of
our exceptions/findings for your comments.
Please be informed that we have not yet officially terminated
our examination (tentatively scheduled last December 7, 1984)
and that we are still awaiting for the unsubmitted replies to our
previous letters requests. Moreover, other findings/
observations are still being summarized including the
classification of loans and other risk assets. These shall be
submitted to you in due time (p. 810, Rollo, Vol. III; emphasis
ours).
It is worthy to note that a conference was held on January 21, 1985 at
the Central Bank between the officials of the latter an of petitioner
bank. What transpired and what was agreed upon during the
conference was explained in the Tiaoqui report.
... The discussion centered on the substantial exposure of the
bank to the various entities which would have a relationship
with the bank; the manner by which some bank funds were
made indirectly available to several entities within the group;
and the unhealth financial status of these firms in which the
bank was additionally exposed through new funds or
refinancing accommodation including accrued interest.
Queried in the impact of these clean loans, on the bank
solvency Mr. Dizon (BF Executive Vice President) intimated
that, collectively these corporations have large undeveloped
real estate properties in the suburbs which can be made
answerable for the unsecured loans a well as the Central Bank's
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Banking Law Cases
credit accommodations. A formal reply of the bank would still
be forthcoming. (pp. 58-59, Rollo, Vol. I; emphasis ours)
Clearly, Tiaoqui based his report on an incomplete examination of
petitioner bank and outrightly concluded therein that the latter's
financial status was one of insolvency or illiquidity. He arrived at the
said conclusion from the following facts: that as of July 31, 1984, total
capital accounts consisting of paid-in capital and other capital accounts
such as surplus, surplus reserves and undivided profits aggregated
P351.8 million; that capital adjustments, however, wiped out the
capital accounts and placed the bank with a capital deficiency
amounting to P334.956 million; that the biggest adjustment which
contributed to the deficit is the provision for estimated losses on
accounts classified as doubtful and loss which was computed at P600.4
million pursuant to the examination. This provision is also known as
valuation reserves which was set up or deducted against the capital
accounts of the bank in arriving at the latter's financial condition.
Tiaoqui however admits the insufficiency and unreliability of the
findings of the examiner as to the setting up of recommended
valuation reserves from the assets of petitioner bank. He stated:
The recommended valuation reserves as bases for determining
the financial status of the bank would need to be discussed with
the bank, consistent with standard examination procedure, for
which the bank would in turn reply. Also, the examination has
not been officially terminated. (p. 7. Tiaoqui report; p.
59, Rollo, Vol. I)
In his testimony in the second referral hearing before Justice Santiago,
Tiaoqui testified that on January 21, 1985, he met with officers of
petitioner bank to discuss the advanced findings and exceptions made
by Mr. Dionisio Domingo which covered 70%-80% of the bank's loan
portfolio; that at that meeting, Fortunato Dizon (BF's Executive Vice
President) said that as regards the unsecured loans granted to various
corporations, said corporations had large undeveloped real estate
properties which could be answerable for the said unsecured loans and
that a reply from BF was forthcoming, that he (Tiaoqui) however
prepared his report despite the absence of such reply; that he believed,
as in fact it is stated in his report, that despite the meeting on January
21, 1985, there was still a need to discuss the recommended valuation
reserves of petitioner bank and; that he however, did not wait anymore
for a discussion of the recommended valuation reserves and instead
prepared his report two days after January 21, 1985 (pp. 3313-
3314, Rollo).
Records further show that the examination of petitioner bank was
officially terminated only when Central Bank Examination-charge
Dionisio Domingo submitted his final report of examination on March
4,1985.
It is evident from the foregoing circumstances that the examination
contemplated in Sec. 29 of the CB Act as a mandatory requirement
was not completely and fully complied with. Despite the existence of
the partial list of findings in the examination of the bank, there were
still highly significant items to be weighed and determined such as the
matter of valuation reserves, before these can be considered in the
financial condition of the bank. It would be a drastic move to conclude
prematurely that a bank is insolvent if the basis for such conclusion is
lacking and insufficient, especially if doubt exists as to whether such
bases or findings faithfully represent the real financial status of the
bank.
The actuation of the Monetary Board in closing petitioner bank on
January 25, 1985 barely four days after a conference with the latter on
the examiners' partial findings on its financial position is also violative
of what was provided in the CB Manual of Examination Procedures.
Said manual provides that only after the examination is concluded,
should a pre-closing conference led by the examiner-in-charge be held
with the officers/representatives of the institution on the
findings/exception, and a copy of the summary of the
findings/violations should be furnished the institution examined so that
140
Banking Law Cases
corrective action may be taken by them as soon as possible (Manual of
Examination Procedures, General Instruction, p. 14). It is hard to
understand how a period of four days after the conference could be a
reasonable opportunity for a bank to undertake a responsive and
corrective action on the partial list of findings of the examiner-in-
charge.
We recognize the fact that it is the responsibility of the Central Bank
of the Philippines to administer the monetary, banking and credit
system of the country and that its powers and functions shall be
exercised by the Monetary Board pursuant to Rep. Act No. 265,
known as the Central Bank Act. Consequently, the power and
authority of the Monetary Board to close banks and liquidate them
thereafter when public interest so requires is an exercise of the police
power of the state. Police power, however, may not be done arbitratrily
or unreasonably and could be set aside if it is either capricious,
discriminatory, whimsical, arbitrary, unjust or is tantamount to a denial
of due process and equal protection clauses of the Constitution
(Central Bank v. Court of Appeals, Nos. L-50031-32, July 27, 1981,
106 SCRA 143).
In the instant case, the basic standards of substantial due process were
not observed. Time and again, We have held in several cases, that the
procedure of administrative tribunals must satisfy the fundamentals of
fair play and that their judgment should express a well-supported
conclusion.
In the celebrated case of Ang Tibay v. Court of Industrial Relations, 69
Phil. 635, this Court laid down several cardinal primary rights which
must be respected in a proceeding before an administrative body.
However, as to the requirement of notice and hearing, Sec. 29 of RA
265 does not require a previous hearing before the Monetary Board
implements the closure of a bank, since its action is subject to judicial
scrutiny as provided for under the same law (Rural Bank of Bato v.
IAC, G.R. No. 65642, October 15, 1984, Rural Bank v. Court of
Appeals, G.R. 61689, June 20, 1988,162 SCRA 288).
Notwithstanding the foregoing, administrative due process does not
mean that the other important principles may be dispensed with,
namely: the decision of the administrative body must have something
to support itself and the evidence must be substantial. Substantial
evidence is more than a mere scintilla. It means such relevant evidence
as a reasonable mind might accept as adequate to support a conclusion
(Ang Tibay vs. CIR, supra). Hence, where the decision is merely
based upon pieces of documentary evidence that are not sufficiently
substantial and probative for the purpose and conclusion they are
presented, the standard of fairness mandated in the due process clause
is not met. In the case at bar, the conclusion arrived at by the
respondent Board that the petitioner bank is in an illiquid financial
position on January 23, 1985, as to justify its closure on January 25,
1985 cannot be given weight and finality as the report itself admits the
inadequacy of its basis to support its conclusion.
The second requirement provided in Section 29, R.A. 265 before a
bank may be closed is that the examination should disclose that the
condition of the bank is one of insolvency.
As to the concept of whether the bank is solvent or not, the
respondents contend that under the Central Bank Manual of
Examination Procedures, Central Bank examiners must recommend
valuation reserves, when warranted, to be set up or deducted against
the corresponding asset account to determine the bank's true condition
or net worth. In the case of loan accounts, to which practically all the
questioned valuation reserves refer, the manual provides that:
1. For doubtful loans, or loans the ultimate collection of which is
doubtful and in which a substantial loss is probable but not yet
definitely ascertainable as to extent, valuation reserves of fifty per cent
(50%) of the accounts should be recommended to be set up.
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Banking Law Cases
2. For loans classified as loss, or loans regarded by the examiner as
absolutely uncollectible or worthless, valuation reserves of one
hundred percent (100%) of the accounts should be recommended to be
set up (p. 8, Objections to Santiago report).
The foregoing criteria used by respondents in determining the financial
condition of the bank is based on Section 5 of RA 337, known as the
General Banking Act which states:
Sec. 5. The following terms shall be held to be synonymous
and interchangeable:
... f. Unimpaired Capital and Surplus, "Combined capital
accounts," and "Net worth," which terms shall mean for the
purposes of this Act, the total of the "unimpaired paid-in
capital, surplus, and undivided profits net of such valuation
reserves as may be required by the Central Bank."
There is no doubt that the Central Bank Act vests authority upon the
Central Bank and Monetary Board to take charge and administer the
monetary and banking system of the country and this authority
includes the power to examine and determine the financial condition of
banks for purposes provided for by law, such as for the purpose of
closure on the ground of insolvency stated in Section 29 of the Central
Bank Act. But express grants of power to public officers should be
subjected to a strict interpretation, and will be construed as conferring
those powers which are expressly imposed or necessarily implied
(Floyd Mechem, Treatise on the Law of Public Offices and Officers, p.
335).
In this case, there can be no clearer explanation of the concept of
insolvency than what the law itself states. Sec. 29 of the Central Bank
Act provides that insolvency under the Act, shall be understood to
mean that "the realizable assets of a bank or a non-bank financial
intermediary performing quasi-banking functions as determined by the
Central Bank are insufficient to meet its liabilities."
Hence, the contention of the Central Bank that a bank's true financial
condition is synonymous with the terms "unimpaired capital and
surplus," "combined capital accounts" and net worth after deducting
valuation reserves from the capital, surplus and unretained earnings,
citing Sec. 5 of RA 337 is misplaced.
Firstly, it is clear from the law that a solvent bank is one in which its
assets exceed its liabilities. It is a basic accounting principle that assets
are composed of liabilities and capital. The term "assets" includes
capital and surplus" (Exley v. Harris, 267 p. 970, 973, 126 Kan., 302).
On the other hand, the term "capital" includes common and preferred
stock, surplus reserves, surplus and undivided profits. (Manual of
Examination Procedures, Report of Examination on Department of
Commercial and Savings Banks, p. 3-C). If valuation reserves would
be deducted from these items, the result would merely be the networth
or the unimpaired capital and surplus of the bank applying Sec. 5 of
RA 337 but not the total financial condition of the bank.
Secondly, the statement of assets and liabilities is used in balance
sheets. Banks use statements of condition to reflect the amounts,
nature and changes in the assets and liabilities. The Central Bank
Manual of Examination Procedures provides a format or checklist of a
statement of condition to be used by examiners as guide in the
examination of banks. The format enumerates the items which will
compose the assets and liabilities of a bank. Assets include cash and
those due from banks, loans, discounts and advances, fixed assets and
other property owned or acquired and other miscellaneous assets. The
amount of loans, discounts and advances to be stated in the statement
of condition as provided for in the manual is computed after deducting
valuation reserves when deemed necessary. On the other hand,
liabilities are composed of demand deposits, time and savings
deposits, cashier's, manager's and certified checks, borrowings, due to
head office, branches; and agencies, other liabilities and deferred
credits (Manual of Examination Procedure, p. 9). The amounts stated
in the balance sheets or statements of condition including the
computation of valuation reserves when justified, are based however,
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Banking Law Cases
on the assumption that the bank or company will continue in business
indefinitely, and therefore, the networth shown in the statement is in
no sense an indication of the amount that might be realized if the bank
or company were to be liquidated immediately (Prentice Hall
Encyclopedic Dictionary of Business Finance, p. 48). Further, based
on respondents' submissions, the allowance for probable losses on
loans and discounts represents the amount set up against current
operations to provide for possible losses arising from non-collection of
loans and advances, and this account is also referred to as valuation
reserve (p. 9, Objections to Santiago report). Clearly, the statement of
condition which contains a provision for recommended valuation
reserves should not be used as the ultimate basis to determine the
solvency of an institution for the purpose of termination of its
operations.
Respondents acknowledge that under the said CB manual, CB
examiners must recommend valuation reserves, when warranted, to be
set up against the corresponding asset account (p. 8, Objections to
Santiago report). Tiaoqui himself, as author of the report
recommending the closure of petitioner bank admits that the valuation
reserves should still be discussed with the petitioner bank in
compliance with standard examination procedure. Hence, for the
Monetary Board to unilaterally deduct an uncertain amount as
valuation reserves from the assets of a bank and to conclude therefrom
without sufficient basis that the bank is insolvent, would be totally
unjust and unfair.
The test of insolvency laid down in Section 29 of the Central Bank Act
is measured by determining whether the realizable assets of a bank are
leas than its liabilities. Hence, a bank is solvent if the fair cash value of
all its assets, realizable within a reasonable time by a reasonable
prudent person, would equal or exceed its total liabilities exclusive of
stock liability; but if such fair cash value so realizable is not sufficient
to pay such liabilities within a reasonable time, the bank is insolvent.
(Gillian v. State, 194 N.E. 360, 363, 207 Ind. 661). Stated in other
words, the insolvency of a bank occurs when the actual cash market
value of its assets is insufficient to pay its liabilities, not considering
capital stock and surplus which are not liabilities for such purpose
(Exley v. Harris, 267 p. 970, 973,126 Kan. 302; Alexander v.
Llewellyn, Mo. App., 70 S.W. 2n 115,117).
In arriving at the computation of realizable assets of petitioner bank,
respondents used its books which undoubtedly are not reflective of the
actual cash or fair market value of its assets. This is not the proper
procedure contemplated in Sec. 29 of the Central Bank Act. Even the
CB Manual of Examination Procedures does not confine examination
of a bank solely with the determination of the books of the bank. The
latter is part of auditing which should not be confused with
examination. Examination appraises the soundness of the institution's
assets, the quality and character of management and determines the
institution's compliance with laws, rules and regulations. Audit is a
detailed inspection of the institution's books, accounts, vouchers,
ledgers, etc. to determine the recording of all assets and liabilities.
Hence, examination concerns itself with review and appraisal, while
audit concerns itself with verification (CB Manual of Examination
Procedures, General Instructions, p. 5). This Court however, is not in
the position to determine how much cash or market value shall be
assigned to each of the assets and liabilities of the bank to determine
their total realizable value. The proper determination of these matters
by using the actual cash value criteria belongs to the field of fact-
finding expertise of the Central Bank and the Monetary Board.
Notwithstanding the fact that the figures arrived at by the respondent
Board as to assets and liabilities do not truly indicate their realizable
value as they were merely based on book value, We will however, take
a look at the figures presented by the Tiaoqui Report in concluding
insolvency as of July 31, 1984 and at the figures presented by the CB
authorized deputy receiver and by the Valenzuela, Aurellano and
Tiaoqui Report which recommended the liquidation of the bank by
reason of insolvency as o January 25,1985.
The Tiaoqui report dated January 23, 1985, which was based on partial
examination findings on the bank's condition as of July 31, 1984,
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Banking Law Cases
states that total liabilities of P5,282.1 million exceeds total assets of
P4,947.2 million after deducting from the assets valuation reserves of
P612.2 million. Since, as We have explained in our previous
discussion that valuation reserves can not be legally deducted as there
was no truthful and complete evaluation thereof as admitted by the
Tiaoqui report itself, then an adjustment of the figures win show that
the liabilities of P5,282.1 million will not exceed the total assets which
will amount to P5,559.4 if the 612.2 million allotted to valuation
reserves will not be deducted from the assets. There can be no basis
therefore for both the conclusion of insolvency and for the decision of
the respondent Board to close petitioner bank and place it under
receivership.
Concerning the financial position of the bank as of January 25, 1985,
the date of the closure of the bank, the consolidated statement of
condition thereof as of the aforesaid date shown in the Valenzuela,
Aurellano and Tiaoqui report on the receivership of petitioner bank,
dated March 19, 1985, indicates that total liabilities of 4,540.84
million does not exceed the total assets of 4,981.53 million. Likewise,
the consolidated statement of condition of petitioner bank as of
January 25, 1985 prepared by the Central Bank Authorized Deputy
Receiver Artemio Cruz shows that total assets amounting to
P4,981,522,996.22 even exceeds total liabilities amounting to
P4,540,836,834.15. Based on the foregoing, there was no valid reason
for the Valenzuela, Aurellano and Tiaoqui report to finally recommend
the liquidation of petitioner bank instead of its rehabilitation.
We take note of the exhaustive study and findings of the Cosico report
on the petitioner bank's having engaged in unsafe, unsound and
fraudulent banking practices by the granting of huge unsecured loans
to several subsidiaries and related companies. We do not see, however,
that this has any material bearing on the validity of the closure. Section
34 of the RA 265, Central Bank Act empowers the Monetary Board to
take action under Section 29 of the Central Bank Act when a bank
"persists in carrying on its business in an unlawful or unsafe manner."
There was no showing whatsoever that the bank had persisted in
committing unlawful banking practices and that the respondent Board
had attempted to take effective action on the bank's alleged activities.
During the period from July 27, 1984 up to January 25, 1985, when
petitioner bank was under conservatorship no official of the bank was
ever prosecuted, suspended or removed for any participation in unsafe
and unsound banking practices, and neither was the entire management
of the bank replaced or substituted. In fact, in her testimony during the
second referral hearing, Carlota Valenzuela, CB Deputy Governor,
testified that the reason for petitioner bank's closure was not unsound,
unsafe and fraudulent banking practices but the alleged insolvency
position of the bank (TSN, August 3, 1990, p. 3316, Rollo, Vol. VIII).
Finally, another circumstance which point to the solvency of petitioner
bank is the granting by the Monetary Board in favor of the former a
credit line in the amount of P3 billion along with the placing of
petitioner bank under conservatorship by virtue of M.B. Resolution
No. 955 dated July 27, 1984. This paved the way for the reopening of
the bank on August 1, 1984 after a self-imposed bank holiday on July
23, 1984.
On emergency loans and advances, Section 90 of RA 265 provides two
types of emergency loans that can be granted by the Central Bank to a
financially distressed bank:
Sec. 90. ... In periods of emergency or of imminent financial
panic which directly threaten monetary and banking stability,
the Central Bank may grant banking institutions extraordinary
advances secured by any assets which are defined as acceptable
by by a concurrent vote of at least five members of the
Monetary Board. While such advances are outstanding, the
debtor institution may not expand the total volume of its loans
or investments without the prior authorization of the Monetary
Board.
The Central Bank may, at its discretion, likewise grant
advances to banking institutions, even during normal periods,
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Banking Law Cases
for the purpose of assisting a bank in a precarious financial
condition or under serious financial pressures brought about by
unforeseen events, or events which, though foreseeable, could
not be prevented by the bank concerned. Provided, however,
That the Monetary Board has ascertained that the bank is not
insolvent and has clearly realizable assets to secure the
advances. Provided, further, That a concurrent vote of at least
five members of the Monetary Board is obtained. (Emphasis
ours)
The first paragraph of the aforequoted provision contemplates a
situation where the whole banking community is confronted with
financial and economic crisis giving rise to serious and widespread
confusion among the public, which may eventually threaten and
gravely prejudice the stability of the banking system. Here, the
emergency or financial confusion involves the whole banking
community and not one bank or institution only. The second situation
on the other hand, provides for a situation where the Central Bank
grants a loan to a bank with uncertain financial condition but not
insolvent.
As alleged by the respondents, the following are the reasons of the
Central Bank in approving the resolution granting the P3 billion loan
to petitioner bank and the latter's reopening after a brief self-imposed
banking holiday:
WHEREAS, the closure by Banco Filipino Savings and
Mortgage Bank of its Banking offices on its own initiative has
worked serious hardships on its depositors and has affected
confidence levels in the banking system resulting in a feeling
of apprehension among depositors and unnecessary deposit
withdrawals;
WHEREAS, the Central Bank is charged with the function of
administering the banking system;
WHEREAS, the reopening of Banco Filipino would require
additional credit resources from the Central Bank as well as an
independent management acceptable to the Central Bank;
WHEREAS, it is the desire of the Central Bank to rapidly
diffuse the uncertainty that presently exists;
... (M.B. Min. No. 35 dated July 27, 1984 cited in Respondents'
Objections to Santiago Report, p. 26; p. 3387, Rollo, Vol. IX;
Emphasis ours).
A perusal of the foregoing "Whereas" clauses unmistakably show that
the clear reason for the decision to grant the emergency loan to
petitioner bank was that the latter was suffering from financial distress
and severe bank "run" as a result of which it closed on July 23, 1984
and that the release of the said amount is in accordance with the
Central Bank's full support to meet Banco Filipino's depositors'
withdrawal requirements (Excerpts of minutes of meeting on MB Min.
No. 35, p. 25, Rollo, Vol. IX). Nothing therein shows that an
extraordinary emergency situation exists affecting most banks, not
only as regards petitioner bank. This Court thereby finds that the grant
of the said emergency loan was intended from the beginning to fall
under the second paragraph of Section 90 of the Central Bank Act,
which could not have occurred if the petitioner bank was not solvent.
Where notwithstanding knowledge of the irregularities and unsafe
banking practices allegedly committed by the petitioner bank, the
Central Bank even granted financial support to the latter and placed it
under conservatorship, such actuation means that petitioner bank could
still be saved from its financial distress by adequate aid and
management reform, which was required by Central Bank's duty to
maintain the stability of the banking system and the preservation of
public confidence in it (Ramos v. Central Bank, No. L-29352, October
4, 1971, 41 SCRA 565).
In view of the foregoing premises, We believe that the closure of the
petitioner bank was arbitrary and committed with grave abuse of
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Banking Law Cases

discretion. Granting in gratia argumenti that the closure was based on reorganization until such time that petitioner bank can continue in
justified grounds to protect the public, the fact that petitioner bank was business with safety to its creditors, depositors and the general public.
suffering from serious financial problems should not automatically
lead to its liquidation. Section 29 of the Central Bank provides that a SO ORDERED.
closed bank may be reorganized or otherwise placed in such a
condition that it may be permitted to resume business with safety to its
depositors, creditors and the general public.

We are aware of the Central Bank's concern for the safety of Banco
Filipino's depositors as well as its creditors including itself which had
granted substantial financial assistance up to the time of the latter's
closure. But there are alternatives to permanent closure and liquidation
to safeguard those interests as well as those of the general public for
the failure of Banco Filipino or any bank for that matter may be
viewed as an irreversible decline of the country's entire banking
system and ultimately, it may reflect on the Central Bank's own
viability. For one thing, the Central Bank and the Monetary Board
should exercise strict supervision over Banco Filipino. They should
take all the necessary steps not violative of the laws that will fully
secure the repayment of the total financial assistance that the Central
Bank had already granted or would grant in the future.

ACCORDINGLY, decision is hereby rendered as follows:

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

2. The petitions in G.R. No. 70054, 78767 and 78894 are GRANTED
and the assailed order of the Central Bank and the Monetary Board
dated January 25, 1985 is hereby ANNULLED AND SET ASIDE.
The Central Bank and the Monetary Board are ordered to reorganize
petitioner Banco Filipino Savings and Mortgage Bank and allow the
latter to resume business in the Philippines under the comptrollership
of both the Central Bank and the Monetary Board and under such
conditions as may be prescribed by the latter in connection with its
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Banking Law Cases

GENERAL BANK AND TRUST G.R. No. 152551

COMPANY,
Under consideration is this petition for review under Rule 45 of the Rules of
Petitioner,
Court to nullify and set aside the following issuances of the Court of Appeals (CA)
Present: in CA-G.R. CV No. 39939, to wit:

PUNO, J., Chairperson

- versus - SANDOVAL-GUTIERREZ,
CORONA,
1. Decision dated December 6, 1999,[1] reversing the
AZCUNA, and
Decision dated December 2, 1992 of the Regional Trial Court of
GARCIA, JJ. Manila, Branch 37, in Special Proceedings (SP Proc.) No.
107812 entitled Petition for Assistance in the Liquidation of
CENTRAL BANK OF THE
General Bank & Trust Company, Central Bank of the
PHILIPPINES and ARNULFO B.
Philippines and Arnulfo B. Aurellano, in his capacity as
AURELLANO in his capacity as Liquidator of General Bank & Trust Company, Petitioners; and
Liquidator of General Bank and Trust
Company, 2. Resolution dated March 12, 2002,[2] denying petitioners
Promulgated: motion for reconsideration.
Respondents.

June 15, 2006 The material facts, as stated in the appealed CA decision are, as follows:

1. From December 3 to 14, 1976, General Bank

x---------------------------------------------------------------------------------x and Trust Company (Genbank) incurred overdrafts in its
current account with the Central Bank [CB], starting
from P478,000 on December 3, 1976 and increasing
daily to reach P54.9 million on December 14,
DECISION
1976. These daily overdrawings were covered up to the
next banking day by check deposits, thru daycall
borrowings, obtained from various commercial banks (7-
GARCIA, J.: page Aide Memoire, Exh. H).

147
Banking Law Cases
2. A verification of the accounts showed that the
overdrawings of Genbank were due to the all-out
financial support it extended to Filcapital Development
Corporation (a related interest of the Yujuico Family
Group and the directors and officers of Genbank) to meet
maturing obligations. On December 14, 1976, Filcapital
overdraft balance with Genbank totaled P55.8 million, in
violation of existing CB regulations which was financed
by overdrawings of P54.9 million from CB [Id.].
3. The matter of overdraft accommodations to
Filcapital had been the subject of several memoranda and
letters of the Department of Commercial and Savings
Bank [DCSB] to Genbank, the same being in violation
of Section 23, R.A. 337 (maximum loan limit); of
Section 83, R.A. 337, as amended (requiring written
Board approval); and of Memorandum To All Banks
dated November 15, 1976 (prohibiting Temporary
Overdrawings) [Id.].
4. On December 14, 1976, the [CB] required
Genbank to stop its unsound banking practice of
incurring daily overdrawings. On December 15, 1976,
Genbank returned Filcapital checks aggregating P28.7
million and sold to the [CB] government securities
aggregating P49 million under a repurchase agreement,
in order to cover its overdraft with the [CB]. The return
of the Filcapital checks to the different collecting banks
precipitated a run on the bank starting on December 16,
1976 which necessitated the release by the [CB]
Governor of an initial emergency advance of P16 million
[Id.].
5. In his letter dated December 17, 1976 [Exh. H-
1], Dr. Clarencio Yujuico, Chairman of the Board and
President of Genbank, reported that the bank was
experiencing heavy withdrawals and its liquidity
position had continuously deteriorated and will
inevitably be needing immediate [CB] support. He
urgently requested that Genbank be allowed to draw cash
of P20 million to be spread out to its branch
offices. Since it was expected that the drawdowns on
deposits and deposit substitutes would continue which
would necessitate further [CB] advances, and
considering that the collateral submitted was
insufficient, coupled with the need to give a new image
to the bank, it was decided that as a condition to further
[CB] advances, the stockholders of Genbank owning at
least two-thirds (2/3) of the outstanding capital should
execute irrevocable proxies in favor of Land Bank [Id..].
As a measure calculated to restore the liquidity of
and confidence in Genbank, Dr. Yujuico informed the
[CB] Governor of the agreement of the principal officers
and stockholders and the approval by the Genbank Board
of Directors with respect to the guidelines under which
Land Bank was invited to participate in the equity of the
bank, some salient points of which were as follows: (a)
Land Bank will acquire two-thirds interest in the bank;
xxx [Id.; tsn, Dec. 7, 1990, pp. 41-42].
6. On December 20, 1976, the Monetary Board
in its Resolution No. 2553 [Exh. H-4] decided to grant
Genbank an emergency loan under Section 90 of the
Central Bank Charter in an amount not exceeding P150
million and to ratify the action taken by the Governor on
December 20, 1976 in releasing an emergency advance
of P165 million to Genbank. It also designated Arnulfo
B. Aurellano, Assistant to the Governor, to act as
Comptroller [Id., tsn, December 7, 1960, pp. 23-24].
7. On December 23, 1976, the President of
Genbank executed a Deed of Assignment [Exh. H-5] of
the general assets of the Bank in favor of the [CB]. As of
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Banking Law Cases
that date, [CB] emergency advances to Genbank
amounted to P116 million which were not sufficiently
collateralized by Genbank [Id.].
8. On December 27, 1976, the [CB] Governor
invited the Board of Directors of Genbank to a meeting
to discuss the affairs of the Bank with particular
reference to the loans to directors, officers, stockholders
and related interests (DOSRI). The Board was informed
of the magnitude of DOSRI loans which as of that date
totalled P172.3 million or 59.4% thereof was classified
as doubtful and P0.505 million as uncollectible. P158.1
million or 91.7% of DOSRI accounts was unsecured
while only 8% was secured [Id.].
9. At the said meeting, the Governor indicated
that Genbank should immediately take the following
[indispensable] steps: (a) clean [DOSRI] loans should be
collected or collateralized; (b) pending formal execution
of the collateral instruments, the borrower must
undertake to execute the required mortgage and other
security instruments; and (c) before full collateralization,
the affected director, officer or stockholder shall assume
joint and several liability with the borrower (related
interest) for the payment of the loan or credit
accommodation. xxx [Id, Exh. H-7], xxx..
10. Since the compliance with the directives in
his letter dated December 27, 1976 had been incomplete,
the [CB] Governor stressed to the Genbank Board of
Directors that the undertaking to collateralize the loans
concerned and the sureties are merely steps to be taken
prior to the full collateralization of the accounts
concerned, the more important thing being the actual
collateralization which must be done immediately [Id.,
Exh. H-9].
11. As of year-end 1976, emergency advances
totalled P154.521 million . In view of the continuous
drawdowns, [CB] advances reached P170.227 million
on January 5, 1977 exceeding the level of P150 million
previously approved. The Monetary Board in its
Resolution No. 90 dated January 7, 1977 [Exh. H-8]
authorized Management to extend continued support to
Genbank to meet further drawdowns on its deposits and
deposit substitutes [Id.].
12. On January 10, 1977, at a meeting of the
Board of Directors , seven nominees of Land Bank were
elected members of the Board, namely . The four others
came from the old Board. This was done to carry out the
understanding that Land Bank shall participate in the
management of Genbank. xxx (Id., Exh. H-10].
At said meeting, Dr. Yujuico advised that the
controlling stockholders were negotiating for the sale of
their stockholdings and requested that he be retained as
President to give him personality and leverage during the
negotiations, [Id., Exh. H-10; Exh. H-11].
13. In an office Order No. 12 dated January 14,
1977 [Exh. H-12], the [CB] Governor created a Special
Committee to act as observers and advisers in the
negotiations for the proposed purchase of the
outstanding shares of Genbank or all its assets and
assumption of all its liabilities [tsn, Dec. 7, 1990, pp. 34-
36]. All the prospective buyers were requested by the
Committee to submit formal written offers to the sellers.
Five (5) written offers were received from the following:
a. Philippine Bank of Communications
b. Paramount Finance Corporation
c. Willy Co/Lucio Tan, et al.
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Banking Law Cases
d. Gotianun Group/Family Savings Bank
e. Morris Carpo Group
[Id.; p. 4, Exh. E]
14. At various dates from January 26 to February
7, 1977, the Committee convoked meetings with all the
[interested] groups primarily to advise them that the
[CB] emergency advances must be amply protected and
that the sellers group must submit the final results of their
negotiations on or before February 10, 1977, the deadline
set by the Governor and agreed to by Dr. Yujuico and his
colleagues in the old Board of Genbank [Id.; Tsn.,
December 7, 1990, pp. 57-58].
15. By January 31, 1997, [CB] emergency
advances to Genbank had increased to P272.465 million
[Id.].
In his report dated February 10, 1977, on the
operations of Genbank for the month of January, 1977,
the [CB] Comptroller reported that the deposits and
deposit substitutes decreased by P22.328 million
and P125.128 million, respectively. xxx [Id.; Exh. H-
15].
16. On February 10, 1977, the deadline set for
completion of the negotiations for the sale of Genbank
shares, the representatives of the sellers group reported
(Exh. H-16) that the offer of the Lucio Tan group,
Paramount Finance Corporation and PB
Communications were to be presented to the
shareholders with their recommendations [Id.].
17. The Special Committee submitted its report
on the evaluation of the offers to buy Genbank shares
indicating that the Lucio Tan offer was the most
advantageous insofar as the [CB] is concerned because it
offered the best collateral for the [CB] advances [Id.].
Acting on said report, the Monetary Board, in its
Resolution No. 449 dated February 25, 1977 [Exh. H-
17], authorized the sellers group to discuss further with
the Lucio Tan group the price of the shares, and
prescribed the minimum conditions for the approval of
any sale of the controlling shares of Genbank. The
representatives of the sellers group were duly advised of
the resolution [Exh. H-18].
18. By February 28, 1977, [CB] advances to
Genbank totaled P300.961 million which showed an
increase of P28.496 million compared to January 31,
1977 [Id.].
In the report of the [CB] Comptroller
dated March 11, 1977 [Exh. H-19] on the operations of
the bank for February 1977, it was reported that the
decrease in deposits and deposit substitutes for the month
was P5.124 million and P35.694 million, respectively.
The loan portfolio of which 57% was in past due status
or in litigation, was reduced by P19.822 million.
It was also reported that from December 31,
1976 to February 28, 1977, the reduction on [DOSRI]
loans amounted to P6.918 million only, from P172.354
million to P165.436 million. Of this amount P127.494
million or 77% belonged to the Yujuico group; . Of the
loans of the Yujuico group, P126.608 million or 99.3%
was unsecured or uncollateralized. Furthermore, of the
Yujuico loans, 88.4% was in past due status [Id.].
19. The Monetary Board, in its Resolution No.
502 dated March 4, 1977 [Exh. H-21], decided to
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Banking Law Cases
instruct the Yujuico negotiators to inform all prospective
sellers and buyers of the additional valuation reserves
required to be booked in view of the pertinence of such
information to the ongoing negotiations. The Chairman
of the Genbank Board was duly advised of the said
Resolution of the Monetary Board in a letter
dated March 7, 1977 [Exh. H-22].
20. The Lucio Tan group and the sellers
representatives continued their negotiations on March 4
to 5, 1977 but could not reach an agreement, . In view of
the non-acceptance by the sellers group of the offer of
the Lucio Tan group, the Governor informed the
representatives of the sellers group that they may
consider the offer of Paramount Finance Corporation and
at the same time conveyed the conditions for [CB]
approval of the sale [Id.].
21. On the matter of collateralization of the
[DOSRI] loans , the Governor on March 10, 1977 wrote
individually nine (9) members of the Yujuico family
calling attention to his directive to collateralize their
loans and requested them to give the matter their
immediate and serious attention [Id.; Exh. H-25].
22. The sellers representatives, in a letter
dated March 14, 1977 [Exh. H-26], submitted an
Agreement to Buy and Sell Genbank shares between
them and Paramount Finance Corporation. The Special
Committee reported [Exh. H-27] that since it is unlikely
that Paramount will be able to comply with the [CB]
requirements and at the same time be in a position to
inject fresh funds to make the bank viable, the
Committee felt that the [CB] should explore alternative
courses of action.
In a letter dated March 20, 1977 [Exh. H-28],
Paramount advised that collateralizing the emergency
advances with standby letters credit would be too heavy
a financial burden for the bank to bear, the hold-out on
the concessional loan of their foreign partner met with
resistance from the investor as being unusual and
onerous on them, and the proxies to be held by Land
Bank was difficult to explain to prospective investors.
The Governor replied on March 22,1977 [Exh.H-
29] advising that it is not the interest of the [CB] to
accept a proposal which offers a security inferior to that
offered by another interested buyer, .
23. Central Bank advances as of March 22,
1977 totaled P305.918 million [Id.].
24. On March 23, 1977, the Governor together
with other [CB] officials and Genbank directors, had a
meeting with Messrs. Clarencio Yujuico, [and seven
others] , stockholders of Genbank who represented
stockholders owning at least two-thirds (2/3) of the
outstanding shares. They were given copies of the aide-
memoire for the meeting [Exh. H-30] which outlined
developments regarding Genbank particularly the
[DOSRI] loans, the negotiations for the sale of Genbank
shares, (the Lucio Tan Group was willing to comply with
all the conditions of the [CB] for the approval of the sale
but could meet the price of the selling group; the
Paramount Finance Group could not comply with all the
conditions prescribed to secure [CB] advances and the
interest of Genbank creditors and depositors, but this
group and the selling group could agree on the price),
and the valuation reserves and resulting net worth of the
bank after valuation reserve was less than P20 per
share. The stockholders were advised by the Governor
that public interest required that the [CB] should not
continuously extend further credit assistance to Genbank
and that a rehabilitation program instead be immediately
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Banking Law Cases
implemented [tsn, Dec. 7, 1990, pp. 58-59]. Genbank
stockholders were told to submit before 10:00
a.m., Friday, March 25, 1977, either of the following:
a) firm commitment to purchase the
controlling shares of Genbank by a private
group or to undertake a merger with another
bank, which is willing and capable to comply
with all the conditions of the [CB] conveyed
previously to representatives of the
controlling stockholders and whose price is
acceptable to sellers.
b) a written decision of the stockholders
owning at least two-thirds (2/3) of the
outstanding shares to reduce the par value
and a commitment of the Land Bank or a
private group to put up the additional equity
and a commitment to comply with the
conditions prescribed by the [CB].
25. As there was no compliance with either of
said requirements, and finding the report of Director
[Antonio Castro], Department of Commercial and
Savings Banks [DCSB] that Genbank
was insolvent within the meaning of Section 29 of R.A.
265 (Central Bank Act), as amended, and that Genbanks
continuance in business would involve losses to its
depositors and creditors - to be true, the Monetary Board
adopted Resolution No. 675 on March 25, 1977 [Exh.
I-1] forbidding Genbank to do business in
the Philippines and designating Arnulfo B. Aurellano as
receiver.
In a letter dated March 25, 1977, Governor
Licaros informed the Genbank Board of Directors of
such action.
26. On March 26, 1977, a Bid Committee met
with representatives of the four interested groups , and
informed them that the [CB] would accept bids for the
acquisition of all the assets and assumption of all the
liabilities of Genbank, subject to certain conditions. The
deadline for submission of sealed bids was 7:00
p.m., March 28, 1977 [Exh. E-2].
As of the said deadline, the only bid received was
that of the Lucio Tan group. It advised that it was
prepared to acquire the assets and assumed all the
liabilities of Genbank subject to the terms and conditions
enumerated in the letter [Exh. E-2; Exh. E-2-a].
27. Pursuant to the Memorandum of the Director,
[DCSB], dated March 28, 1977 stating that
As of March 24, 1977, the Banks liquid
assets of P28 million, together with collections
from its loan portfolio, will not be enough to meet
expected further withdrawal of deposits and
deposit substitutes of P235.4 million. The Banks
operation may be expected to result into losses of
at least P2.9 million per month and these loans
will dissipate the Banks remaining capital
accounts of P10.9 million. The Bank therefore
may not be permitted to resume business with
safety to its depositors, creditors, and the general
public
and recommending certain actions, the Monetary
Board adopted Resolution No. 677 on March 29,
1977 [Exh. I-2] determining and confirming that
Genbank was insolvent and could not resume business
with safety to its depositors, creditors and general public,
and ordering the liquidation of Genbank, the designation
of Arnulfo B. Aurellano as Liquidator and the approval
of a liquidation plan whereby all the assets of Genbank
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Banking Law Cases
should be purchased by the Lucio Tan Group which
should also assume all the liabilities under certain terms
and conditions.
28. In his letters dated March 29, 1977 to the
Genbank stockholders and Dr. Yujuico , Governor
Licaros informed them that the Monetary Board had
ordered the liquidation of Genbank [Exhs. I-15 and I-15-
a].
29. On May 9,1977, the Liquidator ; Allied
Banking Corporation ; and the individual members of the
Lucio Tan Willy Co group executed a Memorandum of
Agreement [Exh. I-26] in implementation of Monetary
Board Resolution No. 677 dated March 27, 1977 (sic)
[Exh. I-2], whereby the Liquidator sold and transferred
to Allied Bank all the assets of Genbank and Allied Bank
assumed all the liabilities of Genbank, subject to certain
terms and conditions, among which were:
(a) payment by Allied Bank to the
Liquidator of an initial amount of P500,000.00;
(b) xxx;
(c) payment to the [CB] of its emergency
advances to Genbank in the amount of P310
million within a period of two (2) years from date
of opening for business of Allied Bank, with 12%
interest per annum;
(d) no deferment in the payment by Allied
Bank of deposits and deposit substitutes in
Genbank; and
(e) xxx money market placements by the
Lucio Tan Willy Co group in an amount not less
than P100 million which placements shall remain
with Allied Bank from the opening and
commencement of operations until normalization
of operations as determined by the [CB], so that
during said period, Allied Bank shall have fresh
funds of at least P200 million to meet any
withdrawal contingencies.
30. Acting on the letter dated June 9, 1977 of
Lucio Tan, to Governor Licaros [Exh. I-4-a], the
Monetary Board, in its Resolution No. 1214 dated June
17, 1977 [Exh. I-4], decided as follows:
1. To authorize the Allied Banking
Corporation (ABC) to increase its paid-up capital
from P100 million to P200 million, ;
2. To approve the deletion of
Paragraph H, Page 5 of the [MOA] dated May 9,
1977 which requires the Lucio Tan and Willy Co
group to make money market placements in ABC
; and
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Banking Law Cases
3. xxx.
31. Pursuant to the recommendation of Arnulfo
B. Aurellano the Monetary Board, in its Resolution No.
1245 dated July 1, 1977 [Exh. I-5], decided to amend
par. F, page 5 of the [MOA]dated May 9, 1977, so as:
1. To dispense with the requirement that
Allied Bank and Lucio Tan group submit a
standby irrevocable letter of credit to secure the
emergency advances assumed by Allied Bank,
subject to the following conditions:
xxx xxx xxx
2. To extend from two (2) years to
five years the period of payment of the balance
of the emergency advances assumed by Allied
Bank, to be paid in twenty (20) equal quarterly
installments beginning October 15, 1977, with
interest at twelve percent (12%) per annum and
said balance to be secured by the mortgages
mentioned above.
32. Allied Bank was able to comply with all the
conditions laid down in Resolution No. 1245. It paid to
the [CB] P100 million of the total emergency advances
on July 15, 1977 [Exh. K; Exh. P], and effected full
payment of [CB] emergency advances on November 28,
1980 [Exh. L], causing the discharge and release of the
mortgages on the real and personal properties which
served as security for the payment of said advances
[Exhs. L-1, L-2, and L-3]. (Appellants Brief, pp. 11-34)
On April 1, 1977, [CB and Arnulfo B. Aurellano, as Genbank
Liquadator] initiated Sp. Proc. No. 107812 before the then Court of First
Instance (CFI) of Manila, Branch IV, pursuant to Section 29, RA 265,
as amended.
On May 5, 1982, appellees Worldwide Insurance & Surety
Company , Midland Insurance Corporation , and Standard Insurance
Co., Inc. filed a motion for intervention in Sp. Proc. No. 107812. Said
motion alleged that the closure and liquidation of [Genbank] were done
arbitrarily and in bad faith. On May 7, 1982, the court a quo issued an
order approving the intervention.
About a couple of years later, appellee Genbank joined the
intervention . Said intervention was approved by the Court a quo in its
Order dated March 15, 1984.
Subsequently, [CB et al., as petitioners before the CFI), instead
of presenting evidence to support their petition in Sp. Proc. No. 107892,
questioned the court a quos jurisdiction to determine the validity of the
liquidation of Genbank before this Court [CA], by way of a Petition for
Certiorari and Prohibition with Preliminary Injunction and Restraining
Order docketed as CA G.R. SP No. 03180. However, said petition
became moot and academic when the court a quo rendered a Decision
dated April 24, 1984, a day before it was served a copy of the [TRO]
dated April 24, 1984, and when [CB et al.] appealed said decision to this
Court [CA] [which] disposed of said appeal in favor of appellees-
[intervenors]. However, upon [CBs] motion for reconsideration, the
Court [CA] reconsidered said decision in its Resolution dated July 19,
1986, and remanded the case to the court of origin for the reception of
appellants evidence. (Underlining in the original; Words in bracket and
underscoring added.)
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Banking Law Cases
On November 5, 1992, the trial court rendered a decision,[3] the dispositive
portion of which reads:
WHEREFORE, judgment is hereby rendered against the
Petitioners [CB et al.] and in favor of Intervenors as follows:
First: That the closure of Genbank under Monetary Board
Resolution No. 675, March 25, 1977 (Petitioners Exh. I-1) and the
adoption of the Lucio Tan Group as the liquidation plan of Genbank
under Monetary Board Resolution No. 677, March 29, 1977
(Intervenors Exh. 1-2) are hereby annulled and set aside as being plainly
arbitrary and made in bad faith as provided under Section 29, RA No.
265, as amended.
Second: That Petitioner [CB] is hereby ordered and directed to
restore the license and authorization of Genbank to operate and conduct
business as a commercial bank and trust corporation and to restore
Genbanks banking network of Head Office, 23 branches and 1 extension
office.
Third: That Petitioner [CB] is hereby ordered and directed to pay
Intervenor Genbank the amount of P103,984,477.55 representing
Genbanks capital account which was the excess of Genbanks assets over
this liabilities as shown in the Consolidated Statement of Condition of
Genbank as of March 25, 1977 (Petitioners Exh. I-26-A) plus damages
by way of unrealized earnings at 5% interest per annum of said amount
of P103,984,477.55 starting from May 7, 1982 until fully paid; and
Fourth: That Petitioner [CB] is likewise ordered and directed to
pay Intervenor Genbank costs of the suit in accordance with the Rules
of Court.
SO ORDERED.
Therefrom, herein respondents CB and the Liquidator-designate appealed to the
CA where their recourse was docketed as CA G.R. CV No. 39939.
On December 6, 1999, the appellate court rendered judgment setting aside the
decision of the trial court.[4] With the denial of its motion for reconsideration by the
same court in its resolution of March 12, 2002, petitioner is now with us via the present
recourse, submitting that the CA erred when -
1. It ruled that Petitioner Bank was insolvent thus
paving the way for its closure and eventual liquidation.
2. It ruled that the property rights of Petitioner Bank
was not trampled upon despite the fact that respondent Central Bank
maliciously and arbitrarily and in bad faith ordered its closure on March
25, 1977 and its liquidation and bidding three (3) days later on March
28, 1977 which is tantamount to denial of due process and equal
protection clause of the Constitution.
3. It failed to apply Sec. 29 of R.A. 265 which laid
down the procedure to be followed for insolvency cases of banking
institutions.
The petition has no merit.
The three (3) assigned errors ultimately boil down to the issue of whether or not
respondent CB violated any existing procedural or substantive law when its Monetary
Board (MB) issued Resolution No. 675 dated March 25, 1977 ordering the closure of
155
Banking Law Cases

Genbank, and eventually MB Resolution No. 677 dated March 29, 1977, adopting the
Lucio Tan Groups bid as liquidation plan of petitioner Genbank, or otherwise
committed grave abuse of discretion which will justify reversal of the assailed MB
resolutions.
At the outset, it bears to stress that the underlying governing law, Republic Act
(RA) 265[5], underwent several amendments. Among the amendatory laws are
Presidential Decree (PD) Nos. 1007 and 1937 which took effect in September 1976 and
June 1984, respectively.
and Triumph Savings Bank, despite their respective total assets being more than their
total liabilities. As respondent CB argued, the closure of Banco Filipino and Triumph
Savings Bank on January 25, 1985 and May 31, 1985, respectively, were effected
under the aegis of Section 29 of RA 265, as amended by PD 1007, after it was further
amended by PD 1937 in June 1984. Under the latter amendment, a banking institution
is deemed insolvent when [its] realizable assets as determined by the Central Bank are
insufficient to meet its liabilities. Thus, this Court ruled that there was no valid basis
for the closure of both banks on the ground of insolvency, the total assets of either bank
exceeding as it were their respective liabilities.

Petitioner Genbank claims that it was not insolvent when Resolution No. 675
Unlike the cases referred to above, however, Genbank was ordered closed by
was issued on March 25, 1977, its assets at that time standing at P599,743,639.00,
the CB on March 25, 1977, when insolvency was defined under Section 29 of RA 265,
while its total liabilities only amounted to P586,640,450.00, thus having surplus assets
as amended on September 22, 1976 by PD 1007, where and when the insolvency
over liabilities in the amount of P13,103,189.00. Plodding on, it insists that the
concept carried a slightly different but contextually significant connotation. As thus
definition of insolvency in Section 29 of RA 265, as amended by PD 1937, should have
then defined, insolvency was understood to mean as the inability of a banking
been made the tipping factor for determining on whether or not the declaration made
institution to pay its liabilities as they fall due in the ordinary course of
by respondent CB, acting through the Monetary Board, that petitioner Genbank is
business. Respondent CB found Genbank undoubtedly incapable to generate liquid
insolvent constitutes grave abuse of discretion. In support of its contention of not being
funds by itself in order to meet drawdowns on its deposits and deposit substitutes and
insolvent during the period material, petitioner Genbank cites Central Bank of the
to pay for other maturing obligations, as well as advances from the Central
Philippines vs. Court of Appeals[6] and Banco Filipino Savings & Mortgage Bank vs.
Bank. Respondent CB, therefore, concluded that Genbank was insolvent under the
The Monetary Board[7].
obtaining definition of said term, with the CA eventually sustaining the posture of
Respondent CB, however, retorted that the above-cited cases do not apply, respondent CB.

albeit, there, the Court struck down as null and void the closure of what CB then
considered as insolvent banks, referring to Banco Filipino Savings & Mortgage Bank
156
Banking Law Cases
After a review of all the arguments of the parties in the light of the laws and
jurisprudence applicable thereto, this Court finds no reversible error committed by the
Court of Appeals when it sustained the validity of the MB resolutions resolving the
issue of insolvency against petitioner Genbank.
It cannot be overemphasized that Resolution No. 675 prohibiting Genbank to
do business in the Philippines and designating Arnulfo B. Aurellano as receiver was
issued in March 1977, when the definition of the term insolvency under the last
paragraph of Section 29, of RA 265, as amended by PD No. 1007, was as follows:
Sec. 29. Proceedings upon insolvency. x x x.
xxxxxxxxx
Insolvency, under this Act, shall be understood to mean the
inability of a banking institution to pay its liabilities as they fall due
in the usual and ordinary course of business, provided, however, that
this shall not include the inability to pay of an otherwise non-insolvent
bank caused by extraordinary demands induced by financial panic
commonly evidenced by a run on the bank in the banking
community. (Emphasis supplied.)
And by the terms of the same Section 29 of RA 265, as amended by PD No.
1007, Resolution No. 675 is deemed final and executory, to wit:
The provisions of any law to the contrary notwithstanding, the
actions of the Monetary Board under this Section and the second
paragraph of Section 34 of this Act shall be final and executory, and
can be set aside by the court only if there is convincing proof that the
action is plainly arbitrary and made in bad faith. No restraining
order or injunction shall be issued by the court enjoining the Central
Bank from implementing its actions under this section and the second
paragraph of Section 34 of this Act, unless there is convincing proof that
the action of the Monetary Board is plainly arbitrary and made in bad
faith and the petitioner or plaintiff files with the clerk of court or judge
of the court in which the action is pending a bond executed in favor of
the Central Bank, in an amount to be fixed by the court.xxx.. (Emphasis
supplied.)
The burden thus rests upon petitioner Genbank to prove the mala fides of the
Monetary Board in issuing Resolution No. 675. The present petition cites no concrete
proof to convincingly show that the pertinent findings and recommendation of Antonio
Castro, then Director of CBs DCSB whence Resolution No. 675 emanated were
factually infirm. The Castro report stated thus:
Summary Comments
1. As of Feb. 28, 1977, the Banks liquid assets
amounted to P33.5 million only. On the other hand, total deposit and
deposit substitutes which had to be paid amounted to P269.563
million. Total advances from the CB amounted to P300.961 million, of
whichP252.365 million (unsecured overdrawing) is payable on
demand. Considering the poor quality of the Banks loan portfolio, the
bank cannot expect to generate enough funds out of these loans to meet
payment of said obligations. In view hereof, the bank is insolvent within
the meaning of Sec. 29, R.A. 265, as amended.
2. As of February 28, 1977, the Banks capital
accounts after adjustment for provision for bad debts and interest on OD
and CB and penalties for reserve deficiencies amounted to P14.1 million
only which amount would be eaten up completely within a period of less
than five (5) months considering the average monthly operating loss
of P2.868 million. In view of this, the Banks continuance in business
would involve losses to its depositors and creditors.
Recommendation
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In view of the foregoing, it is recommended that in accordance with the
provisions of Sec. 29, R.A. 265, as amended, the General Bank and
Trust Co. be forbidden to do business in the Philippines considering that
it is insolvent and its continued operation would involve probable loss
to its depositors and creditors and that a receiver be designated to take
charge immediately of the Banks assets and liabilities.
Instead of directly controverting the factual basis of the MB resolutions,
petitioner Genbank would simply insist on owning more realizable assets than
liabilities and ergo essentially solvent per the definition of insolvency under the PD
1937 amendment which, to stress, took effect only in 1984. To a redundant point, the
PD 1937 amendment defines insolvency as follows:
Insolvency, under this Act shall be understood to mean that the
realizable assets of a bank or a non-bank financial intermediary
performing quasi-banking functions as determined by the Central Bank
are insufficient to meet its liabilities.
Petitioners recourse of insisting on the meaning of insolvency other than the
current definition thereof is, at the minimum, a recognition, plain and simple, that under
the applicable definition of the term insolvency under the last paragraph of Section 29,
of RA 265, as amended in 1976 by PD No. 1007, the Monetary Board could not have
erred in ruling that petitioner Genbank was indeed insolvent, justifying its closure under
the same Section 29, of RA 265, as amended. Petitioner Genbank cannot plausibly be
allowed to adopt a statutory definition of insolvency which was not set forth in the law
when Resolution No. 675 was issued. The Monetary Boards action could not have run
counter to a legal provision inexistent at the time when it issued the resolution in
question.
Perhaps realizing the flaw in its argument, petitioner Genbank now cites the
definition of insolvency under PD No. 1007 but this time faulting the CA for allegedly
truncating the same by glossing over the proviso portion which contextually excluded
from the coverage of the term insolvency the inability to pay of an otherwise non-
insolvent bank caused by extraordinary demands induced by financial panic commonly
evidenced by a run on the bank in the banking community. While conceding that it was
then not in a position to generate funds by itself in order to meet drawdowns on its
deposits and deposit substitutes and to pay for other maturing obligations, as well as its
advances from the Central Bank, petitioner Genbank nonetheless argues that it did not
fall within the concept of insolvency contemplated in the amendatory PD No. 1007
since what it was then experiencing was a liquidity problem attributed to a bank run.
The Court is still unconvinced.
The aforementioned proviso thus relied upon by petitioner Genbank excludes
from the definition of insolvency, the inability to pay of an otherwise non-
insolvent bank caused by extraordinary demands induced by financial panic commonly
evidenced by a run on the bank in the banking community. As it were, the applicability
of that proviso presupposes that the struggling bank, Genbank in this case, should, in
the first place be an otherwise non-insolvent bank and the existence of a bank run is
the sole and exclusive cause of its inability to pay its obligations. In other words, the
existence of a bank run is not, without more, a saving grace for any bank, absolutely
preventing the CB or the Monetary Board from ordering its closure due to
insolvency. If the bank is not non-insolvent in contemplation of the definition
under Section 29 of RA 265, as amended by PD No. 1007, because it cannot pay its
liabilities as they fall due in the ordinary course of business, the presence or absence of
a bank run is of no determinative moment on the issue of the justifiability of an order
of closure. The CB had, as it were, ample basis other than the bank run to consider
petitioner Genbank insolvent. Upon the issuance of an order of closure, which by
express provision of law is final and executory, the burden of proving non-insolvency
is upon the bank which challenges the validity of such closure.
For sure, this issue of whether or not petitioner Genbanks inability to pay may
be solely and exclusively attributable to the bank run necessarily requires passing upon
and evaluating the evidence presented during the trial. It should be made perfectly
clear, however, that the Courts jurisdiction in appellate proceedings under Rule 45 of
the Rules of Court is, as a rule, limited to reviewing only errors of law, it not being a
trier of facts. And it is a settled doctrine that findings of fact of the CA are basically
binding and not be disturbed except for very compelling reasons, such as when: (1) the
conclusion is a finding grounded entirely on speculation, surmise and conjecture; (2)
the inference made is manifestly mistaken; (3) there is grave abuse of discretion; (4)
the judgment is based on a misapprehension of facts; (5) the findings of fact of the CA
are contrary to those of the trial court; (6) said findings of fact are conclusions without
citation of specific evidence on which they are based; (7) the findings of fact of the CA
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are premised on the supposed absence of evidence and contradicted by the evidence on
record.[8]The Court finds no cogent reason to take exception from the general rule.
Even then, a review of the pleadings on record shows no signs that the CA erred
in not finding that the Monetary Board violated any substantial or procedural law when
it issued the two assailed resolutions. Moreover, the CA cannot also be faulted in
sustaining the MB resolutions, or, to be precise, in not finding arbitrariness and
capriciousness in the closure of petitioner bank. For, as the CA aptly explained:
1. Even before the Genbank President requested for
emergency advances, the [CB] gave P16 million on December 16,
1976. After the request was made on December 17, 1976, additional
emergency was extended to Genbank. In MB Resolution No. 90
dated January 7, 1977 [Exh. H-8], the [CB] decided to extend continued
support to Genbank to meet further drawdowns on its deposits and
deposit substitutes. These advances reached P272.467 million
in January 31, 1977 [Exh. H-15], and P302.095,746.28 on March 25,
1977 [Exh. I-26-a].The graph [Exh. E-1] shows steep upward climb in
the amount of advances from December 17, 1976 up to March 25, 1977.
2. Aside from the emergency advances given to
Genbank, the [CB] encouraged and assisted the controlling stockholders
in negotiating with various groups that could put in new funds to help
restore Genbank to full health. This indicates the [CB] earnest desire to
find a solution to Genbanks difficulties.
3. Aside from the [CB] and Genbank, there is a third
party involved here. This is one vital aspect that distinguishes this case
from all other liquidation cases handled by the [CB] [tsn., Feb. 15, 1991,
p. 33]. What does this mean? Since a third party has assumed all
liabilities of Genbank, payment of deposits and other obligations of the
bank has been guaranteed. If this had been ordinary bank liquidation
where there is no assumption of liabilities by a third party, the depositors
and creditors could not have retrieved the full face value of their
deposits and credits. But here, all depositors and creditors have actually
been paid in full by Allied Bank.[9] (Words in bracket added.)
Now, as regards the supposed denial of its right to due process, petitioner
Genbank relies on the following chain of events:
1. March 23, 1977:
x x x the Governor together with other Central Bank officials
and Genbank directors, had a meeting with Messrs. Clarencio
Yujuico, [et al.], stockholders of Genbank who, according to the
Corporate Secretary, represented stockholders owning at least two-
thirds (2/3) of the outstanding shares. They were given copies of the
aide-memoire for the meeting (Exh. H-30) which outlined
developments regarding Genbank particularly the [DOSRI]loans , the
negotiations for the sale of Genbank shares, (the Lucio Tan Group was
willing to comply with all the conditions of the [CB] for the approval of
the sale but could not meet the price of the selling group; the Paramount
Finance Group could not comply with all the [CB] conditions prescribed
to secure [CB] advances and the interest of Genbank creditors and
depositors, but this group and the selling group could agree on the
price), and the valuation reserves and resulting net worth of the bank
after valuation reserve was less than P20 per share. The stockholders
were advised by the Governor that public interest required that the [CB]
should not continuously extend further credit assistance to Genbank and
that a rehabilitation program instead be immediately implemented
[tsn, Dec. 7, 1990, pp. 58-59]. Genbank stockholders were told to
submit before 10:00 a.m., Friday, March 25, 1977, either of the
following:
a) firm commitment to purchase the
controlling shares of Genbank by a private group or to
undertake a merger with another bank, which is willing
and capable to comply with all the conditions of the [CB]
conveyed previously to representatives of the controlling
stockholders and whose price is acceptable to sellers
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b) a written decision of the stockholders
owning at least two-thirds (2/3) of the outstanding shares
to reduce the par value and a commitment of the Land
Bank or a private group to put up the additional equity
and a commitment to comply with the conditions
prescribed by the [CB].
2. March 25, 1977:
As there was no compliance with either of said requirements,
and finding the report of the Director, Department of Commercial and
Savings Banks that Genbank was insolvent within the meaning of
Section 29 of R.A. 265 (Central Bank Act), as amended, and that
Genbanks continuance in business would involve losses to its depositors
and creditors (as recited in his Memorandum dated March 24, 1977,
Exh. D), - to be true, the Monetary Board adopted Resolution No.
675 on March 25, 1977 [Exh. I-1] forbidding Genbank to do business
in the Philippines and designating Arnulfo B. Aurellano as receiver.
xxx xxx xxx.
3. March 26, 1977:
On March 26, 1977, a Bid Committee met with
representatives of the four interested groups and informed them that
the [CB] would accept bids for the acquisition of all the assets and
assumption of all the liabilities of Genbank, subject to certain
conditions. The deadline for submission of sealed bids was 7:00
p.m., March 28, 1977 [Exh. E-2].
5. March 29, 1977:
As of the said deadline [March 28, 1977], the only bid received
was that of the Lucio Tan group. It advised that it was prepared to
acquire the assets and assumed all the liabilities of Genbank subject to
the terms and conditions enumerated in the letter [Exh. E-2; Exh. E-2-
a].
Pursuant to the Memorandum of the Director, Department of
Commercial and Savings Banks, dated March 28, 1977 [Exh. E] stating
that
As of March 24, 1977, the Banks liquid assets
of P28 million, together with collections from its loan
portfolio, will not be enough to meet expected further
withdrawal of deposits and deposit substitute of P235.4
million. The Banks operation may be expected to result
into losses of at least P2.9 million per month and these
loans will dissipate the Banks remaining capital accounts
of P10.9 million. The Bank therefore may not be
permitted to resume business with safety to its
depositors, creditors, and the general public
and recommending certain actions, the Monetary Board adopted
Resolution No. 677 on March 29, 1977 [Exh. I-2] determining and
confirming that Genbank was insolvent and could not resume business
with safety to its depositors, creditors and general public, and ordering
the liquidation of Genbank, the designation of Arnulfo B. Aurellano
as Liquidator and the approval of a liquidation plan whereby all the
assets of Genbank should be purchased by the Lucio Tan Group which
should also assume all the liabilities under certain terms and conditions.
In his letters dated March 29, 1977 to the Genbank stockholders
and Dr. Yujuico (received by the addressees on April 1, 1977),
Governor Licaros informed them that the Monetary Board had ordered
the liquidation of Genbank [Exhs. I-15 and I-15-a].
In short, petitioner Genbank would claim that in a span of just two (2) days
from the time it called a meeting with the board of directors of Genbank on March 23,
1977, or on March 25, 1977, the Monetary Board issued the resolution finding
petitioner Genbank insolvent and prohibiting it from further conducting business; and
only another four (4) days thereafter, or on March 29, 1977, it ordered its liquidation,
thereby denying sufficient time for petitioner Genbank to comply with its directives.
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We are not persuaded.

It must be stressed that petitioner Genbanks financial predicament did not crop Absent, in sum, of compelling proof to becloud the bona fides of the decision
up overnight, nor is it a product of a single financial indiscretion, so to speak. The root of the Central Bank to close and order the liquidation of Genbank pursuant to Monetary
of its problem and eventual downfall is traceable to unsound banking practices Board Resolution Nos. 675 and 677, the Court, as the CA before it, loathes to interfere
employed by management. Mentioned in this regard may be made of the all-out with what basically is the exercise by the Central Bank of its mandate as administrator
financial support given to Filcapital Development Corporation (a related interest of the of the banking system.
Yujuico Family Group and directors and officers of Genbank) and the standing practice
of extending DOSRI loans which, at one point, reached a peak of P172.3 million or WHEREFORE, the petition is hereby DISMISSED for lack of merit, with
26% of the total loan portfolio of P666.78 million. Of the final figure, 59.4% thereof costs against petitioner.
was classified as doubtful and P0.505 million as uncollectible. And 91.7% of such
DOSRI accounts were unsecured leaving only 8% thereof secured. All these unsound SO ORDERED.
practices occurred way before their resulting crippling effects became manifest
sometime in December 1976, further leading the bank to resort to other unsound
banking practices, like incurring daily overdrafts. These problems, as earlier narrated
in the assailed CA decision, were taken up by the then CB Governor with the Board of
Directors of Genbank in a meeting held on December 27, 1976. Thus, when the
crucial March 23, 1977 meeting was held, there can be no doubt that petitioner
Genbank was totally aware of the predicament it has gotten itself into and the
conditions which the CB had imposed to address the situation for the protection of the
depositors and the banking public. It is not as if CB sprang a surprise on petitioner
Genbank when Resolution 675 was issued on March 25, 1977 declaring
Genbank insolvent. Petitioner Genbanks posture that it was given only two (2) days to
remedy the situation is specious at best.

Finally, as to petitioner Genbanks lament about the Monetary

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

Indeed, that the Genbank, Now Allied Bank, was able to resume
normal banking operations immediately on June 2, 1977, thereafter
meeting all the demands for deposit withdrawals and paying off all CB
emergency advances to Genbank (Exh. K, L, and P), is a strong
indication that the Central Bank performed its duty to maintain public
confidence in the banking system, x x x.
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[G.R. No. 162270. April 06, 2005]
ABACUS REAL ESTATE DEVELOPMENT CENTER, INC., petitioner, vs. THE
MANILA BANKING CORPORATION, respondent.
DECISION
GARCIA, J.:
Thru this appeal by way of a petition for review on certiorari under Rule 45 of the
Rules of Court, petitioner Abacus Real Estate Development Center, Inc. seeks to set
aside the following issuances of the Court of Appeals in CA-G.R. CV No. 64877, to
wit:
1. Decision dated May 26, 2003,[1] reversing an earlier decision of the
Regional Trial Court at Makati City, Branch 59, in an action for specific
performance and damages thereat commenced by the petitioner against the
herein respondent Manila Banking Corporation; and
2. Resolution of February 17, 2004,[2] denying petitioners motion for
reconsideration.
The petition is casts against the following factual backdrop:
Respondent Manila Banking Corporation (Manila Bank, for brevity), owns a
1,435-square meter parcel of land located along Gil Puyat Avenue Extension, Makati
City and covered by Transfer Certificate of Title (TCT) No. 132935 of the Registry of
Deeds of Makati. Prior to 1984, the bank began constructing on said land a 14-storey
building. Not long after, however, the bank encountered financial difficulties that
rendered it unable to finish construction of the building.
On May 22, 1987, the Central Bank of the Philippines, now Bangko Sentral ng
Pilipinas, ordered the closure of Manila Bank and placed it under receivership, with
Feliciano Miranda, Jr. being initially appointed as Receiver. The legality of the closure
was contested by the bank before the proper court.
On November 11, 1988, the Central Bank, by virtue of Monetary Board (MB)
Resolution No. 505, ordered the liquidation of Manila Bank and designated Atty. Renan
V. Santos as Liquidator. The liquidation, however, was held in abeyance pending the
outcome of the earlier suit filed by Manila Bank regarding the legality of its closure.
Consequently, the designation of Atty. Renan V. Santos as Liquidator was amended by
the Central Bank on December 22, 1988 to that of Statutory Receiver.
In the interim, Manila Banks then acting president, the late Vicente G. Puyat, in a
bid to save the banks investment, started scouting for possible investors who could
finance the completion of the building earlier mentioned. On August 18, 1989, a group
of investors, represented by Calixto Y. Laureano (hereafter referred to as Laureano
group), wrote Vicente G. Puyat offering to lease the building for ten (10) years and to
advance the cost to complete the same, with the advanced cost to be amortized and
offset against rental payments during the term of the lease. Likewise, the letter-offer
stated that in consideration of advancing the construction cost, the group wanted to be
given the exclusive option to purchase the building and the lot on which it was
constructed.
Since no disposition of assets could be made due to the litigation concerning
Manila Banks closure, an arrangement was thought of whereby the property would first
be leased to Manila Equities Corporation (MEQCO, for brevity), a wholly-owned
subsidiary of Manila Bank, with MEQCO thereafter subleasing the property to the
Laureano group.
In a letter dated August 30, 1989, Vicente G. Puyat accepted the Laureano groups
offer and granted it an exclusive option to purchase the lot and building for One
Hundred Fifty Million Pesos (P150,000,000.00). Later, or on October 31, 1989, the
building was leased to MEQCO for a period of ten (10) years pursuant to a contract of
lease bearing that date. On March 1, 1990, MEQCO subleased the property to
petitioner Abacus Real Estate Development Center, Inc. (Abacus, for short), a
corporation formed by the Laureano group for the purpose, under identical provisions
as that of the October 31, 1989 lease contract between Manila Bank and MEQCO.
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The Laureano group was, however, unable to finish the building due to the Eventually, in a decision dated May 27, 1999,[4] the trial court rendered judgment
economic crisis brought about by the failed December 1989 coup attempt. On account for Abacus in accordance with the latters prayer in its complaint, thus:
thereof, the Laureano group offered its rights in Abacus and its exclusive option to
purchase to Benjamin Bitanga (Bitanga hereinafter), for Twenty Million Five WHEREFORE, premises considered, judgment is hereby rendered in favor of the
Hundred Thousand Pesos (P20,500,000.00). Bitanga would later allege that because of plaintiff as follows:
the substantial amount involved, he first had to talk with Atty. Renan Santos, the
Receiver appointed by the Central Bank, to discuss Abacus offer. Bitanga further 1. Ordering the defendant [Manila Bank] to immediately sell to plaintiff the parcel of
alleged that, over lunch, Atty. Santos then verbally approved his entry into Abacus and land and building, with an area of 1,435 square meters and covered by TCT No.
his take-over of the sublease and option to purchase. 132935 of the Makati Registry of Deeds, situated along Sen. Gil J. Puyat Ave. in
Makati City, at the price of One Hundred Fifty Million (P150,000.000.00) Pesos in
On March 30, 1990, the Laureano group transferred and assigned to Bitanga all of
accordance with the said exclusive option to purchase, and to execute the appropriate
its rights in Abacus and the exclusive option to purchase the subject land and building.
deed of sale therefor in favor of plaintiff;
On September 16, 1994, Abacus sent a letter to Manila Bank informing the latter
of its desire to exercise its exclusive option to purchase. However, Manila Bank refused 2. Ordering the defendant [Manila Bank] to pay plaintiff the amount of Two Million
to honor the same. (P2,000,000.00) Pesos representing reasonable attorneys fees;
Such was the state of things when, on November 10, 1995, in the Regional Trial
3. Ordering the DISMISSAL of defendants counterclaim, for lack of merit; and
Court (RTC) at Makati, Abacus Real Estate Development Center, Inc. filed a
complaint[3] for specific performance and damages against Manila Bank and/or the
4. With costs against the defendant.
Estate of Vicente G. Puyat. In its complaint, docketed as Civil Case No. 96-1638 and
raffled to Branch 59 of the court, plaintiff Abacus prayed for a judgment ordering
SO ORDERED.
Manila Bank, inter alia, to sell, transfer and convey unto it for P150,000,000.00 the
land and building in dispute free from all liens and encumbrances, plus payment of
Its motion for reconsideration of the aforementioned decision having been denied
damages and attorneys fees.
by the trial court in its Order of August 17, 1999,[5] Manila Bank then went on to the
Subsequently, defendant Manila Bank, followed a month later by its co-defendant Court of Appeals whereat its appellate recourse was docketed as CA-G.R. CV No.
Estate of Vicente G. Puyat, filed separate motions to dismiss the complaint. 64877.
In an Order dated April 15, 1996, the trial court granted the motion to dismiss filed As stated at the threshold hereof, the Court of Appeals, in a decision dated May
by the Estate of Vicente G. Puyat, but denied that of Manila Bank and directed the latter 26, 2003,[6] reversed and set aside the appealed decision of the trial court, thus:
to file its answer.
WHEREFORE, finding serious reversible error, the appeal is GRANTED.
Before plaintiff Abacus could adduce evidence but after pre-trial, defendant
Manila Bank filed a Motion for Partial Summary Judgment, followed by a Supplement
The Decision dated May 27, 1999 of the Regional Trial Court of Makati City, Branch
to Motion for Partial Summary Judgment. While initially opposed, Abacus would later
59 is REVERSED and SET ASIDE.
join Manila Bank in submitting the case for summary judgment.
Cost of the appeal to be paid by the appellee.
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Banking Law Cases
SO ORDERED.
On June 25, 2003, Abacus filed a Motion for Reconsideration, followed, with leave
of court, by an Amended Motion for Reconsideration. Pending resolution of its motion
for reconsideration, as amended, Abacus filed a Motion to Dismiss Appeal,[7] therein
praying for the dismissal of Manila Banks appeal from the RTC decision of May 27,
1999, contending that said appeal was filed out of time.
In its Resolution of February 17, 2004,[8] the appellate court denied Abacus
aforementioned motion for reconsideration.
Hence, this recourse by petitioner Abacus Real Estate Development Center, Inc.
As we see it, two (2) issues commend themselves for the resolution of the Court,
namely:
WHETHER OR NOT RESPONDENT BANKS APPEAL TO THE COURT OF
APPEALS WAS FILED ON TIME; and
WHETHER OR NOT PETITIONER ABACUS HAS ACQUIRED THE RIGHT TO
PURCHASE THE LOT AND BUILDING IN QUESTION.
We rule for respondent Manila Bank on both issues.
Addressing the first issue, petitioner submits that respondent banks appeal to the
Court of Appeals from the adverse decision of the trial court was belatedly filed.
Elaborating thereon, petitioner alleges that respondent bank received a copy of the May
27, 1999 RTC decision on June 22, 1999, hence, petitioner had 15 days, or only up to
July 7, 1999 within which to take an appeal from the same decision or move for a
reconsideration thereof. Petitioner alleges that respondent furnished the trial court with
a copy of its Motion for Reconsideration only on July 7, 1999, the last day for filing an
appeal. Under Section 3, Rule 41 of the 1997 Rules of Civil Procedure, the period of
appeal shall be interrupted by a timely motion for new trial or reconsideration. Since,
according to petitioner, respondent filed its Motion for Reconsideration on the last day
of the period to appeal, it only had one (1) more day within which to file an appeal, so
much so that when it received on August 23, 1999 a copy of the trial courts order
denying its Motion for Reconsideration, respondent bank had only up to August 24,
1999 within which to file the corresponding appeal. As respondent bank appealed the
decision of the trial court only on August 25, 1999, petitioner thus argues that
respondents appeal was filed out of time.
As a counterpoint, respondent alleges that it sent the trial court a copy of its Motion
for Reconsideration on July 6, 1999, through registered mail. Having sent a copy of its
Motion for Reconsideration to the trial court with still two (2) days left to appeal,
respondent then claims that its filing of an appeal on August 25, 1999, two (2) days
after receiving the Order of the trial court denying its Motion for Reconsideration, was
within the reglementary period.
Agreeing with respondent, the appellate court declared that respondents appeal
was filed on time. Explained that court in its Resolution of February 17, 2004, denying
petitioners motion for reconsideration:
Firstly, the file copy of the motion for reconsideration contains the written
annotations Registry Receipt No. 1633 Makati P.O. 7-6-99 in its page 13. The
presence of the annotations proves that the motion for reconsideration was truly filed
by registered mail on July 6, 1999 through registry receipt no. 1633.
Secondly, the appellants manifestation filed in the RTC personally on July 7, 1999
contains the following self-explanatory statements, to wit:
2. Defendant [Manila Bank] also filed with this Honorable Court a Motion for
Reconsideration of the Decision dated 27 May 1999 promulgated by this Honorable
Court in this case, and served a copy thereof to the plaintiff, by registered mail
yesterday, 6 July 1999, due to lack of material time and messenger to effect personal
service and filing.
3. In order for this Honorable Court to be able to review defendant [Manila Banks]
Motion for Reconsideration without awaiting the mailed copy, defendant [Manila
Bank] is now furnishing this Honorable Court with a copy of said motion, as well as
the entry of appearance, by personal service.
The aforecited reference in the manifestation to the mailing of the motion for
reconsideration on July 6, 1999, in light of the handwritten annotations adverted to
herein, renders beyond doubt the appellants insistence of filing through registered
mail on July 6, 1999.
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Banking Law Cases
Thirdly, the registry return cards attached to the envelopes separately addressed and
mailed to the RTC and the appellees counsel, found in pages 728 and 729 of the rollo,
indicate that the contents were the motion for reconsideration and the formal entry of
appearance. Although the appellee argues that the handwritten annotations of what
were contained by the envelopes at the time of mailing was easily self-serving, the
fact remains that the envelope addressed to the appellees counsel appears thereon to
have been received on July 6, 1999 (7/6/99), which enhances the probability of
the motion for reconsideration being mailed, hence filed, on July 6, 1999, as claimed
by the appellant.
Fourthly, the certification issued on October 2, 2003 by Atty. Jayme M. Luy, Branch
Clerk of Court, Branch 59, RTC in Makati City, has no consequence because Atty.
Luy based his data only on page 3 of the 1995 Civil Case Docket Book without
reference to the original records which were already with the Court of Appeals.
Fifthly, since the appellant received the denial of the motion for reconsideration on
August 23, 1999, it had until August 25, 1999 within which to perfect its appeal from
the decision of the RTC because 2 days remained in its reglementary period to appeal.
It is not disputed that the appellant filed its notice of appeal and paid the appellate
court docket fees on August 25, 1999.
These circumstances preponderantly demonstrate that the appellants appeal was not
late by one day. (Emphasis in the original)
Petitioner would, however, contest the above findings of the appellate court,
stating, among other things, that if it were true that respondent filed its Motion for
Reconsideration by registered mail and then furnished the trial court with a copy of
said Motion the very next day, then the rollo should have had two copies of the Motion
for Reconsideration in question. Respondent, on the other hand, insists that it indeed
filed a Motion for Reconsideration on July 6, 1999 through registered mail.
It is evident that the issue raised by petitioner relates to the correctness of the
factual finding of the Court of Appeals as to the precise date when respondent filed its
motion for reconsideration before the trial court. Such issue, however, is beyond the
province of this Court to review. It is not the function of the Court to analyze or weigh
all over again the evidence or premises supportive of such factual determination.[9] The
Court has consistently held that the findings of the Court of Appeals and other lower
courts are, as a rule, accorded great weight, if not binding upon it,[10] save for the most
compelling and cogent reasons.[11] As nothing in the record indicates any of such
exceptions, the factual conclusion of the appellate court that respondent filed its appeal
on time, supported as it is by substantial evidence, must be affirmed.
Going to the second issue, petitioner insists that the option to purchase the lot and
building in question granted to it by the late Vicente G. Puyat, then acting president of
Manila Bank, was binding upon the latter. On the other hand, respondent has
consistently maintained that the late Vicente G. Puyat had no authority to act for and
represent Manila Bank, the latter having been placed under receivership by the Central
Bank at the time of the granting of the exclusive option to purchase.
There can be no quibbling that respondent Manila Bank was under receivership,
pursuant to Central Banks MB Resolution No. 505 dated May 22, 1987, at the time the
late Vicente G. Puyat granted the exclusive option to purchase to the Laureano group
of investors. Owing to this defining reality, the appellate court was correct in declaring
that Vicente G. Puyat was without authority to grant the exclusive option to purchase
the lot and building in question. The invocation by the appellate court of the following
pronouncement in Villanueva vs. Court of Appeals[12] was apropos, to say the least:
the assets of the bank pass beyond its control into the possession and control of the
receiver whose duty it is to administer the assets for the benefit of the creditors of the
bank. Thus, the appointment of a receiver operates to suspend the authority of the
bank and of its directors and officers over its property and effects, such authority
being reposed in the receiver, and in this respect, the receivership is equivalent to an
injunction to restrain the bank officers from intermeddling with the property of the
bank in any way.
With respondent bank having been already placed under receivership, its officers,
inclusive of its acting president, Vicente G. Puyat, were no longer authorized to transact
business in connection with the banks assets and property. Clearly then, the exclusive
option to purchase granted by Vicente G. Puyat was and still is unenforceable against
Manila Bank.[13]
165
Banking Law Cases

Petitioner, however, asseverates that the exclusive option to purchase was ratified liabilities of the institution, administer the same for the benefit of its creditors, and
by Manila Banks receiver, Atty. Renan Santos, during a lunch meeting held with exercise the general powers of a receiver under the Revised Rules of Court but shall
Benjamin Bitanga in March 1990. not, with the exception of administrative expenditures, pay or commit any act that will
involve the transfer or disposition of any asset of the institution
Petitioners argument is tenuous at best. Concededly, a contract unenforceable for
lack of authority by one of the parties may be ratified by the person in whose name the In all, respondent banks receiver was without any power to approve or ratify
contract was executed. However, even assuming, in gratia argumenti, that Atty. Renan the exclusive option to purchase granted by the late Vicente G. Puyat, who, in the first
Santos, Manila Banks receiver, approved the exclusive option to purchase granted by place, was himself bereft of any authority, to bind the bank under such exclusive option.
Vicente G. Puyat, the same would still be of no force and effect. Respondent Manila Bank may not thus be compelled to sell the land and building in
question to petitioner Abacus under the terms of the latters exclusive option to
Section 29 of the Central Bank Act, as amended,[14] pertinently provides:
purchase.
Sec. 29. Proceedings upon insolvency. Whenever, upon examination by the head of WHEREFORE, the instant petition is DENIED and the challenged issuances of
the appropriate supervising and examining department or his examiners or agents into the Court of Appeals AFFIRMED.
the condition of any banking institution, it shall be disclosed that the condition of the
Costs against petitioner.
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 SO ORDERED.
concerned forthwith, in writing, to inform the Monetary Board of the facts, and the
Board may, upon finding the statements of the department head to be true, forbid the
institution to do business in the Philippines and shall designate an official of the
Central Bank as receiver to immediately take charge of its assets and liabilities, as
expeditiously as possible collect and gather all the assets and administer the
same for the benefit of its creditors, exercising all the powers necessary for these
purposes including, but not limited to, bringing suits and foreclosing mortgages in the
name of the banking institution. (Emphasis supplied)

Clearly, the receiver appointed by the Central Bank to take charge of the properties
of Manila Bank only had authority to administer the same for the benefit of its
creditors. Granting or approving an exclusive option to purchase is not an act of
administration, but an act of strict ownership, involving, as it does, the disposition of
property of the bank. Not being an act of administration, the so-called approval by Atty.
Renan Santos amounts to no approval at all, a bank receiver not being authorized to do
so on his own.
For sure, Congress itself has recognized that a bank receiver only has powers of
administration. Section 30 of the New Central Bank Act[15] expressly provides
that [t]he receiver shall immediately gather and take charge of all the assets and
166
Banking Law Cases
G.R. No. 114870 May 26, 1995
MIGUELA R. VILLANUEVA, RICHARD R. VILLANUEVA, and
MERCEDITA VILLANUEVA-TIRADOS, petitioners,
vs.
COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES,
ILDEFONSO C. ONG, and PHILIPPINE VETERANS BANK, respondents.
DAVIDE, JR., J.:
Do petitioners have a better right than private respondent Ildefonso Ong to purchase
from the Philippine Veterans Bank (PVB) the two parcels of land described as Lot
No. 210-D-1 and Lot No. 210-D-2 situated at Muntinglupa, Metro Manila, containing
an area of 529 and 300 square meters, respectively? This is the principal legal issue
raised in this petition.
1
In its decision of 27 January 1994 in CA-G.R. CV No. 35890, the Court of Appeals
held for Ong, while the trial court, Branch 39 of the Regional Trial Court (RTC) of
Manila, ruled for the petitioners in its joint decision of 31 October 1991 in Civil Case
No. 87-425502 and Sp. Proc. No. 85-32311.3
The operative antecedent facts are set forth in the challenged decision as follows:
The disputed lots were originally owned by the spouses Celestino
Villanueva and Miguela Villanueva, acquired by the latter during her
husband's sojourn in the United States since 1968. Sometime in 1975,
Miguela Villanueva sought the help of one Jose Viudez, the then
Officer-in-Charge of the PVB branch in Makati if she could obtain a
loan from said bank. Jose Viudez told Miguela Villanueva to surrender
the titles of said lots as collaterals. And to further facilitate a bigger
loan, Viudez, in connivance with one Andres Sebastian, swayed
Miguela Villanueva to execute a deed of sale covering the two (2)
disputed lots, which she did but without the signature of her husband
Celestino. Miguela Villanueva, however, never got the loan she was
expecting. Subsequent attempts to contact Jose Viudez proved futile,
until Miguela Villanueva thereafter found out that new titles over the
two (2) lots were already issued in the name of the PVB. It appeared
upon inquiry from the Registry of Deeds that the original titles of these
lots were canceled and new ones were issued to Jose Viudez, which in
turn were again canceled and new titles issued in favor of Andres
Sebastian, until finally new titles were issued in the name of PNB
[should be PVB] after the lots were foreclosed for failure to pay the
loan granted in the name of Andres Sebastian.
Miguela Villanueva sought to repurchase the lots from the PVB after
being informed that the lots were about to be sold at auction. The PVB
told her that she can redeem the lots for the price of P110,416.00.
Negotiations for the repurchase of the lots nevertheless were stalled by
the filing of liquidation proceedings against the PVB on August of
1985.
Plaintiff-appellant [Ong] on the other hand expounds on his claim over
the disputed lots in this manner:
In October 1984, plaintiff-appellant offered to purchase
two pieces of Land that had been acquired by PVB
through foreclosure. To back-up plaintiff-appellant's
offer he deposited the sum of P10,000.00.
In 23 November 1984, while appellant was still abroad,
PVB approved his subject offer under Board Resolution
No. 10901-84. Among the conditions imposed by PVB
is that: "The purchase price shall be P110,000.00 (Less
deposit of P10,000.00) payable in cash within fifteen
(15) days from receipt of approval of the offer."
In mid-April 1985, appellant returned to the country.
He immediately verified the status of his offer with the
167
Banking Law Cases
PVB, now under the control of CB, where he was
informed that the same had already been approved. On
16 April 1985, appellant formally informed CB of his
desire to pay the subject balance provided the bank
should execute in his favor the corresponding deed of
conveyance. The letter was not answered.
Plaintiff-appellant sent follow-up Letters that went
unheeded, the last of which was on 21 May 1987. On
26 May 1987, appellant's payment for the balance of
the subject properties were accepted by CB under
Official Receipt #0816.
On 17 September 1987, plaintiff-appellant through his
counsel, sent a letter to CB demanding for the latter to
execute the corresponding deed of conveyance in favor
of appellant. CB did not bother to answer the same.
Hence, the instant case.
While appellant's action for specific performance
against CB was pending, Miguela Villanueva and her
children filed their claims with the Liquidation court.
(Appellant's Brief, pp. 3-4).4
From the pleadings, the following additional or amplificatory facts are established:
The efforts of Miguela Villanueva to reacquire the property began on 8 June 1983
when she offered to purchase the lots for P60,000.00 with a 20%
downpayment and the balance payable in five years on a quarterly amortization
basis.5
Her offer not having been accepted,6 Miguela Villanueva increased her bid to
P70,000.00. It was only at this time that she disclosed to the bank her private
transactions with Jose Viudez.7
After this and her subsequent offers were rejected,8 Miguela sent her sealed bid of
P110,417.00 pursuant to the written advice of the vice president of the PVB.9
The PVB was placed under receivership pursuant to Monetary Board (MB)
Resolution No. 334 dated 3 April 1985 and later, under liquidation pursuant to MB
Resolution No. 612 dated 7 June 1985. Afterwards, a petition for liquidation was filed
with the RTC of Manila, which was docketed as Sp. Proc. No. 85-32311 and assigned
to Branch 39 of the said court.
On 26 May 1987, Ong tendered the sum of P100,000.00 representing the balance of
the purchase price of the litigated lots. 10 An employee of the PVB received the
amount conditioned upon approval by the Central Bank
liquidator. 11 Ong's demand for a deed of conveyance having gone unheeded, he filed
on 23 October 1987 with the RTC of Manila an action for specific performance
against the Central Bank.12 It was raffled to Branch 47 thereof. Upon learning that the
PVB had been placed under liquidation, the presiding judge of Branch 47 ordered the
transfer of the case to Branch 39, the liquidation court.13
On 15 June 1989, then Presiding Judge Enrique B. Inting issued an order allowing the
purchase of the two lots at the price of P150,000.00. 14 The Central Bank liquidator of
the PVB moved for the reconsideration of the order asserting that it is contrary to law
as the disposal of the lots should be made through public auction. 15
On 26 July 1989, Miguela Villanueva filed her claim with the liquidation court. She
averred, among others, that she is the lawful and registered owner of the subject lots
which were mortgaged in favor of the PVB thru the falsification committed by Jose
Viudez, the manager of the PVB Makati Branch, in collusion with Andres Sebastian;
that upon discovering this fraudulent transaction, she offered to purchase the property
from the bank; and that she reported the matter to the PC/INP Criminal Investigation
Service Command, Camp Crame, and after investigation, the CIS officer
recommended the filing of a complaint for estafa through falsification of public
documents against Jose Viudez and Andres Sebastian. She then asked that the lots be
excluded from the assets of the PVB and be conveyed back to her. 16 Later, in view of
the death of her husband, she amended her claim to include her children, herein
petitioners Mercedita Villanueva-Tirados and Richard Villanueva. 17
168
Banking Law Cases

On 31 October 1991, the trial court rendered judgment 18 holding that while the board 3. Declaring the Deed of Absolute Sale
resolution approving Ong's offer may have created in his favor a vested right which bearing the signature of Miguela
may be enforced against the PVB at the time or against the liquidator after the bank Villanueva and the falsified signature of
was placed under liquidation proceedings, the said right was no longer enforceable, as Celestino [sic] Viudez under date May 6,
he failed to exercise it within the prescribed 15-day period. As to Miguela's claim, the 1975 and all transactions and related
court ruled that the principle of estoppel bars her from questioning the transaction documents executed thereafter referring
with Viudez and the subsequent transactions because she was a co-participant thereto, to the two lots covered by the above
though only with respect to her undivided one-half (1/2) conjugal share in the stated titles as null and void;
disputed lots and her one-third (1/3) hereditary share in the estate of her husband.
4. Ordering the Register of Deeds of
Nevertheless, the trial court allowed her to purchase the lots if only to restore their Makati which has jurisdiction over the
status as conjugal properties. It further held that by reason of estoppel, the two parcels of land in question to re-
transactions having been perpetrated by a responsible officer of the PVB, and for instate in his land records, TCT No.
reasons of equity, the PVB should not be allowed to charge interest on the price of the 438073 in the name of Miguela
lots; hence, the purchase price should be the PVB's claim as of 29 August 1984 when Villanueva and TCT No. 366364 in the
it considered the sealed bids, i.e., P110,416.20, which should be borne by Miguela name of Celestino Villanueva who were
Villanueva alone. the registered owners thereof, and to
cancel all subsequent titles emanating
The dispositive portion of the decision of the trial court reads as follows: therefrom; and

WHEREFORE, judgment is hereby rendered as follows: 5. Ordering the Liquidator to reconvey

1. Setting aside the order of this court
issued on June 15, 1989 under the
caption Civil Case No. 87-42550 entitled
"Ildefonso Ong vs. Central Bank of the
Phils., et al.;
2. Dismissing the claim of Ildefonso
Ong over the two parcels of land
originally covered by TCT No. 438073
and 366364 in the names of Miguela
Villanueva and Celestino Villanueva,
respectively which are now covered by
TCT No. 115631 and 115632 in the
name of the PVB;
the two lots described in TCT No.
115631 and 115632 and executing the
corresponding deed of conveyance of the
said lots upon the payment of One
Hundred Ten Thousand Four Hundred
Sixteen and 20/100 (P110,416.20) Pesos
without interest and less the amount
deposited by the claimant, Miguela
Villanueva in connection with the
bidding where she had participated and
conducted by the PVB on August 29,
1984.
Cost against Ildefonso Ong and the PVB.
169
Banking Law Cases
SO ORDERED. 19
Only Ong appealed the decision to the Court of Appeals. The appeal was docketed as
CA-G.R. CV No. 35890. In its decision of 27 January 1994, the Court of Appeals
reversed the decision of the trial court and ruled as follows:
WHEREFORE, premises considered, the assailed decision is hereby
REVERSED and SET ASIDE, and a new one entered ordering the
disputed-lots be awarded in favor of plaintiff-appellant Ildefonso Ong
upon defendant-appellee Central Bank's execution of the
corresponding deed of sale in his favor. 20
In support thereof, the Court of Appeals declared that Ong's failure to pay the balance
within the prescribed period was excusable because the PVB neither notified him of
the approval of his bid nor answered his letters manifesting his readiness to pay the
balance, for which reason he could not have known when to reckon the 15-day period
prescribed under its resolution. It went further to suggest that the Central Bank was in
estoppel because it accepted Ong's late-payment of the balance. As to the petitioners'
claim, the Court of Appeals stated:
The conclusion reached by the lower court favorable to Miguela
Villanueva is, as aptly pointed out by plaintiff-appellant, indeed
confusing. While the lower court's decision declared Miguela
Villanueva as estopped from recovering her proportionate share and
interest in the two (2) disputed lots for being a "co-participant" in the
fraudulent scheme perpetrated by Jose Viudez and Andres Sebastian
— a factual finding which We conform to and which Miguela
Villanueva does not controvert in this appeal by not filing her
appellee's brief, yet it ordered the reconveyance of the disputed lots to
Miguela Villanueva as the victorious party upon her payment of
P110,416.20. Would not estoppel defeat the claim of the party
estopped? If so, which in fact must be so, would it not then be absurd
or even defiant for the lower court to finally entitle Miguela
Villanueva to the disputed lots after having been precluded from
assailing their subsequent conveyance in favor of Jose Viudez by
reason of her own negligence and/or complicity therein? The intended
punitive effect of estoppel would merely be a dud if this Court leaves
the lower court's conclusion unrectified. 21
Their motion for reconsideration 22 having been denied, 23 the petitioners filed this
petition for review on certiorari. 24
Subsequently, the respondent Central Bank apprised this Court that the PVB was no
longer under receivership or liquidation and that the PVB has been back in operation
since 3 August 1992. It then prayed that it be dropped from this case or at least be
substituted by the PVB, which is the real party in interest. 25
In its Manifestation and Entry of Appearance, the PVB declared that it submits to the
jurisdiction of this Court and that it has no objection to its inclusion as a party
respondent in this case in lieu of the Central Bank. 26 The petitioners did not object to
the substitution. 27
Later, in its Comment dated 10 October 1994, the PVB stated that it "submits to and
shall abide by whatever judgment this Honorable Supreme Tribunal may announce as
to whom said lands may be awarded without any touch of preference in favor of one
or the other party litigant in the instant
case." 28
In support of their contention that the Court of Appeals gravely erred in holding that
Ong is better entitled to purchase the disputed lots, the petitioners maintain that Ong
is a disqualified bidder, his bid of P110,000.00 being lower than the starting price of
P110,417.00 and his deposit of P10,000.00 being less than the required 10% of the
bid price; that Ong failed to pay the balance of the price within the 15-day period
from notice of the approval of his bid; and that his offer of payment is ineffective
since it was conditioned on PVB's execution of the deed of absolute sale in his favor.
On the other hand, Ong submits that his offer, though lower than Miguela
ViIlanueva's bid by P417.00, is much better, as the same is payable in cash, while
Villanueva's bid is payable in installment; that his payment could not be said to have
been made after the expiration of the 15-day period because this period has not even
started to run, there being no notice yet of the approval of his offer; and that he has a
170
Banking Law Cases
legal right to compel the PVB or its liquidator to execute the corresponding deed of
conveyance.
There is no doubt that the approval of Ong's offer constitutes an acceptance, the effect
of which is to perfect the contract of sale upon notice thereof to Ong. 29 The peculiar
circumstances in this case, however, pose a legal obstacle to his claim of a better right
and deny support to the conclusion of the Court of Appeals.
Ong did not receive any notice of the approval of his offer. It was only sometime in
mid-April 1985 when he returned from the United States and inquired about the status
of his bid that he came to know of the approval.
It must be recalled that the PVB was placed under receivership pursuant to the MB
Resolution of 3 April 1985 after a finding that it was insolvent, illiquid, and could not
operate profitably, and that its continuance in business would involve probable loss to
its depositors and creditors. The PVB was then prohibited from doing business in the
Philippines, and the receiver appointed was directed to "immediately take charge of
its assets and liabilities, as expeditiously as possible collect and gather all the assets
and administer the same for the benefit of its creditors, exercising all the powers
necessary for these purposes."
Under Article 1323 of the Civil Code, an offer becomes ineffective upon the death,
civil interdiction, insanity, or insolvency of either party before acceptance is
conveyed. The reason for this is that:
[T]he contract is not perfected except by the concurrence of two wills
which exist and continue until the moment that they occur. The
contract is not yet perfected at any time before acceptance is
conveyed; hence, the disappearance of either party or his loss of
capacity before perfection prevents the contractual tie from being
formed. 30
It has been said that where upon the insolvency of a bank a receiver therefor is
appointed, the assets of the bank pass beyond its control into the possession and
control of the receiver whose duty it is to administer the assets for the benefit of the
creditors of the bank.31 Thus, the appointment of a receiver operates to suspend the
authority of the bank and of its directors and officers over its property and effects,
such authority being reposed in the receiver, and in this respect, the receivership is
equivalent to an injunction to restrain the bank officers from intermeddling with the
property of the bank in any way. 32
Section 29 of the Central Bank Act, as amended, provides thus:
Sec. 29. Proceedings upon insolvency. — Whenever, upon
examination by the head of the appropriate supervising or examining
department or his examiners or agents into the condition of any bank
or non-bank financial intermediary performing quasi-banking
functions, it shall be disclosed that the condition of the same is one of
insolvency, or that its continuance in business would involve probable
loss to its depositors or creditors, shall be the duty of the department
head concerned forthwith, in writing, to inform the Monetary Board of
the facts. The Board may, upon finding the statements of the
department head to be true, forbid the institution to do business in the
Philippines and designate an official of the Central Bank or a person of
recognized competence in banking or finance as receiver to
immediately take charge of its assets and liabilities, as expeditiously as
possible collect and gather all the assets and administer the same for
the benefit of its creditors . . . exercising all the powers necessary for
these purposes. . . .
xxx xxx xxx
The assets of an institution under receivership or liquidation shall be
deemed in custodia legis in the hands of the receiver or liquidator and
shall, from the moment of such receivership or liquidation, be exemp
from any order of garnishment, levy, attachment, or execution.
In a nutshell, the insolvency of a bank and the consequent appointment of a receiver
restrict the bank's capacity to act, especially in relation to its property, Applying
Article 1323 of the Civil Code, Ong's offer to purchase the subject lots became
ineffective because the PVB became insolvent before the bank's acceptance of the
offer came to his knowledge. Hence, the purported contract of sale between them did
171
Banking Law Cases

not reach the stage of perfection. Corollarily, he cannot invoke the resolution of the
bank approving his bid as basis for his alleged right to buy the disputed properties.

Nor may the acceptance by an employee of the PVB of Ong's payment of

P100,000.00 benefit him since the receipt of the payment was made subject to the
approval by the Central Bank liquidator of the PVB thus:

Payment for the purchase price of the former property of Andres

Sebastian per approved BR No. 10902-84 dated 11/13/84, subject to
the approval of CB liquidator. 33

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

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

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

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

Respondent Philippine Veterans Bank is further directed to return to private

respondent Ildefonso C. Ong the amount of P100,000.00.

No pronouncement as to costs.

SO ORDERED.

172
Banking Law Cases
[G.R. No. 141297. October 8, 2001]
DOMINGO R. MANALO, petitioner, vs. COURT OF APPEALS (Special Twelfth
Division) and PAIC SAVINGS AND MORTGAGE BANK, respondents.
DECISION
PUNO, J.:
This petition for certiorari seeks the review of the Decision of the Court of
Appeals in C.A.-G.R. SP. No. 50341 promulgated December 23, 1999, which affirmed
an Order issued by the Regional Trial Court, Branch 112, Pasay City, in Civil Case No.
9011 dated December 9, 1998.
On July 19, 1983, S. Villanueva Enterprises, represented by its president, Therese
Villanueva Vargas, obtained a loan of three million pesos (P3,000,000.00) and one
million pesos (P1,000,000.00) from the respondent PAIC Savings and Mortgage Bank
and the Philippine American Investments Corporation (PAIC), respectively. To secure
payment of both debts, Vargas executed in favor of the respondent and PAIC a Joint
First Mortgage[1] over two parcels of land registered under her name. One of the lots,
located in Pasay City with an area of nine hundred nineteen square meters (919 sq.m.)
and covered by TCT No. 6076, is the subject of the present case. Section 2 of the
mortgage contract states that the properties mortgaged therein shall include all
buildings and improvements existing on the mortgaged property at the time of the
execution of the mortgage contract and thereafter.[2]
S. Villanueva Enterprises defaulted in paying the amortizations due. Despite
repeated demands from the respondent, it failed to settle its loan
obligation. Accordingly, respondent instituted extrajudicial foreclosure proceedings
over the mortgaged lots. On August 22, 1984, the Pasay City property was sold at a
public auction to the respondent itself, after tendering the highest bid. The respondent
then caused the annotation of the corresponding Sheriffs Certificate of Sale[3] on the
title of the land on December 4, 1984. After the lapse of one year, or the statutory period
extended by law to a mortgagor to exercise his/her right of redemption, title was
consolidated in respondents name for failure of Vargas to redeem.
On October 29, 1986, the Central Bank of the Philippines filed a Petition[4] for
assistance in the liquidation of the respondent with the Regional Trial Court. The
petition was given due course in an Order[5] dated May 19, 1987.
It appears that from the years 1986 to 1991, Vargas negotiated with the respondent
(through its then liquidator, the Central Bank) for the repurchase of the foreclosed
property. The negotiations, however, fizzled out as Vargas cannot afford the repurchase
price fixed by the respondent based on the appraised value of the land at that time. On
October 4, 1991, Vargas filed a case for annulment of mortgage and extra-judicial
foreclosure sale before Branch 116 of the Pasay City Regional Trial Court. On July 22,
1993, the court rendered a decision[6] dismissing the complaint and upholding the
validity of the mortgage and foreclosure sale. On appeal, the appellate court upheld the
assailed judgment and declared the said mortgage and foreclosure proceedings to be in
accord with law.[7] This decision of the Court of Appeals subsequently became final
and executory when we summarily dismissed Vargass Petition for Review on Certiorari
for having been filed beyond the reglementary period.[8]
In the meantime, on June 22, 1992, respondent petitioned the Regional Trial Court,
Branch 112, of Pasay City, herein court a quo, for the issuance of a writ of possession
for the subject property in Civil Case No. 9011. This is in view of the consolidation of
its ownership over the same as mentioned earlier. Vargas and S. Villanueva
Enterprises, Inc. filed their opposition thereto. After which, trial ensued.
During the pendency of Civil Case No. 9011 (for the issuance of a writ of
possession), Vargas, on December 23, 1992, executed a Deed of Absolute
Sale[9] selling, transferring, and conveying ownership of the disputed lot in favor of a
certain Armando Angsico. Notwithstanding this sale, Vargas, still representing herself
to be the lawful owner of the property, leased the same to petitioner Domingo R.
Manalo on August 25, 1994. Pertinent provisions of the lease agreement[10] state:
3. (a) The lease is for a period of ten year lease (sic), involving 450 square meters, a
portion of the above 919 square meter property.
x x x (d) The LESSEE has to introduce into the said 450 square meter premises
improvements thereon (sic) consisting of one story building to house a Karaoke
Music Restaurant Business, which improvements constructed therof (sic), upon the
173
Banking Law Cases

termination of the lease contract, by said LESSEE be surrendered in favor of the On December 23, 1999, the appellate court rendered the impugned Decision,
LESSOR (sic).[11] dismissing the petition, thus:

Later, on June 29, 1997, Armando Angsico, as buyer of the property, assigned his rights All told, WE find the Order, subject of the instant Petition for Certiorari and
therein to petitioner.[12] Prohibition, to be not without rational bases and we observe that the court a quo, in
issuing its questioned Order, committed no grave abuse of discretion amounting to
On April 21, 1998, the court a quo granted the petition for the issuance of the Writ
lack of jurisdiction.
of Possession.[13] The writ was subsequently issued on April 24, 1998, the pertinent
portion of which reads:[14]
WHEREFORE, the Petition for Certiorari and Prohibition is hereby DISMISSED and
the assailed December 9, 1998 Order is AFFIRMED in all respects.
NOW THEREFORE you are hereby commanded that you cause oppositors
THERESE VILLANUEVA VARGAS and S. VILLANUEVA ENTERPRISES, INC.
SO ORDERED.[20]
and any and all persons claiming rights or title under them, to forthwith vacate and
surrender the possession of subject premises in question known as that parcel of land
Hence, this appeal, where petitioner raises and argues the following legal issues:
and improvements covered by TCT No. 6076 of the Registry of Deeds of Pasay City;
you are hereby further ordered to take possession and deliver to the petitioner PAIC
I. Whether or not public respondent acted without or in excess of its jurisdiction
SAVINGS AND MORTGAGE BANK the subject parcel of land and improvements.
and/or was patently in error when it affirmed the denial of petitioners motion for
intervention, despite the fact that he has a legal interest, being a lessee and an
Shortly, on May 8, 1998, S. Villanueva Enterprises and Vargas moved for its
assignee of the property subject matter of this case.
quashal.[15] Thereafter on June 25, 1998, petitioner, on the strength of the lease contract
and Deed of Assignment made in his favor, submitted a Permission to File an Ex-
II. Whether or not the public respondent committed grave abuse of discretion
parte Motion to Intervene.[16] It bears mentioning, however, that before petitioner
when it held that what are required to be instituted before the liquidation court
sought intervention in the present case, he had separately instituted a Complaint for
are those claims against the insolvent banks only considering that the private
Mandamus, docketed as Civil Case No. 98-0868 before another branch[17] of the Pasay
respondent bank is legally dead due to insolvency and considering further that
City RTC to compel PAIC Bank to allow him to repurchase the subject property.
there is already a liquidation court (Regional Trial Court of Makati, Branch 57,
On October 7, 1998, the court a quo denied the Motion to Quash and Motion to docketed as Spec. Pro. No. M-1280) which is exclusively vested with jurisdiction
Intervene filed respectively by Vargas and petitioner.[18] A Motion for Reconsideration to hear all matters and incidents on liquidation pursuant to Section 29, Republic
and a Supplemental Motion for Reconsideration were filed by the petitioner which, Act No. 265, otherwise known as The Central Bank Act, as amended.
however, were similarly denied on December 9, 1998.
III. Whether or not the public respondent committed grave abuse of discretion
Petitioner then sought relief with the Court of Appeals, filing therein a Petition for
and/or was patently in error in affirming the ruling of the trial court, totally
Certiorari. While this was awaiting resolution, he entered into another lease
disregarding the arguments raised in petitioners supplemental motion for
agreement,[19] this time with the respondent, represented by its liquidator, over the same
reconsideration only through a minute order and without taking into
450 sq.m. portion of the lot. The contract fixed a period of one month beginning
consideration the fact that there is a pending action in another court (RTC, Pasay
January 28, 1999, renewable for another month at the exclusive option of the lessor,
City, Branch 231) which presents a prejudicial question to the case at bar.
respondent PAIC Bank.
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Banking Law Cases
IV. Whether or not the petitioner is estopped from questioning private
respondents ownership when it entered into a contract of lease involving the
property in question.[21]
We will first resolve the jurisdictional and procedural questions raised by the
petitioner.
I.
Petitioner postulates that the lower court should have dismissed respondents Ex-
Parte Petition for Issuance of Writ of Possession in Civil Case No. P-9011 for want of
jurisdiction over the subject matter of the claim. The power to hear the same, he insists,
exclusively vests with the Liquidation Court pursuant to Section 29 of Republic Act
No. 265, otherwise known as The Central Bank Act.[22] He then cites our decision
in Valenzuela v. Court of Appeals,[23] where we held that if there is a judicial
liquidation of an insolvent bank, all claims against the bank should be filed in the
liquidation proceeding. For going to another court, the respondent, he accuses, is guilty
of forum shopping.
These contentions can not pass judicial muster. The pertinent portion of Section
29 states:
x x x The liquidator designated as hereunder provided shall, by the Solicitor General,
file a petition in the Regional Trial Court reciting the proceedings which have been
taken and praying the assistance of the court in the liquidation of such institution. The
court shall have jurisdiction in the same proceedings to assist in the adjudication
of disputed claims against the bank or non-bank financial intermediary performing
quasi-banking functions and the enforcement of individual liabilites of the
stockholders and do all that is necessary to preserve the assets of such institution and
to implement the liquidation plan approved by the Monetary Board. x x
x[24] (emphasis supplied.)
Petitioner apparently failed to appreciate the correct meaning and import of the
above-quoted law. The legal provision only finds operation in cases where there are
claims against an insolvent bank. In fine, the exclusive jurisdiction of the liquidation
court pertains only to the adjudication of claims against the bank. It does not cover
the reverse situation where it is the bank which files a claim against another person or
legal entity.
This interpretation of Section 29 becomes more obvious in the light of its
intent. The requirement that all claims against the bank be pursued in the liquidation
proceedings filed by the Central Bank is intended to prevent multiplicity of actions
against the insolvent bank and designed to establish due process and orderliness in the
liquidation of the bank, to obviate the proliferation of litigations and to avoid injustice
and arbitrariness.[25] The lawmaking body contemplated that for convenience, only one
court, if possible, should pass upon the claims against the insolvent bank and that the
liquidation court should assist the Superintendents of Banks and regulate his
operations.[26]
It then ought to follow that petitioners reliance on Section 29 and
the Valenzuela case is misplaced. The Petition for the Issuance of a Writ of Possession
in Civil Case No. 9011 is not in the nature of a disputed claim against the bank. On the
contrary, it is an action instituted by the respondent bank itself for the preservation
of its asset and protection of its property. It was filed upon the instance of the
respondents liquidator in order to take possession of a tract of land over which it has
ownership claims.
To be sure, the liquidator took the proper course of action when it applied for a
writ in the Pasay City RTC. Act 3135,[27] entitled An Act to Regulate the Sale of
Property Under Special Powers Inserted In or Annexed To Real Estate Mortgages,
mandates that jurisdiction over a Petition for Writ of Possession lies with the court of
the province, city, or municipality where the property subject thereof is situated. This
is sanctioned by Section 7 of the said Act, thus:
Section 7. In any sale made under the provisions of this Act, the purchaser may
petition the Court of First Instance of the province or place where the property
or any part thereof is situated, to give him possession thereof during the
redemption period, furnishing bond in an amount equivalent to the use of the property
for a period of twelve months, to indemnify the debtor in case it be shown that the
sale was made without violating the mortgage or without complying with the
requirements of this Act. x x x[28] (emphasis supplied)
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Banking Law Cases
Since the land subject of this controversy is located in Pasay City, then the citys RTC
should rightly take cognizance of the case, to the exclusion of other courts.
Anent petitioners auxiliary contention that respondent should be held guilty of
forum shopping for not filing the case in the liquidation court, suffice it to state here
that the doctrine only ponders situations where two (or more) cases are pending before
different tribunals.[29] Well to point, we have laid down the yardstick to determine
whether a party violated the rule against forum shopping as where the elements of litis
pendentia are present or where a final judgment in one case will amount to res
judicata in the other.[30] Inasmuch as the case at bar is the only one filed by the
respondent for the issuance of a writ of possession over the subject property, there is
no occasion for the doctrine to apply.
Petitioner next casts doubt on the capacity of the respondent to continue litigating
the petition for the issuance of the writ. He asserts that, being under liquidation,
respondent bank is already a dead corporation that cannot maintain the suit in the RTC.
Hence, no writ may be issued in its favor.
The argument is devoid of merit. A bank which had been ordered closed by the
monetary board retains its juridical personality which can sue and be sued through its
liquidator. The only limitation being that the prosecution or defense of the action must
be done through the liquidator.[31]Otherwise, no suit for or against an insolvent entity
would prosper. In such situation, banks in liquidation would lose what justly belongs
to them through a mere technicality.[32]
That the law allows a bank under liquidation to participate in an action can be
clearly inferred from the third paragraph of the same Section 29 of The Central Bank
Act earlier quoted, which authorizes or empowers a liquidator to institute actions, thus:
x x x and he (liquidator) may in the name of the bank or non-bank financial
intermediary performing quasi-banking functions and with the assistance of counsel
as he may retain, institute such actions as may be necessary in the appropriate court
to collect and recover accounts and assests of such institution or defend any action
filed against the institution.[33] (emphasis supplied.)
It is therefore beyond dispute that respondent was legally capacitated to petition the
court a quo for the issuance of the writ.
II.
Petitioner likewise proffers one other procedural obstacle, which is the pendency
of Civil Case No. 98-0868 in Branch 231 of Pasay City RTC. The said action is the
complaint he filed against the respondent for the latter to receive and accept the
redemption price of eighteen million pesos for the subject property. He argues that the
primary issue therein constitutes a prejudicial question in relation to the present case in
that if the Court therein will grant petitioners prayer, then this will necessarily negate
the possessory writ issued by the court a quo.
Again, we are not persuaded. A prejudicial question is one which arises in a case
the resolution of which is a logical antecedent of the issue involved therein, and the
cognizance of which pertains to another tribunal.[34] It generally comes into play in a
situation where a civil action and a criminal action are both pending and there
exists in the former an issue which must be preemptively resolved before the criminal
action may proceed, because howsoever the issue raised in the civil action is resolved
would be determinative juris et de jure of the guilt or innocence of the accused in the
criminal case. The rationale behind the principle of prejudicial question is to avoid two
conflicting decisions.[35]
Here, aside from the fact that Civil Case No. 98-0868 and the present one are both
civil in nature and therefore no prejudicial question can arise from the existence of the
two actions,[36] it is apparent that the former action was instituted merely to frustrate
the Courts ruling in the case at bar granting the respondent the right to possess the
subject property. It is but a canny and preemptive maneuver on the part of the petitioner
to delay, if not prevent, the execution of a judgment adverse to his interests. It bears
stressing that the complaint for mandamus was filed only on May 7, 1998, sixteen days
after the lower court granted respondents petition and thirteen days after it issued the
writ. It cannot then possibly prejudice a decided case.
At any rate, it taxes our imagination why the questions raised in Case No. 98-0868
must be considered determinative of Case No. 9011. The basic issue in the former is
whether the respondent, as the purchaser in the extra-judicial foreclosure proceedings,
may be compelled to have the property repurchased or resold to a mortgagors
successor-in-interest (petitioner); while that in the latter is merely whether the
respondent, as the purchaser in the extra-judicial foreclosure proceedings, is entitled to
a writ of possession after the statutory period for redemption has expired. The two
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Banking Law Cases
cases, assuming both are pending, can proceed separately and take their own direction
independent of each other.
III.
Having disposed of the jurisdictional and procedural issues, we now come to the
merits of the case. Petitioner seeks intervention in this case by virtue of the lease
agreement and the deed of assignment executed in his favor by the mortgagor (Vargas)
and an alleged buyer (Angsico) of the land, respectively. He posits that as a lessee and
assignee in possession of the foreclosed real estate, he automatically acquires interest
over the subject matter of the litigation. This interest is coupled with the fact that he
introduced improvements thereon, consisting of a one-storey building which houses a
karaoke-music restaurant, allegedly to the tune of fifteen million pesos
(P15,000,000.00). Enforcing the writ, he adds, without hearing his side would be an
injustice to him.
Intervention is a remedy by which a third party, not originally impleaded in the
proceeding, becomes a litigant therein to enable him to protect or preserve a right or
interest which may be affected by such proceeding.[37] The pertinent provision is stated
in Section 1, Rule 19 of the 1997 Rules of Civil Procedure, thus:
Section 1. Who may intervene. - A person who has a legal interest in the matter in
litigation, or in the success of either of the parties, or an interest against both, or
is so situated as to be adversely affected by a distribution or other disposition of
property in the custody of the court or of an officer thereof may, with leave of
court, be allowed to intervene in the action. The court shall consider whether or
not the intervention will unduly delay or prejudice the adjudication of the rights
of the original parties, and whether or not the intervenors rights may be fully
protected in a separate proceeding.[38]
Intervention is not a matter of right but may be permitted by the courts only when
the statutory conditions for the right to intervene is shown.[39] Thus, the allowance or
disallowance of a motion to intervene is addressed to the sound discretion of the
court.[40] In determining the propriety of letting a party intervene in a case, the tribunal
should not limit itself to inquiring whether a person (1) has a legal interest in the matter
in litigation; (2) or in the success of either of the parties; (3) or an interest against both;
(4) or when is so situated as to be adversely affected by a distribution or other
disposition of property in the custody of the court or of an officer thereof.[41] Just as
important, as we have stated in Big Country Ranch Corporation v. Court of
Appeals,[42] is the function to consider whether or not the intervention will unduly
delay or prejudice the adjudication of the rights of the original parties, and whether or
not the intervenors rights may be fully protected in a separate proceeding.
The period within which a person may intervene is also restricted. Section 2, Rule
19 of the 1997 Rules of Civil Procedure requires:
Section 2. Time to intervene. - The motion to intervene may be filed at any time
before the rendition of judgment by the trial court. x x x
After the lapse of this period, it will not be warranted anymore. This is because,
basically, intervention is not an independent action but is ancillary and supplemental to
an existing litigation.[43]
Taking into account these fundamental precepts, we rule that the petitioner may
not properly intervene in the case at bar. His insistence to participate in the proceeding
is an unfortunate case of too little, too late.
In the first place, petitioners Ex-parte Permission to File a Motion to Intervene was
submitted to the RTC only on June 25, 1998. At that stage, the lower court had already
granted respondents petition for the writ in an Order dated April 21, 1998. It had issued
the Writ of Possession on April 24, 1998. Petitioners motion then was clearly out of
time, having been filed only at the execution stage. For that reason alone, it must meet
the consequence of denial. While it is true that on May 8, 1998, Vargas and S.
Villanueva Enterprises moved to quash the writ, that did not in any way affect the
nature of the RTCs Order as an adjudication on the merits. The issuance of the Order
is in essence a rendition of judgment within the purview of Section 2, Rule 19.
Allowing petitioner to intervene, furthermore, will serve no other purpose but to
unduly delay the execution of the writ, to the prejudice of the respondent. This cannot
be countenanced considering that after the consolidation of title in the buyers name, for
failure of the mortgagor to redeem, the writ of possession becomes a matter of
right.[44] Its issuance to a purchaser in an extra-judicial foreclosure is merely a
ministerial function.[45] As such, the court neither exercises its official discretion nor
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Banking Law Cases

judgment.[46] If only to stress the writs ministerial character, we have, in previous cases,
disallowed injunction to prohibit its issuance,[47] just as we have held that issuance of
the same may not be stayed by a pending action for annulment of mortgage or the
foreclosure itself.[48]
Even if he anchors his intervention on the purported interest he has over the land
and the improvements thereon, petitioner, still, should not be allowed to do so. He
admits that he is a mere lessee and assignee. Whatever possessory rights he holds only
emanate from that of Vargas, from whom he leased the lot, and from whom his
assignor/predecessor-in-interest bought it. Therein lies the precariousness of his
title. Petitioner cannot validly predicate his supposed interest over the property in
litigation on that of Vargas, for the simple reason that as early as December 4, 1985,
the latter has already been stripped of all her rights over the land when she, as
mortgagor, failed to redeem it. A mortgagor has only one year within which to redeem
her foreclosed real estate.[49] After that period, she loses all her interests over it. This is
in consonance with Section 78 of the General Banking Act,[50] viz.:
x x x In the event of foreclosure, whether judicially or extrajudicially, of any
mortgage on real estate which is security for any loan granted before the passage
of this Act or the provisions of this Act, the mortgagor or debtor whose real
property has been sold at public auction, judicially or extrajudicially, for the full
or partial payment of an obligation to any bank, banking or credit institution,
within the purview of this Act shall have the right, within one year after the
sale of the real estate mortgage as a result of the foreclosure of the
respective mortgage, to redeem the property by paying the amount fixed by
the court in the order or execution x x x.[51] (emphasis supplied.)
more appropriate venue for elucidating whatever legal basis he alleges in compelling
the respondent to sell to him the currently disputed land.
IV.
This brings us to petitioners final point. He briefly asserts that his act of entering
into a lease contract with the respondent should not affect his right to redeem the subject
property.
The possible legal implication of the lease on the petitioners act of trying to redeem
the disputed lot is a question which, in our opinion, can best be resolved in the
mandamus complaint. Whether the agreement must be construed as a waiver on his
part of exercising his purported right of redemption is an issue best left for the court
therein to decide. Whether by acknowledging the legality of the respondents claim and
title over the land at the time of the execution of the contract, he likewise perpetually
barred himself from redeeming the same is a matter which can be addressed most aptly
in that pending action. Hence, there is presently no need for us to squarely rule on this
ultimate point.
IN VIEW WHEREOF, finding no cogent reason to disturb the assailed Decision,
the instant petition is hereby DENIED.
SO ORDERED.

Being herself bereft of valid title and rights, Vargas can not legitimately convey
any to some other person. She could not have lawfully sold the land to Angsico nor
leased it to petitioner for her own account. It is axiomatic that one can not transmit what
one does not have.[52] It ought to follow that petitioner could not have acquired any
right or interest from Vargas.
Withal, all is not lost for the petitioner. He can still fully protect his rights in Civil
Case No. 98-0868 or the complaint for mandamus he filed before Branch 231 of the
Pasay City RTC. There, he can ventilate his side to a fuller extent as that would be the

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Banking Law Cases

This is a Petition for Review on Certiorari[1] under Rule 45 of the revised Rules
IN RE: PETITION FOR ASSISTANCE IN G.R. No. 158261
of Court, praying that this Court set aside the Orders, dated 17 January 2003[2] and 13
THE LIQUIDATION OF THE RURAL
BANK OF BOKOD (BENGUET), INC., May 2003,[3] of the Regional Trial Court (RTC) of La Trinidad, Benguet, sitting as the
PHILIPPINE DEPOSIT INSURANCE Present: Liquidation Court of the closed Rural Bank of Bokod (Benguet), Inc. (RBBI), in Spec.
CORPORATION, Proc. No. 91-SP-0060.
Petitioner, PANGANIBAN, C.J.*
YNARES-SANTIAGO, There is no dispute as to the antecedent facts of the case, recounted as follows:
(Working Chairperson)
AUSTRIA-MARTINEZ,
- versus - In 1986, a special examination of RBBI was conducted by the Supervision and
CALLEJO, SR., and Examination Sector (SES) Department III of what is now the Bangko Sentral ng
BUREAU OF INTERNAL REVENUE, CHICO-NAZARIO, JJ. Pilipinas (BSP),[4] wherein various loan irregularities were uncovered. In a letter,
dated 20 May 1986, the SES Department III required the RBBI management to infuse
Respondent.
fresh capital into the bank, within 30 days from date of the advice, and to correct all
the exceptions noted. However, up to the termination of the subsequent general
Promulgated: examination conducted by the SES Department III, no concrete action was taken by the
RBBI management. In view of the irregularities noted and the insolvent condition of
December 18, 2006 RBBI, the members of the RBBI Board of Directors were called for a conference at the
BSP on 4 August 1986. Only one RBBI Director, a certain Mr. Wakit, attended the
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
conference, and the examination findings and related recommendations were discussed
with him. In a letter, dated 4 August 1986, receipt of which was acknowledged by Mr.
Wakit, the SES Department III warned the RBBI Board of Directors that, unless
substantial remedial measures are taken to rehabilitate the bank, it will recommend that
DECISION
the bank be placed under receivership. In a subsequent letter, dated 17 November 1986,
a copy of which was sent to every member of the RBBI Board of
Directors via registered mail, the SES Department III reiterated its warning that it
CHICO-NAZARIO, J.: would recommend the closure of the bank, unless the needed fresh capital was
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Banking Law Cases
immediately infused. Despite these notices, the SES Department III received no word
from RBBI or from any of its Directors as of 28 November 1986.[5]
In a meeting held on 9 January 1987, the Monetary Board of the BSP decided
to take the following action
Rural Bank of Bokod (Benguet), Inc. Report on its examination as
of June 16, 1986, its placement under receivership
ACTION TAKEN
Finding to be true the statements of the Special Assistant to the
Governor and Head, Supervision and Examination Sector (SES)
Department III, in her memorandum dated 28 November 1986
submitting a report on the general examination of the Rural Bank of
Bokod (Benguet), Inc. as of 16 June 1986, that the financial condition
of the rural bank is one of insolvency and its continuance in business
would involve further losses to its depositors and creditors, x x x
xxxx
[T]he Board decided as follows:
a. To forbid the bank to do business in
the Philippines and place its assets and affairs under
receivership in accordance with Section 29 of R.A. No.
265, as amended.
b. To designate the Special Assistant to the
Governor and Head, SES Department III, as Receiver of
the bank;
c. To refer the cases of irregularities/frauds to the
Office of Special Investigation for further investigation
and possible filing of appropriate charges against the
following present/former officers and employees of the
bank:
xxxx
d. To include the names of the above-mentioned
present and former officers and employees of the bank in
the list of persons barred from employment in any
financial institution under the supervision of the Central
Bank without prior clearance from the Central Bank.[6]
A memorandum and report, dated 28 August 1990, were submitted by the
Director of the SES Department III concluding that the RBBI remained in insolvent
financial condition and it can no longer safely resume business with the depositors,
creditors, and the general public. On 7 September 1990, the Monetary Board, after
determining and confirming the said memorandum and report, ordered the liquidation
of the bank and designated the Director of the SES Department III as liquidator.[7]
On 10 April 1991, the designated BSP liquidator of RBBI caused the filing with
the RTC of a Petition for Assistance in the Liquidation of RBBI, docketed as Spec.
Proc. No. 91-SP-0060.[8] Subsequently, on 2 June 1992, the Monetary Board
transferred to herein petitioner Philippine Deposit Insurance Corporation (PDIC) the
receivership/liquidation of RBBI.[9]
PDIC then filed, on 11 September 2002, a Motion for Approval of Project of
Distribution[10] of the assets of RBBI, in accordance with Section 31, in relation to
Section 30, of Republic Act No. 7653, otherwise known as the New Central Bank
Act. During the hearing held on 17 January 2003, the respondent Bureau of Internal
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Banking Law Cases
Revenue (BIR), through Atty. Justo Reginaldo, manifested that PDIC should secure a
tax clearance certificate from the appropriate BIR Regional Office, pursuant to Section
52(C) of Republic Act No. 8424, or the Tax Code of 1997, before it could proceed with
the dissolution of RBBI. On even date, the RTC issued one of the assailed
Orders,[11] directing PDIC to comply with Section 52(C) of the Tax Code of 1997
within 30 days from receipt of a copy of the said order. Pending compliance therewith,
the RTC held in abeyance the Motion for Approval of Project of Distribution. On 13
May 2003, the second assailed Order[12] was issued, in which the RTC, in resolving the
Motion for Reconsideration filed by PDIC, ruled as follows
ORDER
Submitted for resolution is petitioners motion for
reconsideration of the order of this court dated January 17, 2003 holding
in abeyance the motion for approval of the project of distribution
pending their compliance with a tax clearance from the Bureau of
Internal Revenue.
Petitioner in their motion state that Section 52-C of Republic Act
8424 does not cover closed banking institutions like the Rural Bank of
Bokod as the law that covers liquidation of closed banks is Section 30
of Republic Act No. 7653 otherwise known as the new Central Bank
Law.
Commenting on the motion for reconsideration the Bureau of
Internal Revenue states that the only logic why the Bureau is requesting
for a tax clearance is to determine how much taxes, if there be any, is
due the government.
The court believes and so holds that petitioner should still secure
the necessary tax clearance in order for it to be cleared of all its tax
liabilities as regardless of what law covers the liquidation of closed
banks, still these banks are subject to payment of taxes mandated by
law. Also in its motion for approval of the project of distribution,
paragraph 2, item 2.2 states that there are unremitted withholding taxes
in the amount of P8,767.32.
This shows that indeed there are still taxes to be paid. In order
therefore that all taxes due the government should be paid, petitioner
should secure a tax clearance from the Bureau of Internal Revenue.
Wherefore, based on the foregoing premises, the motion for
reconsideration filed by petitioner is hereby DENIED for lack of
merit.[13]
Hence, PDIC filed the present Petition for Review on Certiorari, under Rule 45
of the revised Rules of Court, raising pure questions of law. It made a lone assignment
of error, alleging that
THE COURT A QUO ERRED IN APPLYING THE PROVISION OF
SECTION 52-C OF REPUBLIC ACT NO. 8424 DIRECTING THE
SUBMISSION OF TAX CLEARANCE FOR CORPORATIONS
CONTEMPLATING DISSOLUTION ON A BANK ORDERED
CLOSED AND PLACED UNDER RECEIVERSHIP AND,
THEREAFTER, UNDER LIQUIDATION, BY THE MONETARY
BOARD PURSUANT TO SECTION 30 OF REPUBLIC ACT NO.
7653.[14]
PDIC argues that the closure of banks under Section 30 of the New Central Bank Act
is summary in nature and procurement of tax clearance as required under Section 52(C)
of the Tax Code of 1997 is not a condition precedent thereto; that under Section 30, in
relation to Section 31, of the New Central Bank Act, asset distribution of a closed bank
requires only the approval of the liquidation court; and that the BIR is not without
181
Banking Law Cases
recourse since, subject to the applicable provisions of the Tax Code of 1997, it may
therefore assess the closed RBBI for tax liabilities, if any.
In its Comment, the BIR countered with the following arguments: that the
present Petition for Review on Certiorari under Rule 45 of the revised Rules of Court
is not the proper remedy to question the Order, dated 17 January 2003, of the RTC
because said order is interlocutory and cannot be the subject of an appeal; that Section
52(C) of the Tax Code of 1997 applies to all corporations, including banks ordered
closed by the Monetary Board pursuant to Section 30 of the New Central Bank Act;
that the RTC may order the PDIC to obtain a tax clearance before proceeding to rule
on the Motion for Approval of Project of Distribution of the assets of RBBI; and that
the present controversy should not have been elevated to this Court since the parties
are both government agencies who should have administratively settled the dispute.
This Court finds that there are only two primary issues for the resolution of the
Petition at bar, one being procedural, and the other substantive. The procedural issue
involves the question of whether the Petition for Review on Certiorari under Rule 45
of the revised Rules of Court is the proper remedy from the assailed Orders of the
RTC. The substantive issue deals with the determination of whether a bank ordered
closed and placed under receivership by the Monetary Board of the BSP still needs to
secure a tax clearance certificate from the BIR before the liquidation court approves
the project of distribution of the assets of the bank.
I
This Court shall first proceed with the procedural issue on the appropriateness
of the remedy taken by PDIC from the assailed RTC Orders.
The differences between an appeal by certiorari under Rule 45[15] of the revised
Rules of Court and an original action for certiorari under Rule 65[16] of the same Rules
have been laid down by this Court in the case of Atty. Paa v. Court of Appeals,[17] to
wit
a. In appeal by certiorari, the petition is based on questions of
law which the appellant desires the appellate court to resolve.
In certiorari as an original action, the petition raises the issue as to
whether the lower court acted without or in excess of jurisdiction or with
grave abuse of discretion.
b. Certiorari, as a mode of appeal, involves the review of the
judgment, award or final order on the merits. The original action
for certiorari may be directed against an interlocutory order of the court
prior to appeal from the judgment or where there is no appeal or any
other plain, speedy or adequate remedy.
c. Appeal by certiorari must be made within the reglementary
period for appeal. An original action for certiorari may be filed not later
than sixty (60) days from notice of the judgment, order or resolution
sought to be assailed.
d. Appeal by certiorari stays the judgment, award or order
appealed from. An original action for certiorari, unless a writ of
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Banking Law Cases
preliminary injunction or a temporary restraining order shall have been
issued, does not stay the challenged proceeding.
e. In appeal by certiorari, the petitioner and respondent are the
original parties to the action, and the lower court or quasi-judicial
agency is not to be impleaded. In certiorari as an original action, the
parties are the aggrieved party against the lower court or quasi-judicial
agency and the prevailing parties, who thereby respectively become the
petitioner and respondents.
f. In certiorari for purposes of appeal, the prior filing of a
motion for reconsideration is not required (Sec. 1, Rule 45); while
in certiorari as an original action, a motion for reconsideration is a
condition precedent (Villa-Rey Transit vs. Bello, L-18957, April 23,
1963), subject to certain exceptions.
g. In appeal by certiorari, the appellate court is in the exercise
of its appellate jurisdiction and power of review, while in certiorari as
an original action, the higher court exercises original jurisdiction under
its power of control and supervision over the proccedings of lower
courts.
Guided by the foregoing distinctions, this Court, in perusing the assailed RTC
Orders, dated 17 January 2003 and 13 May 2003, reaches the conclusion that these are
merely interlocutory in nature and are not the proper subjects of an appeal
by certiorari under Rule 45 of the revised Rules of Court.
This Court has repeatedly and uniformly held that a judgment or order may be
appealed only when it is final, meaning that it completely disposes of the case and
definitively adjudicates the respective rights of the parties, leaving thereafter no
substantial proceeding to be had in connection with the case except the proper
execution of the judgment or order. Conversely, an interlocutory order or judgment is
not appealable for it does not decide the action with finality and leaves substantial
proceedings still to be had.[18]
The RTC Orders presently questioned before this Court has not disposed of the
case nor has it adjudicated definitively the rights of the parties in Spec. Proc. No. 91-
SP-0060. They only held in abeyance the approval of the Project of Distribution of the
assets of RBBI until PDIC, as liquidator, acquires a tax clearance from the
BIR. Indubitably, there are still substantial proceedings to be had after PDIC presents
the required tax clearance to the trial court, since the Project of Distribution of assets
still has to be finalized and approved.
PDIC avers that the RTC Orders of 17 January 2003 and 13 May 2003 are final
because, as this Court pronounced in the case of Pacific Banking Corporation
Employees Organization (PaBCEO) v. Court of Appeals,[19] an order of the liquidation
court allowing or disallowing a claim is a final order and may be the subject of an
appeal. It further asserts that the legal issue of whether RBBI should secure a tax
clearance is a disputed claim, which was already allowed by the RTC in its assailed
Orders, thus, making the latter final.
This Court is unconvinced. The foregoing arguments of PDIC result from a
strained interpretation of law and jurisprudence, and are raised in an apparent attempt
to justify a very obvious faux pas on its part. While it is true that in liquidation
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proceedings, the settlement of disputed or contentious claims may require a full-dress
hearing and the resolution of legal issues,[20] it does not follow that all legal issues
resolved in the course of the liquidation proceedings would automatically be
tantamount to an allowance or disallowance of a disputed or contentious claim. In Spec.
Proc. No. 91-SP-0060 pending before the RTC, there can be no doubt that the claim of
the BIR against RBBI consists of the unpaid tax liabilities of the latter. The BIR
contends that it could only determine the existence and correct amount of the tax
liabilities of RBBI if PDIC, as liquidator of the bank, secures a tax clearance from the
appropriate BIR Regional Office. The acquirement of a tax clearance is not the claim
of the BIR against RBBI, it is only the means by which to ascertain such
claim. Whatever tax liabilities the BIR may claim against RBBI can still be disputed
before the RTC by the PDIC, as liquidator of the bank, whether as to the existence or
computation of the said tax liabilities, and it is the ruling of the RTC on such matters
that may constitute a final order which definitively settles the claim of the BIR. The
mere grant by the RTC of the motion requiring PDIC, as liquidator of RBBI, to secure
a tax clearance, does not yet constitute an adjudication of the claim of the BIR. Hence,
the assailed RTC Orders, dated 17 January 2003 and 13 May 2003, are clearly
interlocutory in nature.
As a general rule, an interlocutory order is not appealable until after the
rendition of the judgment on the merits, given that a contrary rule would delay the
administration of justice and unduly burden the courts. This Court, however, has also
held that an original action for certiorari under Rule 65 of the revised Rules of Court
is an appropriate remedy to assail an interlocutory order when (1) the tribunal issued
such order without or in excess of jurisdiction or with grave abuse of discretion, and
(2) the assailed interlocutory order is patently erroneous and the remedy of appeal
would not afford adequate and expeditious relief.[21] Thus, despite this Courts finding
that PDIC, as the liquidator of RBBI, availed itself of the wrong remedy by filing an
appeal by certiorari under Rule 45 of the revised Rules of Court, We shall adopt a
positive and pragmatic approach, and, instead of dismissing the instant Petition
outright, it shall treat the same as an original action for certiorari under Rule 65 of the
same Rules, in consideration of the crucial issues and substantial arguments already
presented by the concerned parties before this Court.[22]
II
Having disposed of the procedural issue, this Court now addresses the substantive issue
of whether RBBI, as represented by its liquidator, PDIC, still needs to secure a tax
clearance from the BIR before the RTC could approve the Project of Distribution of
the assets of RBBI.
The BIR anchors its position that a tax clearance is necessary on Section 52(C)
of the Tax Code of 1997, which provides
SEC. 52. Corporation Returns.
xxxx
(C) Return of Corporation Contemplating Dissolution or
Reorganization. Every corporation shall, within thirty days (30) after
the adoption by the corporation of a resolution or plan for its dissolution,
or for the liquidation of the whole or any part of its capital stock,
including a corporation which has been notified of possible involuntary
dissolution by the Securities and Exchange Commission, or for its
reorganization, render a correct return to the Commissioner, verified
under oath, setting forth the terms of such resolution or plan and such
other information as the Secretary of Finance, upon recommendation of
the Commissioner, shall, by rules and regulations, prescribe.
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Banking Law Cases
The dissolving or reorganizing corporation shall, prior to the
issuance by the Securities and Exchange Commission of the Certificate
of Dissolution or Reorganization, as may be defined by rules and
regulations prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, secure a certificate of tax
clearance from the Bureau of Internal Revenue which certificate shall
be submitted to the Securities and Exchange Commission.
To implement the foregoing provision, the BIR still relies on the regulations it
jointly issued with the Securities and Exchange Commission (SEC) in 1985, when the
Tax Code of 1977 was still in effect and a similar provision could be found in Section
46(C) thereof. The full text of the regulations is reproduced below
BIR-SEC REGULATIONS NO. 1
SUBJECT: Regulations to Implement the Provisions of
Executive Order No. 1026, Amending Section 46(c) of the National
Internal Revenue Code of 1977, as amended, Requiring Dissolving
Corporations to File Information Returns and Secure Tax Clearance
from the Commissioner of Internal Revenue, and Providing Adequate
Penalties for Violations Thereof.
TO: All Internal Revenue Officers and Others Concerned.
Pursuant to the provisions of Section 277, in relation to Section
4 of the National Revenue Code of 1977, as amended, the following
regulations are hereby promulgated.
Section 1. Scope. These regulations shall govern the procedure
for the issuance of tax clearance certificates to dissolving corporations.
This shall include corporations intending to dissolve or liquidate the
whole or any part of its capital stocks, as well as, corporations which
have been notified of possible involuntary dissolution by the Securities
and Exchange Commission.
Section 2. Requirements in case of dissolution. a) Every
Corporation shall, within thirty (30) days after
- the adoption by the corporation of a resolution or plan for the
dissolution of the corporation, or for the liquidation of the whole or
any part of its capital stock, or
- the receipt of an order of suspension by the Securities and Exchange
Commission in case of involuntary dissolution,
file their income tax returns covering the income earned by them from
the beginning of the taxable year up to date of such dissolution.
In addition thereto, they shall submit within the same period and
verified under oath, the following documents:
1. a copy of the articles of incorporation and by-laws;
2. a copy of the resolution authorizing dissolution; and
3. balance sheet as of the date of dissolution and a profit and loss
statement covering the period from the beginning of the
taxable year to the date of dissolution.
b) The Securities and Exchange Commission whenever it issues
an order of involuntary dissolution or suspension of the primary
franchise or certificate of registration of a corporation, shall at the same
time furnish the Commissioner of Internal Revenue a copy of such
order.
Section 3. Tax clearance certificate. a) Within thirty (30) days
from receipt of the documents mentioned in the preceding Section, the
Commissioner of Internal Revenue, or his duly authorized
representative, shall issue the corresponding tax clearance certificate
(BIR Form No. 17.61) for the corporation which will be dissolved.
b) The Securities and Exchange Commission shall issue the final
order of dissolution only after a certificate of tax clearance has been
submitted by the dissolving corporation: Provided, that in case of
involuntary dissolution, the Securities and Exchange Commission may
185
Banking Law Cases
nevertheless proceed with the dissolution if thirty (30) days after receipt
of the suspension order no tax clearance has yet been issued.
Section 4. Penalty. Failure to render the return and secure the
certificate of tax clearance as above-mentioned shall subject the
officer(s) of the corporation required by law to file the return under
Section 46(a) of the National Internal Revenue Code of 1977, as
amended, to a fine of not less than P5,000.00 or imprisonment of not
less than two (2) years, and shall make them liable for all outstanding
or unpaid tax liabilities of the dissolving corporation.
Section 5. Effectivity. These regulations shall apply to all
corporate dissolution taking place on or after May 14, 1985.
Section 6. Repealing Clause. All revenue regulations, orders and
circulars which are inconsistent herewith are hereby modified
accordingly.
The afore-quoted Tax Code provision and regulations refer to a voluntary
dissolution and/or liquidation of a corporation through its adoption of a resolution or
plan to that effect, or an involuntary dissolution of a corporation by order of the
SEC.They make no reference at all to a situation similar to the one at bar in which a
banking corporation is ordered closed and placed under receivership by the BSP and
its assets judicially liquidated. Now, the determining question is, whether Section
52(C) of the Tax Code of 1997 and BIR-SEC Regulations No. 1 could be made to apply
to the present case.
This Court rules in the negative.
First, Section 52(C) of the Tax Code of 1997 and the BIR-SEC Regulations No.
1 regulate the relations only as between the SEC and the BIR, making a certificate of
tax clearance a prior requirement before the SEC could approve the dissolution of a
corporation. In Spec. Proc. No. 91-SP-0060 pending before the RTC, RBBI was placed
under receivership and ordered liquidated by the BSP, not the SEC; and the SEC is not
even a party in the said case, although the BIR is. This Court cannot find any basis to
extend the SEC requirements for dissolution of a corporation to the liquidation
proceedings of RBBI before the RTC when the SEC is not even involved therein.
It is conceded that the SEC has the authority to order the dissolution of a
corporation pursuant to Section 121 of Batas Pambansa Blg. 68, otherwise known as
the Corporation Code of the Philippines, which reads
Sec. 121. Involuntary dissolution. A corporation may be
dissolved by the Securities and Exchange Commission upon filing of a
verified complaint and after proper notice and hearing on the grounds
provided by existing laws, rules and regulations.
The Corporation Code, however, is a general law applying to all types of corporations,
while the New Central Bank Act regulates specifically banks and other financial
institutions, including the dissolution and liquidation thereof. As between a general and
special law, the latter shall prevail generalia specialibus non derogant.[23]
The liquidation of RBBI is undertaken according to Sections 30 of the New
Central Bank Act, viz
Sec. 30. Proceedings in Receivership and Liquidation. -
Whenever, upon report of the head of the supervising or examining
department, the Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the
ordinary course of business: Provided, That this shall not include
inability to pay caused by extraordinary demands induced by financial
panic in the banking community;
186
Banking Law Cases
(b) has insufficient realizable assets, as determined by the
Bangko Sentral, to meet its liabilities; or
(c) cannot continue in business without involving probable
losses to its depositors or creditors; or
(d) has wilfully violated a cease and desist order under Section
37 that has become final, involving acts or transactions which amount
to fraud or a dissipation of the assets of the institution; in which cases,
the Monetary Board may summarily and without need for prior hearing
forbid the institution from doing business in the Philippines and
designate the Philippine Deposit Insurance Corporation as receiver of
the banking institution.
For a quasi-bank, any person of recognized competence in
banking or finance may be designated as receiver.
The receiver shall immediately gather and take charge of all the
assets and liabilities of the institution, administer the same for the
benefit of its creditors, and exercise the general powers of a receiver
under the Revised Rules of Court but shall not, with the exception of
administrative expenditures, pay or commit any act that will involve the
transfer or disposition of any asset of the institution: Provided, That the
receiver may deposit or place the funds of the institution in non-
speculative investments. The receiver shall determine as soon as
possible, but not later than ninety (90) days from take over, whether the
institution may be rehabilitated or otherwise placed in such a condition
that it may be permitted to resume business with safety to its depositors
and creditors and the general public: Provided, That any determination
for the resumption of business of the institution shall be subject to prior
approval of the Monetary Board.
If the receiver determines that the institution cannot be
rehabilitated or permitted to resume business in accordance with the
next preceding paragraph, the Monetary Board shall notify in writing
the board of directors of its findings and direct the receiver to proceed
with the liquidation of the institution. The receiver shall:
(1) file ex parte with the proper regional trial court, and without
requirement of prior notice or any other action, a petition for assistance
in the liquidation of the institution pursuant to a liquidation plan adopted
by the Philippine Deposit Insurance Corporation for general application
to all closed banks. In case of quasi-banks, the liquidation plan shall be
adopted by the Monetary Board. Upon acquiring jurisdiction, the court
shall, upon motion by the receiver after due notice, adjudicate disputed
claims against the institution, assist the enforcement of individual
liabilities of the stockholders, directors and officers, and decide on other
issues as may be material to implement the liquidation plan
adopted. The receiver shall pay the cost of the proceedings from the
assets of the institution.
(2) convert the assets of the institution to money, dispose of the
same to creditors and other parties, for the purpose of paying the debts
of such institution in accordance with the rules on concurrence and
preference of credit under the Civil Code of the Philippines and he may,
in the name of the institution, and with the assistance of counsel as he
may retain, institute such actions as may be necessary to collect and
recover accounts and assets of, or defend any action against, the
institution. The assets of an institution under receivership or liquidation
shall be deemed in custodia legis in the hands of the receiver and shall,
from the moment the institution was placed under such receivership or
liquidation, be exempt from any order of garnishment, levy, attachment,
or execution.
The actions of the Monetary Board taken under this section or
under Section 29 of this Act shall be final and executory, and may not
be restrained or set aside by the court except on petition for certiorari on
the ground that the action taken was in excess of jurisdiction or with
such grave abuse of discretion as to amount to lack or excess of
jurisdiction. The petition for certiorari may only be filed by the
stockholders of record representing the majority of the capital stock
within ten (10) days from receipt by the board of directors of the
institution of the order directing receivership, liquidation or
conservatorship.
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Banking Law Cases
The designation of a conservator under Section 29 of this Act or
the appointment of a receiver under this section shall be vested
exclusively with the Monetary Board. Furthermore, the designation of a
conservator is not a precondition to the designation of a receiver.
Section 30 of the New Central Bank Act lays down the proceedings for
receivership and liquidation of a bank. The said provision is silent as regards the
securing of a tax clearance from the BIR. The omission, nonetheless, cannot compel
this Court to apply by analogy the tax clearance requirement of the SEC, as stated in
Section 52(C) of the Tax Code of 1997 and BIR-SEC Regulations No. 1, since, again,
the dissolution of a corporation by the SEC is a totally different proceeding from the
receivership and liquidation of a bank by the BSP. This Court cannot simply replace
any reference by Section 52(C) of the Tax Code of 1997 and the provisions of the BIR-
SEC Regulations No. 1 to the SEC with the BSP. To do so would be to read into the
law and the regulations something that is simply not there, and would be tantamount to
judicial legislation.
It should be noted that there are substantial differences in the procedure for
involuntary dissolution and liquidation of a corporation under the Corporation Code,
and that of a banking corporation under the New Central Bank Act, so that the
requirements in one cannot simply be imposed in the other.
Under the Corporation Code, the SEC may dissolve a corporation, upon the
filing of a verified complaint and after proper notice and hearing, on grounds provided
by existing laws, rules, and regulations.[24] Upon receipt by the corporation of the order
of suspension from the SEC, it is required to notify and submit a copy of the said order,
together with its final tax return, to the BIR. The SEC is also required to furnish the
BIR a copy of its order of suspension. The BIR is supposed to issue a tax clearance to
the corporation within 30 days from receipt of the foregoing documentary
requirements. The SEC shall issue the final order of dissolution only after the
corporation has submitted its tax clearance; or in case of involuntary dissolution, the
SEC may proceed with the dissolution after 30 days from receipt by the BIR of the
documentary requirements without a tax clearance having been issued.[25] The
corporation is allowed to continue as a body corporate for three years after its
dissolution, for the purpose of prosecuting and defending suits by or against it, to settle
and close its affairs, and to dispose of and convey its property and distribute its assets,
but not for the purpose of continuing its business. The corporation may undertake its
own liquidation, or at any time during the said three years, it may convey all of its
property to trustees for the benefit of its stockholders, members, creditors, and other
persons in interest.[26]
In contrast, the Monetary Board may summarily and without need for prior
hearing, forbid the banking corporation from doing business in the Philippines, for
causes enumerated in Section 30 of the New Central Bank Act; and appoint the PDIC
as receiver of the bank. PDIC shall immediately gather and take charge of all the assets
and liabilities of the closed bank and administer the same for the benefit of its
creditors. The summary nature of the procedure for the involuntary closure of a bank
is especially stressed in Section 30 of the New Central Bank Act, which explicitly states
that the actions of the Monetary Board under the said Section or Section 29 shall be
final and executory, and may not be restrained or set aside by the court except on a
Petition for Certiorari filed by the stockholders of record of the bank representing a
majority of the capital stock. PDIC, as the appointed receiver, shall file ex parte with
the proper RTC, and without requirement of prior notice or any other action, a petition
for assistance in the liquidation of the bank. The bank is not given the option to
undertake its own liquidation.
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Banking Law Cases
Second, the alleged purpose of the BIR in requiring the liquidator PDIC to
secure a tax clearance is to enable it to determine the tax liabilities of the closed bank. It
raised the point that since the PDIC, as receiver and liquidator, failed to file the final
return of RBBI for the year its operations were stopped, the BIR had no way of
determining whether the bank still had outstanding tax liabilities.
To our mind, what the BIR should have requested from the RTC, and what was
within the discretion of the RTC to grant, is not an order for PDIC, as liquidator of
RBBI, to secure a tax clearance; but, rather, for it to submit the final return of
RBBI. The first paragraph of Section 30(C) of the Tax Code of 1997, read in
conjunction with Section 54 of the same Code, clearly imposes upon PDIC, as the
receiver and liquidator of RBBI, the duty to file such a return. The pertinent provisions
are reproduced below for reference
SEC. 52. Corporation Returns.
xxxx
(C) Return of Corporation Contemplating Dissolution or
Reorganization. Every corporation shall, within thirty days (30) after
the adoption by the corporation of a resolution or plan for its dissolution,
or for the liquidation of the whole or any part of its capital stock,
including a corporation which has been notified of possible involuntary
dissolution by the Securities and Exchange Commission, or for its
reorganization, render a correct return to the Commissioner, verified
under oath, setting forth the terms of such resolution or plan and such
other information as the Secretary of Finance, upon recommendation of
the Commissioner, shall, by rules and regulations, prescribe.
xxxx
SEC. 54. Returns of receivers, Trustees in Bankruptcy or
Assignees. In cases wherein receivers, trustees in bankruptcy or
assignees are operating the property or business of a corporation, subject
to the tax imposed by this Title, such receivers, trustees or assignees
shall make returns of net income as and for such corporation, in the same
manner and form as such an organization is hereinbefore required to
make returns, and any tax due on the income as returned by receivers,
trustees or assignees shall be assessed and collected in the same manner
as if assessed directly against the organizations of whose businesses or
properties they have custody or control.
Section 54 of the Tax Code of 1997 imposes a general duty on all receivers,
trustees in bankruptcy, and assignees, who operate and preserve the assets of a
corporation, regardless of the circumstances or the law by which they came to hold
their positions, to file the necessary returns on behalf of the corporation under their
care.
The filing by PDIC of a final tax return, on behalf of RBBI, should already
address the supposed concern of the BIR and would already enable the latter to
determine if RBBI still had outstanding tax liabilities.
The unreasonableness and impossibility of requiring a tax clearance before the
approval by the RTC of the Project of Distribution of the assets of the RBBI becomes
apparent when the timeline of the proceedings is considered.
The BIR can only issue a certificate of tax clearance when the taxpayer had
completely paid off his tax liabilities. The certificate of tax clearance attests that the
taxpayer no longer has any outstanding tax obligations to the Government.
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Banking Law Cases
Should the BIR find that RBBI still had outstanding tax liabilities, PDIC will
not be able to pay the same because the Project of Distribution of the assets of RBBI
remains unapproved by the RTC; and, if RBBI still had outstanding tax liabilities, the
BIR will not issue a tax clearance; but, without the tax clearance, the Project of
Distribution of assets, which allocates the payment for the tax liabilities, will not be
approved by the RTC. It will be a chicken-and-egg dilemma.
The Government, in this case, cannot generally claim preference of credit, and
receive payment ahead of the other creditors of RBBI. Duties, taxes, and fees due the
Government enjoy priority only when they are with reference to a specific movable
property, under Article 2241(1) of the Civil Code, or immovable property, under
Article 2242(1) of the same Code. However, with reference to the other real and
personal property of the debtor, sometimes referred to as free property, the taxes and
assessments due the National Government, other than those in Articles 2241(1) and
2242(1) of the Civil Code, will come only in ninth place in the order of preference.[27]
Thus, the recourse of the BIR, after assessing the final return and examining all
other pertinent documents of RBBI, and making a determination of the latters
outstanding tax liabilities, is to present its claim, on behalf of the National Government,
before the RTC during the liquidation proceedings. The BIR is expected to prove and
substantiate its claim, in the same manner as the other creditors. It is only after the RTC
allows the claim of the BIR, together with the claims of the other creditors, can a Project
for Distribution of the assets of RBBI be finalized and approved. PDIC, then, as
liquidator, may proceed with the disposition of the assets of RBBI and pay the latters
financial obligations, including its outstanding tax liabilities. And, finally, only after
such payment, can the BIR issue a certificate of tax clearance in the name of RBBI.
Third, the evident void in current statutes and regulations as to the relations
among the BIR, as tax collector of the National Government; the BSP, as regulator of
the banks; and the PDIC, as the receiver and liquidator of banks ordered closed by the
BSP, is not for this Court to fill in. It is up to the legislature to address the matter
through appropriate legislation, and to the executive to provide the regulations for its
implementation.
It is for these reasons that the RTC committed grave abuse of discretion, and
committed patent error, in ordering the PDIC, as the liquidator of RBBI, to first secure
a tax clearance from the appropriate BIR Regional Office, and holding in abeyance the
approval of the Project of Distribution of the assets of the RBBI by virtue thereof.
Although this Court rules in favor of PDIC, in the sense that a tax clearance is
not a prerequisite to the approval of the Project of Distribution of the assets of RBBI,
it cannot uphold its argument that the Spec. Proc. No. 91-SP-0060 is summary in
nature.
Section 30(d) of the New Central Bank Act gives the Monetary Board of the
BSP the power to, summarily and without need for prior hearing, forbid a bank or
quasi-bank from doing business in the Philippines and designating the PDIC as receiver
of the banking institution. It bears to emphasize that: (1) the power is granted to the
Monetary Board of the BSP; and (2) what is summary in nature is the power of the
Monetary Board of the BSP to forbid or stop a bank or quasi-bank from doing further
business.
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Banking Law Cases
Once liquidation proceedings are instituted before the appropriate trial court,
and the trial court assumes jurisdiction over the Petition, then the proceedings take a
different character. Spec. Proc. No. 91-SP-0600 is the liquidation proceedings initiated
by the PDIC before the RTC. Liquidation proceedings have been described in detail in
the case of Pacific Banking Corporation Employees Organization (PaBCEO) v. Court
of Appeals,[28] to wit
[A] liquidation proceeding resembles the proceeding for the settlement
of estate of deceased persons under Rules 73 to 91 of the Rules of
Court. The two have a common purpose: the determination of all the
assets and the payment of all the debts and liabilities of the insolvent
corporation or the estate. The Liquidator and the administrator or
executor are both charged with the assets for the benefit of the
claimants. In both instances, the liability of the corporation and the
estate is not disputed. The court's concern is with the declaration of
creditors and their rights and the determination of their order of
payment
xxxx
A liquidation proceeding is a single proceeding which consists
of a number of cases properly classified as "claims." It is basically a
two-phased proceeding. The first phase is concerned with the approval
and disapproval of claims. Upon the approval of the petition seeking
the assistance of the proper court in the liquidation of a closed entity,
all money claims against the bank are required to be filed with the
liquidation court. This phase may end with the declaration by the
liquidation court that the claim is not proper or without basis. On the
other hand, it may also end with the liquidation court allowing the
claim. In the latter case, the claim shall be classified whether it is
ordinary or preferred, and thereafter included Liquidator. In either case,
the order allowing or disallowing a particular claim is final order, and
may be appealed by the party aggrieved thereby.
The second phase involves the approval by the Court of the
distribution plan prepared by the duly appointed liquidator. The
distribution plan specifies in detail the total amount available for
distribution to creditors whose claim were earlier allowed. The Order
finally disposes of the issue of how much property is available for
disposal. Moreover, it ushers in the final phase of the liquidation
proceeding - payment of all allowed claims in accordance with the
order of legal priority and the approved distribution plan.
xxxx
A liquidation proceeding is commenced by the filing of a single
petition by the Solicitor General with a court of competent jurisdiction
entitled, "Petition for Assistance in the Liquidation of e.g., Pacific
Banking Corporation. All claims against the insolvent are required to
be filed with the liquidation court. Although the claims are litigated in
the same proceeding, the treatment is individual. Each claim is heard
separately. And the Order issued relative to a particular claim applies
only to said claim, leaving the other claims unaffected, as each claim
is considered separate and distinct from the others. x x x [Emphases
supplied.]
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Banking Law Cases

Irrefragably, liquidation proceedings cannot be summary in nature. It requires SO ORDERED.

the holding of hearings and presentation of evidence of the parties
concerned, i.e., creditors who must prove and substantiate their claims, and the
liquidator disputing the same. It also allows for multiple appeals, so that each creditor
may appeal a final order rendered against its claim. Hence, liquidation proceedings may
very well be highly-contested and drawn-out, because, at the end of it all, all claims
against the corporation undergoing litigation must be settled definitively and its assets
properly disposed off.

WHEREFORE, in view of the foregoing, this Court rules as follows

(a) The instant Petition is GRANTED and the Orders, dated 17 January 2003
and 13 May 2003, of the RTC, sitting as the Liquidation Court of the closed RBBI, in
Spec. Proc. No. 91-SP-0060, are NULLIFIED and SET ASIDE for having been
rendered with grave abuse of discretion;

(b) The PDIC, as liquidator, is ORDERED to submit to the BIR the final tax
return of RBBI, in accordance with the first paragraph of Section 52(C), in connection
with Section 54, of the Tax Code of 1997; and

(c) The RTC is ORDERED to resume the liquidation proceedings in Spec.

Proc. No. 91-SP-0060 in order to determine all the claims of the creditors, including
that of the National Government, as determined and presented by the BIR; and,
pursuant to such determination, and guided accordingly by the provisions of the Civil
Code on preference of credit, to review and approve the Project of Distribution of the
assets of RBBI.

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Banking Law Cases

(No merchants bank of talavera vs Monetary board) DECISION

VELASCO, JR., J.:

BANGKO SENTRAL NG PILIPINAS G.R. No. 184778 The Case
MONETARY BOARD and CHUCHI
FONACIER,
Petitioners, This is a Petition for Review on Certiorari under Rule 45 with Prayer for Issuance of a
Present: Temporary Restraining Order (TRO)/Writ of Preliminary Injunction, questioning the
- versus - Decision dated September 30, 2008[1] of the Court of Appeals (CA) in CA-G.R. SP No.
YNARES-SANTIAGO, J.,
103935. The CA Decision upheld the Order[2] dated June 4, 2008 of the Regional Trial
HON. NINA G. ANTONIO- Chairperson,
VALENZUELA, in her capacity as CHICO-NAZARIO, Court (RTC), Branch 28 in Manila, issuing writs of preliminary injunction in Civil Case
Regional Trial Court Judge of Manila, VELASCO, JR., Nos. 08-119243, 08-119244, 08-119245, 08-119246, 08-119247, 08-119248, 08-
Branch 28; RURAL BANK OF NACHURA, and 119249, 08-119250, 08-119251, and 08-119273, and the Order dated May 21, 2008
PARAAQUE, INC.; RURAL BANK OF PERALTA, JJ.
SAN JOSE (BATANGAS), INC.; RURAL that consolidated the civil cases.
BANK OF CARMEN (CEBU), INC.;
PILIPINO RURAL BANK, INC.; The Facts
PHILIPPINE COUNTRYSIDE RURAL
BANK, INC.; RURAL BANK OF
CALATAGAN (BATANGAS), INC. (now In September of 2007, the Supervision and Examination Department (SED) of
DYNAMIC RURAL BANK); RURAL the Bangko Sentral ng Pilipinas (BSP) conducted examinations of the books of the
BANK OF DARBCI, INC.; RURAL
following banks: Rural Bank of Paraaque, Inc. (RBPI), Rural Bank of San Jose
BANK OF KANANGA (LEYTE), INC.
(now FIRST INTERSTATE RURAL (Batangas), Inc., Rural Bank of Carmen (Cebu), Inc., Pilipino Rural Bank, Inc.,
BANK); RURAL BANK OF BISAYAS Philippine Countryside Rural Bank, Inc., Rural Bank of Calatagan (Batangas), Inc.
MINGLANILLA (now BANK OF EAST
(now Dynamic Rural Bank), Rural Bank of Darbci, Inc., Rural Bank of Kananga
ASIA); and SAN PABLO CITY
DEVELOPMENT BANK, INC., (Leyte), Inc. (now First Interstate Rural Bank), Rural Bank de Bisayas Minglanilla
Respondents. (now Bank of East Asia), and San Pablo City Development Bank, Inc.

Promulgated:
October 2, 2009 After the examinations, exit conferences were held with the officers or representatives
x-----------------------------------------------------------------------------------------x of the banks wherein the SED examiners provided them with copies of Lists of
Findings/Exceptions containing the deficiencies discovered during the
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Banking Law Cases
examinations.These banks were then required to comment and to undertake the
remedial measures stated in these lists within 30 days from their receipt of the lists,
which remedial measures included the infusion of additional capital. Though the banks
claimed that they made the additional capital infusions, petitioner Chuchi Fonacier,
officer-in-charge of the SED, sent separate letters to the Board of Directors of each
bank, informing them that the SED found that the banks failed to carry out the required
remedial measures. In response, the banks requested that they be given time to obtain
BSP approval to amend their Articles of Incorporation, that they have an opportunity
to seek investors. They requested as well that the basis for the capital infusion figures
be disclosed, and noted that none of them had received the Report of Examination
(ROE) which finalizes the audit findings. They also requested meetings with the BSP
audit teams to reconcile audit figures. In response, Fonacier reiterated the banks failure
to comply with the directive for additional capital infusions.
On May 12, 2008, the RBPI filed a complaint for nullification of the BSP ROE with
application for a TRO and writ of preliminary injunction before the RTC docketed as
Civil Case No. 08-119243 against Fonacier, the BSP, Amado M. Tetangco, Jr., Romulo
L. Neri, Vicente B. Valdepenas, Jr., Raul A. Boncan, Juanita D. Amatong, Alfredo C.
Antonio, and Nelly F. Villafuerte. RBPI prayed that Fonacier, her subordinates, agents,
or any other person acting in her behalf be enjoined from submitting the ROE or any
similar report to the Monetary Board (MB), or if the ROE had already been submitted,
the MB be enjoined from acting on the basis of said ROE, on the allegation that the
failure to furnish the bank with a copy of the ROE violated its right to due process.
The Rural Bank of San Jose (Batangas), Inc., Rural Bank of Carmen (Cebu), Inc.,
Pilipino Rural Bank, Inc., Philippine Countryside Rural Bank, Inc., Rural Bank of
Calatagan (Batangas), Inc., Rural Bank of Darbci, Inc., Rural Bank of Kananga(Leyte),
Inc., and Rural Bank de Bisayas Minglanilla followed suit, filing complaints with the
RTC substantially similar to that of RBPI, including the reliefs prayed for, which were
raffled to different branches and docketed as Civil Cases Nos. 08-119244, 08-119245,
08-119246, 08-119247, 08-119248, 08-119249, 08-119250, and 08-119251,
respectively.
On May 13, 2008, the RTC denied the prayer for a TRO of Pilipino Rural Bank,
Inc. The bank filed a motion for reconsideration the next day.
On May 14, 2008, Fonacier and the BSP filed their opposition to the application for a
TRO and writ of preliminary injunction in Civil Case No. 08-119243 with the
RTC. Respondent Judge Nina Antonio-Valenzuela of Branch 28 granted RBPIs prayer
for the issuance of a TRO.
The other banks separately filed motions for consolidation of their cases in Branch 28,
which motions were granted. Judge Valenzuela set the complaint of Rural Bank of San
Jose (Batangas), Inc. for hearing on May 15, 2008. Petitioners assailed the validity of
the consolidation of the nine cases before the RTC, alleging that the court had already
prejudged the case by the earlier issuance of a TRO in Civil Case No. 08-119243, and
moved for the inhibition of respondent judge. Petitioners filed a motion for
reconsideration regarding the consolidation of the subject cases.
On May 16, 2008, San Pablo City Development Bank, Inc. filed a similar complaint
against the same defendants with the RTC, and this was docketed as Civil Case No. 08-
119273 that was later on consolidated with Civil Case No. 08-119243.Petitioners filed
an Urgent Motion to Lift/Dissolve the TRO and an Opposition to the earlier motion for
reconsideration of Pilipino Rural Bank, Inc.
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Banking Law Cases
On May 19, 2008, Judge Valenzuela issued an Order granting the prayer for the
issuance of TROs for the other seven cases consolidated with Civil Case No. 08-
119243. On May 21, 2008, Judge Valenzuela issued an Order denying petitioners
motion for reconsideration regarding the consolidation of cases in Branch 28. On May
22, 2008, Judge Valenzuela granted the urgent motion for reconsideration of Pilipino
Rural Bank, Inc. and issued a TRO similar to the ones earlier issued.
On May 26, 2008, petitioners filed a Motion to Dismiss against all the complaints
(except that of the San Pablo City Development Bank, Inc.), on the grounds that the
complaints stated no cause of action and that a condition precedent for filing the cases
had not been complied with. On May 29, 2008, a hearing was conducted on the
application for a TRO and for a writ of preliminary injunction of San Pablo City
Development Bank, Inc.
The Ruling of the RTC
After the parties filed their respective memoranda, the RTC, on June 4, 2008, ruled that
the banks were entitled to the writs of preliminary injunction prayed for. It held that it
had been the practice of the SED to provide the ROEs to the banks before submission
to the MB. It further held that as the banks are the subjects of examinations, they are
entitled to copies of the ROEs. The denial by petitioners of the banks requests for
copies of the ROEs was held to be a denial of the banks right to due process.
The dispositive portion of the RTCs order reads:
WHEREFORE, the Court rules as follows:
1) Re: Civil Case No. 08-119243. Pursuant to Rule 58, Section 4(b)
of the Revised Rules of Court, plaintiff Rural Bank of Paranaque
Inc. is directed to post a bond executed to the defendants, in the
amount of P500,000.00 to the effect that the plaintiff will pay to the
defendants all damages which they may sustain by reason of the
injunction if the Court should finally decide that the plaintiff was
not entitled thereto. After posting of the bond and approval thereof,
let a writ of preliminary injunction be issued to enjoin and restrain
the defendants from submitting the Report of Examination or any
other similar report prepared in connection with the examination
conducted on the plaintiff, to the Monetary Board. In case such a
Report on Examination [sic] or any other similar report prepared in
connection with the examination conducted on the plaintiff has been
submitted to the Monetary Board, the latter and its members (i.e.
defendants Tetangco, Neri, Valdepenas, Boncan, Amatong,
Antonio, and Villafuerte) are enjoined and restrained from acting on
the basis of said report.
2) Re: Civil Case No. 08-119244. Pursuant to Rule 58, Section 4(b)
of the Revised Rules of Court, plaintiff Rural Bank of San Jose
(Batangas), Inc. is directed to post a bond executed to the
defendants, in the amount of P500,000.00 to the effect that the
plaintiff will pay to the defendants all damages which they may
sustain by reason of the injunction if the Court should finally decide
that the plaintiff was not entitled thereto. After posting of the bond
and approval thereof, let a writ of preliminary injunction be issued
to enjoin and restrain the defendants from submitting the Report of
Examination or any other similar report prepared in connection with
the examination conducted on the plaintiff, to the Monetary
Board. In case such a Report on Examination [sic] or any other
similar report prepared in connection with the examination
conducted on the plaintiff has been submitted to the Monetary
Board, the latter and its members (i.e. defendants Tetangco, Neri,
Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are
enjoined and restrained from acting on the basis of said report.
3) Re: Civil Case No. 08-119245. Pursuant to Rule 58, Section 4(b)
of the Revised Rules of Court, plaintiff Rural Bank of Carmen
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Banking Law Cases
(Cebu), Inc. is directed to post a bond executed to the defendants, in
the amount of P500,000.00 to the effect that the plaintiff will pay to
the defendants all damages which they may sustain by reason of the
injunction if the Court should finally decide that the plaintiff was
not entitled thereto. After posting of the bond and approval thereof,
let a writ of preliminary injunction be issued to enjoin and restrain
the defendants from submitting the Report of Examination or any
other similar report prepared in connection with the examination
conducted on the plaintiff, to the Monetary Board. In case such a
Report on Examination [sic] or any other similar report prepared in
connection with the examination conducted on the plaintiff has been
submitted to the Monetary Board, the latter and its members (i.e.
defendants Tetangco, Neri, Valdepenas, Boncan, Amatong,
Antonio, and Villafuerte) are enjoined and restrained from acting on
the basis of said report.
4) Re: Civil Case No. 08-119246. Pursuant to Rule 58, Section 4(b)
of the Revised Rules of Court, plaintiff Pilipino Rural Bank Inc. is
directed to post a bond executed to the defendants, in the amount of
P500,000.00 to the effect that the plaintiff will pay to the defendants
all damages which they may sustain by reason of the injunction if
the Court should finally decide that the plaintiff was not entitled
thereto. After posting of the bond and approval thereof, let a writ of
preliminary injunction be issued to enjoin and restrain the
defendants from submitting the Report of Examination or any other
similar report prepared in connection with the examination
conducted on the plaintiff, to the Monetary Board. In case such a
Report on Examination [sic] or any other similar report prepared in
connection with the examination conducted on the plaintiff has been
submitted to the Monetary Board, the latter and its members (i.e.
defendants Tetangco, Neri, Valdepenas, Boncan, Amatong,
Antonio, and Villafuerte) are enjoined and restrained from acting on
the basis of said report.
5) Re: Civil Case No. 08-119247. Pursuant to Rule 58, Section 4(b)
of the Revised Rules of Court, plaintiff Philippine Countryside
Rural Bank Inc. is directed to post a bond executed to the
defendants, in the amount of P500,000.00 to the effect that the
plaintiff will pay to the defendants all damages which they may
sustain by reason of the injunction if the Court should finally decide
that the plaintiff was not entitled thereto. After posting of the bond
and approval thereof, let a writ of preliminary injunction be issued
to enjoin and restrain the defendants from submitting the Report of
Examination or any other similar report prepared in connection with
the examination conducted on the plaintiff, to the Monetary
Board. In case such a Report on Examination [sic] or any other
similar report prepared in connection with the examination
conducted on the plaintiff has been submitted to the Monetary
Board, the latter and its members (i.e. defendants Tetangco, Neri,
Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are
enjoined and restrained from acting on the basis of said report.
6) Re: Civil Case No. 08-119248. Pursuant to Rule 58, Section 4(b)
of the Revised Rules of Court, plaintiff Dynamic Bank Inc. (Rural
Bank of Calatagan) is directed to post a bond executed to the
defendants, in the amount of P500,000.00 to the effect that the
plaintiff will pay to the defendants all damages which they may
sustain by reason of the injunction if the Court should finally decide
that the plaintiff was not entitled thereto. After posting of the bond
and approval thereof, let a writ of preliminary injunction be issued
to enjoin and restrain the defendants from submitting the Report of
Examination or any other similar report prepared in connection with
the examination conducted on the plaintiff, to the Monetary
Board. In case such a Report on Examination [sic] or any other
similar report prepared in connection with the examination
conducted on the plaintiff has been submitted to the Monetary
Board, the latter and its members (i.e. defendants Tetangco, Neri,
Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are
enjoined and restrained from acting on the basis of said report.
7) Re: Civil Case No. 08-119249. Pursuant to Rule 58, Section 4(b)
of the Revised Rules of Court, plaintiff Rural Bank of DARBCI, Inc.
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Banking Law Cases
is directed to post a bond executed to the defendants, in the amount
of P500,000.00 to the effect that the plaintiff will pay to the
defendants all damages which they may sustain by reason of the
injunction if the Court should finally decide that the plaintiff was
not entitled thereto. After posting of the bond and approval thereof,
let a writ of preliminary injunction be issued to enjoin and restrain
the defendants from submitting the Report of Examination or any
other similar report prepared in connection with the examination
conducted on the plaintiff, to the Monetary Board. In case such a
Report on Examination [sic] or any other similar report prepared in
connection with the examination conducted on the plaintiff has been
submitted to the Monetary Board, the latter and its members (i.e.
defendants Tetangco, Neri, Valdepenas, Boncan, Amatong,
Antonio, and Villafuerte) are enjoined and restrained from acting on
the basis of said report.
8) Re: Civil Case No. 08-119250. Pursuant to Rule 58, Section 4(b)
of the Revised Rules of Court, plaintiff Rural Bank of Kananga Inc.
(First Intestate Bank), is directed to post a bond executed to the
defendants, in the amount of P500,000.00 to the effect that the
plaintiff will pay to the defendants all damages which they may
sustain by reason of the injunction if the Court should finally decide
that the plaintiff was not entitled thereto. After posting of the bond
and approval thereof, let a writ of preliminary injunction be issued
to enjoin and restrain the defendants from submitting the Report of
Examination or any other similar report prepared in connection with
the examination conducted on the plaintiff, to the Monetary
Board. In case such a Report on Examination [sic] or any other
similar report prepared in connection with the examination
conducted on the plaintiff has been submitted to the Monetary
Board, the latter and its members (i.e. defendants Tetangco, Neri,
Valdepenas, Boncan, Amatong, Antonio, and Villafuerte) are
enjoined and restrained from acting on the basis of said report.
9) Re: Civil Case No. 08-119251. Pursuant to Rule 58, Section 4(b)
of the Revised Rules of Court, plaintiff Banco Rural De Bisayas
Minglanilla (Cebu) Inc. (Bank of East Asia) is directed to post a
bond executed to the defendants, in the amount of P500,000.00 to
the effect that the plaintiff will pay to the defendants all damages
which they may sustain by reason of the injunction if the Court
should finally decide that the plaintiff was not entitled thereto. After
posting of the bond and approval thereof, let a writ of preliminary
injunction be issued to enjoin and restrain the defendants from
submitting the Report of Examination or any other similar report
prepared in connection with the examination conducted on the
plaintiff, to the Monetary Board. In case such a Report on
Examination [sic] or any other similar report prepared in connection
with the examination conducted on the plaintiff has been submitted
to the Monetary Board, the latter and its members (i.e. defendants
Tetangco, Neri, Valdepenas, Boncan, Amatong, Antonio, and
Villafuerte) are enjoined and restrained from acting on the basis of
said report.
10) Re: Civil Case No. 08-119273. Pursuant to Rule 58, Section 4(b) of
the Revised Rules of Court, plaintiff San Pablo City Development
Bank, Inc. is directed to post a bond executed to the defendants, in
the amount of P500,000.00 to the effect that the plaintiff will pay to
the defendants all damages which they may sustain by reason of the
injunction if the Court should finally decide that the plaintiff was
not entitled thereto. After posting of the bond and approval thereof,
let a writ of preliminary injunction be issued to enjoin and restrain
the defendants from submitting the Report of Examination or any
other similar report prepared in connection with the examination
conducted on the plaintiff, to the Monetary Board. In case such a
Report on Examination [sic] or any other similar report prepared in
connection with the examination conducted on the plaintiff has been
submitted to the Monetary Board, the latter and its members (i.e.
defendants Tetangco, Neri, Valdepenas, Boncan, Amatong,
Antonio, and Villafuerte) are enjoined and restrained from acting on
the basis of said report.[3]
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Banking Law Cases

The Ruling of the CA

On November 24, 2008, a TRO was issued by this Court, restraining the CA, RTC, and
Petitioners then brought the matter to the CA via a petition for certiorari under Rule 65 respondents from implementing and enforcing the CA Decision dated September 30,
claiming grave abuse of discretion on the part of Judge Valenzuela when she issued the 2008 in CA-G.R. SP No. 103935.[4]
orders dated May 21, 2008 and June 4, 2008.
By reason of the TRO issued by this Court, the SED was able to submit their
The CA ruled that the RTC committed no grave abuse of discretion when it ordered the ROEs to the MB. The MB then prohibited the respondent banks from transacting
issuance of a writ of preliminary injunction and when it ordered the consolidation of business and placed them under receivership under
[5]
the 10 cases. Section 53 of Republic Act No. (RA) 8791 and Sec. 30 of RA
It held that petitioners should have first filed a motion for reconsideration of the 7653[6] through MB Resolution No. 1616 dated December 9, 2008; Resolution Nos.
assailed orders, and failed to justify why they resorted to a special civil action of 1637 and 1638 dated December 11, 2008; Resolution Nos. 1647, 1648, and 1649 dated
certiorari instead. December 12, 2008; Resolution Nos. 1652 and 1653 dated December 16, 2008; and
Resolution Nos. 1692 and 1695 dated December 19, 2008, with the Philippine Deposit
The CA also found that aside from the technical aspect, there was no grave abuse of Insurance Corporation as the appointed receiver.
discretion on the part of the RTC, and if there was a mistake in the assessment of
evidence by the trial court, that should be characterized as an error of judgment, and Now we resolve the main petition.
should be correctable via appeal.
Grounds in Support of Petition
The CA held that the principles of fairness and transparency dictate that the respondent
banks are entitled to copies of the ROE. I. THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN NOT FINDING THAT THE INJUNCTION
Regarding the consolidation of the 10 cases, the CA found that there was a similarity ISSUED BY THE REGIONAL TRIAL COURT VIOLATED
of facts, reliefs sought, issues raised, defendants, and that plaintiffs and defendants SECTION 25 OF THE NEW CENTRAL BANK ACT AND
were represented by the same sets of counsels. It found that the joint trial of these cases EFFECTIVELY HANDCUFFED THE BANGKO SENTRAL
FROM DISCHARGING ITS FUNCTIONS TO THE GREAT
would prejudice any substantial right of petitioners.
AND IRREPARABLE DAMAGE OF THE COUNTRYS
BANKING SYSTEM;
Finding that no grave abuse of discretion attended the issuance of the orders by the II. THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN FINDING THAT RESPONDENTS ARE
RTC, the CA denied the petition.
ENTITLED TO BE FURNISHED COPIES OF THEIR
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Banking Law Cases

RESPECTIVE ROEs BEFORE THE SAME IS SUBMITTED The requisites for preliminary injunctive relief are: (a) the
TO THE MONETARY BOARD IN VIEW OF THE invasion of right sought to be protected is material and substantial; (b)
PRINCIPLES OF FAIRNESS AND TRANSPARENCY the right of the complainant is clear and unmistakable; and (c) there is
DESPITE LACK OF EXPRESS PROVISION IN THE NEW an urgent and paramount necessity for the writ to prevent serious
CENTRAL BANK ACT REQUIRING BSP TO DO THE damage.
SAME
III. THE HONORABLE COURT OF APPEALS GRAVELY As such, a writ of preliminary injunction may be issued only
ERRED IN DEPARTING FROM WELL-ESTABLISHED upon clear showing of an actual existing right to be protected during the
PRECEPTS OF LAW AND JURISPRUDENCE pendency of the principal action. The twin requirements of a valid
injunction are the existence of a right and its actual or threatened
A. THE EXCEPTIONS CITED BY PETITIONER violations. Thus, to be entitled to an injunctive writ, the right to be
JUSTIFIED RESORT TO PETITION FOR protected and the violation against that right must be shown.[8]
CERTIORARI UNDER RULE 65 INSTEAD OF FIRST
FILING A MOTION FOR RECONSIDERATION
B. RESPONDENT BANKS ACT OF RESORTING These requirements are absent in the present case.
IMMEDIATELY TO THE COURT WAS
PREMATURE SINCE IT WAS MADE IN UTTER
DISREGARD OF THE PRINCIPLE OF PRIMARY In granting the writs of preliminary injunction, the trial court held that the
JURISDICTION AND EXHAUSTION OF submission of the ROEs to the MB before the respondent banks would violate the right
ADMINISTRATIVE REMEDY to due process of said banks.
C. THE ISSUANCE OF A WRIT OF
This is erroneous.
PRELIMINARY INJUNCTION BY THE REGIONAL
TRIAL COURT WAS NOT ONLY IMPROPER BUT
AMOUNTED TO GRAVE ABUSE OF The respondent banks have failed to show that they are entitled to copies of the
[7]
DISCRETION
ROEs. They can point to no provision of law, no section in the procedures of the BSP
that shows that the BSP is required to give them copies of the ROEs. Sec. 28 of RA
7653, or the New Central Bank Act, which governs examinations of banking
Our Ruling institutions, provides that the ROE shall be submitted to the MB; the bank examined is
not mentioned as a recipient of the ROE.
The petition is meritorious.
The respondent banks cannot claim a violation of their right to due process if
In Lim v. Court of Appeals it was stated: they are not provided with copies of the ROEs. The same ROEs are based on the lists
of findings/exceptions containing the deficiencies found by the SED examiners when
199
Banking Law Cases
they examined the books of the respondent banks. As found by the RTC, these lists of
findings/exceptions were furnished to the officers or representatives of the respondent
banks, and the respondent banks were required to comment and to undertake remedial
measures stated in said lists. Despite these instructions, respondent banks failed to
comply with the SEDs directive.
Respondent banks are already aware of what is required of them by the BSP,
and cannot claim violation of their right to due process simply because they are not
furnished with copies of the ROEs. Respondent banks were held by the CA to be
entitled to copies of the ROEs prior to or simultaneously with their submission to the
MB, on the principles of fairness and transparency. Further, the CA held that if the
contents of the ROEs are essentially the same as those of the lists of findings/exceptions
provided to said banks, there is no reason not to give copies of the ROEs to the banks.
This is a flawed conclusion, since if the banks are already aware of the contents of the
ROEs, they cannot say that fairness and transparency are not present. If sanctions are
to be imposed upon the respondent banks, they are already well aware of the reasons
for the sanctions, having been informed via the lists of findings/exceptions,
demolishing that particular argument. The ROEs would then be superfluities to the
respondent banks, and should not be the basis for a writ of preliminary injunction. Also,
the reliance of the RTC on Banco Filipino v. Monetary Board[9] is misplaced. The
petitioner in that case was held to be entitled to annexes of the Supervision and
Examination Sectors reports, as it already had a copy of the reports themselves. It was
not the subject of the case whether or not the petitioner was entitled to a copy of the
reports. And the ruling was made after the petitioner bank was ordered closed, and it
was allowed to be supplied with annexes of the reports in order to better prepare its
defense. In this instance, at the time the respondent banks requested copies of the
ROEs, no action had yet been taken by the MB with regard to imposing sanctions upon
said banks.
The issuance by the RTC of writs of preliminary injunction is an unwarranted
interference with the powers of the MB. Secs. 29 and 30 of RA 7653[10] refer to the
appointment of a conservator or a receiver for a bank, which is a power of the MB for
which they need the ROEs done by the supervising or examining department. The writs
of preliminary injunction issued by the trial court hinder the MB from fulfilling its
function under the law. The actions of the MB under Secs. 29 and 30 of RA 7653 may
not be restrained or set aside by the court except on petition for certiorari on the ground
that the action taken was in excess of jurisdiction or with such grave abuse of discretion
as to amount to lack or excess of jurisdiction. The writs of preliminary injunction order
are precisely what cannot be done under the law by preventing the MB from taking
action under either Sec. 29 or Sec. 30 of RA 7653.
As to the third requirement, the respondent banks have shown no necessity for
the writ of preliminary injunction to prevent serious damage. The serious damage
contemplated by the trial court was the possibility of the imposition of sanctions upon
respondent banks, even the sanction of closure. Under the law, the sanction of closure
could be imposed upon a bank by the BSP even without notice and hearing. The
apparent lack of procedural due process would not result in the invalidity of action by
the MB. This was the ruling in Central Bank of the Philippines v. Court of
Appeals.[11] This close now, hear later scheme is grounded on practical and legal
considerations to prevent unwarranted dissipation of the banks assets and as a valid
exercise of police power to protect the depositors, creditors, stockholders, and the
general public. The writ of preliminary injunction cannot, thus, prevent the MB from
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Banking Law Cases
taking action, by preventing the submission of the ROEs and worse, by preventing the
MB from acting on such ROEs.
The trial court required the MB to respect the respondent banks right to due
process by allowing the respondent banks to view the ROEs and act upon them to
forestall any sanctions the MB might impose. Such procedure has no basis in law and
does in fact violate the close now, hear later doctrine. We held in Rural Bank of San
Miguel, Inc. v. Monetary Board, Bangko Sentral ng Pilipinas:
It is well-settled that the closure of a bank may be considered as
an exercise of police power. The action of the MB on this matter is final
and executory. Such exercise may nonetheless be subject to judicial
inquiry and can be set aside if found to be in excess of jurisdiction or
with such grave abuse of discretion as to amount to lack or excess of
jurisdiction.[12]
The respondent banks cannotthrough seeking a writ of preliminary injunction
by appealing to lack of due process, in a roundabout manner prevent their closure by
the MB. Their remedy, as stated, is a subsequent one, which will determine whether
the closure of the bank was attended by grave abuse of discretion. Judicial review enters
the picture only after the MB has taken action; it cannot prevent such action by the
MB. The threat of the imposition of sanctions, even that of closure, does not violate
their right to due process, and cannot be the basis for a writ of preliminary injunction.
The close now, hear later doctrine has already been justified as a measure for
the protection of the public interest. Swift action is called for on the part of the BSP
when it finds that a bank is in dire straits. Unless adequate and determined efforts are
taken by the government against distressed and mismanaged banks, public faith in the
banking system is certain to deteriorate to the prejudice of the national economy itself,
not to mention the losses suffered by the bank depositors, creditors, and stockholders,
who all deserve the protection of the government.[13]
The respondent banks have failed to show their entitlement to the writ of
preliminary injunction. It must be emphasized that an application for injunctive relief
is construed strictly against the pleader.[14] The respondent banks cannot rely on a
simple appeal to procedural due process to prove entitlement. The requirements for the
issuance of the writ have not been proved. No invasion of the rights of respondent
banks has been shown, nor is their right to copies of the ROEs clear and
unmistakable. There is also no necessity for the writ to prevent serious damage. Indeed
the issuance of the writ of preliminary injunction tramples upon the powers of the MB
and prevents it from fulfilling its functions. There is no right that the writ of preliminary
injunction would protect in this particular case. In the absence of a clear legal right, the
issuance of the injunctive writ constitutes grave abuse of discretion.[15] In the absence
of proof of a legal right and the injury sustained by the plaintiff, an order for the
issuance of a writ of preliminary injunction will be nullified.[16]
Courts are hereby reminded to take greater care in issuing injunctive relief to
litigants, that it would not violate any law. The grant of a preliminary injunction in a
case rests on the sound discretion of the court with the caveat that it should be made
with great caution.[17] Thus, the issuance of the writ of preliminary injunction must have
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Banking Law Cases

basis in and be in accordance with law. All told, while the grant or denial of an
injunction generally rests on the sound discretion of the lower court, this Court may
and should intervene in a clear case of abuse.[18]
WHEREFORE, the petition is hereby GRANTED. The assailed CA Decision dated
September 30, 2008 in CA-G.R. SP No. 103935 is hereby REVERSED. The assailed
order and writ of preliminary injunction of respondent Judge Valenzuela in Civil Case
Nos. 08-119243, 08-119244, 08-119245, 08-119246, 08-119247, 08-119248, 08-
119249, 08-119250, 08-119251, and 08-119273 are hereby declared NULL and VOID.
SO ORDERED.

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Banking Law Cases
[G.R. No. 59957. November 12, 1990.]
CENTRAL BANK OF THE PHILIPPINES, MEMBERS OF THE
MONETARY BOARD, CONSOLACION V. ODRA, MARIO VICENTE,
DRBSLA, RAMIL PARAISO, DANTE L. REYES, DISIMULACION KING
and NORA G. SARMIENTO, Petitioners, v. THE HONORABLE RAFAEL DE
LA CRUZ and the RURAL BANK OF LIBMANAN, INC., Respondents.
Carpio & Carpio Law Office for Private Respondents.
SYLLABUS
1. COMMERCIAL LAW; BANKING; MONETARY BOARD; ACTIONS
THEREOF IN PROCEEDINGS ON INSOLVENCY, FINAL AND EXECUTORY.
— It is noteworthy that the actions of the Monetary Board in proceedings on
insolvency are explicitly declared by law to be "final and executory." They may not
be set aside, or restrained, or enjoined by the courts, except upon "convincing proof
that the action is plainly arbitrary and made in bad faith" (Salud v. Central Bank of
the Philippines, 143 SCRA 590). Respondent Judge acted in plain disregard of the
fourth paragraph of Section 29 of the Central Bank Act, when he restrained the
petitioners from closing and liquidating the Rural Bank of Libmanan, prevented them
from performing their functions, and ordered them to return the management and
control of the rural bank to its board of directors (p. 51, Rollo) without receiving
convincing proof that the action of the CB was plainly arbitrary and made in bad
faith.
2. ID.; ID.; ID.; RULE WHEN A RESOLUTION THEREOF IS CLAIMED TO BE
ARBITRARY AND DONE IN BAD FAITH. — Respondent Judge erred in denying
the Central Bank’s motion to dismiss the complaint for prohibition and mandamus
(Civil Case No. 1309) filed by Libmanan Bank (Annex C, p. 71, Rollo). This Court in
the case of Rural Bank of Buhi, Inc. v. Court of Appeals (162 SCRA 288) and Salud
v. Central Bank of the Phils. 143 SCRA 590), ruled that a bank’s claim that the
resolution of the Monetary Board under Section 29 is plainly arbitrary and done in
bad faith should be asserted as an affirmative defense or counter-claim in the
proceedings for assistance in liquidation. It may be filed as a separate action if no
petition for assistance in liquidation has been instituted yet.
3. ID.; ID.; REMAINING ASSETS OF INSOLVENT BANK, SHOULD BE
CONSERVED TO PAY ITS CREDITORS. — Respondent Judge abused his
discretion in authorizing the Libmanan Bank to withdraw funds from its deposits in
other banks (Annex E, p. 26, Rollo). The Rural Bank had become insolvent as a result
of mismanagement, frauds, irregularities and violations of banking laws, rules, and
regulations by its officers (p. 62, Rollo). Its remaining assets should therefore be
conserved to pay its creditors. Allowing the Rural Bank to withdraw its deposits in
other banks would result in the further diminution and dissipation of its assets to the
prejudice of its depositors and creditors, and to the unlawful advantage of the very
officers who brought about the bank’s insolvency.
4. REMEDIAL LAW; PROVISIONAL REMEDIES; PRELIMINARY
INJUNCTION; FUNCTION THEREOF. — Respondent Judge acted with grave
abuse of discretion in issuing the contested order dated January 15, 1982 enjoining
the CB liquidator from closing the rural bank and requiring it to restore the
management and control of the bank to its board of directors. It is a basic procedural
postulate that a preliminary injunction should never be used to transfer the possession
or control of a thing to a party who did not have such possession or control at the
inception of the case (Lasala v. Fernandez, 5 SCRA 79; Emilia v. Bado, 28 SCRA
183). Its proper function is simply to maintain the status quo at the commencement of
the action. The status quo at the time of filing Civil Case No. 1309 was that Libmanan
Bank was under the control of the DRBSLA Director, with Consolacion V. Odra, as
liquidator appointed by the Central Bank.
5. ID.; PLEADINGS; RULE OF "WAIVER OF DEFENSE" OR "OMNIBUS
MOTION RULE", APPLICABLE IN THE CASE AT BAR. — Since the Central
Bank’s petition for assistance in liquidation had been filed on August 3, 1981 (Civil
Case No. SP-111, Court of First Instance of Camarines Sur, Branch III), the
Libmanan Bank’s filing on September 23, 1981 of a complaint for prohibition and
mandamus attacking the Central Bank’s resolution appointing a receiver and
liquidator for the bank should have been asserted as a counterclaim in SP-111 (p. 39-
40, Rollo), instead of as a separate special civil action for prohibition against the
Central Bank. The separate action should have been either dismissed or consolidated
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Banking Law Cases
with SP-111 for the law abhors multiplicity of suits. Failure of Libmanan Bank to
assert in SP-111 the defense that the Monetary Board’s receivership and liquidation
resolution was "arbitrary and made in bad faith," constitutes a waiver of that defense
conformably with the rule of "Waiver of Defense," i.e., that "defenses and objections
not pleaded either in a motion to dismiss or in the answer are (generally) deemed
waived," or the "Omnibus Motion Rule," providing that "a motion attacking a
pleading or a proceeding shall include all objections then available, and all objections
not so included shall be deemed waived" (Salud v. Central Bank of the Phils., 143
SCRA 590).
DECISION
GRIÑO-AQUINO, J.:
This petition for certiorari, prohibition and mandamus was filed by the Central Bank
of the Philippines, the members of the Monetary Board, Consolacion V. Odra, Mario
Vicente, Ramil Paraiso, Dante L. Reyes, Disimulacion King and Nora G. Sarmiento,
through the Solicitor General, praying this Court:chanrobles.com : virtual law library
1. to annul the orders dated January 15, 1982, January 29, 1982, March 1, 1982,
March 31, 1982 and April 20, 1982 (Annexes A, B, C, D and E) of the then Court of
First Instance of Camarines Sur, Branch III;
2. to restrain respondent Judge Rafael De la Cruz, his agents, and representatives,
from enforcing the aforesaid orders and from continuing to assume jurisdiction over
Civil Case No. 1309, a proceeding for prohibition, mandamus, and injunction filed by
herein private respondent Rural Bank of Libmanan, Inc., to stop its liquidation by the
petitioners (defendants in the lower court) and to compel respondent Judge to dismiss
Civil Case No. 1309 (pp. 24-26, Rollo); andchanrobles virtual lawlibrary
3. to restore to petitioner Consolacion V. Odra, as the duly appointed liquidator of the
Central Bank, the control of the respondent Rural Bank of Libmanan (p. 27, Rollo).
The Rural Bank of Libmanan (hereinafter referred to as Libmanan Bank) started
operations in 1965 under and by virtue of Republic Act No. 720, otherwise known as
the Rural Banks’ Act (p. 331, Rollo). Originally owned and managed by the Albas’
family, Libmanan Bank was later sold to Manuel M. Villar and respondent Alex G.
Durante, who commenced banking operations in January 1979 (p. 331, Rollo).
In 1979, the Department of Rural Banks and Savings and Loan Associations
(DRBSLA) of the Central Bank of the Philippines (or CB) conducted examinations of
the books and affairs of Libmanan Bank (pp. 28-32, Rollo) DRBSLA director,
Consolacion V. Odra, found serious irregularities in its lending and deposit
operations, including false entries and false statements in the bank’s records to give it
the appearance of solidity and soundness which it did not possess (p 28, Rollo). As a
result of its questionable transactions, the bank became insolvent.
In her Memorandum dated May 2, 1980 to the Monetary Board, Director Odra
recommended, among other things, that: (1) Libmanan Bank be prohibited from
doing business; (2) that it be placed under receivership in accordance with Section 29
of Republic Act No. 265, as amended; and (3) that the Director of DRBSLA be
designated as receiver (p. 36, Rollo).
Finding the report to be true, the Monetary Board, on May 23, 1980, adopted
Resolution No. 929 placing Libmanan Bank under statutory receivership and
designating Director Consolacion V. Odra, as Receiver, pursuant to Section 29, of
Republic Act No. 265, as amended (p. 39, Rollo).
Libmanan Bank was informed of the Monetary Board Resolution No. 929, and
advised to submit to the Monetary Board an acceptable reorganization and
rehabilitation program (p. 39, Rollo). Meanwhile, Director Odra, as receiver, took
possession and control of the assets and records of the rural bank (p. 39, Rollo).
As Libmanan Bank failed to submit the required acceptable reorganization and
rehabilitation plan, the Monetary Board issued on October 3, 1980 Resolution No.
1852 ordering its liquidation (p. 39, Rollo).
On August 3, 1981, the Solicitor General, in accordance with Republic Act No. 265,
Section 29, filed in the then Court of First Instance of Camarines Sur, Branch III,
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Banking Law Cases
presided over by respondent Judge Rafael De la Cruz, a petition for Assistance in the
Liquidation of Libmanan Bank. The petition was docketed as SP-111 (pp. 39-40,
Rollo). Libmanan Bank, through its resident-Manager and the members of its Board
of Directors opposed the Central Bank’s petition.
On September 23, 1981, Libmanan Bank filed in the same Court of First Instance of
Camarines Sur, Branch III, a separate complaint for prohibition, mandamus and
injunction (Civil Case No. 1309), against the Central Bank, Et. Al. (herein
petitioners), praying the Court to enjoin and dismiss the liquidation proceeding (Sp.
Proc. No. 111) on the ground that the Central Bank gravely abused its discretion in
ordering the liquidation of said rural Bank.chanroblesvirtualawlibrary
On December 24, 1981, the Central Bank, through its house counsel, filed a motion
for extension of time to file its responsive pleading in Civil Case No. 1309 (Annex G,
p. 42, Rollo). On January 12, 1982, the Solicitor General entered his appearance in
the case as counsel for the Central Bank, and asked for a second extension of time to
file a responsive pleading (Annex I, p. 42,-Rollo).
On January 15, 1982, respondent Judge issued the questioned order in Civil Case No.
1309, restraining the respondent Central Bank from "closing the petitioner (rural)
bank and from performing its customary banking business; to restore the control and
management of the bank to its Board of Directors; and to desist from liquidating its
assets until ordered otherwise by this Court" (p. 42, Rollo). On January 29, 1982,
respondent Judge modified this order by requiring the parties in Civil Case No. 1309
to "refrain from any act or acts which will tend to disturb the state in which the parties
were found before the complaint was filed" (p. 25, Rollo).
On January 25, 1982, Libmanan Bank filed an ex parte motion to declare the CB in
default (Annex J, p. 42, Rollo).
On February 11, 1982, the Solicitor General filed a third motion for extension (up to
March 1, 1982) of the period to file a responsive pleading in Civil Case No. 1309
(Annex K, p. 43, Rollo).
On February 15, 1982, he filed a Motion to Dismiss Civil Case No. 1309 on the
ground that respondent Judge had no jurisdiction over a special civil action for
prohibition, mandamus and injunction against the Central Bank and that the petition
was defective in form because it was not properly verified (Annex L, p. 43, Rollo).
On March 1, 1982, Judge De la Cruz denied the motion to dismiss and gave the
Central Bank ten (10) days to file its answer (Annex C, p. 44, Rollo).
On March 19, 1982, the Central Bank filed in the Supreme Court a Motion for
Extension to file a petition for certiorari, prohibition and mandamus, and a separate
manifestation in the lower court notifying Judge De la Cruz of the CB’s intention to
elevate the case to this Court and requesting Judge De la Cruz to desist from taking
any further action in Civil Case No. 1309.
On March 31, 1982, Judge De la Cruz declared the CB, Et Al., in default for failure to
file a responsive pleading to the petition in Civil Case No. 1309. He pointed out that
"the projected move to bring the court’s denial of the motion to dismiss to the
Supreme Court on certiorari did not stop the period given to the respondents to
answer" (Annex D, p. 72, Rollo).
On April 20, 1982, respondent Judge granted Libmanan Bank’s ex parte motion dated
March 29, 1982 for authority to withdraw money from its bank deposits (Annex E, p.
45, Rollo).chanrobles.com : virtual law library
Hence, the present recourse.
The main issue raised by the petition is whether or not respondent Judge acted with
grave abuse of discretion or without or in excess of his jurisdiction in issuing the
questioned orders, namely:chanrob1es virtual 1aw library
Annex A — order of January 15, 1982 restraining the Central Bank from closing the
rural bank and ordering return of management and control to the Board of Directors.
Annex B — order of January 29, 1982 restraining the Central Bank from disturbing
status quo before the complaint was filed.
Annex C — order of March 1, 1982 denying Central Bank’s motion to dismiss.
Annex D — order of March 31, 1982 declaring Central Bank in default.
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Banking Law Cases
Annex E — order of April 20, 1982 authorizing Libmanan Bank to withdraw money
from its bank deposits.
The answer is yes.
The authority for the receivership of Libmanan Bank is found in Section 29 of the
Central Bank Act (P.D. 1827), which provides:jgc:chanrobles.com.ph
"SECTION 29. — Proceedings upon insolvency — Whenever, upon examination by
the head of the appropriate supervising or examining department or his examiners or
agents into the condition of any bank or non-bank financial intermediary performing
quasi-banking functions, it shall be disclosed that the condition of the same is one of
insolvency, or that its continuance in business would involve probable loss to its
depositors or creditors, it shall be the duty of the department head concerned
forthwith, in writing, to inform the Monetary Board of the facts, and the Board may,
upon finding the statements of the department head to be true forbid the institution to
do business in the Philippines and shall designate an official of the Central Bank or a
person of recognized competence in banking or finance as receiver to immediately
take charge of its assets and liabilities, as expeditiously as possible collect and gather
all the assets and administer the same for the benefit of its creditors, exercising all the
powers necessary for these purposes including, but not limited to, bringing suits and
foreclosing mortgages in the name of the bank or non-bank financial intermediary
performing quasi-banking functions.
‘The Monetary Board shall thereupon determine within sixty days whether the
institution may be reorganized or otherwise placed in such a condition so that it may
be permitted to resume business with safety to its depositors and creditors and the
general public and shall prescribe the conditions under which such resumption of
business shall take place as well as the time for fulfillment of such conditions. In such
case, the expenses and fees in the collection and administration of the assets of the
institution shall be determined by the board and shall be paid to the Central Bank out
of the assets of such banking institution.
"If the Monetary Board shall determine and confirm within the said period that the
bank or non-bank financial intermediary performing quasi-banking functions is
insolvent or cannot resume business with safety to its depositors, creditors and the
general public, it shall, if the public interest requires, order its liquidation, indicate the
manner of its liquidation and approve a liquidation plan. The Central Bank shall, by
the Solicitor General, file a petition in the Court of First Instance reciting the
proceeding which have been taken and praying the assistance of the court in the
liquidation of such institution. The court shall have jurisdiction in the same
proceedings to adjudicate disputed claims against the bank or non-bank financial
intermediary performing quasi-banking functions and enforce individual liabilities of
the stockholders and do all that is necessary to preserve the assets of such institution
and to implement the liquidation plan approved by the Monetary Board. The
Monetary Board shall designate an official of the Central Bank, or a person of
recognized competence in banking or finance, as liquidator who shall take over 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 bank
or non-bank financial intermediary performing quasi-banking functions to money or
sell, assign or otherwise dispose of the same to creditors and other parties for the
purpose of paying the debts of such institution and he may, in the name of the bank or
non-bank financial intermediary performing quasi-banking functions, institute such
actions as may be necessary in the appropriate court to collect and recover accounts
and assets of such institution."cralaw virtua1aw library
"The provisions of any law to the contrary notwithstanding the actions of the
Monetary Board under this Section and the second paragraph of Section 34 of this
Act shall be final and executory, and can be set aside by the court only if there is
convincing proof that the action is plainly arbitrary and made in bad faith. No
restraining order or injunction shall be issued by the court enjoining the Central Bank
from implementing its actions under this Section and the second paragraph of Section
34 of this Act, unless there is convincing proof that the action of the Monetary Board
is plainly arbitrary and made in bad faith and the petitioner or plaintiff files with the
clerk or judge of the court in which the action is pending a bond executed in favor of
the Central Bank, in an amount to be fixed by the Court. The restraining order or
injunctions shall be refused or, if granted, shall be dissolved upon filing by the
Central Bank of a bond, which shall be in the form of cash or Central Bank cashier’s
check, in an amount twice the amount of the bond of the petitioner or plaintiff
conditioned that it will pay the damages which the petitioner or plaintiff may suffer
by the refusal or the dissolution of the injunction. The provisions of Rule 58 of the
206
Banking Law Cases
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 bank or
non-bank financial intermediary performing quasi-banking functions 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 or non-bank financial intermediary performing quasi-banking functions caused
by extraordinary demands induced by financial panic commonly evidenced by a run
on the bank or non-bank financial intermediary performing quasi-banking functions
in the banking community.
"The appointment of a conservator under Section 28-A of this Act or the appointment
of a receiver under this Section shall be vested exclusively with the Monetary Board,
the provision of any law, general or special, to the contrary notwithstanding."
(Emphasis supplied.)
It is noteworthy that the actions of the Monetary Board in proceedings on insolvency
are explicitly declared by law to be "final and executory." They may not be set aside,
or restrained, or enjoined by the courts, except upon "convincing proof that the action
is plainly arbitrary and made in bad faith" (Salud v. Central Bank of the Philippines,
143 SCRA 590).
Respondent Judge acted in plain disregard of the fourth paragraph of Section 29 of
the Central Bank Act, when he restrained the petitioners from closing and liquidating
the Rural Bank of Libmanan, prevented them from performing their functions, and
ordered them to return the management and control of the rural bank to its board of
directors (p. 51, Rollo) without receiving convincing proof that the action of the CB
was plainly arbitrary and made in bad faith. As stated therein, the basis of the
questioned order dated January 15, 1982, were:chanrob1es virtual 1aw library
1. that he did not receive any of petitioners’ formal motions for extension of time to
file their responsive pleading;
2. that he had read the petition filed in Civil Case No. 1309; and
3. that there were good reasons shown in said petition (p. 52, Rollo).
By using his own standards, instead of the standards set forth in Section 29 of the law,
as basis for issuing a restraining order against the CB, respondent Judge committed a
grave abuse of discretion tantamount to excess, or lack of jurisdiction. We held in
Rural Bank of Buhi, Inc. v. Court of Appeals (162 SCRA 288,
291):jgc:chanrobles.com.ph
"Evidently, the trial court acted merely on an incident and has acted merely on an
incident and has not as yet inquired, as mandated by Section 29 of the Central Bank
Act, into the merits of the claim that the Monetary Board’s action is plainly arbitrary
and made in bad faith. It has not appreciated certain facts which would render the
remedy of liquidation proper and rehabilitation improper, involving as it does an
examination of the probative value of the evidence presented by the parties properly
belonging to the trial court and not properly cognizable on appeal."cralaw virtua1aw
library
Respondent Judge acted with grave abuse of discretion in issuing the contested order
dated January 15, 1982 enjoining the CB liquidator from closing the rural bank and
requiring it to restore the management and control of the bank to its board of
directors. It is a basic procedural postulate that a preliminary injunction should never
be used to transfer the possession or control of a thing to a party who did not have
such possession or control at the inception of the case (Lasala v. Fernandez, 5 SCRA
79; Emilia v. Bado, 28 SCRA 183). Its proper function is simply to maintain the
status quo at the commencement of the action. The status quo at the time of filing
Civil Case No. 1309 was that Libmanan Bank was under the control of the DRBSLA
Director, with Consolacion V. Odra, as liquidator appointed by the Central
Bank.chanrobles.com:cralaw:red
Respondent Judge erred in denying the Central Bank’s motion to dismiss the
complaint for prohibition and mandamus (Civil Case No. 1309) filed by Libmanan
Bank (Annex C, p. 71, Rollo). This Court in the case of Rural Bank of Buhi, Inc. v.
Court of Appeals (162 SCRA 288) and Salud v. Central Bank of the Phils. 143 SCRA
590), ruled that a bank’s claim that the resolution of the Monetary Board under
Section 29 is plainly arbitrary and done in bad faith should be asserted as an
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Banking Law Cases

affirmative defense or counter-claim in the proceedings for assistance in liquidation.
It may be filed as a separate action if no petition for assistance in liquidation has been
instituted yet.
". . . a banking institution’s claim that a resolution of the Monetary Board under
Section 29 of the Central Bank Act should be set aside as plainly arbitrary and made
in bad faith, may be asserted as an affirmative defense (Sections 1 and 4[b], Rule 6,
Rules of Court) or a counterclaim (Section 6, Rule 6; Section 2, Rule 72 of the Rules
of Court) in the proceedings for assistance in liquidation or as a cause of action in a
separate and distinct action where the latter was filed ahead of the petition for
assistance in liquidation (Central Bank v. Court of Appeals, 106 SCRA 143).
and to the unlawful advantage of the very officers who brought about the bank’s
insolvency.
WHEREFORE, the petition for certiorari is GRANTED. The questioned orders dated
January 15, 1982, January 29, 1982, March 1, 1982, March 31, 1982 and April 20,
1982 (Annexes A, B, C, D & E, respectively) of respondent Judge Rafael De la Cruz
of the then Court of First Instance of Camarines Sur, Branch III, in Civil Case No.
1309 are REVERSED AND SET ASIDE. The temporary restraining order issued by
this Court on July 19, 1982 is hereby made permanent. Respondent Court is ordered
to dismiss Civil Case No. 1309. This order is immediately executory. Costs against
respondent Rural Bank of Libmanan.

Since the Central Bank’s petition for assistance in liquidation had been filed on SO ORDERED.
August 3, 1981 (Civil Case No. SP-111, Court of First Instance of Camarines Sur,
Branch III), the Libmanan Bank’s filing on September 23, 1981 of a complaint for
prohibition and mandamus attacking the Central Bank’s resolution appointing a
receiver and liquidator for the bank should have been asserted as a counterclaim in
SP-111 (p. 39-40, Rollo), instead of as a separate special civil action for prohibition
against the Central Bank. The separate action should have been either dismissed or
consolidated with SP-111 for the law abhors multiplicity of suits. Failure of
Libmanan Bank to assert in SP-111 the defense that the Monetary Board’s
receivership and liquidation resolution was "arbitrary and made in bad faith,"
constitutes a waiver of that defense conformably with the rule of "Waiver of
Defense," i.e., that "defenses and objections not pleaded either in a motion to dismiss
or in the answer are (generally) deemed waived," or the "Omnibus Motion Rule,"
providing that "a motion attacking a pleading or a proceeding shall include all
objections then available, and all objections not so included shall be deemed waived"
(Salud v. Central Bank of the Phils., 143 SCRA 590).chanrobles virtual lawlibrary

Respondent Judge abused his discretion in authorizing the Libmanan Bank to

withdraw funds from its deposits in other banks (Annex E, p. 26, Rollo). The Rural
Bank had become insolvent as a result of mismanagement, frauds, irregularities and
violations of banking laws, rules, and regulations by its officers (p. 62, Rollo). Its
remaining assets should therefore be conserved to pay its creditors. Allowing the
Rural Bank to withdraw its deposits in other banks would result in the further
diminution and dissipation of its assets to the prejudice of its depositors and creditors,
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Banking Law Cases
G.R. No. 95326. March 11, 1999]
ROMEO P. BUSUEGO, CATALINO F. BANEZ and RENATO F.
LIM, petitioners, vs. THE HONORABLE COURT OF APPEALS and
THE MONETARY BOARD OF THE CENTRAL BANK OF THE
PHILIPPINES, respondents.
DECISION
PURISIMA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court
seeking a reversal of the Decision[1], dated September 14, 1990, of the Court of Appeals
in CA-G.R. CV No. 23656.
As culled from the records, the facts of the case are as follows:
The 16th regular examination of the books and records of the PAL Employees
Savings and Loan Association, Inc. ("PESALA") was conducted from March 14 to
April 16, 1988 by a team of CB examiners headed by Belinda Rodriguez. Following
the said examination, several anomalies and irregularities committed by the herein
petitioners; PESALA's directors and officers, were uncovered, among which are:
1. Questionable investment In a multi-million peso real estate project
(Pesalaville)
2. Conflict of interest in the conduct of business
3. Unwarranted declaration and payment of dividends
4. Commission of unsound and unsafe business practices.
On July 19, 1988,, Central Bank ("CB") Supervision and Examination Section
("SES") Department IV Director Ricardo. F. Lirio sent a letter to the Board of Directors
of PESALA inviting them to a conference on July 21, 1988 to discuss subject findings
noted in the said 16th regular examination, but petitioners did not attend such
conference.
On July 28, 1988, petitioner Renato Lim wrote the PESALA's Board of Directors
explaining his side on the said examination of PESALA's records and requesting that a
copy of his letter be furnished the CB, which was fortwith made by the Board.[2]
On July 29, 1988, PESALA's Board of Directors sent to Director Lirio a letter
concerning the 16th regular examination of PESALA's records.
On September 9, 1988, the Monetary Board adopted and issued MB Resolution
No. 805 the pertinent provisions of which are as follows:
"1. To note the report on the examination of the PAL Employees' Savings and
Loan Association, Inc. (PESALA) as of December 31, 1987, as submitted in a
memorandum of the Director, Supervision and Examination Section (SES)
Department IV, dated August 19, 1988;
2. To require the board of directors of PESALA to immediately inform the
members of PESALA of the results of the Central Bank examination and their
effects on the financial condition of the Association;
xxx
5. To include the names of Mr. Catalino Banez, Mr. Romeo Busuego and Mr.
Renato Lim in the Sector's watchlist to prevent them from holding responsible
positions in any institution under Central Bank supervision;
6. To require PESALA to enforce collection of the overpayment to the Vista
Grande Management and Development Corporation and to require the
accounting of P12.28 million unaccounted and unremitted bank loan proceeds
and P3.9 million other unsupported cash disbursements from the responsible
directors and officers; or to properly charge these against their respective
accounts, if necessary;
7. To require the board of directors of PESALA to file civil and criminal cases
against Messrs. Catalino Banez, Romeo Busuego and Renato Lim for all the
misfeasance and malfeasance committed by them, as warranted by the evidence;
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Banking Law Cases
8. To require the board of directors of PESALA to improve the operations of the
Association, correct all violations noted, and adopt internal control measures to
prevent the recurrence of similar incidents as shown in Annex E of the subject
memorandum of the Director, SES Department IV;"[3]
xxx xxx xxx
On January 23, 1989, petitioners filed a Petition for Injunction with Prayer for the
Immediate Issuance of a Temporary Restraining Order[4] docketed as Civil Case No.
Q-89-1617 before Branch 104 of the Regional Trial Court of Quezon City.
On January 26 1989, the said court issued a temporary restraining
order[5] enjoining the defendant, the Monetary Board of the Central Bank, (now Banko
Sentral ng Pilipinas) from including the names of petitioners in the watchlist.
On February 10, 1989, the same trial court issued a writ of preliminary
injunction[6], conditioned upon the filing by petitioners of a bond in the amount of Ten
Thousand (P10,000.00) Pesos each. The Monetary Board presented a Motion for
Reconsideration[7] of the said Order, but the same was denied.
On September 11, 1989, the trial court handed down its Decision,[8] disposing thus:
"WHEREFORE, judgment is hereby rendered declaring Monetary Board Resolution
No. 805 as void and inexistent. The writ of preliminary prohibitory injunctions issued
on February 10, 1989 is deemed permanent. Costs against respondent."
The Monetary Board appealed the aforesaid Decision to the Court of Appeals
which came out with a Decision[9] of reversal on September 14, 1990, the decretal
portion of which is to the following effect:
"WHEREFORE, the decision appealed from is hereby reversed and another one
entered dismissing the petition for injunction."
Dissatisfied with the said Decision of the Court of Appeals, petitioners have come
to this Court via the present petition for review on certiorari.
On June 5, 1992, petitioners filed an "Urgent Motion for the Immediate Issuance
of a Temporary Restraining Order and/or Writ of Preliminary Injunction against the
Secretary of Justice and the City Prosecutor of Pasay"[10] stating that several complaints
were lodged against the petitioners before the Office of the City Prosecutor of Pasay
City pursuant to Monetary Board Resolution No. 805; that the said complaints were
dismissed by the City Prosecutor and the dismissals were appealed to the Secretary of
Justice for review, some of which have been reversed already. Petitioners prayed that
a Temporary Restraining Order and/or Writ of Preliminary Injunction issue "restraining
and enjoining the Secretary of Justice and the City Prosecutor of Pasay City from
proceeding and taking further actions, and more specially from filing Informations
in I.S. Nos.-90-1836; 90-1831; 90-1835; 90-1832; 90-1248; 90-1249; 90-3031; 90-
3032; 90-1837; 90-1834, pending the final resolution of the case at bar xxx." However,
in the Resolution[11] dated September 9, 1992, the court denied the said motion.
The petition poses as issues for resolution.
I
WHETHER OR NOT THE PETITIONERS WERE DEPRIVED OF THEIR
RIGHT TO A NOTICE AND THE OPPORTUNITY TO BE HEARD BY THE
MONETARY BOARD PRIOR TO ITS ISSUANCE OF MONETARY BOARD
RESOLUTION NO. 805.
II
WHETHER OR NOT THE RESPONDENT BOARD IS LEGALLY BOUND
TO OBSERVE THE ESSENTIAL REQUIREMENTS OF DUE PROCESS OF
A VALID CHARGE, NOTICE AND OPPORTUNITY TO BE HEARD
INSOFAR AS THE PETITIONERS' SUBJECT CASE IS CONCERNED.
III
WHETHER OR NOT MONETARY BOARD RESOLUTION NO. 805 IS
NULL AND VOID FOR BEING VIOLATIVE OF PETITIONERS' RIGHTS
TO DUE PROCESS.
With respect to the first issue, the trial court said:
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Banking Law Cases
"The evidence submitted preponderates in favor of petitioners. The deprivation of
petitioners' rights in the Resolution undermines the constitutional guarantee of due
process. Petitioners were never notified that they were being investigated, much so,
they were not informed of any charges against them and were not afforded the
opportunity to adduce countervailing evidence so as to deserve the punitive measures
promulgated in Resolution No. 805 of the Monetary Board. xxx[12]
The foregoing disquisition by the trial court is untenable under the facts and
circumstances of the case. Petitioners were duly afforded their right to due process by
the Monetary Board, it appearing that:
1. Petitioners were invited by Director Lirio to a conference scheduled for July 21,
1988 to discuss the findings made in the 16th regular examination of PESALA's
records. Petitioners did not attend, said conference;
2. Petitioner Renato Lim's letter of July 28, 1988 to PESALA's Board of Directors,
explaining his side of the controversy, was forwarded to the Monetary Board which the
latter considered in adopting Monetary Board Resolution No. 805; and
3. PESALA's Board of Director's letter, dated July 29, 1988, to the Monetary
Board, explaining the Board's side of the controversy, was properly considered in the
adoption of Monetary Board Resolution No. 805.
Petitioners therefore cannot complain of deprivation of their right to due process,
as they were given ample opportunity by the Monetary Board to air their Submission
and defenses as to the findings of irregularity during the said 16th regular
examination. The essence of due process is to be afforded a reasonable opportunity to
be heard and to submit any evidence one may have in support of his defense.[13] What
is offensive to due process is the denial of the opportunity to be heard.[14] Petitioners
having availed of their opportunity to present their position to the Monetary Board by
their letters-explanation, they were not denied due process[15].
Petitioners cite Ang Tibay v. CIR[16] and assert that the following requisites of
procedural due process were not observed by the Monetary Board:
1. The right to a hearing, which includes the right to present one's case and
submit evidence in support thereof;
2. The tribunal must consider the evidence presented;
3. The decision must have something to support itself;
4. The evidence must be substantial;
5. The decision must be rendered on the evidence presented at the hearing, or
at least contained in the record and disclosed to the parties affected;
6. The tribunal or body or any of its judges must act or its or his own
independent consideration of the law and facts of the controversy and not simply
accept the view of a subordinate in arriving at a decision;
7. The board or body should, in all controversial questions, render its decision
in such a manner that the parties to the proceedings can know the various issues
involved, and the reason for the decision rendered.
Contrary to petitioners' allegation, it appears that the requisites of procedural due
process were complied with by the Monetary Board before it issued the questioned
Monetary Board Resolution No. 805. Firstly, the petitioners were invited to a
conference to discuss the findings gathered during the 16th regular examination of
PESALA's records. (The requirement of a hearing is complied with as long as there
was an opportunity to be heard, and not necessarily that an actual hearing was
conducted.[17]) Secondly, the Monetary Board considered the evidence
presented. Thirdly, fourthly and fifthly, Monetary Board Resolution No. 805 was
adopted on the basis of said findings unearthed during the 16th regular examination of
PESALA's records and derived from the letter-comments submitted by the
parties. Sixthly, the members of the Monetary Board acted independently on their own
in issuing subject Resolution, placing reliance on the said findings made during the
16th regular examination. Lastly, the reason for the issuance of Monetary Board
Resolution No. 805 is readily apparent, which is to prevent further irregularities from
being committed and to prosecute the officials responsible therefor.
With respect to the second issue, there is tenability in petitioners' contention that
the Monetary Board, as an administrative agency, is legally bound to observe due
process, although they are free from the rigidity of certain procedural requirements. As
held in Adamson and Adamson, Inc. v.Amores[18]:
"While administrative tribunals exercising quasi-judicial functions are free from the
rigidity of certain procedural requirements they are bound by law and practice to
observe the fundamental and essential requirements of due process in justiciable cases
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Banking Law Cases
presented before them. However, the standard of due process that must be met in
administrative tribunals allows a certain latitude as long as the element of fairness is
not ignored. Hence, there is no denial of due process where records show that
hearings were held with prior notice to adverse parties. But even in the absence of
previous notice, there is no denial of procedural due, process as long as the parties are
given the opportunity to be heard."
Even Section 28, (c) and (d), of Republic Act No. 3779 ("RA 3779") delineating
the powers of the Monetary Board over savings and loan associations, require
observance of due process in the exercise of its powers:
xxx
(c) To conduct at least once every year, and whenever necessary, any inspection,
examination or investigation of the books, and records, business affairs,
administration, and financial condition of any savings and loan association with or
without prior notice but always with fairness and reasonable opportunity for the
association or any of its officials to give their side of the case. x x x
(d) After proper notice and hearing, to suspend a savings and loan association for
violation of law, for unsafe and unsound practices or for reason of insolvency. x x x
x x x.
(f) To decide, after appropriate notice and hearings any controversy as to the rights
or obligations of the savings and loan association, its directors, officers, stockholders
and members under its charter, and, by order, to enforce the same;
x x x" (italics supplied)
Anent the third issue, petitioners theorize that Monetary Board Resolution No. 805
is null and void for being violative of petitioners' right to due process. To support their
stance, they cite the trial court's ruling, to wit:
"A reading of Monetary Board Resolution No. 805 discloses that it imposes
administrative sanctions against petitioners. In fact, it does not only penalize
petitioners by including them in the watchlist to prevent them from holding
responsible positions in any institution under Central Bank supervision,' it mandates
the PESALA Board of Directors as well to file Civil and Criminal charges against
them 'for all the misfeasance and malfeasance committed by them, as warranted by
the evidence.' Monetary Board Resolution No. 805 virtually deprives petitioners their
respective gainful employment, and at the same time marks them for judicial
prosecution. The crucial question here is that were petitioners afforded due process in
the investigations conducted which prompted the issuance of Monetary Board
Resolution No. 805?
x x x Although the Monetary Board is free from the rigidity of certain procedural
requirements, it failed 'to observe the essential requirement of due process' (Adamson
and Adamson, Inc. v. Amores, 152 SCRA 237) specifically its failure to afford
petitioners the opportunity to be heard. In short, there is a clear showing of
arbitrariness resulting in an irreparable injury against petitioners as the Resolution
certainly affects their 'life, liberty and property.'
Monetary Board Resolution No. 805 Violates basic and essential requirements. It
must therefore be, as it is hereby, declared, as void and inexistent because among
other things, it openly derogates the fundamental rights of petitioners."
Petitioners opine that with the issuance of Monetary Board Resolution No. 805, "they
are now barred from being elected or designated as officers again of PESALA, and are
likewise prevented from future engagements or employments in all institutions under
the supervision of the Central Bank thereby virtually depriving them of the opportunity
to seek employments in the field which they can excel and are best fitted." According
to them, the Monetary Board is not vested with "the authority to disqualify persons
from occupying positions in institutions under the supervision of the Central Bank
without proper notice and hearing" nor is it vested with authority "to file civil and
criminal cases against its officers/directors for suspected fraudulent acts."
Petitioners' contentions are untenable. It must be remembered that the Central
Bank of the. Philippines (now Bangko Sentral ng Pilipinas), through the Monetary
Board, is the government agency charged with the responsibility of administering the
monetary, banking and credit system of the country[19] and is granted the power of
supervision and examination over banks and non-bank financial institutions performing
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Banking Law Cases

quasi-banking functions, of which savings and loan associations, such as PESALA, (d) After proper notice and hearing, to suspend a savings and loan association for
form part of[20]. violation of law, for unsafe and unsound practices or for reason of insolvency. The
Monetary Board may likewise, upon the proof that a savings and loan association or
The special law governing savings and loan association is Republic Act No. 3779,
its board or directors or officers are conducting and managing its affairs in a manner
as amended, otherwise known as the "Savings and Loan Association Act." Said law
contrary to laws, orders, instructions, rules and regulations promulgated by the
authorizes the Monetary Board to conduct regular yearly examinations of the books
Monetary Board or in a manner substantially prejudicial to the interest of the
and records of savings and loan associations, to suspend, a savings and loan association
government, depositors or creditor, take over the management of the savings and loan
for violation of law, to decide any controversy over the obligations and duties of
association after due hearing, until a new board of directors and officers are elected
directors and officers, and to take remedial measures, among others. Section 28 of Rep.
and qualified without prejudice to the prosecution of the persons responsible for such
Act No. 3779, reads:
violations. The management by the Monetary Board shall be without expense to the
savings and loan association, except such as is actually necessary for its operation,
"SEC. 28. Supervisory powers over savings and loan associations. - In addition to
pending the election and qualification of a new board of directors and officers to take
whatever powers have been conferred by the foregoing provisions, the Monetary
the place of those responsible for the violation or acts contrary to the interest of the
Board shall have the power to exercise the following:
government, depositors or creditors;
xxx
xxx
(c) To conduct at least once every year, and whenever- necessary, any inspection,
(f) To decide, after appropriate notice and hearings any controversy as to the rights or
examination or investigation of the books and records, business affairs,
obligations of the savings and loan association, its directors, officers, stockholders
administration, and financial condition of any savings and loan association with or
and members under its charter, and, by order, to enforce the same;
without prior notice but always with fairness and reasonable opportunity for the
association or any of its officials to give their side of the case. Whenever an
xxx
inspection, examination or investigation is conducted under this grant of power, the
person authorized to do so may seize books and records and keep them under his
(l) To conduct such investigations, take such remedial measures, exercise all powers
custody after giving proper receipts therefor; may make any marking or notation on
which are now or may hereafter be conferred upon it by Republic Act Numbered Two
any paper, record, document or book to show that it has been examined and verified
Hundred sixty-five in the enforcement of this legislation, and impose upon
and may padlock or seal shelves, vaults, safes, receptacles or similar containers and
associations, whether stock or noti-stock their directors and/or officers administrative
prohibit the opening thereof without first securing authority therefor, for as long as
sanctions under Sections 34-A or 34-B of Republic Act Two Hundred sixty-five, as
may be necessary in connection with the investigation or examination being
amended."
conducted. The official of the Central Bank in charge of savings and loan associations
and his deputies are hereby authorized to administer oaths to any director, officer or
From the foregoing, it is gleanable that the Central Bank, through the Monetary
employee of any association under the supervision of the Monetary Board;
Board, is empowered to conduct investigations and examine the records of savings and
loan associations. If any irregularity is discovered in the process, the Monetary Board
xxx
may impose appropriate sanctions, such as suspending the offender from holding office
or from being employed with the Central Bank, or placing the names of the offenders
in a watchlist.
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Banking Law Cases

The requirement of prior notice is also relaxed under Section 28 (c) of RA 3779 as
investigations or examinations may be conducted with or without prior notice "but
always with fairness and reasonable opportunity for the association or any of its
officials to give their side." As may be gathered from the records, the said requirement
was properly complied with by the respondent Monetary Board.
We sustain the ruling of the Court of Appeals that petitioners' suspension was only
preventive in nature and therefore, no notice or, hearing was necessary. Until such time
that the petitioners have proved their innocence, they may be preventively suspended
from holding office so as not to influence the conduct of investigation, and to prevent
the commission of further irregularities.
Neither were petitioners deprived of their lawful calling as they are free to look for
another employment so long as the agency or company involved is not subject to
Central Bank control and supervision. Petitioners can still practise their profession or
engage in business as long as these are not within the ambit of Monetary Board
Resolution No. 805.
All things studiedly considered, the court upholds the validity of Monetary Board
Resolution No. 805 and affirms the decision of the respondent court.
WHEREFORE, the petition is DENIED, and the assailed Decision dated
September 14, 1990 of the Court of Appeals AFFIRMED. No pronouncement as to
costs.
SO ORDERED.

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Banking Law Cases
G.R. No. L-49188 January 30, 1990
PHILIPPINE AIRLINES, INC., petitioner,
vs.
HON. COURT OF APPEALS, HON. JUDGE RICARDO D. GALANO, Court
of First Instance of Manila, Branch XIII, JAIME K. DEL ROSARIO, Deputy
Sheriff, Court of First Instance, Manila, and AMELIA TAN, respondents.
GUTIERREZ, JR., J.:
Behind the simple issue of validity of an alias writ of execution in this case is a more
fundamental question. Should the Court allow a too literal interpretation of the Rules
with an open invitation to knavery to prevail over a more discerning and just
approach? Should we not apply the ancient rule of statutory construction that laws are
to be interpreted by the spirit which vivifies and not by the letter which killeth?
This is a petition to review on certiorari the decision of the Court of Appeals in CA-
G.R. No. 07695 entitled "Philippine Airlines, Inc. v. Hon. Judge Ricardo D. Galano,
et al.", dismissing the petition for certiorari against the order of the Court of First
Instance of Manila which issued an alias writ of execution against the petitioner.
The petition involving the alias writ of execution had its beginnings on November 8,
1967, when respondent Amelia Tan, under the name and style of Able Printing Press
commenced a complaint for damages before the Court of First Instance of Manila.
The case was docketed as Civil Case No. 71307, entitled Amelia Tan, et al. v.
Philippine Airlines, Inc.
After trial, the Court of First Instance of Manila, Branch 13, then presided over by the
late Judge Jesus P. Morfe rendered judgment on June 29, 1972, in favor of private
respondent Amelia Tan and against petitioner Philippine Airlines, Inc. (PAL) as
follows:
WHEREFORE, judgment is hereby rendered, ordering the defendant
Philippine Air Lines:
1. On the first cause of action, to pay to the plaintiff the amount of
P75,000.00 as actual damages, with legal interest thereon from
plaintiffs extra-judicial demand made by the letter of July 20, 1967;
2. On the third cause of action, to pay to the plaintiff the amount of
P18,200.00, representing the unrealized profit of 10% included in the
contract price of P200,000.00 plus legal interest thereon from July
20,1967;
3. On the fourth cause of action, to pay to the plaintiff the amount of
P20,000.00 as and for moral damages, with legal interest thereon from
July 20, 1 967;
4. On the sixth cause of action, to pay to the plaintiff the amount of
P5,000.00 damages as and for attorney's fee.
Plaintiffs second and fifth causes of action, and defendant's counterclaim, are
dismissed.
With costs against the defendant. (CA Rollo, p. 18)
On July 28, 1972, the petitioner filed its appeal with the Court of Appeals. The case
was docketed as CA-G.R. No. 51079-R.
On February 3, 1977, the appellate court rendered its decision, the dispositive portion
of which reads:
IN VIEW WHEREOF, with the modification that PAL is condemned to pay
plaintiff the sum of P25,000.00 as damages and P5,000.00 as attorney's fee,
judgment is affirmed, with costs. (CA Rollo, p. 29)
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Banking Law Cases
Notice of judgment was sent by the Court of Appeals to the trial court and on dates
subsequent thereto, a motion for reconsideration was filed by respondent Amelia Tan,
duly opposed by petitioner PAL.
On May 23,1977, the Court of Appeals rendered its resolution denying the
respondent's motion for reconsideration for lack of merit.
No further appeal having been taken by the parties, the judgment became final and
executory and on May 31, 1977, judgment was correspondingly entered in the case.
The case was remanded to the trial court for execution and on September 2,1977,
respondent Amelia Tan filed a motion praying for the issuance of a writ of execution
of the judgment rendered by the Court of Appeals. On October 11, 1977, the trial
court, presided over by Judge Galano, issued its order of execution with the
corresponding writ in favor of the respondent. The writ was duly referred to Deputy
Sheriff Emilio Z. Reyes of Branch 13 of the Court of First Instance of Manila for
enforcement.
Four months later, on February 11, 1978, respondent Amelia Tan moved for the
issuance of an alias writ of execution stating that the judgment rendered by the lower
court, and affirmed with modification by the Court of Appeals, remained unsatisfied.
On March 1, 1978, the petitioner filed an opposition to the motion for the issuance of
an alias writ of execution stating that it had already fully paid its obligation to
plaintiff through the deputy sheriff of the respondent court, Emilio Z. Reyes, as
evidenced by cash vouchers properly signed and receipted by said Emilio Z. Reyes.
On March 3,1978, the Court of Appeals denied the issuance of the alias writ for being
premature, ordering the executing sheriff Emilio Z. Reyes to appear with his return
and explain the reason for his failure to surrender the amounts paid to him by
petitioner PAL. However, the order could not be served upon Deputy Sheriff Reyes
who had absconded or disappeared.
On March 28, 1978, motion for the issuance of a partial alias writ of execution was
filed by respondent Amelia Tan.
On April 19, 1978, respondent Amelia Tan filed a motion to withdraw "Motion for
Partial Alias Writ of Execution" with Substitute Motion for Alias Writ of Execution.
On May 1, 1978, the respondent Judge issued an order which reads:
As prayed for by counsel for the plaintiff, the Motion to Withdraw 'Motion for
Partial Alias Writ of Execution with Substitute Motion for Alias Writ of
Execution is hereby granted, and the motion for partial alias writ of execution
is considered withdrawn.
Let an Alias Writ of Execution issue against the defendant for the fall
satisfaction of the judgment rendered. Deputy Sheriff Jaime K. del Rosario is
hereby appointed Special Sheriff for the enforcement thereof. (CA Rollo, p.
34)
On May 18, 1978, the petitioner received a copy of the first alias writ of execution
issued on the same day directing Special Sheriff Jaime K. del Rosario to levy on
execution in the sum of P25,000.00 with legal interest thereon from July 20,1967
when respondent Amelia Tan made an extra-judicial demand through a letter. Levy
was also ordered for the further sum of P5,000.00 awarded as attorney's fees.
On May 23, 1978, the petitioner filed an urgent motion to quash the alias writ of
execution stating that no return of the writ had as yet been made by Deputy Sheriff
Emilio Z. Reyes and that the judgment debt had already been fully satisfied by the
petitioner as evidenced by the cash vouchers signed and receipted by the server of the
writ of execution, Deputy Sheriff Emilio Z. Reyes.
On May 26,1978, the respondent Jaime K. del Rosario served a notice of garnishment
on the depository bank of petitioner, Far East Bank and Trust Company, Rosario
Branch, Binondo, Manila, through its manager and garnished the petitioner's deposit
in the said bank in the total amount of P64,408.00 as of May 16, 1978. Hence, this
petition for certiorari filed by the Philippine Airlines, Inc., on the grounds that:
I
216
Banking Law Cases
AN ALIAS WRIT OF EXECUTION CANNOT BE ISSUED WITHOUT
PRIOR RETURN OF THE ORIGINAL WRIT BY THE IMPLEMENTING
OFFICER.
II
PAYMENT OF JUDGMENT TO THE IMPLEMENTING OFFICER AS
DIRECTED IN THE WRIT OF EXECUTION CONSTITUTES
SATISFACTION OF JUDGMENT.
III
INTEREST IS NOT PAYABLE WHEN THE DECISION IS SILENT AS TO
THE PAYMENT THEREOF.
IV
SECTION 5, RULE 39, PARTICULARLY REFERS TO LEVY OF
PROPERTY OF JUDGMENT DEBTOR AND DISPOSAL OR SALE
THEREOF TO SATISFY JUDGMENT.
Can an alias writ of execution be issued without a prior return of the original writ by
the implementing officer?
We rule in the affirmative and we quote the respondent court's decision with
approval:
The issuance of the questioned alias writ of execution under the circumstances
here obtaining is justified because even with the absence of a Sheriffs return
on the original writ, the unalterable fact remains that such a return is incapable
of being obtained (sic) because the officer who is to make the said return has
absconded and cannot be brought to the Court despite the earlier order of the
court for him to appear for this purpose. (Order of Feb. 21, 1978, Annex C,
Petition). Obviously, taking cognizance of this circumstance, the order of May
11, 1978 directing the issuance of an alias writ was therefore issued. (Annex
D. Petition). The need for such a return as a condition precedent for the
issuance of an alias writ was justifiably dispensed with by the court below and
its action in this regard meets with our concurrence. A contrary view will
produce an abhorent situation whereby the mischief of an erring officer of the
court could be utilized to impede indefinitely the undisputed and awarded
rights which a prevailing party rightfully deserves to obtain and with dispatch.
The final judgment in this case should not indeed be permitted to become
illusory or incapable of execution for an indefinite and over extended period,
as had already transpired. (Rollo, pp. 35-36)
Judicium non debet esse illusorium; suum effectum habere debet (A judgment ought
not to be illusory it ought to have its proper effect).
Indeed, technicality cannot be countenanced to defeat the execution of a judgment for
execution is the fruit and end of the suit and is very aptly called the life of the law
(Ipekdjian Merchandising Co. v. Court of Tax Appeals, 8 SCRA 59 [1963];
Commissioner of Internal Revenue v. Visayan Electric Co., 19 SCRA 697, 698
[1967]). A judgment cannot be rendered nugatory by the unreasonable application of
a strict rule of procedure. Vested rights were never intended to rest on the
requirement of a return, the office of which is merely to inform the court and the
parties, of any and all actions taken under the writ of execution. Where such
information can be established in some other manner, the absence of an executing
officer's return will not preclude a judgment from being treated as discharged or being
executed through an alias writ of execution as the case may be. More so, as in the
case at bar. Where the return cannot be expected to be forthcoming, to require the
same would be to compel the enforcement of rights under a judgment to rest on an
impossibility, thereby allowing the total avoidance of judgment debts. So long as a
judgment is not satisfied, a plaintiff is entitled to other writs of execution
(Government of the Philippines v. Echaus and Gonzales, 71 Phil. 318). It is a well
known legal maxim that he who cannot prosecute his judgment with effect, sues his
case vainly.
More important in the determination of the propriety of the trial court's issuance of an
alias writ of execution is the issue of satisfaction of judgment.
Under the peculiar circumstances surrounding this case, did the payment made to the
absconding sheriff by check in his name operate to satisfy the judgment debt? The
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Banking Law Cases
Court rules that the plaintiff who has won her case should not be adjudged as having
sued in vain. To decide otherwise would not only give her an empty but a pyrrhic
victory.
It should be emphasized that under the initial judgment, Amelia Tan was found to
have been wronged by PAL.
She filed her complaint in 1967.
After ten (10) years of protracted litigation in the Court of First Instance and the
Court of Appeals, Ms. Tan won her case.
It is now 1990.
Almost twenty-two (22) years later, Ms. Tan has not seen a centavo of what the
courts have solemnly declared as rightfully hers. Through absolutely no fault of her
own, Ms. Tan has been deprived of what, technically, she should have been paid from
the start, before 1967, without need of her going to court to enforce her rights. And all
because PAL did not issue the checks intended for her, in her name.
Under the peculiar circumstances of this case, the payment to the absconding sheriff
by check in his name did not operate as a satisfaction of the judgment debt.
In general, a payment, in order to be effective to discharge an obligation, must be
made to the proper person. Article 1240 of the Civil Code provides:
Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive
it. (Emphasis supplied)
Thus, payment must be made to the obligee himself or to an agent having authority,
express or implied, to receive the particular payment (Ulen v. Knecttle 50 Wyo 94, 58
[2d] 446, 111 ALR 65). Payment made to one having apparent authority to receive
the money will, as a rule, be treated as though actual authority had been given for its
receipt. Likewise, if payment is made to one who by law is authorized to act for the
creditor, it will work a discharge (Hendry v. Benlisa 37 Fla. 609, 20 SO 800,34 LRA
283). The receipt of money due on ajudgment by an officer authorized by law to
accept it will, therefore, satisfy the debt (See 40 Am Jm 729, 25; Hendry v. Benlisa
supra; Seattle v. Stirrat 55 Wash. 104 p. 834,24 LRA [NS] 1275).
The theory is where payment is made to a person authorized and recognized by the
creditor, the payment to such a person so authorized is deemed payment to the
creditor. Under ordinary circumstances, payment by the judgment debtor in the case
at bar, to the sheriff should be valid payment to extinguish the judgment debt.
There are circumstances in this case, however, which compel a different conclusion.
The payment made by the petitioner to the absconding sheriff was not in cash or legal
tender but in checks. The checks were not payable to Amelia Tan or Able Printing
Press but to the absconding sheriff.
Did such payments extinguish the judgment debt?
Article 1249 of the Civil Code provides:
The payment of debts in money shall be made in the currency stipulated, and
if it is not possible to deliver such currency, then in the currency which is
legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only when
they have been cashed, or when through the fault of the creditor they have
been impaired.
In the meantime, the action derived from the original obligation shall be held
in abeyance.
In the absence of an agreement, either express or implied, payment means the
discharge of a debt or obligation in money (US v. Robertson, 5 Pet. [US] 641, 8 L. ed.
257) and unless the parties so agree, a debtor has no rights, except at his own peril, to
substitute something in lieu of cash as medium of payment of his debt (Anderson v.
Gill, 79 Md.. 312, 29 A 527, 25 LRA 200,47 Am. St. Rep. 402). Consequently, unless
218
Banking Law Cases
authorized to do so by law or by consent of the obligee a public officer has no
authority to accept anything other than money in payment of an obligation under a
judgment being executed. Strictly speaking, the acceptance by the sheriff of the
petitioner's checks, in the case at bar, does not, per se, operate as a discharge of the
judgment debt.
Since a negotiable instrument is only a substitute for money and not money, the
delivery of such an instrument does not, by itself, operate as payment (See. 189, Act
2031 on Negs. Insts.; Art. 1249, Civil Code; Bryan Landon Co. v. American Bank, 7
Phil. 255; Tan Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check, whether a
manager's check or ordinary cheek, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be refused receipt by the
obligee or creditor. Mere delivery of checks does not discharge the obligation under a
judgment. The obligation is not extinguished and remains suspended until the
payment by commercial document is actually realized (Art. 1249, Civil Code, par. 3).
If bouncing checks had been issued in the name of Amelia Tan and not the Sheriff's,
there would have been no payment. After dishonor of the checks, Ms. Tan could have
run after other properties of PAL. The theory is that she has received no value for
what had been awarded her. Because the checks were drawn in the name of Emilio Z.
Reyes, neither has she received anything. The same rule should apply.
It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been
payment in full legal contemplation. The reasoning is logical but is it valid and
proper? Logic has its limits in decision making. We should not follow rulings to their
logical extremes if in doing so we arrive at unjust or absurd results.
In the first place, PAL did not pay in cash. It paid in cheeks.
And second, payment in cash always carries with it certain cautions. Nobody hands
over big amounts of cash in a careless and inane manner. Mature thought is given to
the possibility of the cash being lost, of the bearer being waylaid or running off with
what he is carrying for another. Payment in checks is precisely intended to avoid the
possibility of the money going to the wrong party. The situation is entirely different
where a Sheriff seizes a car, a tractor, or a piece of land. Logic often has to give way
to experience and to reality. Having paid with checks, PAL should have done so
properly.
Payment in money or cash to the implementing officer may be deemed absolute
payment of the judgment debt but the Court has never, in the least bit, suggested that
judgment debtors should settle their obligations by turning over huge amounts of cash
or legal tender to sheriffs and other executing officers. Payment in cash would result
in damage or interminable litigations each time a sheriff with huge amounts of cash in
his hands decides to abscond.
As a protective measure, therefore, the courts encourage the practice of payments by
cheek provided adequate controls are instituted to prevent wrongful payment and
illegal withdrawal or disbursement of funds. If particularly big amounts are involved,
escrow arrangements with a bank and carefully supervised by the court would be the
safer procedure. Actual transfer of funds takes place within the safety of bank
premises. These practices are perfectly legal. The object is always the safe and
incorrupt execution of the judgment.
It is, indeed, out of the ordinary that checks intended for a particular payee are made
out in the name of another. Making the checks payable to the judgment creditor
would have prevented the encashment or the taking of undue advantage by the sheriff,
or any person into whose hands the checks may have fallen, whether wrongfully or in
behalf of the creditor. The issuance of the checks in the name of the sheriff clearly
made possible the misappropriation of the funds that were withdrawn.
As explained and held by the respondent court:
... [K]nowing as it does that the intended payment was for the private party
respondent Amelia Tan, the petitioner corporation, utilizing the services of its
personnel who are or should be knowledgeable about the accepted procedures
and resulting consequences of the checks drawn, nevertheless, in this instance,
without prudence, departed from what is generally observed and done, and
placed as payee in the checks the name of the errant Sheriff and not the name
of the rightful payee. Petitioner thereby created a situation which permitted
the said Sheriff to personally encash said checks and misappropriate the
proceeds thereof to his exclusive personal benefit. For the prejudice that
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Banking Law Cases
resulted, the petitioner himself must bear the fault. The judicial guideline
which we take note of states as follows:
As between two innocent persons, one of whom must suffer the consequence
of a breach of trust, the one who made it possible by his act of confidence
must bear the loss. (Blondeau, et al. v. Nano, et al., L-41377, July 26, 1935,
61 Phil. 625)
Having failed to employ the proper safeguards to protect itself, the judgment debtor
whose act made possible the loss had but itself to blame.
The attention of this Court has been called to the bad practice of a number of
executing officers, of requiring checks in satisfaction of judgment debts to be made
out in their own names. If a sheriff directs a judgment debtor to issue the checks in
the sheriff's name, claiming he must get his commission or fees, the debtor must
report the sheriff immediately to the court which ordered the execution or to the
Supreme Court for appropriate disciplinary action. Fees, commissions, and salaries
are paid through regular channels. This improper procedure also allows such officers,
who have sixty (60) days within which to make a return, to treat the moneys as their
personal finds and to deposit the same in their private accounts to earn sixty (60) days
interest, before said finds are turned over to the court or judgment creditor (See
Balgos v. Velasco, 108 SCRA 525 [1981]). Quite as easily, such officers could put up
the defense that said checks had been issued to them in their private or personal
capacity. Without a receipt evidencing payment of the judgment debt, the
misappropriation of finds by such officers becomes clean and complete. The practice
is ingenious but evil as it unjustly enriches court personnel at the expense of litigants
and the proper administration of justice. The temptation could be far greater, as
proved to be in this case of the absconding sheriff. The correct and prudent thing for
the petitioner was to have issued the checks in the intended payee's name.
The pernicious effects of issuing checks in the name of a person other than the
intended payee, without the latter's agreement or consent, are as many as the ways
that an artful mind could concoct to get around the safeguards provided by the law on
negotiable instruments. An angry litigant who loses a case, as a rule, would not want
the winning party to get what he won in the judgment. He would think of ways to
delay the winning party's getting what has been adjudged in his favor. We cannot
condone that practice especially in cases where the courts and their officers are
involved.1âwphi1 We rule against the petitioner.
Anent the applicability of Section 15, Rule 39, as follows:
Section 15. Execution of money judgments. — The officer must enforce an
execution of a money judgment by levying on all the property, real and
personal of every name and nature whatsoever, and which may be disposed of
for value, of the judgment debtor not exempt from execution, or on a
sufficient amount of such property, if they be sufficient, and selling the
same, and paying to the judgment creditor, or his attorney, so much of the
proceeds as will satisfy the judgment. ...
the respondent court held:
We are obliged to rule that the judgment debt cannot be considered satisfied
and therefore the orders of the respondent judge granting the alias writ of
execution may not be pronounced as a nullity.
xxx xxx xxx
It is clear and manifest that after levy or garnishment, for a judgment to be
executed there is the requisite of payment by the officer to the judgment
creditor, or his attorney, so much of the proceeds as will satisfy the judgment
and none such payment had been concededly made yet by the absconding
Sheriff to the private respondent Amelia Tan. The ultimate and essential step
to complete the execution of the judgment not having been performed by the
City Sheriff, the judgment debt legally and factually remains unsatisfied.
Strictly speaking execution cannot be equated with satisfaction of a judgment. Under
unusual circumstances as those obtaining in this petition, the distinction comes out
clearly.
Execution is the process which carries into effect a decree or judgment (Painter v.
Berglund, 31 Cal. App. 2d. 63, 87 P 2d 360, 363; Miller v. London, 294 Mass 300, 1
NE 2d 198, 200; Black's Law Dictionary), whereas the satisfaction of a judgment is
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the payment of the amount of the writ, or a lawful tender thereof, or the conversion by
sale of the debtor's property into an amount equal to that due, and, it may be done
otherwise than upon an execution (Section 47, Rule 39). Levy and delivery by an
execution officer are not prerequisites to the satisfaction of a judgment when the same
has already been realized in fact (Section 47, Rule 39). Execution is for the sheriff to
accomplish while satisfaction of the judgment is for the creditor to achieve. Section
15, Rule 39 merely provides the sheriff with his duties as executing officer including
delivery of the proceeds of his levy on the debtor's property to satisfy the judgment
debt. It is but to stress that the implementing officer's duty should not stop at his
receipt of payments but must continue until payment is delivered to the obligor or
creditor.

Finally, we find no error in the respondent court's pronouncement on the inclusion of

interests to be recovered under the alias writ of execution. This logically follows from
our ruling that PAL is liable for both the lost checks and interest. The respondent
court's decision in CA-G.R. No. 51079-R does not totally supersede the trial court's
judgment in Civil Case No. 71307. It merely modified the same as to the principal
amount awarded as actual damages.

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby

DISMISSED. The judgment of the respondent Court of Appeals is AFFIRMED and
the trial court's issuance of the alias writ of execution against the petitioner is upheld
without prejudice to any action it should take against the errant sheriff Emilio Z.
Reyes. The Court Administrator is ordered to follow up the actions taken against
Emilio Z. Reyes.

SO ORDERED.

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FAR EAST BANK & TRUST COMPANY, petitioner, vs. DIAZ REALTY
INC., respondent.
DECISION
PANGANIBAN, J.:
For a valid tender of payment, it is necessary that there be a fusion
of intent, ability and capability to make good such offer, which must be absolute and
must cover the amount due. Though a check is not legal tender, and a creditor may
validly refuse to accept it if tendered as payment, one who in fact accepted a fully
funded check after the debtors manifestation that it had been given to settle an
obligation is estopped from later on denouncing the efficacy of such tender of payment.
The Case
The foregoing principle is used by this Court in resolving the Petition for
Review[1] on Certiorari before us, challenging the January 26, 1999 Decision[2] of the
Court of Appeals[3] (CA) in CA-GR CV No. 45349. The dispositive portion of the
assailed Decision reads as follows:
WHEREFORE, the judgment appealed from is hereby MODIFIED, to read as
follows:
WHEREFORE, JUDGMENT IS HEREBY RENDERED, ORDERING:
1. The plaintiffs to pay Far East Bank & Trust Company the principal sum
of P1,067,000.00 plus interests thereon computed at 12% per annum from July 9,
1988 until fully paid;
2. The parties to negotiate for a new lease over the subject premises; and
3. The defendant to pay the plaintiff the sum of fifteen thousand (P15,000.00) pesos
as and for attorneys fees plus the costs of litigation.
All other claims of the parties against each other are DENIED.[4]
Likewise assailed is the May 4, 1999 CA Resolution,[5] which denied petitioners
Motion for Reconsideration.
The Facts
The court a quo summarized the antecedents of the case as follows:
Sometime in August 1973, Diaz and Company got a loan from the former PaBC
[Pacific Banking Corporation] in the amount of P720,000.00, with interest at 12% per
annum, later increased to 14%, 16%, 18% and 20%. The loan was secured by a real
estate mortgage over two parcels of land owned by the plaintiff Diaz Realty, both
located in Davao City. In 1981, Allied Banking Corporation rented an office space in
the building constructed on the properties covered by the mortgage contract, with the
conformity of mortgagee PaBC, whereby the parties agreed that the monthly rentals
shall be paid directly to the mortgagee for the lessors account, either to partly or fully
pay off the aforesaid mortgage indebtedness. Pursuant to such contract, Allied Bank
paid the monthly rentals to PaBC instead of to the plaintiffs. On July 5, 1985, the
Central Bank closed PaBC, placed it under receivership, and appointed Renan Santos
as its liquidator. Sometime in December 1986, appellant FEBTC purchased the credit
of Diaz & Company in favor of PaBC, but it was not until March 23, 1988 that Diaz
was informed about it.
According to the plaintiff as alleged in the complaint and testified to by Antonio Diaz
(President of Diaz & Company and Vice-President of Diaz Realty), on March 23,
1988, he went to office of PaBC which by then housed FEBTC and was told that the
latter had acquired PaBC; that Cashier Ramon Lim told him that as of such date, his
loan was P1,447,142.03; that he (Diaz) asked the defendant to make an accounting of
the monthly rental payments made by Allied Bank; that on December 14,
1988,[6] Diaz tendered to FEBTC the amount of P1,450,000.00 through an Interbank
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check, in order to prevent the imposition of additional interests, penalties and
surcharges on its loan; that FEBTC did not accept it as payment; that instead, Diaz
was asked to deposit the amount with the defendants Davao City Branch Office,
allegedly pending the approval of Central Bank Liquidator Renan Santos; that in the
meantime, Diaz wrote the defendant, asking that the interest rate be reduced from
20% to 12% per annum, but no reply was ever made; that subsequently, the defendant
told him to change the P1,450,000.00 deposit into a money market placement, which
he did; that the money market placement expired on April 14, 1989; that when there
was still no news from the defendant whether or not it [would] accept his tender of
payment, he filed this case at the Regional Trial Court of Davao City.
In its responsive pleading, the defendant set up the following special/affirmative
defenses: that sometime in December 1986, FEBTC purchased from the PaBC the
account of the plaintiffs for a total consideration of P1,828,875.00; that despite such
purchase, PaBC Davao Branch continued to collect interests and penalty charges on
the loan from January 6, 1987 to July 8, 1988; that it was therefore not FEBTC which
collected the interest rates mentioned in the complaint, but PaBC; that it is not true
that FEBTC was trying to impose [exorbitant] rates of interest; that as a matter of
fact, after the transfer of plaintiffs account, it sought to negotiate with the plaintiffs,
and in fact, negotiations were made for a settlement and possible reduction of
charges; that FEBTC has no knowledge of the rates of interest imposed and collected
by PaBC prior to the purchase of the account from the latter, hence it could not be
held responsible for those transactions which transpired prior to the purchase; and that
the defendant acted at the opportune time for the settlement of the account, albeit
exercising prudence in the handling of such account. The rest of the affirmative
defenses are bare denials.
After trial, the court a quo rendered judgment on August 6, 1993, the dispositive
portion of which reads as follows:
WHEREFORE, judgment is hereby rendered as follows:
1. The plaintiff and defendant shall jointly compute the interest due on
the P1,057,000.00 loan from April 18, 1985 until November 14, 1988 at 12% per
annum (IBAA Salazar Case Supra).
2. That the parties shall then add the result of the joint computation mentioned in
paragraph one of the dispositive portion to the P1,057,000.00 principal.
3. The result of the addition of the P1,057,000.00 principal and the interests arrived at
shall then be compared with the P1,450,000.00 deposit and if P1,450,000.00 is not
enough, then the plaintiff shall pay the difference/deficiency between
the P1,450,000.00 deposit and what the parties jointly computed[;] conversely, if
the P1,450,000.00 is more than what the parties have arrived [at] after the
computation, the defendant shall return the difference or the excess to the plaintiffs.
4. The defendant shall cancel the mortgage.
5. Paragraph eight of the Lease Contract between Allied Bank and the plaintiffs in
which the defendants predecessor, Pacific Banking gave its conformity (Exh. H) is
hereby cancelled, so that the rental should now be paid to the plaintiffs.
6. The defendant shall pay the plaintiffs the sums:
6-A. Fifteen thousand pesos as attorneys fees.
6-B. Three [h]undred [t]housand [p]esos (P300,000.00) as exemplary damages.
6-C. The cost of suit.
SO ORDERED.
Upon a motion for reconsideration filed by defendant FEBTC and after due notice
and hearing, the court a quo issued an order on October 12, 1993, modifying the
aforequoted decision, such that its dispositive portion as amended would now read as
follows:
IN VIEW WHEREOF, the decision rendered last August 6, is modified, accordingly,
to wit:
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Banking Law Cases
1. The plaintiff and defendant shall jointly compute the interest due on
the P1,167,000.00 loan from April 18, 1985 until November 14, 1988 at 12% per
annum.
2. That the parties shall then add the result of the joint computation mentioned in
paragraph one above to the P1,067,000.00 principal.
3. The result of the addition of the P1,067,000.00 principal and the interests arrived at
shall then be compared with the P1,450,000.00 money market placement put up by
the plaintiff with the defendant bank if the same is still existing or has not yet
matured.
4. The defendant shall cancel the mortgage.
5. Paragraph eight of the lease contract between Allied Bank and the plaintiff in
which the defendant[s predecessor], Pacific Banking gave its conformity (Exh. H) is
hereby cancelled and deleted, so that the rental should now be paid to the plaintiff.
6. The defendant shall pay the plaintiff the sums:
6.A Fifteen [t]housand [p]esos as attorneys fees;
6.B Cost of suit.[7]
The CA Ruling
The CA sustained the trial courts finding that there was a valid tender of payment
in the sum of P1,450,000, made by Diaz Realty Inc. in favor of Far East Bank and Trust
Company. The appellate court reasoned that petitioner failed to effectively rebut
respondents evidence that it so tendered the check to liquidate its indebtedness, and that
petitioner had unilaterally treated the same as a deposit instead.
The CA further ruled that in the computation of interest charges, the legal rate of
12 percent per annum should apply, reckoned from July 9, 1988, until full and final
payment of the whole indebtedness. It explained that while petitioners purchase of
respondents account from Pacific Banking Corporation (PaBC) was valid, the 20
percent interest stipulated in the Promissory Note should not apply, because the account
transfer was without the knowledge and the consent of respondent-obligor.
The appellate court, however, sustained petitioners assertion that the trial court
should not have cancelled the real estate mortgage contract, inasmuch as the principal
obligation upon which it was anchored was yet to be extinguished. As to the lease
contract, the CA held that the same was subject to renegotiation by the parties.
Lastly, the court a quo upheld the trial courts award of attorneys fees, pointing to
petitioners negligence in not immediately informing respondent of the purchase and
transfer of its credit, and in failing to negotiate in order to avoid litigation.
Issues
Petitioner submits for our resolution the following issues:
A.
Whether or not the Court of Appeals correctly ruled that the validity of the tender of
payment was not properly raised in the trial court and could not thus be raised in the
appeal.
B.
Whether or not the Court of Appeals erred in failing to apply settled jurisprudential
principles militating against the private respondents contention that a valid tender of
payment had been made by it.
C.
Whether or not the Court of Appeals correctly found that the transaction between
petitioner and PaBC was an ineffective novation and that the consent of private
respondent was necessary therefor.
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Banking Law Cases

D. We disagree. The records show that petitioner bank purchased respondents

Whether or not the Court of Appeals erred in refusing to apply the rate of interest
freely stipulated upon by the parties to the respondents obligation.
E.
Whether or not the Court of Appeals committed an irreconcilable error in ordering the
parties to re-negotiate the terms of the contract while finding at the same time that the
mortgage contract containing the lease was valid.
F.
Whether or not the petition, as argued by private respondent, raises questions of fact
not reviewable by certiorari.[8]
In the main, the Court will determine (1) the efficacy of the alleged tender of
payment made by respondent, (2) the effect of the transfer to petitioner of respondents
account with PaBC, (3) the interest rate applicable, and (4) the status of the Real Estate
Mortgage.
The Courts Ruling
The Petition [9]
is not meritorious.
account from PaBC in December 1986, and that the latter was notified of the transaction
only on March 23, 1988. Thereafter, Antonio Diaz, president of respondent
corporation, inquired from petitioner on the status and the amount of its obligation. He
was informed that the obligation summed up to P1,447,142.03. On November 14,
1988, petitioner received from respondent Interbank Check No. 81399841 dated
November 13, 1988, bearing the amount of P1,450,000, with the notation Re: Full
Payment of Pacific Bank Account now turn[ed] over to Far East Bank.[10] The check
was subsequently cleared and honored by Interbank, as shown by the Certification it
issued on January 20, 1992.[11]
True, jurisprudence holds that, in general, a check does not constitute legal tender,
and that a creditor may validly refuse it.[12] It must be emphasized, however, that this
dictum does not prevent a creditor from accepting a check as payment. In other words,
the creditor has the option and the discretion of refusing or accepting it.
In the present case, petitioner bank did not refuse respondents check. On the
contrary, it accepted the check which, it insisted, was a deposit. As earlier stated, the
check proved to be fully funded and was in fact honored by the drawee bank. Moreover,
petitioner was in possession of the money for several months.
In further contending that there was no valid tender of payment, petitioner
emphasizes our pronouncement in Roman Catholic Bishop of Malolos, Inc. v.
Intermediate Appellate Court,[13] as follows:
Tender of payment involves a positive and unconditional act by the obligor of
offering legal tender currency as payment to the obligee for the formers obligation
and demanding that the latter accept the same.

First Issue: Tender of Payment xxxxxxxxx

Thus, tender of payment cannot be presumed by a mere inference from surrounding

Petitioner resolutely argues that the CA erred in upholding the validity of the
tender of payment made by respondent. What the latter had tendered to settle its
outstanding obligation, it points out, was a check which could not be considered legal
tender.
circumstances. At most, sufficiency of available funds is only affirmative of the
capacity or ability of the obligor to fulfill his part of the bargain. But whether or not
the obligor avails himself of such funds to settle his outstanding account remains to
be proven by independent and credible evidence. Tender of payment presupposes not
only that the obligor is able, ready, and willing, but more so, in the act of performing
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Banking Law Cases
his obligation. Ab posse ad actu non vale illatio. A proof that an act could have been
done is no proof that it was actually done.
In other words, tender of payment is the definitive act of offering the creditor what
is due him or her, together with the demand that the creditor accept the same. More
important, there must be a fusion of intent, ability and capability to make good such
offer, which must be absolute and must cover the amount due.[14]
That respondent intended to settle its obligation with petitioner is evident from the
records of the case. After learning that its loan balance was P1,447,142.03, it presented
to petitioner a check in the amount of P1,450,000, with the specific notation that it was
for full payment of its Pacific Bank account that had been purchased by petitioner. The
latter accepted the check, even if it now insists that it considered the same as a mere
deposit. The check was sufficiently funded, as in fact it was honored by the drawee
bank. When petitioner refused to release the mortgage, respondent instituted the
present case to compel the bank to acknowledge the tender of payment, accept payment
and cancel the mortgage. These acts demonstrate respondents intent, ability and
capability to fully settle and extinguish its obligation to petitioner.
That respondent subsequently withdrew the money from petitioner-bank is of no
moment, because such withdrawal would not affect the efficacy or the legal
ramifications of the tender of payment made on November 14, 1988. As already
discussed, the tender of payment to settle respondents obligation as computed by
petitioner was accepted, the check given in payment thereof converted into money, and
the money kept in petitioners possession for several months.
Finally, petitioner points out that, in any case, tender of payment extinguishes the
obligation only after proper consignation, which respondent did not do.
The argument does not persuade. For a consignation to be necessary, the creditor
must have refused, without just cause, to accept the debtors payment.[15] However, as
pointed out earlier, petitioner accepted respondents check.
To iterate, the tender was made by respondent for the purpose of settling its
obligation. It was incumbent upon petitioner to refuse, or accept it as payment. The
latter did not have the right or the option to accept and treat it as a deposit. Thus, by
accepting the tendered check and converting it into money, petitioner is presumed to
have accepted it as payment. To hold otherwise would be inequitable and unfair to the
obligor.
Second Issue: Nature of the Transfer of Respondents Account
Petitioner bewails the CAs characterization of the transfer of respondents account
from Pacific Banking Corporation to petitioner as an ineffective novation. Petitioner
contends that the transfer was an assignment of credit.
Indeed, the transfer of respondents credit from PaBC to petitioner was an
assignment of credit. Petitioners acquisition of respondents credit did not involve any
changes in the original agreement between PaBC and respondent; neither did it vary
the rights and the obligations of the parties.Thus, no novation by conventional
subrogation could have taken place.
An assignment of credit is an agreement by virtue of which the owner of a credit
(known as the assignor), by a legal cause -- such as sale, dation in payment, exchange
or donation -- and without the need of the debtors consent, transfers that credit and its
accessory rights to another (known as the assignee), who acquires the power to enforce
it, to the same extent as the assignor could have enforced it against the debtor.[16]
In the present case, it is undisputed that petitioner purchased respondents loan from
PaBC. In doing so, the former acquired all of the latters rights against respondent. Thus,
petitioner had the right to collect the full value of the credit from respondent, subject
to the terms as originally agreed upon in the Promissory Note.
Third Issue: Applicable Interest Rate
Petitioner bank, as assignee of respondents credit, is entitled to the interest rate of
20 percent in the computation of the debt of private respondent, as stipulated in the
August 26, 1983 Promissory Note executed by the latter in favor of PaBC.[17]
However, because there was a valid tender of payment made on November 14,
1988, the accrual of interest based on the stipulated rate should stop on that date. Thus,
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respondent should pay petitioner-bank its principal obligation in the amount

of P1,067,000 plus accrued interest thereon at 20 percent per annum until November
14, 1988, less interest payments given to PaBC from December 1986 to July 8,
1988.[18] Thereafter, the interest shall be computed at 12 percent per annum until full
payment.

Fourth Issue: Status of Mortgage Contract

The Real Estate Mortgage executed between respondent and PaBC to secure the
formers principal obligation, as well as the provision in the Contract of Lease between
respondent and Allied Bank with regard to the application of rent payment to the
formers indebtedness, should subsist until full and final settlement of such obligation
pursuant to the guidelines set forth in this Decision. Thereafter, the parties are free to
negotiate a renewal of either or both contracts, or to end any and all of their contractual
relations.
WHEREFORE, the Petition is hereby DENIED. The assailed Decision of the
Court of Appeals is AFFIRMED with the following modifications: Respondent Diaz
Realty Inc. is ORDERED to pay Far East Bank and Trust Co. its principal loan
obligation in the amount of P1,067,000, with interest thereon computed at 20 percent
per annum until November 14, 1988, less any interest payments made to PaBC,
petitioners assignor. Thereafter, interest shall be computed at 12 percent per annum
until fully paid.
SO ORDERED.

227