[G.R. NO. 154499.

February 27, 2004] The Motion for Reconsideration of Reyes As directed by the MB, another
ALBERTO V. REYES, WILFREDO B. and Domo-ong is anchored on the examination team conducted a special
DOMO-ONG and HERMINIO C. following grounds: (1) it was not under examination on RBSMI. RBSMI President
PRINCIPIO, Petitioners, v. RURAL their auspices that the seminar which Hilario Soriano claimed that he was
BANK OF SAN MIGUEL (BULACAN), used training materials containing two pressured into issuing a memorandum to
INC., represented by HILARIO P. case studies on RBSMIs financial distress the bank employees authorizing the team
SORIANO, President and Principal was conducted but under that of another to review the banks accounting and
Stockholder, Respondent. department and other officials of BSP; internal control system.
RESOLUTION and, (2) they did not do any act which Soriano also alleged that sometime in
TINGA, J.: constituted brokering of the sale of RBSMI March 1997, Reyes started urging him to
This deals with the Motion for or deviated from the standards of consider selling the bank. He specified
Reconsideration of petitioners Alberto V. professionalism. that on May 28, 1997, Reyes introduced
Reyes and Wilfredo B. Domo-ong, A brief revisit of the operative milieu is him through telephone to Mr. Exequiel
both Bangko Sentral ng Pilipinas (BSP) warranted to gain the needed perspective. Villacorta, President and Chief Executive
officials,1 and the Motion for Partial In a letter dated May 19, 1999, addressed Officer of the TA Bank. They agreed to
Reconsideration of respondent Rural Bank to then BSP Governor Singson, RBSMI meet on the following day. In
of San Miguel (Bulacan), Inc. charged the petitioners with violation his Affidavit,6 Villacorta confirmed that he
In the Decision2 of March 14, 2003, this of Republic Act No. 6713 (Code of Conduct and Soriano indeed met but the meeting
Court found Deputy Governor Reyes and and Ethical Standards for Public Officials never got past the exploratory stage since
Director Domo-ong liable for violation of and Employees). The Monetary Board he (Villacorta) immediately expressed
the standards of professionalism (MB) of the BSP created an Ad disinterest because Soriano wanted to sell
prescribed by the Code of Conduct and Hoc Committee to investigate the matter. all his equity shares while he was merely
Ethical Standards for Public Officials and The ensuing investigation disclosed that contemplating a possible buy-in.
Employees (Republic Act No. 6713) in that sometime in September 1996, RBSMI, Soriano further alleged that when the
they used the distressed financial which had a history of major talks with Villacorta failed, Reyes asked
condition of respondent Rural Bank of San violations/exceptions dating back to 1995, him whether he wanted to meet another
Miguel (Bulacan), Inc. (RBSMI) as the underwent periodic examination by the buyer, to which he answered in the
subject of a case study in one of the BSP BSP.The examination team headed by affirmative. Thereafter, Reyes introduced
seminars and did the brokering of the sale Principio noted 20 serious him by telephone to Benjamin P. Castillo
of RBSMI. The Court modified exceptions/violations and deficiencies of of the Export and Industry Bank (EIB),
the Decision of the Court of Appeals in CA- RBSMI.5 cralawred whom he met on June 26, 1997. No
GR SP No. 601843 by reducing the penalty Through Resolution No. 96, the MB negotiation took place because Soriano
imposed by the appellate court from a fine required RBSMI to submit within 15 days desired a total sale while EIB merely
equivalent to six months salary to a fine a written explanation with respect to the desired a joint venture arrangement or a
of two months salary for Reyes and one findings of the examiner. It also directed buy-in to allow EIB to gain control of
month salary for Domo-ong. the Department of Rural Banks (DRB), to RBSMI.
In the Decision, the Court exonerated verify, monitor and report to the Deputy Meanwhile, on June 13, 1997, the MB
petitioner Herminio C. Principio4 of the Governor, Supervision and Examination approved Resolution No. 7247 ordering
administrative charges. The exoneration is Sector (SES) on the findings/exceptions RBSMI to correct the major exceptions
the subject of RBSMIs Motion For Partial noted, until the same shall have been noted within 30 days from receipt of the
Reconsideration. corrected. advice, and to remit to the BSP the
amount of P2,538,483.00 as fines and The Motion for Reconsideration bid of Sentral ng Pilipinas Institute (BSPI), an
penalties for incurring deficiencies in Reyes and Domo-ong is meritorious. office separate and independent from the
reserves against deposit liabilities. In pinning liability on Reyes and Domo- SES which is directly under the control
On July 21, 1997, Soriano submitted ong for the seminar which used the rural and supervision of another Deputy
RBSMIs answers to the BSP bank as a case study, the court made this Governor, that for the Resource
exceptions/findings mentioned. He stated ratiocination, viz:chanroblesvirtua1awlibra Management Sector (RMS) 9 which is
that the actions taken or to be taken by ry charged with conducting seminars and
the bank (RBSMI) were deliberated and (W) hile there was indeed no lectures for the BSP, including the seminar
ratified by the Board of Directors in its evidence showing that either petitioner involved in this case.
regular meeting held on July 9, 1997. Reyes or petitioner Domo-ong distributed In its Comment,10 RBSMI argues that
Among the board approved actions was or used the materials, the very fact that since information on the state of its
the banks request addressed to Domo-ong the seminar was conducted under their finances found its way as a training
for BSP to debit the demand deposit of the auspices is enough to make them liable material of RMS, the event could have
bank in the amount of P2,538,483.00 to a certain extent. Petitioner Reyes, as transpired only because the SES permitted
representing the payment of fines and Head of the BSP Supervision and it. Even if the subordinates of petitioners
penalties. Examination Sector, and petitioner Domo- were the source of information, RBSMI
More than a year after, however, the ong, as Director of the BSP Department of further claims in ostensible reference to
RBSMI asked for a reconsideration of Rural Banks, should have the principle of command responsibility,
MB Resolution No. 724 insofar as the exercised their power of control and petitioners could be held liable for
imposition of fine amounting supervision so that the incident could negligence.
to P2,538,483.00.On January 21, 1999, have been prevented or at the very It is noteworthy again that petitioners
the MB adopted Resolution No. least remedied. (Emphasis alleged role in the disclosure of
71,8 authorizing the conditional reversal of supplied)cralawlibrary information is not anchored on any
sixty percent (60%) of the penalty Plainly, conclusion on petitioners concrete piece of evidence. That explains
pending resolution of the dispute on the culpability is grounded, not on an the RBSMIs effort to cast liability
findings on reserve deficiency. established fact but on a mere inference vicariously on the petitioners by a
Subsequently, on April 7, 1999, the MB that the seminar was conducted under superficial resort to the principle of
approved the interim reversal of the entire their auspices. Indeed, the command responsibility which this Court
amount of the penalty pending the pronouncement on the petitioners role is did not reject. But neither the principle
outcome of the study on the legal and evidently conjectural and evaluation of the itself which is an accepted notion in
factual basis for the imposition of the extent of their responsibility admittedly military or police structural dynamics or
penalty. uncertain. its counterpart of respondent superior in
The above incidents, particularly the It is conceded that there was no evidence the law on quasi-delicts 11 would be
alleged brokering by Reyes and the that the seminar was conducted under relevant in this case, involving as it does
petitioners unsupported recommendation petitioners patronage. And it was the actual performance in office of the
to impose a penalty of P2,538,483.00 for assumed, as indeed there was absolutely petitioners and given the fact that
legal reserve deficiency, prompted the paucity of proof, that they exercised petitioners are high ranking officers of the
respondent to file the letter-complaint supervision and control over the persons countrys central monetary
charging the petitioners with responsible in organizing the seminar. On authority.Indeed, as such officers,
unprofessionalism. the contrary, as shown in the Motion For petitioners cannot be expected to monitor
Reconsideration, it was the Bangko the activities of their subalterns. In Arias
v. Sandiganbayan,12 this Court held that considerations of public policy, the .. .
all heads of offices have to rely to a necessities of the public service and the (b) Professionalism. Public officials and
reasonable extent on the good faith of perplexities and embarrassments of a employees shall perform and discharge
their subordinates. The case specifically contrary doctrine.15 These official their duties with the highest degree of
involved the liability of the head of office subordinates, he notes further, are excellence, professionalism, intelligence
in the preparation of bids, purchase of themselves public officers though of an and skill. They shall enter public service
supplies and contract negotiations done inferior grade, and therefore directly liable with utmost devotion and dedication to
by his subordinates. In the same fashion, in the cases in which any public officer is duty. They shall endeavor to discourage
petitioners in this case owing to their high liable, for their own misdeeds or wrong perceptions of their roles as
ranks cannot be expected to acquaint defaults.16 cralawred dispensers or peddlers of undue
themselves with such minutiae as the flow Significantly, Mechems disquisition patronage.
of files and documents which leave their provides the mooring of the The Court equates brokering with
desks. Myriad details such as those are, Administrative Code of 1987 which unprofessionalism. According to Websters
by office practice, left to subalterns and provides that a head of a department or a Third New International
minor employees. Delegation of function is superior officer shall not be civilly liable Dictionary,professionalism means the
part of sound management. for the wrongful acts, omissions of duty, conduct, aims, or qualities that
From another perspective, the negligence negligence, or misfeasance of his characterize or mark a profession. Any
of the subordinate cannot be ascribed to subordinates, unless he has actually standard thesaurus defines a professional
his superior in the absence of evidence of authorized by written order the specific as a person who engages in an activity
the latters own negligence. Indeed, the act or misconduct complained with great competence. Indeed, to call a
17
negligence of the subordinate is not of.  cralawred person a professional is to describe him as
tantamount to negligence of the superior Now, the label of unprofessionalism competent, efficient, experienced,
official so the Court ruled in a bestowed by the Court on the petitioners proficient or polished.
case13 where the mandated responsibilities at the instance of RBSMI. The crucial question, therefore, is whether
of the superior do not include actual In the assailed Decision, the Court Reyes conducted himself in an
monitoring of projects. In another categorized Reyes telephone introduction unprofessional manner in doing the acts
case,14 this Court rejected the principle of of officials of other banks to RBSMIs imputed to him.
command responsibility although the case President in connection with the latters The Court rules in the negative.
involved a provincial constabulary expressed desire to sell the bank as In the first place, the acts of Reyes do not
commander, aptly noting that there was brokering which in turn constitutes, constitute brokering. Case law18 defines a
neither allegation nor proof that he had according to the Court, violation of the broker as one who is engaged, for
been in any way guilty of fault or standards of professionalism. The others, on a commission, negotiating
negligence in connection with the unlawful standards are set forth in Section 4 (A) contracts relative to property with the
raid and arrest effected by his (b) of Republic Act 6713, as custody of which he has no concern; the
subordinates. follows:chanroblesvirtua1awlibrary negotiator between other parties, never
The immunity of public officers from Sec. 4. Norms of Conduct of Public acting in his own name but in the name of
liability for the non-feasances, negligence Officials and Employees. (A) Every public those who employed him.. .. a broker is
or omissions of duty of their official official and employee shall observe the one whose occupation is to bring the
subordinates and even for the latters following as standards of personal conduct parties together, in matters of trade,
misfeasances or positive wrongs rests, in the discharge and execution of official commerce or navigation. According
according to Mechem, upon obvious duties:chanroblesvirtua1awlibrary to Bouviers Law Dictionary, brokerage
refers to the trade or occupation of a purpose but to pave the way for a possible provided insulation from interference and
broker; the commissions paid to a broker consolidation or merger of RBSMI with vexatious suits, especially when moves of
for his services, while brokers are those interested banks. As this Court found in the kind are resorted to as counterfoil to
who are engaged for others on the its Decision, it is indeed the policy of the the exercise of their regulatory mandate.
negotiation of contracts relative to BSP to promote mergers and Elsewise, the institutional independence
property, with the custody of which they consolidations by providing incentives to and autonomy of the BSP as the central
have no concern.19 cralawred banks that would undergo such corporate mandatory authority would be rendered
Thus, the word brokering clearly indicates combinations.20 To effectively implement illusory.
the performance of certain acts for the policy, it was necessary that the banks IN VIEW OF THE FOREGOING, the
monetary consideration or compensation. be advised and assisted by a person Court RESOLVES to GRANT the Motion for
To give it another definition such as that knowledgeable about the transactions like Reconsideration of the petitioners Deputy
imputed by RBSMI to the acts of Reyes is Reyes. The benefits which may ultimately Governor Alberto V. Reyes and Director
to distort the accepted jurisprudential arise out of any preliminary facilitation Wilfredo B. Domo-ong. The Decision dated
meaning of the term. step such as what Reyes undertook will March 14, 2003 is SET ASIDE and another
From the evidence, all that Reyes did was not accrue to the facilitator but to the entered, DISMISSING the administrative
to introduce RBSMIs President to the parties to the transaction themselves and, complaint and EXONERATING all the
President of TA Bank and EIB. Nothing of course, the institution whose policy petitioners. The Motion for Partial
more. There was not even a hint that he initiative is being carried out. Reconsideration of the respondent Rural
was motivated by monetary consideration All told, there is neither legal nor factual Bank of San Miguel (Bulacan), Inc. is
or swayed by any personal interest in support for holding Reyes and Domo-ong DENIED.
doing what he did. liable. SO ORDERED
On his part, Soriano who is RBSMIs As to the motion for partial
President himself admitted that the talks reconsideration filed by RBSMI, it is
with Villacorta and Castillo never got past argued that Principio should be
the exploratory stage because the two administratively penalized for his undue
wanted a buy-in while he was for a total haste in submitting his report to the MB,
sell-out. This is an indelible indication that in making an unsupported
Reyes was not personally involved in the recommendation for imposition of
transaction.If he were, he would at least penalties for legal reserve deficiencies,
have an inkling of the plans of Villacorta and for taking charge of the examinations
and Castillo; otherwise, he would not have of RBSMI three consecutive times. RBSMIs
wasted his time introducing them to arguments are not new, they having been
Soriano. previously presented to and squarely ruled
Indeed, RBSMI miserably failed to upon by the Court.
establish that Reyes had breached the In closing, it cannot be overemphasized
standard of professional conduct required that the BSP is an independent body
of a public servant. It appears to the corporate bestowed under its
Court that in keeping with the standards charter21 with fiscal and administrative
of professionalism and heeding the autonomy. As such, its officials should be
mandate of his position, he made the granted a certain degree of flexibility in
telephone introductions for no other the performance of their duties and
[G.R. NO. 168859 : June 30, 2009] On the other hand, EGI is a corporation by UCPB in its letters dated 2 October
UNITED COCONUT PLANTERS BANK, duly organized and existing under 19985 and 16 February 1999.6 Thereafter,
JERONIMO U. KILAYKO, LORENZO V. Philippine laws and engaged in real estate UCPB stopped sending EGI monthly
TAN, ENRIQUE L. GANA, JAIME W. construction and development business. statements of its accounts.
JACINTO and EMILY R. In G.R. No. 168897, EGI prays for this In 1999, EGI and UCPB explored the
LAZARO, Petitioners, v. E. GANZON, Court to review the same Decision dated possibility of using the mortgaged
INC., Respondent. 14 October 2004 and Resolution dated 7 condominium unit inventories of EGI in
[G.R. NO. 168897 : June 30, 2009] July 2005 of the Court of Appeals in CA- EGI Rufino Plaza as payment for the loans
E. GANZON, INC., Petitioner, v. UNITED G.R. SP No. 81385, and to order the of EGI to UCPB. Upon agreeing on the
COCONUT PLANTERS BANK, JAIME W. appellate court to (1) act on its findings in valuation of said mortgaged properties,
JACINTO and EMILY R. the case instead of remanding the same EGI and UCPB entered into a
LAZARO, Respondents. to the BSP Monetary Board for further Memorandum of Agreement (MOA)7 on 28
DECISION proceedings; (2) direct the BSP Monetary December 1998 in settlement of the loans
CHICO-NAZARIO, J.: Board to impose the applicable of EGI from UCPB. Based on this MOA, the
These are two consolidated1 Petitions for administrative sanctions upon UCPB, et outstanding loan obligations of EGI with
Review on Certiorari under Rule 45 of the al.; and (3) to amend its assailed Decision UCPB amounted to P915,838,822.50,
1997 Revised Rules of Civil Procedure. and Resolution by deleting therefrom the inclusive of all interest, charges and fees.
United Coconut Planters Bank (UCPB) is a statements requiring the BSP Monetary UCPB, through its corporate officers,
universal bank duly organized and existing Board to scrutinize and dig deeper into the assured EGI that the said amount already
under Philippine Laws. In G.R. No. acts of UCPB, et al., and to determine if, represented the total loan obligations of
168859, UCPB and its corporate officers, indeed, there were irregular and unsound EGI to UCPB.
i.e., Jeronimo U. Kilayko, Lorenzo V. Tan, practices in its business dealings with EGI. On 18 January 2000, EGI and UCPB
Enrique L. Gana, Jaime W. Jacinto and The factual antecedents of these executed an Amendment of Agreement8 to
Emily R. Lazaro (UCPB, et al.) seek the consolidated petitions are as follows: reflect the true and correct valuation of
reversal and setting aside of the Beginning 1995 to 1998, EGI availed itself the properties of EGI listed in the MOA
Decision2 dated 14 October 2004 and of credit facilities from UCPB to finance its that would be transferred to UCPB in
Resolution3 dated 7 July 2005 of the Court business expansion. To secure said credit settlement of the total loan obligations of
of Appeals in CA-G.R. SP No. 81385 and facilities, EGI mortgaged to UCPB its the former with the latter. The properties
the affirmation, instead, of the letter- condominium unit inventories in EGI of EGI to be used in paying for its debt
decision4 dated 16 September 2003 of the Rufino Plaza, located at the intersection of with UCPB were valued
Monetary Board of the Bangko Sentral ng Buendia and Taft Avenues, Manila. at P904,491,052.00.
Pilipinas (BSP). The Court of Appeals, in Initially, EGI was able to make periodic According to the MOA and its
its assailed Decision, set aside the amortization payments of its loans to amendments, titles to the properties of
aforesaid letter-decision of the BSP UCPB. When the negative effects of the EGI shall be transferred to UCPB by the
Monetary Board and remanded the case to Asian economic crisis on the property following modes: (1) foreclosure of
the latter for further proceedings; and in development sector finally caught up with mortgage; (2) dacion en pago; (3)
its questioned Resolution, denied for lack the corporation in the middle of 1998, EGI creation of a holding company; and (4)
of merit the Motion for Reconsideration of started defaulting in its payment of use of other alternatives as may be
UCPB, et al., as well as the Partial Motion amortizations, thus, making all of its deemed appropriate by UCPB.
for Reconsideration of E. Ganzon, Inc. obligations due and demandable. UCPB proceeded to foreclose some of the
(EGI). Subsequently, EGI was declared in default properties of EGI listed in the MOA. Per
the Certificate of Sale9 dated 13 April two columns, one with the heading books interest on loans which had become
2000, the foreclosure proceeds of said "ACTUAL" and the other "DISCLOSED TO non-performing.
properties amounted only EGI." The figures in the two columns were Despite the explanation of UCPB, EGI
to P723,592,000.00, less than the value conflicting. The figures in the "DISCLOSED insisted that the figures appearing in the
of the properties of EGI stipulated in its TO EGI" column computed the unpaid "ACTUAL" column of the former's Internal
amended MOA with UCPB. balance of the loan obligations of EGI to Memorandum dated 22 February 2001
UCPB applied the entire foreclosure be P226,967,194.80, the amount which revealed the true and actual amount of its
proceeds of P723,592,000.00 to the UCPB actually made known to and loan obligations to
principal amount of the loan obligations of demanded from EGI. The figures in the UCPB, P146,849,412.58.
EGI, pursuant to BSP Circular No. "ACTUAL" column calculated the EGI Senior Vice-President Layug met with
239,10 which provided that partial property remaining loan obligations of EGI to be UCPB Vice-President, Jaime W. Jacinto
payments shall first be applied to the only P146,849,412.58. (Jacinto) to discuss the demand of EGI for
principal. After deducting the said amount Consequently, EGI wrote UCPB a letter the return of its overpayment. UCPB Vice-
from the total loan obligations of EGI, dated 21 May 2001,12 which included, President Jacinto, however, refused to
there was still an unpaid balance among other demands, the refund by concede that UCPB had any obligation to
of P192,246,822.50. UCPB to EGI of the over-payment make a refund to EGI and, instead,
On 8 May 2001, some of the other of P83,000,000.00;13 return to EGI of all insisted that EGI Senior Vice-President
properties of EGI at EGI Rufino Plaza, the remaining Transfer Certificates of Title Layug disclose who gave her a copy of the
valued at P166,127,369.50, were (TCTs)/Condominium Certificates of Title UCPB Internal Memorandum dated 22
transferred by way of dacion en pago to (CCTs) in the possession of UCPB; and February 2001.
UCPB. However, during the signing of the cost of damage to EGI for the delay in the Based on the possession by EGI of the
transaction papers for the dacion en pago, release of its certificates of title. UCPB Internal Memorandum dated 22
EGI Senior Vice-President, Architect Grace In response, UCPB explained14 that the February 2001, UCPB filed a criminal case
S. Layug (Layug), noticed that said papers "ACTUAL" column in its Internal for theft and/or discovery of secrets
stated that the remaining loan balance of Memorandum dated 22 February 2001 against EGI President Ganzon and Senior
EGI in the amount of P192,246,822.50 contained the same amounts reflected or Vice-President Layug, but the said case
had increased to P226,963,905.50. The recorded in its financial statements, in was dismissed.17
increase was allegedly due to the addition accordance with the Manual of Accounts On 5 November 2002, EGI, also on the
of the transaction costs amounting for Banks, Manual of Regulations for basis of the UCPB Internal Memorandum
to P34,717,083.00. EGI complained to Banks15 and BSP Circular No. 202,16 Series dated 22 February 2001, EGI filed with
UCPB about the increase, yet UCPB did of 1999. In contrast, the "DISCLOSED TO the BSP an administrative
18
not take any action on the matter. EGI" column showed the total amount still complaint  against UCPB, et al., for
This prompted EGI President Engineer due from EGI, including the total principal, violation of Sections 3619 and 37,20 Article
Eulalio Ganzon (Ganzon) and Senior Vice- interests, transaction and other costs after IV of Republic Act No. 7653,21 in relation
President Layug to review their files to the foreclosure, whether reflected in the to Section 55.1(a)22 of Republic Act No.
verify the figures on the loan obligations financial books of UCPB or not. Further, 8791;23 and for the commission of
of EGI as computed by UCPB. In the UCPB maintained that the difference in the irregularities and conducting business in
process, they discovered the UCPB figures in the two columns was because an unsafe or unsound manner.
Internal Memorandum dated 22 February BSP Circular No. 202 and Section X305.4 In a letter-decision24 dated 16 September
2001,11 signed by UCPB corporate officers. of the Manual of Regulations for Bank 2003, the BSP Monetary Board dismissed
The said Internal Memorandum presented disallowed banks from accruing in its
the administrative complaint of EGI, there was no sufficient basis to grant the on Certiorari under Rule 45 of the 1997
holding as follows: same. Revised Rules of Civil Procedure, based on
Please be informed that the Monetary EGI then filed a Petition for Review under the following assignment of errors:
Board decided to dismiss the complaint Rule 43 of the 1997 Revised Rules of Civil I. THE HONORABLE COURT OF APPEALS
based on the evaluation conducted by the Procedure with the Court of Appeals ACTED WITHOUT JURISDICTION AND
Supervision and Examination Department raising the sole issue of "whether the GRAVELY ERRED IN HOLDING THAT IT
I and the Office of the General Counsel Bangko Sentral ng Pilipinas erred in HAS APPELLATE JURISDICTION OVER
and Legal Services to the effect that: dismissing the administrative complaint DECISIONS OF THE BSP/MONETARY
1. UCPB computed interest on the loans filed by EGI against UCPB, et al." The case BOARD.
based on BSP rules and regulations which was docketed as CA-G.R. SP No. 81385. II. THE HONORABLE COURT OF APPEALS
prohibit banks from accruing interest on On 14 October 2004, the Court of Appeals GRAVELY ERRED IN HOLDING THAT THE
loans that have become non-performing rendered its assailed Decision granting the BANGKO SENTRAL SUMMARILY
(BSP Circular No. 202). This is different Petition for Review of EGI, thus, setting DISMISSED THE COMPLAINT OF [EGI].
from interest which may have run and aside the BSP letter-decision dated 16 III. THE HONORABLE COURT OF APPEALS
accrued based on the promissory September 2003 and remanding the case GRAVELY ERRED IN DISREGARDING THE
notes/loan documents from the date of to the BSP Monetary Board for further FINDINGS OF FACT OF THE BANGKO
default up to settlement date. proceedings. SENTRAL AND IN HOLDING THAT [UCPB,
2. Fair market value of assets to be UCPB, et al., moved for the et al.] COMMITTED IRREGULAR AND
foreclosed is different from the bid price reconsideration of the 14 October 2004 UNSOUND BANKING PRACTICES IN THE
submitted during foreclosure and there is Decision of the appellate court, praying for SUBJECT TRANSACTIONS.27
no statutory obligation for the latter to be a new judgment dismissing the appeal of The Petition is docketed as G.R. No.
equivalent to the former. EGI for lack of jurisdiction and/or lack of 168859.
3. Regarding the alleged P145,163,000.00 merit. EGI also filed a Partial Motion for UCPB, et al., aver that the Court of
fabricated loan, the documents showed Reconsideration of the same Court of Appeals has no appellate jurisdiction over
that there were the EGI Board Resolution Appeals Decision, with the prayer that the decisions, orders and/or resolutions of the
to borrow, promissory note signed by Mr. appellate court, instead of still remanding BSP Monetary Board on administrative
Eulalio Ganzon, and Loan Agreement the case to the BSP Monetary Board for matters. The BSP Monetary Board is not
stating that the proceeds shall be used to further proceedings, already direct the among the quasi-judicial agencies
pay outstanding availments and interest latter to impose the applicable enumerated under Rule 43 of the 1997
servicing. administrative sanctions upon UCPB, et Revised Rules of Civil Procedure, over
4. There is no finding by Supervision and al.,. which the Court of Appeals has appellate
Examination Department I on the alleged In a Resolution dated 7 July 2005, the jurisdiction. Further, there is nothing in
double charging and/or padding of Court of Appeals denied for lack of merit Republic Act No. 7653 or in Republic Act
transaction costs.25 both the Motion for Reconsideration of No. 8791 which explicitly allows an appeal
EGI filed a Motion for Reconsideration and UCPB, et al. and the Motion for Partial of the decisions or orders of the BSP
a Supplemental Motion for Reconsideration of EGI. Monetary Board to the Court of Appeals.
Reconsideration of the aforequoted letter- G.R. No. 168859 Resultantly, the Court of Appeals has no
decision of the BSP Monetary Board. The Aggrieved by the 14 October 2004 power to review, much less set aside, the
BSP Monetary Board denied both motions Decision and 7 July 2005 Resolution of the findings of fact of the BSP Monetary Board
in its letter26 dated 8 December 2003 as Court of Appeals, UCPB, et al. comes as contained in its letter-decision dated 16
before this Court, via a Petition for Review September 2003.
UCPB, et al. also claim that, contrary to concerned administrative agency in view Compensation Commission and the Civil
the ruling of the Court of Appeals, the of the expertise and specialized Service Commission, except those falling
letter-decision dated 16 September 2003 knowledge acquired by it on matters within the appellate jurisdiction of the
of the BSP Monetary Board plainly reveals falling within its areas of concern. UCPB, Supreme Court in accordance with the
that the administrative complaint of EGI et al. insist that it is the BSP which has Constitution, the Labor Code of the
against UCPB, et al. was not summarily the necessary expertise to draft guidelines Philippines under Presidential Decree No.
dismissed. The charges of EGI against for the evaluation of the performance and 442, as amended, the provisions of this
UCPB, et al. was resolved only after the conduct of banks. Thus, the Court of Act, and of subparagraph (1) of the third
BSP Monetary Board thoroughly reviewed Appeals committed grave error in paragraph and subparagraph 4 of the
pertinent bank records and studied the disregarding the findings of fact of the fourth paragraph of Section 17 of the
arguments raised by EGI in its complaint BSP Monetary Board which justified the Judiciary Act of 1948. (Emphasis ours.)
and Motion for Partial Reconsideration. In latter's dismissal of the administrative In accordance with the afore-quoted
its letter-decision dated 16 September complaint of EGI against UCPB, et al. provision, Rule 43 of the 1997 Revised
2003, the BSP Monetary Board stated in The issue of jurisdiction of the Court of Rules of Civil Procedure, on Appeals from
no uncertain terms that the dismissal of Appeals over appeals of decisions, orders the Court of Tax Appeals and Quasi-
the complaint of EGI was based on the and/or resolutions of the BSP Monetary Judicial Agencies to the Court of Appeals,
evaluation conducted by its Supervision Board on administrative matters must first defines its scope as follows:
and Examination Department I and the be resolved, before the other issues raised SECTION 1. Scope. - This Rule shall
Office of the General Counsel and Legal herein by UCPB, et al. apply to appeals from judgments or final
Services. Also, in its letter dated 8 Truly, there is nothing in Republic Act No. orders of the Court of Tax Appeals and
December 2003, the BSP Monetary Board 7653 or in Republic Act No. 8791 which from awards, judgments, final orders
denied the Motion for Reconsideration and explicitly allows an appeal of the decisions or resolutions of or authorized by any
Supplemental Motion for Reconsideration of the BSP Monetary Board to the Court of quasi-judicial agency in the exercise
of EGI because the latter did not present Appeals. However, this shall not mean of its quasi-judicial functions. Among
any new evidence in support of its that said decisions are beyond judicial these agencies are the Civil Service
motions. Hence, there is no basis for the review. Commission, Central Board of Assessment
claim of EGI that the BSP Monetary Board Section 9(3) of Batas Pambansa Blg. 129, Appeals, Securities and Exchange
overlooked and completely ignored its otherwise known as The Judiciary Commission, Office of the President, Land
accusations of irregular and unsound Reorganization Act of 1980, as amended, Registration Authority, Social Security
banking practice against UCPB, et al. reads: Commission, Civil Aeronautics Board,
Finally, UCPB, et al., maintain that the SEC. 9. Jurisdiction. - The Court of Bureau of Patents, Trademarks and
findings of fact of administrative bodies Appeals shall exercise: Technology Transfer, National
like the BSP Monetary Board are accorded xxx Electrification Administration, Energy
great respect, if not finality, especially if (3) Exclusive appellate jurisdiction over all Regulatory Board, National
supported by substantial evidence. Such final judgments, decisions, resolutions, Telecommunications Commission,
findings are to be respected by the courts, orders or awards of Regional Trial Courts Department of Agrarian Reform under
especially in the absence of grave abuse and quasi-judicial agencies, Republic Act No. 6657, Government
of discretion or grave errors by the BSP instrumentalities, boards or commissions, Service Insurance System, Employees
Monetary Board. No other office, much including the Securities and Exchange Compensation Commission, Agricultural
less an appellate tribunal, can substitute Commission, the Social Security Inventions Board, Insurance Commission,
its own findings of fact over that of the Commission, the Employees Philippine Atomic Energy Commission,
Board of Investments, Construction "[a]mong these agencies are" preceding the areas of money, banking and
Industry Arbitration Commission, and the enumeration of specific quasi-judicial credit.35 It has power to issue subpoena,
voluntary arbitrators authorized by law. agencies only highlights the fact that the to sue for contempt those refusing to obey
(Emphasis ours.) list is not meant to be exclusive or the subpoena without justifiable
A perusal of Section 9(3) of Batas conclusive. Further, the overture stresses reason,36 to administer oaths and compel
Pambansa Blg. 129, as amended, and and acknowledges the existence of other presentation of books, records and others,
Section 1, Rule 43 of the 1997 Revised quasi-judicial agencies not included in the needed in its examination,37 to impose
Rules of Civil Procedure reveals that the enumeration but should be deemed fines and other sanctions and to issue
BSP Monetary Board is not included included.31 cease and desist order.38 Section 37 of
among the quasi-judicial agencies A quasi-judicial agency or body is an Republic Act No. 7653,39 in particular,
explicitly named therein, whose final organ of government other than a court explicitly provides that the BSP Monetary
judgments, orders, resolutions or awards and other than a legislature, which affects Board shall exercise its discretion in
are appealable to the Court of Appeals. the rights of private parties through either determining whether administrative
Such omission, however, does not adjudication or rule-making.32 The very sanctions should be imposed on banks
necessarily mean that the Court of definition of an administrative agency and quasi-banks, which necessarily
Appeals has no appellate jurisdiction over includes its being vested with quasi- implies that the BSP Monetary Board must
the judgments, orders, resolutions or judicial powers. The ever increasing conduct some form of investigation or
awards of the BSP Monetary Board. variety of powers and functions given to hearing regarding the same.
It bears stressing that Section 9(3) of administrative agencies recognizes the Having established that the BSP Monetary
Batas Pambansa Blg. 129, as amended, need for the active intervention of Board is indeed a quasi-judicial body
on the appellate jurisdiction of the Court administrative agencies in matters calling exercising quasi-judicial functions; then as
of Appeals, generally refers to quasi- for technical knowledge and speed in such, it is one of those quasi-judicial
judicial agencies, instrumentalities, countless controversies which cannot agencies, though not specifically
boards, or commissions. The use of the possibly be handled by regular courts.33 A mentioned in Section 9(3) of Batas
word "including" in the said provision, "quasi-judicial function" is a term which Pambansa Blg. 129, as amended, and
prior to the naming of several quasi- applies to the action, discretion, etc., of Section 1, Rule 43 of the 1997 Revised
judicial agencies, necessarily conveys the public administrative officers or bodies, Rules of Civil Procedure, are deemed
very idea of non-exclusivity of the who are required to investigate facts, or included therein. Therefore, the Court of
enumeration. The principle of expressio ascertain the existence of facts, hold Appeals has appellate jurisdiction over
unius est exclusio alterius does not apply hearings, and draw conclusions from final judgments, orders, resolutions or
where other circumstances indicate that them, as a basis for their official action awards of the BSP Monetary Board on
the enumeration was not intended to be and to exercise discretion of a judicial administrative complaints against banks
exclusive, or where the enumeration is by nature.34 and quasi-banks, which the former
way of example only.28 Undoubtedly, the BSP Monetary Board is a acquires through the filing by the
Similarly, Section 1, Rule 43 of the 1997 quasi-judicial agency exercising quasi- aggrieved party of a Petition for Review
Revised Rules of Civil Procedure merely judicial powers or functions. As aptly under Rule 43 of the 1997 Revised Rules
mentions several quasi-judicial agencies observed by the Court of Appeals, the BSP of Civil Procedure.
without exclusivity in its Monetary Board is an independent central As a futile effort of UCPB, et al. to
phraseology.29 The enumeration of the monetary authority and a body corporate convince this Court that the Court of
agencies therein mentioned is not with fiscal and administrative autonomy, Appeals has no appellate jurisdiction over
exclusive.30 The introductory phrase mandated to provide policy directions in the final judgments, orders, resolutions or
awards of the BSP Monetary Board, it resolution issued by the Monetary Board, The court referred to therein can be
cited Salud v. Central Bank of the pursuant to Section 29 of Republic Act construed to mean the Court of Appeals
Philippines.40 No. 265, otherwise known as the old because it is in the said court where a
The invocation of UCPB, et al. of Salud is Central Bank Act, forbidding banking Petition for Certiorari can be filed following
evidently misplaced. institutions to do business on account of a the hierarchy of courts.
The present case involves a decision of "condition of insolvency" or because "its Moreover, the appellate jurisdiction of the
the BSP Monetary Board as regards an continuance in business would involve Court of Appeals over the final judgments,
administrative complaint against a bank probable loss to depositors or creditors;" orders, resolutions or awards of the BSP
and its corporate officers for the alleged or appointing a receiver to take charge of Monetary Board in administrative cases
violation of Sections 36 and 37, Article IV the assets and liabilities of the bank; or involving directors and officers of banks,
of Republic Act No. 7653, in relation to determining whether the banking quasi-banks, and trust entities, is affirmed
Section 55.1(a) of Republic Act No. institutions should be rehabilitated or in BSP Circular No. 477, Series of 2005.
8791, and for the commission of liquidated, and if in the latter case, The said BSP Circular expressly provides
irregularity and unsafe or unsound appointing a liquidator towards this end. that the resolution rendered by the BSP
banking practice. There is nothing in The said Section 29 of the old Central Monetary Board in administrative cases
the aforesaid laws which state that the Bank Act was explicit that the may be appealed to the Court of Appeals
final judgments, orders, resolutions or determination by the Monetary Board of within the period and the manner
awards of the BSP Monetary Board on whether a banking institution provided under Rule 43 of the 1997
administrative complaints against banks is insolvent, or should Revised Rules of Civil Procedure.
or quasi-banks shall be final and be rehabilitated or liquidated, is final With all the foregoing, it cannot now be
executory and beyond the subject of and executory. However, said questioned that the Court of Appeals has
judicial review. Without being explicitly determination could be set aside by the appellate jurisdiction over the final
excepted or exempted, the final trial court if there was convincing proof judgments, orders, resolutions or awards
judgments, orders, resolutions or awards that the Monetary Board acted arbitrarily rendered by the BSP Monetary Board in
of the BSP Monetary Board are among or in bad faith. Under the administrative cases against banks and
those appealable to the Court of Appeals circumstances obtaining in Salud, it is their directors and officers, such as UCPB,
by way of Petition for Review, as provided apparent that our ruling therein is et al.
in Section 9(3) of Batas Pambansa Blg. limited to cases of insolvency, and not The Court then proceeds to resolve the
129, as amended, and Section 1, Rule 43 to all cases cognizable by the issue of whether the Court of Appeals
of the 1997 Revised Rules of Civil Monetary Board. erred in holding that the BSP Monetary
Procedure. At any rate, under the new law, i.e., Board summarily dismissed the
Although in Salud, this Court declared that Section 30 of Republic Act No. 7653, administrative complaint of EGI against
the Intermediate Appellate Court (now otherwise known as The New Central Bank UCPB, et al.
Court of Appeals) has no appellate Act, which took effect on 3 July 1993, the After a meticulous scrutiny of the 16
jurisdiction over resolutions or orders of order of the BSP Monetary Board, even September 2003 letter-decision of the BSP
the Monetary Board of the Central Bank of regarding the liquidation of a bank, can be Monetary Board, this Court rules in the
the Philippines (CBP, now BSP), because questioned via a Petition negative and affirms the finding of the
no law prescribes any mode of appeal for Certiorari before a court when the Court of Appeals that the BSP Monetary
therefrom, the factual settings of the said same was issued in excess of jurisdiction Board did, indeed, summarily dismiss
case are totally different from the one or with such grave abuse of discretion as administrative complaint of EGI against
presently before us. Salud involved a to amount to lack or excess of jurisdiction. UCPB, et al., for violation of Sections 36
and 37, Article IV of Republic Act No. administrative complaint of EGI against which neither of the parties can simply
7653, in relation to Section 55.1(a) of UCPB, et al. The BSP Monetary Board did abrogate, violate, or disregard.
Republic Act No. 8791, and for the not even attempt to establish whether it Unfortunately, the BSP Monetary Board
commission of irregularity and unsafe or was regular or sound practice for a bank never even referred to the MOA executed
unsound banking practice. to keep a record of its borrower's loan by the parties in its letter-decision dated
Given the gravity and seriousness of the obligations with two different sets of 16 September 2003.
charges of EGI against UCPB, et al., the figures, one higher than the other; and to Moreover, the BSP Monetary Board found
sweeping statement of the BSP Monetary disclose to the borrower only the higher that the P145,163,000.00 loan of EGI
Board that it was inclined to dismiss the figures. The explanation of UCPB, et al., from UCPB was not fabricated based on
complaint of EGI based on the evaluation adopted by the BSP Monetary Board - that several documents. However, there is
made by its Supervision and Examination the figures in the "ACTUAL" column were absolute lack of explanation by the BSP
Department I and Office of the General lower than those in the "DISCLOSED TO Monetary Board as to why said documents
Counsel and Legal Services, is simply EGI" column because the former was deserved more weight vis - à-vis evidence
insufficient and unsatisfactory. Worse, the computed in accordance with BSP rules of EGI of suspicious circumstances
BSP Monetary Board merely presented the and regulations prohibiting the accrual of surrounding the said loan, such as UCPB
following conclusions without bothering to interest on loans that have become non- granting EGI said loan even when the
explain its bases for the same: (1) UCPB performing - gives rise to more questions latter was already in default on its prior
computed interest on loans based on BSP than answers. Examples of some of these loan obligations, and without requiring
rules and regulations which prohibit banks questions would be whether the loan additional security, detailed business plan,
from accruing interest on loans that have obligations of EGI have become non- and financial projections from EGI.
become non-performing (BSP Circular No. performing; whether the differences The disregard by BSP Monetary Board of
202); (2) fair market value of assets to be between the figures in the "ACTUAL" and all the foregoing facts and issues in its
foreclosed is different from the bid price "DISCLOSED TO EGI" columns indeed letter-decision dated 16 September 2003
submitted during foreclosure and there is corresponded to the interest that should leads this Court to declare that it
no statutory obligation for the latter to be be excluded from the figures in the first summarily dismissed the administrative
equivalent to the former; (3) regarding column per BSP rules and regulations; and complaint of EGI against UCPB, et al.
the alleged P145,163,000.00 fabricated whether the computations of the figures in There can be no complete resolution of
loan, the documents showed that there both columns should have been freely the administrative complaint of EGI
were the EGI Board resolution to borrow, disclosed and sufficiently explained to EGI without consideration of these facts and
promissory note signed by Mr. Eulalio in the name of transparency. judgment on said issues.
Ganzon, and Loan Agreement stating the The BSP Monetary Board similarly failed to Finally, there is no merit in the assertion
proceeds shall be used to pay outstanding clarify whether UCPB can foreclose the of UCPB, et al. that the Court of Appeals
availments and interest servicing; and (4) mortgaged properties of EGI in amounts erred in disregarding the findings of fact
there is no finding by Supervision and that were less than the values of the said of the BSP Monetary Board in the absence
Examination Department I on the alleged properties as determined and stipulated of grave abuse of discretion or lack of
double charging and/or padding of by EGI and UCPB in their amended MOA. basis for the same.
transaction costs. The Court once more agrees in the ruling Although, as a general rule, findings of
Further, in resolving the matter before it, of the Court of Appeals that the MOA facts of an administrative agency, which
the BSP Monetary Board never considered entered into by EGI and UCPB serves as a has acquired expertise in the particular
the UCPB Internal Memorandum dated 22 contract between them, and it is the law field of its endeavor, are accorded great
February 2001, which was the heart of the that should govern their relationship, weight on appeal, such rule cannot be
applied with respect to the assailed with EGI. What the Court of Appeals to impose the appropriate penalties
findings of the BSP Monetary Board in this positively pronounced was that the BSP against [UCPB, et al.].43
case. Rather, what applies is the Monetary Board failed to give the The Petition is docketed as G.R. No.
recognized exception that if such findings necessary consideration to the 168897.
are not supported by substantial evidence, administrative complaint of EGI, Since the first two "issues" have already
the Court can make its own independent summarily dismissing the same in its 16 been addressed by this Court in its
evaluation of the facts.41 September 2003 letter-decision. The 14 previous discussion herein on G.R. No.
The standard of substantial evidence October 2004 Decision of the Court of 168859, we now proceed to resolve the
required in administrative proceedings is Appeals clearly remanded the case to the next two issues raised by EGI in its
more than a mere scintilla. It means such BSP for further proceedings since the BSP, Petition in G.R. No. 168897.
relevant evidence as a reasonable mind with its specialized knowledge and EGI avers that the Court of Appeals
might accept as adequate to support a expertise on banking matters, is more up committed reversible error when it
conclusion. While rules of evidence to task to receive evidence, hold hearings, remanded the case to the BSP for further
prevailing in courts of law and equity shall and thereafter resolve the issues based on proceedings instead of directing the BSP
not be controlling, the obvious purpose its findings of fact and law. to impose the applicable sanctions on
being to free administrative boards from G.R. No. 168897 UCPB, et al. EGI reasons that the
the compulsion of technical rules so that Also unsatisfied with the Decision dated appellate court, in its Decision dated 14
the mere admission of matter which would 14 October 2004 and Resolution dated 7 October 2004, already found that UCPB
be deemed incompetent in judicial July 2005 of the Court of Appeals, EGI had committed several acts of serious
proceedings would not invalidate the filed with this Court its own Petition for irregularity and conducted business in an
administrative order, this assurance of a Review on Certiorari under Rule 45 of the unsafe and unsound manner. By reason
desirable flexibility in administrative 1997 Revised Rules of Civil Procedure, thereof, there was no more need for the
procedure does not go so far as to justify raising the following issues: Court of Appeals to remand this case to
orders without basis in evidence having I. The Honorable Court of Appeals does the BSP for a further determination of
rational probative force.42 have appellate jurisdiction over decisions, whether there were irregular and unsound
It cannot be convincingly said herein that orders, and resolutions of the practices by UCPB, et al. in its dealings
the factual findings of the BSP Monetary BSP/Monetary Board. with EGI. Should this case be remanded to
Board in its letter-decision dated 16 II. The Honorable Court of Appeals was the BSP, there would be nothing to
September 2003 was supported by correct in FINDING that the [BSP] prevent the BSP from ruling again that
substantial evidence since (1) most of the summarily dismissed the complaint of UCPB, et al., did not commit any
findings were not supported by references EGI. irregularity and unsafe or unsound
to specific evidence; and (2) the findings III. Whether or not the Honorable Court of business practice. To require that this
were made without consideration of the Appeals committed patent, grave, and case be reviewed by the BSP would only
primary evidence presented by EGI (i.e., reversible error when it remanded the lead to multiplicity of suits, promote
the MOA and its amendments and the case to the [BSP] for further proceedings unnecessary delay and negate the
UCPB Internal Memorandum dated 22 instead of acting upon its findings as constitutional rights of all persons to a
February 2001). narrated in its Decision. speedy disposition of their cases before all
Even then, the Court of Appeals stopped IV. Whether or not the Honorable Court of judicial, quasi-judicial or administrative
short of categorically ruling that UCPB, et Appeals committed patent, grave, and bodies.
al. committed irregularities, or unsound or reversible error in not directing the [BSP] The Court reiterates that the Court of
unsafe banking practice in its transactions Appeals did not yet make conclusive
findings in its Decision dated 14 October administrative complaint in favor of EGI
2004, that UCPB, et al., committed and against UCPB, et al., precisely the
irregularities and unsound or unsafe reason why it still remanded the case to
banking practices in their business the BSP Monetary Board for further
dealings with EGI. The appellate court proceedings. The Court of Appeals never
only adjudged that the BSP Monetary meant to give EGI an assurance of a
Board summarily dismissed the favorable judgment; it only ensured that
administrative complaint of EGI, without the BSP Monetary Board shall accord all
fully appreciating the facts and evidence parties concerned to equal opportunity for
presented by the latter. Given the presentation and consideration of their
seriousness of the charges of EGI against allegations, arguments, and evidence.
UCPB, et al., the BSP Monetary Board While the speedy disposition of cases is a
should have conducted a more intensive constitutionally mandated right, the
inquiry and rendered a more paramount duty of the courts, as well as
comprehensive quasi-judicial bodies, is to render justice
decision.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ by following the basic rules and principles
By remanding the case to the BSP of due process and fair play.
Monetary Board, the Court of Appeals only WHEREFORE, premises considered, the
acted in accordance with Republic Act No. Petition for Review on Certiorari of United
7653 and Republic Act No. 8791, which Coconut Planters Bank, Jeronimo U.
tasked the BSP, through the Monetary Kilayko, Lorenzo V. Tan, Enrique L. Gana,
Board, to determine whether a particular Jaime W. Jacinto and Emily R. Lazaro, in
act or omission, which is not otherwise G.R. No. 168859; as well as the Petition
prohibited by any law, rule or regulation for Review on Certiorari of E. Ganzon, Inc.
affecting banks, quasi-banks or trust in G.R. No. 168897, are hereby DENIED.
entities, may be deemed as conducting The Decision dated 14 October 2004 and
business in an unsafe or unsound manner. Resolution dated 7 July 2005 of the Court
Also, the BSP Monetary Board is the of Appeals in CA-G.R. SP No. 81385 are
proper body to impose the necessary hereby AFFIRMED in toto. No costs.
administrative sanctions for the erring SO ORDERED.
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
G.R. No. L-14279            October 31, be paid, by said principal and surety, required by the aforementioned executive
1961 jointly and severally, to the Bureau of order.
THE COMMISSIONER OF CUSTOMS Customs, within thirty (30) days from The authority of the Central Bank to
and THE COLLECTOR OF notice. regulate no-dollar imports and the validity
CUSTOMS, petitioners, On appeal taken by the consignee, said of the aforementioned Circulars Nos. 44,
vs. decision was affirmed by the and 45 have already been passed upon
EASTERN SEA TRADING, respondent. Commissioner of Customs on December and repeatedly upheld by this Court
Office of the Solicitor General for 27, 1956. Subsequently, the consignee (Pascual vs. Commissioner of Customs, L-
petitioners. sought a review of the decision of said two 10979 [June 30, 1959]; Acting
Valentin Gutierrez for respondent. (2) officers by the Court of Tax Appeals, Commissioner of Customs vs. Leuterio, L-
CONCEPCION, J.: which reversed the decision of the 9142 [October 17, 1959] Commissioner of
Petition for review of a judgment of the Commissioner of Customs and ordered Customs vs. Pascual, L-9836 [November
Court of Tax Appeals reversing a decision that the aforementioned bonds be 18, 1959]; Commissioner of Customs vs.
of the Commissioner of Customs. cancelled and withdrawn. Hence, the Serree Investment Co., L-12007 [May 16,
Respondent Eastern Sea Trading was the present petition of the Commissioner of 1960]; Commissioner of Customs vs.
consignee of several shipments of onion Customs for review of the decision of the Serree Investment Co., L-14274
and garlic which arrived at the Port of Court of Tax Appeals. [November 29, 1960]), for the reason that
Manila from August 25 to September 7, The latter is based upon the following the broad powers of the Central Bank,
1954. Some shipments came from Japan premises, namely: that the Central Bank under its charter, to maintain our
and others from Hong Kong. In as much has no authority to regulate transactions monetary stability and to preserve the
as none of the shipments had the not involving foreign exchange; that the international value of our currency, under
certificate required by Central Bank shipments in question are in the nature of section 2 of Republic Act No. 265, in
Circulars Nos. 44 and 45 for the release "no-dollar" imports; that, as such, the relation to section 14 of said Act —
thereof, the goods thus imported were aforementioned shipments do not involve authorizing the bank to issue such rules
seized and subjected to forfeiture foreign exchange; that, insofar as a and regulations as it may consider
proceedings for alleged violations of Central Bank license and a certificate necessary for the effective discharge of
section 1363(f) of the Revised authorizing the importation or release of the responsibilities and the exercise of the
Administrative Code, in relation to the the goods under consideration are powers assigned to the Monetary Board
aforementioned circulars of the Central required by Central Bank Circulars Nos. 44 and to the Central Bank — connote the
Bank. In due course, the Collector of and 45, the latter are null and void; and authority to regulate no-dollar imports,
Customs of Manila rendered a decision on that the seizure and forfeiture of the owing to the influence and effect that the
September 4, 1956, declaring said goods goods imported from Japan cannot be same may and do have upon the stability
forfeited to the Government and — the justified under Executive Order No. of our peso and its international value.
goods having been, in the meantime, 328,1 not only because the same seeks to The Court of Tax Appeals entertained
released to the consignees on surety implement an executive agreement2 — doubts on the legality of the executive
bonds, filed by the same, as principal, and extending the effectivity of our3 Trades agreement sought to be implemented by
the Alto Surety & Insurance Co., Inc., as and Financial Agreements4 with Japan — Executive Order No. 328, owing to the fact
surety, in compliance with orders of the which (executive agreement), it believed, that our Senate had not concurred in the
Court of First Instance of Manila, in Civil is of dubious validity, but, also, because making of said executive agreement. The
Cases Nos. 23942 and 23852 thereof — there is no governmental agency concurrence of said House of Congress is
directing that the amounts of said bonds authorized to issue the import license required by our fundamental law in the
making of "treaties" (Constitution of the President pursuant to the McKinley Tariff the U.S. Constitutional Law, Vol. I [2d
Philippines, Article VII, Section 10[7]), Act of 1890 (26 Stat. 567, 612), and nine ed.], pp. 537-540; Moore, International
which are, however, distinct and different such agreements were entered into under Law Digest, Vol. V, pp. 210-218;
from "executive agreements," which may the Dingley Tariff Act 1897 (30 Stat. 151, Hackworth, International Law Digest, Vol.
be validly entered into without such 203, 214). A very much larger number of V, pp. 390-407). (Emphasis supplied.)
concurrence. agreements, along the lines of the one In this connection, Francis B. Sayre,
Treaties are formal documents which with Rumania previously referred to, former U.S. High Commissioner to the
require ratification with the approval of providing for most-favored-nation Philippines, said in his work on "The
two thirds of the Senate. Executive treatment in customs and related matters Constitutionality of Trade Agreement
agreements become binding through have been entered into since the passage Acts":
executive action without the need of a of the Tariff Act of 1922, not by direction Agreements concluded by the President
vote by the Senate or by Congress. of the Act but in harmony with it. which fall short of treaties are commonly
xxx           xxx           xxx xxx           xxx           xxx referred to as executive agreements and
. . . the right of the Executive to enter into International agreements involving are no less common in our scheme of
binding agreements without the necessity political issues or changes of national government than are the more formal
of subsequent Congressional approval has policy and those involving international instruments — treaties and conventions.
been confirmed by long usage. From the arrangements of a permanent character They sometimes take the form of
earliest days of our history we have usually take the form of treaties. But exchanges of notes and at other times
entered into executive agreements international agreements that of more formal documents
covering such subjects as commercial and embodying adjustments of detail carrying denominated "agreements" time or
consular relations, most-favored-nation out well-established national policies and "protocols". The point where ordinary
rights, patent rights, trademark and traditions and those involving correspondence between this and other
copyright protection, postal and arrangements of a more or less temporary governments ends and agreements —
navigation arrangements and the nature usually take the form of executive whether denominated executive
settlement of claims. The validity of these agreements. agreements or exchanges of notes or
has never been seriously questioned by xxx           xxx           xxx otherwise — begin, may sometimes be
our courts. Furthermore, the United States Supreme difficult of ready ascertainment. It would
xxx           xxx           xxx Court has expressly recognized the be useless to undertake to discuss here
Agreements with respect to the validity and constitutionality of executive the large variety of executive agreements
registration of trade-marks have been agreements entered into without Senate as such, concluded from time to time.
concluded by the Executive with various approval. (39 Columbia Law Review, pp. Hundreds of executive agreements, other
countries under the Act of Congress of 753-754) (See, also, U.S. vs. Curtis- than those entered into under the trade-
March 3, 1881 (21 Stat. 502). Postal Wright Export Corporation, 299 U.S. 304, agreements act, have been negotiated
conventions regulating the reciprocal 81 L. ed. 255; U.S. vs. Belmont, 301 U.S. with foreign governments. . . . It would
treatment of mail matters, money orders, 324, 81 L. ed. 1134; U.S. vs. Pink, 315 seem to be sufficient, in order to show
parcel post, etc., have been concluded by U.S. 203, 86 L. ed. 796; Ozanic vs. U.S., that the trade agreements under the act
the Postmaster General with various 188 F. 2d. 288; Yale Law Journal, Vol. 15, of 1934 are not anomalous in character,
countries under authorization by Congress pp. 1905-1906; California Law Review, that they are not treaties, and that they
beginning with the Act of February 20, Vol. 25, pp. 670-675; Hyde on have abundant precedent in our history,
1792 (1 Stat. 232, 239). Ten executive International Law [Revised Edition], Vol. to refer to certain classes of agreements
agreements were concluded by the 2, pp. 1405, 1416-1418; Willoughby on heretofore entered into by the Executive
without the approval of the Senate. They Administration" or Commission. Indeed,
cover such subjects as the inspection of the latter was created only to perform the
vessels, navigation dues, income tax on task of implementing certain objectives of
shipping profits, the admission of civil the Monetary Board and the Central
aircraft, customs matters, and commercial Bank, which otherwise had to be
relations generally, international claims, undertaken by these two (2) agencies.
postal matters, the registration of Upon the abolition of said Commission,
trademarks and copyrights, etcetera. the duty to provide means and ways for
Some of them were concluded not by the accomplishment of said objectives had
specific congressional authorization but in merely to be discharged directly by the
conformity with policies declared in acts of Monetary Board and the Central Bank,
Congress with respect to the general even if the aforementioned Executive
subject matter, such as tariff acts; while Order had been silent thereon.
still others, particularly those with respect WHEREFORE, the decision appealed from
of the settlement of claims against foreign is hereby reversed and another one shall
governments, were concluded be entered affirming that of the
independently of any legislation." (39 Commissioner of Customs, with cost
Columbia Law Review, pp. 651, 755.) against respondents defendant-appellee,
The validity of the executive agreement in Eastern Sea Trading. It is so ordered.
question is thus patent. In fact, the so- Bengzon, C.J., Padilla, Bautista Angelo,
called Parity Rights provided for in the Labrador, Reyes, J.B.L., Paredes, Dizon
Ordinance Appended to our Constitution and De Leon, JJ., concur.
were, prior thereto, the subject of an Barrera, J., took no part.
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
[G.R. No. 88435. January 16, 2002.] support the recovery of the Philippine amending the Central Bank’s Manual of
economy, at the time suffering severely Regulations for Banks and other Financial
DEVELOPMENT BANK OF THE from the financial crisis that hit the Intermediaries, in line with the
PHILIPPINES, JESUS P. ESTANISLAO, country during the latter part of the government’s commitment to the World
DOLORES A. SANTIAGO, LYNN H. Marcos regime. Bank to require a private external auditor
CATUNCAN, NORMA O. TERREL, MA. for DBP. Thus, on December 5, 1986, the
ANTONIA G. REBUENO, Petitioners, v. As a condition for granting the loan, the Central Bank Governor issued Central
COMMISSION ON AUDIT, Respondent. World Bank required the Philippine Bank Circular No. 1124, providing
government to rehabilitate the DBP which that:jgc:chanrobles.com.ph
DECISION was then saddled with huge non-
performing loans. Accordingly, the "SECTION 1. Subsection 1165.5 (Book I)
government committed to rehabilitate the is amended to read as follows:chanrob1es
CARPIO, J.: DBP to make it a viable and self- virtual 1aw library
sustaining financial institution in
recognition of its developmental role in 1165.5 Financial Audit. — Each Bank,
The Case the economy. The DBP was expected to whether Government-owned or controlled
continue "providing principally medium or private, shall cause an annual financial
and long-term financing to projects with audit to be conducted by an external
This is a petition for review on certiorari 1 risks higher than the private sector may independent auditor not later than thirty
of the letter-decision of the Chairman of be willing to accept under reasonable (30) days after the close of the calendar
the Commission on Audit 2 ("COA" for terms." 4 The government’s commitment year or the fiscal year adopted by the
brevity) and the letter-decision of the COA was embodied in the Policy Statement for bank. . . .
en banc 3 , prohibiting the Development the Development Bank of the Philippines
Bank of the Philippines ("DBP" for brevity) which stated in . . . The Audit of a Government-owned or
from hiring a private external auditor. This part:jgc:chanrobles.com.ph controlled bank by an external
petition raises a question of first independent auditor shall be in addition to
impression, whether or not the "4. Furthermore, like all financial and without prejudice to that conducted
constitutional power of the COA to institutions under Central Bank by the Commission on Audit in the
examine and audit the DBP is exclusive supervision, DBP will now be required to discharge of its mandate under existing
and precludes a concurrent audit of the have a private external audit, and its law. . . .
DBP by a private external Board of Directors will now be opened to x       x       x
auditor.chanrob1es virtua1 1aw 1ibrary adequate private sector representation. It
is hoped that with these commitments,
The Antecedent Facts DBP can avoid the difficulties of the past "SECTION 3. The requirements for an
and can function as a competitive and annual financial audit by an external
In 1986, the Philippine government, under viable financial institution within the independent auditor shall extend to
the administration of then President Philippine financial system." 5 (Emphasis specialized and unique government banks
Corazon C. Aquino, obtained from the supplied) such as the Land Bank of the Philippines
World Bank an Economic Recovery Loan and the Development Bank of the
("ERL" for brevity) in the amount of On November 28, 1986, the Monetary Philippines," 6
US$310 million. The ERL was intended to Board adopted Resolution No. 1079
On December 12, 1986, pursuant to letter (referred to in par. 1, a draft of be undertaken by the private external
Central Bank Circular No. 1124 and the which is attached as Annex VIII) auditors to be engaged by the DBP. 11
government’s commitment to the World regarding DBP’s appointment of a private
Bank, DBP Chairman Jesus Estanislao external auditor will be sent to the Bank On February 18, 1987, the Board of
wrote the COA seeking approval of the before the distribution of the loan Directors of the DBP approved the hiring
DBP’s engagement of a private external documents to the Bank’s Board, along of Joaquin Cunanan & Co. as the DBP’s
auditor in addition to the COA. 7 with a copy of the scope of audit as private external auditor for calendar year
approved by COA and satisfactory to the 1986 as required by Central Bank Circular
On January 2, 1987, to formalize its Bank.chanrob1es virtua1 1aw 1ibrary No. 1224 and the World Bank. The DBP
request for the ERL, the Philippine Board of Directors placed a ceiling on the
government sent the World Bank a letter With regard to the scope of the audit to be amount of reimbursable out-of-pocket
assuring the World Bank that pursuant to undertaken by the private external expenses that could be charged by the
Central Bank Circular No. 1124, "all auditors, the terms of reference which will private auditor. 12
Banks, including government banks, shall be issued to the selected auditors should
be fully audited by external independent be generally consistent with the attached On February 23, 1987, the World Bank
auditors . . . in addition to that provided model terms of reference for financial President, in his report to the Bank’s
by the Commission on Audit." The letter audits (Annex IX). These general terms of Executive Directors on the Philippine
was signed by the Central Bank Governor reference were discussed during government’s application for the ERL,
and the Ministers of Finance, Trade and negotiations and form a part of the World certified that the Philippine government
Industry, and Economic Planning of the Bank’s guidelines for financial information was complying with the requirement of a
Philippine government. 8 on financial institutions." 9 private external auditor. The World Bank
President’s certification stated
On January 8, 1987, the Philippine On January 20, 1987, the COA Chairman that:jgc:chanrobles.com.ph
government and World Bank negotiating Teofisto Guingona, Jr. replied to the
panels reached final agreement on the December 12, 1986 letter of the DBP "74. Accounting and Auditing. — All banks
private audit of the DBP, as Chairman. The COA Chairman’s reply both government and private are now
follows:jgc:chanrobles.com.ph stated that:jgc:chanrobles.com.ph subject to accounting and auditing
standards as established by the Central
"13. With respect to the draft Policy ". . . the Commission on Audit (COA) will Bank. To ensure full public accountability,
Statement, it was agreed that Sections 4, interpose no objection to your the Monetary Board now requires that all
7 and 11 would be amended as engagement of a private external auditor government banks be subject to annual
follows:chanrob1es virtual 1aw library as required by the Economic Recovery audits by independent private auditing
Program Loan Agreements of 1987 firms, in addition to those normally
. . . (iii) Section 11 should in line with the provided that the terms for said audit are undertaken by the Government’s
letter of Development Policy, confirm that first reviewed and approved by the Commission on Audit. DBP and PNB have
the external independent audits would Commission." 10 already selected private auditors, and
commence with a balance sheet audit as audited accounts for 1986 and 1987 will
of December 31, 1986 and a full financial The following day, the COA Chairman also be a requirement for the releases of the
audit, including income statements, informed the Consultant of the Central second and third tranches, respectively, of
starting with the period July 1 to Bank that the COA interposed no objection the ERL." 13
December 31, 1986. A copy of COA’s to the proposed scope of audit services to
However, a change in the leadership of "(a) In the letter to the Central Bank
the COA suddenly reversed the course of On July 1, 1987, the DBP Chairman sent Governor . . ., this Commission clearly
events. On April 27, 1987, the new COA to the COA Chairman a copy of the DBP’s stated its non-negotiable stand on the
Chairman, Eufemio Domingo, wrote the contract with Joaquin Cunanan & Co., issue in the following terms:chanrob1es
Central Bank Governor protesting the signed four months earlier on March 5, virtual 1aw library
Central Bank’s issuance of Circular No. 1987. The DBP Chairman’s covering
1124 which allegedly encroached upon the handwritten note sought the COA’s ‘. . . the very essence of the Commission
COA’s constitutional and statutory power concurrence to the contract. 16 on Audit as an independent constitutional
to audit government agencies. The COA commission in the total scheme of
Chairman’s letter informed the Governor During the pendency of the DBP Government is its singular function to
that:jgc:chanrobles.com.ph Chairman’s note-request for concurrence, ‘[E]xamine, audit, and settle, . . . all
the DBP paid the billings of the private accounts pertaining to . . . the
"This Commission hereby registers its auditor in the total amount of Government, or any of its
strong objection to that portion of the CBP P487,321.14 17 despite the objection of subdivisions, . . . including government-
Circular No. 1124 which requires the COA. On October 30, 1987, the COA owned or controlled corporations.’ To
government banks to engage private Chairman issued a Memorandum allow private firms to interfere in this
auditors in addition to that conducted by disallowing the payments, and holding the governmental audit domain would be to
the Commission on Audit, and urges the following persons personally liable for derogate the Constitutional supremacy of
immediate amendment thereof. It is the such payment:jgc:chanrobles.com.ph State audit as the Government’s guardian
position of the Commission that the said of the people’s treasury, and as the prime
requirement: (a) infringes on Article IX-D "SVP Fajardo who approved the voucher advocate of economy in the use of
of the Philippine Constitution; (b) violates for payment; VP Santiago who certified government resources.’chanrob1es
Section 26 and 32 of the Government that the expenditure was authorized, virtua1 1aw 1ibrary
Auditing Code of the Philippines; (c) necessary and lawful; SM Terrel, Catuncan x       x       x
exposes the financial programs and and Rebueno who signed the checks; and
strategies of the Philippine Government to the head of office who signed the contract
high security risks; (d) allows the and who is immediately and primarily "(c) In the letter to the Secretary of
unnecessary and unconscionable responsible for the funds of the Bank." 18 Finance dated January 28, 1988 . . ., this
expenditure of government funds; and (e) Commission maintains:chanrob1es virtual
encourage unethical encroachment among On January 19, 1988, the DBP Chairman 1aw library
professionals." 14 wrote the COA Chairman seeking
reconsideration of the COA Chairman’s 1.’COA is in no way prepared to permit
On May 13, 1987, after learning that the Memorandum. 19 However, the DBP ‘use of private auditors’ except insofar as
DBP had signed a contract with a private received no response until August 29, the law allows, which is ‘to deputize and
auditing firm for calendar year 1986, the 1988 when the COA Chairman issued a retain in the name of the Commission
new COA Chairman wrote the DBP letter-decision denying petitioner’s July 1, such certified public accountants and
Chairman that the COA resident auditors 1987 note-request for concurrence. The other licensed professionals not in the
were under instructions to disallow any letter-decision, one of the two COA public service as it may deem necessary
payment to the private auditor whose decisions assailed in this petition, declared to assist the government auditors in
services were unconstitutional, illegal and in part as follows:jgc:chanrobles.com.ph undertaking specialized audit
unnecessary. 15 engagements’ (Sec. 31, PD No. 1445).
Outside of this, the Commission does not Bank’s financial statements for the year "Upon a circumspect evaluation of the
consider the matter of hiring private ending December 31, 1987. grounds upon which your instant request
auditing firms a negotiable matter, and is predicated, this Commission finds the
this we want to emphasize to avoid future "2. To refrain from making any payments same to be devoid of merit. As hereunder
embarrassment to the Government. The out of the funds of the Development Bank demonstrated, the justifications offered do
Commission on Audit is a constitutionally- of the Philippines, in the event that such not inspire rational belief in the mind of
created independent and separate body, audit services have already been this Commission.
and neither Congress nor the Executive rendered, attention being invited to the
Department has the power to detract from following provisions of the Government "First, it bears stress that CB Circular No.
its mandated duties, functions, and Auditing Code of the 1124, series of 1986, which has earlier
powers. Philippines:chanrob1es virtual 1aw library been shown to be constitutionally and
legally infirm, cannot by any means
2.’Since the proceeds of the proposed loan ‘Sec. 108. General liability for unlawful possess any binding and conclusive effect
accrue to the Republic of the Philippines expenditures. — Expenditures of upon this Commission and, hence, may
as borrower, it follows that its accounting government funds or uses of government not be properly invoked in support of the
and audit must comply with the laws of property in violation of law or regulations instant appeal.
this country. To specify in the Loan shall be a personal liability of the official
Agreement that the loan account, once or employee found to be directly "Secondly, it was not the International
released to the Government, shall be responsible therefore.’ Bank for Reconstruction and Development
‘audited by independent auditors which required the audit of government
acceptable to the Bank’ is not only to "3. To restitute, within thirty (30) days banks by private auditing firm, but the
entirely by-pass this Commission but to from receipt hereof, the total amount of Central Bank itself.
ignore as well the Constitution and the P513,549.24 under CV Nos. 9136, 5014,
laws of this country which vests in this 6201 and 4082 for professional services "Thirdly, insofar as this Commission is
Commission the ‘power, authority, and rendered in the audit of the 1986 financial concerned, PD 2029 is an anachronism of
duty to examine, audit, and settle all operations of the Bank. Pursuant to the sorts if viewed in the light of the present
accounts pertaining to the revenue and aforequoted provisions of law, such Constitution recognizing this Commission
receipts of, and expenditures of uses of unlawful expenditure is the personal as the supreme and exclusive audit
funds and property . . . pertaining to the liability of the official directly responsible institution of the government. This is
Government.’ (Sec. 2, Art. IX-D, Phil. therefore. necessarily implicit from the bare
Const.). language of Section 2(1), Article IX-D
Please be guided accordingly." 20 thereof which, despite the absence of the
‘Such brazen disregard of the fundamental qualifying adjective "exclusive" that
law of this country cannot be On September 26, 1988, the DBP anyway would be a surplusage, ought to
countenanced by this Commission.’ Chairman appealed the letter decision to be reasonably construed as vesting in this
the COA en banc. On May 20, 1989, the Commission the "power, authority, and
"In view of all the foregoing, you are COA en banc, in a letter-decision, denied duty" to audit all government accounts to
hereby advised:jgc:chanrobles.com.ph the DBP’s appeal. This letter-decision, now the exclusion of any other person or
also assailed by the DBP, held entity, whether in the public or the private
"1. To desist from proceeding with the that:jgc:chanrobles.com.ph sector. Expressio unius est exclusio
audit of Joaquin Cunanan & Co. of the alterius. A contrary interpretation, such as
that being pressed upon this Commission, your instant request for reconsideration private auditor in the case at bar
would reduce this constitutional ordinance has to be, as it is hereby, denied." 21 necessary, and were the fees paid by DBP
to an absurdity (reductio ad absurdum) as to the private auditor reasonable, under
it thereby would give rise to the rather Hence, on June 14, 1989 the DBP filed the circumstances?
confusing spectacle, as it were, of a this petition for review with prayer for a The Court’s Ruling
government agency or corporation being temporary restraining order, assailing the
audited not only by this Commission but two COA letter-decisions for being
also and in addition thereto by one or two contrary to the Constitution and existing The DBP’s petition is meritorious.
or several private accounting firms — laws. On June 15, 1989 this Court issued
certainly a situation never intended by the a temporary restraining order directing First Issue: Power of COA to Audit under
framers of the Constitution. the COA to cease and desist from the Constitution
enforcing its challenged letter-decisions.
"Lastly, while this Commission has not lost The Office of the Solicitor General, in a The resolution of the primordial issue of
sight of the letter of then COA Chairman Manifestation dated October 18, 1989, whether or not the COA has the sole and
Guingona, Jr. to the DBP Chairman, dated declined to appear on behalf of the COA exclusive power to examine and audit
January 20, 1987, it has opted to be on the ground that the Solicitor General government banks involves an
guided and influenced by the more was "taking a position adverse to that of interpretation of Section 2, Article IX-D of
persuasive and controlling COA Circular the COA." Consequently, a private counsel the 1987 Constitution. This Section
No. 860254 dated March 24, 1986, which on pro bono basis represented the COA. provides as follows:jgc:chanrobles.com.ph
in categorical and precise terms ordained The Issues
that:chanrob1es virtual 1aw library "Sec. 2. (1) The Commission on Audit
shall have the power, authority, and duty
‘Accordingly, by way of reassertion and The DBP’s petition raises the following to examine, audit, and settle all accounts
reaffirmation of its primary audit issues:chanrob1es virtual 1aw library pertaining to the revenue and receipts of,
jurisdiction, as herein above defined, the and expenditures or uses of funds and
Commission on Audit hereby issues the 1. Does the Constitution vest in the COA property, owned and held in trust by, or
following directives:chanrob1es virtual the sole and exclusive power to examine pertaining to, the Government, or any of
1aw library and audit government banks so as to its subdivisions, agencies, or
prohibit concurrent audit by private instrumentalities, including government-
1. Any ongoing audit of a government- external auditors under any circumstance? owned or controlled corporations with
owned and/or controlled corporation or original charters, . . .
any of its subsidiaries or corporate 2. Is there an existing statute that
offsprings being conducted by a private prohibits government banks from hiring "(2) The Commission shall have the
auditor or accounting firm shall cease and private auditors in addition to the COA? If exclusive authority, subject to the
terminate on April 15, 1986. Henceforth, there is none, is there an existing statute limitations in this Article, to define the
from and after said date, the audit of said that authorizes government banks to hire scope of its audit and examination,
corporate entity shall be undertaken solely private auditors in addition to the COA? establish the techniques and methods
and exclusively by the Commission on required therefore, and promulgate
Audit. . .’ 3. If there is no legal impediment to the accounting and auditing rules and
hiring by government banks of a private regulations, including those for the
"Premises considered, it is regretted that auditor, was the hiring by the DBP of the prevention and disallowance of irregular,
unnecessary, excessive, extravagant, or "MR. MONSOD. Earlier Commissioner expense on the part of government.
unconscionable expenditures, or uses of Guingona, in withdrawing his amendment
government funds and properties." to add "EXCLUSIVE" made a statement The Constitutional Commission also
(Emphasis supplied)chanrob1es virtua1 about the preponderant right of COA. rejected this proposed provision, after
1aw 1ibrary Commissioner Monsod made the following
"For the record, we would like to clarify explanation:jgc:chanrobles.com.ph
The COA vigorously asserts that under the the reason for not including the word.
first paragraph of Section 2, the COA First, we do not want an Article that would "MR. MONSOD. . . But it is also a fact that
enjoys the sole and exclusive power to constitute a disincentive or an obstacle to even government agencies,
examine and audit all government private investment. There are government instrumentalities and subdivisions
agencies, including the DBP. The COA institutions with private investments in sometimes borrow money from abroad.
contends this is similar to its sole and them, and some of these investors — And if we are at all going to preclude the
exclusive authority, under the second Filipinos, as well as in some cases, possibility of any concurrent auditing, if
paragraph of the same Section, to define foreigners — require the presence of that is required, and insist that it is only
the scope of its audit, promulgate auditing private auditing firms, not exclusively, but exclusively the government which can
rules and regulations, including rules on concurrently. So this does not take away audit, we may be unnecessarily tying their
the disallowance of unnecessary the power of the Commission on Audit. hands without really accomplishing much
expenditures of government agencies. The Second, there are certain instances where more than what we want. As long as the
bare language of Section 2, however, private auditing may be required, like the COA is there, and the COA’s power cannot
shows that the COA’s power under the listing in the stock exchange. In other be eliminated by law, by decree or
first paragraph is not declared exclusive, words, we do not want this provision to be anything of that sort, then the
while its authority under the second an unnecessary obstacle to privatization of government funds are protected.
paragraph is expressly declared these companies or attraction of
"exclusive." There is a significant reason investments." 22 (Emphasis supplied) As far as the question of fees is
for this marked difference in language. concerned, this is always negotiable.
Shortly thereafter, Commissioner Besides, if one talks about auditing fees,
During the deliberations of the Guingona attempted to resurrect his these are governed by certain regulations
Constitutional Commission, Commissioner amendment by proposing the following within the auditing profession beyond
Serafin Guingona proposed the addition of provision:jgc:chanrobles.com.ph which auditing firms cannot go.
the word "exclusive" in the first paragraph Furthermore, the government can always
of Section 2, thereby granting the COA "Private auditing firms may not examine refuse to pay unconscionable fees. So,
the sole and exclusive power to examine or audit accounts pertaining to the that matter really is not that relevant. But
and audit all government agencies. revenue receipts of, and expenditures or I think what we want to insist on is that
However, the Constitutional Commission uses of funds and property owned or held there should be some flexibility so that a
rejected the addition of the word in trust by or pertaining to the procedural requirement does not impede a
"exclusive" in the first paragraph of Government or any of its subdivisions, substantive transaction as long as COA is
Section 2 and Guingona was forced to agencies or instrumentalities." 23 there." 24 (Emphasis supplied)
withdraw his proposal. Commissioner
Christian Monsod explained the rejection Guingona argued that a private audit in The rejection of Guingona’s second
in this manner:jgc:chanrobles.com.ph addition to the COA audit would be a proposal put an end to all efforts to grant
useless duplication and an unnecessary the COA the sole and exclusive power to
examine and audit government agencies. that the COA’s power to examine and modified or reversed by the courts.
audit is non-exclusive. On the other hand,
In sharp contrast, the Constitutional the COA’s authority to define the scope of The power of the COA to examine and
Commission placed the word "exclusive" its audit, promulgate auditing rules and audit government agencies, while non-
to qualify the authority of the COA under regulations, and disallow unnecessary exclusive, cannot be taken away from the
the second paragraph of the same Section expenditures is exclusive. COA. Section 3, Article IX-D of the
2 in the 1935 and 1973 Constitutions. 25 Constitution mandates
There is no dispute that the COA’s Moreover, as the constitutionally that:jgc:chanrobles.com.ph
authority under the second paragraph of mandated auditor of all government
Section 2 is exclusive as the language of agencies, the COA’s findings and "Sec. 3. Now law shall be passed
the Constitution admits of no other conclusions necessarily prevail over those exempting any entity of the Government
meaning. Thus, the COA has the exclusive of private auditors, at least insofar as or its subsidiary in any guise whatsoever,
authority to decide on disallowance of government agencies and officials are or any investment of public funds, from
unnecessary government expenditures. concerned. The superiority or the jurisdiction of the Commission on
Other government agencies and their preponderance of the COA audit over Audit."cralaw virtua1aw library
officials, as well as private auditors private audit can be gleaned from the
engaged by them, cannot in any way records of the Constitutional Commission, The mere fact that private auditors may
intrude into this exclusive function of the as follows:jgc:chanrobles.com.ph audit government agencies does not
COA. divest the COA of its power to examine
"MR. GUINGONA. Madam President, after and audit the same government agencies.
The qualifying word "exclusive" in the consultation with the honorable members The COA is neither by-passed nor ignored
second paragraph of Section 2 cannot be of the Committee, I have amended my since even with a private audit the COA
applied to the first paragraph which is proposed amendment by deleting the will still conduct its usual examination and
another sub-section of Section 2. A word EXCLUSIVE because I was made to audit, and its findings and conclusions will
qualifying word is intended to refer only to understand that the Commission on Audit still bind government agencies and their
the phrase to which it is immediately will still have the preponderant power and officials. A concurrent private audit poses
associated, and not to a phrase distantly authority to examine, audit and settle." 27 no danger whatsoever of public funds or
located in another paragraph or sub- (Emphasis supplied) assets escaping the usual scrutiny of a
section. 26 Thus, the first paragraph of COA audit.
Section 2 must be read the way it The findings and conclusions of the private
appears, without the word "exclusive", auditor may guide private investors or Manifestly, the express language of the
signifying that non-COA auditors can also creditors who require such private audit. Constitution, and the clear intent of its
examine and audit government agencies. Government agencies and officials, framers, point to only one indubitable
Besides, the framers of the Constitution however, remain bound by the findings conclusion — the COA does not have the
intentionally omitted the word "exclusive" and conclusions of the COA, whether the exclusive power to examine and audit
in the first paragraph of Section 2 matter falls under the first or second government agencies. The framers of the
precisely to allow concurrent audit by paragraph of Section 2, unless of course Constitution were fully aware of the need
private external auditors. such findings and conclusions of the COA, to allow independent private audit of
whether the matter falls under the first or certain government agencies in addition to
The clear and unmistakable conclusion second paragraph of Section 2, unless of the COA audit, as when there is a private
from a reading of the entire Section 2 is course such findings and conclusions are investment in a government-controlled
corporation, or when a government Constitution is evident from the bare of the public. Undeniably, the Central
corporation is privatized or publicly listed, language of Section 2 itself. The Bank’s power of "supervision" includes the
or as in the case at bar when the deliberations of the Constitutional power to examine and audit banks, as the
government borrows money from Commission confirm expressly and even banking laws have always recognized this
abroad.chanrob1es virtua1 1aw 1ibrary elucidate further this intent beyond any power of the Central Bank. 31 Hence, the
doubt whatsoever. COA’s power to examine and audit
In these instances the government enters government banks must be reconciled
the marketplace and competes with the There is another constitutional barrier to with the Central Bank’s power to
rest of the world in attracting investments the COA’s insistence of exclusive power to supervise the same banks. The inevitable
or loans. To succeed, the government examine and audit all government conclusion is that the COA and the Central
must abide with the reasonable business agencies. The COA’s claim clashes directly Bank have concurrent jurisdiction, under
practices of the marketplace. Otherwise with the Central Bank’s constitutional the Constitution, to examine and audit
no investor or creditor will do business power of "supervision" over banks under government banks.
with the government, frustrating Section 20, Article VII of the Constitution.
government efforts to attract investments This provision states as However, despite the Central Bank’s
or secure loans that may be critical to follows:jgc:chanrobles.com.ph concurrent jurisdiction over government
stimulate moribund industries or banks, the COA’s audit still prevails over
resuscitate a badly shattered national "Sec. 20. The Congress shall establish an that of the Central Bank since the COA is
economy as in the case at bar. By design independent central monetary authority, the constitutionally mandated auditor of
the Constitution is flexible enough to meet the members of whose governing board government banks. And in matters falling
these exigencies. Any attempt to nullify must be natural-born Filipino citizens, of under the second paragraph of Section 2,
this flexibility in the instances mentioned, known probity, integrity, and patriotism, Article IX-D of the Constitution, the COA’s
or in similar instances, will be ultra vires, the majority of whom shall come from the jurisdiction is exclusive. Thus, the Central
in the absence of a statute limiting or private sector. They shall also be subject Bank is devoid of authority to allow or
removing such flexibility. to such other qualifications and disabilities disallow expenditures of government
as may be prescribed by law. The banks since this function belongs
The deliberations of the Constitutional authority shall provide policy direction in exclusively to the COA.
Commission reveal eloquently the intent the areas of money, banking, and credit.
of Section 2, Article IX-D of the It shall have supervision over the Second Issue: Statutes Prohibiting or
Constitution. As this Court has ruled operations of banks and exercise such Authorizing Private Auditors
repeatedly, the intent of the law is the regulatory powers as may be provided by
controlling factor in the interpretation of law over the operations of finance THE COA argues that Sections 26, 31 and
the law. 28 If a law needs interpretation, companies and other institutions 32 of PD No. 1445, otherwise known as
the most dominant influence is the intent performing similar functions." (Emphasis the Government Auditing Code of the
of the law. 29 The intent of the law is that supplied) Philippines, prohibit the hiring of private
which is expressed in the words of the auditors by government agencies. Section
law, which should be discovered within its Historically, the Central Bank has been 26 of PD No. 1445 provides
four corners aided, if necessary, by its conducting periodic and special that:jgc:chanrobles.com.ph
legislative history. 30 In the case of examination and audit of banks to
Section 2, Article IX-D of the Constitution, determine the soundness of their "SECTION 26. General Jurisdiction. — The
the intent of the framers of the operations and the safety of the deposits authority and powers of the Commission
shall extend to and comprehend all expressly or impliedly, that the COA’s in conformity with Sections 25 and 28 33
matters relating to auditing procedures, power to examine and audit government of the New Central Bank Act (RA No.
systems and controls, the keeping of the banks is exclusive, thereby preventing 7653) which authorize expressly the
general accounts of the Government, the private audit of government agencies Monetary Board to conduct periodic or
preservation of vouchers pertaining concurrently with the COA audit. special examination of all banks. Sections
thereto for a period of ten years, the 25 and 28 of the New Central Bank Act
examination and inspection of the books, Section 26 is a definition of the COA’s state as follows:jgc:chanrobles.com.ph
records, and papers relating to those "general jurisdiction." Jurisdiction may be
accounts; and the audit and settlement of exclusive or concurrent. Section 26 of PD "Sec. 25. Supervision and Examination. —
the accounts of all persons respecting No. 1445 does not state that the COA’s The Bangko Sentral shall have supervision
funds or property received or held by jurisdiction is exclusive, and there are over, and conduct periodic or special
them in an accountable capacity, as well other laws providing for concurrent examinations of, banking institutions . . .
as the examination, audit, and settlement jurisdiction. Thus, Section 26 must be (Emphasis supplied)
of all debts and claims of any sort due or applied in harmony with Section 58 32 of x       x       x
owing to the Government or any of its the General Banking Law of 2000 (R.A.
subdivisions, agencies or No. 8791) which authorizes unequivocally
instrumentalities. The said jurisdiction the Monetary Board to require banks to "Sec. 28. Examination and Fees. — The
extends to all government-owned or hire independent auditors. Section 58 of supervising and examining department
controlled corporations, including their the General Banking Law of 2000 states head, personally or by deputy, shall
subsidiaries, and other self-governing as follows:jgc:chanrobles.com.ph examine the books of every banking
boards, commissions, or agencies of the institution once in every twelve (12)
government, and as herein prescribed, "SECTION 58. Independent Auditor. — months, and at such other time as the
including non-governmental entities The Monetary Board may require a bank, Monetary Board by an affirmative vote of
subsidized by the government, those quasi-bank or trust entity to engage the five (5) members may deem expedient
funded by donations through the services of an independent auditor to be and to make a report on the same to the
government, those required to pay levies chosen by the bank, quasi-bank or trust Monetary Board: . . ." (Emphasis
or government share, and those for which entity concerned from a list of certified supplied)
the government has put up a counterpart public accountants acceptable to the
fund or those partly funded by the Monetary Board. The term of the The power vested in the Monetary Board
government."cralaw virtua1aw library engagement shall be as prescribed by the under Section 58 of the General Banking
Monetary Board which may either be on a Law of 2000, and Sections 25 and 28 of
Section 26 defines the extent and scope of continuing basis where the auditor shall the New Central Bank Act, emanates from
the powers of the COA. Considering the act as resident examiner, or on the basis the Central Bank’s explicit constitutional
comprehensive definition in Section 26, of special engagements; but in any case, mandate to exercise "supervision over the
the COA’s jurisdiction covers all the independent auditor shall be operations of banks." Under Section 4 of
government agencies, offices, bureaus responsible to the bank’s, quasi-bank’s or the General Banking Law of 2000, the
and units, including government-owned or trust entity’s board of directors. A copy of term "supervision" 34 is defined as
controlled corporations, and even non- the report shall be furnished to the follows:jgc:chanrobles.com.ph
governmental entities enjoying subsidy Monetary Board. . . ." (Emphasis supplied)
from the government. However, there is "SECTION 4. Supervisory Powers. — The
nothing in Section 26 that states, Moreover, Section 26 must also be applied operations and activities of banks shall be
subject to supervision of the Bangko government auditors. — (1) The COA’s claim.
Sentral. "Supervision" shall include the Commission may, when the exigencies of
following:chanrob1es virtual 1aw library the service so require, deputize and retain Moreover, the COA further contends that
x       x       x in the name of the Commission such Section 32 of PD No. 1445 is another
certified public accountants and other provision of law that prohibits the hiring of
licensed professionals not in the public private auditors by government agencies.
4.2. The conduct of examination to service as it may deem necessary to assist Section 32 provides as
determine compliance with laws and government auditors in undertaking follows:jgc:chanrobles.com.ph
regulations if the circumstances so specialized audit engagements.
warrant as determined by the Monetary "SECTION 32. Government contracts for
Board; "(2) The deputized professionals shall be auditing, accounting, and related services.
x       x       x entitled to such compensation and — (1) No government agency shall enter
allowances as may be stipulated, subject into any contract with any private person
to pertinent rules and regulations on or firm for services to undertake studies
4.4 Regular investigation which shall not compensation and fees."cralaw virtua1aw and services relating to government
be oftener than once a year from the last library auditing, including services to conduct, for
date of examination to determine whether a fee, seminars or workshops for
an institution is conducting its business on According to the COA, Section 31 is the government personnel on these topics,
a safe or sound basis: Provided, That the maximum extent that private auditors can unless the proposed contract is first
deficiencies/irregularities found by or participate in auditing government submitted to the Commission to enable it
discovered by an audit shall immediately agencies and anything beyond this is to determine if it has the resources to
be addressed; without legal basis. Hence, the COA undertake such studies or services. The
maintains that the hiring of private Commission may engage the services of
x       x       x" (Emphasis supplied) auditors who act in their own name and experts from the public or private sector
operate independently of the COA is in the conduct of these studies.
Clearly, under existing laws, the COA does unlawful.
not have the sole and exclusive power to "(2) Should the Commission decide not to
examine and audit government banks. Section 31 is bereft of any language that undertake the study or service, it shall
The Central Bank has concurrent prohibits, expressly or impliedly, the nonetheless have the power to review the
jurisdiction to examine and audit, or cause hiring of private auditors by government contract in order to determine the
the examination and audit, of government agencies. This provision of law merely reasonableness of its costs." (Emphasis
banks. grants authority to the COA to hire and supplied)
deputize private auditors to assist the COA
Section 31 of PD No. 1445, another in the auditing of government agencies. Section 32 refers to contract for studies
provision of law claimed by the COA to Such private auditors operate under the and services "relating to government
prohibit the hiring of private auditors by authority of the COA. By no stretch of auditing" which the COA may or may not
government agencies, provides as statutory construction can this provision want to undertake itself for a government
follows:jgc:chanrobles.com.ph be interpreted as an absolute statutory agency. Stated another way, Section 32
ban on the hiring of private auditors by speaks of studies and services that the
"SECTION 31. Deputization of private government agencies. Evidently, the COA may choose not to render to a
licensed professionals to assist language of the law does not support the government agency. Obviously, the
subject of these contracts is not the audit "SECTION 14. The Batasang Pambansa
itself of a government agency because the On the other hand, the DBP cites Central shall establish a central monetary
COA is compelled to undertake such audit Bank Circular No. 1124 36 as legal basis authority which shall provide policy
and cannot choose not to conduct such for hiring a private auditor. This Circular direction in the areas of money, banking
audit. The Constitution and existing law amended Subsection 1165.5 (Book I) of and credit. It shall be supervisory
mandate the COA to audit all government the Manual of Regulations for Banks and authority over the operations of banks and
agencies. Section 2, Article IX-D of the other Financial Intermediaries to require" exercise such regulatory authority as may
Constitution commands that the COA [E]ach bank, whether government-owned be provided by law over the operations of
"shall have the . . . duty to examine, or controlled or private, . . . (to) cause an finance companies and other institutions
audit, and settle all accounts" of annual financial audit to be conducted by performing similar functions. Until the
government agencies (Emphasis an external auditor . . ." Moreover, the Batasang Pambansa shall otherwise
supplied). Similarly, the Revised Circular states that the "audit of provide, the Central Bank of the
Administrative Code of 1987 directs that government-owned or controlled bank by Philippines, operating under existing laws,
the "Commission on Audit shall have an external independent auditor shall be shall function as the central monetary
the . . . duty to examine, audit, and settle in addition to and without prejudice to authority." (Emphasis supplied)
all accounts" 35 of government agencies that conducted by the Commission on
(Emphasis supplied.) Hence, the COA Audit in the discharge of its mandate Section 6-D of the General Banking Act
cannot refuse to audit government under existing law." Furthermore, the (RA No. 337) vested the Monetary Board
agencies under any Circular provides that the "requirement for with the specific power to "require a bank
circumstance.chanrob1es virtua1 1aw an annual audit by an external to engage the services of an independent
1ibrary independent auditor shall extend to auditor to be chosen by the bank
specialized and unique government banks concerned from a list of certified public
The subject of the contracts referred to in such as the Land Bank of the Philippines accountants acceptable to the Monetary
Section 32 is necessarily limited to and the Development Bank of the Board."cralaw virtua1aw library
studies, seminars, workshops, research Philippines."cralaw virtua1aw library
and other services on government The 1987 Constitution created an
auditing which the COA may or may not The Central Bank promulgated Circular independent central monetary authority
undertake at its discretion, thereby No. 1124 on December 5, 1986 pursuant with substantially the same powers as the
excluding the audit itself of government to its power under the Freedom Central Bank under the 1973 Constitution
agencies. Since the COA personnel have Constitution, the fundamental law then in and the Freedom Constitution provides
the experience on government auditing force, as well as pursuant to its general that the Monetary Board "shall have
and are in fact the experts on this subject, rule making authority under the General supervision over the operations of banks."
it is only proper for the COA to be granted Banking Act (RA No. 337), the banking The specific power of the Central Bank
the right of first refusal to undertake such law in effect at the time. Under the under the General Banking Act (RA No.
services if required by government Freedom Constitution, the Central Bank 337) to require an independent audit of
agencies. This is what Section 32 is all exercised supervisory authority over the banks was re-enacted in Section 58 of the
about and nothing more. Plainly, there is banking system. Section 14, Article XV of General Banking Law of 2000 (RA No.
nothing in Section 32 which prohibits the the 1973 Constitution, which was re- 8791).
hiring of private auditors to audit adopted in the Freedom Constitution,
government agencies concurrently with provided as follows:jgc:chanrobles.com.ph Indubitably, the Central Bank had the
the COA audit. express constitutional and statutory power
to promulgate Circular No. 1124 on the Commission on Audit shall not The issues raised in this Case can be
December 5, 1986. The power granted to preclude government corporations from resolved adequately without resolving the
the Central Bank to issue Circular No. engaging the services of private auditing constitutionality of PD No. 2029. This
1124 with respect to the independent firms: Provided, however, that even if the Court will leave the issue of the
audit of banks is direct, unambiguous, and services of the latter are availed of, the constitutionality of PD No. 2029. This
beyond dispute. The Bangko Sentral ng audit report of the Commission on Audit Court will leave the issue of the
Pilipinas, which succeeded the Central shall serve as the report for purposes of constitutionality of PD No. 2029 to be
Bank, retained under the 1987 compliance with audit requirements as settled in another case where its
Constitution and the General Banking Law required of government corporations resolution is an absolute necessity. 40
of 2000 (RA No. 8791) the same under applicable law."cralaw virtua1aw
constitutional and statutory power the library Third Issue: Necessity of Private Auditor
Central Bank had under the Freedom and Reasonableness of the Fees
Constitution and the General Banking Act Section 8 of PD No. 2029, however, also
(RA No. 337) with respect to the provides that the "policy of withdrawal of The remaining issue to be resolved is
independent audit of banks. resident auditors shall be fully whether or not the DBP’s hiring of a
implemented . . ." Section 2 of the same private auditor was necessary and the
Circular No. 1124 has the force and effect decree also excludes from the term fees it paid reasonable under the
of law. In a long line of decisions, 37 this "government-owned or controlled circumstances. The hiring by the DBP of a
Court has held consistently that the rules corporation" two classes of corporations. private auditor was a condition imposed
and regulations issued by the Central The first are originally private corporations by the World Bank for the grant to the
Bank pursuant to its supervisory and the majority of the shares of stock of Philippine government in early 1987 of a
regulatory powers have the force and which are acquired by government US$310 million Economic Recovery Loan,
effect of law. The DBP, being a bank financial institutions through foreclosure at a time when the government
under the constitutional and statutory or dacion en pago. The second are desperately needed funds to revive a
supervision of the Central Bank, was subsidiary corporations of government badly battered economy. One of the
under a clear legal obligation to comply corporations, which subsidiaries are salient objectives of the US$310 million
with the requirement of Circular No. 1124 organized exclusively to own, manage or loan was the rehabilitation of the DBP
on the private audit of banks. Refusal by lease physical assets acquired by which was then burdened with enormous
the DBP to comply with the Circular would government financial institutions through bad loans. The rehabilitation of the DBP
have rendered the DBP and its officers foreclosure or dacion en pago. Claiming was important in the overall recovery of
liable to the penal provisions of the that PD No. 2029 operates to exempt the national economy.
General Banking Act, 38 as well as the certain government-owned corporations
administrative and penal sanctions under from the COA’s jurisdiction in violation of On February 23, 1986, the World Bank
the Central Bank Act. 39 Section 3 Article IX-D of the Constitution, President reported to the Bank’s Executive
the COA is questioning the Directors that the private audited
The DBP also relies on Section 8 of PD No. constitutionality of PD No. 2029. accounts of the DBP for 1986 and 1987
2029 as its statutory basis for hiring a "will be a requirement for the release of
private auditor. This Section states in part There is, however, no compelling need to the second and third tranches,
as follows:jgc:chanrobles.com.ph pass upon the constitutionality of PD No. respectively of the ERL" (Emphasis
2029 because the Constitution and supplied). Moreover, the Agreed Minutes
"The audit of government corporations by existing banking laws allow such hiring. of Negotiations on the Philippine Economic
Recovery Program 41 signed by the auditor was not only necessary based on interest on a US$310 million loan would
Philippine government and World Bank the government’s loan covenant with the hardly make the cost borrowing excessive,
negotiating panels on January 8, 1987, World Bank, it was also necessary extravagant or unconscionable. Besides,
required that "a copy of COA’s letter . . . because it was mandated by Central Bank the condition imposed by a lender, whose
regarding DBP’s appointment of a private Circular No. 1124 under pain of money is at risk, requiring the borrower or
external auditor will be sent to the (World) administrative and penal sanctions. its majority-owned subsidiaries to submit
Bank before the distribution of the loan to audit by an independent public
documents to the Bank’s Board, along The last matter to determine is the accountant, is a reasonable and normal
with a copy of the scope of audit as reasonableness of the fees charged by business practice.chanrob1es virtua1 1aw
approved by COA and satisfactory to the Joaquin C. Cunanan & Co., the private 1ibrary
Bank" (Emphasis supplied). auditor hired by the DBP. The COA
describes the private auditor’s fees as an WHEREFORE, the petition is hereby
As a creditor, the World Bank needed the "excessive, extravagant or unconscionable GRANTED. The letter decision of the
private audit for its own information to expenditure" of government funds. For the Chairman of the Commission on Audit
monitor the progress of the DBP’s audit of the DBP’s financial statements in dated August 29, 1988, and the letter-
rehabilitation. This is apparent from the 1986, the private auditor billed the DBP decision promulgated by the Commission
said Agreed Minutes which provided that the amount of P487,321.14. 43 In 1987, on Audit en banc dated May 20, 1989, are
the "general terms of reference (for the the private auditor billed the DBP the hereby SET ASIDE, and the temporary
hiring of private external audit) were amount of P529,947.00. 44 In restraining order issued by the court
discussed during the negotiations and comparison, the COA billed the DBP an enjoining respondent Commission on Audit
form part of the World Bank’s guidelines audit fee of P27,015,963.00 45 in 1988, from enforcing the said decision is hereby
for financial information on financial and P15,421,662.00 46 in 1989. Even made PERMANENT.
institutions" 42 (Emphasis supplied). granting that the COA’s scope of audit
services was broader, 47 still it could not SO ORDERED.
The hiring of a private auditor being an be said that the private auditor’s fees are
express condition for the grant of the excessive, extravagant or unconscionable
US$310 million Economic Recovery Loan, compared to the COA’s billings.
a major objective of which was the DBP’s
rehabilitation, the same was a necessary The hiring of a private auditor by the DBP
corporate act on the part of the DBP. The being a condition of the US$310 million
national government, represented by the World Bank loan to the Philippine
Central Bank Governor, as well as the government, the fees of such private
Ministers of Finance, Trade, and Economic auditor are in reality part of the
Planning, had already committed to the government’s cost of borrowing from the
hiring by all government banks for private World Bank. The audit report of the
auditors in addition to the COA. For the private auditor is primarily intended for
DBP to refuse to hire a private auditor the World Bank’s information 48 on the
would have aborted the vital loan and financial status of the DBP whose
derailed the national economic recovery, rehabilitation was one of the objectives of
resulting in grave consequences to the the loan. An annual private audit fee of
entire nation. The hiring of a private about half a million pesos added to the
G.R. No. L-41480 April 30, 1976 world.chanroblesvirtualawlibrarychanroble importation', we regret to advise that your
GONZALO SY, doing business under s virtual law library request cannot be given due course by
the name and style of GONZALO SY We are fully aware of the Central Bank this office." 2 chanrobles virtual law library
TRADING, petitioner-appellant, policies and regulations with respect to Petitioner-appellant sought a
vs. CENTRAL BANK OF THE imports particularly the effects of Central reconsideration of this denial on October
PHILIPPINES, respondent-appellee. Bank Circular 260 to authorized agent 22, 1968 thru Deputy Governor Amado R.
De Santos, Balgos & Perez for petitioner- banks. Our item of importations which is Briñas explaining that their "... case is a
appellant.chanrobles virtual law library fresh fruits calls for 175% Special Time very special one and different from
F. E. Evangelista & Glecerio T. Orsolino for Deposit for 120-days. With the fast regular importation," at the same time
respondent-appellee. approaching Christmas season we are reminding that "... this item of fresh
MARTIN, J.: certain we cannot cope with the demands apples is very much needed in the coming
This is an appeal from the decision of the of our buyers of fresh fruits under this Christmas season and we are confident
Court of First Instance of Manila in its Civil requirement imposed on importers. We that if our request be given consideration,
Case No. 81051, which was certified to Us have brought this matter to the attention we will be able to put good stock of fresh
by the Court of Appeals on August 28, of our various shippers of fresh apples apples in the market at a cheaper cost for
1975, raising the question of whether or from Japan for their proper the benefit of the consuming
not petitioner-appellant's Special Import guidance.chanroblesvirtualawlibrarychanro public." 3 chanrobles virtual law library
Permit granted by the Central Bank of the bles virtual law library Another letter was coursed by petitioner-
Philippines authorizing it to import fresh xxx xxx xxxchanrobles virtual law library appellant on November 6, 1968 to the
fruits from Japan on a "no-dollar" basis In this connection, we respectfully request Monetary Board of the Central Bank thru
has already expired when it made the your good office for an authority or issue Deputy Governor Amado R. Briñas
importations under us Special Import Permit on No-Dollar requesting "your good office for an
litigation.chanroblesvirtualawlibrarychanro Basis, to enable us to receive the goods authority to import on no Letter of Credit
bles virtual law library from our reliable and helpful suppliers who basis, or issue us Special Import Permit
The petitioner-appellant is a trading have complete trust and confidence in us. for the amount of US$715,000.00 on No-
company engaged in the importation of As manifested in their respective letters to Dollar Basis, to enable us to import
fresh fruits like oranges, grapes, apples us, we can pay or remit them the the fresh fruits which we need for
and lemons from the different parts of the payment of the fruits shipped to us even Christmas, from our reliable and helpful
world for the last nineteen years. On after the season, which is around April of suppliers." In this letter, petitioner-
September 28, 1968, it wrote to the next year, and if our dollar position is appellant points out that "the items called
Deputy Governor of the Central Bank of favorable. We honestly believe, that this for such as apples, oranges and grapes
the Philippines, Mr. Amado R. Briñas offer from our suppliers is very inducive are perishable in nature and can not be
requesting authority to import from the and if possible, we would not like to miss stored for a longer period of time, and the
country of Japan on "no-dollar" basis fresh this opportunity. main purpose of this importation is to
fruits in the total amount of On October 2, 1968, Mr. Julian D. serve the requirements during the
US$715,000.00. The pertinent portions of Mercado, the Executive Assistant to Christmas Season."  4 chanrobles virtual
petitioner-appellant's letter 1 read. Deputy Governor Briñas denied the law library
We are importers for the last 19 years. request, stating that "... since only the On November 19, 1968, the Monetary
Our line of business is the importation of transactions specifically enumerated Board of the Central Bank issued
fresh fruits like fresh oranges, grapes and in Central Bank Circular No. 247 dated Resolution No. 2038 approving petitioner-
apples from various parts of the July 21, 1967 are allowed as 'no-dollar
appellant's request for Special Import P3,000,000.00.chanroblesvirtualawlibraryc from other sources like Australia, Taiwan,
Permit on No-Dollar Basis, 5 thus: hanrobles virtual law library U.S.A. and other countries with whom we
The Board, by unanimous vote, authorized We beg to request therefore, for a have trade relations." chanrobles virtual
Gonzalo Sy Trading to import on a no- reconsideration by your good office, and law library
dollar basis, without letters of credit, fresh allow us to put up 20% special time On November 19, 1969, the Deputy
fruits from Japan valued at deposit for 120 days instead of 100%. Governor, Mr. Amado R. Briñas replied: 15
$35000.00, subject to the special time The request was denied by Deputy This has reference to your letter dated
deposit of 100% which shall be held by Governor Briñas in a letter, dated October 30, 1969 requesting amendment
the bank concerned for a period of 120 December 9, 1968. 8 chanrobles virtual of the country of origin of your
days as well as to the normal customs law library importations of fresh fruits from Japan to
duties and taxes. It is understood that Thereafter, on February 25, include other countries except communist
there shall be no commitment on the part 1969, petitioner-appellant made his first countries as authorized by Monetary
of the Central Bank to provide foreign importation from Japan. 9 The bulk of the Board Resolution No. 2038 dated
exchange to cover the said importation. importations from August 7, 1969 thru November 19, 1968.
Deputy Governor Amado R. Briñas November 5, 1969 came from San We regret to inform you that the authority
communicated this approval of the Francisco, California and Australia. 10 The granted to you by the Monetary Board per
request to petitioner-appellant, thru its importation on January 5, 1970, above-stated MB Resolution No. 2038,
Assistant Manager, Mr. E. B. Pidlaoan on consisting of fresh oranges and lychees was intended only for the Christmas
November 21, 1968. 6 chanrobles virtual came from Taipei, Taiwan, 11 while those season of 1968 and does not extend
law library of March 16, 1970, consisting of fresh through 1969. Furthermore, under
On November 27, 1968, petitioner- oranges, came from Israel. 12 For these existing regulations, importations of fruits
appellant sent a letter 7 to the then importations, the Prudential Bank and are covered by the moratorium on the
Chairman of the Monetary Board, Mr. Trust Company acted as the agent of the opening of letters of credit.
Eduardo Romualdez, reading: Central Bank in the issuance of the It so happened that two days after or on
Thank you very much for your approval to corresponding release certificates for the November 21 1969, Director A. V.
our request for special permit to import on entry of the goods. By the beginning of Antiporda, of the Foreign Exchange
no-dollar basis, without letter of credit June, 1970, the total amount used out of Department of the Central Bank, wrote to
fresh fruits valued at US$350,000.00. the $350,000.00 Special Import Permit Mr. Renato L. Santos, Assistant Vice-
We noted however, that 100% special was already $314,142.51, leaving a President of the Prudential Bank and Trust
time deposit for 120 days is required. We balance of $35,857.49. 13 chanrobles Company, in reply to the letters of the
beg to point out that this particular virtual law library latter, dated November 14 and 19,
importation is only for the Christmas As early as October 30, 1969, petitioner- 1969, 16 furnishing the Foreign Exchange
Season, and if we will deposit the amount appellant requested from Deputy Department copies of the release
of about P1,400,000.00 which will not be Governor Amado R. Briñas 14 "an certificates the Prudential Bank and Trust
touched for 120 days, and considering the amendment of the country of origin of our Company issued to Gonzalo Sy Trading.
fact that on this importation alone, we will importations to include other countries The pertinent portion of Antiporda's
pay the government in the form of except communist countries" since the letter 17 reads:
customs taxes and duties, no less than fresh fruits from Japan "are seasonal On the basis of your report that the total
P700,000.00, then we will be needing (and) our shippers cannot fully fill up our value of the shipments so far made by
more than requirements to comply with their total your client against the $350,000.00 grant
commitments to us without procuring amounts to $144,306.15 only, you may
continue to issue release certificates to 1968 and does not extend through importations of fresh fruits now under
cover the No-Dollar importations of fresh 1969. 19chanrobles virtual law library Customs custody should be subjected to
fruits by your client, subject to the same On June 5 and 16, 1970, the Collector of appropriate seizure proceedings and any
and conditions imposed by Monetary Customs for the Port of Manila, Mr. Jose T. release certificates issued by the banks for
Board under the abovementioned Viduya, issued warrants of seizure and such importations should be disregarded.
resolution. detention against: On July 30, 1970, the Collector of
Then, on April 17, 1970, the Assistant to 1. 700 Cartons of Fresh Oranges, on Customs issued a notice for the auction
the Governor, Mr. Cesar Lomotan, board SS "Taviata";chanrobles virtual law sale of the confiscated June 1970
informed the Prudential Bank and Trust library shipment on the following August 12.
Company 18 that the authority granted to 2. 1,000 Cartons of Fresh Oranges, on Whereupon, petitioner-appellant, along
petitioner-appellant under MB Resolution board SS "Fernlake"; chanrobles virtual with another importer, Tomas Y. de Leon,
No. 2038 was intended only for the law library commenced an injunction suit before the
Christmas season of 1968 and does not 3. 500 Cartons of Fresh Oranges, on Court of First Instance of Manila, docketed
extend through 1969, enclosing therewith board SS "Arizona"; chanrobles virtual law as Civil Case No. 80655, against the
the letter, dated November 19, 1969, of library Commissioner and Collector of Customs
Deputy Governor 4. 100 Cartons of Fresh Lemons and 1000 for the Port of Manila. On August 26,
Briñas.chanroblesvirtualawlibrarychanrobl Cartons of Fresh Oranges, on board SS 1970, the Manila Court of First Instance,
es virtual law library "Turandot";chanrobles virtual law library presided over by trial Judge Federico C.
On May 27, 1970, petitioner-appellant 5. 560 Cartons of Fresh Apples on board Alikpala, ordered the release of the seized
notified Mr. Cesar Lomotan that the SS "Anshun" and chanrobles virtual law goods under bonds totalling P513,865.46.
Prudential Bank and Trust Company library However, the Commissioner and Collector
refused to issue them any release 6. 1,662 Cartons of Fresh Apples on board of Customs elevated the matter to this
certificate for their importations due to his SS "Anshun."; Court, seeking to have the August 26,
letter of April 17, 1970. On June 3, 1970, consigned to petitioner-appellant, with a 1970 order declared null and
22
petitioner-appellant sent a follow-up letter total FOB value of US$17,568.49, "for void.   chanrobles virtual law library
to Mr. Lomotan, reiterating "our request having been imported in violation of Meanwhile, the second shipment
for a reconsideration on the matter and to Central Bank Circular No. 289, in relation consigned to petitioner-appellant arrived
allow us utilize the balance of our Permit to Section 2530 (f) of the Tariff and at the Port of Manila on September 6 and
in the amount of $35,857.49." In the Customs Code." 20 chanrobles virtual law 15, 1970. This shipment consisted of
same letter, petitioner-appellant advised library 1,000 cartons of fresh sunkist oranges,
that "we have shipments coming on June On July 17, 1970, Deputy Governor 1,000 cartons of fresh grapes and 100
4th and June 6th respectively which is Amado R. Briñas wrote to the cartons of fresh lemons, all valued at
within the balance of our Commissioner of customs: 21 P71,549.49. Like the June, 1970
permit." chanrobles virtual law library Since fresh fruits are classified as Non- importation, this September, 1970
On June 10, 1970, Deputy Governor Essential Consumer goods, and therefore shipment was also seized by the Customs
Amado R. Briñas wrote petitioner- banned under Circular No. 289 dated authorities.chanroblesvirtualawlibrarychan
appellant that its request cannot be given February 21, 1970, it is requested that the robles virtual law library
due course, inviting attention to the basic above shipments (fresh oranges, lemons On September 21, 1970, petitioner-
letter of November 19, 1969, informing it and apples with total value of $21,763.00) appellant instituted before the Court of
that the Special Import Permit was be subject to appropriate seizure First Instance of Manila the subject
intended only for the Christmas season of proceedings. Likewise, all other petition for mandamus with damages
which was docketed as Civil Case No. posted upon the release of the goods in same. And this power to revoke can only
81051. This case was consolidated with December, 1970. The shipment of be restrained by an explicit contract upon
Civil Case No. 80655 assigned to the sala, September, 1970 was condemned and good consideration to that effect. 26 The
of trial Judge Federico C. Alikpala upon only the recovery of whatever charges absence of an expiry date in, a license
motion of petitioner-appellant. 23 In this and/or penalties against petitioner- does not make it perpetual.
petition, petitioner-appellant prayed for appellant was Notwithstanding that absence, the license
the issuance of a writ of mandamus to ordered.chanroblesvirtualawlibrarychanrob cannot last beyond the life of the basic
direct the Central Bank of the Philippines les virtual law library authority - under which it was
to release the imported fruits and to From this adverse judgment, petitioner- issued. 27 chanrobles virtual law library
provide the necessary release certificates appellant appealed to the Court of The series of correspondence exchanged
therefor. Likewise, it prayed for the award Appeals, but the Appellate Court certified between petitioner-appellant and
of damages amounting to the case to Us as involving only pure respondent-appellee in the case at bar
P838,495.28.chanroblesvirtualawlibrarych questions of plainly reveals that the Special Import
anrobles virtual law library law.chanroblesvirtualawlibrarychanrobles Permit granted to petitioner-appellant
On November 26, 1970, this Court virtual law library covers only the Christmas season of 1968.
promulgated its decision in We rule that the Special Import Permit As reflected in its first letter, dated
the Alikpala case 24sustaining the Order of granted to petitioner-appellant on September 28, 1968, the cause or
August 26, 1970, ordering the release of November 19, 1968, allowing it to import the compelling reason why petitioner-
the June, 1970 importation upon bond, fresh fruits from Japan on a "no-dollar" appellant sought for the Special Import
with a directive to the importers, Gonzalo basis, has already lost its validity when Permit on No-Dollar Basis was because
Sy Trading and Tomas Y. de Leon, to the questioned importations of June and the importation of fresh fruits calls
cause the reinsurance of the bonds September, 1970 were for 175% Special Time Deposit for 120
amounting to more than P340,000.00 not made.chanroblesvirtualawlibrarychanroble days and "(w)ith the fast approaching
covered by reinsurance or to put up other s virtual law library Christmas season," petitioner-appellant
surety bonds acceptable to the Collector 1. It is one of the first principles in the "cannot cope with the demands of [its]
of Customs. In the following month, field of administrative law that a license or buyers of fresh fruits under this
December, 1970, the June, 1970 a permit is not a contract between the requirement imposed on importers." Upon
shipment was released to petitioner- sovereignty and the licensee or permitee, denial of its request, petitioner-appellant
appellant on and is not a property in any constitutional explained to Deputy Governor Amado R.
bond.chanroblesvirtualawlibrarychanrobles sense, as to which the constitutional Briñas in its letter of October 22, 1968
virtual law library prescription against impairment of the that their "..., case is a very special
On November 27, 1971, Judge Alikpala obligation of contracts may extend. A one" and that "... this item of fresh apples
rendered judgment in Civil Case No. license is rather in the nature of a special is very much needed in the coming
81051 dismissing petitioner-appellant's privilege, of a permission or authority to Christmas season ..." Complementary to
complaint for mandamus with damages do what is within its terms. 25 It is not in this letter, petitioner-appellant pointed out
and ordering the Collector of Customs to any way vested, permanent, or absolute. to the Monetary Board in its letter of
proceed with the seizure proceedings it A license granted by the State is always November 6, 1968 that "the items called
initiated against the June, 1970 revocable. As a necessary consequence of for such as apples, oranges and grapes
importation and, if favorable to the its main power to grant license or permit, are perishable in nature and cannot be
government, to enforce the same against the State or its instrumentalities have the stored for a longer period of time, and the
the surety bonds of petitioner-appellant correlative power to revoke or recall the main purpose of this importation is to
serve the requirements during the would far-fetched for the Monetary Board Special Import Permit after the Christmas
Christmas Season." After the Special to grant more than what was asked for, season of 1968. Petitioner-appellant's
Import Permit was granted by the considering that it was opposed to the referral 29 to the statement of the Court
Monetary Board on November 19, 1968, granting of the permit from the very start, that the November 21, 1969 letter of Mr.
petitioner-appellant expressed its in view of the existing stringent policies A. V. Antiporda, Director of the Foreign
gratitude to the then Chairman of the against "no-dollar" importation of "non- Exchange Department, authorized the
Monetary Board, Mr. Eduardo Romualdez, essential consumer' goods like fresh fruits. Prudential Bank and Trust Company to 94
in a letter of November 27, 1968 and, at That is why, the Monetary Board, while it continue to issue release certificates to
the same time, requested that it be thus issued the Special Import cover the No-Dollar importations of fresh
allowed "to put up 20% special time Permit, subjected the same to a "special fruits by your client" misses the preceding
deposit for 120 days instead of 100%. time deposit of 100% which shall be held prefatory statement of the Court in regard
again pointing out that "this particular by the bank concerned for a period of 120 to the details of the case, thus: "For a
importation is only for the Christmas days as well as to the normal customs proper understanding and resolution of
season ..." It was upon all these duties and taxes." This requirement was the issues it is necessary to state the facts
representations and assurances by maintained by the' Monetary Board even in greater detail, as they appear from the
petitioner-appellant that the Monetary after petitioner-appellant sought for a pleadings and memoranda submitted by
Board of the Central Bank finally issued reconsideration thereof. Withal, it can be the parties as well as from the different
the Special Import Permit. As a result, the gleaned that petitioner-appellant's Special documents attached thereto marked as
conclusion becomes inevitable that the Import Permit bears all the marks of a annexes." In other words, the subsequent
Special Import Permit thus granted lasts mere special concession from the issuing statement of the Court on the Antiporda
only until the Christmas Season of authority, to the effect that no extensive letter is but a portion of its recital of the
1968.chanroblesvirtualawlibrarychanroble privileges are licitly inferrable from facts involved without necessarily making
s virtual law library it.chanroblesvirtualawlibrarychanrobles a resolution
The omission of an expiry date in the virtual law library thereon.chanroblesvirtualawlibrarychanrob
Special Import Permit affords no legal Petitioner-appellant mistakenly asserts les virtual law library
basis for petitioner-appellant to conclude that the continuous validity of its Special 2. Controversy rises between petitioner-
that the said permit is impressed with Import Permit has already been passed appellant and respondent-appellee on the
continuous validity, i.e., not merely upon by this Court in Commissioner of receipt of Deputy Governor Briñas letter,
limited to the Christmas season of 1968. Customs v. Alikpala.  28 What was raised in dated November 19, 1969, purportedly
The totality of petitioner appellant's that case is the question of whether the informing petitioner-appellant that its
representations which led to the issuance Collector of Customs for the Port of Manila Special Import Permit "was intended only
of the permit cannot be lightly glossed has observed the rediments of for Christmas season of 1968 and does
over. It was petitioner-appellant itself administrative due process in ordering the not extend through 1969." While
which furnished the life span of the seizure and sale at public auction of petitioner-appellant contends that the said
permit, consistently pointing out that "the petitioner-appellant's imported goods in letter was never served upon it,
main purpose of this importation is to particular that arrived in June, 1970, as respondent-appellee maintains that it is
serve the requirements during the well as the question of the legality of the quite surprising for petitioner-appellant to
Christmas Season" of 1968. In the logical Collector's order requiring only cash bond, disclaim receipt thereof when all prior and
sequence of things, no imperative reason surety bond not accepted, for the release subsequent letters from the Central Bank
arises for the Monetary Board to still of the goods. The Court made no ruling on have been satisfactorily received by it.
specify the expiry date of the permit. It the continuity of petitioner-appellant's This question is not of decisive import.
The all-governing point is the reasonable Petitioner-appellant draws authority from board" on the Special Import Permit, one
assumptions of petitioner-appellant's the letter of Director A. V. Antiporda, of which is the resolutory term of 1968.
knowledge or awareness of the duration of dated November 21, 1969, informing the That is the import of the Antiporda's
its Special Import Permit, since it was Prudential Bank and Trust Company that it letter ex vi termini. Director Antiporda
petitioner-appellant itself which "may continue to issue release certificates could not have modified the Special
established the terminal date of its permit to cover the No-Dollar Importations of Import Permit by creating a longer period,
representing that "the main purpose of fresh fruits by your client" after noting for the plain reason that no such authority
this importation is to serve the that only $144,306.15 has been utilized resides in him. An administrative officer
requirements during the Christmas out of the $350,000.00-permit. According has only such powers as are expressly
season" of 1968, upon which to that doctrine, "an estoppel may arise granted to him and those necessarily
representation the Monetary Board finally from the making of a promise even implied in the exercise thereof. 34 As
granted the permit. The equitable though without consideration, if it was earlier pointed out, it was the
principle of estoppel forbids petitioner- intended that the promise should be relied Monetary Board which issued the permit;
appellant from taking an inconsistent upon and in fact it was relied upon, and if correspondingly, it too posseses
position now and claims that the permit a refusal to enforce it would be virtually to the sole power to modify the
extends beyond the period it itself asked sanction the perpetration of fraud or same.chanroblesvirtualawlibrarychanroble
for. Where conduct or representation has would result in other injustice." 31 Like the s virtual law library
induced another to change its position in related principles of volenti non fit On the gratuitous assumption that the
good faith or the same is such that injuria (consent to injury), waiver, and Antiporda's letter purported to impress,
reasonable man would rely thereon, the acquiescence, it finds its origin generally albeit erroneously, that further
consequences of such conduct or in the equitable notion that one may not importations could be made by petitioner-
representation cannot later on be change his position and profit from his appellant beyond the Christmas season of
disowned. 30 The preliminary own wrongdoing when he has caused 1968, the same produces no estoppel
representations and assurances of another to suffer a detriment by relying against the issuing authority. The long-
petitioner-appellant, most important of on his former promises or settled jurisprudence states that the
which is the life span of the permit, are representations. 32 But, a promise cannot "doctrine of estoppel" does not operate
deemed incorporated into the Special be the basis of an estoppel if any other against the Government, of which the
Import Permit subsequently issued. At essential element is Central Bank is an instrumentality, in its
most, the letter of Deputy Governor lacking. Justifiable reliance or irreparable capacity as sovereign or asserting
Briñas may serve only to detriment to the promises are requisite governmental rights; the Government is
remind petitioner-appellant of the factors. 33 We failed to see in Antiporda's never estopped by the mistake or errors
resolutory period of its permit. Whether letter the making of a promise upon which on the part of its agents. Moreover,
there was such letter or not, the time limit petitioner-appellant could justifiably rely. estoppel cannot give validity to an act that
proffered by petitioner-appellant and On the contrary, while the letter advised is prohibited by law or against public
approved by the Central Bank the agent bank that it may continue policy. 35 The erroneous application of the
controls.chanroblesvirtualawlibrarychanro issuing release certificates to cover statute and enforcement of the law do not
bles virtual law library petitioner-appellant's "no-dollar" block subsequent correct application
3. The doctrine of "promissory estoppel" is importations of fresh fruits, it at the same thereof 36 or bar a future action in
invoked by, petitioner-appellant to time subjects the issuance of release accordance with law. 37 To hold that
preclude respondent-appellee from certificates "to the same terms and merely the Antiporda's letter could be the
contesting the legality of its importations. conditions imposed by the Monetary basis for such estoppel would be going in
the direction of suspending and repealing stipulated but also to all the consequences illegally issued "in that no fixed date of
the conditions or terms of the Special which, according to their nature, may be expiration is stipulated." On review, the
Import Permit without any action on the in keeping with good faith, usage and Court held that the cancellation of the
part of the Monetary Board. 38 chanrobles law." In other words, by making the license on the sole ground that it does not
virtual law library foregoing representations and bear ay expiry date even if the
4. The cases of Ramos v. Central commitments to the OBM the Central importation had already been
Bank 39and Commissioner of Customs v. Bank had thereby assumed a contractual accomplished was inequitable. In the
Auyong Hian  40 cannot be relied upon by obligation in favor of the OBM such that it present case, however, no such
petitioner-appellant to fore close the issue cannot unceremoniously ignore the same. cancellation of license or permit appears
on the continuous validity of its Special No such kind of contractual obligation or the legality of the issuance of petitioner-
Import Permit. In Ramos, the Court held commitments have been perfected appellant's Special Import Permit is not in
that after the Central Bank has made between the Central Bank and the question. On the contrary, what is being
express commitments to petitioners petitioner-appellant in the present case. sought in this case is the enforcement of
therein that it would support the Overseas The issuance of the Special Import Permit the terms and conditions of the Special
Bank of Manila, and avoid its liquidation if by the Monetary Board to the petitioner- Import Permit, one of which, is the
the petitioners would execute (a) the appellant can hardly be considered as resolutory period of 1968. As earlier
Voting Trust Agreement turning over the constitutive of a contractual obligation discussed, after the lapse of this period,
management of OBM to the CB or its assumed by the Central Bank in favor of the permit can no longer yield valid
nominees, and (b) mortgage or assign petitioner-appellant. This is because a effect.chanroblesvirtualawlibrarychanroble
their properties to the Central Bank to permit is not, by its very nature, a s virtual law library
cover the overdraft balance of OBM which contract but a mere special privilege. For 5. The authority of the Central Bank to
petitioners did, the. Central Bank may not a permit to be impressed with a regulate "no-dollar" imports, owing to the
retreat from its representations and contractual character, it must be influence and effect that the same may
liquidate the Overseas Bank of Manila, to categorically demonstrated that the very exert upon the stability of our peso and its
the prejudice of petitioners, depositors administrative agency, which is the source international value, cannot be seriously
and other creditors, under the rule of of the permit, would place such a burden contested. Such authority clearly
"promissory estoppel." The Central Bank on itself. 41 Auyong Hian on the other emanates from its broad powers to
cannot just unilaterally disregard its hand, tells of an importation of old maintain our monetary stability and to
representations and promises to newspapers in four shipments under a preserve the international value of our
rehabilitate and normalize the financial "no-dollar" arrangement, pursuant to a currency 43as well as its corollary power to
condition of the OBM without violating license issued by the Import Control issue such rules and regulations for the
Article 1159 of the Civil Code of the Commission. When the last shipment effective discharge of its responsibilities
Philippines, which provides that arrived in Manila, the Customs authorities and exercise of powers. 44 On February
"(o)bligations arising from contracts have seized the same on the ground that the 31, 1970, the Central Bank promulgated
the force of law between the contracting importation was made without the license its Circular No. 269, prohibiting the
parties and should be complied with in required under Central Bank Circular No. importation of "non-essential consumer"
good faith," as well as Article 1315, 45. 42 While the seizure proceedings were goods like fresh fruits. Section 5 thereof
stating that "(c)ontracts are perfected by pending before the Collector of Customs, directs that "(a)uthorized agent banks
mere consent, and from that moment the the President of the Philippines, acting may sell foreign exchange for
parties are bound not only to the through its Cabinet, cancelled the imports except those falling under the UC,
fulfillment of what has been expressly aforesaid license for the reason that it was SUC and NEC categories, without prior
specific approval of the Central Bank." In law" form part thereof. The term "customs 80655, the undertaking therein to answer
the recent case of Balmaceda vs. law" includes not only the provisions of for damages in case the release of the
45
Corominas   We ruled that "the entry of said law proper but also any regulations June, 1970 shipment is found improper
NEC ("non-essential commodities") is thus made pursuant thereto like the attaches to the present case, Civil Case
halted at bay." With regard to "no- dollar" aforementioned Central Bank No. 81051. The case where the Surety
imports, the Central Bank promulgated circulars, 47 which also have the force and bonds were posted is but incidental. The
Circular No. 247 on July 21, 1967, effect of law. 48 Consequently, violation of all-important factor to consider is the
specifically enumerating the items these circulars comes within the purview event or judicial action secured by the
exempted from the requirement of release of Section 2530 (f) of the Tariff and bonds. Since the surety bonds in question
certificates. The enumeration mostly Customs Code, which authorizes the were intended to secure the liabilities
refers to personal effects and gifts of forfeiture of "(a)ny article the importation which petitioner-appellant may incur for
returning residents, tourists, immigrants, or exportation of which is effected or the release of its June, 1970 importation,
etc. Fresh fruits are not included. Circular attempted contrary to law." 49 chanrobles the said bonds can be proceeded against
No. 247 was amended by Circular No. 294 virtual law library in any case where the propriety of
on March 10, 1970, providing that "(n)o- 6. Petitioner-appellant disputes the impropriety of said release has been
dollar imports not covered by Circular No. disposition of the trial court directing the resolved. The bonds become immediately
247 shall not be issued any release Collector of Customs to proceed against answerable for the undertaking once this
certificates and shall be referred to the the surety bonds it posted for the release condition has occurred. 53 It would be a
Central Bank for official transmittal to the of its June, 1970 importation sometime in useless expense of judicial time and effort
Bureau of Customs for appropriate seizure December, 1970. There is no doubt that if the surety bonds were yet to be litigated
proceedings. " On March 20, 1970, the surety bonds were posted by in another suit just to enforce the
Circular No. 295 was passed. This circular petitioner-appellant in Civil Case No. undertaking therein. This is specially true
reiterates the exemption of the "no-dollar" 80655, which was terminated by the when the sufficiency or solvency of the
imports enumerated under Circular No. mutual agreement of the parties 50 after bonds has been previously passed upon
247 from the release certificate the Court has handed down its decision by the same trial judge hearing the
requirements, but imposes an express thereon on appeal. 51 However, it must be second case. Besides, Civil Case No.
ban on all other "no-dollar" imports not remembered that the said surety bonds 80655 has already been terminated by the
covered by Circular No. 247. These were undertaken by petitioner-appellant mutual agreement of the parties such that
include "fresh fruits" like fresh apples for the release of its June, 1970 no enforcement of the undertaking of the
oranges, grapes, and lemons. 46 It can importation. A fortiori in any litigation bonds could be easily made
thus be readily seen that petitioner- where in any litigation where the release therein. 54 chanrobles virtual law library
appellant's "fresh fruits" importations of of this June, 1970 shipment is involved, ACCORDINGLY, the judgment of the lower
June and September, 1970 violate the the said surety bonds are answerable. The court, subject matter of this present
quoted Central Bank Circulars, hence, statutory undertaking of a bond is to review, is hereby affirmed. Costs against
liable to seizure action by the Customs answer for all damages that may result petitioner-
authorities. While the said goods may not from an injunction should the court finally appellant.chanroblesvirtualawlibrarychanr
be considered "merchandise of prohibited decide that the injunction was not proper obles virtual law library
importation," they nevertheless fall within or that the party in whose favor the SO ORDERED.
the other category of merchandise injunctive writ was issued was not entitled
imported "contrary to law", because thereto. 52 Although petitioner-appellant's
regulations issued pursuant to "customs surety bonds were filed in Civil Case No.
G.R. No. 70054 December 11, 1991 BANK, CARLOTA P. VALENZUELA AND EL GRANDE DEVELOPMENT
BANCO FILIPINO SAVINGS AND SYCIP, SALAZAR, FELICIANO AND CORPORATION, petitioner,
MORTGAGE BANK, petitioner, HERNANDEZ, respondents. vs.
vs. G.R. No. 78767 December 11, 1991 THE COURT OF APPEALS, THE
THE MONETARY BOARD, CENTRAL METROPOLIS DEVELOPMENT EXECUTIVE JUDGE of the Regional
BANK OF THE PHILIPPINES, JOSE B. CORPORATION, petitioner, Trial Court of Cavite, CLERK OF COURT
FERNANDEZ, CARLOTA P. vs. and Ex-Officio Sheriff ADORACION
VALENZUELA, ARNULFO B. COURT OF APPEALS, CENTRAL BANK VICTA, BANCO FILIPINO SAVINGS
AURELLANO and RAMON V. OF THE PHILIPPINES, JOSE B. AND MORTGAGE BANK, CARLOTA P.
TIAOQUI, respondents. FERNANDEZ, JR., CARLOTA P. VALENZUELA AND SYCIP, SALAZAR,
G.R. No. 68878 December 11, 1991 VALENZUELA, ARNULFO AURELLANO HERNANDEZ AND
BANCO FILIPINO SAVINGS AND AND RAMON TIAOQUI, respondents. GATMAITAN, respondents.
MORTGAGE BANK, petitioner, G.R. No. 78894 December 11, 1991 Panganiban, Benitez, Barinaga & Bautista
vs. BANCO FILIPINO SAVINGS AND Law Offices collaborating counsel for
HON. INTERMEDIATE APPELLATE MORTGAGE BANK, petitioner petitioner.
COURT and CELESTINA S. vs. Florencio T. Domingo, Jr. and Crisanto S.
PAHIMUNTUNG, assisted by her COURT OF APPEALS, THE CENTRAL Cornejo for intervenors.
husband, respondents. BANK OF THE PHILIPPINES, JOSE B.
G.R. No. 77255-58 December 11, FERNANDEZ, JR., CARLOTA P.
1991 VALENZUELA, ARNULFO B. MEDIALDEA, J.:
TOP MANAGEMENT PROGRAMS AURELLANO AND RAMON This refers to nine (9) consolidated cases
CORPORATION AND PILAR TIAOQUI, respondents. concerning the legality of the closure and
DEVELOPMENT G.R. No. 81303 December 11, 1991 receivership of petitioner Banco Filipino
CORPORATION, petitioners, PILAR DEVELOPMENT Savings and Mortgage Bank (Banco
vs. CORPORATION, petitioner Filipino for brevity) pursuant to the order
THE COURT OF APPEALS, The vs. of respondent Monetary Board. Six (6) of
Executive Judge of the Regional Trial COURT OF APPEALS, HON. MANUEL M. these cases, namely, G.R. Nos. 68878,
Court of Cavite, Ex-Officio Sheriff COSICO, in his capacity as Presiding 77255-68, 78766, 81303, 81304 and
REGALADO E. EUSEBIO, BANCO Judge of Branch 136 of the Regional 90473 involve the common issue of
FILIPINO SAVINGS AND MORTGAGE Trial Court of Makati, CENTRAL BANK whether or not the liquidator appointed by
BANK, CARLOTA P. VALENZUELA AND OF THE PHILIPPINES AND CARLOTA the respondent Central Bank (CB for
SYCIP, SALAZAR, HERNANDEZ AND P. VALENZUELA, respondents. brevity) has the authority to prosecute as
GATMAITAN, respondents. G.R. No. 81304 December 11, 1991 well as to defend suits, and to foreclose
G.R. No. 78766 December 11, 1991 BF HOMES DEVELOPMENT mortgages for and in behalf of the bank
EL GRANDE CORPORATION, petitioner, CORPORATION, petitioner, while the issue on the validity of the
vs. vs. receivership and liquidation of the latter is
THE COURT OF APPEALS, THE THE COURT OF APPEALS, CENTRAL pending resolution in G.R. No. 7004.
EXECUTIVE JUDGE of The Regional BANK AND CARLOTA P. Corollary to this issue is whether the CB
Trial Court and Ex-Officio Sheriff VALENZUELA, respondents. can be sued to fulfill financial
REGALADO E. EUSEBIO, BANCO G.R. No. 90473 December 11, 1991 commitments of a closed bank pursuant to
FILIPINO SAVINGS AND MORTGAGE Section 29 of the Central Bank Act. On the
other hand, the other three (3) cases, between 1982 and 1983 in the principal ordered to designate a comptroller for
namely, G.R. Nos. 70054, which is the amounts of P6,000,000, P7,370,000 and Banco Filipino.
main case, 78767 and 78894 all seek to P5,300,000 with maturity dates on Subsequently, Top Management failed to
annul and set aside M.B. Resolution No. December 28, 1984, January 5, 1985 and pay its loan on the due date. Hence, the
75 issued by respondents Monetary Board February 16, 1984, respectively. To law firm of Sycip, Salazar, et al. acting as
and Central Bank on January 25, 1985. secure the loan, Pilar Development counsel for Banco Filipino under authority
  mortgaged to Banco Filipino various of Valenzuela as liquidator, applied for
The antecedent facts of each of the nine properties in Dasmariñas, Cavite. extra-judicial foreclosure of the mortgage
(9) cases are as follows: On January 25, 1985, the Monetary Board over Top Management's properties. Thus,
G.R No. 68878 issued a resolution finding Banco Filipino the Ex-Officio Sheriff of the Regional Trial
This is a motion for reconsideration, filed insolvent and unable to do business Court of Cavite issued a notice of extra-
by respondent Celestina Pahimuntung, of without loss to its creditors and judicial foreclosure sale of the properties
the decision promulgated by thisCourt on depositors. It placed Banco Filipino under on December 16, 1985.
April 8, 1986, granting the petition for receivership of Carlota Valenzuela, Deputy On December 9, 1985, Top Management
review on certiorari and reversing the Governor of the Central Bank. filed a petition for injunction and
questioned decision of respondent On March 22, 1985, the Monetary Board prohibition with the respondent appellate
appellate court, which annulled the writ of issued another resolution placing the bank court docketed as CA-G.R. SP No. 07892
possession issued by the trial court in under liquidation and designating seeking to enjoin the Regional Trial Court
favor of petitioner. Valenzuela as liquidator. By virtue of her of Cavite, the ex-officio sheriff of said
The respondent-movant contends that the authority as liquidator, Valenzuela court and Sycip, Salazar, et al. from
petitioner has no more personality to appointed the law firm of Sycip, Salazar, proceeding with foreclosure sale.
continue prosecuting the instant case et al. to represent Banco Filipino in all Similarly, Pilar Development defaulted in
considering that petitioner bank was litigations. the payment of its loans. The law firm of
placed under receivership since January On March 26, 1985, Banco Filipino filed Sycip, Salazar, et al. filed separate
25, 1985 by the Central Bank pursuant to the petition for certiorari in G.R. No. applications with the ex-officio sheriff of
the resolution of the Monetary Board. 70054 questioning the validity of the the Regional Trial Court of Cavite for the
G.R. Nos. 77255-58 resolutions issued by the Monetary Board extra-judicial foreclosure of mortgage over
Petitioners Top Management Programs authorizing the receivership and its properties.
Corporation (Top Management for brevity) liquidation of Banco Filipino. Hence, Pilar Development filed with the
and Pilar Development Corporation (Pilar In a resolution dated August 29, 1985, respondent appellate court a petition for
Development for brevity) are corporations this Court in G.R. No. 70054 resolved to prohibition with prayer for the issuance of
engaged in the business of developing issue a temporary restraining order, a writ of preliminary injunction docketed
residential subdivisions. effective during the same period of 30 as CA-G.R SP Nos. 08962-64 seeking to
Top Management obtained a loan of days, enjoining the respondents from enjoin the same respondents from
P4,836,000 from Banco Filipino as executing further acts of liquidation of the enforcing the foreclosure sale of its
evidenced by a promissory note dated bank; that acts such as receiving properties. CA-G.R. SP Nos. 07892 and
January 7, 1982 payable in three years collectibles and receivables or paying off 08962-64 were consolidated and jointly
from date. The loan was secured by real creditors' claims and other transactions decided.
estate mortgage in its various properties pertaining to normal operations of a bank On October 30, 1986, the respondent
in Cavite. Likewise, Pilar Development are not enjoined. The Central Bank is appellate court rendered a decision
obtained loans from Banco Filipino dismissing the aforementioned petitions.
Hence, this petition was filed by the In order to stop the public auction sale, which confessed judgment against Banco
petitioners Top Management and Pilar petitioner El Grande filed a petition for Filipino.
Development alleging that Carlota prohibition with the Court of Appeals On June 17, 1986, petitioner filed a
Valenzuela, who was appointed by the alleging that respondent Carlota second amended complaint. The Central
Monetary Board as liquidator of Banco Valenzuela could not proceed with the Bank and Carlota Valenzuela, thru the law
Filipino, has no authority to proceed with foreclosure of its mortgaged properties on firm Sycip, Salazar, Hernandez and
the foreclosure sale of petitioners' the ground that this Court in G.R. No. Gatmaitan filed an answer to the
properties on the ground that the 70054 issued a resolution dated August complaint.
resolution of the issue on the validity of 29, 1985, which restrained Carlota On June 23, 1986, Sycip, et al., acting for
the closure and liquidation of Banco Valenzuela from acting as liquidator and all the defendants including Banco Filipino
Filipino is still pending with this Court in allowed Banco Filipino to resume banking moved that the answer filed by
G.R. 70054. operations only under a Central Bank Quisumbing & Associates for defendant
G.R. No. 78766 comptroller. Banco Filipino be expunged from the
Petitioner El Grande Development On March 2, 1987, the Court of Appeals records. Despite opposition from
Corporation (El Grande for brevity) is rendered a decision dismissing the Quisumbing & Associates, the trial court
engaged in the business of developing petition. granted the motion to expunge in an order
residential subdivisions. It was extended Hence this petition for review dated March 17, 1987. Petitioner Pilar
by respondent Banco Filipino a credit on certiorari was filed alleging that the Development moved to reconsider the
accommodation to finance its housing respondent court erred when it held in its order but the motion was denied.
program. Hence, petitioner was granted a decision that although Carlota P. Petitioner Pilar Development filed with the
loan in the amount of P8,034,130.00 Valenzuela was restrained by this respondent appellate court a petition
secured by real estate mortgages on its Honorable Court from exercising acts in for certiorari and mandamus to annul the
various estates located in Cavite. liquidation of Banco Filipino Savings & order of the trial court. The Court of
On January 15, 1985, the Monetary Board Mortgage Bank, she was not legally Appeals rendered a decision dismissing
forbade Banco Filipino to do business, precluded from foreclosing the mortgage the petition. A petition was filed with this
placed it under receivership and over the properties of the petitioner Court but was denied in a resolution dated
designated Deputy Governor Carlota through counsel retained by her for the March 22, 1988. Hence, this instant
Valenzuela as receiver. On March 22, purpose. motion for reconsideration.
1985, the Monetary Board confirmed G.R. No. 81303 G.R. No. 81304
Banco Filipino's insolvency and designated On November 8, 1985, petitioner Pilar On July 9, 1985, petitioner BF Homes
the receiver Carlota Valenzuela as Development Corporation (Pilar Incorporated (BF Homes for brevity) filed
liquidator. Development for brevity) filed an action an action with the trial court to compel the
When petitioner El Grande failed to pay its against Banco Filipino, the Central Bank Central Bank to restore petitioner's;
indebtedness to Banco Filipino, the latter and Carlota Valenzuela for specific financing facility with Banco Filipino.
thru its liquidator, Carlota Valenzuela, performance, docketed as Civil Case No. The Central Bank filed a motion to dismiss
initiated the foreclosure with the Clerk of 12191. It appears that the former the action. Petitioner BF Homes in a
Court and Ex-officio sheriff of RTC Cavite. management of Banco Filipino appointed supplemental complaint impleaded as
Subsequently, on March 31, 1986, the ex- Quisumbing & Associates as counsel for defendant Carlota Valenzuela as receiver
officio sheriff issued the notice of extra- Banco Filipino. On June 12, 1986 the said of Banco Filipino Savings and Mortgage
judicial sale of the mortgaged properties law firm filed an answer for Banco Filipino Bank.
of El Grande scheduled on April 30, 1986.
On April 8, 1985, petitioner filed a second When Banco Filipino was ordered closed under M.B. Resolution No. 839 dated June
supplemental complaint to which and placed under receivership in 1985, 29, 1984. This was augmented with a P3
respondents filed a motion to dismiss. the appointed liquidator of BF, thru its billion credit line under M.B. Resolution
On July 9, 1985, the trial court granted counsel Sycip, Salazar, et al. applied with No. 934 dated July 27, 1984.
the motion to dismiss the supplemental the ex-officio sheriff of the Regional Trial On the same date, respondent Board
complaint on the grounds (1) that plaintiff Court of Cavite for the extrajudicial issued M.B. Resolution No. 955 placing
has no contractual relation with the foreclosure of the mortgage constituted petitioner bank under conservatorship of
defendants, and (2) that the Intermediate over petitioner's properties. On March 24, Basilio Estanislao. He was later replaced
Appellate Court in a previous decision in 1986, the ex-officio sheriff issued a notice by Gilberto Teodoro as conservator on
AC-G.R. SP. No. 04609 had stated that of extrajudicial foreclosure sale of the August 10, 1984. The latter submitted a
Banco Filipino has been ordered closed properties of petitioner. report dated January 8, 1985 to
and placed under receivership pending Thus, petitioner filed with the Court of respondent Board on the conservatorship
liquidation, and thus, the continuation of Appeals a petition for prohibition with of petitioner bank, which report shall
the facility sued for by the plaintiff has prayer for writ of preliminary injunction to hereinafter be referred to as the Teodoro
become legally impossible and the suit has enjoin the respondents from foreclosing report.
become moot. the mortgage and to nullify the notice of Subsequently, another report dated
The order of dismissal was appealed by foreclosure. January 23, 1985 was submitted to the
the petitioner to the Court of Appeals. On On June 16, 1989, respondent Court of Monetary Board by Ramon Tiaoqui,
November 4, 1987, the respondent Appeals rendered a decision dismissing Special Assistant to the Governor and
appellate court dismissed the appeal and the petition. Head, SES Department II of the Central
affirmed the order of the trial court. Not satisfied with the decision, petitioner Bank, regarding the major findings of
Hence, this petition for review filed the instant petition for review examination on the financial condition of
on certiorari was filed, alleging that the on certiorari. petitioner BF as of July 31, 1984. The
respondent court erred when it found that G.R. No. 70054 report, which shall be referred to herein
the private respondents should not be the Banco Filipino Savings and Mortgage Bank as the Tiaoqui Report contained the
ones to respond to the cause of action was authorized to operate as such under following conclusion and recommendation:
asserted by the petitioner and the M.B. Resolution No. 223 dated February The examination findings as of July 31,
petitioner did not have any cause of action 14, 1963. It commenced operations on 1984, as shown earlier, indicate one of
against the respondents Central Bank and July 9, 1964. It has eighty-nine (89) insolvency and illiquidity and further
Carlota Valenzuela. operating branches, forty-six (46) of confirms the above conclusion of the
G.R. No. 90473 which are in Manila, with more than three Conservator.
Petitioner El Grande Development (3) million depositors. All the foregoing provides sufficient
Corporation (El Grande for brevity) As of July 31, 1984, the list of justification for forbidding the bank from
obtained a loan from Banco Filipino in the stockholders showed the major engaging in banking.
amount of P8,034,130.00, secured by a stockholders to be: Metropolis Foregoing considered, the following are
mortgage over its five parcels of land Development Corporation, Apex Mortgage recommended:
located in Cavite which were covered by and Loans Corporation, Filipino Business 1. Forbid the Banco Filipino Savings &
Transfer Certificate of Title Nos. T-82187, Consultants, Tiu Family Group, LBH Inc. Mortgage Bank to do business in the
T-109027, T-132897, T-148377, and T- and Anthony Aguirre. Philippines effective the beginning of office
79371 of the Registry of Deeds of Cavite. Petitioner Bank had an approved January 1985, pursuant to Sec. 29 of R.A
emergency advance of P119.7 million No. 265, as amended;
2. Designate the Head of the Conservator January 23, 1985, that the Banco Filipino safeguard the interests of depositors,
Team at the bank, as Receiver of Banco Savings & Mortgage Bank is insolvent and creditors and the general public; and
Filipino Savings & Mortgage Bank, to that its continuance in business would 5. In consequence of the foregoing, to
immediately take charge of the assets and involve probable loss to its depositors and terminate the conservatorship over Banco
liabilities, as expeditiously as possible creditors, and in pursuance of Sec. 29 of Filipino Savings and Mortgage Bank. (pp.
collect and gather all the assets and RA 265, as amended, the Board decided: 10-11, Rollo, Vol. I)
administer the same for the benefit of all 1. To forbid Banco Filipino Savings and On February 2, 1985, petitioner BF filed a
the creditors, and exercise all the powers Mortgage Bank and all its branches to do complaint docketed as Civil Case No. 9675
necessary for these purposes including but business in the Philippines; with the Regional Trial Court of Makati to
not limited to bringing suits and 2. To designate Mrs. Carlota P. set aside the action of the Monetary Board
foreclosing mortgages in the name of the Valenzuela, Deputy Governor as Receiver placing BF under receivership.
bank. who is hereby directly vested with On February 28, 1985, petitioner filed
3. The Board of Directors and the principal jurisdiction and authority to immediately with this Court the instant petition
officers from Senior Vice Presidents, as take charge of the bank's assets and for certiorari and mandamus under Rule
listed in the attached Annex "A" be liabilities, and as expeditiously as possible 65 of the Rules of Court seeking to annul
included in the watchlist of the collect and gather all the assets and the resolution of January 25, 1985 as
Supervision and Examination Sector until administer the same for the benefit of its made without or in excess of jurisdiction
such time that they shall have cleared creditors, exercising all the powers or with grave abuse of discretion, to order
themselves. necessary for these purposes including but respondents to furnish petitioner with the
4. Refer to the Central Bank's Legal not limited to, bringing suits and reports of examination which led to its
Department and Office of Special foreclosing mortgages in the name of the closure and to afford petitioner BF a
Investigation the report on the findings on bank; hearing prior to any resolution that may
Banco Filipino for investigation and 3. To designate Mr. Arnulfo B. Aurellano, be issued under Section 29 of R.A. 265,
possible prosecution of directors, officers, Special Assistant to the Governor, and Mr. also known as Central Bank Act.
and employees for activities which led to Ramon V. Tiaoqui, Special Assistant to the On March 19, 1985, Carlota Valenzuela, as
its insolvent position. (pp- 61-62, Rollo) Governor and Head, Supervision and Receiver and Arnulfo Aurellano and
On January 25, 1985, the Monetary Board Examination Sector Department II, as Ramon Tiaoqui as Deputy Receivers of
issued the assailed MB Resolution No. 75 Deputy Receivers who are likewise hereby Banco Filipino submitted their report on
which ordered the closure of BF and which directly vested with jurisdiction and the receivership of BF to the Monetary
further provides: authority to do all things necessary or Board, in compliance with the mandate of
After considering the report dated January proper to carry out the functions Sec. 29 of R.A. 265 which provides that
8, 1985 of the Conservator for Banco entrusted to them by the Receiver and the Monetary Board shall determine within
Filipino Savings and Mortgage Bank that otherwise to assist the Receiver in sixty (60) days from date of receivership
the continuance in business of the bank carrying out the functions vested in the of a bank whether such bank may be
would involve probable loss to its Receiver by law or Monetary Board reorganized/permitted to resume business
depositors and creditors, and after Resolutions; or ordered to be liquidated. The report
discussing and finding to be true the 4. To direct and authorize Management to contained the following recommendation:
statements of the Special Assistant to the do all other things and carry out all other In view of the foregoing and considering
Governor and Head, Supervision and measures necessary or proper to that the condition of the banking
Examination Sector (SES) Department II implement this Resolution and to institution continues to be one of
as recited in his memorandum dated insolvency, i.e., its realizable assets are
insufficient to meet all its liabilities and paying off creditors' claims and other Board and Central Bank authorizing the
that the bank cannot resume business transactions pertaining to normal closure and liquidation of petitioner BP be
with safety to its depositors, other operations of a bank were no enjoined. upheld.
creditors and the general public, it is The Central Bank was also ordered to On October 21, 1988, petitioner BF filed
recommended that: designate comptroller for the petitioner an urgent motion to reopen hearing to
1. Banco Filipino Savings & Mortgage Bank BF. This Court also ordered th which respondents filed their comment on
be liquidated pursuant to paragraph 3, consolidation of Civil Cases Nos. 8108, December 16, 1988. Petitioner filed their
Sec. 29 of RA No. 265, as amended; 9676 and 10183 in Branch 136 of the reply to respondent's comment of January
2. The Legal Department, through the Regional Trial Court of Makati. 11, 1989. After having deliberated on the
Solicitor General, be authorized to file in However, on September 12, 1985, this grounds raised in the pleadings, this Court
the proper court a petition for assistance Court in the meantime suspended the in its resolution dated August 3, 1989
in th liquidation of the Bank; hearing it ordered in its resolution of declared that its intention as expressed in
3. The Statutory Receiver be designated August 29, 1985. its resolution of August 29, 1985 had not
as the Liquidator of said bank; and On October 8, 1985, this Court submitted been faithfully adhered to by the herein
4. Management be instructed to inform a resolution order ing Branch 136 of the petitioner and respondents. The
the stockholders of Banco Filipino Savings Regional Trial Court of Makati the presided aforementioned resolution had ordered a
& Mortgage Bank of the Monetary Board's over by Judge Ricardo Francisco to healing on the reports that led
decision liquidate the Bank. (p. 167, Rollo, conduct the hear ing contemplated in the respondents to order petitioner's closure
Vol. I) resolution of August 29, 1985 in the most and its alleged pre-planned liquidation.
On July 23, 1985, petitioner filed a motion expeditious manner and to submit its This Court noted that during the referral
before this Court praying that a resolution to this Court. hearing however, a different scheme was
restraining order or a writ of preliminary In the Court's resolution of February 19, followed. Respondents merely submitted
injunction be issued to enjoin respondents 1987, the Court stated that the hearing to the commissioner their findings on the
from causing the dismantling of BF signs contemplated in the resolution of August examinations conducted on petitioner,
in its main office and 89 branches. This 29, 1985, which is to ascertain whether affidavits of the private respondents
Court issued a resolution on August 8, substantial administrative due process had relative to the findings, their reports to
1985 ordering the issuance of the been observed by the respondent the Monetary Board and several other
aforesaid temporary restraining order. Monetary Board, may be expedited by documents in support of their position
On August 20, 1985, the case was Judge Manuel Cosico who now presides while petitioner had merely submitted
submitted for resolution. the court vacated by Judge Ricardo objections to the findings of respondents,
In a resolution dated August 29, 1985, Francisco, who was elevated to the Court counter-affidavits of its officers and also
this Court Resolved direct the respondents of Appeals, there being no legal documents to prove its claims. Although
Monetary Board and Central Bank hold impediment or justifiable reason to bar the records disclose that both parties had
hearings at which the petitioner should be the former from conducting such hearing. not waived cross-examination of their
heard, and terminate such hearings and Hence, this Court directed Judge Manuel deponents, no such cross-examination has
submit its resolution within thirty (30) Cosico to expedite the hearing and submit been conducted. The reception of
days. This Court further resolved to issue his report to this Court. evidence in the form of affidavits was
a temporary restraining order enjoining On February 20, 1988, Judge Manuel followed throughout, until the
the respondents from executing further Cosico submitted his report to this Court commissioner submitted his report and
acts of liquidation of a bank. Acts such as with the recommendation that the recommendations to the Court. This Court
receiving collectibles and receivables or resolutions of respondents Monetary also held that the documents pertinent to
the resolution of the instant petition are hereinafter called, "Santiago Report") on this Court denied the request for oral
the Teodoro Report, Tiaoqui Report, the following issues stated therein as argument of the parties.
Valenzuela, Aurellano and Tiaoqui Report follows: On February 25, 1991, respondents filed
and the supporting documents which were l) Had the Monetary Board observed the their objections to the Santiago Report.
made as the bases by the reporters of procedural requirements laid down in Sec. On March 5, 1991, respondents submitted
their conclusions contained in their 29 of R.A. 265, as amended to justify th a motion for oral argument alleging that
respective reports. This Court also closure of the Banco Filipino Savings and this Court is confronted with two
Resolved in its resolution to re-open the Mortgage Bank? conflicting reports on the same subject,
referral hearing that was terminated after 2) On the date of BF's closure (January one upholding on all points the Monetary
Judge Cosico had submitted his report and 25, 1985) was its condition one of Board's closure of petitioner, (Cosico
recommendation with the end in view of insolvency or would its continuance in Report dated February 19, 1988) and the
allowing petitioner to complete its business involve probable loss to its other (Santiago Report dated January 25,
presentation of evidence and also for depositors or creditors? 1991) holding that petitioner's closure was
respondents to adduce additional The commissioner after evaluation of the null and void because petitioner's
evidence, if so minded, and for both evidence presented found and insolvency was not clearly established
parties to conduct the required cross- recommended the following: before its closure; and that such a hearing
examination of witnesses/deponents, to 1. That the TEODORO and TIAOQUI on oral argrument will therefore allow the
be done within a period of three months. reports did not establish in accordance parties to directly confront the issues
To obviate all doubts on Judge Cosico's with See. 29 of the R.A. 265, as amended, before this Court.
impartiality, this Court designated a new BF's insolvency as of July 31, 1984 or that On March 12, 1991 petitioner filed its
hearing commissioner in the person of its continuance in business thereafter opposition to the motion for oral
former Judge Consuelo Santiago of the would involve probable loss to its argument. On March 20, 1991, it filed its
Regional Trial Court, Makati, Branch 149 depositors or creditors. On the contrary, reply to respondents' objections to the
(now Associate Justice of the Court of the evidence indicates that BF was solvent Santiago Report.
Appeals). on July 31, 1984 and that on January 25, On June 18, 1991, a hearing was held
Three motions for intervention were filed 1985, the day it was closed, its insolvency where both parties were heard on oral
in this case as follows: First, in G.R. No. was not clearly established; argument before this Court. The parties,
70054 filed by Eduardo Rodriguez and 2. That consequently, BF's closure on having submitted their respective
Fortunate M. Dizon, stockholders of January 25, 1985, not having satisfied the memoranda, the case is now submitted
petitioner bank for and on behalf of other requirements prescribed under Sec. 29 of for decision.
stockholders of petitioner; second, in G.R. RA 265, as amended, was null and void. G.R. No. 78767
No. 78894, filed by the same 3. That accordingly, by way of correction, On February 2, 1985, Banco Filipino filed a
stockholders, and, third, again in G.R. No. BF should be allowed to re-open subject to complaint with the trial court docketed as
70054 by BF Depositors' Association and such laws, rules and regulations that Civil Case No. 9675 to annul the
others similarly situated. This Court, on apply to its situation. resolution of the Monetary Board dated
March 1, 1990, denied the aforesaid Respondents thereafter filed a motion for January 25, 1985, which ordered the
motions for intervention. leave to file objections to the Santiago closure of the bank and placed it under
On January 28, 1991, the hearing Report. In the same motion, respondents receivership.
commissioner, Justice Consuelo Santiago requested that the report and On February 14, 1985, the Central Bank
of the Court of Appeals submitted her recommendation be set for oral argument and the receivers filed a motion to dismiss
report and recommendation (to be before the Court. On February 7, 1991, the complaint on the ground that the
receivers had not authorized anyone to Hence this petition was filed by Metropolis authorization of the CB-appointed
file the action. In a supplemental motion Development Corporation questioning the receiver.
to dismiss, the Central Bank cited the decision of the respondent appellate court. After deliberating on the pleadings in the
resolution of this Court dated October 15, G.R. No. 78894 following cases:
1985 in G.R. No. 65723 entitled, "Central On February 2, 1985, a complaint was 1. In G.R. No. 68878, the respondent's
Bank et al. v. Intermediate Appellate filed with the trial court in the name of motion for reconsideration;
Court" whereby We held that a complaint Banco Filipino to annul the resolution o 2. In G.R. Nos. 77255-58, the petition,
questioning the validity of the receivership the Monetary Board dated January 25, comment, reply, rejoinder and sur-
established by the Central Bank becomes 1985 which ordered the closure of Banco rejoinder;
moot and academic upon the initiation of Filipino and placed it under receivership. 2. In G.R. No. 78766, the petition,
liquidation proceedings. The receivers appointed by the Monetary comment, reply and rejoinder;
While the motion to dismiss was pending Board were Carlota Valenzuela, Arnulfo 3. In G.R. No. 81303, the petitioner's
resolution, petitioner herein Metropolis Aurellano and Ramon Tiaoqui. motion for reconsideration;
Development Corporation (Metropolis for On February 14, 1985, the Central Bank 4. In G.R.No. 81304, the petition,
brevity) filed a motion to intervene in the and the receiver filed a motion to dismiss comment and reply;
aforestated civil case on the ground that the complaint on the ground that the 5. Finally, in G.R. No. 90473, the petition
as a stockholder and creditor of Banco receiver had not authorized anyone to file comment and reply.
Filipino, it has an interest in the subject of the action. We find the motions for reconsideration in
the action. On March 22, 1985, the Monetary Board G.R. Nos. 68878 and 81303 and the
On July 19, 1985, the trial court denied placed the bank under liquidation and petitions in G.R. Nos. 77255-58, 78766,
the motion to dismiss and also denied the designated Valenzuela as liquidator and 81304 and 90473 devoid of merit.
motion for reconsideration of the order Aurellano and Tiaoqui as deputy Section 29 of the Republic Act No. 265, as
later filed by Central Bank. On June 5, liquidators. amended known as the Central Bank
1985, the trial court allowed the motion The Central Bank filed a supplemental Act, provides that when a bank is
for intervention. motion to dismiss which was denied. forbidden to do business in the Philippines
Hence, the Central Bank and the receivers Hence, the latter filed a petition and placed under receivership, the person
of Banco Filipino filed a petition for certiorari with the respondent designated as receiver shall immediately
for certiorari with the respondent appellate court to set aside the order of take charge of the bank's assets and
appellate court alleging that the trial court the trial court denying the motion to liabilities, as expeditiously as possible,
committed grave abuse of discretion in dismiss. On March 17, 1986, the collect and gather all the assets and
not dismissing Civil Case No. 9675. respondent appellate court granted the administer the same for the benefit of its
On March 17, 1986, the respondent petition and dismissed the complaint of creditors, and represent the bank
appellate court rendered a decision Banco Filipino with the trial court. personally or through counsel as he may
annulling and setting aside the questioned Thus, this petition for certiorari was filed retain in all actions or proceedings for or
orders of the trial court, and ordering the with the petitioner contending that a bank against the institution, exercising all the
dismissal of the complaint filed by Banco which has been closed and placed under powers necessary for these purposes
Filipino with the trial court as well as the receivership by the Central Bank under including, but not limited to, bringing and
complaint in intervention of petitioner Section 29 of RA 265 could file suit in foreclosing mortgages in the name of the
Metropolis Development Corporation. court in its name to contest such acts of bank. If the Monetary Board shall later
the Central Bank, without the determine and confirm that banking
institution is insolvent or cannot resume
business safety to depositors, creditors administration of a bank. their did Our by reason of its closure. The Central Bank
and the general public, it shall, public order in the same resolution dated August possesses those powers and functions
interest requires, order its liquidation and 25, 1985 for the designation by the only as provided for in Sec. 29 of the
appoint a liquidator who shall take over Central Bank of a comptroller Banco Central Bank Act.
and continue the functions of receiver Filipino alter the powers and functions; of While We recognize the actual closure of
previously appointed by Monetary the liquid insofar as the management of Banco Filipino and the consequent legal
Board. The liquid for may, in the name of the assets of the bank is concerned. The effects thereof on its operations, We
the bank and with the assistance counsel mere duty of the comptroller is to cannot uphold the legality of its closure
as he may retain, institute such actions as supervise counts and finances undertaken and thus, find the petitions in G.R. Nos.
may necessary in the appropriate court to by the liquidator and to d mine the 70054, 78767 and 78894 impressed with
collect and recover a counts and assets of propriety of the latter's expenditures merit. We hold that the closure and
such institution or defend any action ft incurred behalf of the bank. receivership of petitioner bank, which was
against the institution. Notwithstanding this, the liquidator is ordered by respondent Monetary Board on
When the issue on the validity of the empowered under the law to continue the January 25, 1985, is null and void.
closure and receivership of Banco Filipino functions of receiver is preserving and It is a well-recognized principle that
bank was raised in G.R. No. 70054, keeping intact the assets of the bank in administrative and discretionary functions
pendency of the case did not diminish the substitution of its former management, may not be interfered with by the courts.
powers and authority of the designated and to prevent the dissipation of its assets In general, courts have no supervising
liquidator to effectuate and carry on the a to the detriment of the creditors of the power over the proceedings and actions of
ministration of the bank. In fact when We bank. These powers and functions of the the administrative departments of the
adopted a resolute on August 25, 1985 liquidator in directing the operations of the government. This is generally true with
and issued a restraining order to bank in place of the former management respect to acts involving the exercise of
respondents Monetary Board and Central or former officials of the bank include the judgment or discretion, and findings of
Bank, We enjoined me further acts of retaining of counsel of his choice in fact. But when there is a grave abuse of
liquidation. Such acts of liquidation, as actions and proceedings for purposes of discretion which is equivalent to a
explained in Sec. 29 of the Central Bank administration. capricious and whimsical exercise of
Act are those which constitute the Clearly, in G.R. Nos. 68878, 77255-58, judgment or where the power is exercised
conversion of the assets of the banking 78766 and 90473, the liquidator by in an arbitrary or despotic manner, then
institution to money or the sale, himself or through counsel has the there is a justification for the courts to set
assignment or disposition of the s to authority to bring actions for foreclosure aside the administrative determination
creditors and other parties for the purpose of mortgages executed by debtors in favor reached (Lim, Sr. v. Secretary of
of paying debts of such institution. We did of the bank. In G.R. No. 81303, the Agriculture and Natural Resources, L-
not prohibit however acts a as receiving liquidator is likewise authorized to resist 26990, August 31, 1970, 34 SCRA 751)
collectibles and receivables or paying off or defend suits instituted against the bank The jurisdiction of this Court is called
credits claims and other transactions by debtors and creditors of the bank and upon, once again, through these petitions,
pertaining to normal operate of a bank. by other private persons. Similarly, in to undertake the delicate task of
There is no doubt that the prosecution of G.R. No. 81304, due to the aforestated ascertaining whether or not an
suits collection and the foreclosure of reasons, the Central Bank cannot be administrative agency of the government,
mortgages against debtors the bank by compelled to fulfill financial transactions like the Central Bank of the Philippines
the liquidator are among the usual and entered into by Banco Filipino when the and the Monetary Board, has committed
ordinary transactions pertaining to the operations of the latter were suspended grave abuse of discretion or has acted
without or in excess of jurisdiction in counsel as he may retain in all actions or taken and praying the assistance of the
issuing the assailed order. Coupled with proceedings for or against the institution, court in the liquidation of such
this task is the duty of this Court not only exercising all the powers necessary for institutions. The court shall have
to strike down acts which violate these purposes including, but not limited jurisdiction in the same proceedings to
constitutional protections or to nullify to, bringing and foreclosing mortgages in assist in the adjudication of the disputed
administrative decisions contrary to legal the name of the bank or non-bank claims against the bank or non-bank
mandates but also to prevent acts in financial intermediary performing quasi- financial intermediary performing quasi-
excess of authority or jurisdiction, as well banking functions. banking functions and in the enforcement
as to correct manifest abuses of discretion The Monetary Board shall thereupon of individual liabilities of the stockholders
committed by the officer or tribunal determine within sixty days whether the and do all that is necessary to preserve
involved. institution may be reorganized or the assets of such institutions and to
The law applicable in the determination of otherwise placed in such a condition so implement the liquidation plan approved
these issues is Section 29 of Republic Act that it may be permitted to resume by the Monetary Board. The Monetary
No. 265, as amended, also known as the business with safety to its depositors and Board shall designate an official of the
Central Bank Act, which provides: creditors and the general public and shall Central bank or a person of recognized
SEC. 29. Proceedings upon insolvency. — prescribe the conditions under which such competence in banking or finance, as
Whenever, upon examination by the head resumption of business shall take place as liquidator who shall take over and
of the appropriate supervising or well as the time for fulfillment of such continue the functions of the receiver
examining department or his examiners or conditions. In such case, the expenses previously appointed by the Monetary
agents into the condition of any bank or and fees in the collection and Board under this Section. The liquidator
non-bank financial intermediary administration of the assets of the shall, with all convenient speed, convert
performing quasi-banking functions, it institution shall be determined by the the assets of the banking institutions or
shall be disclosed that the condition of the Board and shall be paid to the Central non-bank financial intermediary
same is one of insolvency, or that its Bank out of the assets of such institution. performing quasi-banking function to
continuance in business would involve If the Monetary Board shall determine and money or sell, assign or otherwise dispose
probable loss to its depositors or creditors, confirm within the said period that the of the same to creditors and other parties
it shall be the duty of the department bank or non-bank financial intermediary for the purpose of paying the debts of
head concerned forthwith, in writing, to performing quasi-banking functions is such institution and he may, in the name
inform the Monetary Board of the facts. insolvent or cannot resume business with of the bank or non-bank financial
The Board may, upon finding the safety to its depositors, creditors, and the intermediary performing quasi-banking
statements of the department head to be general public, it shall, if the public functions and with the assistance of
true, forbid the institution to do business interest requires, order its liquidation, counsel as he may retain, institute such
in the Philippines and designate an official indicate the manner of its liquidation and actions as may be necessary in the
of the Central Bank or a person of approve a liquidation plan which may, appropriate court to collect and recover
recognized competence in banking or when warranted, involve disposition of accounts and assets of such institution or
finance, as receiver to immediately take any or all assets in consideration for the defend any action filed against the
charge of its assets and liabilities, as assumption of equivalent liabilities. The institution: Provided, However, That after
expeditiously as possible collect and liquidator designated as hereunder having reasonably established all claims
gather all the assets and administer the provided shall, by the Solicitor General, against the institution, the liquidator may,
same for the benefit's of its creditors, and file a petition in the regional trial court with the approval of the court, effect
represent the bank personally or through reciting the proceedings which have been partial payments of such claims for assets
of the institution in accordance with their plaintiff files a bond, executed in favor of insolvent, and in ordering its closure on
legal priority. the Central Bank, in an amount be fixed January 25, 1985.
The assets of an institution under by the court. The restraining order or As We have stated in Our resolution dated
receivership or liquidation shall be injunction shall be refused or, if granted, August 3, 1989, the documents pertinent
deemed in custodia legis in the hands of shall be dissolved upon filing by the to the resolution of these petitions are the
the receiver or liquidator and shall from Central Bank of a bond, which shall be in Teodoro Report, Tiaoqui Report, and the
the moment of such receivership or the form of cash or Central Bank cashier's Valenzuela, Aurellano and Tiaoqui Report
liquidation, be exempt from any order of check, in an amount twice the amount of and the supporting documents made as
garnishment, levy, attachment, the bond of th petitioner or plaintiff bases by the supporters of their
orexecution. conditioned that it will pay the damages conclusions contained in their respective
The provisions of any law to the contrary which the petitioner or plaintiff may suffer reports. We will focus Our study and
notwithstanding, the actions of the by the refusal or the dissolution of the discussion however on the Tiaoqui Report
Monetary Board under this Section, injunction. The provisions of Rule 58 of and the Valenzuela, Aurellano and Tiaoqui
Section 28-A, an the second paragraph of the New Rules of Court insofar as they are Report. The former recommended the
Section 34 of this Act shall be final an applicable and not inconsistent with the closure and receivership of petitioner bank
executory, and can be set aside by a court provision of this Section shall govern the while the latter report made the
only if there is convince proof, after issuance and dissolution of the re recommendation to eventually place the
hearing, that the action is plainly arbitrary straining order or injunction contemplated petitioner bank under liquidation. This
and made in bad faith: Provided, That the in this Section. Court shall likewise take into consideration
same is raised in an appropriate pleading x x x           x x x          x x x the findings contained in the reports of
filed by the stockholders of record Based on the aforequoted provision, the the two commissioners who were
representing the majority of th capital Monetary Board may order the cessation appointed by this Court to hold the
stock within ten (10) days from the date of operations of a bank in the Philippine referral hearings, namely the report by
the receiver take charge of the assets and and place it under receivership upon a Judge Manuel Cosico submitted February
liabilities of the bank or non-bank financial finding of insolvency or when its 20, 1988 and the report submitted by
intermediary performing quasi-banking continuance in business would involve Justice Consuelo Santiago on January 28,
functions or, in case of conservatorship or probable loss its depositors or creditors. If 1991.
liquidation, within ten (10) days from the Monetary Board shall determine and There is no question that under Section 29
receipt of notice by the said majority confirm within sixty (60) days that the of the Central Bank Act, the following are
stockholders of said bank or non-bank bank is insolvent or can no longer resume the mandatory requirements to be
financial intermediary of the order of its business with safety to its depositors, complied with before a bank found to be
placement under conservatorship o creditors and the general public, it shall, if insolvent is ordered closed and forbidden
liquidation. No restraining order or public interest will be served, order its to do business in the Philippines: Firstly,
injunction shall be issued by an court liquidation. an examination shall be conducted by the
enjoining the Central Bank from Specifically, the basic question to be head of the appropriate supervising or
implementing its actions under this resolved in G.R. Nos. 70054, 78767 and examining department or his examiners or
Section and the second paragraph of 78894 is whether or not the Central Bank agents into the condition of the bank;
Section 34 of this Act in th absence of any and the Monetary Board acted arbitrarily secondly, it shall be disclosed in the
convincing proof that the action of the and in bad faith in finding and thereafter examination that the condition of the bank
Monetary Board is plainly arbitrary and concluding that petitioner bank is is one of insolvency, or that its
made in bad faith and the petitioner or continuance in business would involve
probable loss to its depositors or 1984) and that we are still awaiting for insolvency or illiquidity. He arrived at the
creditors; thirdly, the department head the unsubmitted replies to our previous said conclusion from the following facts:
concerned shall inform the Monetary letters requests. Moreover, other findings/ that as of July 31, 1984, total capital
Board in writing, of the facts; and lastly, observations are still being summarized accounts consisting of paid-in capital and
the Monetary Board shall find the including the classification of loans and other capital accounts such as surplus,
statements of the department head to be other risk assets. These shall be surplus reserves and undivided profits
true. submitted to you in due time (p. 810, aggregated P351.8 million; that capital
Anent the first requirement, the Tiaoqui Rollo, Vol. III; emphasis ours). adjustments, however, wiped out the
report, submitted on January 23, 1985, It is worthy to note that a conference was capital accounts and placed the bank with
revealed that the finding of insolvency of held on January 21, 1985 at the Central a capital deficiency amounting to
petitioner was based on the partial list of Bank between the officials of the latter an P334.956 million; that the biggest
exceptions and findings on the regular of petitioner bank. What transpired and adjustment which contributed to the
examination of the bank as of July 31, what was agreed upon during the deficit is the provision for estimated losses
1984 conducted by the Supervision and conference was explained in the Tiaoqui on accounts classified as doubtful and loss
Examination Sector II of the Central Bank report. which was computed at P600.4 million
of the PhilippinesCentral Bank (p. 1, ... The discussion centered on the pursuant to the examination. This
Tiaoqui Report). substantial exposure of the bank to the provision is also known as valuation
On December 17, 1984, this list of various entities which would have a reserves which was set up or deducted
exceptions and finding was submitted to relationship with the bank; the manner by against the capital accounts of the bank in
the petitioner bank (p. 6, Tiaoqui Report) which some bank funds were made arriving at the latter's financial condition.
This was attached to the letter dated indirectly available to several entities Tiaoqui however admits the insufficiency
December 17, 1984, of examiner-in- within the group; and the unhealth and unreliability of the findings of the
charge Dionisio Domingo of SES financial status of these firms in which the examiner as to the setting up of
Department II of the Central Bank to bank was additionally exposed through recommended valuation reserves from the
Teodoro Arcenas, president of petitione new funds or refinancing accommodation assets of petitioner bank. He stated:
bank, which disclosed that the including accrued interest. The recommended valuation reserves as
examination of the petitioner bank as to Queried in the impact of these clean bases for determining the financial status
its financial condition as of July 31, 1984 loans, on the bank solvency Mr. Dizon (BF of the bank would need to be discussed
was not yet completed or finished on Executive Vice President) intimated that, with the bank, consistent with standard
December 17, 1984 when the Central collectively these corporations have large examination procedure, for which the
Bank submitted the partial list of findings undeveloped real estate properties in the bank would in turn reply. Also, the
of examination to th petitioner bank. The suburbs which can be made answerable examination has not been officially
letter reads: for the unsecured loans a well as the terminated. (p. 7. Tiaoqui report; p.
In connection with the regular Central Bank's credit accommodations. A 59, Rollo, Vol. I)
examination of your institution a of July formal reply of the bank would still be In his testimony in the second referral
31, 1984, we are submitting herewith a forthcoming. (pp. 58-59, Rollo, Vol. I; hearing before Justice Santiago, Tiaoqui
partial list of our exceptions/findings for emphasis ours) testified that on January 21, 1985, he met
your comments. Clearly, Tiaoqui based his report on an with officers of petitioner bank to discuss
Please be informed that we have not yet incomplete examination of petitioner bank the advanced findings and exceptions
officially terminated our examination and outrightly concluded therein that the made by Mr. Dionisio Domingo which
(tentatively scheduled last December 7, latter's financial status was one of covered 70%-80% of the bank's loan
portfolio; that at that meeting, Fortunato especially if doubt exists as to whether arbitratrily or unreasonably and could be
Dizon (BF's Executive Vice President) said such bases or findings faithfully represent set aside if it is either capricious,
that as regards the unsecured loans the real financial status of the bank. discriminatory, whimsical, arbitrary,
granted to various corporations, said The actuation of the Monetary Board in unjust or is tantamount to a denial of due
corporations had large undeveloped real closing petitioner bank on January 25, process and equal protection clauses of
estate properties which could be 1985 barely four days after a conference the Constitution (Central Bank v. Court of
answerable for the said unsecured loans with the latter on the examiners' partial Appeals, Nos. L-50031-32, July 27, 1981,
and that a reply from BF was forthcoming, findings on its financial position is also 106 SCRA 143).
that he (Tiaoqui) however prepared his violative of what was provided in the CB In the instant case, the basic standards of
report despite the absence of such reply; Manual of Examination Procedures. Said substantial due process were not
that he believed, as in fact it is stated in manual provides that only after the observed. Time and again, We have held
his report, that despite the meeting on examination is concluded, should a pre- in several cases, that the procedure of
January 21, 1985, there was still a need closing conference led by the examiner-in- administrative tribunals must satisfy the
to discuss the recommended valuation charge be held with the fundamentals of fair play and that their
reserves of petitioner bank and; that he officers/representatives of the institution judgment should express a well-supported
however, did not wait anymore for a on the findings/exception, and a copy of conclusion.
discussion of the recommended valuation the summary of the findings/violations In the celebrated case of Ang Tibay v.
reserves and instead prepared his report should be furnished the institution Court of Industrial Relations, 69 Phil. 635,
two days after January 21, 1985 (pp. examined so that corrective action may be this Court laid down several cardinal
3313-3314, Rollo). taken by them as soon as possible primary rights which must be respected in
Records further show that the (Manual of Examination Procedures, a proceeding before an administrative
examination of petitioner bank was General Instruction, p. 14). It is hard to body.
officially terminated only when Central understand how a period of four days However, as to the requirement of notice
Bank Examination-charge Dionisio after the conference could be a reasonable and hearing, Sec. 29 of RA 265 does not
Domingo submitted his final report of opportunity for a bank to undertake a require a previous hearing before the
examination on March 4,1985. responsive and corrective action on the Monetary Board implements the closure of
It is evident from the foregoing partial list of findings of the examiner-in- a bank, since its action is subject to
circumstances that the examination charge. judicial scrutiny as provided for under the
contemplated in Sec. 29 of the CB Act as We recognize the fact that it is the same law (Rural Bank of Bato v. IAC, G.R.
a mandatory requirement was not responsibility of the Central Bank of the No. 65642, October 15, 1984, Rural Bank
completely and fully complied with. Philippines to administer the monetary, v. Court of Appeals, G.R. 61689, June 20,
Despite the existence of the partial list of banking and credit system of the country 1988,162 SCRA 288).
findings in the examination of the bank, and that its powers and functions shall be Notwithstanding the foregoing,
there were still highly significant items to exercised by the Monetary Board pursuant administrative due process does not mean
be weighed and determined such as the to Rep. Act No. 265, known as the Central that the other important principles may be
matter of valuation reserves, before these Bank Act. Consequently, the power and dispensed with, namely: the decision of
can be considered in the financial authority of the Monetary Board to close the administrative body must have
condition of the bank. It would be a banks and liquidate them thereafter when something to support itself and the
drastic move to conclude prematurely that public interest so requires is an exercise of evidence must be substantial. Substantial
a bank is insolvent if the basis for such the police power of the state. Police evidence is more than a mere scintilla. It
conclusion is lacking and insufficient, power, however, may not be done means such relevant evidence as a
reasonable mind might accept as 2. For loans classified as loss, or loans In this case, there can be no clearer
adequate to support a conclusion (Ang regarded by the examiner as absolutely explanation of the concept of insolvency
Tibay vs. CIR, supra). Hence, where the uncollectible or worthless, valuation than what the law itself states. Sec. 29 of
decision is merely based upon pieces of reserves of one hundred percent (100%) the Central Bank Act provides that
documentary evidence that are not of the accounts should be recommended insolvency under the Act, shall be
sufficiently substantial and probative for to be set up (p. 8, Objections to Santiago understood to mean that "the realizable
the purpose and conclusion they are report). assets of a bank or a non-bank financial
presented, the standard of fairness The foregoing criteria used by intermediary performing quasi-banking
mandated in the due process clause is not respondents in determining the financial functions as determined by the Central
met. In the case at bar, the conclusion condition of the bank is based on Section Bank are insufficient to meet its
arrived at by the respondent Board that 5 of RA 337, known as the General liabilities."
the petitioner bank is in an illiquid Banking Act which states: Hence, the contention of the Central Bank
financial position on January 23, 1985, as Sec. 5. The following terms shall be held that a bank's true financial condition is
to justify its closure on January 25, 1985 to be synonymous and interchangeable: synonymous with the terms "unimpaired
cannot be given weight and finality as the ... f. Unimpaired Capital and Surplus, capital and surplus," "combined capital
report itself admits the inadequacy of its "Combined capital accounts," and "Net accounts" and net worth after deducting
basis to support its conclusion. worth," which terms shall mean for the valuation reserves from the capital,
The second requirement provided in purposes of this Act, the total of the surplus and unretained earnings, citing
Section 29, R.A. 265 before a bank may "unimpaired paid-in capital, surplus, and Sec. 5 of RA 337 is misplaced.
be closed is that the examination should undivided profits net of such valuation Firstly, it is clear from the law that a
disclose that the condition of the bank is reserves as may be required by the solvent bank is one in which its assets
one of insolvency. Central Bank." exceed its liabilities. It is a basic
As to the concept of whether the bank is There is no doubt that the Central Bank accounting principle that assets are
solvent or not, the respondents contend Act vests authority upon the Central Bank composed of liabilities and capital. The
that under the Central Bank Manual of and Monetary Board to take charge and term "assets" includes capital and surplus"
Examination Procedures, Central Bank administer the monetary and banking (Exley v. Harris, 267 p. 970, 973, 126
examiners must recommend valuation system of the country and this authority Kan., 302). On the other hand, the term
reserves, when warranted, to be set up or includes the power to examine and "capital" includes common and preferred
deducted against the corresponding asset determine the financial condition of banks stock, surplus reserves, surplus and
account to determine the bank's true for purposes provided for by law, such as undivided profits. (Manual of Examination
condition or net worth. In the case of loan for the purpose of closure on the ground Procedures, Report of Examination on
accounts, to which practically all the of insolvency stated in Section 29 of the Department of Commercial and Savings
questioned valuation reserves refer, the Central Bank Act. But express grants of Banks, p. 3-C). If valuation reserves
manual provides that: power to public officers should be would be deducted from these items, the
1. For doubtful loans, or loans the subjected to a strict interpretation, and result would merely be the networth or
ultimate collection of which is doubtful and will be construed as conferring those the unimpaired capital and surplus of the
in which a substantial loss is probable but powers which are expressly imposed or bank applying Sec. 5 of RA 337 but not
not yet definitely ascertainable as to necessarily implied (Floyd Mechem, the total financial condition of the bank.
extent, valuation reserves of fifty per cent Treatise on the Law of Public Offices and Secondly, the statement of assets and
(50%) of the accounts should be Officers, p. 335). liabilities is used in balance sheets. Banks
recommended to be set up. use statements of condition to reflect the
amounts, nature and changes in the losses arising from non-collection of loans Ind. 661). Stated in other words, the
assets and liabilities. The Central Bank and advances, and this account is also insolvency of a bank occurs when the
Manual of Examination Procedures referred to as valuation reserve (p. 9, actual cash market value of its assets is
provides a format or checklist of a Objections to Santiago report). Clearly, insufficient to pay its liabilities, not
statement of condition to be used by the statement of condition which contains considering capital stock and surplus
examiners as guide in the examination of a provision for recommended valuation which are not liabilities for such purpose
banks. The format enumerates the items reserves should not be used as the (Exley v. Harris, 267 p. 970, 973,126 Kan.
which will compose the assets and ultimate basis to determine the solvency 302; Alexander v. Llewellyn, Mo. App., 70
liabilities of a bank. Assets include cash of an institution for the purpose of S.W. 2n 115,117).
and those due from banks, loans, termination of its operations. In arriving at the computation of
discounts and advances, fixed assets and Respondents acknowledge that under the realizable assets of petitioner bank,
other property owned or acquired and said CB manual, CB examiners must respondents used its books which
other miscellaneous assets. The amount of recommend valuation reserves, when undoubtedly are not reflective of the
loans, discounts and advances to be warranted, to be set up against the actual cash or fair market value of its
stated in the statement of condition as corresponding asset account (p. 8, assets. This is not the proper procedure
provided for in the manual is computed Objections to Santiago report). Tiaoqui contemplated in Sec. 29 of the Central
after deducting valuation reserves when himself, as author of the report Bank Act. Even the CB Manual of
deemed necessary. On the other hand, recommending the closure of petitioner Examination Procedures does not confine
liabilities are composed of demand bank admits that the valuation reserves examination of a bank solely with the
deposits, time and savings deposits, should still be discussed with the determination of the books of the bank.
cashier's, manager's and certified checks, petitioner bank in compliance with The latter is part of auditing which should
borrowings, due to head office, branches; standard examination procedure. Hence, not be confused with examination.
and agencies, other liabilities and deferred for the Monetary Board to unilaterally Examination appraises the soundness of
credits (Manual of Examination Procedure, deduct an uncertain amount as valuation the institution's assets, the quality and
p. 9). The amounts stated in the balance reserves from the assets of a bank and to character of management and determines
sheets or statements of condition conclude therefrom without sufficient the institution's compliance with laws,
including the computation of valuation basis that the bank is insolvent, would be rules and regulations. Audit is a detailed
reserves when justified, are based totally unjust and unfair. inspection of the institution's books,
however, on the assumption that the bank The test of insolvency laid down in Section accounts, vouchers, ledgers, etc. to
or company will continue in business 29 of the Central Bank Act is measured by determine the recording of all assets and
indefinitely, and therefore, the networth determining whether the realizable assets liabilities. Hence, examination concerns
shown in the statement is in no sense an of a bank are leas than its liabilities. itself with review and appraisal, while
indication of the amount that might be Hence, a bank is solvent if the fair cash audit concerns itself with verification (CB
realized if the bank or company were to value of all its assets, realizable within a Manual of Examination Procedures,
be liquidated immediately (Prentice Hall reasonable time by a reasonable prudent General Instructions, p. 5). This Court
Encyclopedic Dictionary of Business person, would equal or exceed its total however, is not in the position to
Finance, p. 48). Further, based on liabilities exclusive of stock liability; but if determine how much cash or market
respondents' submissions, the allowance such fair cash value so realizable is not value shall be assigned to each of the
for probable losses on loans and discounts sufficient to pay such liabilities within a assets and liabilities of the bank to
represents the amount set up against reasonable time, the bank is insolvent. determine their total realizable value. The
current operations to provide for possible (Gillian v. State, 194 N.E. 360, 363, 207 proper determination of these matters by
using the actual cash value criteria Concerning the financial position of the attempted to take effective action on the
belongs to the field of fact-finding bank as of January 25, 1985, the date of bank's alleged activities. During the period
expertise of the Central Bank and the the closure of the bank, the consolidated from July 27, 1984 up to January 25,
Monetary Board. Notwithstanding the fact statement of condition thereof as of the 1985, when petitioner bank was under
that the figures arrived at by the aforesaid date shown in the Valenzuela, conservatorship no official of the bank was
respondent Board as to assets and Aurellano and Tiaoqui report on the ever prosecuted, suspended or removed
liabilities do not truly indicate their receivership of petitioner bank, dated for any participation in unsafe and
realizable value as they were merely March 19, 1985, indicates that total unsound banking practices, and neither
based on book value, We will however, liabilities of 4,540.84 million does not was the entire management of the bank
take a look at the figures presented by the exceed the total assets of 4,981.53 replaced or substituted. In fact, in her
Tiaoqui Report in concluding insolvency as million. Likewise, the consolidated testimony during the second referral
of July 31, 1984 and at the figures statement of condition of petitioner bank hearing, Carlota Valenzuela, CB Deputy
presented by the CB authorized deputy as of January 25, 1985 prepared by the Governor, testified that the reason for
receiver and by the Valenzuela, Aurellano Central Bank Authorized Deputy Receiver petitioner bank's closure was not
and Tiaoqui Report which recommended Artemio Cruz shows that total assets unsound, unsafe and fraudulent banking
the liquidation of the bank by reason of amounting to P4,981,522,996.22 even practices but the alleged insolvency
insolvency as o January 25,1985. exceeds total liabilities amounting to position of the bank (TSN, August 3,
The Tiaoqui report dated January 23, P4,540,836,834.15. Based on the 1990, p. 3316, Rollo, Vol. VIII).
1985, which was based on partial foregoing, there was no valid reason for Finally, another circumstance which point
examination findings on the bank's the Valenzuela, Aurellano and Tiaoqui to the solvency of petitioner bank is the
condition as of July 31, 1984, states that report to finally recommend the granting by the Monetary Board in favor of
total liabilities of P5,282.1 million exceeds liquidation of petitioner bank instead of its the former a credit line in the amount of
total assets of P4,947.2 million after rehabilitation. P3 billion along with the placing of
deducting from the assets valuation We take note of the exhaustive study and petitioner bank under conservatorship by
reserves of P612.2 million. Since, as We findings of the Cosico report on the virtue of M.B. Resolution No. 955 dated
have explained in our previous discussion petitioner bank's having engaged in July 27, 1984. This paved the way for the
that valuation reserves can not be legally unsafe, unsound and fraudulent banking reopening of the bank on August 1, 1984
deducted as there was no truthful and practices by the granting of huge after a self-imposed bank holiday on July
complete evaluation thereof as admitted unsecured loans to several subsidiaries 23, 1984.
by the Tiaoqui report itself, then an and related companies. We do not see, On emergency loans and advances,
adjustment of the figures win show that however, that this has any material Section 90 of RA 265 provides two types
the liabilities of P5,282.1 million will not bearing on the validity of the closure. of emergency loans that can be granted
exceed the total assets which will amount Section 34 of the RA 265, Central Bank by the Central Bank to a financially
to P5,559.4 if the 612.2 million allotted to Act empowers the Monetary Board to take distressed bank:
valuation reserves will not be deducted action under Section 29 of the Central Sec. 90. ... In periods of emergency or of
from the assets. There can be no basis Bank Act when a bank "persists in imminent financial panic which directly
therefore for both the conclusion of carrying on its business in an unlawful or threaten monetary and banking stability,
insolvency and for the decision of the unsafe manner." There was no showing the Central Bank may grant banking
respondent Board to close petitioner bank whatsoever that the bank had persisted in institutions extraordinary advances
and place it under receivership. committing unlawful banking practices secured by any assets which are defined
and that the respondent Board had as acceptable by by a concurrent vote of
at least five members of the Monetary the P3 billion loan to petitioner bank and banks, not only as regards petitioner
Board. While such advances are the latter's reopening after a brief self- bank. This Court thereby finds that the
outstanding, the debtor institution may imposed banking holiday: grant of the said emergency loan was
not expand the total volume of its loans or WHEREAS, the closure by Banco Filipino intended from the beginning to fall under
investments without the prior Savings and Mortgage Bank of its Banking the second paragraph of Section 90 of the
authorization of the Monetary Board. offices on its own initiative has worked Central Bank Act, which could not have
The Central Bank may, at its discretion, serious hardships on its depositors and occurred if the petitioner bank was not
likewise grant advances to banking has affected confidence levels in the solvent. Where notwithstanding
institutions, even during normal periods, banking system resulting in a feeling of knowledge of the irregularities and unsafe
for the purpose of assisting a bank in a apprehension among depositors and banking practices allegedly committed by
precarious financial condition or under unnecessary deposit withdrawals; the petitioner bank, the Central Bank even
serious financial pressures brought about WHEREAS, the Central Bank is charged granted financial support to the latter and
by unforeseen events, or events which, with the function of administering the placed it under conservatorship, such
though foreseeable, could not be banking system; actuation means that petitioner bank
prevented by the bank concerned. WHEREAS, the reopening of Banco Filipino could still be saved from its financial
Provided, however, That the Monetary would require additional credit resources distress by adequate aid and management
Board has ascertained that the bank is not from the Central Bank as well as an reform, which was required by Central
insolvent and has clearly realizable assets independent management acceptable to Bank's duty to maintain the stability of the
to secure the advances. Provided, further, the Central Bank; banking system and the preservation of
That a concurrent vote of at least five WHEREAS, it is the desire of the Central public confidence in it (Ramos v. Central
members of the Monetary Board is Bank to rapidly diffuse the uncertainty Bank, No. L-29352, October 4, 1971, 41
obtained. (Emphasis ours) that presently exists; SCRA 565).
The first paragraph of the aforequoted ... (M.B. Min. No. 35 dated July 27, 1984 In view of the foregoing premises, We
provision contemplates a situation where cited in Respondents' Objections to believe that the closure of the petitioner
the whole banking community is Santiago Report, p. 26; p. 3387, Rollo, bank was arbitrary and committed with
confronted with financial and economic Vol. IX; Emphasis ours). grave abuse of discretion. Granting
crisis giving rise to serious and A perusal of the foregoing "Whereas" in gratia argumenti that the closure was
widespread confusion among the public, clauses unmistakably show that the clear based on justified grounds to protect the
which may eventually threaten and reason for the decision to grant the public, the fact that petitioner bank was
gravely prejudice the stability of the emergency loan to petitioner bank was suffering from serious financial problems
banking system. Here, the emergency or that the latter was suffering from financial should not automatically lead to its
financial confusion involves the whole distress and severe bank "run" as a result liquidation. Section 29 of the Central Bank
banking community and not one bank or of which it closed on July 23, 1984 and provides that a closed bank may be
institution only. The second situation on that the release of the said amount is in reorganized or otherwise placed in such a
the other hand, provides for a situation accordance with the Central Bank's full condition that it may be permitted to
where the Central Bank grants a loan to a support to meet Banco Filipino's resume business with safety to its
bank with uncertain financial condition but depositors' withdrawal requirements depositors, creditors and the general
not insolvent. (Excerpts of minutes of meeting on MB public.
As alleged by the respondents, the Min. No. 35, p. 25, Rollo, Vol. IX). Nothing We are aware of the Central Bank's
following are the reasons of the Central therein shows that an extraordinary concern for the safety of Banco Filipino's
Bank in approving the resolution granting emergency situation exists affecting most depositors as well as its creditors including
itself which had granted substantial with safety to its creditors, depositors and latter's enormous infusion of capital into
financial assistance up to the time of the the general public. BF to the tune of approximately P3.5
latter's closure. But there are alternatives SO ORDERED. Billion in total accommodations, after a
to permanent closure and liquidation to Narvasa, C.J., Gutierrez, Jr., Cruz, Bidin thorough assessment of whether or not BF
safeguard those interests as well as those and Regalado, JJ., concur. is, indeed, possessed, as it stoutly
of the general public for the failure of Paras, Feliciano, Padilla, Davide, Jr. and contends, of sufficient assets and
Banco Filipino or any bank for that matter Nocon, JJ., took no part. capabilities with which to repay such huge
may be viewed as an irreversible decline   indebtedness, and can operate without
of the country's entire banking system   loss to its many depositors and creditors.
and ultimately, it may reflect on the Separate Opinions  
Central Bank's own viability. For one   GRIÑO-AQUINO, J., dissenting:
thing, the Central Bank and the Monetary MELENCIO-HERRERA, J., dissenting: Although these nine (9) Banco Filipino
Board should exercise strict supervision I join Mme. Justice Carolina G. Aquino in (BF) cases have been consolidated under
over Banco Filipino. They should take all her dissent and vote to deny the prayer, one ponencia, all of them except one,
the necessary steps not violative of the in G.R. No. 70054, to annul Monetary raise issues unrelated to the receivership
laws that will fully secure the repayment Board Resolution No. 75 placing Banco and liquidation of said bank. In fact, two
of the total financial assistance that the Filipino (BF) under receivership. of these cases (G.R. No. 68878 and
Central Bank had already granted or Even assuming that the BF was not, as 81303) have already been decided by this
would grant in the future. alleged, in a literal state of insolvency at Court and are only awaiting the resolution
ACCORDINGLY, decision is hereby the time of the passage of said Resolution, of the motions for reconsideration filed
rendered as follows: there was a finding in the Teodoro report therein. Only G.R. No. 70054 "Banco
1. The motion for reconsideration in G.R. that, based on that Bank's illiquidity, to Filipino Savings and Mortgage Bank (BF)
Nos. 68878 and 81303, and the petitions have allowed it to continue in operation vs. the Monetary Board (MB), Central
in G.R. Nos. 77255-58, 78766, 81304 and would have meant probable loss to Bank of the Philippines (CB), et al.," is an
90473 are DENIED; depositors and creditors. That is also a original action for mandamus
2. The petitions in G.R. No. 70054, 78767 ground for placing the bank under and certiorari filed in this Court by former
and 78894 are GRANTED and the assailed receivership, as a first step, pursuant to officials of BF to annul the Monetary Board
order of the Central Bank and the Section 29 of the Central Bank Act (Rep. Resolution No. 75 dated January 25, 1985
Monetary Board dated January 25, 1985 is Act No. 265, as amended). The closure of (ordering the closure of Banco Filipino
hereby ANNULLED AND SET ASIDE. The BF, therefore, can not be said to have [BF] and appointing Carlota Valenzuela as
Central Bank and the Monetary Board are been arbitrary or made in bad faith. There receiver of the bank) on the ground that
ordered to reorganize petitioner Banco was sufficient justification, considering its the resolution was issued "without
Filipino Savings and Mortgage Bank and inability to meet the heavy withdrawals by affording BF a hearing on the reports" on
allow the latter to resume business in the its depositors and to pay its liabilities as which the Monetary Board based its
Philippines under the comptrollership of they fell due, to forbid the bank from decision to close the bank, hence, without
both the Central Bank and the Monetary further engaging in banking. "administrative due process.", The prayer
Board and under such conditions as may The matter of reopening, reorganization or of the petition reads:
be prescribed by the latter in connection rehabilitation of BF is not within the WHEREFORE, petitioner respectfully prays
with its reorganization until such time that competence of this Court to ordain but is that a writ of mandamus be issued
petitioner bank can continue in business better addressed to the Monetary Board commanding respondents immediately to
and the Central Bank considering the furnish it copies of the reports of
examination of BF employed by BF of a house and lot which the buyer management (using the name of BF) from
respondent Monetary Board to support its (Pahimutang) claimed to have completely the decision of the Court of Appeals in CA-
Resolution of January 25, 1985 and paid for on the installment plan. The G.R. SP No. 07503 entitled, "Central Bank,
thereafter to afford it a hearing prior to appellate court's judgment for the buyer et al. vs. Judge Zoilo Aguinaldo, et al"
any resolution that may be issued under was reversed by this Court. The buyer's dismissing the complaint of "BF" to annul
Section 29 of R.A. 265, meanwhile motion for reconsideration is awaiting the receivership, for no suit may be
annulling said Resolution of January 25, resolution by this Court; brought or defended in the name of the
1985 by writ of certiorari as made without 2. G.R. Nos. 77255-58, "Top Management bank except by its receiver;
or in excess ofjurisdiction or with grave Programs Corporation and Pilar 5. G.R. No. 87867, "Metropolis
abuse of discretion. Development Corporation vs. Court of Development Corporation vs. Court of
So as to expedite proceedings, petitioner appeals, et al." (CA-G.R. SP No. 07892) Appeals" (formerly AC-G.R. No. 07503,
prays that the assessment of the damages and "Pilar Development Corporation vs. "Central Bank, et al. vs. Honorable Zoilo
respondents should pay it be deferred and Executive Judge, RTC, Cavite" (CA-G.R. Aguinaldo, et al.') is an appeal of the
referred to commissioners. SP Nos. 0896264) is a consolidated intervenor (Metropolis) from the same
Petitioner prays for such other remedy as petition for review of the Court of Appeals' Court of Appeals' decision subject of G.R.
the Court may deem just and equitable in joint decision dismissing the petitions for No. 78894, which also dismissed
the premises. prohibition in which the petitioners seek to Metropolis' complaint in intervention on
Quezon City for Manila, February 28, prevent the receiver/liquidator of BF from the ground that a stockholder (Metropolis)
1985. (p. 8, Rollo I-) extrajudicially foreclosing the P4.8 million may not bring suit in the name of BF while
and the prayer of the Supplement to mortgage on Top Management's the latter is under receivership, without
Petition reads: properties and the P18-67 million the authority of the receiver;
WHEREFORE, in addition to its prayer for mortgage on Pilar Development 6. G.R. No. 81303, "Pilar Development
mandamus and certiorari contained in its properties. The Court of Appeals Corporation vs. Court of Appeals, et al." is
original petition, petitioner respectfully dismissed the petitions on October 30, an appeal from the decision dated October
prays that Sections 28-A and 29 of the 1986 on the ground that "the functions of 22, 1987 of the Court of Appeals in CA-
Central Bank charter (R.A. 265) including the liquidator, as receiver under Section G.R. SP No. 12368, "Pilar Development
its amendatory Presidential Decrees Nos. 29 (R.A. 265), include taking charge of Corporation, et al. vs. Honorable Manuel
72, 1771, 1827 and 1937 be annulled as the insolvent's assets and administering Cosico, et al.," dismissing the petition
unconstitutional. the same for the benefit of its creditors for certiorari against Judge Manuel Cosico,
Quezon City for Manila, March 4, 1985. (p. and of bringing suits and foreclosing Br. 136, RTC, Makati, who dismissed the
11-G, Rollo I.) mortgages in the name of the bank;" complaint filed by Pilar Development
The other eight (8) cases merely involve 3. G.R. No. 78766, "El Grande Corporation Corporation against BF, for specific
transactions of BF with third persons and vs. Court of Appeals, et al.," is an appeal performance of certain developer
certain "related" corporations which had from the Court of Appeals' decision in CA- contracts. An answer filed by Norberto
defaulted on their loans and sought to G.R. SP No. 08809 dismissing El Grande's Quisumbing and Associates, as BF's
prohibit the extrajudicial foreclosure of the petition for prohibition to prevent the supposed counsel, virtually confessed
mortgages on their properties by the foreclosure of BF's P8 million mortgage on judgment in favor of Pilar Development.
receiver of BF. These eight (8) cases are: El Grande's properties; On motion of the receiver, the answer was
1. G.R. No. 68878 "BF vs. Intermediate 4. G.R. No. 78894, "Banco Filipino expunged and the complaint was
Appellate Court and Celestina Savings and Mortgage Bank vs. Court of dismissed. On a petition for certiorari in
Pahimutang" involves the repossession by Appeals, et al." is an appeal of BFs old this Court, we held that: "As liquidator of
BF by virtue of a valid appointment from name of the bank and praying for the I concur with the ponencia insofar as it
the Central Bank, private respondent annulment of MB Resolution No. 75 which denies the motion for reconsideration in
Carlota Valenzuela has the authority to ordered the closure of BF and placed it G.R. No. 81303, and dismisses the
direct the operation of the bank in under receivership. It is a "forum- petitions for review in G.R. Nos. 77255-
substitution of the former management, shopping" case because it was filed here 58, 78766, 81304, and 90473.
which authority includes the retainer of on February 28, 1985 three weeks after I respectfully dissent from the majority
counsel to represent it in bringing or they had filed on February 2, 1985 Civil opinion in G.R. No. 70054 annulling and
resisting suits in connection with such Case No. 9675 "Banco Filipino vs. setting aside MB Resolution No. 75 and
liquidation and, in the case at bar, to take Monetary Board, et al." in the Regional ordering the respondents, Central Bank of
the proper steps to prevent collusion, to Trial Court of Makati, Br. 143 (presided the Philippines and the Monetary Board —
the prejudice of the legitimate creditors, over by Judge Zoilo Aguinaldo) for the to reorganize petitioner Banco Filipino
between BF and the petitioners herein same purpose of securing a declaration of Savings and Mortgage Bank, and allow the
which appear to be owned and controlled the nullity of MB Resolution No. 75 dated latter to resume business in the
by the same interest controlling BF" (p. January 25, 1985. Philippines under the comptrollership of
49, Rollo). The petitioners' motion for On August 25, 1985, this Court ordered both the Central Bank and the Monetary
reconsideration of that decision is pending the transfer and consolidation of Civil Case Board and under such conditions as may
resolution. No. 9676 (to annul the receivership) from be prescribed by the latter until such time
7. G.R. No. 81304, "BF Homes Br. 143 to Br. 136 (Judge Manuel Cosico) that petitioner bank can continue in
Development Corporation vs. Court of of the Makati Regional Trial Court where business with safety to its creditors,
Appeals, et al." is an appeal from the Civil Case No. 8108 (to annul the depositors and the general public.
decision dated November 4, 1987 of the conservatorship) and Civil Case No. 10183 for I believe that this Court has neither
Court of Appeals in CA-G.R. CV No. 08565 (to annul the liquidation) of BF were and the authority nor the competence to
affirming the trial court's order dismissing are still pending. All these three (3) cases determine whether or not, and under what
BF Homes' action to compel the Central were archived on June 30, 1988 by Judge conditions, BF should be reorganized and
Bank to restore the financing facilities of Cosico pending the resolution of G.R. No. reopened. That decision should be made
BF, because the plaintiff (BF Homes) has 70054 by this Court. by the Central Bank and the Monetary
no cause of action against the CB. Because of my previous participation, as a Board, not by this Court.
8. G.R. No. 90473, "El Grande former member of the Court of Appeals, in All that we may determine in this case is
Development Corporation vs. Court of the disposition of AC-G.R. No. 02617 (now whether the actions of the Central Bank
Appeals, et al.," is a petition to review the G.R. No. 68878) and AC-G.R. SP No. and the Monetary Board in closing BF and
decision dated June 6, 1989 in CA-G.R. SP 07503 (now G.R. Nos. 78767 and 78894), placing it under receivership were "plainly
No. 08676 dismissing El Grande's petition I am taking no part in G.R. Nos. 68878, arbitrary and made in bad faith.
for prohibition to stop foreclosure 78767 and 78894. It may be mentioned in Section 29 of Republic Act No. 265
proceedings against it by the receiver of this connection that neither in AC-G.R. SP provides:
BF. No. 02617, nor in AC-G.R. SP No. 07503, Section 29. Proceedings upon insolvency.
As previously stated, G.R. No. 70054 "BF did the Court of Appeals rule on the — Whenever, upon examination by the
vs. Monetary Board, et al.," is an original constitutionality of Sections 28-A and 29 head of the appropriate supervising and
special civil action for certiorari and of Republic Act 265 (Central Bank Act), as examining department or his examiners
mandamus filed in this Court by the old amended, and the validity of MB or agents into the condition of any
management of BF, through their counsel, Resolution No. 75, for those issues were banking institution, it shall be disclosed
N.J. Quisumbing & Associates, using the not raised in the Court of Appeals. that the condition of the same is one of
insolvency, or that its continuance in depositors, creditors and the general restraining order or injunction shall be
business would involve probable loss to its public, it shall, if the public interest issued by the court enjoining the Central
depositors or creditors, it shall be the duty requires, order its liquidation, indicate the Bank from implementing its actions under
of the department head concerned manner of its liquidation and approve a this section and the second paragraph of
forthwith, in writing, to inform the liquidation plan. The Central Bank shall, Section 34 of this Act, unless there is
Monetary Board of the facts, and the by the Solicitor General, file a petition in convincing proof that the action of the
Board may, upon finding the statements the Court of First Instance, reciting the Monetary Board is plainly arbitrary and
of the department head to be true, forbid proceedings which have been taken and made in bad faith and the petitioner or
the institution to do business in the praying the assistance of the court in the plaintiff files with the clerk or judge of the
Philippines and shall designate an official liquidation of the banking institutions. The court in which the action is pending a
of the Central Bank as receiver to court shall have jurisdiction in the same bond executed in favor of the Central
immediately take charge of its assets and proceedings to adjudicate disputed claims Bank, in an amount to be fixed by the
liabilities, as expeditiously as possible against the bank and enforce individual court. The restraining order or injunction
collect and gather all the assets and liabilities of the stockholders and do all shall be refused or, if granted, shall be
administer the same for the benefit of its that is necessary to preserve the assets of dissolved upon filing by the Central Bank
creditors, exercising all the powers the banking institution and to implement of a bond, which shall be in the form of
necessary for these purposes including, the liquidation plan approved by the cash or Central Bank cashier's check, in
but not limited to, bringing suits and Monetary Board. The Monetary Board shall an amount twice the amount of the bond
foreclosing mortgages in the name of the designate an official of the Central Bank of the petitioner or plaintiff, conditioned
banking institution. as liquidator who shall take over the that it will paythe which the petitioner or
The Monetary Board shall thereupon functions of the receiver previously plaintiff may suffer by the refusalor the
determine within sixty days whether the appointed by the Monetary Board under dissolution of the injunction. The
institution may be reorganized or this section. The liquidator shall, with all provisions of Rule 58 of the new Rules of
otherwise placed in such a condition so convenient speed, convert the assets of Court insofar as they are applicable and
that it may be permitted to resume the banking institution to money or sell, not inconsistent with the provisions of this
business with safety to its depositors and assign or otherwise dispose of the same to section shall govern the issuance and
creditors and the general public and shall creditors and other parties for the purpose dissolution of the restraining order or
prescribe the conditions under which such of paying the debts of such bank and he injunction contemplated in this section.
resumption of business shall take place as may, in the name of the banking Insolvency, under this Act, shall be
well as the time for fulfillment of such institution, institute such actions as may understood to mean the inability of a
conditions. In such case, the expenses be necessary in the appropriate court to banking institution to pay its liabilities as
and fees in the collection and collect and recover accounts and assets of they fall due in the usual and ordinary
administration of the assets of the the banking institution. course of business, provided, however,
institution shall be determined by the The provisions of any law to the contrary that this shall not include the inability to
Board and shall be paid to the Central notwithstanding, the actions of the pay of an otherwise non-insolvent bank
Bank out of the assets of such banking Monetary Board under this section and the caused by extra-ordinary demands
institution. second paragraph of Section 34 of this induced by financial panic commonly
If the Monetary Board shall determine and Act shall be final and executory, and can evidenced by a run on the banks in the
confirm within the said period that the be set aside by the court only if there is banking community.
banking institution is insolvent or cannot convincing proof that theaction is plainly The determinative factor in the closure,
resume business with safety to its arbitrary and made in bad faith. No receivership, and liquidation of a bank is
the finding, upon examination by the SES Report.) Additional emergencyt loans (a Messrs. Tirso G. Santillan, Jr. and Plorido
of the Central Bank, that its condition "is total of P119.7 millions) were extended by P. Casuela to make an analysis of BF's
one of insolvency, or that its continuance the Central Bank to BF that month (MB financial condition. Teodoro also engaged
in business would involve probable loss to Res. No. 839 dated June 29,1984). On the accounting firm of Sycip, Gorres,
its depositors and creditors." (Sec. 29, July 12, 1984, BFs chairman, Anthony Velayo and Company to make an asset
R.A. 265.) It should be pointed out that Aguirre, offered to "turn over the evaluation. The Philippine Appraisal
insolvency is not the only statutory administration of the affairs of the bank" Company (PAC) appraised BFs real estate
ground for the closure of a bank. The to the Central Bank (Aguirre's letter to properties, acquired assets, and
other ground is when "its continuance in Governor Jose Fernandez, Annex 7 of collaterals held. On January 9, 1985,
business would involve probable loss to its Manifestation dated May 3,1991). On July Teodoro submitted his Report. Three
depositors and creditors. 23,1984, unable to meet heavy deposit weeks later, on January 23, 1985, Tiaoqui
Was BF insolvent i.e., unable to pay its withdrawals, BF's management motu also submitted his Report. Both reports
liabilities as they fell due in the usual and proprio, without obtaining the conformity showedthat, in violation of Section 37 of
ordinary course of business, on and for of the Central Bank, closed the bank and the General Banking Act (R.A.337): 2
some time before January 25, 1985 when declared a bank holiday. On July 27, 1. BF had been continually deficient in
the Monetary Board issued Resolution No. 1984, the CB, responding to BFs pleas for liquidity reserves (Teodoro Report). The
75 closing the bank and placing it under additional financial assistance, granted BF bank had been experiencing a severe drop
receivership? Would its continued a P3 billion credit line (MB Res. No. 934 of in liquidity levels. The ratio of liquid
operation involve probable loss to its July 27, 1984) to enable it to reopen and assets to deposits and borrowings plunged
depositors and creditors? resume business on August 1, 1984. from about 20% at end-1983, to about
The answer to both questions is yes. Both P2.3601 billions of the credit line were 8.6% by end-May 1984, much below the
the conservator Gilberts Teodoro and the availed of by the end of 1984 exclusive of statutory requirements of 24% for
head of the SES (Supervision and an overdraft of P932.4 millions (p. 2, demand deposits/deposit substitutes and
Examination Sector) Ramon V. Tiaoqui Tiaoqui Report). Total accommodations 14% for savings and time deposits. (p. 2,
opined that BF's continuance in business granted to BF amounted to P3.4122 Tiaoqui Report.)
would cause probable loss to depositors billions (p. 19, Cosico Report). 2. Deficiencies in average daily legal
and creditors. Tiaoqui further categorically Presumably to assure that the financial reserves rose from P63.0 million during
found that BF was insolvent. Why was this assistance would be properly used, the MB the week of November 21-25, 1983 to a
so? appointed Basilio Estanislao as high of P435.9 million during the week of
The Teodoro and Tiaoqui reports as well conservator of the bank. A June 11-15, 1984 (pp. 2-3, Tiaoqui
as the report of the receivers, Carlota conservatorship team of 78 examiners and Report). Accumulated penalties on reserve
Valenzuela, Arnulfo B. Aurellano and accountants was assigned at the bank to deficiencies amounted to P37.4 million by
Ramon V. Tiaoqui, showed that since the keep track of its activities and ascertain July 31, and rose to P48 million by the
end of November 1983 BF had already its financial condition (p. 8, Tiaoqui end of 1984. (Tiaoqui Report.)
been incurring "chronic reserve Report). 3. Deposit levels, which were at P3,845
deficiencies' and experiencing severe Estanislao resigned after two weeks for million at end-May l984 (its last "normal"
liquidity problems. So much so, that it had health reasons. He was succeeded by month), dropped to P935 million at the
become "a substantial borrower in the call Gilberto Teodoro as conservator in end of November 1984 or a loss of P2,910
loans market" and in June 1984 it August, 1984 up to January 8, 1985. million. This represented an average
obtained a P30 million emergency loan Besides the conservatorship team, monthly loss of P485 million vs. an
from the Central Bank. (p. 2, Receiver's Teodoro hired financial consultants average monthly gain of P26 million
 issued in the name of an entity other than the purchaser of the stocks. the minimum capital required of P657.6 million (Annex F). Capital to risk
during the first 5 months of 1984. (pp. 2-
(Tiaoqui Report.) assets ratio is negative 10.38%.
3, Tiaoqui Report.)
11. Loans amounting to some P69.3 million were granted simply to pay- e) Total loans and investment portfolio amounted to P3,914.3 millions
4. Deposits had declined at the rate of P20
off old loans including accrued interest, as an accommodation for the (gross), of which P194.0 millions or 5.0% were past due and P1,657.1
million during the month of December
direct maturing loans of some firms and as a way of paying-off loans of millions or 42.3% were adversely classified (Substandard — P1,011.4
1984, but expenses of about P17 million
other borrower firms which have their own credit lines with the bank. millions; Doubtful — P274.6 millions and Loss — P371.1 millions).
per month were required to maintain the
These helped to make otherwise delinquent loans appear "current" and Accounts adversely classified included unmatured loan of Pl,482.0 million
bank's operation. (p. 6, Teodoro Report.)
deceptively "improved" the quality of the loan portfolio. (Tiaoqui Report.) to entities related with each other and to the bank, several of which
5. Based on the projected outlook, the
12. Examination of the collaterals for the loan accounts of 63 major showed distressed conditions. (p. 7, Tiaoqui Report.)
Bank's average yield on assets of 16.3%
borrowers and 32 other selected borrowers as of July 31, 1984, showed Teodoro's conclusion was that "the continuance of the bank in business
p.a., was insufficient to meet the average
that: would involve probable loss to its depositors and creditors." He
cost of funds of 19.5% p.a. and operating
(a) 2,658 TCT's which BF evaluated to be worth P1,487 million were recommended "that the Monetary Board take a more effective and
expenses of 4.8% p.a. (p. 5 Teodoro
appraised by PAC to be worth only P1,196 million, hence, deficient by responsible action to protect the depositors and creditors ... in the light
Report.)
P291 million. of the bank's worsening condition." (p. 5, Teodoro Report.)
6. An imprudently large proportion of
(b) Other properties (collaterals) supposedly worth P711 million could not On January 23, 1985, Tiaoqui submitted his report to the Monetary
assets were locked into long-term
be evaluated by PAC because the details submitted by the bank were Board, Like Teodoro, Tiaoqui believed that the principal cause of the
applications. (Teodoro Report.)
insufficient; bank's failure was that in violation of the General Banking Law and CB
7. BF overextended itself in lending to the
(c) While P674 million in loans were supposedly guaranteed by the Home rules and regulations, BF's major stockholders, directors and officers,
real estate industry, committing as much
Financing Corporation (HFIC), the latter confirmed only P427 million. through their "related" companies: (i.e. companies owned or controlled
as 52% of its peso deposits to its affiliates
P247 million in loans were not guaranteed by HFC. (Teodoro Report.) by them of their relatives) had been "borrowing" huge chunks of the
or "related accounts" to which it continued
(d) Per SGV's report, loans totalling P1.882 million including accrued money of the depositors. His Conclusion and Recommendations were:
lending even when it was already suffering
interest, were secured by collateral worth only Pl.54 billion. Hence, BFs
from liquidity stresses. (Teodoro Report.)
unsecured exposure amounted to P586.2 million. BF Homes, Inc., a
This was done in violation of Section 38 of
the General Banking Act (R.A. 337). 3 related company which has filed with the SEC a petition for suspension of The Conservator, in his report to the Monetary Board dated January 8,
payments, owes P502 million to BF. 1985, has stated that the continuance of the bank in business would

8. During the period of marked decline in liquidity levels the loan 13. BF had been suffering heavy losses. — involve probable loss to its depositors and creditors. It has recommended

portfolio grew by P417.3 million in the first five months of 1984 — and by a) For the eleven (11) months ended November 30, 1984, the estimated that a more effective action be taken to protect depositors and creditors.

another P105.l million in the next two months. (pp. 2-3, Tiaoqui Report.) net loss was P372.6 Million; The examination findings as of July 31, 1984 as shown earlier, indicate
b) For the twelve (12) months from November 1984, the projected net one of insolvency and illiquidity and further confirms the above

9. The loan portfolio stood at P3.679 billion at the end of July 1984, loss would be P390.7 Million and would continue unabated; (p. 2, conclusion of the Conservator.

56.2% of it channeled to companies whose stockholders, directors and Teodoro Report) All the foregoing provides sufficient justification for forbidding the bank

officers were related to the officers, directors, and some stockholders of c) Around 71.7% of the total accommodations of P2.0677 billions to the from further engaging in banking.

BF. (p. 8, Tiaoqui Report.) Here again BF violated the General Banking related/linked entities were adversely classified. Close to 33.7% or Foregoing considered, the following are recommended:

Act (R.A. 337). 4 P697.1 millions were clean loans or against PNs (promissory notes) of 1. Forbid the Banco Filipino Savings & Mortgage Bank to do business in
these entities. Of the latter, 52.6% were classified as loss." (P. 5, Tiaoqui the Philippines effective the beginning of office on January, 1985,
Report.) pursuant to Sec. 29 of R.A. No. 265, as amended;
10. Some of the loans were used to acquire preferred stocks of BF.
d) The bank's financial condition as of date of examination, after setting 2. Designate the Head of the Conservator Team at the bank, as Receiver
Between September 17, 1983 and February 10, 1984, P49.9 million of
up the additional valuation reserves of P612.2 millions and accumulated of Banco Filipino Savings & Mortgage Bank, to immediately take charge
preferred non-convertible stocks were issued. About 85% or P42.4
net loss of P48.2 millions, indicates one of insolvency. Total liabilities of of the assets and liabilities, as expeditiously as possible collect and
million was paid out of the proceeds of loans to stockholders/ borrowers
P5,282.1 million exceeds total assets of P4,947.2 million by 6.8%. Total gather all the assets and administer the same for the benefit of all the
with relationship to the bank (Annex D). Around P18.8 million were
capital account of P334.9 million) is deficient by P322.7 million against creditors, and exercise all the powers necessary for these purposes
including but not limited to bringing suits and foreclosing mortgages in immediately take charge of the bank's assets and liabilities, and as to P908.4 million as of January 26, 1985 on account of unhooked

the name of the bank. expeditiously as possible collect and gather all the assets and administer penalties for deficiencies in legal reserves (P49.07 million), unhooked

3. The Board of directors and the principal officers from Senior Vice the same for the benefit of its creditors, exercising all the- powers interest on overdrawings, emergency advance of P569.49 million from

President, as listed in the attached Annex "A" be included in the watchlist necessary for these purposes including, but not limited to, bringing suits Central Bank, and additional valuation reserves of P124.5 million. (pp. 3-

of the Supervision and Examination Sector until such time that they shall and foreclosing mortgages in the name of the bank; 4, Receivers' Report.)

have cleared themselves. 3. To designate Mr. Arnulfo B. Aurellano, Special Assistant to the The Receivers further noted that —

4. Refer to the Central Banles Legal Department and Office of Special Governor, and Mr. Ramon V. Tiaoqui, Special Assistant to the Governor After BF was closed as of January 25, 1985, there were no collections

Investigation the report on the findings on Banco Filipino for investigation and Head, Supervision and Examination Sector Department II. as Deputy from loans granted to firms related to each other and to BF classified as

and possible prosecution of directors, officers and employees for Receivers who are likewise hereby directly vested with jurisdiction and "doubtful" or "loss," there were no substantial improvements on other

activities which led to its insolvent position." (pp. 9-10, Tiaoqui Report.) authority to do all things necessary or proper to carry out the functions loans classified "doubtful"or "loss;" there was no further increase in the

On January 25, 1985 or two days after the submission of Tiaoqui's entrusted to them by the Receiver and otherwise to assist the Receiver in value of assets owned/acquired supported by new appraisals and there

Report, and three weeks after it received Teodoro's Report, the Monetary carrying out the functions vested in the Receiver by law or Monetary was no infusion of additional capital such that the estimated realizable

Board, then composed of: Board resolutions; assets of BF remained at P3,909.23, (millions) while the total liabilities

Chairman: Jose B. Fernandez, Jr. 4. To direct and authorize Management to do all other things and carry amounted to P5,159.44 (millions). Thus, BF remains insolvent with

CB Governor out all other measures necessary or proper to implement this Resolution estimated deficiency to creditors of Pl,250.21 (millions).

Members: and to safeguard the interests of depositors/credition and the general Moreover, there were no efforts on the part of the stockholders of the

1. Cesar E.A. Virata, Prime Minister & Concurrently Minister of Finance public; and bank to improve its financial condition and the possibility of rehabilitation

2. Roberto V. Ongpin, Minister of Trade & Industry & Chairman of Board 5. In consequence of the foregoing, to terminate the conservatorship has become more remote. (P. 8, Receivers' Report.)

of Investment over Banco Filipino Savings and Mortgage Bank. (pp. 126-127, Rollo I.) In the light of the results of the examination of BF by the Teodoro and

3. Vicente B. Valdepeñas, Jr., Minister of Economic Planning & Director On March 19,1985, the receiver, Carlota Valenzuela, and the deputy Tiaoqui teams, I do not find that the CB's Resolution No. 75 ordering BF

General of NEDA receivers, Arnulfo B. Aurellano and Ramon V. Tiaoqui, submitted a report to cease banking operations and placing it under receivership was

4. Cesar A. Buenaventura, President of Filipinas Shell Petroleum Corp. (p. to the Monetary Board as required in Section 29, 2nd paragraph of R.A. "plainly arbitrary and made in bad faith." The receivership was justified

37, Annual Report 1985) 265 which provides that within sixty (60) days from date of the because BF was insolvent and its continuance in business would cause

issued Resolution No. 75 closing BF and placing it under receivership. receivership, the Monetary Board shall determine whether the bank may loss to its depositors and creditors. Insolvency, as defined in Rep. Act

The MB Resolution reads as follows: be reorganized and permitted to resume business, or be liquidated. The 265, means 'the inability of a banking institution to pay its liabilities as

receivers recommended that BF be placed under litigation. For, among they fall due in the usual and ordinary course of business. Since June

other things, they found that: 1984, BF had been unable to meet the heavy cash withdrawals of its

After considering the report dated January 8, 1985 of the Conservator for 1. BF had been suffering a capital deficiency of P336.5 million as of July depositors and pay its liabilities to its creditors, the biggest of them being

Banco Filipino Savings and Mortgage Bank that the continuance in 31, 1984 (pp. 2 and 4, Receivers' Report). the Central Bank, hence, the Monetary Board correctly found its condition

business of the bank would involve probable loss to its depositors and 2. The bank's weekly reserve deficiencies averaged P146.67 million from to be one of insolvency.

creditors, and after discussing and finding to be true the statements of November 25, 1983 up to March 16, 1984, rising to a peak of P338.09 All the discussion in the Santiago Report concerning the bank's assets

the Special Assistant to the Governor and Head, Supervision and million until July 27, 1984. Its reserve deficiencies against deposits and and liabilities as determinants of BF's solvency or insolvency is irrelevant

Examination Sector (SES) Department II, as recited in his memorandum deposit substitutes began on the week ending June 15, 1984 up to and inconsequential, for under Section 29 of Rep. Act. 265, a bank's

dated January 23, 1985. that the Banco Filipino Savings and Mortgage December 7, 1984, with average daily reserve deficiencies of P2.98 insolvency is not determined by its excess of liabilities over assets, but

Bank is insolvent and that its continuance in business would involve million. by its "inability to pay its liabilities as they fall due in the ordinary course

probable loss to its depositors and creditors, and in pursuance of Section 3. Estimated losses or "unhooked valuation reserves" for loans to entities of business" and it was abundantly shown that BF was unable to pay its

29 of R.A. No. 265, as amended, the Board decided: with relationships to certain stockholder/directors and officers of the liabilities to depositors for over a six-month-period before it was placed

1. To forbid Banco Filipino Savings and Mortgage Bank and all its bank amounted to P600.5 million. Combined with other adjustments in under receivership.

branches to do business in the Philippines; the amount of P73.2 million, they will entirely wipe out the bank's entire Even if assets and liabilities were to be factored into a formula for

2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor, as Receiver capital account and leave a capital deficiency of P336.5 million. The bank determining whether or not BF was already insolvent on or before

who is hereby directly vested with jurisdiction and authority to was already insolvent on July 31, 1984. The capital deficiency increased January 25, 1985, the result would be no different. The bank's assets as
of the end of 1984 amounted to P4.891 billions (not P6 billions) consideration for precisely BF needed financial assistance because it was WHEREFORE, I vote to dismiss the petition for certiorari and mandamus

according to the Report signed and submitted to the CB by BF's own insolvent. in G.R. No. 70054 for lack of merit.

president, and its total liabilities were P4.478 billions (p. 58, Cosico Tiaoqui's admission that the examination of BF had "not yet been Romero, J., concurs.

Report). While Aguirre's Report showed BF ahead with a net worth of officially terminated" when he submitted his report on January 23, 1985  

P412.961 millions, said report did not make any provision for estimated did not make the action of the Monetary Board of closing the bank and  

valuation reserves amounting to P600.5 millions, (50% of face value appointing receivers for it, 'plainly arbitrary and in bad faith." For what # Separate Opinions

of doubtful loans and 100% of face value of loss accounts) which BF had had been examined by the SES was more than enough to warrant a MELENCIO-HERRERA, J.,  dissenting:

granted to its related/linked companies. The estimated valuation finding that the bank was "insolvent and could not continue in business I join Mme. Justice Carolina G. Aquino in her dissent and vote to deny

reserves of P600.5 millions plus BF's admitted liabilities of P4.478 without probable loss to its depositors or creditors," and what had not the prayer, in G.R. No. 70054, to annul Monetary Board Resolution No.

billions, put together, would wipe out BFs realizable assets of P4.891 been examined was negligible and would not have materially altered the 75 placing Banco Filipino (BF) under receivership.

billions and confirm its insolvent condition to the tune of P187.538 result. In any event, the official termination of the examination with the Even assuming that the BF was not, as alleged, in a literal state of

millions. submission by the Chief Examiner of his report to the Monetary Board in insolvency at the time of the passage of said Resolution, there was a

BF's and Judge (now CA Justice) Consuelo Y. Santiago's argument that March 1985, did not contradict, but in fact confirmed, the findings in the finding in the Teodoro report that, based on that Bank's illiquidity, to

valuation reserves should not be considered because the matter was not Tiaoqui Report. have allowed it to continue in operation would have meant probable loss

discussed by Tiaoqui with BF officials is not well taken for: The responsibility of administering the Philippine monetary and banking to depositors and creditors. That is also a ground for placing the bank

(1) The records of the defaulting debtors were in the possession of BF. systems is vested by law in the Central Bank whose duty it is to use the under receivership, as a first step, pursuant to Section 29 of the Central

(2) The "adversely classified" loans were in fact included in the List of powers granted to it under the law to achieve the objective, among Bank Act (Rep. Act No. 265, as amended). The closure of BF, therefore,

Exceptions and Findings (of irregularities and violations of laws and CB others, of maintaining monetary stability in the country (Sec. 2, Rep. Act can not be said to have been arbitrary or made in bad faith. There was

rules and regulations) prepared by the SES, a copy of which was 265). I do not think it would be proper and advisable for this Court to sufficient justification, considering its inability to meet the heavy

furnished BF on December 1 7, 1984; interfere with the CB's exercise of its prerogative and duty to discipline withdrawals by its depositors and to pay its liabilities as they fell due, to

(3) A conference on the matter washeld on January 2l, 1985 with senior banks which have persistently engaged in illegal, unsafe, unsound and forbid the bank from further engaging in banking.

officials of BF headed by EVP F. Dizon,. (pp. 14-15, Cosico Report.) BF fraudulent banking practices causing tremendous losses and The matter of reopening, reorganization or rehabilitation of BF is not

did not formally protest against the CBs estimate of valuation reserves. unimaginable anxiety and prejudice to depositors and creditors and within the competence of this Court to ordain but is better addressed to

The CB could not wait forever for BF to respond for the CB had to act generating widespread distrust and loss of confidence in the banking the Monetary Board and the Central Bank considering the latter's

with reasonable promptness to protect the depositors and creditors of BF system. The damage to the banking system and to the depositing public enormous infusion of capital into BF to the tune of approximately P3.5

because the bank continued to operate. is bigger when the bank, like Banco Filipino, is big. With 89 branches Billion in total accommodations, after a thorough assessment of whether

(4) Subsequent events proved correct the SES classification of the loan nationwide, 46 of them in Metro Manila alone, pumping the hard-earned or not BF is, indeed, possessed, as it stoutly contends, of sufficient

accounts as "doubtful" or "loss' because as of January 25, 1985 none of savings of 3 million depositors into the bank, BF had no reason to go assets and capabilities with which to repay such huge indebtedness, and

the loans, except three, had been paid either partially or in full, even if bankrupt if it were properly managed. The Central Bank had to infuse can operate without loss to its many depositors and creditors.

they had already matured (p. 53, Cosico Report). almost P3.5 billions into the bank in its endeavor to save it. But even this

The recommended provision for valuation reserves of P600.5 millions for financial assistance was misused, for instead of satisfying the depositors'

"doubtful" and "loss" accounts was a proper factor to consider in the demands for the withdrawal of their money, BF channeled and diverted a GRIÑO-AQUINO, J.,  dissenting:

capital adjustments of BF and was in accordance with accounting rules. substantial portion of the finds into the coffers of its related/linked Although these nine (9) Banco Filipino (BF) cases have been consolidated

For, if the uncollectible loan accounts would be entered in the assets companies. Up to this time, its officers, directors and major stockholders under one ponencia, all of them except one, raise issues unrelated to the
column as "receivables," without a corresponding entry in the liabilities have neither repaid the Central Bank's P3.6 billion financial assistance, receivership and liquidation of said bank. In fact, two of these cases

column for estimated losses or valuation reserves arising from their nor put up adequate collaterals therefor, nor submitted a credible plan (G.R. No. 68878 and 81303) have already been decided by this Court
uncollectability, the result would be a gravely distorted picture of the for the rehabilitation of the bank. What authority has this Court to and are only awaiting the resolution of the motions for reconsideration

financial condition of BF. require the Central Bank to reopen and rehabilitate the bank, and in filed therein. Only G.R. No. 70054 "Banco Filipino Savings and Mortgage

BF's strange argument that it was not insolvent for otherwise the CB effect risk more of the Government's money in the moribund bank? I Bank (BF) vs. the Monetary Board (MB), Central Bank of the Philippines

would not have given it financial assistance does not merit serious respectfully submit that decision is for the Central Bank, not for this (CB), et al.," is an original action for mandamus and certiorari filed in
Court, to make. this Court by former officials of BF to annul the Monetary Board
Resolution No. 75 dated January 25, 1985 (ordering the closure of Banco RTC, Cavite" (CA-G.R. SP Nos. 0896264) is a consolidated petition for private respondent Carlota Valenzuela has the authority to direct the

Filipino [BF] and appointing Carlota Valenzuela as receiver of the bank) review of the Court of Appeals' joint decision dismissing the petitions for operation of the bank in substitution of the former management, which

on the ground that the resolution was issued "without affording BF a prohibition in which the petitioners seek to prevent the authority includes the retainer of counsel to represent it in bringing or

hearing on the reports" on which the Monetary Board based its decision receiver/liquidator of BF from extrajudicially foreclosing the P4.8 million resisting suits in connection with such liquidation and, in the case at bar,

to close the bank, hence, without "administrative due process.", The mortgage on Top Management's properties and the P18-67 million to take the proper steps to prevent collusion, to the prejudice of the

prayer of the petition reads: mortgage on Pilar Development properties. The Court of Appeals legitimate creditors, between BF and the petitioners herein which appear

WHEREFORE, petitioner respectfully prays that a writ of mandamus be dismissed the petitions on October 30, 1986 on the ground that "the to be owned and controlled by the same interest controlling BF" (p. 49,

issued commanding respondents immediately to furnish it copies of the functions of the liquidator, as receiver under Section 29 (R.A. 265), Rollo). The petitioners' motion for reconsideration of that decision is

reports of examination of BF employed by respondent Monetary Board to include taking charge of the insolvent's assets and administering the pending resolution.

support its Resolution of January 25, 1985 and thereafter to afford it a same for the benefit of its creditors and of bringing suits and foreclosing 7. G.R. No. 81304, "BF Homes Development Corporation vs. Court of

hearing prior to any resolution that may be issued under Section 29 of mortgages in the name of the bank;" Appeals, et al." is an appeal from the decision dated November 4, 1987

R.A. 265, meanwhile annulling said Resolution of January 25, 1985 by 3. G.R. No. 78766, "El Grande Corporation vs. Court of Appeals, et of the Court of Appeals in CA-G.R. CV No. 08565 affirming the trial

writ of certiorari as made without or in excess ofjurisdiction or with grave al.," is an appeal from the Court of Appeals' decision in CA-G.R. SP No. court's order dismissing BF Homes' action to compel the Central Bank to

abuse of discretion. 08809 dismissing El Grande's petition for prohibition to prevent the restore the financing facilities of BF, because the plaintiff (BF Homes) has

So as to expedite proceedings, petitioner prays that the assessment of foreclosure of BF's P8 million mortgage on El Grande's properties; no cause of action against the CB.

the damages respondents should pay it be deferred and referred to 4. G.R. No. 78894, "Banco Filipino Savings and Mortgage Bank vs. Court 8. G.R. No. 90473, "El Grande Development Corporation vs. Court of

commissioners. of Appeals, et al." is an appeal of BFs old management (using the name Appeals, et al.," is a petition to review the decision dated June 6, 1989 in

Petitioner prays for such other remedy as the Court may deem just and of BF) from the decision of the Court of Appeals in CA-G.R. SP No. 07503 CA-G.R. SP No. 08676 dismissing El Grande's petition for prohibition to

equitable in the premises. entitled, "Central Bank, et al. vs. Judge Zoilo Aguinaldo, et al" dismissing stop foreclosure proceedings against it by the receiver of BF.

Quezon City for Manila, February 28, 1985. (p. 8, Rollo I-) the complaint of "BF" to annul the receivership, for no suit may be As previously stated, G.R. No. 70054 "BF vs. Monetary Board, et al.," is

and the prayer of the Supplement to Petition reads: brought or defended in the name of the bank except by its receiver; an original special civil action for certiorari and mandamus filed in this

WHEREFORE, in addition to its prayer for mandamus 5. G.R. No. 87867, "Metropolis Development Corporation vs. Court of Court by the old management of BF, through their counsel, N.J.

and certiorari contained in its original petition, petitioner respectfully Appeals" (formerly AC-G.R. No. 07503, "Central Bank, et al. vs. Quisumbing & Associates, using the name of the bank and praying for

prays that Sections 28-A and 29 of the Central Bank charter (R.A. 265) Honorable Zoilo Aguinaldo, et al.') is an appeal of the intervenor the annulment of MB Resolution No. 75 which ordered the closure of BF

including its amendatory Presidential Decrees Nos. 72, 1771, 1827 and (Metropolis) from the same Court of Appeals' decision subject of G.R. No. and placed it under receivership. It is a "forum-shopping" case because it

1937 be annulled as unconstitutional. 78894, which also dismissed Metropolis' complaint in intervention on the was filed here on February 28, 1985 three weeks after they had filed on

Quezon City for Manila, March 4, 1985. (p. 11-G, Rollo I.) ground that a stockholder (Metropolis) may not bring suit in the name of February 2, 1985 Civil Case No. 9675 "Banco Filipino vs. Monetary Board,

The other eight (8) cases merely involve transactions of BF with third BF while the latter is under receivership, without the authority of the et al." in the Regional Trial Court of Makati, Br. 143 (presided over by

persons and certain "related" corporations which had defaulted on their receiver; Judge Zoilo Aguinaldo) for the same purpose of securing a declaration of

loans and sought to prohibit the extrajudicial foreclosure of the 6. G.R. No. 81303, "Pilar Development Corporation vs. Court of Appeals, the nullity of MB Resolution No. 75 dated January 25, 1985.

mortgages on their properties by the receiver of BF. These eight (8) et al." is an appeal from the decision dated October 22, 1987 of the On August 25, 1985, this Court ordered the transfer and consolidation of

cases are: Court of Appeals in CA-G.R. SP No. 12368, "Pilar Development Civil Case No. 9676 (to annul the receivership) from Br. 143 to Br. 136

1. G.R. No. 68878 "BF vs. Intermediate Appellate Court and Celestina Corporation, et al. vs. Honorable Manuel Cosico, et al.," dismissing the (Judge Manuel Cosico) of the Makati Regional Trial Court where Civil

Pahimutang" involves the repossession by BF of a house and lot which petition for certiorari against Judge Manuel Cosico, Br. 136, RTC, Makati, Case No. 8108 (to annul the conservatorship) and Civil Case No. 10183

the buyer (Pahimutang) claimed to have completely paid for on the who dismissed the complaint filed by Pilar Development Corporation (to annul the liquidation) of BF were and are still pending. All these three

installment plan. The appellate court's judgment for the buyer was against BF, for specific performance of certain developer contracts. An (3) cases were archived on June 30, 1988 by Judge Cosico pending the

reversed by this Court. The buyer's motion for reconsideration is awaiting answer filed by Norberto Quisumbing and Associates, as BF's supposed resolution of G.R. No. 70054 by this Court.

resolution by this Court; counsel, virtually confessed judgment in favor of Pilar Development. On Because of my previous participation, as a former member of the Court

2. G.R. Nos. 77255-58, "Top Management Programs Corporation and motion of the receiver, the answer was expunged and the complaint was of Appeals, in the disposition of AC-G.R. No. 02617 (now G.R. No.

Pilar Development Corporation vs. Court of appeals, et al." (CA-G.R. SP dismissed. On a petition for certiorari in this Court, we held that: "As 68878) and AC-G.R. SP No. 07503 (now G.R. Nos. 78767 and 78894), I

No. 07892) and "Pilar Development Corporation vs. Executive Judge, liquidator of BF by virtue of a valid appointment from the Central Bank, am taking no part in G.R. Nos. 68878, 78767 and 78894. It may be
mentioned in this connection that neither in AC-G.R. SP No. 02617, nor The Monetary Board shall thereupon determine within sixty days whether be fixed by the court. The restraining order or injunction shall be refused

in AC-G.R. SP No. 07503, did the Court of Appeals rule on the the institution may be reorganized or otherwise placed in such a or, if granted, shall be dissolved upon filing by the Central Bank of a

constitutionality of Sections 28-A and 29 of Republic Act 265 (Central condition so that it may be permitted to resume business with safety to bond, which shall be in the form of cash or Central Bank cashier's check,

Bank Act), as amended, and the validity of MB Resolution No. 75, for its depositors and creditors and the general public and shall prescribe the in an amount twice the amount of the bond of the petitioner or plaintiff,

those issues were not raised in the Court of Appeals. conditions under which such resumption of business shall take place as conditioned that it will paythe which the petitioner or plaintiff may suffer

I concur with the ponencia insofar as it denies the motion for well as the time for fulfillment of such conditions. In such case, the by the refusalor the dissolution of the injunction. The provisions of Rule

reconsideration in G.R. No. 81303, and dismisses the petitions for review expenses and fees in the collection and administration of the assets of 58 of the new Rules of Court insofar as they are applicable and not

in G.R. Nos. 77255-58, 78766, 81304, and 90473. the institution shall be determined by the Board and shall be paid to the inconsistent with the provisions of this section shall govern the issuance

I respectfully dissent from the majority opinion in G.R. No. 70054 Central Bank out of the assets of such banking institution. and dissolution of the restraining order or injunction contemplated in this

annulling and setting aside MB Resolution No. 75 and ordering the If the Monetary Board shall determine and confirm within the said period section.

respondents, Central Bank of the Philippines and the Monetary Board — that the banking institution is insolvent or cannot resume business with Insolvency, under this Act, shall be understood to mean the inability of a

to reorganize petitioner Banco Filipino Savings and Mortgage Bank, and safety to its depositors, creditors and the general public, it shall, if the banking institution to pay its liabilities as they fall due in the usual and

allow the latter to resume business in the Philippines under the public interest requires, order its liquidation, indicate the manner of its ordinary course of business, provided, however, that this shall not

comptrollership of both the Central Bank and the Monetary Board and liquidation and approve a liquidation plan. The Central Bank shall, by the include the inability to pay of an otherwise non-insolvent bank caused by

under such conditions as may be prescribed by the latter until such time Solicitor General, file a petition in the Court of First Instance, reciting the extra-ordinary demands induced by financial panic commonly evidenced

that petitioner bank can continue in business with safety to its creditors, proceedings which have been taken and praying the assistance of the by a run on the banks in the banking community.

depositors and the general public. court in the liquidation of the banking institutions. The court shall have The determinative factor in the closure, receivership, and liquidation of a

for I believe that this Court has neither the authority nor the competence jurisdiction in the same proceedings to adjudicate disputed claims bank is the finding, upon examination by the SES of the Central Bank,

to determine whether or not, and under what conditions, BF should be against the bank and enforce individual liabilities of the stockholders and that its condition "is one of insolvency, or that its continuance in business

reorganized and reopened. That decision should be made by the Central do all that is necessary to preserve the assets of the banking institution would involve probable loss to its depositors and creditors." (Sec. 29,

Bank and the Monetary Board, not by this Court. and to implement the liquidation plan approved by the Monetary Board. R.A. 265.) It should be pointed out that insolvency is not the only

All that we may determine in this case is whether the actions of the The Monetary Board shall designate an official of the Central Bank as statutory ground for the closure of a bank. The other ground is when "its

Central Bank and the Monetary Board in closing BF and placing it under liquidator who shall take over the functions of the receiver previously continuance in business would involve probable loss to its depositors and

receivership were "plainly arbitrary and made in bad faith. appointed by the Monetary Board under this section. The liquidator shall, creditors.

Section 29 of Republic Act No. 265 provides: with all convenient speed, convert the assets of the banking institution to Was BF insolvent i.e., unable to pay its liabilities as they fell due in the

Section 29. Proceedings upon insolvency. — Whenever, upon money or sell, assign or otherwise dispose of the same to creditors and usual and ordinary course of business, on and for some time before

examination by the head of the appropriate supervising and examining other parties for the purpose of paying the debts of such bank and he January 25, 1985 when the Monetary Board issued Resolution No. 75

department or his examiners or agents into the condition of any banking may, in the name of the banking institution, institute such actions as closing the bank and placing it under receivership? Would its continued

institution, it shall be disclosed that the condition of the same is one of may be necessary in the appropriate court to collect and recover operation involve probable loss to its depositors and creditors?

insolvency, or that its continuance in business would involve probable accounts and assets of the banking institution. The answer to both questions is yes. Both the conservator Gilberts

loss to its depositors or creditors, it shall be the duty of the department The provisions of any law to the contrary notwithstanding, the actions of Teodoro and the head of the SES (Supervision and Examination Sector)

head concerned forthwith, in writing, to inform the Monetary Board of the the Monetary Board under this section and the second paragraph of Ramon V. Tiaoqui opined that BF's continuance in business would cause

facts, and the Board may, upon finding the statements of the department Section 34 of this Act shall be final and executory, and can be set aside probable loss to depositors and creditors. Tiaoqui further categorically

head to be true, forbid the institution to do business in the Philippines by the court only if there is convincing proof that theaction is plainly found that BF was insolvent. Why was this so?

and shall designate an official of the Central Bank as receiver to arbitrary and made in bad faith. No restraining order or injunction shall The Teodoro and Tiaoqui reports as well as the report of the receivers,

immediately take charge of its assets and liabilities, as expeditiously as be issued by the court enjoining the Central Bank from implementing its Carlota Valenzuela, Arnulfo B. Aurellano and Ramon V. Tiaoqui, showed

possible collect and gather all the assets and administer the same for the actions under this section and the second paragraph of Section 34 of this that since the end of November 1983 BF had already been incurring

benefit of its creditors, exercising all the powers necessary for these Act, unless there is convincing proof that the action of the Monetary "chronic reserve deficiencies' and experiencing severe liquidity problems.

purposes including, but not limited to, bringing suits and foreclosing Board is plainly arbitrary and made in bad faith and the petitioner or So much so, that it had become "a substantial borrower in the call loans

mortgages in the name of the banking institution. plaintiff files with the clerk or judge of the court in which the action is market" and in June 1984 it obtained a P30 million emergency loan from

pending a bond executed in favor of the Central Bank, in an amount to the Central Bank. (p. 2, Receiver's Report.) Additional emergencyt loans
(a total of P119.7 millions) were extended by the Central Bank to BF that
demand deposits/deposit substitutes and This was done in violation of Section 38 of
month (MB Res. No. 839 dated June 29,1984). On July 12, 1984, BFs
14% for savings and time deposits. (p. 2, the General Banking Act (R.A. 337). 3
chairman, Anthony Aguirre, offered to "turn over the administration of
Tiaoqui Report.)
the affairs of the bank" to the Central Bank (Aguirre's letter to Governor
2. Deficiencies in average daily legal 8. During the period of marked decline in liquidity levels the loan

Jose Fernandez, Annex 7 of Manifestation dated May 3,1991). On July

reserves rose from P63.0 million during portfolio grew by P417.3 million in the first five months of 1984 — and by

23,1984, unable to meet heavy deposit withdrawals, BF's

the week of November 21-25, 1983 to a another P105.l million in the next two months. (pp. 2-3, Tiaoqui Report.)

management motu proprio, without obtaining the conformity of the

high of P435.9 million during the week of
Central Bank, closed the bank and declared a bank holiday. On July 27,
June 11-15, 1984 (pp. 2-3, Tiaoqui 9. The loan portfolio stood at P3.679 billion at the end of July 1984,
1984, the CB, responding to BFs pleas for additional financial assistance,
Report). Accumulated penalties on reserve 56.2% of it channeled to companies whose stockholders, directors and
granted BF a P3 billion credit line (MB Res. No. 934 of July 27, 1984) to
deficiencies amounted to P37.4 million by officers were related to the officers, directors, and some stockholders of
enable it to reopen and resume business on August 1, 1984. P2.3601
July 31, and rose to P48 million by the BF. (p. 8, Tiaoqui Report.) Here again BF violated the General Banking
billions of the credit line were availed of by the end of 1984 exclusive of
end of 1984. (Tiaoqui Report.) Act (R.A. 337). 4
an overdraft of P932.4 millions (p. 2, Tiaoqui Report). Total
3. Deposit levels, which were at P3,845
accommodations granted to BF amounted to P3.4122 billions (p. 19,
million at end-May l984 (its last "normal" 10. Some of the loans were used to acquire preferred stocks of BF.
Cosico Report).
month), dropped to P935 million at the Between September 17, 1983 and February 10, 1984, P49.9 million of
Presumably to assure that the financial assistance would be properly
end of November 1984 or a loss of P2,910 preferred non-convertible stocks were issued. About 85% or P42.4
used, the MB appointed Basilio Estanislao as conservator of the bank. A
million. This represented an average million was paid out of the proceeds of loans to stockholders/ borrowers
conservatorship team of 78 examiners and accountants was assigned at
monthly loss of P485 million vs. an with relationship to the bank (Annex D). Around P18.8 million were
the bank to keep track of its activities and ascertain its financial condition
average monthly gain of P26 million issued in the name of an entity other than the purchaser of the stocks.
(p. 8, Tiaoqui Report).
during the first 5 months of 1984. (pp. 2- (Tiaoqui Report.)
Estanislao resigned after two weeks for health reasons. He was
3, Tiaoqui Report.) 11. Loans amounting to some P69.3 million were granted simply to pay-
succeeded by Gilberto Teodoro as conservator in August, 1984 up to
4. Deposits had declined at the rate of P20 off old loans including accrued interest, as an accommodation for the
January 8, 1985.
million during the month of December direct maturing loans of some firms and as a way of paying-off loans of

1984, but expenses of about P17 million other borrower firms which have their own credit lines with the bank.
Besides the conservatorship team, Teodoro hired financial consultants per month were required to maintain the These helped to make otherwise delinquent loans appear "current" and
Messrs. Tirso G. Santillan, Jr. and Plorido P. Casuela to make an analysis
bank's operation. (p. 6, Teodoro Report.) deceptively "improved" the quality of the loan portfolio. (Tiaoqui Report.)
of BF's financial condition. Teodoro also engaged the accounting firm of 5. Based on the projected outlook, the 12. Examination of the collaterals for the loan accounts of 63 major
Sycip, Gorres, Velayo and Company to make an asset evaluation. The
Bank's average yield on assets of 16.3% borrowers and 32 other selected borrowers as of July 31, 1984, showed
Philippine Appraisal Company (PAC) appraised BFs real estate properties, p.a., was insufficient to meet the average that:
acquired assets, and collaterals held. On January 9, 1985, Teodoro cost of funds of 19.5% p.a. and operating (a) 2,658 TCT's which BF evaluated to be worth P1,487 million were
submitted his Report. Three weeks later, on January 23, 1985, Tiaoqui
expenses of 4.8% p.a. (p. 5 Teodoro appraised by PAC to be worth only P1,196 million, hence, deficient by
also submitted his Report. Both reports showedthat, in violation of Report.) P291 million.
Section 37 of the General Banking Act (R.A.337): 2
6. An imprudently large proportion of (b) Other properties (collaterals) supposedly worth P711 million could not

1. BF had been continually deficient in assets were locked into long-term be evaluated by PAC because the details submitted by the bank were

liquidity reserves (Teodoro Report). The applications. (Teodoro Report.) insufficient;

bank had been experiencing a severe drop 7. BF overextended itself in lending to the (c) While P674 million in loans were supposedly guaranteed by the Home

in liquidity levels. The ratio of liquid real estate industry, committing as much Financing Corporation (HFIC), the latter confirmed only P427 million.

assets to deposits and borrowings plunged as 52% of its peso deposits to its affiliates P247 million in loans were not guaranteed by HFC. (Teodoro Report.)

from about 20% at end-1983, to about or "related accounts" to which it continued (d) Per SGV's report, loans totalling P1.882 million including accrued

8.6% by end-May 1984, much below the lending even when it was already suffering interest, were secured by collateral worth only Pl.54 billion. Hence, BFs

statutory requirements of 24% for from liquidity stresses. (Teodoro Report.)

unsecured exposure amounted to P586.2 million. BF Homes, Inc., a 4. Cesar A. Buenaventura, President of Filipinas Shell Petroleum Corp. (p.

related company which has filed with the SEC a petition for suspension of The Conservator, in his report to the Monetary Board dated January 8, 37, Annual Report 1985)

payments, owes P502 million to BF. 1985, has stated that the continuance of the bank in business would issued Resolution No. 75 closing BF and placing it under receivership.

13. BF had been suffering heavy losses. — involve probable loss to its depositors and creditors. It has recommended The MB Resolution reads as follows:

a) For the eleven (11) months ended November 30, 1984, the estimated that a more effective action be taken to protect depositors and creditors.

net loss was P372.6 Million; The examination findings as of July 31, 1984 as shown earlier, indicate

b) For the twelve (12) months from November 1984, the projected net one of insolvency and illiquidity and further confirms the above After considering the report dated January 8, 1985 of the Conservator for
loss would be P390.7 Million and would continue unabated; (p. 2, conclusion of the Conservator. Banco Filipino Savings and Mortgage Bank that the continuance in
Teodoro Report) All the foregoing provides sufficient justification for forbidding the bank business of the bank would involve probable loss to its depositors and
c) Around 71.7% of the total accommodations of P2.0677 billions to the from further engaging in banking. creditors, and after discussing and finding to be true the statements of
related/linked entities were adversely classified. Close to 33.7% or Foregoing considered, the following are recommended: the Special Assistant to the Governor and Head, Supervision and
P697.1 millions were clean loans or against PNs (promissory notes) of 1. Forbid the Banco Filipino Savings & Mortgage Bank to do business in Examination Sector (SES) Department II, as recited in his memorandum
these entities. Of the latter, 52.6% were classified as loss." (P. 5, Tiaoqui the Philippines effective the beginning of office on January, 1985, dated January 23, 1985. that the Banco Filipino Savings and Mortgage
Report.) pursuant to Sec. 29 of R.A. No. 265, as amended; Bank is insolvent and that its continuance in business would involve
d) The bank's financial condition as of date of examination, after setting 2. Designate the Head of the Conservator Team at the bank, as Receiver probable loss to its depositors and creditors, and in pursuance of Section
up the additional valuation reserves of P612.2 millions and accumulated of Banco Filipino Savings & Mortgage Bank, to immediately take charge 29 of R.A. No. 265, as amended, the Board decided:
net loss of P48.2 millions, indicates one of insolvency. Total liabilities of of the assets and liabilities, as expeditiously as possible collect and 1. To forbid Banco Filipino Savings and Mortgage Bank and all its
P5,282.1 million exceeds total assets of P4,947.2 million by 6.8%. Total gather all the assets and administer the same for the benefit of all the branches to do business in the Philippines;
capital account of P334.9 million) is deficient by P322.7 million against creditors, and exercise all the powers necessary for these purposes 2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor, as Receiver
the minimum capital required of P657.6 million (Annex F). Capital to risk including but not limited to bringing suits and foreclosing mortgages in who is hereby directly vested with jurisdiction and authority to
assets ratio is negative 10.38%. the name of the bank. immediately take charge of the bank's assets and liabilities, and as
e) Total loans and investment portfolio amounted to P3,914.3 millions 3. The Board of directors and the principal officers from Senior Vice expeditiously as possible collect and gather all the assets and administer
(gross), of which P194.0 millions or 5.0% were past due and P1,657.1 President, as listed in the attached Annex "A" be included in the watchlist the same for the benefit of its creditors, exercising all the- powers
millions or 42.3% were adversely classified (Substandard — P1,011.4 of the Supervision and Examination Sector until such time that they shall necessary for these purposes including, but not limited to, bringing suits
millions; Doubtful — P274.6 millions and Loss — P371.1 millions). have cleared themselves. and foreclosing mortgages in the name of the bank;
Accounts adversely classified included unmatured loan of Pl,482.0 million 4. Refer to the Central Banles Legal Department and Office of Special 3. To designate Mr. Arnulfo B. Aurellano, Special Assistant to the
to entities related with each other and to the bank, several of which Investigation the report on the findings on Banco Filipino for investigation Governor, and Mr. Ramon V. Tiaoqui, Special Assistant to the Governor
showed distressed conditions. (p. 7, Tiaoqui Report.) and possible prosecution of directors, officers and employees for and Head, Supervision and Examination Sector Department II. as Deputy
Teodoro's conclusion was that "the continuance of the bank in business activities which led to its insolvent position." (pp. 9-10, Tiaoqui Report.) Receivers who are likewise hereby directly vested with jurisdiction and
would involve probable loss to its depositors and creditors." He On January 25, 1985 or two days after the submission of Tiaoqui's authority to do all things necessary or proper to carry out the functions
recommended "that the Monetary Board take a more effective and Report, and three weeks after it received Teodoro's Report, the Monetary entrusted to them by the Receiver and otherwise to assist the Receiver in
responsible action to protect the depositors and creditors ... in the light Board, then composed of: carrying out the functions vested in the Receiver by law or Monetary
of the bank's worsening condition." (p. 5, Teodoro Report.) Chairman: Jose B. Fernandez, Jr. Board resolutions;
On January 23, 1985, Tiaoqui submitted his report to the Monetary CB Governor 4. To direct and authorize Management to do all other things and carry
Board, Like Teodoro, Tiaoqui believed that the principal cause of the Members: out all other measures necessary or proper to implement this Resolution
bank's failure was that in violation of the General Banking Law and CB 1. Cesar E.A. Virata, Prime Minister & Concurrently Minister of Finance and to safeguard the interests of depositors/credition and the general
rules and regulations, BF's major stockholders, directors and officers, 2. Roberto V. Ongpin, Minister of Trade & Industry & Chairman of Board public; and
through their "related" companies: (i.e. companies owned or controlled of Investment 5. In consequence of the foregoing, to terminate the conservatorship
by them of their relatives) had been "borrowing" huge chunks of the 3. Vicente B. Valdepeñas, Jr., Minister of Economic Planning & Director over Banco Filipino Savings and Mortgage Bank. (pp. 126-127, Rollo I.)
money of the depositors. His Conclusion and Recommendations were: General of NEDA On March 19,1985, the receiver, Carlota Valenzuela, and the deputy

receivers, Arnulfo B. Aurellano and Ramon V. Tiaoqui, submitted a report

to the Monetary Board as required in Section 29, 2nd paragraph of R.A. "plainly arbitrary and made in bad faith." The receivership was justified (3) A conference on the matter washeld on January 2l, 1985 with senior

265 which provides that within sixty (60) days from date of the because BF was insolvent and its continuance in business would cause officials of BF headed by EVP F. Dizon,. (pp. 14-15, Cosico Report.) BF

receivership, the Monetary Board shall determine whether the bank may loss to its depositors and creditors. Insolvency, as defined in Rep. Act did not formally protest against the CBs estimate of valuation reserves.

be reorganized and permitted to resume business, or be liquidated. The 265, means 'the inability of a banking institution to pay its liabilities as The CB could not wait forever for BF to respond for the CB had to act

receivers recommended that BF be placed under litigation. For, among they fall due in the usual and ordinary course of business. Since June with reasonable promptness to protect the depositors and creditors of BF

other things, they found that: 1984, BF had been unable to meet the heavy cash withdrawals of its because the bank continued to operate.

1. BF had been suffering a capital deficiency of P336.5 million as of July depositors and pay its liabilities to its creditors, the biggest of them being (4) Subsequent events proved correct the SES classification of the loan

31, 1984 (pp. 2 and 4, Receivers' Report). the Central Bank, hence, the Monetary Board correctly found its condition accounts as "doubtful" or "loss' because as of January 25, 1985 none of

2. The bank's weekly reserve deficiencies averaged P146.67 million from to be one of insolvency. the loans, except three, had been paid either partially or in full, even if

November 25, 1983 up to March 16, 1984, rising to a peak of P338.09 All the discussion in the Santiago Report concerning the bank's assets they had already matured (p. 53, Cosico Report).

million until July 27, 1984. Its reserve deficiencies against deposits and and liabilities as determinants of BF's solvency or insolvency is irrelevant The recommended provision for valuation reserves of P600.5 millions for

deposit substitutes began on the week ending June 15, 1984 up to and inconsequential, for under Section 29 of Rep. Act. 265, a bank's "doubtful" and "loss" accounts was a proper factor to consider in the

December 7, 1984, with average daily reserve deficiencies of P2.98 insolvency is not determined by its excess of liabilities over assets, but capital adjustments of BF and was in accordance with accounting rules.

million. by its "inability to pay its liabilities as they fall due in the ordinary course For, if the uncollectible loan accounts would be entered in the assets

3. Estimated losses or "unhooked valuation reserves" for loans to entities of business" and it was abundantly shown that BF was unable to pay its column as "receivables," without a corresponding entry in the liabilities

with relationships to certain stockholder/directors and officers of the liabilities to depositors for over a six-month-period before it was placed column for estimated losses or valuation reserves arising from their

bank amounted to P600.5 million. Combined with other adjustments in under receivership. uncollectability, the result would be a gravely distorted picture of the

the amount of P73.2 million, they will entirely wipe out the bank's entire Even if assets and liabilities were to be factored into a formula for financial condition of BF.

capital account and leave a capital deficiency of P336.5 million. The bank determining whether or not BF was already insolvent on or before BF's strange argument that it was not insolvent for otherwise the CB

was already insolvent on July 31, 1984. The capital deficiency increased January 25, 1985, the result would be no different. The bank's assets as would not have given it financial assistance does not merit serious

to P908.4 million as of January 26, 1985 on account of unhooked of the end of 1984 amounted to P4.891 billions (not P6 billions) consideration for precisely BF needed financial assistance because it was

penalties for deficiencies in legal reserves (P49.07 million), unhooked according to the Report signed and submitted to the CB by BF's own insolvent.

interest on overdrawings, emergency advance of P569.49 million from president, and its total liabilities were P4.478 billions (p. 58, Cosico Tiaoqui's admission that the examination of BF had "not yet been

Central Bank, and additional valuation reserves of P124.5 million. (pp. 3- Report). While Aguirre's Report showed BF ahead with a net worth of officially terminated" when he submitted his report on January 23, 1985

4, Receivers' Report.) P412.961 millions, said report did not make any provision for estimated did not make the action of the Monetary Board of closing the bank and

The Receivers further noted that — valuation reserves amounting to P600.5 millions, (50% of face value appointing receivers for it, 'plainly arbitrary and in bad faith." For what

After BF was closed as of January 25, 1985, there were no collections of doubtful loans and 100% of face value of loss accounts) which BF had had been examined by the SES was more than enough to warrant a

from loans granted to firms related to each other and to BF classified as granted to its related/linked companies. The estimated valuation finding that the bank was "insolvent and could not continue in business

"doubtful" or "loss," there were no substantial improvements on other reserves of P600.5 millions plus BF's admitted liabilities of P4.478 without probable loss to its depositors or creditors," and what had not

loans classified "doubtful"or "loss;" there was no further increase in the billions, put together, would wipe out BFs realizable assets of P4.891 been examined was negligible and would not have materially altered the

value of assets owned/acquired supported by new appraisals and there billions and confirm its insolvent condition to the tune of P187.538 result. In any event, the official termination of the examination with the

was no infusion of additional capital such that the estimated realizable millions. submission by the Chief Examiner of his report to the Monetary Board in

assets of BF remained at P3,909.23, (millions) while the total liabilities BF's and Judge (now CA Justice) Consuelo Y. Santiago's argument that March 1985, did not contradict, but in fact confirmed, the findings in the

amounted to P5,159.44 (millions). Thus, BF remains insolvent with valuation reserves should not be considered because the matter was not Tiaoqui Report.

estimated deficiency to creditors of Pl,250.21 (millions). discussed by Tiaoqui with BF officials is not well taken for: The responsibility of administering the Philippine monetary and banking

Moreover, there were no efforts on the part of the stockholders of the (1) The records of the defaulting debtors were in the possession of BF. systems is vested by law in the Central Bank whose duty it is to use the

bank to improve its financial condition and the possibility of rehabilitation (2) The "adversely classified" loans were in fact included in the List of powers granted to it under the law to achieve the objective, among

has become more remote. (P. 8, Receivers' Report.) Exceptions and Findings (of irregularities and violations of laws and CB others, of maintaining monetary stability in the country (Sec. 2, Rep. Act

In the light of the results of the examination of BF by the Teodoro and rules and regulations) prepared by the SES, a copy of which was 265). I do not think it would be proper and advisable for this Court to

Tiaoqui teams, I do not find that the CB's Resolution No. 75 ordering BF furnished BF on December 1 7, 1984; interfere with the CB's exercise of its prerogative and duty to discipline

to cease banking operations and placing it under receivership was banks which have persistently engaged in illegal, unsafe, unsound and
fraudulent banking practices causing tremendous losses and

unimaginable anxiety and prejudice to depositors and creditors and

generating widespread distrust and loss of confidence in the banking

system. The damage to the banking system and to the depositing public

is bigger when the bank, like Banco Filipino, is big. With 89 branches

nationwide, 46 of them in Metro Manila alone, pumping the hard-earned

savings of 3 million depositors into the bank, BF had no reason to go

bankrupt if it were properly managed. The Central Bank had to infuse

almost P3.5 billions into the bank in its endeavor to save it. But even this

financial assistance was misused, for instead of satisfying the depositors'

demands for the withdrawal of their money, BF channeled and diverted a

substantial portion of the finds into the coffers of its related/linked

companies. Up to this time, its officers, directors and major stockholders

have neither repaid the Central Bank's P3.6 billion financial assistance,

nor put up adequate collaterals therefor, nor submitted a credible plan

for the rehabilitation of the bank. What authority has this Court to

require the Central Bank to reopen and rehabilitate the bank, and in

effect risk more of the Government's money in the moribund bank? I

respectfully submit that decision is for the Central Bank, not for this

Court, to make.

WHEREFORE, I vote to dismiss the petition for certiorari and mandamus

in G.R. No. 70054 for lack of merit.

 "daycall" borrowings, obtained from which necessitated the release by the
SECOND DIVISION various commercial banks (7-page Aide [CB] Governor of an initial emergency
[G.R. NO. 152551 : June 15, 2006] Memoire, Exh. H). advance of P16 million [Id.].
GENERAL BANK AND TRUST 2. A verification of the accounts showed 5. In his letter dated December 17, 1976
COMPANY, Petitioner, v. CENTRAL that the overdrawings of Genbank - were [Exh. H-1], Dr. Clarencio Yujuico,
BANK OF THE PHILIPPINES and due to the all-out financial support it Chairman of the Board and President of
ARNULFO B. AURELLANO in his extended to Filcapital Development Genbank, reported that the bank was
capacity as Liquidator of General Corporation (a related interest of the experiencing heavy withdrawals and its
Bank and Trust Company, Respondents. Yujuico Family Group and the directors liquidity position had continuously
DECISION and officers of Genbank) to meet maturing deteriorated and will inevitably be needing
GARCIA, J.: obligations. On December 14, 1976, immediate [CB] support. He urgently
Under consideration is this Petition for Filcapital overdraft balance with Genbank requested that Genbank be allowed to
Review under Rule 45 of the Rules of totaled P55.8 million, in violation of draw cash of P20 million to be spread out
Court to nullify and set aside the following existing CB regulations which was to its branch offices. Since it was expected
issuances of the Court of Appeals (CA) in financed by overdrawings of P54.9 million that the drawdowns on deposits and
CA-G.R. CV No. 39939, to wit: from CB [Id.]. deposit substitutes would continue which
1. Decision dated December 6, 3. The matter of overdraft would necessitate further [CB] advances,
1999,1 reversing the Decision dated accommodations to Filcapital had been the and considering that the collateral
December 2, 1992 of the Regional Trial subject of several memoranda and letters submitted was insufficient, coupled with
Court of Manila, Branch 37, in Special of the Department of Commercial and the need to give a new image to the bank,
Proceedings (SP Proc.) No. 107812 Savings Bank [DCSB] to Genbank, the it was decided that as a condition to
entitled "Petition for Assistance in the same being in violation of Section 23, R.A. further [CB] advances, the stockholders of
Liquidation of General Bank & Trust 337 - (maximum loan limit); of Section Genbank owning at least two-thirds (2/3)
Company, Central Bank of the Philippines 83, R.A. 337, as amended (requiring of the outstanding capital should execute
and Arnulfo B. Aurellano, in his capacity written Board approval); and of irrevocable proxies in favor of Land Bank
as Liquidator of General Bank & Trust Memorandum To All Banks dated [Id..].
Company, Petitioners"; andcralawlibrary November 15, 1976 (prohibiting As a measure calculated to restore the
2. Resolution dated March 12, Temporary Overdrawings) [Id.]. liquidity of and confidence in Genbank, Dr.
2002,2 denying petitioner's motion for 4. On December 14, 1976, the [CB] Yujuico - informed the [CB] Governor of
reconsideration. required Genbank to stop its unsound the agreement of the principal officers and
The material facts, as stated in the banking practice of incurring daily stockholders and the approval by the
appealed CA decision are, as follows: overdrawings. On December 15, 1976, Genbank Board of Directors with respect
1. From December 3 to 14, 1976, General Genbank returned Filcapital checks to the guidelines under which Land Bank -
Bank and Trust Company (Genbank) aggregating P28.7 million and sold to the was invited to participate in the equity of
incurred overdrafts in its current account [CB] government securities the bank, some salient points of which
with the Central Bank [CB], starting aggregating P49 million under a were as follows: (a) Land Bank will
from P478,000 on December 3, 1976 and repurchase agreement, in order to cover acquire two-thirds interest in the bank;
increasing daily to reach P54.9 million on its overdraft with the [CB]. The return of xxx [Id.; tsn, Dec. 7, 1990, pp. 41-42].
December 14, 1976. These daily the Filcapital checks to the different 6. On December 20, 1976, the Monetary
overdrawings were covered up to the next collecting banks precipitated a run on the Board in its Resolution No. 2553 [Exh. H-
banking day by check deposits, thru bank starting on December 16, 1976 4] decided to grant Genbank an
emergency loan under Section 90 of the instruments; and (c) before full stockholdings and requested that he be
Central Bank Charter in an amount not collateralization, the affected director, retained as President to give him
exceeding P150 million and to ratify the officer or stockholder shall assume joint personality and leverage during the
action taken by the Governor on and several liability with the borrower negotiations, - [Id., Exh. H-10; Exh. H-
December 20, 1976 in releasing an (related interest) for the payment of the 11].
emergency advance of P165 million to loan or credit accommodation. xxx [Id, 13. In an office Order No. 12 dated
Genbank. It also designated Arnulfo B. Exh. H-7], xxx.. January 14, 1977 [Exh. H-12], the [CB]
Aurellano, Assistant to the Governor, to 10. Since the compliance with the Governor created a Special Committee -
act as Comptroller [Id., tsn, December 7, directives in his letter dated December 27, to act as observers and advisers in the
1960, pp. 23-24]. 1976 had been incomplete, the [CB] negotiations for the proposed purchase of
7. On December 23, 1976, the President Governor stressed - to the Genbank Board the outstanding shares of Genbank or all
of Genbank executed a Deed of of Directors that the undertaking to its assets and assumption of all its
Assignment [Exh. H-5] of the general collateralize the loans concerned and the liabilities [tsn, Dec. 7, 1990, pp. 34-36].
assets of the Bank in favor of the [CB]. As sureties are merely steps to be taken prior All the prospective buyers were requested
of that date, [CB] emergency advances to to the full collateralization of the accounts by the Committee to submit formal
Genbank amounted to P116 million - concerned, the more important thing written offers to the sellers. Five (5)
which were not sufficiently collateralized being the actual collateralization which written offers were received from the
by Genbank [Id.]. must be done immediately [Id., Exh. H-9]. following:
8. On December 27, 1976, the [CB] 11. As of year-end 1976, emergency A. Philippine Bank of Communications
Governor invited the Board of Directors of advances totalled P154.521 million '. In b. Paramount Finance Corporation
Genbank to a meeting - to discuss the view of the continuous drawdowns, [CB] c. Willy Co/Lucio Tan, et al.
affairs of the Bank with particular advances reached P170.227 million on d. Gotianun Group/Family Savings Bank
reference to the loans to directors, January 5, 1977 exceeding the level e. Morris Carpo Group
officers, stockholders and related interests of P150 million previously approved. The [Id.; p. 4, Exh. E]
(DOSRI). The Board was informed of the Monetary Board in its Resolution No. 90 14. At various dates from January 26 to
magnitude of DOSRI loans which as of dated January 7, 1977 [Exh. H-8] - February 7, 1977, the Committee
that date totalled P172.3 million - or authorized Management to extend convoked meetings - with all the
59.4% thereof was classified as doubtful continued support to Genbank to meet [interested] groups - primarily to advise
and P0.505 million as further drawdowns on its deposits and them that the [CB] emergency advances
uncollectible. P158.1 million or 91.7% of deposit substitutes [Id.]. must be amply protected and that the
DOSRI accounts was unsecured while only 12. On January 10, 1977, at a meeting of sellers' group must submit the final results
8% was secured [Id.]. the Board of Directors ', seven nominees of their negotiations on or before February
9. At the said meeting, the Governor of Land Bank were elected members of 10, 1977, the deadline set by the
indicated that Genbank should the Board, namely '. The four others - Governor and agreed to by Dr. Yujuico
immediately take the following came from the old Board. This was done and his colleagues in the old Board of
[indispensable] steps: (a) clean [DOSRI] to carry out the understanding that Land Genbank [Id.; Tsn., December 7, 1990,
loans - should be collected or Bank shall participate in the management pp. 57-58].
collateralized; (b) pending formal of Genbank. xxx (Id., Exh. H-10]. 15. By January 31, 1997, [CB] emergency
execution of the collateral instruments, At said meeting, Dr. Yujuico advised that advances to Genbank had increased
the borrower must undertake to execute the controlling stockholders were 'to P272.465 million' [Id.].
the required mortgage and other security negotiating for the sale of their
In his report dated February 10, 1977, on operations of the bank for February 1977, conveyed the conditions for [CB] approval
the operations of Genbank for the month it was reported that the decrease in of the sale [Id.].
of January, 1977, the [CB] Comptroller deposits and deposit substitutes for the 21. On the matter of collateralization of
reported that the deposits and deposit month was P5.124 million and P35.694 the [DOSRI] loans ', the Governor on
substitutes decreased by P22.328 million million, respectively. The loan portfolio of March 10, 1977 wrote individually nine (9)
and P125.128 million, respectively. xxx which 57% was in past due status or in members of the Yujuico family calling
[Id.; Exh. H-15]. litigation, was reduced by P19.822 million. attention to his - directive to collateralize
16. On February 10, 1977, the deadline It was also reported that from December their loans and requested them to give the
set for completion of the negotiations for 31, 1976 to February 28, 1977, the matter their immediate and serious
the sale of Genbank shares, the reduction on [DOSRI] loans - amounted attention [Id.; Exh. H-25].
representatives of the sellers' group to P6.918 million only, from P172.354 22. The sellers' representatives, in a letter
reported (Exh. H-16) that the offer of the million to P165.436 million. Of this dated March 14, 1977 [Exh. H-26],
- Lucio Tan group, Paramount Finance amount P127.494 million or 77% submitted an Agreement to Buy and Sell
Corporation and PB Communications were belonged to the Yujuico group; '. Of the Genbank shares between them and
to be presented to the shareholders with loans of the Yujuico group, P126.608 Paramount Finance Corporation. - The
their recommendations [Id.]. million or 99.3% was unsecured or Special Committee reported [Exh. H-27]
17. The Special Committee submitted its uncollateralized. Furthermore, of the that since it is unlikely that Paramount will
report on the evaluation of the offers to Yujuico loans, 88.4% was in past due be able to comply with the [CB]
buy Genbank shares indicating that the status [Id.]. requirements and at the same time be in
Lucio Tan offer was the most 19. The Monetary Board, in its Resolution a position to inject fresh funds to make
advantageous insofar as the [CB] is No. 502 dated March 4, 1977 [Exh. H-21], the bank viable, the Committee felt that
concerned because it offered the best 'decided to instruct the Yujuico the [CB] should explore alternative
collateral for the [CB] advances [Id.]. negotiators to inform all prospective courses of action.
Acting on said report, the Monetary Board, sellers and buyers of the additional In a letter dated March 20, 1977 [Exh. H-
in its Resolution No. 449 dated February valuation reserves required to be booked 28], Paramount advised that
25, 1977 [Exh. H-17], authorized the in view of the pertinence of such collateralizing the emergency advances
sellers' group to discuss further with the information to the ongoing negotiations. with standby letters credit would be too
Lucio Tan group the price of the shares, The Chairman of the Genbank Board was heavy a financial burden for the bank to
and prescribed the minimum conditions duly advised of the said Resolution of the bear, the hold-out on the concessional
for the approval of any sale of the Monetary Board in a letter - dated March loan of their foreign partner met with
controlling shares of Genbank. The 7, 1977 [Exh. H-22]. resistance from the investor as being
representatives of the sellers' group were 20. The Lucio Tan group and the sellers' unusual and onerous on them, and the
duly advised of the resolution - [Exh. H- representatives continued their proxies to be held by Land Bank was
18]. negotiations on March 4 to 5, 1977 but difficult to explain to prospective
18. By February 28, 1977, [CB] advances could not reach an agreement, '. In view investors.
to Genbank totaled P300.961 million - of the non-acceptance by the sellers' The Governor replied on March 22,1977
which showed an increase of P28.496 group of the offer of the Lucio Tan group, [Exh.H-29] advising that it is not the
million compared to January 31, 1977 the Governor informed the representatives interest of the [CB] to accept a proposal
[Id.]. of the sellers' group that they may which offers a security inferior to that
In the report of the [CB] Comptroller consider the offer of Paramount Finance offered by another interested buyer, '.
dated March 11, 1977 [Exh. H-19] on the Corporation and at the same time
23. Central Bank advances as of March to comply with all the conditions of the As of the said deadline, the only bid
22, 1977 totaled P305.918 million - [Id.]. [CB] conveyed previously to received was that of the Lucio Tan group.
24. On March 23, 1977, the Governor representatives of the controlling It advised that it was prepared to acquire
together with other [CB] officials and stockholders and whose price is the assets and assumed all the liabilities
Genbank directors, had a meeting with acceptable to sellers. of Genbank subject to the terms and
Messrs. Clarencio Yujuico, [and seven b) a written decision of the stockholders conditions enumerated in the letter [Exh.
others] ', stockholders of Genbank who owning at least two-thirds (2/3) of the E-2; Exh. E-2-a].
'represented stockholders owning at least outstanding shares to reduce the par 27. Pursuant to the Memorandum of the
two-thirds (2/3) of the outstanding value and a commitment of the Land Bank Director, [DCSB], dated March 28, 1977 -
shares. They were given copies of the or a private group to put up the additional stating that -
aide-memoire for the meeting [Exh. H-30] equity and a commitment to comply with "As of March 24, 1977, the Bank's liquid
which outlined developments regarding the conditions prescribed by the [CB]. assets of P28 million, together with
Genbank particularly the [DOSRI] loans, 25. As there was no compliance with collections from its loan portfolio, will not
the negotiations for the sale of Genbank either of said requirements, and finding be enough to meet expected further
shares, (the Lucio Tan Group was willing the report of Director [Antonio Castro], withdrawal of deposits and deposit
to comply with all the conditions of the Department of Commercial and Savings substitutes of P235.4 million. The Bank's
[CB] for the approval of the sale but could Banks [DCSB] that Genbank operation may be expected to result into
meet the price of the selling group; the was insolvent within the meaning of losses of at least P2.9 million per month
Paramount Finance Group could not Section 29 of R.A. 265 (Central Bank Act), and these loans will dissipate the Bank's
comply with all the conditions prescribed - as amended, and that Genbank's remaining capital accounts of P10.9
to secure [CB] advances and the interest continuance in business would involve million. The Bank therefore may not be
of Genbank creditors and depositors, but losses to its depositors and creditors - - to permitted to resume business with safety
this group and the selling group could be true, the Monetary Board adopted to its depositors, creditors, and the
agree on the price), and the valuation Resolution No. 675 on March 25, 1977 general public"
reserves and resulting net worth of the [Exh. I-1] forbidding Genbank to do and recommending certain actions, the
bank after valuation reserve was less business in the Philippines and designating Monetary Board adopted Resolution No.
than P20 per share. The stockholders Arnulfo B. Aurellano as receiver. 677 on March 29, 1977 [Exh. I-2]
were advised by the Governor that public In a letter dated March 25, 1977, determining and confirming that Genbank
interest required that the [CB] should not Governor Licaros informed the Genbank was insolvent and could not resume
continuously extend further credit Board of Directors of such action'. business with safety to its depositors,
assistance to Genbank and that a 26. On March 26, 1977, a Bid Committee creditors and general public, and ordering
rehabilitation program instead be met with representatives of the four the liquidation of Genbank, the
immediately implemented [tsn, Dec. 7, interested groups ', and informed them designation of Arnulfo B. Aurellano as
1990, pp. 58-59]. Genbank stockholders that the [CB] would accept bids for the Liquidator and the approval of a
were told to submit before 10:00 a.m., acquisition of all the assets and liquidation plan whereby all the assets of
Friday, March 25, 1977, either of the assumption of all the liabilities of Genbank should be purchased by the
following: Genbank, subject to certain conditions. Lucio Tan Group which should also
a) firm commitment to purchase the The deadline for submission of sealed bids assume all the liabilities under certain
controlling shares of Genbank by a private was 7:00 p.m., March 28, 1977 [Exh. E- terms and conditions.
group or to undertake a merger with 2]. 28. In his letters dated March 29, 1977 to
another bank, which is willing and capable the Genbank stockholders and Dr. Yujuico
', Governor Licaros informed them that Resolution No. 1214 dated June 17, 1977 discharge and release of the mortgages on
the Monetary Board had ordered the [Exh. I-4], decided as follows: the real and personal properties which
liquidation of Genbank [Exhs. I-15 and I- 1. To authorize the Allied Banking served as security for the payment of said
15-a]. Corporation (ABC) to increase its paid-up advances [Exhs. L-1, L-2, and L-3].
29. On May 9,1977, the Liquidator '; Allied capital from P100 million to P200 million, (Appellants' Brief, pp. 11-34)
Banking Corporation '; and the individual '; On April 1, 1977, [CB and Arnulfo B.
members of the Lucio Tan - Willy Co 2. To approve the deletion of Paragraph H, Aurellano, as Genbank Liquadator]
group executed a Memorandum of Page 5 of the [MOA] dated May 9, 1977 initiated Sp. Proc. No. 107812 before the
Agreement [Exh. I-26] in implementation which requires the Lucio Tan and Willy Co then Court of First Instance (CFI) of
of Monetary Board Resolution No. 677 group to make money market placements Manila, Branch IV, pursuant to Section 29,
dated March 27, 1977 (sic) [Exh. I-2], in ABC '; andcralawlibrary RA 265, as amended.
whereby the Liquidator sold and 3. xxx. On May 5, 1982, appellees Worldwide
transferred to Allied Bank all the assets of 31. Pursuant to the recommendation of Insurance & Surety Company ', Midland
Genbank and Allied Bank assumed all the Arnulfo B. Aurellano - the Monetary Board, Insurance Corporation ', and Standard
liabilities of Genbank, subject to certain in its Resolution No. 1245 dated July 1, Insurance Co., Inc. - filed a motion for
terms and conditions, among which were: 1977 [Exh. I-5], decided to amend par. F, intervention in Sp. Proc. No. 107812. Said
(a) payment by Allied Bank to the page 5 of the [MOA]dated May 9, 1977, motion alleged that the closure and
Liquidator of an initial amount so as: liquidation of [Genbank] - were done
of P500,000.00; 1. To dispense with the requirement that arbitrarily and in bad faith. On May 7,
(b) xxx; Allied Bank and Lucio Tan group submit a 1982, the court a quo issued an order
(c) payment to the [CB] of its emergency standby irrevocable letter of credit to approving the intervention.
advances to Genbank in the amount of secure the emergency advances assumed About a couple of years later, appellee
P310 million within a period of two (2) by Allied Bank, subject to the following Genbank joined the intervention '. Said
years from date of opening for business of conditions: intervention was approved by the Court a
Allied Bank, with 12% interest per annum; xxx quo in its Order dated March 15, 1984.
(d) no deferment in the payment by Allied 2. To extend from two (2) years to five Subsequently, [CB et al., as petitioners
Bank of deposits and deposit substitutes years the period of payment of the before the CFI), instead of presenting
in Genbank; andcralawlibrary balance of the emergency advances evidence to support their petition in Sp.
(e) xxx money market placements by the assumed by Allied Bank, to be paid in Proc. No. 107892, questioned the court a
Lucio Tan - Willy Co group in an amount twenty (20) equal quarterly installments quo's jurisdiction to determine the validity
not less than P100 million which beginning October 15, 1977, with interest of the liquidation of Genbank before this
placements shall remain with Allied Bank at twelve percent (12%) per annum and Court [CA], by way of a Petition
from the opening and commencement of said balance to be secured by the for Certiorari and Prohibition with
operations until normalization of mortgages mentioned above. Preliminary Injunction and Restraining
operations as determined by the [CB], so 32. Allied Bank was able to comply with all Order docketed as CA G.R. SP No. 03180.
that during said period, Allied Bank shall the conditions laid down in Resolution No. However, said petition became moot and
have fresh funds of at least P200 million 1245. It paid to the [CB] P100 million of academic when the court a quo rendered
to meet any withdrawal contingencies. the total emergency advances on July 15, a Decision dated April 24, 1984, a day
30. Acting on the letter dated June 9, 1977 [Exh. K; Exh. P], and effected full before it was served a copy of the [TRO]
1977 of Lucio Tan, - to Governor Licaros payment of [CB] emergency advances on dated April 24, 1984, and when [CB et al.]
[Exh. I-4-a], the Monetary Board, in its November 28, 1980 [Exh. L], causing the appealed said decision to this Court [CA]
[which] disposed of said appeal in favor of (Petitioners' Exh. I-26-A) plus damages by The three (3) assigned errors ultimately
appellees - [intervenors]. However, upon way of unrealized earnings at 5% interest boil down to the issue of whether or not
[CB's] motion for reconsideration, the per annum of said amount respondent CB violated any existing
Court [CA] reconsidered said decision in of P103,984,477.55 starting from May 7, procedural or substantive law when its
its Resolution dated July 19, 1986, and 1982 - until fully paid; andcralawlibrary Monetary Board (MB) issued Resolution
remanded the case to the court of origin Fourth: That Petitioner [CB] is likewise No. 675 dated March 25, 1977 ordering
for the reception of appellants' evidence. ordered and directed to pay Intervenor the closure of Genbank, and eventually
(Underlining in the original; Words in Genbank costs of the suit in accordance MB Resolution No. 677 dated March 29,
bracket and underscoring added.) with the Rules of Court. 1977, adopting the Lucio Tan Group's bid
On November 5, 1992, the trial court SO ORDERED. as liquidation plan of petitioner Genbank,
rendered a decision,3 the dispositive Therefrom, herein respondents CB and the or otherwise committed grave abuse of
portion of which reads: Liquidator-designate appealed to the CA discretion which will justify reversal of the
WHEREFORE, judgment is hereby where their recourse was docketed as CA assailed MB resolutions.
rendered against the Petitioners [CB et G.R. CV No. 39939. At the outset, it bears to stress that the
al.] and in favor of Intervenors as follows: On December 6, 1999, the appellate court underlying governing law, Republic Act
First: That the closure of Genbank under rendered judgment setting aside the (RA) 2655, underwent several
Monetary Board Resolution No. 675, decision of the trial court.4 With the denial amendments. Among the amendatory
March 25, 1977 (Petitioners' Exh. I-1) and of its motion for reconsideration by the laws are Presidential Decree (PD) Nos.
the adoption of the Lucio Tan Group as same court in its resolution of March 12, 1007 and 1937 which took effect in
the liquidation plan of Genbank under 2002, petitioner is now with us via the September 1976 and June 1984,
Monetary Board Resolution No. 677, present recourse, submitting that the CA respectively.
March 29, 1977 (Intervenor's Exh. 1-2) erred when - Petitioner Genbank claims that it was not
are hereby annulled and set aside as 1. It ruled that Petitioner Bank was insolvent when Resolution No. 675 was
being plainly arbitrary and made in bad insolvent thus paving the way for its issued on March 25, 1977, its assets at
faith as provided under Section 29, RA No. closure and eventual liquidation. that time standing at P599,743,639.00,
265, as amended. 2. It ruled that the property rights of while its total liabilities only amounted
Second: That Petitioner [CB] is hereby Petitioner Bank was not trampled upon to P586,640,450.00, thus having surplus
ordered and directed to restore the license despite the fact that respondent Central assets over liabilities in the amount
and authorization of Genbank to operate Bank maliciously and arbitrarily and in bad of P13,103,189.00. Plodding on, it insists
and conduct business as a commercial faith ordered its closure on March 25, that the definition of insolvency in Section
bank and trust corporation and to restore 1977 and its liquidation and bidding three 29 of RA 265, as amended by PD 1937,
Genbank's banking network of Head (3) days later on March 28, 1977 which is should have been made the tipping factor
Office, 23 branches and 1 extension office. tantamount to denial of due process and for determining on whether or not the
Third: That Petitioner [CB] is hereby equal protection clause of the declaration made by respondent CB,
ordered and directed to pay Intervenor Constitution. acting through the Monetary Board, that
Genbank the amount of P103,984,477.55 3. It failed to apply Sec. 29 of R.A. 265 petitioner Genbank is insolvent constitutes
representing Genbank's capital account which laid down the procedure to be grave abuse of discretion. In support of its
which was the excess of Genbank's assets followed for insolvency cases of banking contention of not being insolvent during
over this liabilities as shown in the institutions. the period material, petitioner Genbank
Consolidated Statement of Condition of The petition has no merit. cites Central Bank of the Philippines v.
Genbank as of March 25, 1977 Court of Appeals6 and Banco Filipino
Savings & Mortgage Bank v. The Monetary to generate liquid funds by itself in order And by the terms of the same Section 29
Board7 . to meet drawdowns on its deposits and of RA 265, as amended by PD No. 1007,
Respondent CB, however, retorted that deposit substitutes and to pay for other Resolution No. 675 is deemed final and
the above-cited cases do not apply, albeit, maturing obligations, as well as advances executory, to wit:
there, the Court struck down as null and from the Central Bank. Respondent CB, The provisions of any law to the contrary
void the closure of what CB then therefore, concluded that Genbank was notwithstanding, the actions of the
considered as insolvent banks, referring to insolvent under the obtaining definition of Monetary Board under this Section and
Banco Filipino Savings & Mortgage Bank said term, with the CA eventually the second paragraph of Section 34 of this
and Triumph Savings Bank, despite their sustaining the posture of respondent CB. Act shall be final and executory, and can
respective total assets being more than After a review of all the arguments of the be set aside by the court only if there is
their total liabilities. As respondent CB parties in the light of the laws and convincing proof that the action is plainly
argued, the closure of Banco Filipino and jurisprudence applicable thereto, this arbitrary and made in bad faith. No
Triumph Savings Bank on January 25, Court finds no reversible error committed restraining order or injunction shall be
1985 and May 31, 1985, respectively, by the Court of Appeals when it sustained issued by the court enjoining the Central
were effected under the aegis of Section the validity of the MB resolutions resolving Bank from implementing its actions under
29 of RA 265, as amended by PD 1007, the issue of insolvency against petitioner this section and the second paragraph of
after it was further amended by PD 1937 Genbank. Section 34 of this Act, unless there is
in June 1984. Under the latter It cannot be overemphasized that convincing proof that the action of the
amendment, a banking institution is Resolution No. 675 prohibiting Genbank to Monetary Board is plainly arbitrary and
deemed insolvent when " [its] realizable do business in the Philippines and made in bad faith and the petitioner or
assets - as determined by the Central designating Arnulfo B. Aurellano as plaintiff files with the clerk of court or
Bank are insufficient to meet its receiver was issued in March 1977, when judge of the court in which the action is
liabilities." Thus, this Court ruled that the definition of the term "insolvency" pending a bond executed in favor of the
there was no valid basis for the closure of under the last paragraph of Section 29, of Central Bank, in an amount to be fixed by
both banks on the ground of insolvency, RA 265, as amended by PD No. 1007, was the court. xxx.. (Emphasis supplied.)
the total assets of either bank exceeding as follows: The burden thus rests upon petitioner
as it were their respective liabilities. Sec. 29. Proceedings upon insolvency. - x Genbank to prove the mala fides of the
Unlike the cases referred to above, x x. Monetary Board in issuing Resolution No.
however, Genbank was ordered closed by xxx 675. The present petition cites no
the CB on March 25, 1977, when Insolvency, under this Act, shall be concrete proof to convincingly show that
"insolvency" was defined under Section 29 understood to mean the inability of a the pertinent findings and
of RA 265, as amended on September 22, banking institution to pay its liabilities as recommendation of Antonio Castro, then
1976 by PD 1007, where and when the they fall due in the usual and ordinary Director of CB's DCSB whence Resolution
insolvency concept carried a slightly course of business, provided, however, No. 675 emanated were factually infirm.
different but contextually significant that this shall not include the inability to The Castro report stated thus:
connotation. As thus then defined, pay of an otherwise non-insolvent bank Summary Comments
insolvency was understood to mean as caused by extraordinary demands induced 1. As of Feb. 28, 1977, the Bank's liquid
"the inability of a banking institution to by financial panic commonly evidenced by assets amounted to P33.5 million only. On
pay its liabilities as they fall due in the a run on the bank in the banking the other hand, total deposit and deposit
ordinary course of business." Respondent community. (Emphasis supplied.) substitutes which had to be paid
CB found Genbank undoubtedly incapable amounted to P269.563 million. Total
advances from the CB amounted effect only in 1984. To a redundant point, community." While conceding that it was
to P300.961 million, of which P252.365 the PD 1937 amendment defines then not in a position to generate funds by
million (unsecured overdrawing) is "insolvency" as follows: itself in order to meet drawdowns on its
payable on demand. Considering the poor Insolvency, under this Act shall be deposits and deposit substitutes and to
quality of the Bank's loan portfolio, the understood to mean that the realizable pay for other maturing obligations, as well
bank cannot expect to generate enough assets of a bank or a non-bank financial as its advances from the Central Bank,
funds out of these loans to meet payment intermediary performing quasi-banking petitioner Genbank nonetheless argues
of said obligations. In view hereof, the functions as determined by the Central that it did not fall within the concept of
bank is insolvent within the meaning of Bank are insufficient to meet its liabilities. insolvency contemplated in the
Sec. 29, R.A. 265, as amended. Petitioner's recourse of insisting on the amendatory PD No. 1007 since what it
2. As of February 28, 1977, the Bank's meaning of insolvency other than the was then experiencing was a liquidity
capital accounts after adjustment for current definition thereof is, at the problem attributed to a bank run.
provision for bad debts and interest on OD minimum, a recognition, plain and simple, The Court is still unconvinced.
and CB and penalties for reserve that under the applicable definition of the The aforementioned proviso thus relied
deficiencies amounted to P14.1 million term "insolvency" under the last upon by petitioner Genbank excludes from
only which amount would be eaten up paragraph of Section 29, of RA 265, as the definition of insolvency, "the inability
completely within a period of less than amended in 1976 by PD No. 1007, the to pay of an otherwise non-insolvent bank
five (5) months considering the average Monetary Board could not have erred in caused by extraordinary demands induced
monthly operating loss of P2.868 million. ruling that petitioner Genbank was indeed by financial panic commonly evidenced by
In view of this, the Bank's continuance in insolvent, justifying its closure under the a run on the bank in the banking
business would involve losses to its same Section 29, of RA 265, as amended. community." As it were, the applicability
depositors and creditors. Petitioner Genbank cannot plausibly be of that proviso presupposes that the
Recommendation allowed to adopt a statutory definition of struggling bank, Genbank in this case,
In view of the foregoing, it is "insolvency" which was not set forth in the should, in the first place be "an otherwise
recommended that in accordance with the law when Resolution No. 675 was issued. non-insolvent bank" and the existence of
provisions of Sec. 29, R.A. 265, as The Monetary Board's action could not a bank run is the sole and exclusive cause
amended, the General Bank and Trust Co. have run counter to a legal provision of its inability to pay its obligations. In
be forbidden to do business in the inexistent at the time when it issued the other words, the existence of a bank run
Philippines considering that it is insolvent resolution in question. is not, without more, a saving grace for
and its continued operation would involve Perhaps realizing the flaw in its argument, any bank, absolutely preventing the CB or
probable loss to its depositors and petitioner Genbank now cites the the Monetary Board from ordering its
creditors and that a receiver be definition of insolvency under PD No. 1007 closure due to insolvency. If the bank is
designated to take charge immediately of but this time faulting the CA for allegedly not "non-insolvent" in contemplation of
the Bank's assets and liabilities. truncating the same by glossing over the the definition under Section 29 of RA 265,
Instead of directly controverting the proviso portion which contextually as amended by PD No. 1007, because it
factual basis of the MB resolutions, excluded from the coverage of the term cannot pay its liabilities as they fall due in
petitioner Genbank would simply insist on "insolvency" "the inability to pay of an the ordinary course of business, the
owning more realizable assets than otherwise non-insolvent bank caused by presence or absence of a bank run is of no
liabilities and ergo essentially solvent per extraordinary demands induced by determinative moment on the issue of the
the definition of "insolvency" under the PD financial panic commonly evidenced by a justifiability of an order of closure. The CB
1937 amendment which, to stress, took run on the bank in the banking had, as it were, ample basis other than
the bank run to consider petitioner violated any substantial or procedural law obligations of the bank has been
Genbank insolvent. Upon the issuance of when it issued the two assailed guaranteed. If this had been ordinary
an order of closure, which by express resolutions. Moreover, the CA cannot also bank liquidation where there is no
provision of law is final and executory, the be faulted in sustaining the MB assumption of liabilities by a third party,
burden of proving non-insolvency is upon resolutions, or, to be precise, in not the depositors and creditors could not
the bank which challenges the validity of finding arbitrariness and capriciousness in have retrieved the full face value of their
such closure. the closure of petitioner bank. For, as the deposits and credits. But here, all
For sure, this issue of whether or not CA aptly explained: depositors and creditors have actually
petitioner Genbank's inability to pay may 1. Even before the Genbank President been paid in full by Allied Bank.9 (Words in
be solely and exclusively attributable to requested for emergency advances, the bracket added.)
the bank run necessarily requires passing [CB] gave P16 million on December 16, Now, as regards the supposed denial of its
upon and evaluating the evidence 1976. After the request was made on right to due process, petitioner Genbank
presented during the trial. It should be December 17, 1976, additional emergency relies on the following chain of events:
made perfectly clear, however, that the was extended to Genbank. In MB 1. March 23, 1977:
Court's jurisdiction in appellate Resolution No. 90 dated January 7, 1977 x x x the Governor together with other
proceedings under Rule 45 of the Rules of [Exh. H-8], the [CB] decided to "extend Central Bank officials and Genbank
Court is, as a rule, limited to reviewing continued support to Genbank to meet directors, had a meeting with Messrs.
only errors of law, it not being a trier of further drawdowns on its deposits and Clarencio Yujuico, [et al.], stockholders of
facts. And it is a settled doctrine that deposit substitutes." These advances Genbank who, according to the Corporate
findings of fact of the CA are basically reached P272.467 million in January 31, Secretary, represented stockholders
binding and not be disturbed except for 1977 [Exh. H-15], - and P302.095,746.28 owning at least two-thirds (2/3) of the
very compelling reasons, such as when: on March 25, 1977 [Exh. I-26-a]. The outstanding shares. They were given
(1) the conclusion is a finding grounded graph [Exh. E-1] shows steep upward copies of the aide-memoire for the
entirely on speculation, surmise and climb in the amount of advances from meeting (Exh. H-30) which outlined
conjecture; (2) the inference made is December 17, 1976 up to March 25, 1977. developments regarding Genbank
manifestly mistaken; (3) there is grave 2. Aside from the emergency advances particularly the [DOSRI]loans ', the
abuse of discretion; (4) the judgment is given to Genbank, the [CB] encouraged negotiations for the sale of Genbank
based on a misapprehension of facts; (5) and assisted the controlling stockholders shares, (the Lucio Tan Group was willing
the findings of fact of the CA are contrary in negotiating with various groups that to comply with all the conditions of the
to those of the trial court; (6) said could put in new funds to help restore [CB] for the approval of the sale but could
findings of fact are conclusions without Genbank to full health. This indicates the not meet the price of the selling group;
citation of specific evidence on which they [CB] earnest desire to find a solution to the Paramount Finance Group could not
are based; (7) the findings of fact of the Genbank's difficulties. comply with all the [CB] conditions
CA are premised on the supposed absence 3. Aside from the [CB] and Genbank, prescribed - to secure [CB] advances and
of evidence and contradicted by the there is a third party involved here. This is the interest of Genbank creditors and
evidence on record.8 The Court finds no one vital aspect that distinguishes this depositors, but this group and the selling
cogent reason to take exception from the case from all other liquidation cases group could agree on the price), and the
general rule. handled by the [CB] [tsn., Feb. 15, 1991, valuation reserves and resulting net worth
Even then, a review of the pleadings on p. 33]. What does this mean? Since a of the bank after valuation reserve was
record shows no signs that the CA erred in third party has assumed all liabilities of less than P20 per share. The stockholders
not finding that the Monetary Board Genbank, payment of deposits and other were advised by the Governor that public
interest required that the [CB] should not business in the Philippines and designating 677 on March 29, 1977 [Exh. I-2]
continuously extend further credit Arnulfo B. Aurellano as receiver. determining and confirming that Genbank
assistance to Genbank and that a xxx xxx xxx. crvll was insolvent and could not resume
rehabilitation program instead be 3. March 26, 1977: business with safety to its depositors,
immediately implemented [tsn, Dec. 7, On March 26, 1977, a Bid Committee met creditors and general public, and ordering
1990, pp. 58-59]. Genbank stockholders with representatives of the four interested the liquidation of Genbank, the
were told to submit before 10:00 a.m., groups - and informed them that the [CB] designation of Arnulfo B. Aurellano as
Friday, March 25, 1977, either of the would accept bids for the acquisition of all Liquidator and the approval of a
following: the assets and assumption of all the liquidation plan whereby all the assets of
a) firm commitment to purchase the liabilities of Genbank, subject to certain Genbank should be purchased by the
controlling shares of Genbank by a private conditions. The deadline for submission of Lucio Tan Group which should also
group or to undertake a merger with sealed bids was 7:00 p.m., March 28, assume all the liabilities under certain
another bank, which is willing and capable 1977 [Exh. E-2]. terms and conditions.
to comply with all the conditions of the 5. March 29, 1977: In his letters dated March 29, 1977 to the
[CB] conveyed previously to As of the said deadline [March 28, 1977], Genbank stockholders and Dr. Yujuico
representatives of the controlling the only bid received was that of the Lucio (received by the addressees on April 1,
stockholders and whose price is Tan group. It advised that it was prepared 1977), Governor Licaros informed them
acceptable to sellers to acquire the assets and assumed all the that the Monetary Board had ordered the
b) a written decision of the stockholders liabilities of Genbank subject to the terms liquidation of Genbank [Exhs. I-15 and I-
owning at least two-thirds (2/3) of the and conditions enumerated in the letter 15-a].
outstanding shares to reduce the par [Exh. E-2; Exh. E-2-a]. In short, petitioner Genbank would claim
value and a commitment of the Land Bank Pursuant to the Memorandum of the that in a span of just two (2) days from
or a private group to put up the additional Director, Department of Commercial and the time it called a meeting with the board
equity and a commitment to comply with Savings Banks, dated March 28, 1977 of directors of Genbank on March 23,
the conditions prescribed by the [CB]. [Exh. E] stating that - 1977, or on March 25, 1977, the Monetary
2. March 25, 1977: "As of March 24, 1977, the Bank's liquid Board issued the resolution finding
As there was no compliance with either of assets of P28 million, together with petitioner Genbank insolvent and
said requirements, and finding the report collections from its loan portfolio, will not prohibiting it from further conducting
of the Director, Department of be enough to meet expected further business; and only another four (4) days
Commercial and Savings Banks that withdrawal of deposits and deposit thereafter, or on March 29, 1977, it
Genbank was insolvent within the substitute of P235.4 million. The Bank's ordered its liquidation, thereby denying
meaning of Section 29 of R.A. 265 operation may be expected to result into sufficient time for petitioner Genbank to
(Central Bank Act), as amended, and that losses of at least P2.9 million per month comply with its directives.
Genbank's continuance in business would and these loans will dissipate the Bank's We are not persuaded.
involve losses to its depositors and remaining capital accounts of P10.9 It must be stressed that petitioner
creditors (as recited in his Memorandum million. The Bank therefore may not be Genbank's financial predicament did not
dated March 24, 1977, Exh. D), - to be permitted to resume business with safety crop up overnight, nor is it a product of a
true, the Monetary Board adopted to its depositors, creditors, and the single financial indiscretion, so to speak.
Resolution No. 675 on March 25, general public" The root of its problem and eventual
1977 [Exh. I-1] forbidding Genbank to do and recommending certain actions, the downfall is traceable to unsound banking
Monetary Board adopted Resolution No. practices employed by management.
Mentioned in this regard may be made of the premises, in bad faith or committing
the all-out financial support given to grave abuse of discretion in approving the
Filcapital Development Corporation (a liquidation plan of the Lucio Tan Group,
related interest of the Yujuico Family suffice it to restate what the CA wrote in
Group and directors and officers of this regard:
Genbank) and the standing practice of Indeed, that the Genbank, Now Allied
extending DOSRI loans which, at one Bank, was able to resume normal banking
point, reached a peak of P172.3 million or operations immediately on June 2, 1977,
26% of the total loan portfolio of P666.78 thereafter meeting all the demands for
million. Of the final figure, 59.4% thereof deposit withdrawals and paying off all CB
was classified as doubtful and P0.505 emergency advances to Genbank (Exh. K,
million as uncollectible. And 91.7% of L, and P), is a strong indication that the
such DOSRI accounts were unsecured Central Bank performed its duty to
leaving only 8% thereof secured. All these maintain public confidence in the banking
unsound practices occurred way before system, x x x.
their resulting crippling effects became Absent, in sum, of compelling proof to
manifest sometime in December 1976, becloud the bona fides of the decision of
further leading the bank to resort to other the Central Bank to close and order the
unsound banking practices, like incurring liquidation of Genbank pursuant to
daily overdrafts. These problems, as Monetary Board Resolution Nos. 675 and
earlier narrated in the assailed CA 677, the Court, as the CA before it,
decision, were taken up by the then CB loathes to interfere with what basically is
Governor with the Board of Directors of the exercise by the Central Bank of its
Genbank in a meeting held on December mandate as administrator of the banking
27, 1976. Thus, when the crucial March system.
23, 1977 meeting was held, there can be WHEREFORE, the petition is hereby
no doubt that petitioner Genbank was DISMISSED for lack of merit, with costs
totally aware of the predicament it has against petitioner.
gotten itself into and the conditions which SO ORDERED.
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 Genbank's
posture that it was given only two (2)
days to remedy the situation is specious
at best.
Finally, as to petitioner Genbank's lament
about the Monetary Board acting, under
G.R. No. 162270. April 06, 2005 On May 22, 1987, the Central Bank of the Since no disposition of assets could be
ABACUS REAL ESTATE DEVELOPMENT Philippines, now Bangko Sentral ng made due to the litigation concerning
CENTER, INC., Petitioners, Pilipinas, ordered the closure of Manila Manila Bank’s closure, an arrangement
vs. Bank and placed it under receivership, was thought of whereby the property
THE MANILA BANKING with Feliciano Miranda, Jr. being initially would first be leased to Manila Equities
CORPORATION, Respondents. appointed as Receiver. The legality of the Corporation (MEQCO, for brevity), a
DECISION closure was contested by the bank before wholly-owned subsidiary of Manila Bank,
GARCIA, J.: the proper court. with MEQCO thereafter subleasing the
Thru this appeal by way of a petition for On November 11, 1988, the Central Bank, property to the Laureano group.
review on certiorari under Rule 45 of the by virtue of Monetary Board (MB) In a letter dated August 30, 1989, Vicente
Rules of Court, petitioner Abacus Real Resolution No. 505, ordered the G. Puyat accepted the Laureano group’s
Estate Development Center, Inc. seeks liquidation of Manila Bank and designated offer and granted it an "exclusive option
to set aside the following issuances of the Atty. Renan V. Santos as Liquidator. The to purchase" the lot and building for One
Court of Appeals in CA-G.R. CV No. liquidation, however, was held in Hundred Fifty Million Pesos
64877, to wit: abeyance pending the outcome of the (₱150,000,000.00). Later, or on October
1. Decision dated May 26, earlier suit filed by Manila Bank regarding 31, 1989, the building was leased to
2003,1 reversing an earlier decision of the the legality of its closure. Consequently, MEQCO for a period of ten (10) years
Regional Trial Court at Makati City, Branch the designation of Atty. Renan V. Santos pursuant to a contract of lease bearing
59, in an action for specific performance as Liquidator was amended by the Central that date. On March 1, 1990, MEQCO
and damages thereat commenced by the Bank on December 22, 1988 to that of subleased the property to
petitioner against the herein Statutory Receiver. petitioner Abacus Real Estate
respondent Manila Banking In the interim, Manila Bank’s then acting Development Center, Inc. (Abacus, for
Corporation; and president, the late Vicente G. Puyat, in a short), a corporation formed by the
2. Resolution of February 17, bid to save the bank’s investment, started Laureano group for the purpose, under
2 
2004, denying petitioner’s motion for scouting for possible investors who could identical provisions as that of the October
reconsideration. finance the completion of the building 31, 1989 lease contract between Manila
The petition is casts against the following earlier mentioned. On August 18, 1989, a Bank and MEQCO.
factual backdrop: group of investors, represented by Calixto The Laureano group was, however, unable
Respondent Manila Banking Corporation Y. Laureano (hereafter referred to to finish the building due to the economic
(Manila Bank, for brevity), owns a as Laureano group), wrote Vicente G. crisis brought about by the failed
1,435-square meter parcel of land located Puyat offering to lease the building for ten December 1989 coup attempt. On account
along Gil Puyat Avenue Extension, Makati (10) years and to advance the cost to thereof, the Laureano group offered its
City and covered by Transfer Certificate of complete the same, with the advanced rights in Abacus and its "exclusive option
Title (TCT) No. 132935 of the Registry of cost to be amortized and offset against to purchase" to Benjamin Bitanga
Deeds of Makati. Prior to 1984, the bank rental payments during the term of the (Bitanga hereinafter), for Twenty Million
began constructing on said land a 14- lease. Likewise, the letter-offer stated that Five Hundred Thousand Pesos
storey building. Not long after, however, in consideration of advancing the (₱20,500,000.00). Bitanga would later
the bank encountered financial difficulties construction cost, the group wanted to be allege that because of the substantial
that rendered it unable to finish given the "exclusive option to purchase" amount involved, he first had to talk with
construction of the building. the building and the lot on which it was Atty. Renan Santos, the Receiver
constructed. appointed by the Central Bank, to discuss
Abacus’ offer. Bitanga further alleged that, Before plaintiff Abacus could adduce appellate recourse was docketed as CA-
over lunch, Atty. Santos then verbally evidence but after pre-trial, defendant G.R. CV No. 64877.
approved his entry into Abacus and his Manila Bank filed a Motion for Partial As stated at the threshold hereof, the
take-over of the sublease and option to Summary Judgment, followed by Court of Appeals, in a decision dated
purchase. a Supplement to Motion for Partial May 26, 2003,6 reversed and set aside
On March 30, 1990, the Laureano group Summary Judgment. While initially the appealed decision of the trial court,
transferred and assigned to Bitanga all of opposed, Abacus would later join Manila thus:
its rights in Abacus and the "exclusive Bank in submitting the case for summary WHEREFORE, finding serious reversible
option to purchase" the subject land and judgment. error, the appeal is GRANTED.
building. Eventually, in a decision dated May 27, The Decision dated May 27, 1999 of the
On September 16, 1994, Abacus sent a 1999,4 the trial court rendered judgment Regional Trial Court of Makati City, Branch
letter to Manila Bank informing the latter for Abacus in accordance with the latter’s 59 is REVERSED and SET ASIDE.
of its desire to exercise its "exclusive prayer in its complaint, thus: Cost of the appeal to be paid by the
option to purchase". However, Manila WHEREFORE, premises considered, appellee.
Bank refused to honor the same. judgment is hereby rendered in favor of SO ORDERED.
Such was the state of things when, on the plaintiff as follows: On June 25, 2003, Abacus filed a Motion
November 10, 1995, in the Regional Trial 1. Ordering the defendant [Manila Bank] for Reconsideration, followed, with leave
Court (RTC) at Makati, Abacus Real Estate to immediately sell to plaintiff the parcel of court, by an Amended Motion for
Development Center, Inc. filed a of land and building, with an area of 1,435 Reconsideration. Pending resolution of its
complaint3 for specific performance and square meters and covered by TCT No. motion for reconsideration, as amended,
damages against Manila Bank and/or the 132935 of the Makati Registry of Deeds, Abacus filed a Motion to Dismiss
Estate of Vicente G. Puyat. In its situated along Sen. Gil J. Puyat Ave. in Appeal,7 therein praying for the dismissal
complaint, docketed as Civil Case No. 96- Makati City, at the price of One Hundred of Manila Bank’s appeal from the RTC
1638 and raffled to Branch 59 of the Fifty Million (₱150,000.000.00) Pesos in decision of May 27, 1999, contending that
court, plaintiff Abacus prayed for a accordance with the said exclusive option said appeal was filed out of time.
judgment ordering Manila Bank, inter alia, to purchase, and to execute the In its Resolution of February 17,
to sell, transfer and convey unto it for appropriate deed of sale therefor in favor 2004,8 the appellate court denied Abacus’
₱150,000,000.00 the land and building in of plaintiff; aforementioned motion for
dispute "free from all liens and 2. Ordering the defendant [Manila Bank] reconsideration.
encumbrances", plus payment of damages to pay plaintiff the amount of Two Million Hence, this recourse by petitioner Abacus
and attorney’s fees. (₱2,000,000.00) Pesos representing Real Estate Development Center, Inc.
Subsequently, defendant Manila Bank, reasonable attorney’s fees; As we see it, two (2) issues commend
followed a month later by its co-defendant 3. Ordering the DISMISSAL of defendant’s themselves for the resolution of the Court,
Estate of Vicente G. Puyat, filed separate counterclaim, for lack of merit; and namely:
motions to dismiss the complaint. 4. With costs against the defendant. WHETHER OR NOT RESPONDENT BANK’S
In an Order dated April 15, 1996, the trial SO ORDERED. APPEAL TO THE COURT OF APPEALS WAS
court granted the motion to dismiss filed Its motion for reconsideration of the FILED ON TIME; and
by the Estate of Vicente G. Puyat, but aforementioned decision having been WHETHER OR NOT PETITIONER ABACUS
denied that of Manila Bank and directed denied by the trial court in its Order of HAS ACQUIRED THE RIGHT TO PURCHASE
the latter to file its answer. August 17, 1999,5 Manila Bank then went THE LOT AND BUILDING IN QUESTION.
on to the Court of Appeals whereat its
We rule for respondent Manila Bank on appeal, respondent then claims that its motion, as well as the entry of
both issues. filing of an appeal on August 25, 1999, appearance, by personal service.
Addressing the first issue, petitioner two (2) days after receiving the Order of The aforecited reference in
submits that respondent bank’s appeal to the trial court denying its Motion for the manifestation to the mailing of
the Court of Appeals from the adverse Reconsideration, was within the the motion for reconsideration on July 6,
decision of the trial court was belatedly reglementary period. 1999, in light of the handwritten
filed. Elaborating thereon, petitioner Agreeing with respondent, the appellate annotations adverted to herein, renders
alleges that respondent bank received a court declared that respondent’s appeal beyond doubt the appellant’s insistence of
copy of the May 27, 1999 RTC decision on was filed on time. Explained that court in filing through registered mail on July 6,
June 22, 1999, hence, petitioner had 15 its Resolution of February 17, 2004, 1999.
days, or only up to July 7, 1999 within denying petitioner’s motion for Thirdly, the registry return cards attached
which to take an appeal from the same reconsideration: to the envelopes separately addressed
decision or move for a reconsideration Firstly, the file copy of the motion for and mailed to the RTC and the appellee’s
thereof. Petitioner alleges that respondent reconsideration contains the written counsel, found in pages 728 and 729 of
furnished the trial court with a copy of its annotations "Registry Receipt No. 1633 the rollo, indicate that the contents were
Motion for Reconsideration only on July 7, Makati P.O. 7-6-99" in its page 13. The the motion for reconsideration and
1999, the last day for filing an appeal. presence of the annotations proves that the formal entry of appearance. Although
Under Section 3, Rule 41 of the 1997 the motion for reconsideration was truly the appellee argues that the handwritten
Rules of Civil Procedure, "the period of filed by registered mail on July 6, 1999 annotations of what were contained by the
appeal shall be interrupted by a timely through registry receipt no. 1633. envelopes at the time of mailing was
motion for new trial or reconsideration". Secondly, the easily self-serving, the fact remains that
Since, according to petitioner, respondent appellant’s manifestation filed in the RTC the envelope addressed to the appellee’s
filed its Motion for Reconsideration on the personally on July 7, 1999 contains the counsel appears thereon to have been
last day of the period to appeal, it only following self-explanatory statements, to received on July 6, 1999 ("7/6/99"), which
had one (1) more day within which to file wit: enhances the probability of the motion for
an appeal, so much so that when it 2. Defendant [Manila Bank] also filed with reconsideration being mailed, hence filed,
received on August 23, 1999 a copy of the this Honorable Court a Motion for on July 6, 1999, as claimed by the
trial court’s order denying its Motion for Reconsideration of the Decision dated 27 appellant.
Reconsideration, respondent bank had May 1999 promulgated by this Honorable Fourthly, the certification issued on
only up to August 24, 1999 within which Court in this case, and served a copy October 2, 2003 by Atty. Jayme M. Luy,
to file the corresponding appeal. As thereof to the plaintiff, by registered mail Branch Clerk of Court, Branch 59, RTC in
respondent bank appealed the decision of yesterday, 6 July 1999, due to lack of Makati City, has no consequence because
the trial court only on August 25, 1999, material time and messenger to effect Atty. Luy based his data only on page 3 of
petitioner thus argues that respondent’s personal service and filing. the 1995 Civil Case Docket Book without
appeal was filed out of time. 3. In order for this Honorable Court to be reference to the original records which
As a counterpoint, respondent alleges that able to review defendant [Manila Bank’s] were already with the Court of Appeals.
it sent the trial court a copy of its Motion Motion for Reconsideration without Fifthly, since the appellant received the
for Reconsideration on July 6, 1999, awaiting the mailed copy, defendant denial of the motion for reconsideration on
through registered mail. Having sent a [Manila Bank] is now furnishing this August 23, 1999, it had until August 25,
copy of its Motion for Reconsideration to Honorable Court with a copy of said 1999 within which to perfect its appeal
the trial court with still two (2) days left to from the decision of the RTC because 2
days remained in its reglementary period time, supported as it is by substantial bank officers from intermeddling with the
to appeal. It is not disputed that the evidence, must be affirmed. property of the bank in any way.
appellant filed its notice of appeal and Going to the second issue, petitioner With respondent bank having been
paid the appellate court docket fees on insists that the option to purchase the lot already placed under receivership, its
August 25, 1999. and building in question granted to it by officers, inclusive of its acting president,
These circumstances preponderantly the late Vicente G. Puyat, then acting Vicente G. Puyat, were no longer
demonstrate that the appellant’s appeal president of Manila Bank, was binding authorized to transact business in
was not late by one day. (Emphasis in the upon the latter. On the other hand, connection with the bank’s assets and
original) respondent has consistently maintained property. Clearly then, the "exclusive
Petitioner would, however, contest the that the late Vicente G. Puyat had no option to purchase" granted by Vicente G.
above findings of the appellate court, authority to act for and represent Manila Puyat was and still is unenforceable
stating, among other things, that if it were Bank, the latter having been placed under against Manila Bank.13
true that respondent filed its Motion for receivership by the Central Bank at the Petitioner, however, asseverates that the
Reconsideration by registered mail and time of the granting of the "exclusive "exclusive option to purchase" was ratified
then furnished the trial court with a copy option to purchase." by Manila Bank’s receiver, Atty. Renan
of said Motion the very next day, then There can be no quibbling that respondent Santos, during a lunch meeting held with
the rollo should have had two copies of Manila Bank was under receivership, Benjamin Bitanga in March 1990.
the Motion for Reconsideration in pursuant to Central Bank’s MB Resolution Petitioner’s argument is tenuous at best.
question. Respondent, on the other hand, No. 505 dated May 22, 1987, at the time Concededly, a contract unenforceable for
insists that it indeed filed a Motion for the late Vicente G. Puyat granted the lack of authority by one of the parties may
Reconsideration on July 6, 1999 through "exclusive option to purchase" to the be ratified by the person in whose name
registered mail. Laureano group of investors. Owing to this the contract was executed. However, even
It is evident that the issue raised by defining reality, the appellate court was assuming, in gratia argumenti, that Atty.
petitioner relates to the correctness of the correct in declaring that Vicente G. Puyat Renan Santos, Manila Bank’s receiver,
factual finding of the Court of Appeals as was without authority to grant the approved the "exclusive option to
to the precise date when respondent filed exclusive option to purchase the lot and purchase" granted by Vicente G. Puyat,
its motion for reconsideration before the building in question. The invocation by the the same would still be of no force and
trial court. Such issue, however, is beyond appellate court of the following effect.
the province of this Court to review. It is pronouncement in Villanueva vs. Court of Section 29 of the Central Bank Act, as
not the function of the Court to analyze or Appeals12 was apropos, to say the least: amended,14 pertinently provides:
weigh all over again the evidence or … the assets of the bank pass beyond its Sec. 29. Proceedings upon insolvency. –
premises supportive of such factual control into the possession and control of Whenever, upon examination by the head
determination.9 The Court has consistently the receiver whose duty it is to administer of the appropriate supervising and
held that the findings of the Court of the assets for the benefit of the creditors examining department or his examiners or
Appeals and other lower courts are, as a of the bank. Thus, the appointment of a agents into the condition of any banking
rule, accorded great weight, if not binding receiver operates to suspend the authority institution, it shall be disclosed that the
upon it,10 save for the most compelling of the bank and of its directors and condition of the same is one of insolvency,
and cogent reasons.11 As nothing in the officers over its property and effects, such or that its continuance in business would
record indicates any of such exceptions, authority being reposed in the receiver, involve probable loss to its depositors or
the factual conclusion of the appellate and in this respect, the receivership is creditors, it shall be the duty of the
court that respondent filed its appeal on equivalent to an injunction to restrain the department head concerned forthwith, in
writing, to inform the Monetary Board of expenditures, pay or commit any act that
the facts, and the Board may, upon will involve the transfer or disposition of
finding the statements of the department any asset of the institution…"
head to be true, forbid the institution to In all, respondent bank’s receiver was
do business in the Philippines and shall without any power to approve or ratify the
designate an official of the Central Bank "exclusive option to purchase" granted by
as receiver to immediately take charge of the late Vicente G. Puyat, who, in the first
its assets and liabilities, as expeditiously place, was himself bereft of any authority,
as possible collect and gather all the to bind the bank under such exclusive
assets and administer the same for the option. Respondent Manila Bank may not
benefit of its creditors, exercising all the thus be compelled to sell the land and
powers necessary for these building in question to petitioner Abacus
purposes including, but not limited to, under the terms of the latter’s "exclusive
bringing suits and foreclosing mortgages option to purchase".
in the name of the banking institution. WHEREFORE, the instant petition is
(Emphasis supplied) DENIED and the challenged issuances of
Clearly, the receiver appointed by the the Court of Appeals AFFIRMED.
Central Bank to take charge of the Costs against petitioner.
properties of Manila Bank only had SO ORDERED.
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 Act15 expressly provides that
"[t]he 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
G.R. No. 158261             December 18, SES Department III, no concrete action examination of the Rural Bank of Bokod
2006 was taken by the RBBI management. In (Benguet), Inc. as of 16 June 1986, that
IN RE: PETITION FOR ASSISTANCE IN view of the irregularities noted and the the financial condition of the rural bank is
THE LIQUIDATION OF THE RURAL insolvent condition of RBBI, the members one of insolvency and its continuance in
BANK OF BOKOD (BENGUET), INC., of the RBBI Board of Directors were called business would involve further losses to
PHILIPPINE DEPOSIT INSURANCE for a conference at the BSP on 4 August its depositors and creditors, x x x
CORPORATION, petitioner, 1986. Only one RBBI Director, a certain xxxx
vs. Mr. Wakit, attended the conference, and [T]he Board decided as follows:
BUREAU OF INTERNAL the examination findings and related a. To forbid the bank to do business in the
REVENUE, respondent. recommendations were discussed with Philippines and place its assets and affairs
him. In a letter, dated 4 August 1986, under receivership in accordance with
receipt of which was acknowledged by Mr. Section 29 of R.A. No. 265, as amended.
DECISION Wakit, the SES Department III warned the b. To designate the Special Assistant to
RBBI Board of Directors that, unless the Governor and Head, SES Department
substantial remedial measures are taken III, as Receiver of the bank;
CHICO-NAZARIO, J.: to rehabilitate the bank, it will recommend c. To refer the cases of
This is a Petition for Review that the bank be placed under irregularities/frauds to the Office of
on Certiorari1 under Rule 45 of the revised receivership. In a subsequent letter, dated Special Investigation for further
Rules of Court, praying that this Court set 17 November 1986, a copy of which was investigation and possible filing of
aside the Orders, dated 17 January sent to every member of the RBBI Board appropriate charges against the following
20032 and 13 May 2003,3 of the Regional of Directors via registered mail, the SES present/former officers and employees of
Trial Court (RTC) of La Trinidad, Benguet, Department III reiterated its warning that the bank:
sitting as the Liquidation Court of the it would recommend the closure of the xxxx
closed Rural Bank of Bokod (Benguet), bank, unless the needed fresh capital was d. To include the names of the above-
Inc. (RBBI), in Spec. Proc. No. 91-SP- immediately infused. Despite these mentioned present and former officers
0060. notices, the SES Department III received and employees of the bank in the list of
There is no dispute as to the antecedent no word from RBBI or from any of its persons barred from employment in any
facts of the case, recounted as follows: Directors as of 28 November 1986.5 financial institution under the supervision
In 1986, a special examination of RBBI In a meeting held on 9 January 1987, the of the Central Bank without prior
was conducted by the Supervision and Monetary Board of the BSP decided to clearance from the Central Bank.6
Examination Sector (SES) Department III take the following action – A memorandum and report, dated 28
of what is now the Bangko Sentral ng Rural Bank of Bokod (Benguet), Inc. – August 1990, were submitted by the
Pilipinas (BSP),4 wherein various loan Report on its examination as of June 16, Director of the SES Department III
irregularities were uncovered. In a letter, 1986, its placement under receivership concluding that the RBBI remained in
dated 20 May 1986, the SES Department ACTION TAKEN insolvent financial condition and it can no
III required the RBBI management to Finding to be true the statements of the longer safely resume business with the
infuse fresh capital into the bank, within Special Assistant to the Governor and depositors, creditors, and the general
30 days from date of the advice, and to Head, Supervision and Examination Sector public. On 7 September 1990, the
correct all the exceptions noted. However, (SES) Department III, in her Monetary Board, after determining and
up to the termination of the subsequent memorandum dated 28 November 1986 confirming the said memorandum and
general examination conducted by the submitting a report on the general report, ordered the liquidation of the bank
and designated the Director of the SES this court dated January 17, 2003 holding Hence, PDIC filed the present Petition for
Department III as liquidator.7 in abeyance the motion for approval of the Review on Certiorari, under Rule 45 of the
On 10 April 1991, the designated BSP project of distribution pending their revised Rules of Court, raising pure
liquidator of RBBI caused the filing with compliance with a tax clearance from the questions of law. It made a lone
the RTC of a Petition for Assistance in the Bureau of Internal Revenue. assignment of error, alleging that –
Liquidation of RBBI, docketed as Spec. Petitioner in their motion state that THE COURT A QUO ERRED IN APPLYING
Proc. No. 91-SP-0060.8 Subsequently, on Section 52-C of Republic Act 8424 does THE PROVISION OF SECTION 52-C OF
2 June 1992, the Monetary Board not cover closed banking institutions like REPUBLIC ACT NO. 8424 DIRECTING THE
transferred to herein petitioner Philippine the Rural Bank of Bokod as the law that SUBMISSION OF TAX CLEARANCE FOR
Deposit Insurance Corporation (PDIC) the covers liquidation of closed banks is CORPORATIONS CONTEMPLATING
receivership/liquidation of RBBI.9 Section 30 of Republic Act No. 7653 DISSOLUTION ON A BANK ORDERED
PDIC then filed, on 11 September 2002, a otherwise known as the new Central Bank CLOSED AND PLACED UNDER
Motion for Approval of Project of Law. RECEIVERSHIP AND, THEREAFTER,
Distribution10 of the assets of RBBI, in Commenting on the motion for UNDER LIQUIDATION, BY THE MONETARY
accordance with Section 31, in relation to reconsideration the Bureau of Internal BOARD PURSUANT TO SECTION 30 OF
Section 30, of Republic Act No. 7653, Revenue states that the only logic why the REPUBLIC ACT NO. 7653.14
otherwise known as the New Central Bank Bureau is requesting for a tax clearance is PDIC argues that the closure of banks
Act. During the hearing held on 17 to determine how much taxes, if there be under Section 30 of the New Central Bank
January 2003, the respondent Bureau of any, is due the government. Act is summary in nature and
Internal Revenue (BIR), through Atty. The court believes and so holds that procurement of tax clearance as required
Justo Reginaldo, manifested that PDIC petitioner should still secure the necessary under Section 52(C) of the Tax Code of
should secure a tax clearance certificate tax clearance in order for it to be cleared 1997 is not a condition precedent thereto;
from the appropriate BIR Regional Office, of all its tax liabilities as regardless of that under Section 30, in relation to
pursuant to Section 52(C) of Republic Act what law covers the liquidation of closed Section 31, of the New Central Bank Act,
No. 8424, or the Tax Code of 1997, before banks, still these banks are subject to asset distribution of a closed bank
it could proceed with the dissolution of payment of taxes mandated by law. Also requires only the approval of the
RBBI. On even date, the RTC issued one in its motion for approval of the project of liquidation court; and that the BIR is not
of the assailed Orders,11 directing PDIC to distribution, paragraph 2, item 2.2 states without recourse since, subject to the
comply with Section 52(C) of the Tax that there are unremitted withholding applicable provisions of the Tax Code of
Code of 1997 within 30 days from receipt taxes in the amount of P8,767.32. 1997, it may therefore assess the closed
of a copy of the said order. Pending This shows that indeed there are still RBBI for tax liabilities, if any.
compliance therewith, the RTC held in taxes to be paid. In order therefore that In its Comment, the BIR countered with
abeyance the Motion for Approval of all taxes due the government should be the following arguments: that the present
Project of Distribution. On 13 May 2003, paid, petitioner should secure a tax Petition for Review on Certiorari under
the second assailed Order12 was issued, in clearance from the Bureau of Internal Rule 45 of the revised Rules of Court is
which the RTC, in resolving the Motion for Revenue. not the proper remedy to question the
Reconsideration filed by PDIC, ruled as Wherefore, based on the foregoing Order, dated 17 January 2003, of the RTC
follows – premises, the motion for reconsideration because said order is interlocutory and
ORDER filed by petitioner is hereby DENIED for cannot be the subject of an appeal; that
Submitted for resolution is petitioner’s lack of merit.13 Section 52(C) of the Tax Code of 1997
motion for reconsideration of the order of applies to all corporations, including banks
ordered closed by the Monetary Board appellant desires the appellate court to in certiorari as an original action, a motion
pursuant to Section 30 of the New Central resolve. In certiorari as an original action, for reconsideration is a condition
Bank Act; that the RTC may order the the petition raises the issue as to whether precedent (Villa-Rey Transit vs. Bello, L-
PDIC to obtain a tax clearance before the lower court acted without or in excess 18957, April 23, 1963), subject to certain
proceeding to rule on the Motion for of jurisdiction or with grave abuse of exceptions.
Approval of Project of Distribution of the discretion. g. In appeal by certiorari, the appellate
assets of RBBI; and that the present b. Certiorari, as a mode of appeal, court is in the exercise of its appellate
controversy should not have been involves the review of the judgment, jurisdiction and power of review, while
elevated to this Court since the parties are award or final order on the merits. The in certiorari as an original action, the
both government agencies who should original action for certiorari may be higher court exercises original jurisdiction
have administratively settled the dispute. directed against an interlocutory order of under its power of control and supervision
This Court finds that there are only two the court prior to appeal from the over the proccedings of lower courts.
primary issues for the resolution of the judgment or where there is no appeal or Guided by the foregoing distinctions, this
Petition at bar, one being procedural, and any other plain, speedy or adequate Court, in perusing the assailed RTC
the other substantive. The procedural remedy. Orders, dated 17 January 2003 and 13
issue involves the question of whether the c. Appeal by certiorari must be made May 2003, reaches the conclusion that
Petition for Review on Certiorari under within the reglementary period for appeal. these are merely interlocutory in nature
Rule 45 of the revised Rules of Court is An original action for certiorari may be and are not the proper subjects of an
the proper remedy from the assailed filed not later than sixty (60) days from appeal by certiorari under Rule 45 of the
Orders of the RTC. The substantive issue notice of the judgment, order or resolution revised Rules of Court.
deals with the determination of whether a sought to be assailed. This Court has repeatedly and uniformly
bank ordered closed and placed under d. Appeal by certiorari stays the held that a judgment or order may be
receivership by the Monetary Board of the judgment, award or order appealed from. appealed only when it is final, meaning
BSP still needs to secure a tax clearance An original action for certiorari, unless a that it completely disposes of the case and
certificate from the BIR before the writ of preliminary injunction or a definitively adjudicates the respective
liquidation court approves the project of temporary restraining order shall have rights of the parties, leaving thereafter no
distribution of the assets of the bank. been issued, does not stay the challenged substantial proceeding to be had in
I proceeding. connection with the case except the
This Court shall first proceed with the e. In appeal by certiorari, the petitioner proper execution of the judgment or
procedural issue on the appropriateness of and respondent are the original parties to order. Conversely, an interlocutory order
the remedy taken by PDIC from the the action, and the lower court or quasi- or judgment is not appealable for it does
assailed RTC Orders. judicial agency is not to be impleaded. not decide the action with finality and
The differences between an appeal In certiorari as an original action, the leaves substantial proceedings still to be
by certiorari under Rule 4515 of the revised parties are the aggrieved party against had.18
Rules of Court and an original action the lower court or quasi-judicial agency The RTC Orders presently questioned
for certiorari under Rule 6516 of the same and the prevailing parties, who thereby before this Court has not disposed of the
Rules have been laid down by this Court in respectively become the petitioner and case nor has it adjudicated definitively the
the case of Atty. Paa v. Court of respondents. rights of the parties in Spec. Proc. No. 91-
Appeals,17 to wit – f. In certiorari for purposes of appeal, the SP-0060. They only held in abeyance the
a. In appeal by certiorari, the petition is prior filing of a motion for reconsideration approval of the Project of Distribution of
based on questions of law which the is not required (Sec. 1, Rule 45); while the assets of RBBI until PDIC, as
liquidator, acquires a tax clearance from and correct amount of the tax liabilities of wrong remedy by filing an appeal
the BIR. Indubitably, there are still RBBI if PDIC, as liquidator of the bank, by certiorari under Rule 45 of the revised
substantial proceedings to be had after secures a tax clearance from the Rules of Court, We shall adopt a positive
PDIC presents the required tax clearance appropriate BIR Regional Office. The and pragmatic approach, and, instead of
to the trial court, since the Project of acquirement of a tax clearance is not the dismissing the instant Petition outright, it
Distribution of assets still has to be claim of the BIR against RBBI, it is only shall treat the same as an original action
finalized and approved. the means by which to ascertain such for certiorari under Rule 65 of the same
PDIC avers that the RTC Orders of 17 claim. Whatever tax liabilities the BIR may Rules, in consideration of the crucial
January 2003 and 13 May 2003 are final claim against RBBI can still be disputed issues and substantial arguments already
because, as this Court pronounced in the before the RTC by the PDIC, as liquidator presented by the concerned parties before
case of Pacific Banking Corporation of the bank, whether as to the existence this Court.22
Employees’ Organization (PaBCEO) v. or computation of the said tax liabilities, II
Court of Appeals,19 an order of the and it is the ruling of the RTC on such Having disposed of the procedural issue,
liquidation court allowing or disallowing a matters that may constitute a final order this Court now addresses the substantive
claim is a final order and may be the which definitively settles the claim of the issue of whether RBBI, as represented by
subject of an appeal. It further asserts BIR. The mere grant by the RTC of the its liquidator, PDIC, still needs to secure a
that the legal issue of whether RBBI motion requiring PDIC, as liquidator of tax clearance from the BIR before the RTC
should secure a tax clearance is a RBBI, to secure a tax clearance, does not could approve the Project of Distribution
"disputed claim," which was already yet constitute an adjudication of the claim of the assets of RBBI.
allowed by the RTC in its assailed Orders, of the BIR. Hence, the assailed RTC The BIR anchors its position that a tax
thus, making the latter final. Orders, dated 17 January 2003 and 13 clearance is necessary on Section 52(C) of
This Court is unconvinced. The foregoing May 2003, are clearly interlocutory in the Tax Code of 1997, which provides –
arguments of PDIC result from a strained nature. SEC. 52. Corporation Returns. –
interpretation of law and jurisprudence, As a general rule, an interlocutory order is xxxx
and are raised in an apparent attempt to not appealable until after the rendition of (C) Return of Corporation Contemplating
justify a very obvious faux pas on its part. the judgment on the merits, given that a Dissolution or Reorganization. – Every
While it is true that in liquidation contrary rule would delay the corporation shall, within thirty days (30)
proceedings, the settlement of disputed or administration of justice and unduly after the adoption by the corporation of a
contentious claims may require a full- burden the courts. This Court, however, resolution or plan for its dissolution, or for
dress hearing and the resolution of legal has also held that an original action the liquidation of the whole or any part of
issues,20 it does not follow that all legal for certiorari under Rule 65 of the revised its capital stock, including a corporation
issues resolved in the course of the Rules of Court is an appropriate remedy to which has been notified of possible
liquidation proceedings would assail an interlocutory order when (1) the involuntary dissolution by the Securities
automatically be tantamount to an tribunal issued such order without or in and Exchange Commission, or for its
allowance or disallowance of a disputed or excess of jurisdiction or with grave abuse reorganization, render a correct return to
contentious claim. In Spec. Proc. No. 91- of discretion, and (2) the assailed the Commissioner, verified under oath,
SP-0060 pending before the RTC, there interlocutory order is patently erroneous setting forth the terms of such resolution
can be no doubt that the claim of the BIR and the remedy of appeal would not afford or plan and such other information as the
against RBBI consists of the unpaid tax adequate and expeditious relief.21 Thus, Secretary of Finance, upon
liabilities of the latter. The BIR contends despite this Court’s finding that PDIC, as recommendation of the Commissioner,
that it could only determine the existence the liquidator of RBBI, availed itself of the shall, by rules and regulations, prescribe.
The dissolving or reorganizing corporation dissolving corporations. This shall include documents mentioned in the preceding
shall, prior to the issuance by the corporations intending to dissolve or Section, the Commissioner of Internal
Securities and Exchange Commission of liquidate the whole or any part of its Revenue, or his duly authorized
the Certificate of Dissolution or capital stocks, as well as, corporations representative, shall issue the
Reorganization, as may be defined by which have been notified of possible corresponding tax clearance certificate
rules and regulations prescribed by the involuntary dissolution by the Securities (BIR Form No. 17.61) for the corporation
Secretary of Finance, upon and Exchange Commission. which will be dissolved.
recommendation of the Commissioner, Section 2. Requirements in case of b) The Securities and Exchange
secure a certificate of tax clearance from dissolution. – a) Every Corporation shall, Commission shall issue the final order of
the Bureau of Internal Revenue which within thirty (30) days after dissolution only after a certificate of tax
certificate shall be submitted to the - the adoption by the corporation of a clearance has been submitted by the
Securities and Exchange Commission. resolution or plan for the dissolution of the dissolving corporation: Provided, that in
To implement the foregoing provision, the corporation, or for the liquidation of the case of involuntary dissolution, the
BIR still relies on the regulations it jointly whole or any part of its capital stock, or Securities and Exchange Commission may
issued with the Securities and Exchange - the receipt of an order of suspension by nevertheless proceed with the dissolution
Commission (SEC) in 1985, when the Tax the Securities and Exchange Commission if thirty (30) days after receipt of the
Code of 1977 was still in effect and a in case of involuntary dissolution, suspension order no tax clearance has yet
similar provision could be found in Section file their income tax returns covering the been issued.
46(C) thereof. The full text of the income earned by them from the Section 4. Penalty. – Failure to render the
regulations is reproduced below – beginning of the taxable year up to date return and secure the certificate of tax
BIR-SEC REGULATIONS NO. 1 of such dissolution. clearance as above-mentioned shall
SUBJECT: Regulations to Implement the In addition thereto, they shall submit subject the officer(s) of the corporation
Provisions of Executive Order No. 1026, within the same period and verified under required by law to file the return under
Amending Section 46(c) of the National oath, the following documents: Section 46(a) of the National Internal
Internal Revenue Code of 1977, as 1. a copy of the articles of incorporation Revenue Code of 1977, as amended, to a
amended, Requiring Dissolving and by-laws; fine of not less than P5,000.00 or
Corporations to File Information Returns 2. a copy of the resolution authorizing imprisonment of not less than two (2)
and Secure Tax Clearance from the dissolution; and years, and shall make them liable for all
Commissioner of Internal Revenue, and 3. balance sheet as of the date of outstanding or unpaid tax liabilities of the
Providing Adequate Penalties for Violations dissolution and a profit and loss statement dissolving corporation.
Thereof. covering the period from the beginning of Section 5. Effectivity. – These regulations
TO: All Internal Revenue Officers and the taxable year to the date of dissolution. shall apply to all corporate dissolution
Others Concerned. b) The Securities and Exchange taking place on or after May 14, 1985.
Pursuant to the provisions of Section 277, Commission whenever it issues an order Section 6. Repealing Clause. – All revenue
in relation to Section 4 of the National of involuntary dissolution or suspension of regulations, orders and circulars which are
Revenue Code of 1977, as amended, the the primary franchise or certificate of inconsistent herewith are hereby modified
following regulations are hereby registration of a corporation, shall at the accordingly.
promulgated. same time furnish the Commissioner of The afore-quoted Tax Code provision and
Section 1. Scope. – These regulations Internal Revenue a copy of such order. regulations refer to a voluntary dissolution
shall govern the procedure for the Section 3. Tax clearance certificate. – a) and/or liquidation of a corporation through
issuance of tax clearance certificates to Within thirty (30) days from receipt of the its adoption of a resolution or plan to that
effect, or an involuntary dissolution of a provided by existing laws, rules and Deposit Insurance Corporation as receiver
corporation by order of the SEC. They regulations. of the banking institution.
make no reference at all to a situation The Corporation Code, however, is a For a quasi-bank, any person of
similar to the one at bar in which a general law applying to all types of recognized competence in banking or
banking corporation is ordered closed and corporations, while the New Central Bank finance may be designated as receiver.
placed under receivership by the BSP and Act regulates specifically banks and other The receiver shall immediately gather and
its assets judicially liquidated. Now, the financial institutions, including the take charge of all the assets and liabilities
determining question is, whether Section dissolution and liquidation thereof. As of the institution, administer the same for
52(C) of the Tax Code of 1997 and BIR- between a general and special law, the the benefit of its creditors, and exercise
SEC Regulations No. 1 could be made to latter shall prevail – generalia specialibus the general powers of a receiver under the
apply to the present case. non derogant.23 Revised Rules of Court but shall not, with
This Court rules in the negative. The liquidation of RBBI is undertaken the exception of administrative
First, Section 52(C) of the Tax Code of according to Sections 30 of the New expenditures, pay or commit any act that
1997 and the BIR-SEC Regulations No. 1 Central Bank Act, viz – will involve the transfer or disposition of
regulate the relations only as between the Sec. 30. Proceedings in Receivership and any asset of the institution: Provided, That
SEC and the BIR, making a certificate of Liquidation. - Whenever, upon report of the receiver may deposit or place the
tax clearance a prior requirement before the head of the supervising or examining funds of the institution in non-speculative
the SEC could approve the dissolution of a department, the Monetary Board finds investments. The receiver shall determine
corporation. In Spec. Proc. No. 91-SP- that a bank or quasi-bank: as soon as possible, but not later than
0060 pending before the RTC, RBBI was (a) is unable to pay its liabilities as they ninety (90) days from take over, whether
placed under receivership and ordered become due in the ordinary course of the institution may be rehabilitated or
liquidated by the BSP, not the SEC; and business: Provided, That this shall not otherwise placed in such a condition that
the SEC is not even a party in the said include inability to pay caused by it may be permitted to resume business
case, although the BIR is. This Court extraordinary demands induced by with safety to its depositors and creditors
cannot find any basis to extend the SEC financial panic in the banking community; and the general public: Provided, That any
requirements for dissolution of a (b) has insufficient realizable assets, as determination for the resumption of
corporation to the liquidation proceedings determined by the Bangko Sentral, to business of the institution shall be subject
of RBBI before the RTC when the SEC is meet its liabilities; or to prior approval of the Monetary Board.
not even involved therein. (c) cannot continue in business without If the receiver determines that the
It is conceded that the SEC has the involving probable losses to its depositors institution cannot be rehabilitated or
authority to order the dissolution of a or creditors; or permitted to resume business in
corporation pursuant to Section 121 of (d) has wilfully violated a cease and desist accordance with the next preceding
Batas Pambansa Blg. 68, otherwise known order under Section 37 that has become paragraph, the Monetary Board shall
as the Corporation Code of the Philippines, final, involving acts or transactions which notify in writing the board of directors of
which reads – amount to fraud or a dissipation of the its findings and direct the receiver to
Sec. 121. Involuntary dissolution. – A assets of the institution; in which cases, proceed with the liquidation of the
corporation may be dissolved by the the Monetary Board may summarily and institution. The receiver shall:
Securities and Exchange Commission upon without need for prior hearing forbid the (1) file ex parte with the proper regional
filing of a verified complaint and after institution from doing business in the trial court, and without requirement of
proper notice and hearing on the grounds Philippines and designate the Philippine prior notice or any other action, a petition
for assistance in the liquidation of the
institution pursuant to a liquidation plan the ground that the action taken was in It should be noted that there are
adopted by the Philippine Deposit excess of jurisdiction or with such grave substantial differences in the procedure
Insurance Corporation for general abuse of discretion as to amount to lack or for involuntary dissolution and liquidation
application to all closed banks. In case of excess of jurisdiction. The petition for of a corporation under the Corporation
quasi-banks, the liquidation plan shall be certiorari may only be filed by the Code, and that of a banking corporation
adopted by the Monetary Board. Upon stockholders of record representing the under the New Central Bank Act, so that
acquiring jurisdiction, the court shall, majority of the capital stock within ten the requirements in one cannot simply be
upon motion by the receiver after due (10) days from receipt by the board of imposed in the other.
notice, adjudicate disputed claims against directors of the institution of the order Under the Corporation Code, the SEC may
the institution, assist the enforcement of directing receivership, liquidation or dissolve a corporation, upon the filing of
individual liabilities of the stockholders, conservatorship. a verified complaint and after
directors and officers, and decide on other The designation of a conservator under proper notice and hearing, on grounds
issues as may be material to implement Section 29 of this Act or the appointment provided by existing laws, rules, and
the liquidation plan adopted. The receiver of a receiver under this section shall be regulations.24 Upon receipt by the
shall pay the cost of the proceedings from vested exclusively with the Monetary corporation of the order of
the assets of the institution. Board. Furthermore, the designation of a suspension from the SEC, it is required to
(2) convert the assets of the institution to conservator is not a precondition to the notify and submit a copy of the said order,
money, dispose of the same to creditors designation of a receiver. together with its final tax return, to the
and other parties, for the purpose of Section 30 of the New Central Bank Act BIR. The SEC is also required to furnish
paying the debts of such institution in lays down the proceedings for receivership the BIR a copy of its order of suspension.
accordance with the rules on concurrence and liquidation of a bank. The said The BIR is supposed to issue a tax
and preference of credit under the Civil provision is silent as regards the securing clearance to the corporation within 30
Code of the Philippines and he may, in the of a tax clearance from the BIR. The days from receipt of the foregoing
name of the institution, and with the omission, nonetheless, cannot compel this documentary requirements. The SEC shall
assistance of counsel as he may retain, Court to apply by analogy the tax issue the final order of dissolution only
institute such actions as may be necessary clearance requirement of the SEC, as after the corporation has submitted its tax
to collect and recover accounts and assets stated in Section 52(C) of the Tax Code of clearance; or in case of involuntary
of, or defend any action against, the 1997 and BIR-SEC Regulations No. 1, dissolution, the SEC may proceed with the
institution. The assets of an institution since, again, the dissolution of a dissolution after 30 days from receipt by
under receivership or liquidation shall be corporation by the SEC is a totally the BIR of the documentary requirements
deemed in custodia legis in the hands of different proceeding from the receivership without a tax clearance having been
the receiver and shall, from the moment and liquidation of a bank by the BSP. This issued.25 The corporation is allowed to
the institution was placed under such Court cannot simply replace any reference continue as a body corporate for three
receivership or liquidation, be exempt by Section 52(C) of the Tax Code of 1997 years after its dissolution, for the purpose
from any order of garnishment, levy, and the provisions of the BIR-SEC of prosecuting and defending suits by or
attachment, or execution. Regulations No. 1 to the "SEC" with the against it, to settle and close its affairs,
The actions of the Monetary Board taken "BSP." To do so would be to read into the and to dispose of and convey its property
under this section or under Section 29 of law and the regulations something that is and distribute its assets, but not for the
this Act shall be final and executory, and simply not there, and would be purpose of continuing its business. The
may not be restrained or set aside by the tantamount to judicial legislation. corporation may undertake its own
court except on petition for certiorari on liquidation, or at any time during the said
three years, it may convey all of its way of determining whether the bank still tax imposed by this Title, such receivers,
property to trustees for the benefit of its had outstanding tax liabilities. trustees or assignees shall make returns
stockholders, members, creditors, and To our mind, what the BIR should have of net income as and for such corporation,
other persons in interest.26 requested from the RTC, and what was in the same manner and form as such an
In contrast, the Monetary Board within the discretion of the RTC to grant, organization is hereinbefore required to
may summarily and without need for prior is not an order for PDIC, as liquidator of make returns, and any tax due on the
hearing, forbid the banking corporation RBBI, to secure a tax clearance; but, income as returned by receivers, trustees
from doing business in the Philippines, for rather, for it to submit the final return of or assignees shall be assessed and
causes enumerated in Section 30 of the RBBI. The first paragraph of Section 30(C) collected in the same manner as if
New Central Bank Act; and appoint the of the Tax Code of 1997, read in assessed directly against the organizations
PDIC as receiver of the bank. PDIC conjunction with Section 54 of the same of whose businesses or properties they
shall immediately gather and take charge Code, clearly imposes upon PDIC, as the have custody or control.
of all the assets and liabilities of the receiver and liquidator of RBBI, the duty Section 54 of the Tax Code of 1997
closed bank and administer the same for to file such a return. The pertinent imposes a general duty on all receivers,
the benefit of its creditors. The summary provisions are reproduced below for trustees in bankruptcy, and assignees,
nature of the procedure for the reference – who operate and preserve the assets of a
involuntary closure of a bank is especially SEC. 52. Corporation Returns. – corporation, regardless of the
stressed in Section 30 of the New Central xxxx circumstances or the law by which they
Bank Act, which explicitly states that the (C) Return of Corporation Contemplating came to hold their positions, to file the
actions of the Monetary Board under the Dissolution or Reorganization. – Every necessary returns on behalf of the
said Section or Section 29 shall be final corporation shall, within thirty days (30) corporation under their care.
and executory, and may not be restrained after the adoption by the corporation of a The filing by PDIC of a final tax return, on
or set aside by the court except on a resolution or plan for its dissolution, or for behalf of RBBI, should already address the
Petition for Certiorari filed by the the liquidation of the whole or any part of supposed concern of the BIR and would
stockholders of record of the bank its capital stock, including a corporation already enable the latter to determine if
representing a majority of the capital which has been notified of possible RBBI still had outstanding tax liabilities.
stock. PDIC, as the appointed receiver, involuntary dissolution by the Securities The unreasonableness and impossibility of
shall file ex parte with the proper RTC, and Exchange Commission, or for its requiring a tax clearance before the
and without requirement of prior notice or reorganization, render a correct return to approval by the RTC of the Project of
any other action, a petition for assistance the Commissioner, verified under oath, Distribution of the assets of the RBBI
in the liquidation of the bank. The bank is setting forth the terms of such resolution becomes apparent when the timeline of
not given the option to undertake its own or plan and such other information as the the proceedings is considered.
liquidation. Secretary of Finance, upon The BIR can only issue a certificate of tax
Second, the alleged purpose of the BIR in recommendation of the Commissioner, clearance when the taxpayer had
requiring the liquidator PDIC to secure a shall, by rules and regulations, prescribe. completely paid off his tax liabilities. The
tax clearance is to enable it to determine xxxx certificate of tax clearance attests that the
the tax liabilities of the closed bank. It SEC. 54. Returns of receivers, Trustees in taxpayer no longer has any outstanding
raised the point that since the PDIC, as Bankruptcy or Assignees. – In cases tax obligations to the Government.
receiver and liquidator, failed to file the wherein receivers, trustees in bankruptcy Should the BIR find that RBBI still had
final return of RBBI for the year its or assignees are operating the property or outstanding tax liabilities, PDIC will not be
operations were stopped, the BIR had no business of a corporation, subject to the able to pay the same because the Project
of Distribution of the assets of RBBI liquidator, may proceed with the that: (1) the power is granted to the
remains unapproved by the RTC; and, if disposition of the assets of RBBI and pay Monetary Board of the BSP; and (2) what
RBBI still had outstanding tax liabilities, the latter’s financial obligations, including is summary in nature is the power of the
the BIR will not issue a tax clearance; but, its outstanding tax liabilities. And, finally, Monetary Board of the BSP to forbid or
without the tax clearance, the Project of only after such payment, can the BIR stop a bank or quasi-bank from doing
Distribution of assets, which allocates the issue a certificate of tax clearance in the further business.
payment for the tax liabilities, will not be name of RBBI. Once liquidation proceedings are instituted
approved by the RTC. It will be a chicken- Third, the evident void in current statutes before the appropriate trial court, and the
and-egg dilemma. and regulations as to the relations among trial court assumes jurisdiction over the
The Government, in this case, cannot the BIR, as tax collector of the National Petition, then the proceedings take a
generally claim preference of credit, and Government; the BSP, as regulator of the different character. Spec. Proc. No. 91-SP-
receive payment ahead of the other banks; and the PDIC, as the receiver and 0600 is the liquidation proceedings
creditors of RBBI. Duties, taxes, and fees liquidator of banks ordered closed by the initiated by the PDIC before the RTC.
due the Government enjoy priority only BSP, is not for this Court to fill in. It is up Liquidation proceedings have been
when they are with reference to a specific to the legislature to address the matter described in detail in the case of Pacific
movable property, under Article 2241(1) through appropriate legislation, and to the Banking Corporation Employees’
of the Civil Code, or immovable property, executive to provide the regulations for its Organization (PaBCEO) v. Court of
under Article 2242(1) of the same Code. implementation. Appeals,28 to wit –
However, with reference to the other real It is for these reasons that the RTC [A] liquidation proceeding resembles the
and personal property of the debtor, committed grave abuse of discretion, and proceeding for the settlement of estate of
sometimes referred to as "free property," committed patent error, in ordering the deceased persons under Rules 73 to 91 of
the taxes and assessments due the PDIC, as the liquidator of RBBI, to first the Rules of Court. The two have a
National Government, other than those in secure a tax clearance from the common purpose: the determination of all
Articles 2241(1) and 2242(1) of the Civil appropriate BIR Regional Office, and the assets and the payment of all the
Code, will come only in ninth place in the holding in abeyance the approval of the debts and liabilities of the insolvent
order of preference.27 Project of Distribution of the assets of the corporation or the estate. The Liquidator
Thus, the recourse of the BIR, after RBBI by virtue thereof. and the administrator or executor are
assessing the final return and examining Although this Court rules in favor of PDIC, both charged with the assets for the
all other pertinent documents of RBBI, in the sense that a tax clearance is not a benefit of the claimants. In both
and making a determination of the latter’s prerequisite to the approval of the Project instances, the liability of the corporation
outstanding tax liabilities, is to present its of Distribution of the assets of RBBI, it and the estate is not disputed. The
claim, on behalf of the National cannot uphold its argument that the Spec. court's concern is with the
Government, before the RTC during the Proc. No. 91-SP-0060 is summary in declaration of creditors and their
liquidation proceedings. The BIR is nature. rights and the determination of their
expected to prove and substantiate its Section 30(d) of the New Central Bank Act order of payment
claim, in the same manner as the other gives the Monetary Board of the BSP the xxxx
creditors. It is only after the RTC allows power to, summarily and without need for A liquidation proceeding is a single
the claim of the BIR, together with the prior hearing, forbid a bank or quasi-bank proceeding which consists of a number of
claims of the other creditors, can a Project from doing business in the Philippines and cases properly classified as "claims." It is
for Distribution of the assets of RBBI be designating the PDIC as receiver of the basically a two-phased proceeding.
finalized and approved. PDIC, then, as banking institution. It bears to emphasize The first phase is concerned with the
approval and disapproval of claims. Upon individual. Each claim is heard separately. 91-SP-0060 in order to determine all the
the approval of the petition seeking the And the Order issued relative to a claims of the creditors, including that of
assistance of the proper court in the particular claim applies only to said claim, the National Government, as determined
liquidation of a closed entity, all money leaving the other claims unaffected, as and presented by the BIR; and, pursuant
claims against the bank are required to be each claim is considered separate and to such determination, and guided
filed with the liquidation court. This phase distinct from the others. x x x [Emphases accordingly by the provisions of the Civil
may end with the declaration by the supplied.] Code on preference of credit, to review
liquidation court that the claim is not Irrefragably, liquidation proceedings and approve the Project of Distribution of
proper or without basis. On the other cannot be summary in nature. It requires the assets of RBBI.
hand, it may also end with the liquidation the holding of hearings and presentation SO ORDERED.
court allowing the claim. In the latter of evidence of the parties
case, the claim shall be classified whether concerned, i.e., creditors who must prove
it is ordinary or preferred, and thereafter and substantiate their claims, and the
included Liquidator. In either case, the liquidator disputing the same. It also
order allowing or disallowing a particular allows for multiple appeals, so that each
claim is final order, and may be appealed creditor may appeal a final order rendered
by the party aggrieved thereby. against its claim. Hence, liquidation
The second phase involves the approval proceedings may very well be highly-
by the Court of the distribution plan contested and drawn-out, because, at the
prepared by the duly appointed liquidator. end of it all, all claims against the
The distribution plan specifies in detail the corporation undergoing litigation must be
total amount available for distribution to settled definitively and its assets properly
creditors whose claim were earlier disposed off.
allowed. The Order finally disposes of the WHEREFORE, in view of the foregoing,
issue of how much property is available this Court rules as follows –
for disposal. Moreover, it ushers in the (a) The instant Petition is GRANTED and
final phase of the liquidation proceeding - the Orders, dated 17 January 2003 and 13
payment of all allowed claims in May 2003, of the RTC, sitting as the
accordance with the order of legal priority Liquidation Court of the closed RBBI, in
and the approved distribution plan. Spec. Proc. No. 91-SP-0060,
xxxx are NULLIFIED and SET ASIDE for
A liquidation proceeding is commenced by having been rendered with grave abuse of
the filing of a single petition by the discretion;
Solicitor General with a court of (b) The PDIC, as liquidator,
competent jurisdiction entitled, "Petition is ORDERED to submit to the BIR the
for Assistance in the Liquidation of e.g., final tax return of RBBI, in accordance
Pacific Banking Corporation." All with the first paragraph of Section 52(C),
claims against the insolvent are required in connection with Section 54, of the Tax
to be filed with the liquidation court. Code of 1997; and
Although the claims are litigated in the (c) The RTC is ORDERED to resume the
same proceeding, the treatment is liquidation proceedings in Spec. Proc. No.