Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 76118 March 30, 1993

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

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

Sycip, Salazar, Hernandez & Gatmaitan for petitioners.

Quisumbing, Torres & Evangelista for Triumph Savings Bank.

BELLOSILLO, J.:

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

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

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

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

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

On 19 July 1985, acting on the motion to quash the restraining order, the trial court granted the relief
sought and denied the application of TSB for injunction. Thereafter, Triumph Savings Bank filed with
Us a petition for certiorariunder Rule 65 of the Rules of Court6 dated 25 July 1985 seeking to enjoin
the continued implementation of the questioned MB resolution.

Meanwhile, on 9 August 1985; Central Bank and Ramon Tiaoqui filed a motion to dismiss the
complaint before the RTC for failure to state a cause of action, i.e., it did not allege ultimate facts
showing that the action was plainly arbitrary and made in bad faith, which are the only grounds for
the annulment of Monetary Board resolutions placing a bank under conservatorship, and that TSB
was without legal capacity to sue except through its receiver.7

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

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

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

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

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

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

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

xxx xxx xxx

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 . . . the banking business is properly subject to reasonable regulation under the
police power of the state because of its nature and relation to the fiscal affairs of the
people and the revenues of the state (9 CJS 32). Banks are affected with public
interest because they receive funds from the general public in the form of deposits.
Due to the nature of their transactions and functions, a fiduciary relationship is
created between the banking institutions and their depositors. Therefore, banks are
under the obligation to treat with meticulous care and utmost fidelity the accounts of
those who have reposed their trust and confidence in them (Simex International
[Manila], Inc., v. Court of Appeals, 183 SCRA 360 [1990]).

It is then the Government's responsibility to see to it that the financial interests of

those who deal with the banks and banking institutions, as depositors or otherwise,
are protected. In this country, that task is delegated to the Central Bank which,
pursuant to its Charter (R.A. 265, as amended), is authorized to administer the
monetary, banking and credit system of the Philippines. Under both the 1973 and
1987 Constitutions, the Central Bank is tasked with providing policy direction in the
areas of money, banking and credit; corollarily, it shall have supervision over the
operations of banks (Sec. 14, Art. XV, 1973 Constitution, and Sec. 20, Art. XII, 1987
Constitution). Under its charter, the CB is further authorized to take the necessary
steps against any banking institution if its continued operation would cause prejudice
to its depositors, creditors and the general public as well. This power has been
expressly recognized by this Court. In Philippine Veterans Bank Employees Union-
NUBE v. Philippine Veterans Banks (189 SCRA 14 [1990], this Court held that:

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

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

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

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

The heavy reliance of respondents on the Banco Filipino case is misplaced in view of factual
circumstances therein which are not attendant in the present case. We ruled in Banco Filipino that
the closure of the bank was arbitrary and attendant with grave abuse of discretion, not because of
the absence of prior notice and hearing, but that the Monetary Board had no sufficient basis to arrive
at a sound conclusion of insolvency to justify the closure. In other words, the arbitrariness, bad faith
and abuse of discretion were determined only after the bank was placed under conservatorship and
evidence thereon was received by the trial court. As this Court found in that case, the Valenzuela,
Aurellano and Tiaoqui Reports contained unfounded assumptions and deductions which did not
reflect the true financial condition of the bank. For instance, the subtraction of an uncertain amount
as valuation reserve from the assets of the bank would merely result in its net worth or the
unimpaired capital and surplus; it did not reflect the total financial condition of Banco Filipino.

Furthermore, the same reports showed that the total assets of Banco Filipino far exceeded its total
liabilities. Consequently, on the basis thereof, the Monetary Board had no valid reason to liquidate
the bank; perhaps it could have merely ordered its reorganization or rehabilitation, if need be.
Clearly, there was in that case a manifest arbitrariness, abuse of discretion and bad faith in the
closure of Banco Filipino by the Monetary Board. But, this is not the case before Us. For here, what
is being raised as arbitrary by private respondent is the denial of prior notice and hearing by the
Monetary Board, a matter long settled in this jurisdiction, and not the arbitrariness which the
conclusions of the Supervision and Examination Sector (SES), Department II, of the Central Bank
were reached.

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

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

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

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

. . . in requiring that only the stockholders of record representing the majority of the
capital stock may bring the action to set aside a resolution to place a bank under
conservatorship is to ensure that it be not frustrated or defeated by the incumbent
Board of Directors or officers who may immediately resort to court action to prevent
its implementation or enforcement. It is presumed that such a resolution is directed
principally against acts of said Directors and officers which place the bank in a state
 of continuing inability to maintain a condition of liquidity adequate to protect the
interest of depositors and creditors. Indirectly, it is likewise intended to protect and
safeguard the rights and interests of the stockholders. Common sense and public
policy dictate then that the authority to decide on whether to contest the resolution
should be lodged with the stockholders owning a majority of the shares for they are
expected to be more objective in determining whether the resolution is plainly
arbitrary and issued in bad faith.

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

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

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

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

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-21146 September 20, 1965

RURAL BANK OF LUCENA, INC., petitioner,

vs.
HON. FRANCISCO ARCA, as Judge of the Court of First Instance of Manila, Branch 1, and
CENTRAL BANK OF THE PHILIPPINES, respondents.

Norberto J. Quisumbing for petitioner.

Nat. M. Balboa, F. E. Evangelista and Solicitor General for respondents.

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

The Rural Bank of Lucena, Inc., a banking corporation organized under Republic Act No. 720,
instituted, on June 22, 1961, in the Court of First Instance of Manila (Civil Case No. 47345) an action
to collect damages and to enjoin the Central Bank from enforcing Resolution No. 928 of its Monetary
Board, finding that the Rural Bank of Lucena (Lucena for short), through its officers, directors, and
employees, had committed acts substantially prejudicial to the Government, depositors, and
creditors, and directing Lucena to reorganize its board of directors; to refrain from granting or
renewing loans, or accept new deposits, and not to issue drafts or make disbursements without the
approval of the supervising Central Bank examiners, and threatening Lucena that its management
would be taken over if the latter should fail to comply with the resolution. After issue joined and trial
of the case, and while the litigation was still undecided by the Court of First Instance, the Monetary
Board, having been informed that the Director of its Department of Rural Banks recommended the
liquidation of the Rural Bank of Lucena, adopted on February 2, 1962 its Resolution No. 122
(Petition, Annex "C") —

To request the Solicitor General, pursuant to Section 29 of Republic Act No. 265, to file a
petition in the proper courts for the liquidation of the affairs of the Rural Bank of Lucena, Inc.

Notice was given by Central Bank officials, on February 10, 1962 that the Lucena bank was
temporarily closed pending final decision of the Court, and that business be transacted with Central
Bank representatives only.

Two days later (February 12, 1962), the Lucena bank filed suit in the Court of First Instance of
Quezon (Tayabas) annual Resolution 122 of the Monetary Board (Case No. 6471) and enjoin its
enforcement; and on February 14 the court issued ex parte a writ of preliminary injunction to such
effect.

On the same day, the Court of First Instance of Manila, per Judge, now Court of Appeals Justice,
Magno Gatmaitan of Branch XIV, decided Case No. 47345, enjoining enforcement of Resolution No.
928 of the Monetary Board, for having been issued without the prior hearing prescribed by section
10 of the Rural Bank Act, and ordering the Central Bank to pay P5,000.00 damages and costs. The
Central Bank appealed.

Upon the other hand, the Court of First Instance of Quezon Province, in its Case No. 6741, on
February, 24, 1962, dissolved its preliminary injunction against the enforcement of Resolution 122 of
the Monetary Board. Other than filing a motion for reconsideration (ultimately denied on January 9,
1963) the Lucena bank took no other steps to prosecute the case it had filed.

On the 31st of March 1962, invoking section 29 of Republic Act 265, the Central Bank, as liquidator,
petitioned the Court of First Instance of Manila for assistance in the liquidation of the Lucena bank
(Civil Case No. 50019). Upon motion, and after hearing the parties, Judge Arca issued on
interlocutory order on March 28, 1963, the dispositive portion of which is to the following effect
(Petition, Annex "D"):

The Rural Bank of Lucena thru its duly authorized officers or representatives, is hereby
ordered to turn over to the Central Bank, thru its duly authorized representative, within a
period of five (5) days from receipt of copy of this order, the physical possession of all of said
Rural Bank of Lucena's assets, properties and papers. Should the Rural Bank of Lucena or
its officers fail to comply with the above order within the period indicated herein, the Central
Bank, thru its authorized representatives, is hereby authorized to take actual and physical
possession of all said assets, properties and papers of the Rural Bank of Lucena, duly
inventoried in the presence of the Provincial Fiscal, the Provincial Commander, the
Provincial Treasurer, and the Provincial Auditor of Quezon province, or their duly authorized
representatives.

The Rural Bank of Lucena resorted to this Court on certiorari, claiming that Judge Arca gravely
abused his discretion in issuing the above order, in that —

(a) it interferes with the immediately executory judgment of Judge Gatmaitan in Case No.
47345 of the Court of First Instance of Manila;

(b) Section 29 of the Central Bank Act (R.A. 265) does not apply;

(c) there was no prior valid take over of assets nor due hearing of the liquidated Bank;

(d) Judge Gatmaitan's decision constitutes a judicial review of the Monetary Board's action
that cannot be nullified by the challenged order of Judge Area; and

(e) the turn over should not be ordered before trial on the merits. 1awphîl.nèt

This Court issued a temporary restraining order until April 25, 1963, but the same was not renewed
when it expired.

We see no irreconcilable conflict between section 10 (as amended) of Republic Act No. 720 (Rural
Banks Act) and section 29 of Republic Act No. 265 (Central Bank Act). The former provides in
substance as follows:

The director of the Department of the Central Bank designated by the Monetary Board to
supervise Rural Banks ... upon proof that the Rural Bank or its board of directors or officers
are conducting and managing the affairs of the bank in a manner contrary to laws, orders,
instructions, rules and regulations promulgated by the Monetary Board or in any manner
 substantially prejudicial to the interests of the government, depositors or creditors, to take
over the management of such bank when specifically authorized to do so by the Monetary
Board after due hearing until a new board of directors and officers are elected and qualified.
...

It is easily seen that what this section authorized is the take over of the management by the Central
Bank, until the governing body of the offending Rural Bank is recognized with a view to assuring
compliance by it with the laws and regulations.

Upon the other hand, section 29 6f the Central Bank Act (R. A. 265) has in view a much more drastic
step, the liquidation of a rural bank by taking over its assets and converting them into money to pay
off its creditors. Said section prescribes:

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

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

The Monetary Board shall thereupon determine within thirty days whether the institution may
be reorganized or otherwise placed in such a condition so that it may be permitted to resume
business with safety to its creditors and shall prescribe the conditions under which such
resumption of business shall take place. In such case the expenses and fee in the
administration of the institution shall be determined by the Board and shall be paid to the
Central Bank out of the assets of such banking institution.

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

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

Considering that section 27 of the Rural Banks law (R.A. No. 720) expressly declares that —

The provisions of Republic Acts numbered 265 and 337, in so far as applicable and not in
conflict with any provision of this Act, are hereby made a part of this Act.

we find no room for questioning the applicability of section 29 of Republic Act No. 265 (Central Bank
Act) to rural banks organized under Republic Act 720, whenever the Monetary Board should find that
the rural bank affected is insolvent, or that its continuance in business would involve probable loss to
its depositors or creditors, and that it cannot resume business with safety.
It follows that on the assumption that under section 10 of the Rural Banks Act the Monetary Board
may not take over the management of a rural bank without giving the latter a hearing, i.e., an
opportunity to rebut the charge that it has contravened applicable laws, rules and regulations to the
substantial prejudice of the government, its depositors and creditors, such a previous hearing is
nowhere required by section 29 of the Central Bank Law. Manifestly, whether a rural bank's
"continuance in business would involve probable loss" to its clients or creditors and that it "cannot
resume business with safety," is a matter of appreciation and judgment that the law entrusts
primarily to the Monetary Board. Equally apparent is that if the rural bank affected is in the condition
previously adverted to, every minute of delay in securing its assets from dissipation inevitably
increases the danger to the creditors. For this reason, the statute has provided for a subsequent
judicial review of the Monetary Board, in lieu of a previous hearing.

In point of fact, the petitioner Rural Bank of Lucena did file a petition (Annex "G") for judicial review in
the Court of First Instance of Quezon Province, dated February 12, 1962, and challenged the validity
of Resolution No. 122 of the Monetary Board (Case No. 6471) ; but the Court of First Instance of
Quezon dissolved the preliminary injunction issued in that case and allowed Resolution No. 122 to
take effect, without any steps being taken for a review of such action. This being the case, and in
view of the manifest reluctance the Lucena bank's officials to comply with the Monetary Board's
resolution, the Central Bank had cause to seek judicial assistance for the discharge of its duties as
liquidator.

The petitioner rural bank seems to take the view that the proceedings had before Judge Gatmaitan
in Case No. 47345, Branch XIV, of the Court of First Instance of Manila constituted the judicial
review required by section 29 of Republic Act No. 265, the Central Bank Act. Such a stand is
untenable, for the case tried and decided by Judge Gatmaitan concerned an attempt by the Central
Bank to take over management under section 10 of the Rural Banks law (R.A. No. 720) in
connection with the Monetary Board's resolution No. 928 of June 16, 1961. Even more conclusive is
the consideration that said action (Case No. 47345) was filed on June 22, 1961, and could not
possibly be a judicial review of the Resolution No. 122 adopted eight months later, on February 2,
1962. A review cannot precede the adoption of the resolution being reviewed. This proposition
requires no demonstration.

The narrated events also rebut the contention that the order of Judge Area, issued on March 28,
1963, in Case No. 50019, constitutes unlawful interference with the enforcement of Judge
Gatmaitan's decision of February 14, 1962, the issues involved being different in each case. As
heretofore pointed out one involved a take over of management under section 10 of the Rural Banks
Act, and the other a seizure of assets and liquidation under section 29 of the Central Bank law (R.A.
265).

Nor can the proceedings before Judge Area be deemed judicial review of the 1962 resolution No.
122 of the Monetary Board, if only because by law (section 29, R. A. 265) such review must be
asked within 10 days from notice of the resolution of the Board. Between the adoption of Resolution
No. 122 and the challenged order of Judge Arca, more than one year had elapsed. Hence, the
validity of the Monetary Board's resolution can no longer be litigated before Judge Arca, whose role
under the fourth paragraph of section 29 is confined to assisting and supervising the liquidation of
the Lucena bank.

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

IN VIEW OF THE FOREGOING, the writ applied for is denied with costs against the petitioner
Lucena Rural Bank, Inc.
 SECOND DIVISION
[G.R. No. L-50031-32 : July 27, 1981.]
CENTRAL BANK OF THE PHILIPPINES, Petitioner, vs. HONORABLE COURT OF
APPEALS, ISIDRO E. FERNANDEZ, and JESUS R. JAYME, Respondents.

DECISION

CONCEPCION, JR., J.:

Petition for Review on Certiorari of the judgment of the respondent appellate court which
affirmed the decision of the Court of First Instance of Manila in Sp. Proc. No. 88415, entitled:
“Isidro Fernandez, et al., Petitioners, versus Central Bank of the Philippines, et al.,
respondents;” and Sp. Proc. No. 89219, entitled: “In re: Liquidation of Provident Savings
Bank, Central Bank of the Philippines, petitioner,” setting aside Resolution No. 1766 of the
Monetary Board of the Philippines, dated September 15, 1972, which forbade the Provident
Savings Bank from doing business in the Philippines.
It is not disputed that the Provident Savings Bank, hereinafter referred to as PROVIDENT, for
short, was incorporated after the Central Bank had approved its establishment under
Monetary Board Resolution No. 572, dated May 3, 1963. Its Articles of Incorporation was
registered with the Securities and Exchange Commission on October 31, 1963. PROVIDENT
was granted authority to operate by the Monetary Board on December 4, 1963 and started
business on December 9, 1963 with principal office at Villalobos St., Quiapo, Manila. Within
four (4) years of operation, PROVIDENT had established six (6) extension offices within the
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greater Manila area.

PROVIDENT has an authorized capital of P10 million, divided into 100,000 shares of common
stock with a par value of P100.00 each. At the time of its incorporation, 25% of the stock was
subscribed and paid for by its incorporators. There were subsequent subscriptions received
so that by the end of 1967 the total paid up capital of the bank amounted to P6.7 million out
of the aggregate P7.5 million subscribed shares of stock. The herein private respondents,
Isidro E. Fernandez and Jesus R. Jayme, are the majority and controlling stockholders thereof,
holding 41% and 22%, respectively, of the total subscribed capital stock of the bank.
A major portion of PROVIDENT’s loanable funds was granted to directors, officers and
stockholders and their related interests and the bank was cautioned to avoid concentration of
credits and to adopt a policy where loans would be granted to a larger number of borrowers
who had no financial interest in the bank. 1
In September, 1968, a number of savings banks, PROVIDENT among others, experienced a
bank run which was triggered off by adverse publicity in the newspapers, radio and television
of investigations conducted by Congress that some banks were unable to pay deposit
withdrawals. In view of the unusually heavy withdrawals, PROVIDENT had no recourse but to
request emergency loans from the Central Bank to meet the demands of the depositors. The
Monetary Board, however, denied these requests for emergency loans. PROVIDENT,
therefore, had to borrow from other banks, foremost of which is the Banco Filipino Mortgage
and Savings Bank which granted PROVIDENT advances up to P8 million, on the security of
real estate properties and a pledge of P4.074 million worth of shares of stock representing
about 60% of the outstanding shares of stock of PROVIDENT owned by Fernandez and Jayme.
But, these loans were not enough to meet the demands of the depositors. As a result,
PROVIDENT was forced to temporarily close its doors to the public on September 12, 1968.
Subsequently, however, the Central Bank extended emergency loans to PROVIDENT in order
to stop the bank run and to prevent the bank run from eroding the confidence of the public
in the banking system, thus enabling PROVIDENT to reopen on September 16, 1968. The
Hon. Alfonso Calalang, then Governor of the Central Bank, together with other high officials
of the Central Bank, visited the premises of PROVIDENT soon after its reopening and assured
the public that PROVIDENT was sound and had the full backing of the Central Bank.
Then followed a series of emergency releases. But, the assistance given to PROVIDENT was
not sufficient to meet and service the unusually heavy withdrawals of deposits. Fernandez
and Jayme appealed to the Central Bank for continued assistance. At one time, Fernandez
and Jayme were summoned to the Central Bank for a conference with the Governor and
Deputy Governor and were introduced to representatives of the Iglesia Ni Kristo (INK) which
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had a sizeable deposit of P5.5 million with PROVIDENT and was having difficulty in
withdrawing the same. Central Bank Deputy Governor Amado Briñas voiced the decision of
the Central Bank that unless Fernandez and Jayme relinquished and turned over the
management and control of PROVIDENT to the Iglesia Ni Kristo, the Central Bank would not
further support and assist the distressed PROVIDENT. Governor Briñas, in turn, persuaded
the representatives of the Iglesia Ni Kristo, headed by Rogelio Manalo, that the only way they
could withdraw their deposit was to take control and management of PROVIDENT. Left with
no other alternative, but to accede, and in order to protect their investment, Fernandez and
Jayme reluctantly executed a Memorandum Agreement with the Eagle Broadcasting
Corporation, a company identified with the Iglesia Ni Kristo, on December 6, 1968. The parties
therein made the following commitments:
1. That the Iglesia Ni Kristo will convert its time deposit with the Bank in the amount of
P5.5 million into voting preferred shares of stock;
2. That the stockholders will cause the amendment of the Articles of Incorporation to
increase the capital stock by creating voting preferred shares of stock at a par value
of P70.00 per share;
3. That the Iglesia Ni Kristo shall purchase from Fernandez and Jayme group 53,000
shares of stock within the period of six months;
4. That the Fernandez and Jayme group shall execute a voting trust agreement in favor
of the Iglesia Ni Kristo group to subsist only until the amendment to the Articles of
incorporation shall have been registered with the Securities and Exchange
Commission; and
5. That the Iglesia Ni Kristo group shall not foreclose mortgages securing loans of various
borrowers until after four years, provided that the schedule of payments on loans of
the Fernandez and Jayme group shall be complied with. 2
Immediately thereafter, a special meeting of the stockholders of PROVIDENT was convened
and the Articles of Incorporation of the bank was amended to comply with the terms and
stipulations contained in the Memorandum Agreement. A Voting Trust Agreement was,
likewise, executed in favor of the Eagle Broadcasting Corporation on certain shares of stock
owned by Reynaldo Panopio, a stockholder identified with the Fernandez and Jayme group,
after which Fernandez and Jayme withdrew from the management of PROVIDENT in favor of
the Iglesia Ni Kristo group effective December 1, 1968.
Following the transfer of management of PROVIDENT to the Iglesia Ni Kristo, the Central Bank
forthwith released additional loans to PROVIDENT at a much reduced rate of interest of 10%
instead of the 12% interest charged on previous loans. PROVIDENT was further allowed to
resume its lending activities. At the time of the transfer of the management to the Iglesia Ni
Kristo the net worth of PROVIDENT was P7.2 million. 3
The Eagle Broadcasting Corporation, however, did not comply with its commitment to
purchase 53,000 common shares of stock and to convert its deposits into equity. Instead, the
new management of PROVIDENT caused the conversion of the deposits of Iglesia Ni Kristo
into “bills payable” earning 12% interest, which were subsequently withdrawn. 4 PROVIDENT,
under the new management, also failed to comply with the Monetary Board directives relative
to the rehabilitation of the bank so that it restored the interest rate of 12% on outstanding
loans. 5 Various irregularities detrimental to PROVIDENT were also perpetrated by the new
management despite the presence of resident Central Bank examiners. 6 The Iglesia Ni Kristo
likewise facilitated or caused the assignment and mortgage of PROVIDENT’s various assets,
receivables, and interests in favor of the Eagle Broadcasting Corporation. 7
In view of the deteriorating financial condition of PROVIDENT, the Deputy Governor of the
Central Bank separately met with the representatives of the Iglesia Ni Kristo and the majority
stockholders of the bank to discuss with them the urgency of finding a solution to
PROVIDENT’s financial difficulties. Both parties were requested to submit their proposals
pertaining to the continued operation and management of the bank. In his letter dated
October 15, 1971, Rogelio W. Manalo, President and Chairman of the Board of Directors of
PROVIDENT submitted a set of proposals consisting of three (3) courses of action, namely:
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conversion of the P4 million “bills payable” of the Iglesia Ni Kristo to equity; staggered
payment to the Iglesia Ni Kristo of the balance of its deposits; and pre-payment of borrowings
of majority stockholders at the rate of P300,000.00 monthly. But, these proposals were
rejected by the Monetary Board on January 7, 1972 (Res. No. 6). 8
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On August 22, 1972, Rogelio W. Manalo resigned as Chairman and President of PROVIDENT,
giving rise to large withdrawals from its big depositors which the bank could not readily meet.
PROVIDENT had to seek assistance from other banks, the Savings Bankers Association of the
Philippines, and other sources to prevent the recurrence of another bank run. 9 But, the
financial condition of PROVIDENT continued to worsen, so that on September 15, 1972, the
Monetary Board, after “considering further that the principal stockholders and/or the Iglesia
Ni Kristo/Eagle Broadcasting Corporation group have not come up with concrete and
substantial proposals towards the rehabilitation of the Provident Savings Bank, which
proposals were required of them in the conference held in September of 1971; and in
pursuance of Section 29 of Republic Act No. 265, decided as follows:
“‘a) To forbid the Provident Savings Bank to do business in the Philippines;
b) To instruct the Superintendent of Banks to take charge, in the name of the Monetary
Board, of the assets of the Provident Savings Bank;
c) To instruct the Superintendent of Banks to take such further action as may be necessary
pursuant to Section 29 of Republic Act No. 265; and
 d) To refer the subject memoranda of the Superintendent of Banks and all pertinent
reports of the examiners of the Department of Supervision and Examination to the
Central Bank Legal Counsel for appropriate legal action(s).’“ 10
Pursuant thereto, the Central Bank instructed its Legal Counsel on September 25, 1972:
“1) To request the Solicitor General to file, pursuant to the last paragraph of Section 29
of Republic Act No. 265, a petition in the Court of First Instance reciting the
proceedings which have been taken and praying the assistance and supervision of the
court in the liquidation of the affairs of the Provident Savings Bank; and
2) To take such other action as may be appropriate and legal to safeguard the interests
of the Bank’s creditors.” 11
Consequently, on September 28, 1972, Fernandez and Jayme filed a petition for certiorari,
prohibition and mandamus and/or specific performance, with preliminary injunction, against
the Central Bank and Eagle Broadcasting Corporation, with the Court of First Instance of
Manila, docketed therein as Sp. Proc. No. 88415, to annul and set aside the said Monetary
Board Resolution No. 1766, dated September 15, 1972 and to restrain the Central Bank from
liquidating PROVIDENT, and, instead, to order the Central Bank to comply with its
commitments to the petitioners and reorganize and rehabilitate PROVIDENT in the manner it
did to the Overseas Bank of Manila, as well as for damages and costs. 12
The Central Bank answered that PROVIDENT was insolvent and its condition warranted closure
under Sec. 29 of Republic Act No. 265.
Eagle Broadcasting Corporation, upon the other hand, blames both the Central Bank and
Fernandez and Jayme for the failure of PROVIDENT.
On December 11, 1972, the Central Bank filed a Petition for Assistance and Supervision in
Liquidation of the Provident Savings Bank with the Court of First Instance of Manila, docketed
therein as Sp. Proc. No. 89219, entitled: “In re: Liquidation of the Provident Savings Bank;
Central Bank of the Philippines, petitioner.” 13
Upon motion, the two cases were heard jointly, 14 and on February 20, 1974, judgment was
rendered, as follows:
WHEREFORE, the writs prayed for in the amended petition, except the writ of
mandamus, are hereby granted, and Resolution No. 1766 dated September 15, 1972
of the Monetary Board of respondent Central Bank — as well as any and all resolutions
issued in pursuance thereof, are hereby annulled and set aside; and said respondent
Central Bank is ordered to desist from liquidating PROVIDENT and is ordered to
specifically perform its obligation to reorganize and rehabilitate the Provident Savings
Bank, following the precedent set in the case of the reorganization or rehabilitation of
the Republic Bank and the course of action expected to be taken in the implementation
of the final decision of the Supreme Court in the case of RAMOS vs. CENTRAL BANK,
41 SCRA 565, with respect to the Overseas Bank of Manila, within two (2) years from
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finality of this decision.

“Respondent Central Bank and Eagle Broadcasting Corporation are hereby ordered to
pay the petitioners, jointly and severally:
1. The amount of P600,000.00 as actual damages;
2. The amount of P50,000.00 as moral damages;
 3. The amount of P25,000.00 as exemplary damages; and
4. The amount of P50,000.00 as attorney’s fees plus costs.” 15
The Central Bank and the Eagle Broadcasting Corporation appealed, 16 and after appropriate
proceedings, the herein respondent Court of Appeals rendered the disputed decision on
January 22, 1979, the dispositive portion of which reads, as follows:
“WHEREFORE, the decision appealed from is hereby affirmed, but modified to exclude
the award of damages and attorney’s fees. Costs de oficio. 17
Hence, the present recourse.
1. The petitioner claims that the respondent Court of Appeals erred in not applying Presidential
Decree No. 1007, dated September 22, 1976, which amended Section 29 of Republic Act No.
265 during the pendency of the appeal and should have dismissed the petition of Fernandez
and Jayme in view of the findings of the said appellate court that there is no clear proof of
gross and evident bad faith on the part of the petitioner and the Eagle Broadcasting
Corporation. In support of its contention, the petitioner invokes the case of Lucas Ramirez vs.
The Hon. Court of Appeals, et al. 18
Indeed, the appellate court, in reviewing a judgment on appeal, should dispose of a question
according to the law prevailing at the time of such disposition and not according to the law
prevailing at the time of the rendition of the appealed judgment. Accordingly, Section 29 of
Republic Act No. 265, as amended by Presidential Decree No. 1007, should be applied.
Under this section, as amended, the action of the Monetary Board in ordering the closure and
liquidation of an insolvent bank is final and executory and can be set aside only if there is
convincing proof that the action is plainly arbitrary and made in bad faith.
The petition filed, however, should not be dismissed for while there may not be gross and
evident bad faith on the part of the Central Bank and Eagle Broadcasting Corporation to
sustain the award of damages to Fernandez and Jayme, as ordered by the trial court, the
action of the Monetary Board in forbidding PROVIDENT from doing business in the Philippines
and ordering its liquidation is clearly arbitrary and was made in bad faith.
The arbitrariness and bad faith of the petitioner is evident from the fact that it pressured
Fernandez and Jayme into relinquishing the management and control of PROVIDENT to the
Iglesia Ni Kristo (INK) which did not have any intention of restoring the bank into its former
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sound financial condition but whose interest was merely to recover its deposits from
PROVIDENT, and, thereafter, allowing the Iglesia Ni Kristo to mismanage PROVIDENT until
the bank’s financial deterioration and subsequent closure. As the trial court said:
“Having decided in 1968 that PROVIDENT was salvageable and could be permitted to
continue in business with its support, provided there is change in management and
introduction of reforms, the CB should have been vigilant in its overseeing of the
faithful compliance by the parties of the terms of the Memorandum Agreement, as well
as in supervising and controlling the operations of the bank under the management of
EAGLE. The persuasive, nay, compulsory, powers of the CB to accomplish these cannot
be doubted. The CB exercises such control of private banks under its broad powers
that it can decree life or death of any bank by simply withholding from it the facilitates
that it normally accords banks. It was in the exercise of these powers by the CB that
the Fernandez/Jayme group was constrained to give up the management and control
 of PROVIDENT in 1968 because the CB threatened to discontinue support of the bank
unless management is transferred to EAGLE.
“To recapitulate, the CB:
1. Failed to exact compliance by EAGLE of its obligations under the Memorandum
Agreement.
2. Failed to exercise the necessary supervision over EAGLE’s management which
could have checked EAGLE’s excuses or abuses.
3. Failed to enforce other reforms necessary to restore PROVIDENT to its former
sound financial condition.
4. Failed to extend the support and assistance necessary to make reorganization
and rehabilitation of PROVIDENT a reality.
“Illustrative of how PROVIDENT was being treated unfairly by the CB, one needs to
take note only of the discrepancy in the interest rates on emergency loans being
exacted by the CB. Under the Fernandez/Jayme management of PROVIDENT, it was
12% per annum. When management was transferred to EAGLE, the medium chosen
by the CB for purposes of reorganization, interest was reduced to 10% per annum.
When the conditions at PROVIDENT continued to deteriorate under EAGLE’s
management interest rates were again raised to 12%. And yet, the CB proposed to
extend to Banco Filipino, a solid and non-distressed bank which was a creditor of
PROVIDENT, an emergency loan under Sec. 90 of the CB Act of up to P7,000.000.00
‘if it so desires at an interest rate to be determined by Management but in no case
lower than 4 per cent p.a.’ (Par. a-1, p. 3, Exh. ‘9 CBP ‘), which is the Memorandum
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dated September 14, 1972 of Governor Gregorio Licaros to the Monetary Board.” 19
The trial court further said:
“The penalties paid by PROVIDENT in its deficiency plus the 12% interests in its
emergency loan greatly contributed to the deterioration of PROVIDENT’s net worth.
The CB is supposed to help a distressed bank, but in the case of PROVIDENT, the CB
imposed an interest of 12% on its emergency loans. In so doing, the CB, instead of
helping improve the situation of PROVIDENT, actually aggravated further its financial
position. And what is most amazing, while this is being done to a bank in distress, the
CB was willing to give loans to a well-off bank, the Banco Filipino, loans at an interest
of only 4%.” 20
Besides, the Central Bank has already rehabilitated similarly distressed banks, the Republic
Bank and the Overseas Bank of Manila, among several others, so that it would be unjust to
PROVIDENT to be deprived of the Central Bank’s continued support.
2. The petitioner next claims that the Court of Appeals erred in not holding that there can be
no estoppel against the petitioner in view of the latter’s valid exercise of police power by its
lawful overseeing of Provident Savings Bank.
The contention is without merit. While the closure and liquidation of a bank may be considered
an exercise of police power, the validity of such exercise of police power is subject to judicial
inquiry and could be set aside if it is either capricious, discriminatory, whimsical, arbitrary,
unjust, or a denial of the due process and equal protection clauses of the Constitution. In the
cases under consideration, it is not disputed that the Central Bank had committed itself to
support PROVIDENT and restore it to its former sound financial position provided that
Fernandez and Jayme should relinquish and give up its control and management of the bank
to the Iglesia Ni Kristo, and thereafter, whimsically withdrew such support to the detriment
of PROVIDENT. In the case of Ramos vs. Central Bank, 21 where the Central Bank committed
itself to the continued operation of, and rehabilitation of the Overseas Bank of Manila, and
later on reneged on that promise, the Court therein ruled:
“Even in the absence of contract, the record plainly shows that the CB made express
representations to petitioners herein that it would support the OBM, and avoid its
liquidation if the petitioners would execute (a) the Voting Trust Agreement turning
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over the management of OBM to the CB or its nominees, and (b) mortgage or assign
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their properties to the Central Bank to cover the overdraft balance of OBM. The
petitioners having complied with these conditions and parted with value to the profit
of the CB (which thus acquired additional security for its own advances), the CB may
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not now renege on its representations and liquidate the OBM, to the detriment of its
stockholders, depositors and other creditors, under the rule of promissory
estoppel (19 Am. Jur., pp. 657-658, 28 Am. Jur. 2d, 656-657; Ed. Note. 115 ALR,
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157).
“The broad general rule to the effect that a promise to do or not to do something in
the future does not work an estoppel must be qualified, since there are numerous
cases in which an estoppel has been predicated on promises or assurances as to future
contract. The doctrine of ‘promissory estoppel’ is by no means new, although the name
has been adopted only in comparatively recent years. According to that doctrine, an
estoppel may arise from the making of a promise, even though without consideration,
if it was intended that the promise should be relied upon and in fact it was relied upon,
and if a refusal to enforce it would be virtually to sanction the perpetration of fraud or
would result in other injustice. In this respect, the reliance by the promisee is generally
evidenced by action or forbearance on his part, and the idea has been expressed that
such action of forbearance would reasonably have been expected by the promissor.
Mere omission by the promisee to do whatever the promissor promised to do has been
held insufficient ‘forbearance ‘ to give rise to a promissory estoppel.’ (19 AM Jur. loc
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cit.).”
3. Finally, the petitioner claims that the Court of Appeals erred in not appreciating certain
facts, mainly PROVIDENT’s anomalous grant of substantial loans to its own directors, officers,
stockholders, and related interests, which caused its insolvency, thereby rendering the
remedy of liquidation proper and rehabilitation improper.
The contention is without merit. We believe that the judgment complained of is based upon
substantial evidence and that the trial court had not overlooked, nor misinterpreted certain
facts and circumstances of weight in making its findings, so that the respondent appellate
court did not commit any error in affirming the said judgment. Besides, the issue of whether
or not certain alleged facts should be appreciated is a question of fact, not properly cognizable
on appeal, since it involves an examination of the probative value of the evidence presented
by the parties.
At any rate, the fact that the directors, officers, and stockholders of PROVIDENT had been
extended loans by the bank which may have caused its insolvency, is of little importance since
these loans were already known to and taken into consideration by the Central Bank when it
decided in 1968 to allow PROVIDENT to continue in business. In the case of Ramos vs. Central
Bank, 22 the Court said:
“The CB excuses itself by pleading that the OBM officers had resorted to non-recording of
time deposits in the Bank’s books and diverting such deposits to accounts controlled by certain
bank officials, and other irregularities. It is well to note, however, that these ‘unrecorded’
deposits were revealed to the CB as early as 25 September 1967 by the then President of the
OBM, Mr. Martin Oliva, who had no hand in such irregularities and who informed the
Superintendent of Banks that time deposits worth P43,188,099.29 had not been reported to
the OBM directors. In fact, on 29 September 1967, the CB had already ordered its examiners
to investigate the Bank’s records and determine the parties responsible. Notwithstanding
knowledge of these irregularities, the CB did not withdraw its promised support, and insisted
on the execution of the Voting Trust Agreement on 20 November 1967. Such attitude imports
that, in its opinion, the irregularities disclosed were not to be blamed on the OBM itself or its
depositors and creditors, but on the officials responsible; and further, that the OBM could still
be saved by adequate aid and management reform, which was required by CB’s duty to
maintain the stability of the banking system and the preservation of public confidence in it.”
WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED. Without
pronouncement as to costs.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 191424 August 7, 2013

ALFEO D. VIVAS, ON HIS BEHALF AND ON BEHALF OF THE SHAREHOLDERS OF

EUROCREDIT COMMUNITY BANK,PETITIONER,
vs.
THE MONETARY BOARD OF THE BANGKO SENTRAL NG PILIPINAS AND THE PHILIPPINE
DEPOSIT INSURANCE CORPORATION, RESPONDENTS.

DECISION

MENDOZA, J.:

This is a petition for prohibition with prayer for the issuance of a status quo ante order or writ of
preliminary injunction ordering the respondents to desist from closing EuroCredit Community Bank,
Incorporated (ECBI) and from pursuing the receivership thereof. The petition likewise prays that the
management and operation of ECBI be restored to its Board of Directors (BOD) and its officers.

The Facts

The Rural Bank of Faire, Incorporated (RBFI) was a duly registered rural banking institution with
principal office in Centro Sur, Sto. Niño, Cagayan. Record shows that the corporate life of RBFI
expired on May 31, 2005.1Notwithstanding, petitioner Alfeo D. Vivas (Vivas) and his principals
acquired the controlling interest in RBFI sometime in January 2006. At the initiative of Vivas and the
new management team, an internal audit was conducted on RBFI and results thereof highlighted the
dismal operation of the rural bank. In view of those findings, certain measures calculated to revitalize
the bank were allegedly introduced.2 On December 8, 2006, the Bangko Sentral ng Pilipinas (BSP)
issued the Certificate of Authority extending the corporate life of RBFI for another fifty (50) years.
The BSP also approved the change of its corporate name to EuroCredit Community Bank,
Incorporated, as well as the increase in the number of the members of its BOD, from five (5) to
eleven (11).3

Pursuant to Section 28 of Republic Act (R.A.) No. 7653, otherwise known as The New Central Bank
Act, the Integrated Supervision Department II (ISD II) of the BSP conducted a general examination
on ECBI with the cut-off date of December 31, 2007. Shortly after the completion of the general
examination, an exit conference was held on March 27, 2008 at the BSP during which the BSP
officials and examiners apprised Vivas, the Chairman and President of ECBI, as well as the other
bank officers and members of its BOD, of the advance findings noted during the said examination.
The ECBI submitted its comments on BSP’s consolidated findings and risk asset classification
through a letter, dated April 8, 2008.4

Sometime in April 2008, the examiners from the Department of Loans and Credit of the BSP arrived
at the ECBI and cancelled the rediscounting line of the bank. Vivas appealed the cancellation to
BSP.5 Thereafter, the Monetary Board (MB) issued Resolution No. 1255, dated September 25, 2008,
placing ECBI under Prompt Corrective Action (PCA) framework because of the following serious
findings and supervisory concerns noted during the general examination: 1] negative capital of
?14.674 million and capital adequacy ratio of negative 18.42%; 2] CAMEL (Capital Asset
Management Earnings Liquidity) composite rating of "2" with a Management component rating of "1";
and 3] serious supervisory concerns particularly on activities deemed unsafe or unsound.6 Vivas
claimed that the BSP took the above courses of action due to the joint influence exerted by a certain
hostile shareholder and a former BSP examiner.7

Through its letter, dated September 30, 2008, the BSP furnished ECBI with a copy of the Report of
Examination (ROE) as of December 31, 2007. In addition, the BSP directed the bank’s BOD and
senior management to: 1] infuse fresh capital of ?22.643 million; 2] book the amount of ?28.563
million representing unbooked valuation reserves on classified loans and other risks assets on or
before October 31, 2008; and 3] take appropriate action necessary to address the
violations/exceptions noted in the examination.8

Vivas moved for a reconsideration of Resolution No. 1255 on the grounds of non-observance of due
process and arbitrariness. The ISD II, on several instances, had invited the BOD of ECBI to discuss
matters pertaining to the placement of the bank under PCA framework and other supervisory
concerns before making the appropriate recommendations to the MB. The proposed meeting,
however, did not materialize due to postponements sought by Vivas.9

In its letter, dated February 20, 2009, the BSP directed ECBI to explain why it transferred the
majority shares of RBFI without securing the prior approval of the MB in apparent violation of
Subsection X126.2 of the Manual of Regulation for Banks (MORB).10 Still in another letter,11 dated
March 31, 2009, the ISD II required ECBI to explain why it did not obtain the prior approval of the
BSP anent the establishment and operation of the bank’s sub-offices.

Also, the scheduled March 31, 2009 general examination of the books, records and general
condition of ECBI with the cut-off date of December 31, 2008, did not push through. According to
Vivas, ECBI asked for the deferment of the examination pending resolution of its appeal before the
MB. Vivas believed that he was being treated unfairly because the letter of authority to examine
allegedly contained a clause which pertained to the Anti-Money Laundering Law and the Bank
Secrecy Act.12

The MB, on the other hand, posited that ECBI unjustly refused to allow the BSP examiners from
examining and inspecting its books and records, in violation of Sections 25 and 34 of R.A. No. 7653.
In its letter,13 dated May 8, 2009, the BSP informed ECBI that it was already due for another annual
examination and that the pendency of its appeal before the MB would not prevent the BSP from
conducting another one as mandated by Section 28 of R.A. No. 7653.

In view of ECBI’s refusal to comply with the required examination, the MB issued Resolution No.
726,14 dated May 14, 2009, imposing monetary penalty/fine on ECBI, and referred the matter to the
Office of the Special Investigation (OSI) for the filing of appropriate legal action. The BSP also wrote
a letter,15 dated May 26, 2009, advising ECBI to comply with MB Resolution No. 771, which
essentially required the bank to follow its directives. On May 28, 2009, the ISD II reiterated its
demand upon the ECBI BOD to allow the BSP examiners to conduct a general examination on June
3, 2009.16

In its June 2, 2009 Letter-Reply,17 ECBI asked for another deferment of the examination due to the
pendency of certain unresolved issues subject of its appeal before the MB, and because Vivas was
then out of the country. The ISD II denied ECBI’s request and ordered the general examination to
proceed as previously scheduled.18

Thereafter, the MB issued Resolution No. 823,19 dated June 4, 2009, approving the issuance of a
cease and desist order against ECBI, which enjoined it from pursuing certain acts and transactions
that were considered unsafe or unsound banking practices, and from doing such other acts or
transactions constituting fraud or might result in the dissipation of its assets.

On June 10, 2009, the OSI filed with the Department of Justice (DOJ) a complaint for Estafa
Through Falsification of Commercial Documents against certain officials and employees of ECBI.
Meanwhile, the MB issued Resolution No. 1164,20 dated August 13, 2009, denying the appeal of
ECBI from Resolution No. 1255 which placed it under PCA framework. On November 18, 2009, the
general examination of the books and records of ECBI with the cut-off date of September 30, 2009,
was commenced and ended in December 2009. Later, the BSP officials and examiners met with the
representatives of ECBI, including Vivas, and discussed their findings.21 On December 7, 2009, the
ISD II reminded ECBI of the non-submission of its financial audit reports for the years 2007 and
2008 with a warning that failure to submit those reports and the written explanation for such
omission shall result in the imposition of a monetary penalty.22 In a letter, dated February 1, 2010,
the ISD II informed ECBI of MB Resolution No. 1548 which denied its request for reconsideration of
Resolution No. 726.

On March 4, 2010, the MB issued Resolution No. 27623 placing ECBI under receivership in
accordance with the recommendation of the ISD II which reads:

On the basis of the examination findings as of 30 September 2009 as reported by the Integrated
Supervision Department (ISD) II, in its memorandum dated 17 February 2010, which findings
showed that the Eurocredit Community Bank, Inc. – a Rural Bank (Eurocredit Bank) (a) is unable to
pay its liabilities as they become due in the ordinary course of business; (b) has insufficient
realizable assets to meet liabilities; (c) cannot continue in business without involving probable losses
to its depositors and creditors; and (d) has willfully violated a cease and desist order of the Monetary
Board for acts or transactions which are considered unsafe and unsound banking practices and
other acts or transactions constituting fraud or dissipation of the assets of the institution, and
considering the failure of the Board of Directors/management of Eurocredit Bank to restore the
bank’s financial health and viability despite considerable time given to address the bank’s financial
problems, and that the bank had been accorded due process, the Board, in accordance with Section
30 of Republic Act No. 7653 (The New Central Bank Act), approved the recommendation of ISD II as
follows:

To prohibit the Eurocredit Bank from doing business in the Philippines and to place its assets and
affairs under receivership; and

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

Assailing MB Resolution No. 276, Vivas filed this petition for prohibition before this Court, ascribing
grave abuse of discretion to the MB for prohibiting ECBI from continuing its banking business and for
placing it under receivership. The petitioner presents the following

ARGUMENTS:

(a)

It is grave abuse of discretion amounting to loss of jurisdiction to apply the general law embodied in
Section 30 of the New Central Bank Act as opposed to the specific law embodied in Sections 11 and
14 of the Rural Banks Act of 1992.

(b)
Even if it assumed that Section 30 of the New Central Bank Act is applicable, it is still the gravest
abuse of discretion amounting to lack or excess of jurisdiction to execute the law with manifest
arbitrariness, abuse of discretion, and bad faith, violation of constitutional rights and to further
execute a mandate well in excess of its parameters.

(c)

The power delegated in favor of the Bangko Sentral ng Pilipinas to place rural banks under
receiverships is unconstitutional for being a diminution or invasion of the powers of the Supreme
Court, in violation of Section 2, Article VIII of the Philippine Constitution.24

Vivas submits that the respondents committed grave abuse of discretion when they erroneously
applied Section 30 of R.A. No. 7653, instead of Sections 11 and 14 of the Rural Bank Act of 1992 or
R.A. No. 7353. He argues that despite the deficiencies, inadequacies and oversights in the conduct
of the affairs of ECBI, it has not committed any financial fraud and, hence, its placement under
receivership was unwarranted and improper. He posits that, instead, the BSP should have taken
over the management of ECBI and extended loans to the financially distrained bank pursuant to
Sections 11 and 14 of R.A. No. 7353 because the BSP’s power is limited only to supervision and
management take-over of banks.

He contends that the implementation of the questioned resolution was tainted with arbitrariness and
bad faith, stressing that ECBI was placed under receivership without due and prior hearing in
violation of his and the bank’s right to due process. He adds that respondent PDIC actually closed
ECBI even in the absence of any directive to this effect. Lastly, Vivas assails the constitutionality of
Section 30 of R.A. No. 7653 claiming that said provision vested upon the BSP the unbridled power to
close and place under receivership a hapless rural bank instead of aiding its financial needs. He is of
the view that such power goes way beyond its constitutional limitation and has transformed the BSP
to a sovereign in its own "kingdom of banks."25

The Court’s Ruling

The petition must fail.

Vivas Availed of the Wrong Remedy

To begin with, Vivas availed of the wrong remedy. The MB issued Resolution No. 276, dated March
4, 2010, in the exercise of its power under R.A. No. 7653. Under Section 30 thereof, any act of the
MB placing a bank under conservatorship, receivership or liquidation may not be restrained or set
aside except on a petition for certiorari. Pertinent portions of R.A. 7653 read:

Section 30. –

x x x x.

The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be
final and executory, and may not be restrained or set aside by the court except on petition for
certiorari on the ground that the action taken was in excess of jurisdiction or with such grave abuse
of discretion as to amount to lack or excess of jurisdiction. The petition for certiorari may only be filed
by the stockholders of record representing the majority of the capital stock within ten (10) days from
receipt by the board of directors of the institution of the order directing receivership, liquidation or
conservatorship.
 x x x x. [Emphases supplied]

Prohibition is already unavailing

Granting that a petition for prohibition is allowed, it is already an ineffective remedy under the
circumstances obtaining. Prohibition or a "writ of prohibition" is that process by which a superior
court prevents inferior courts, tribunals, officers, or persons from usurping or exercising a jurisdiction
with which they have not been vested by law, and confines them to the exercise of those powers
legally conferred. Its office is to restrain subordinate courts, tribunals or persons from exercising
jurisdiction over matters not within its cognizance or exceeding its jurisdiction in matters of which it
has cognizance.26 In our jurisdiction, the rule on prohibition is enshrined in Section 2, Rule 65 of the
Rules on Civil Procedure, to wit:

Sec. 2. Petition for prohibition - When the proceedings of any tribunal, corporation, board, officer or
person, whether exercising judicial, quasi-judicial or ministerial functions, are without or in excess of
its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction,
and there is no appeal or any other plain, speedy, and adequate remedy in the ordinary course of
law, a person aggrieved thereby may file a verified petition in the proper court, alleging the facts with
certainty and praying that the judgment be rendered commanding the respondent to desist from
further proceedings in the action or matter specified therein, or otherwise granting such incidental
reliefs as the law and justice require.

x x x x.

Indeed, prohibition is a preventive remedy seeking that a judgment be rendered which would direct
the defendant to desist from continuing with the commission of an act perceived to be illegal.27 As a
rule, the proper function of a writ of prohibition is to prevent the doing of an act which is about to be
done. It is not intended to provide a remedy for acts already accomplished.28

Though couched in imprecise terms, this petition for prohibition apparently seeks to prevent the acts
of closing of ECBI and placing it under receivership. Resolution No. 276, however, had already been
issued by the MB and the closure of ECBI and its placement under receivership by the PDIC were
already accomplished. Apparently, the remedy of prohibition is no longer appropriate. Settled is the
rule that prohibition does not lie to restrain an act that is already a fait accompli.29

The Petition Should Have Been Filed in the CA

Even if treated as a petition for certiorari, the petition should have been filed with the CA. Section 4
of Rule 65 reads:

Section 4. When and where petition filed. — The petition shall be filed not later than sixty (60) days
from notice of the judgment, order or resolution. In case a motion for reconsideration or new trial is
timely filed, whether such motion is required or not, the sixty (60) day period shall be counted from
notice of the denial of said motion.

The petition shall be filed in the Supreme Court or, if it relates to the acts or omissions of a lower
court or of a corporation, board, officer or person, in the Regional Trial Court exercising jurisdiction
over the territorial area as defined by the Supreme Court. It may also be filed in the Court of Appeals
whether or not the same is in aid of its appellate jurisdiction, or in the Sandiganbayan if it is in aid of
its appellate jurisdiction. If it involves the acts or omissions of a quasi-judicial agency, unless
otherwise provided by law or these Rules, the petition shall be filed in and cognizable only by the
Court of Appeals. [Emphases supplied]
That the MB is a quasi-judicial agency was already settled and reiterated in the case of Bank of
Commerce v. Planters Development Bank And Bangko Sentral Ng Pilipinas.30

Doctrine of Hierarchy of Courts

Even in the absence of such provision, the petition is also dismissible because it simply ignored the
doctrine of hierarchy of courts. True, the Court, the CA and the RTC have original concurrent
jurisdiction to issue writs of certiorari, prohibition and mandamus. The concurrence of jurisdiction,
however, does not grant the party seeking any of the extraordinary writs the absolute freedom to file
a petition in any court of his choice. The petitioner has not advanced any special or important reason
which would allow a direct resort to this Court. Under the Rules of Court, a party may directly appeal
to this Court only on pure questions of law.31 In the case at bench, there are certainly factual issues
as Vivas is questioning the findings of the investigating team.

Strict observance of the policy of judicial hierarchy demands that where the issuance of the
extraordinary writs is also within the competence of the CA or the RTC, the special action for the
obtainment of such writ must be presented to either court. As a rule, the Court will not entertain
direct resort to it unless the redress desired cannot be obtained in the appropriate lower courts; or
where exceptional and compelling circumstances, such as cases of national interest and with
serious implications, justify the availment of the extraordinary remedy of writ of certiorari, prohibition,
or mandamus calling for the exercise of its primary jurisdiction.32 The judicial policy must be
observed to prevent an imposition on the precious time and attention of the Court.

The MB Committed No Grave Abuse of Discretion

In any event, no grave abuse of discretion can be attributed to the MB for the issuance of the
assailed Resolution No. 276.

Vivas insists that the circumstances of the case warrant the application of Section 11 of R.A. No.
7353, which provides:

Sec. 11. The power to supervise the operation of any rural bank by the Monetary Board as herein
indicated shall consist in placing limits to the maximum credit allowed to any individual borrower; in
prescribing the interest rate, in determining the loan period and loan procedures, in indicating the
manner in which technical assistance shall be extended to rural banks, in imposing a uniform
accounting system and manner of keeping the accounts and records of rural banks; in instituting
periodic surveys of loan and lending procedures, audits, test-check of cash and other transactions of
the rural banks; in conducting training courses for personnel of rural banks; and, in general, in
supervising the business operations of the rural banks.

The Central Bank shall have the power to enforce the laws, orders, instructions, rules and
regulations promulgated by the Monetary Board, applicable to rural banks; to require rural banks,
their directors, officers and agents to conduct and manage the affairs of the rural banks in a lawful
and orderly manner; and, upon proof that the rural bank or its Board of Directors, or officers are
conducting and managing the affairs of the bank in a manner contrary to laws, orders, instructions,
rules and regulations promulgated by the Monetary Board or in a manner substantially prejudicial to
the interest of the Government, depositors or creditors, to take over the management of such bank
when specifically authorized to do so by the Monetary Board after due hearing process until a new
board of directors and officers are elected and qualified without prejudice to the prosecution of the
persons responsible for such violations under the provisions of Sections 32, 33 and 34 of Republic
Act No. 265, as amended.
 x x x x.

The thrust of Vivas’ argument is that ECBI did not commit any financial fraud and, hence, its
placement under receivership was unwarranted and improper. He asserts that, instead, the BSP
should have taken over the management of ECBI and extended loans to the financially distrained
bank pursuant to Sections 11 and 14 of R.A. No. 7353 because the BSP’s power is limited only to
supervision and management take-over of banks, and not receivership.

Vivas argues that implementation of the questioned resolution was tainted with arbitrariness and bad
faith, stressing that ECBI was placed under receivership without due and prior hearing, invoking
Section 11 of R.A. No. 7353 which states that the BSP may take over the management of a rural
bank after due hearing.33 He adds that because R.A. No. 7353 is a special law, the same should
prevail over R.A. No. 7653 which is a general law.

The Court has taken this into account, but it appears from all over the records that ECBI was given
every opportunity to be heard and improve on its financial standing. The records disclose that BSP
officials and examiners met with the representatives of ECBI, including Vivas, and discussed their
findings.34 There were also reminders that ECBI submit its financial audit reports for the years 2007
and 2008 with a warning that failure to submit them and a written explanation of such omission shall
result in the imposition of a monetary penalty.35 More importantly, ECBI was heard on its motion for
reconsideration. For failure of ECBI to comply, the MB came out with Resolution No. 1548 denying
its request for reconsideration of Resolution No. 726. Having been heard on its motion for
reconsideration, ECBI cannot claim that it was deprived of its right under the Rural Bank Act.

Close Now, Hear Later

At any rate, if circumstances warrant it, the MB may forbid a bank from doing business and place it
under receivership without prior notice and hearing. Section 30 of R.A. No. 7653 provides, viz:

Sec. 30. Proceedings in Receivership and Liquidation. – Whenever, upon report of the head of the
supervising or examining department, the Monetary Board finds that a bank or quasi-bank:

(a) is unable to pay its liabilities as they become due in the ordinary course of business:
Provided, That this shall not include inability to pay caused by extraordinary demands
induced by financial panic in the banking community;

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

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

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

x x x x.
Accordingly, there is no conflict which would call for the application of the doctrine that a special law
should prevail over a general law. It must be emphasized that R.A .No. 7653 is a later law and under
said act, the power of the MB over banks, including rural banks, was increased and expanded. The
Court, in several cases, upheld the power of the MB to take over banks without need for prior
hearing. It is not necessary inasmuch as the law entrusts to the MB the appreciation and
determination of whether any or all of the statutory grounds for the closure and receivership of the
erring bank are present. The MB, under R.A. No. 7653, has been invested with more power of
closure and placement of a bank under receivership for insolvency or illiquidity, or because the
bank’s continuance in business would probably result in the loss to depositors or creditors. In the
case of Bangko Sentral Ng Pilipinas Monetary Board v. Hon. Antonio-Valenzuela,36 the Court
reiterated the doctrine of "close now, hear later," stating that it was justified as a measure for the
protection of the public interest. Thus:

The "close now, hear later" doctrine has already been justified as a measure for the protection of the
public interest. Swift action is called for on the part of the BSP when it finds that a bank is in dire
straits. Unless adequate and determined efforts are taken by the government against distressed and
mismanaged banks, public faith in the banking system is certain to deteriorate to the prejudice of the
national economy itself, not to mention the losses suffered by the bank depositors, creditors, and
stockholders, who all deserve the protection of the government.37[Emphasis supplied]

In Rural Bank of Buhi, Inc. v. Court of Appeals,38 the Court also wrote that

x x x due process does not necessarily require a prior hearing; a hearing or an opportunity to be
heard may be subsequent to the closure. One can just imagine the dire consequences of a prior
hearing: bank runs would be the order of the day, resulting in panic and hysteria. In the process,
fortunes may be wiped out and disillusionment will run the gamut of the entire banking community.39

The doctrine is founded on practical and legal considerations to obviate unwarranted dissipation of
the bank’s assets and as a valid exercise of police power to protect the depositors, creditors,
stockholders, and the general public.40 Swift, adequate and determined actions must be taken
against financially distressed and mismanaged banks by government agencies lest the public faith in
the banking system deteriorate to the prejudice of the national economy.

Accordingly, the MB can immediately implement its resolution prohibiting a banking institution to do
business in the Philippines and, thereafter, appoint the PDIC as receiver. The procedure for the
involuntary closure of a bank is summary and expeditious in nature. Such action of the MB shall be
final and executory, but may be later subjected to a judicial scrutiny via a petition for certiorari to be
filed by the stockholders of record of the bank representing a majority of the capital stock. Obviously,
this procedure is designed to protect the interest of all concerned, that is, the depositors, creditors
and stockholders, the bank itself and the general public. The protection afforded public interest
warrants the exercise of a summary closure.

In the case at bench, the ISD II submitted its memorandum, dated February 17, 2010, containing the
findings noted during the general examination conducted on ECBI with the cut-off date of September
30, 2009. The memorandum underscored the inability of ECBI to pay its liabilities as they would fall
due in the usual course of its business, its liabilities being in excess of the assets held. Also, it was
noted that ECBI’s continued banking operation would most probably result in the incurrence of
additional losses to the prejudice of its depositors and creditors. On top of these, it was found that
ECBI had willfully violated the cease-and-desist order of the MB issued in its June 24, 2009
Resolution, and had disregarded the BSP rules and directives. For said reasons, the MB was forced
to issue the assailed Resolution No. 276 placing ECBI under receivership. In addition, the MB
stressed that it accorded ECBI ample time and opportunity to address its monetary problem and to
restore and improve its financial health and viability but it failed to do so.

In light of the circumstances obtaining in this case, the application of the corrective measures
enunciated in Section 30 of R.A. No. 7653 was proper and justified. Management take-over under
Section 11 of R.A. No. 7353 was no longer feasible considering the financial quagmire that engulfed
ECBI showing serious conditions of insolvency and illiquidity. Besides, placing ECBI under
receivership would effectively put a stop to the further draining of its assets.

No Undue Delegation of Legislative Power

Lastly, the petitioner challenges the constitutionality of Section 30 of R.A. No. 7653, as the
legislature granted the MB a broad and unrestrained power to close and place a financially troubled
bank under receivership. He claims that the said provision was an undue delegation of legislative
power. The contention deserves scant consideration.

Preliminarily, Vivas’ attempt to assail the constitutionality of Section 30 of R.A. No. 7653 constitutes
collateral attack on the said provision of law. Nothing is more settled than the rule that the
constitutionality of a statute cannot be collaterally attacked as constitutionality issues must be
pleaded directly and not collaterally.41 A collateral attack on a presumably valid law is not
permissible. Unless a law or rule is annulled in a direct proceeding, the legal presumption of its
validity stands.42

Be that as it may, there is no violation of the non-delegation of legislative power. The rationale for
1âw phi1

the constitutional proscription is that "legislative discretion as to the substantive contents of the law
cannot be delegated. What can be delegated is the discretion to determine how the law may be
enforced, not what the law shall be. The ascertainment of the latter subject is a prerogative of the
legislature. This prerogative cannot be abdicated or surrendered by the legislature to the delegate."43

"There are two accepted tests to determine whether or not there is a valid delegation of legislative
power, viz, the completeness test and the sufficient standard test. Under the first test, the law must
be complete in all its terms and conditions when it leaves the legislature such that when it reaches
the delegate the only thing he will have to do is enforce it. Under the sufficient standard test, there
must be adequate guidelines or stations in the law to map out the boundaries of the delegate's
authority and prevent the delegation from running riot. Both tests are intended to prevent a total
transference of legislative authority to the delegate, who is not allowed to step into the shoes of the
legislature and exercise a power essentially legislative."44

In this case, under the two tests, there was no undue delegation of legislative authority in the
issuance of R.A. No. 7653. To address the growing concerns in the banking industry, the legislature
has sufficiently empowered the MB to effectively monitor and supervise banks and financial
institutions and, if circumstances warrant, to forbid them to do business, to take over their
management or to place them under receivership. The legislature has clearly spelled out the
reasonable parameters of the power entrusted to the MB and assigned to it only the manner of
enforcing said power. In other words, the MB was given a wide discretion and latitude only as to how
the law should be implemented in order to attain its objective of protecting the interest of the public,
the banking industry and the economy.

WHEREFORE, the petition for prohibition is DENIED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-45886 December 9, 1937

GABRIEL N. TRINIDAD, petitioner,

vs.
MUNICIPAL COUNCIL OF LUCBAN, TAYABAS, and JOAQUIN B. SOLIS, ET AL., respondents.

Agustin Alvarez Salazar for petitioner.

Jose E. Tolentino for respondents.

LAUREL, J.:

The petition filed in this case will be considered as one of mandamus originally instituted in this
court. The prayer of the petition reads:

Por todo lo aqui expuesto, el recurrente con el mayor respeto pide de esta Hon. Corte
Suprema, se sirva dictar la correspondiente decision declarando que las resoluciones
objecto de este recurso promulgadas y sostenidas por el Concejo Municipal recurrido, Nos.
129, 131, 132, 135 y 153 series de 1937, son nulas y sin validez ni efecto legal alguno, y
dicte simultaneamente una orden dirigida a todos y cada uno de los miembros del Concejo
Municipal aqui recurrido para que al recibo de su notificacion, se reunan urgente e
inmediatamente en sesion del Concejo Municipal y provean y promulguen una resolucion
por la que se conceda y designe de la lista de nombres (Exhibito H) propuesta por el
recurrente, dos inspectores y su secretario, con sus substitutos respectivos, en todos y cada
uno delos precintos electorales de Lucban para las proximas elecciones que habran de
celebrarse el 14 de diciembre de 1937, con cualquier otro remedio que proceda en justicia,
mas el pronunciamiento de las costas de este recurso, contra los recurridos.

Bluntly stated, the petitioner prays that the Democrata-Nacionalista Consolidado Coalition Party,
which is a local branch of Lucban, Tayabas, of the Partido Nacionalista, be given two inspectors and
two substitute inspectors of election in each and every electoral precinct of said municipality at the
impending elections to be held on the 14th of this month of December, and to this effect, seeks the
annulment of certain resolutions approved by the council of that municipality.

It appears that at the last preceding general elections held on June 5, 1934, the following political
organizations presented candidates and obtained the following number of votes in Lucban,
Tayabas: Democrata-Nacionalista Consolidado Party — 13,668 votes; Sakdalista
— 9,987; Kaliliitang Nacionalista Consolidado Anti — 8,482; that a list of inspectors and substitute
inspectors was presented to said council by each of them: the Democrata-Nacionalista Consolidado
Coalition Party, represented herein Gabriel Trinidad; the Sakdalista, represented by Joaquin B.
Solis, one of the respondents herein; the Kaliliitang Nacionalista Consolidado Anti, represented by
Ernesto Q. Rascelis, another respondent herein; and the Frente Popular, represented by Vicente D.
Beltran, another respondent herein; that its session held on October 5, 1937, the municipal council
of Lucban adopted resolution Nos. 115 and 116, series of 1937, granting two inspectors and one poll
clerk and their respective substitutes to the Democrata-Nacionalista Consolidado Party and one
inspector an substitute inspector to the Partido Sakdalista, denying at the same time the proposed
lists of the Kaliliitang Nacionalista Consolidado Anti and the Frente Popular; that the provincial
committee of the Partido Nacionalista in Tayabas, upon being informed of the action taken by the
municipal council, requested the council to reconsider its resolutions Nos. 115 and 116 and to grant
an inspector and substitute inspector of election each to the Democrata Nacionalista Coalition Party,
the Kaliliitang Nacionalista Consolidado Anti and the Frente Popular; that the municipal council by its
resolution No. 126, series of 1937, declined to comply with the request of the provincial committee of
the Nacionalista Party; that the provincial governor of Tayabas, on October 19, 1937, issued a
peremptory order directing the municipal council to comply with the said request within 24 hours
from the receipt of the communication under penalty of suspension of the recalcitrant members; that
the municipal council declined to comply with the order of the provincial governor, and for this
reason, the members thereof were suspended by the acting provincial governor on October 20,
1937; that after designation of the new members of the council, this body on the same date of
October 20, 1937, met and revoked resolutions Nos. 115 and 116 aforementioned and granted an
inspector and substitute inspector of election each to the three political organizations above-
mentioned; and that thereafter, the suspended members of the municipal council were reinstated. It
also appears that the municipal council, through its president, was requested by the petitioner to
rescind its action taken during the suspension of its members, but the reinstated officials declined to
take any further action.lawphil.net

It is admitted that both the Democrata-Nacionalista Consolidado Coalition Party and the Kaliliitang
Nacionalista Consolidado Anti are local branches of the present Nacionalista Party in Lucban,
Tayabas. Although the representatives of the Sakdalista Party and the Frente Popular are included
in these proceedings as respondents, these political organizations do not complain, it appearing that
the municipal council of Lucban has finally granted the Frente Popular an inspector and substitute
inspector of election in each and every electoral precinct of the municipality. The controversy arises
between the two branches aforesaid of the Nacionalista Party. For the purposes of the application of
the subsection (c) of section 417 of the Election Law, as amended by Commonwealth Act No. 233,
the party that polled the largest number of votes in the municipality of Lucban, Province of Tayabas,
at the last preceding general elections of 1934, was the Partido Nacionalista Democratico,
commonly known as the anti party. But, we take judicial notice of the fact that this party has of late
fused or consolidated with the Partido Nacionalista Pro Independencia, which fusion has resulted in
the formation of the present Nacionalista Party. This party is entitled under the law to two inspectors
of election and poll clerk and their substitutes and the their inspector and substitute inspector of
election should go to the proper opposition party in the municipality of Lucban. Where, as in the
present case, there is a division of the Nacionalista Party in a municipality and each branch or
faction of this party has presented separate tickets for elective local officials, the national directorate
of the party or its duly authorized representatives may ask the municipal council to apportion the
inspectors of election equitably among its local branches and the action of the council in compliance
therewith will not be distributed, provided that rights of the proper opposition party are recognized
and safeguarded.
 THIRD DIVISION

[G.R. No. 162270. April 06, 2005]

ABACUS REAL ESTATE DEVELOPMENT CENTER, INC., petitioner,

vs. THE MANILA BANKING CORPORATION, respondent.

DECISION
GARCIA, J.:

Thru this appeal by way of a petition for review on certiorari under Rule 45 of the
Rules of Court, petitioner Abacus Real Estate Development Center, Inc. seeks to set
aside the following issuances of the Court of Appeals in CA-G.R. CV No. 64877, to wit:
1. Decision dated May 26, 2003,[1] reversing an earlier decision of the Regional Trial
Court at Makati City, Branch 59, in an action for specific performance and damages
thereat commenced by the petitioner against the herein respondent Manila Banking
Corporation; and
2. Resolution of February 17, 2004,[2] denying petitioners motion for reconsideration.
The petition is casts against the following factual backdrop:
Respondent Manila Banking Corporation (Manila Bank, for brevity), owns a 1,435-
square meter parcel of land located along Gil Puyat Avenue Extension, Makati City and
covered by Transfer Certificate of Title (TCT) No. 132935 of the Registry of Deeds of
Makati. Prior to 1984, the bank began constructing on said land a 14-storey building. Not
long after, however, the bank encountered financial difficulties that rendered it unable to
finish construction of the building.
On May 22, 1987, the Central Bank of the Philippines, now Bangko Sentral ng
Pilipinas, ordered the closure of Manila Bank and placed it under receivership, with
Feliciano Miranda, Jr. being initially appointed as Receiver. The legality of the closure
was contested by the bank before the proper court.
On November 11, 1988, the Central Bank, by virtue of Monetary Board (MB)
Resolution No. 505, ordered the liquidation of Manila Bank and designated Atty. Renan
V. Santos as Liquidator. The liquidation, however, was held in abeyance pending the
outcome of the earlier suit filed by Manila Bank regarding the legality of its closure.
Consequently, the designation of Atty. Renan V. Santos as Liquidator was amended by
the Central Bank on December 22, 1988 to that of Statutory Receiver.
In the interim, Manila Banks then acting president, the late Vicente G. Puyat, in a bid
to save the banks investment, started scouting for possible investors who could finance
the completion of the building earlier mentioned. On August 18, 1989, a group of
investors, represented by Calixto Y. Laureano (hereafter referred to as Laureano group),
wrote Vicente G. Puyat offering to lease the building for ten (10) years and to advance
the cost to complete the same, with the advanced cost to be amortized and offset against
rental payments during the term of the lease. Likewise, the letter-offer stated that in
consideration of advancing the construction cost, the group wanted to be given
the exclusive option to purchase the building and the lot on which it was constructed.
Since no disposition of assets could be made due to the litigation concerning Manila
Banks closure, an arrangement was thought of whereby the property would first be leased
to Manila Equities Corporation (MEQCO, for brevity), a wholly-owned subsidiary of
Manila Bank, with MEQCO thereafter subleasing the property to the Laureano group.
In a letter dated August 30, 1989, Vicente G. Puyat accepted the Laureano groups
offer and granted it an exclusive option to purchase the lot and building for One Hundred
Fifty Million Pesos (P150,000,000.00). Later, or on October 31, 1989, the building was
leased to MEQCO for a period of ten (10) years pursuant to a contract of lease bearing
that date. On March 1, 1990, MEQCO subleased the property to petitioner Abacus Real
Estate Development Center, Inc. (Abacus, for short), a corporation formed by the
Laureano group for the purpose, under identical provisions as that of the October 31,
1989 lease contract between Manila Bank and MEQCO.
The Laureano group was, however, unable to finish the building due to the economic
crisis brought about by the failed December 1989 coup attempt. On account thereof, the
Laureano group offered its rights in Abacus and its exclusive option to
purchase to Benjamin Bitanga (Bitanga hereinafter), for Twenty Million Five Hundred
Thousand Pesos (P20,500,000.00). Bitanga would later allege that because of the
substantial amount involved, he first had to talk with Atty. Renan Santos, the Receiver
appointed by the Central Bank, to discuss Abacus offer. Bitanga further alleged that, over
lunch, Atty. Santos then verbally approved his entry into Abacus and his take-over of the
sublease and option to purchase.
On March 30, 1990, the Laureano group transferred and assigned to Bitanga all of its
rights in Abacus and the exclusive option to purchase the subject land and building.
On September 16, 1994, Abacus sent a letter to Manila Bank informing the latter of
its desire to exercise its exclusive option to purchase. However, Manila Bank refused to
honor the same.
Such was the state of things when, on November 10, 1995, in the Regional Trial Court
(RTC) at Makati, Abacus Real Estate Development Center, Inc. filed a complaint [3] for
specific performance and damages against Manila Bank and/or the Estate of Vicente G.
Puyat. In its complaint, docketed as Civil Case No. 96-1638 and raffled to Branch 59 of
the court, plaintiff Abacus prayed for a judgment ordering Manila Bank, interalia, to sell,
transfer and convey unto it for P150,000,000.00 the land and building in dispute free from
all liens and encumbrances, plus payment of damages and attorneys fees.
Subsequently, defendant Manila Bank, followed a month later by its co-defendant
Estate of Vicente G. Puyat, filed separate motions to dismiss the complaint.
 In an Order dated April 15, 1996, the trial court granted the motion to dismiss filed by
the Estate of Vicente G. Puyat, but denied that of Manila Bank and directed the latter to
file its answer.
Before plaintiff Abacus could adduce evidence but after pre-trial, defendant Manila
Bank filed a Motion for Partial Summary Judgment, followed by a Supplement to Motion
for Partial Summary Judgment. While initially opposed, Abacus would later join Manila
Bank in submitting the case for summary judgment.
Eventually, in a decision dated May 27, 1999,[4] the trial court rendered judgment for
Abacus in accordance with the latters prayer in its complaint, thus:

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

plaintiff as follows:

1. Ordering the defendant [Manila Bank] to immediately sell to plaintiff the parcel of
land and building, with an area of 1,435 square meters and covered by TCT No.
132935 of the Makati Registry of Deeds, situated along Sen. Gil J. Puyat Ave. in
Makati City, at the price of One Hundred Fifty Million (P150,000.000.00) Pesos in
accordance with the said exclusive option to purchase, and to execute the appropriate
deed of sale therefor in favor of plaintiff;

2. Ordering the defendant [Manila Bank] to pay plaintiff the amount of Two Million
(P2,000,000.00) Pesos representing reasonable attorneys fees;

3. Ordering the DISMISSAL of defendants counterclaim, for lack of merit; and

4. With costs against the defendant.

SO ORDERED.

Its motion for reconsideration of the aforementioned decision having been denied by
the trial court in its Order of August 17, 1999,[5] Manila Bank then went on to the Court of
Appeals whereat its appellate recourse was docketed as CA-G.R. CV No. 64877.
As stated at the threshold hereof, the Court of Appeals, in a decision dated May 26,
2003,[6] reversed and set aside the appealed decision of the trial court, thus:

WHEREFORE, finding serious reversible error, the appeal is GRANTED.

The Decision dated May 27, 1999 of the Regional Trial Court of Makati City, Branch
59 is REVERSEDand SET ASIDE.

Cost of the appeal to be paid by the appellee.

SO ORDERED.

On June 25, 2003, Abacus filed a Motion for Reconsideration, followed, with leave of
court, by an Amended Motion for Reconsideration. Pending resolution of its motion for
reconsideration, as amended, Abacus filed a Motion to Dismiss Appeal,[7] therein praying
for the dismissal of Manila Banks appeal from the RTC decision of May 27, 1999,
contending that said appeal was filed out of time.
In its Resolution of February 17, 2004,[8] the appellate court denied Abacus
aforementioned motion for reconsideration.
Hence, this recourse by petitioner Abacus Real Estate Development Center, Inc.
As we see it, two (2) issues commend themselves for the resolution of the Court,
namely:

WHETHER OR NOT RESPONDENT BANKS APPEAL TO THE COURT OF

APPEALS WAS FILED ON TIME; and

WHETHER OR NOT PETITIONER ABACUS HAS ACQUIRED THE RIGHT TO

PURCHASE THE LOT AND BUILDING IN QUESTION.

We rule for respondent Manila Bank on both issues.

Addressing the first issue, petitioner submits that respondent banks appeal to the
Court of Appeals from the adverse decision of the trial court was belatedly filed.
Elaborating thereon, petitioner alleges that respondent bank received a copy of the May
27, 1999 RTC decision on June 22, 1999, hence, petitioner had 15 days, or only up to
July 7, 1999 within which to take an appeal from the same decision or move for a
reconsideration thereof. Petitioner alleges that respondent furnished the trial court with a
copy of its Motion for Reconsideration only on July 7, 1999, the last day for filing an
appeal. Under Section 3, Rule 41 of the 1997 Rules of Civil Procedure, the period of
appeal shall be interrupted by a timely motion for new trial or reconsideration. Since,
according to petitioner, respondent filed its Motion for Reconsideration on the last day of
the period to appeal, it only had one (1) more day within which to file an appeal, so much
so that when it received on August 23, 1999 a copy of the trial courts order denying its
Motion for Reconsideration, respondent bank had only up to August 24, 1999 within which
to file the corresponding appeal. As respondent bank appealed the decision of the trial
court only on August 25, 1999, petitioner thus argues that respondents appeal was filed
out of time.
As a counterpoint, respondent alleges that it sent the trial court a copy of its Motion
for Reconsideration on July 6, 1999, through registered mail. Having sent a copy of its
Motion for Reconsideration to the trial court with still two (2) days left to appeal,
respondent then claims that its filing of an appeal on August 25, 1999, two (2) days after
receiving the Order of the trial court denying its Motion for Reconsideration, was within
the reglementary period.
 Agreeing with respondent, the appellate court declared that respondents appeal was
filed on time. Explained that court in its Resolution of February 17, 2004, denying
petitioners motion for reconsideration:

Firstly, the file copy of the motion for reconsideration contains the written
annotations Registry Receipt No. 1633 Makati P.O. 7-6-99 in its page 13. The
presence of the annotations proves that the motion for reconsideration was truly filed
by registered mail on July 6, 1999 through registry receipt no. 1633.

Secondly, the appellants manifestation filed in the RTC personally on July 7, 1999
contains the following self-explanatory statements, to wit:

2. Defendant [Manila Bank] also filed with this Honorable Court a Motion for
Reconsideration of the Decision dated 27 May 1999 promulgated by this Honorable
Court in this case, and served a copy thereof to the plaintiff, by registered mail
yesterday, 6 July 1999, due to lack of material time and messenger to effect personal
service and filing.

3. In order for this Honorable Court to be able to review defendant [Manila Banks]
Motion for Reconsideration without awaiting the mailed copy, defendant [Manila
Bank] is now furnishing this Honorable Court with a copy of said motion, as well as
the entry of appearance, by personal service.

The aforecited reference in the manifestation to the mailing of the motion for
reconsideration on July 6, 1999, in light of the handwritten annotations adverted to
herein, renders beyond doubt the appellants insistence of filing through registered
mail on July 6, 1999.

Thirdly, the registry return cards attached to the envelopes separately addressed and
mailed to the RTC and the appellees counsel, found in pages 728 and 729 of the rollo,
indicate that the contents were the motion for reconsideration and the formal entry of
appearance. Although the appellee argues that the handwritten annotations of what
were contained by the envelopes at the time of mailing was easily self-serving, the
fact remains that the envelope addressed to the appellees counsel appears thereon to
have been received on July 6, 1999 (7/6/99), which enhances the probability of
the motion for reconsideration being mailed, hence filed, on July 6, 1999, as claimed
by the appellant.

Fourthly, the certification issued on October 2, 2003 by Atty. Jayme M. Luy, Branch
Clerk of Court, Branch 59, RTC in Makati City, has no consequence because Atty.
Luy based his data only on page 3 of the 1995 Civil Case Docket Book without
reference to the original records which were already with the Court of Appeals.
Fifthly, since the appellant received the denial of the motion for reconsideration on
August 23, 1999, it had until August 25, 1999 within which to perfect its appeal from
the decision of the RTC because 2 days remained in its reglementary period to appeal.
It is not disputed that the appellant filed its notice of appeal and paid the appellate
court docket fees on August 25, 1999.

These circumstances preponderantly demonstrate that the appellants appeal was not
late by one day. (Emphasis in the original)

Petitioner would, however, contest the above findings of the appellate court, stating,
among other things, that if it were true that respondent filed its Motion for Reconsideration
by registered mail and then furnished the trial court with a copy of said Motion the very
next day, then the rollo should have had two copies of the Motion for Reconsideration in
question. Respondent, on the other hand, insists that it indeed filed a Motion for
Reconsideration on July 6, 1999 through registered mail.
It is evident that the issue raised by petitioner relates to the correctness of the factual
finding of the Court of Appeals as to the precise date when respondent filed its motion for
reconsideration before the trial court. Such issue, however, is beyond the province of this
Court to review. It is not the function of the Court to analyze or weigh all over again the
evidence or premises supportive of such factual determination. [9] The Court has
consistently held that the findings of the Court of Appeals and other lower courts are, as
a rule, accorded great weight, if not binding upon it, [10] save for the most compelling and
cogent reasons.[11] As nothing in the record indicates any of such exceptions, the factual
conclusion of the appellate court that respondent filed its appeal on time, supported as it
is by substantial evidence, must be affirmed.
Going to the second issue, petitioner insists that the option to purchase the lot and
building in question granted to it by the late Vicente G. Puyat, then acting president of
Manila Bank, was binding upon the latter. On the other hand, respondent has consistently
maintained that the late Vicente G. Puyat had no authority to act for and represent Manila
Bank, the latter having been placed under receivership by the Central Bank at the time of
the granting of the exclusive option to purchase.
There can be no quibbling that respondent Manila Bank was under receivership,
pursuant to Central Banks MB Resolution No. 505 dated May 22, 1987, at the time the
late Vicente G. Puyat granted the exclusive option to purchase to the Laureano group of
investors. Owing to this defining reality, the appellate court was correct in declaring that
Vicente G. Puyat was without authority to grant the exclusive option to purchase the lot
and building in question. The invocation by the appellate court of the following
pronouncement in Villanueva vs. Court of Appeals[12] was apropos, to say the least:

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

With respondent bank having been already placed under receivership, its officers,
inclusive of its acting president, Vicente G. Puyat, were no longer authorized to transact
business in connection with the banks assets and property. Clearly then, the exclusive
option to purchase granted by Vicente G. Puyat was and still is unenforceable against
Manila Bank.[13]
Petitioner, however, asseverates that the exclusive option to purchase was ratified
by Manila Banks receiver, Atty. Renan Santos, during a lunch meeting held with Benjamin
Bitanga in March 1990.
Petitioners argument is tenuous at best. Concededly, a contract unenforceable for
lack of authority by one of the parties may be ratified by the person in whose name the
contract was executed. However, even assuming, in gratia argumenti, that Atty. Renan
Santos, Manila Banks receiver, approved the exclusive option to purchase granted by
Vicente G. Puyat, the same would still be of no force and effect.
Section 29 of the Central Bank Act, as amended,[14] pertinently provides:

Sec. 29. Proceedings upon insolvency. Whenever, upon examination by the head of
the appropriate supervising and examining department or his examiners or agents into
the condition of any banking institution, it shall be disclosed that the condition of the
same is one of insolvency, or that its continuance in business would involve probable
loss to its depositors or creditors, it shall be the duty of the department head concerned
forthwith, in writing, to inform the Monetary Board of the facts, and the Board may,
upon finding the statements of the department head to be true, forbid the institution to
do business in the Philippines and shall designate an official of the Central Bank as
receiver to immediately take charge of its assets and liabilities, as expeditiously as
possible collect and gather all the assets and administer the same for the benefit of its
creditors, exercising all the powers necessary for these purposes including, but not
limited to, bringing suits and foreclosing mortgages in the name of the banking
institution. (Emphasis supplied)

Clearly, the receiver appointed by the Central Bank to take charge of the properties
of Manila Bank only had authority to administer the same for the benefit of its
creditors. Granting or approving an exclusive option to purchase is not an act of
administration, but an act of strict ownership, involving, as it does, the disposition of
property of the bank. Not being an act of administration, the so-called approval by Atty.
Renan Santos amounts to no approval at all, a bank receiver not being authorized to do
so on his own.
For sure, Congress itself has recognized that a bank receiver only has powers of
administration. Section 30 of the New Central Bank Act[15] expressly provides that [t]he
receiver shall immediately gather and take charge of all the assets and liabilities of the
institution, administer the same for the benefit of its creditors, and exercise the general
powers of a receiver under the Revised Rules of Court but shall not, with the exception
of administrative expenditures, pay or commit any act that will involve the transfer or
disposition of any asset of the institution
In all, respondent banks receiver was without any power to approve or ratify
the exclusive option to purchasegranted by the late Vicente G. Puyat, who, in the first
place, was himself bereft of any authority, to bind the bank under such exclusive option.
Respondent Manila Bank may not thus be compelled to sell the land and building in
question to petitioner Abacus under the terms of the latters exclusive option to purchase.
WHEREFORE, the instant petition is DENIED and the challenged issuances of the
Court of Appeals AFFIRMED.
Costs against petitioner.
SO ORDERED.
Panganiban, (Chairman), Sandoval-Gutierrez, Corona, and Carpio-Morales,
JJ., concur.

[1] Penned by Associate Justice Lucas B. Bersamin, with Associate Justices Ruben T. Reyes and Elvi John
S. Asuncion, concurring.
[2] Rollo, pp. 93-99.
[3] Rollo, pp. 138-146.
[4] Rollo, pp. 101-125.
[5] Rollo, pp. 126-137.
[6] Rollo, pp. 83-91.
[7] Rollo, pp. 1102-1112.
[8] See Note 2, supra.
[9] PT&T vs. Court of Appeals, 412 SCRA 263 [2003].
[10] Ibay vs. Court of Appeals, 212 SCRA 160 [1992],
[11] Republic vs. Court of Appeals, 349 SCRA 451 [2001].
[12] 244 SCRA 395 [1995].
[13] Article 1317, Civil Code; Yao Ka Sin Trading vs. CA, 209 SCRA 763 [1992].
[14] R.A. No. 265, as amended by PD 72 and PD 1007, the law applicable at that time.
[15] R.A. No. 7653.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 70054 December 11, 1991

BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner,

vs.
THE MONETARY BOARD, CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ,
CARLOTA P. VALENZUELA, ARNULFO B. AURELLANO and RAMON V. TIAOQUI, respondents.

G.R. No. 68878 December 11, 1991

BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner,

vs.
HON. INTERMEDIATE APPELLATE COURT and CELESTINA S. PAHIMUNTUNG, assisted by
her husband,respondents.

G.R. No. 77255-58 December 11, 1991

TOP MANAGEMENT PROGRAMS CORPORATION AND PILAR DEVELOPMENT

CORPORATION, petitioners,
vs.
THE COURT OF APPEALS, The Executive Judge of the Regional Trial Court of Cavite, Ex-
Officio Sheriff REGALADO E. EUSEBIO, BANCO FILIPINO SAVINGS AND MORTGAGE BANK,
CARLOTA P. VALENZUELA AND SYCIP, SALAZAR, HERNANDEZ AND
GATMAITAN, respondents.

G.R. No. 78766 December 11, 1991

EL GRANDE CORPORATION, petitioner,

vs.
THE COURT OF APPEALS, THE EXECUTIVE JUDGE of The Regional Trial Court and Ex-
Officio Sheriff REGALADO E. EUSEBIO, BANCO FILIPINO SAVINGS AND MORTGAGE BANK,
CARLOTA P. VALENZUELA AND SYCIP, SALAZAR, FELICIANO AND
HERNANDEZ, respondents.

G.R. No. 78767 December 11, 1991

METROPOLIS DEVELOPMENT CORPORATION, petitioner,

vs.
COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ, JR.,
CARLOTA P. VALENZUELA, ARNULFO AURELLANO AND RAMON TIAOQUI, respondents.

G.R. No. 78894 December 11, 1991

BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner

vs.
COURT OF APPEALS, THE CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ,
JR., CARLOTA P. VALENZUELA, ARNULFO B. AURELLANO AND RAMON
TIAOQUI, respondents.

G.R. No. 81303 December 11, 1991

PILAR DEVELOPMENT CORPORATION, petitioner

vs.
COURT OF APPEALS, HON. MANUEL M. COSICO, in his capacity as Presiding Judge of
Branch 136 of the Regional Trial Court of Makati, CENTRAL BANK OF THE PHILIPPINES AND
CARLOTA P. VALENZUELA, respondents.

G.R. No. 81304 December 11, 1991

BF HOMES DEVELOPMENT CORPORATION, petitioner,

vs.
THE COURT OF APPEALS, CENTRAL BANK AND CARLOTA P. VALENZUELA, respondents.

G.R. No. 90473 December 11, 1991

EL GRANDE DEVELOPMENT CORPORATION, petitioner,

vs.
THE COURT OF APPEALS, THE EXECUTIVE JUDGE of the Regional Trial Court of Cavite,
CLERK OF COURT and Ex-Officio Sheriff ADORACION VICTA, BANCO FILIPINO SAVINGS
AND MORTGAGE BANK, CARLOTA P. VALENZUELA AND SYCIP, SALAZAR, HERNANDEZ
AND GATMAITAN, respondents.

Panganiban, Benitez, Barinaga & Bautista Law Offices collaborating counsel for petitioner.

Florencio T. Domingo, Jr. and Crisanto S. Cornejo for intervenors.

MEDIALDEA, J.:

This refers to nine (9) consolidated cases concerning the legality of the closure and receivership of
petitioner Banco Filipino Savings and Mortgage Bank (Banco Filipino for brevity) pursuant to the
order of respondent Monetary Board. Six (6) of these cases, namely, G.R. Nos. 68878, 77255-68,
78766, 81303, 81304 and 90473 involve the common issue of whether or not the liquidator
appointed by the respondent Central Bank (CB for brevity) has the authority to prosecute as well as
to defend suits, and to foreclose mortgages for and in behalf of the bank while the issue on the
validity of the receivership and liquidation of the latter is pending resolution in G.R. No. 7004.
Corollary to this issue is whether the CB can be sued to fulfill financial commitments of a closed
bank pursuant to Section 29 of the Central Bank Act. On the other hand, the other three (3) cases,
namely, G.R. Nos. 70054, which is the main case, 78767 and 78894 all seek to annul and set aside
M.B. Resolution No. 75 issued by respondents Monetary Board and Central Bank on January 25,
1985.

The antecedent facts of each of the nine (9) cases are as follows:

G.R No. 68878

This is a motion for reconsideration, filed by respondent Celestina Pahimuntung, of the decision
promulgated by thisCourt on April 8, 1986, granting the petition for review on certiorari and reversing
the questioned decision of respondent appellate court, which annulled the writ of possession issued
by the trial court in favor of petitioner.

The respondent-movant contends that the petitioner has no more personality to continue prosecuting
the instant case considering that petitioner bank was placed under receivership since January 25,
1985 by the Central Bank pursuant to the resolution of the Monetary Board.

G.R. Nos. 77255-58

Petitioners Top Management Programs Corporation (Top Management for brevity) and Pilar
Development Corporation (Pilar Development for brevity) are corporations engaged in the business
of developing residential subdivisions.

Top Management obtained a loan of P4,836,000 from Banco Filipino as evidenced by a promissory
note dated January 7, 1982 payable in three years from date. The loan was secured by real estate
mortgage in its various properties in Cavite. Likewise, Pilar Development obtained loans from Banco
Filipino between 1982 and 1983 in the principal amounts of P6,000,000, P7,370,000 and P5,300,000
with maturity dates on December 28, 1984, January 5, 1985 and February 16, 1984, respectively. To
secure the loan, Pilar Development mortgaged to Banco Filipino various properties in Dasmariñas,
Cavite.

On January 25, 1985, the Monetary Board issued a resolution finding Banco Filipino insolvent and
unable to do business without loss to its creditors and depositors. It placed Banco Filipino under
receivership of Carlota Valenzuela, Deputy Governor of the Central Bank.

On March 22, 1985, the Monetary Board issued another resolution placing the bank under liquidation
and designating Valenzuela as liquidator. By virtue of her authority as liquidator, Valenzuela
appointed the law firm of Sycip, Salazar, et al. to represent Banco Filipino in all litigations.

On March 26, 1985, Banco Filipino filed the petition for certiorari in G.R. No. 70054 questioning the
validity of the resolutions issued by the Monetary Board authorizing the receivership and liquidation
of Banco Filipino.

In a resolution dated August 29, 1985, this Court in G.R. No. 70054 resolved to issue a temporary
restraining order, effective during the same period of 30 days, enjoining the respondents from
executing further acts of liquidation of the bank; that acts such as receiving collectibles and
receivables or paying off creditors' claims and other transactions pertaining to normal operations of a
bank are not enjoined. The Central Bank is ordered to designate a comptroller for Banco Filipino.
Subsequently, Top Management failed to pay its loan on the due date. Hence, the law firm of Sycip,
Salazar, et al. acting as counsel for Banco Filipino under authority of Valenzuela as liquidator,
applied for extra-judicial foreclosure of the mortgage over Top Management's properties. Thus, the
Ex-Officio Sheriff of the Regional Trial Court of Cavite issued a notice of extra-judicial foreclosure
sale of the properties on December 16, 1985.

On December 9, 1985, Top Management filed a petition for injunction and prohibition with the
respondent appellate court docketed as CA-G.R. SP No. 07892 seeking to enjoin the Regional Trial
Court of Cavite, the ex-officio sheriff of said court and Sycip, Salazar, et al. from proceeding with
foreclosure sale.

Similarly, Pilar Development defaulted in the payment of its loans. The law firm of Sycip, Salazar, et
al. filed separate applications with the ex-officio sheriff of the Regional Trial Court of Cavite for the
extra-judicial foreclosure of mortgage over its properties.

Hence, Pilar Development filed with the respondent appellate court a petition for prohibition with
prayer for the issuance of a writ of preliminary injunction docketed as CA-G.R SP Nos. 08962-64
seeking to enjoin the same respondents from enforcing the foreclosure sale of its properties. CA-
G.R. SP Nos. 07892 and 08962-64 were consolidated and jointly decided.

On October 30, 1986, the respondent appellate court rendered a decision dismissing the
aforementioned petitions.

Hence, this petition was filed by the petitioners Top Management and Pilar Development alleging
that Carlota Valenzuela, who was appointed by the Monetary Board as liquidator of Banco Filipino,
has no authority to proceed with the foreclosure sale of petitioners' properties on the ground that the
resolution of the issue on the validity of the closure and liquidation of Banco Filipino is still pending
with this Court in G.R. 70054.

G.R. No. 78766

Petitioner El Grande Development Corporation (El Grande for brevity) is engaged in the business of
developing residential subdivisions. It was extended by respondent Banco Filipino a credit
accommodation to finance its housing program. Hence, petitioner was granted a loan in the amount
of P8,034,130.00 secured by real estate mortgages on its various estates located in Cavite.

On January 15, 1985, the Monetary Board forbade Banco Filipino to do business, placed it under
receivership and designated Deputy Governor Carlota Valenzuela as receiver. On March 22, 1985,
the Monetary Board confirmed Banco Filipino's insolvency and designated the receiver Carlota
Valenzuela as liquidator.

When petitioner El Grande failed to pay its indebtedness to Banco Filipino, the latter thru its
liquidator, Carlota Valenzuela, initiated the foreclosure with the Clerk of Court and Ex-officio sheriff
of RTC Cavite. Subsequently, on March 31, 1986, the ex-officio sheriff issued the notice of extra-
judicial sale of the mortgaged properties of El Grande scheduled on April 30, 1986.

In order to stop the public auction sale, petitioner El Grande filed a petition for prohibition with the
Court of Appeals alleging that respondent Carlota Valenzuela could not proceed with the foreclosure
of its mortgaged properties on the ground that this Court in G.R. No. 70054 issued a resolution dated
August 29, 1985, which restrained Carlota Valenzuela from acting as liquidator and allowed Banco
Filipino to resume banking operations only under a Central Bank comptroller.
On March 2, 1987, the Court of Appeals rendered a decision dismissing the petition.

Hence this petition for review on certiorari was filed alleging that the respondent court erred when it
held in its decision that although Carlota P. Valenzuela was restrained by this Honorable Court from
exercising acts in liquidation of Banco Filipino Savings & Mortgage Bank, she was not legally
precluded from foreclosing the mortgage over the properties of the petitioner through counsel
retained by her for the purpose.

G.R. No. 81303

On November 8, 1985, petitioner Pilar Development Corporation (Pilar Development for brevity) filed
an action against Banco Filipino, the Central Bank and Carlota Valenzuela for specific performance,
docketed as Civil Case No. 12191. It appears that the former management of Banco Filipino
appointed Quisumbing & Associates as counsel for Banco Filipino. On June 12, 1986 the said law
firm filed an answer for Banco Filipino which confessed judgment against Banco Filipino.

On June 17, 1986, petitioner filed a second amended complaint. The Central Bank and Carlota
Valenzuela, thru the law firm Sycip, Salazar, Hernandez and Gatmaitan filed an answer to the
complaint.

On June 23, 1986, Sycip, et al., acting for all the defendants including Banco Filipino moved that the
answer filed by Quisumbing & Associates for defendant Banco Filipino be expunged from the
records. Despite opposition from Quisumbing & Associates, the trial court granted the motion to
expunge in an order dated March 17, 1987. Petitioner Pilar Development moved to reconsider the
order but the motion was denied.

Petitioner Pilar Development filed with the respondent appellate court a petition for certiorari and
mandamus to annul the order of the trial court. The Court of Appeals rendered a decision dismissing
the petition. A petition was filed with this Court but was denied in a resolution dated March 22, 1988.
Hence, this instant motion for reconsideration.

G.R. No. 81304

On July 9, 1985, petitioner BF Homes Incorporated (BF Homes for brevity) filed an action with the
trial court to compel the Central Bank to restore petitioner's; financing facility with Banco Filipino.

The Central Bank filed a motion to dismiss the action. Petitioner BF Homes in a supplemental
complaint impleaded as defendant Carlota Valenzuela as receiver of Banco Filipino Savings and
Mortgage Bank.

On April 8, 1985, petitioner filed a second supplemental complaint to which respondents filed a
motion to dismiss.

On July 9, 1985, the trial court granted the motion to dismiss the supplemental complaint on the
grounds (1) that plaintiff has no contractual relation with the defendants, and (2) that the
Intermediate Appellate Court in a previous decision in AC-G.R. SP. No. 04609 had stated that Banco
Filipino has been ordered closed and placed under receivership pending liquidation, and thus, the
continuation of the facility sued for by the plaintiff has become legally impossible and the suit has
become moot.
The order of dismissal was appealed by the petitioner to the Court of Appeals. On November 4,
1987, the respondent appellate court dismissed the appeal and affirmed the order of the trial court.

Hence, this petition for review on certiorari was filed, alleging that the respondent court erred when it
found that the private respondents should not be the ones to respond to the cause of action asserted
by the petitioner and the petitioner did not have any cause of action against the respondents Central
Bank and Carlota Valenzuela.

G.R. No. 90473

Petitioner El Grande Development Corporation (El Grande for brevity) obtained a loan from Banco
Filipino in the amount of P8,034,130.00, secured by a mortgage over its five parcels of land located
in Cavite which were covered by Transfer Certificate of Title Nos. T-82187, T-109027, T-132897, T-
148377, and T-79371 of the Registry of Deeds of Cavite.

When Banco Filipino was ordered closed and placed under receivership in 1985, the appointed
liquidator of BF, thru its counsel Sycip, Salazar, et al. applied with the ex-officio sheriff of the
Regional Trial Court of Cavite for the extrajudicial foreclosure of the mortgage constituted over
petitioner's properties. On March 24, 1986, the ex-officio sheriff issued a notice of extrajudicial
foreclosure sale of the properties of petitioner.

Thus, petitioner filed with the Court of Appeals a petition for prohibition with prayer for writ of
preliminary injunction to enjoin the respondents from foreclosing the mortgage and to nullify the
notice of foreclosure.

On June 16, 1989, respondent Court of Appeals rendered a decision dismissing the petition.

Not satisfied with the decision, petitioner filed the instant petition for review on certiorari.

G.R. No. 70054

Banco Filipino Savings and Mortgage Bank was authorized to operate as such under M.B.
Resolution No. 223 dated February 14, 1963. It commenced operations on July 9, 1964. It has
eighty-nine (89) operating branches, forty-six (46) of which are in Manila, with more than three (3)
million depositors.

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

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

On the same date, respondent Board issued M.B. Resolution No. 955 placing petitioner bank under
conservatorship of Basilio Estanislao. He was later replaced by Gilberto Teodoro as conservator on
August 10, 1984. The latter submitted a report dated January 8, 1985 to respondent Board on the
conservatorship of petitioner bank, which report shall hereinafter be referred to as the Teodoro
report.
Subsequently, another report dated January 23, 1985 was submitted to the Monetary Board by
Ramon Tiaoqui, Special Assistant to the Governor and Head, SES Department II of the Central
Bank, regarding the major findings of examination on the financial condition of petitioner BF as of
July 31, 1984. The report, which shall be referred to herein as the Tiaoqui Report contained the
following conclusion and recommendation:

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

All the foregoing provides sufficient justification for forbidding the bank from engaging in
banking.

Foregoing considered, the following are recommended:

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

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

3. The Board of Directors and the principal officers from Senior Vice Presidents, as
listed in the attached Annex "A" be included in the watchlist of the Supervision and
Examination Sector until such time that they shall have cleared themselves.

4. Refer to the Central Bank's Legal Department and Office of Special Investigation
the report on the findings on Banco Filipino for investigation and possible prosecution
of directors, officers, and employees for activities which led to its insolvent position.
(pp- 61-62, Rollo)

On January 25, 1985, the Monetary Board issued the assailed MB Resolution No. 75 which
ordered the closure of BF and which further provides:

After considering the report dated January 8, 1985 of the Conservator for Banco
Filipino Savings and Mortgage Bank that the continuance in business of the bank
would involve probable loss to its depositors and creditors, and after discussing and
finding to be true the statements of the Special Assistant to the Governor and Head,
Supervision and Examination Sector (SES) Department II as recited in his
memorandum dated January 23, 1985, that the Banco Filipino Savings & Mortgage
Bank is insolvent and that its continuance in business would involve probable loss to
its depositors and creditors, and in pursuance of Sec. 29 of RA 265, as amended, the
Board decided:

1. To forbid Banco Filipino Savings and Mortgage Bank and all its branches
to do business in the Philippines;
 2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor as Receiver
who is hereby directly vested with jurisdiction and authority to immediately
take charge of the bank's assets and liabilities, and as expeditiously as
possible collect and gather all the assets and administer the same for the
benefit of its creditors, exercising all the powers necessary for these
purposes including but not limited to, bringing suits and foreclosing
mortgages in the name of the bank;

3. To designate Mr. Arnulfo B. Aurellano, Special Assistant to the Governor,

and Mr. Ramon V. Tiaoqui, Special Assistant to the Governor and Head,
Supervision and Examination Sector Department II, as Deputy Receivers
who are likewise hereby directly vested with jurisdiction and authority to do all
things necessary or proper to carry out the functions entrusted to them by the
Receiver and otherwise to assist the Receiver in carrying out the functions
vested in the Receiver by law or Monetary Board Resolutions;

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

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

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

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

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

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

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

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

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

Sec. 29 of RA No. 265, as amended;
2. The Legal Department, through the Solicitor General, be authorized to file in the
proper court a petition for assistance in th liquidation of the Bank;

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

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

Mortgage Bank of the Monetary Board's decision liquidate the Bank. (p. 167, Rollo,
Vol. I)

On July 23, 1985, petitioner filed a motion before this Court praying that a restraining
order or a writ of preliminary injunction be issued to enjoin respondents from causing
the dismantling of BF signs in its main office and 89 branches. This Court issued a
resolution on August 8, 1985 ordering the issuance of the aforesaid temporary
restraining order.

On August 20, 1985, the case was submitted for resolution.

In a resolution dated August 29, 1985, this Court Resolved direct the respondents
Monetary Board and Central Bank hold hearings at which the petitioner should be
heard, and terminate such hearings and submit its resolution within thirty (30) days.
This Court further resolved to issue a temporary restraining order enjoining the
respondents from executing further acts of liquidation of a bank. Acts such as
receiving collectibles and receivables or paying off creditors' claims and other
transactions pertaining to normal operations of a bank were no enjoined. The Central
Bank was also ordered to designate comptroller for the petitioner BF. This Court also
ordered th consolidation of Civil Cases Nos. 8108, 9676 and 10183 in Branch 136 of
the Regional Trial Court of Makati.

However, on September 12, 1985, this Court in the meantime suspended the hearing
it ordered in its resolution of August 29, 1985.

On October 8, 1985, this Court submitted a resolution order ing Branch 136 of the
Regional Trial Court of Makati the presided over by Judge Ricardo Francisco to
conduct the hear ing contemplated in the resolution of August 29, 1985 in the most
expeditious manner and to submit its resolution to this Court.

In the Court's resolution of February 19, 1987, the Court stated that the hearing
contemplated in the resolution of August 29, 1985, which is to ascertain whether
substantial administrative due process had been observed by the respondent
Monetary Board, may be expedited by Judge Manuel Cosico who now presides the
court vacated by Judge Ricardo Francisco, who was elevated to the Court of
Appeals, there being no legal impediment or justifiable reason to bar the former from
conducting such hearing. Hence, this Court directed Judge Manuel Cosico to
expedite the hearing and submit his report to this Court.

On February 20, 1988, Judge Manuel Cosico submitted his report to this Court with
the recommendation that the resolutions of respondents Monetary Board and Central
Bank authorizing the closure and liquidation of petitioner BP be upheld.

On October 21, 1988, petitioner BF filed an urgent motion to reopen hearing to which
respondents filed their comment on December 16, 1988. Petitioner filed their reply to
respondent's comment of January 11, 1989. After having deliberated on the grounds
raised in the pleadings, this Court in its resolution dated August 3, 1989 declared that
its intention as expressed in its resolution of August 29, 1985 had not been faithfully
adhered to by the herein petitioner and respondents. The aforementioned resolution
had ordered a healing on the reports that led respondents to order petitioner's
closure and its alleged pre-planned liquidation. This Court noted that during the
referral hearing however, a different scheme was followed. Respondents merely
submitted to the commissioner their findings on the examinations conducted on
petitioner, affidavits of the private respondents relative to the findings, their reports to
the Monetary Board and several other documents in support of their position while
petitioner had merely submitted objections to the findings of respondents, counter-
affidavits of its officers and also documents to prove its claims. Although the records
disclose that both parties had not waived cross-examination of their deponents, no
such cross-examination has been conducted. The reception of evidence in the form
of affidavits was followed throughout, until the commissioner submitted his report and
recommendations to the Court. This Court also held that the documents pertinent to
the resolution of the instant petition are the Teodoro Report, Tiaoqui Report,
Valenzuela, Aurellano and Tiaoqui Report and the supporting documents which were
made as the bases by the reporters of their conclusions contained in their respective
reports. This Court also Resolved in its resolution to re-open the referral hearing that
was terminated after Judge Cosico had submitted his report and recommendation
with the end in view of allowing petitioner to complete its presentation of evidence
and also for respondents to adduce additional evidence, if so minded, and for both
parties to conduct the required cross-examination of witnesses/deponents, to be
done within a period of three months. To obviate all doubts on Judge Cosico's
impartiality, this Court designated a new hearing commissioner in the person of
former Judge Consuelo Santiago of the Regional Trial Court, Makati, Branch 149
(now Associate Justice of the Court of Appeals).

Three motions for intervention were filed in this case as follows: First, in G.R. No.
70054 filed by Eduardo Rodriguez and Fortunate M. Dizon, stockholders of petitioner
bank for and on behalf of other stockholders of petitioner; second, in G.R. No. 78894,
filed by the same stockholders, and, third, again in G.R. No. 70054 by BF Depositors'
Association and others similarly situated. This Court, on March 1, 1990, denied the
aforesaid motions for intervention.

On January 28, 1991, the hearing commissioner, Justice Consuelo Santiago of the
Court of Appeals submitted her report and recommendation (to be hereinafter called,
"Santiago Report") on the following issues stated therein as follows:

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

2) On the date of BF's closure (January 25, 1985) was its condition one of
insolvency or would its continuance in business involve probable loss to its
depositors or creditors?

The commissioner after evaluation of the evidence presented found and

recommended the following:

1. That the TEODORO and TIAOQUI reports did not establish in accordance
with See. 29 of the R.A. 265, as amended, BF's insolvency as of July 31,
 1984 or that its continuance in business thereafter would involve probable
loss to its depositors or creditors. On the contrary, the evidence indicates that
BF was solvent on July 31, 1984 and that on January 25, 1985, the day it
was closed, its insolvency was not clearly established;

2. That consequently, BF's closure on January 25, 1985, not having satisfied
the requirements prescribed under Sec. 29 of RA 265, as amended, was null
and void.

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

subject to such laws, rules and regulations that apply to its situation.

Respondents thereafter filed a motion for leave to file objections to the Santiago
Report. In the same motion, respondents requested that the report and
recommendation be set for oral argument before the Court. On February 7, 1991,
this Court denied the request for oral argument of the parties.

On February 25, 1991, respondents filed their objections to the Santiago Report. On
March 5, 1991, respondents submitted a motion for oral argument alleging that this
Court is confronted with two conflicting reports on the same subject, one upholding
on all points the Monetary Board's closure of petitioner, (Cosico Report dated
February 19, 1988) and the other (Santiago Report dated January 25, 1991) holding
that petitioner's closure was null and void because petitioner's insolvency was not
clearly established before its closure; and that such a hearing on oral argrument will
therefore allow the parties to directly confront the issues before this Court.

On March 12, 1991 petitioner filed its opposition to the motion for oral argument. On
March 20, 1991, it filed its reply to respondents' objections to the Santiago Report.

On June 18, 1991, a hearing was held where both parties were heard on oral
argument before this Court. The parties, having submitted their respective
memoranda, the case is now submitted for decision.

G.R. No. 78767

On February 2, 1985, Banco Filipino filed a complaint with the trial court docketed as
Civil Case No. 9675 to annul the resolution of the Monetary Board dated January 25,
1985, which ordered the closure of the bank and placed it under receivership.

On February 14, 1985, the Central Bank and the receivers filed a motion to dismiss
the complaint on the ground that the receivers had not authorized anyone to file the
action. In a supplemental motion to dismiss, the Central Bank cited the resolution of
this Court dated October 15, 1985 in G.R. No. 65723 entitled, "Central Bank et al. v.
Intermediate Appellate Court" whereby We held that a complaint questioning the
validity of the receivership established by the Central Bank becomes moot and
academic upon the initiation of liquidation proceedings.

While the motion to dismiss was pending resolution, petitioner herein Metropolis
Development Corporation (Metropolis for brevity) filed a motion to intervene in the
aforestated civil case on the ground that as a stockholder and creditor of Banco
Filipino, it has an interest in the subject of the action.
On July 19, 1985, the trial court denied the motion to dismiss and also denied the
motion for reconsideration of the order later filed by Central Bank. On June 5, 1985,
the trial court allowed the motion for intervention.

Hence, the Central Bank and the receivers of Banco Filipino filed a petition
for certiorari with the respondent appellate court alleging that the trial court
committed grave abuse of discretion in not dismissing Civil Case No. 9675.

On March 17, 1986, the respondent appellate court rendered a decision annulling
and setting aside the questioned orders of the trial court, and ordering the dismissal
of the complaint filed by Banco Filipino with the trial court as well as the complaint in
intervention of petitioner Metropolis Development Corporation.

Hence this petition was filed by Metropolis Development Corporation questioning the
decision of the respondent appellate court.

G.R. No. 78894

On February 2, 1985, a complaint was filed with the trial court in the name of Banco
Filipino to annul the resolution o the Monetary Board dated January 25, 1985 which
ordered the closure of Banco Filipino and placed it under receivership. The receivers
appointed by the Monetary Board were Carlota Valenzuela, Arnulfo Aurellano and
Ramon Tiaoqui.

On February 14, 1985, the Central Bank and the receiver filed a motion to dismiss
the complaint on the ground that the receiver had not authorized anyone to file the
action.

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

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

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

After deliberating on the pleadings in the following cases:

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

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

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

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

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

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

We find the motions for reconsideration in G.R. Nos. 68878 and 81303 and the
petitions in G.R. Nos. 77255-58, 78766, 81304 and 90473 devoid of merit.

Section 29 of the Republic Act No. 265, as amended known as the Central Bank
Act, provides that when a bank is forbidden to do business in the Philippines and
placed under receivership, the person designated as receiver shall immediately take
charge of the bank's assets and liabilities, as expeditiously as possible, collect and
gather all the assets and administer the same for the benefit of its creditors, and
represent the bank personally or through counsel as he may retain in all actions or
proceedings for or against the institution, exercising all the powers necessary for
these purposes including, but not limited to, bringing and foreclosing mortgages in
the name of the bank. If the Monetary Board shall later determine and confirm that
banking institution is insolvent or cannot resume business safety to depositors,
creditors and the general public, it shall, public interest requires, order its liquidation
and appoint a liquidator who shall take over and continue the functions of receiver
previously appointed by Monetary Board. The liquid for may, in the name of the bank
and with the assistance counsel as he may retain, institute such actions as may
necessary in the appropriate court to collect and recover a counts and assets of such
institution or defend any action ft against the institution.

When the issue on the validity of the closure and receivership of Banco Filipino bank
was raised in G.R. No. 70054, pendency of the case did not diminish the powers and
authority of the designated liquidator to effectuate and carry on the a ministration of
the bank. In fact when We adopted a resolute on August 25, 1985 and issued a
restraining order to respondents Monetary Board and Central Bank, We enjoined me
further acts of liquidation. Such acts of liquidation, as explained in Sec. 29 of the
Central Bank Act are those which constitute the conversion of the assets of the
banking institution to money or the sale, assignment or disposition of the s to
creditors and other parties for the purpose of paying debts of such institution. We did
not prohibit however acts a as receiving collectibles and receivables or paying off
credits claims and other transactions pertaining to normal operate of a bank. There is
no doubt that the prosecution of suits collection and the foreclosure of mortgages
against debtors the bank by the liquidator are among the usual and ordinary
transactions pertaining to the administration of a bank. their did Our order in the
same resolution dated August 25, 1985 for the designation by the Central Bank of a
comptroller Banco Filipino alter the powers and functions; of the liquid insofar as the
management of the assets of the bank is concerned. The mere duty of the
comptroller is to supervise counts and finances undertaken by the liquidator and to d
mine the propriety of the latter's expenditures incurred behalf of the bank.
Notwithstanding this, the liquidator is empowered under the law to continue the
functions of receiver is preserving and keeping intact the assets of the bank in
substitution of its former management, and to prevent the dissipation of its assets to
the detriment of the creditors of the bank. These powers and functions of the
liquidator in directing the operations of the bank in place of the former management
or former officials of the bank include the retaining of counsel of his choice in actions
and proceedings for purposes of administration.
Clearly, in G.R. Nos. 68878, 77255-58, 78766 and 90473, the liquidator by himself or
through counsel has the authority to bring actions for foreclosure of mortgages
executed by debtors in favor of the bank. In G.R. No. 81303, the liquidator is likewise
authorized to resist or defend suits instituted against the bank by debtors and
creditors of the bank and by other private persons. Similarly, in G.R. No. 81304, due
to the aforestated reasons, the Central Bank cannot be compelled to fulfill financial
transactions entered into by Banco Filipino when the operations of the latter were
suspended by reason of its closure. The Central Bank possesses those powers and
functions only as provided for in Sec. 29 of the Central Bank Act.

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

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

not be interfered with by the courts. In general, courts have no supervising power
over the proceedings and actions of the administrative departments of the
government. This is generally true with respect to acts involving the exercise of
judgment or discretion, and findings of fact. But when there is a grave abuse of
discretion which is equivalent to a capricious and whimsical exercise of judgment or
where the power is exercised in an arbitrary or despotic manner, then there is a
justification for the courts to set aside the administrative determination reached (Lim,
Sr. v. Secretary of Agriculture and Natural Resources, L-26990, August 31, 1970, 34
SCRA 751)

The jurisdiction of this Court is called upon, once again, through these petitions, to
undertake the delicate task of ascertaining whether or not an administrative agency
of the government, like the Central Bank of the Philippines and the Monetary Board,
has committed grave abuse of discretion or has acted without or in excess of
jurisdiction in issuing the assailed order. Coupled with this task is the duty of this
Court not only to strike down acts which violate constitutional protections or to nullify
administrative decisions contrary to legal mandates but also to prevent acts in
excess of authority or jurisdiction, as well as to correct manifest abuses of discretion
committed by the officer or tribunal involved.

The law applicable in the determination of these issues is Section 29 of Republic Act
No. 265, as amended, also known as the Central Bank Act, which provides:

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

the head of the appropriate supervising or examining department or his
examiners or agents into the condition of any bank or non-bank financial
intermediary performing quasi-banking functions, it shall be disclosed that the
condition of the same is one of insolvency, or that its continuance in business
would involve probable loss to its depositors or creditors, it shall be the duty
of the department head concerned forthwith, in writing, to inform the
Monetary Board of the facts. The Board may, upon finding the statements of
the department head to be true, forbid the institution to do business in the
Philippines and designate an official of the Central Bank or a person of
recognized competence in banking or finance, as receiver to immediately
take charge of its assets and liabilities, as expeditiously as possible collect
and gather all the assets and administer the same for the benefit's of its
creditors, and represent the bank personally or through counsel as he may
retain in all actions or proceedings for or against the institution, exercising all
the powers necessary for these purposes including, but not limited to,
bringing and foreclosing mortgages in the name of the bank or non-bank
financial intermediary performing quasi-banking functions.

The Monetary Board shall thereupon determine within sixty days whether the
institution may be reorganized or otherwise placed in such a condition so that
it may be permitted to resume business with safety to its depositors and
creditors and the general public and shall prescribe the conditions under
which such resumption of business shall take place as well as the time for
fulfillment of such conditions. In such case, the expenses and fees in the
collection and administration of the assets of the institution shall be
determined by the Board and shall be paid to the Central Bank out of the
assets of such institution.

If the Monetary Board shall determine and confirm within the said period that
the bank or non-bank financial intermediary performing quasi-banking
functions is insolvent or cannot resume business with safety to its depositors,
creditors, and the general public, it shall, if the public interest requires, order
its liquidation, indicate the manner of its liquidation and approve a liquidation
plan which may, when warranted, involve disposition of any or all assets in
consideration for the assumption of equivalent liabilities. The liquidator
designated as hereunder provided shall, by the Solicitor General, file a
petition in the regional trial court reciting the proceedings which have been
taken and praying the assistance of the court in the liquidation of such
institutions. The court shall have jurisdiction in the same proceedings to
assist in the adjudication of the disputed claims against the bank or non-bank
financial intermediary performing quasi-banking functions and in the
enforcement of individual liabilities of the stockholders and do all that is
necessary to preserve the assets of such institutions and to implement the
liquidation plan approved by the Monetary Board. The Monetary Board shall
designate an official of the Central bank or a person of recognized
competence in banking or finance, as liquidator who shall take over and
continue the functions of the receiver previously appointed by the Monetary
Board under this Section. The liquidator shall, with all convenient speed,
convert the assets of the banking institutions or non-bank financial
intermediary performing quasi-banking function to money or sell, assign or
otherwise dispose of the same to creditors and other parties for the purpose
of paying the debts of such institution and he may, in the name of the bank or
non-bank financial intermediary performing quasi-banking functions and with
the assistance of counsel as he may retain, institute such actions as may be
necessary in the appropriate court to collect and recover accounts and
assets of such institution or defend any action filed against the institution:
Provided, However, That after having reasonably established all claims
against the institution, the liquidator may, with the approval of the court, effect
partial payments of such claims for assets of the institution in accordance
with their legal priority.

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

in custodia legis in the hands of the receiver or liquidator and shall from the
 moment of such receivership or liquidation, be exempt from any order of
garnishment, levy, attachment, orexecution.

The provisions of any law to the contrary notwithstanding, the actions of the
Monetary Board under this Section, Section 28-A, an the second paragraph
of Section 34 of this Act shall be final an executory, and can be set aside by
a court only if there is convince proof, after hearing, that the action is plainly
arbitrary and made in bad faith: Provided, That the same is raised in an
appropriate pleading filed by the stockholders of record representing the
majority of th capital stock within ten (10) days from the date the receiver
take charge of the assets and liabilities of the bank or non-bank financial
intermediary performing quasi-banking functions or, in case of
conservatorship or liquidation, within ten (10) days from receipt of notice by
the said majority stockholders of said bank or non-bank financial intermediary
of the order of its placement under conservatorship o liquidation. No
restraining order or injunction shall be issued by an court enjoining the
Central Bank from implementing its actions under this Section and the
second paragraph of Section 34 of this Act in th absence of any convincing
proof that the action of the Monetary Board is plainly arbitrary and made in
bad faith and the petitioner or plaintiff files a bond, executed in favor of the
Central Bank, in an amount be fixed by the court. The restraining order or
injunction shall be refused or, if granted, shall be dissolved upon filing by the
Central Bank of a bond, which shall be in the form of cash or Central Bank
cashier's check, in an amount twice the amount of the bond of th petitioner or
plaintiff conditioned that it will pay the damages which the petitioner or
plaintiff may suffer by the refusal or the dissolution of the injunction. The
provisions of Rule 58 of the New Rules of Court insofar as they are
applicable and not inconsistent with the provision of this Section shall govern
the issuance and dissolution of the re straining order or injunction
contemplated in this Section.

xxx xxx xxx

Based on the aforequoted provision, the Monetary Board may order the cessation of
operations of a bank in the Philippine and place it under receivership upon a finding
of insolvency or when its continuance in business would involve probable loss its
depositors or creditors. If the Monetary Board shall determine and confirm within
sixty (60) days that the bank is insolvent or can no longer resume business with
safety to its depositors, creditors and the general public, it shall, if public interest will
be served, order its liquidation.

Specifically, the basic question to be resolved in G.R. Nos. 70054, 78767 and 78894
is whether or not the Central Bank and the Monetary Board acted arbitrarily and in
bad faith in finding and thereafter concluding that petitioner bank is insolvent, and in
ordering its closure on January 25, 1985.

As We have stated in Our resolution dated August 3, 1989, the documents pertinent
to the resolution of these petitions are the Teodoro Report, Tiaoqui Report, and the
Valenzuela, Aurellano and Tiaoqui Report and the supporting documents made as
bases by the supporters of their conclusions contained in their respective reports. We
will focus Our study and discussion however on the Tiaoqui Report and the
Valenzuela, Aurellano and Tiaoqui Report. The former recommended the closure
and receivership of petitioner bank while the latter report made the recommendation
to eventually place the petitioner bank under liquidation. This Court shall likewise
take into consideration the findings contained in the reports of the two commissioners
who were appointed by this Court to hold the referral hearings, namely the report by
Judge Manuel Cosico submitted February 20, 1988 and the report submitted by
Justice Consuelo Santiago on January 28, 1991.

There is no question that under Section 29 of the Central Bank Act, the following are
the mandatory requirements to be complied with before a bank found to be insolvent
is ordered closed and forbidden to do business in the Philippines: Firstly, an
examination shall be conducted by the head of the appropriate supervising or
examining department or his examiners or agents into the condition of the bank;
secondly, it shall be disclosed in the examination that the condition of the bank is one
of insolvency, or that its continuance in business would involve probable loss to its
depositors or creditors; thirdly, the department head concerned shall inform the
Monetary Board in writing, of the facts; and lastly, the Monetary Board shall find the
statements of the department head to be true.

Anent the first requirement, the Tiaoqui report, submitted on January 23, 1985,
revealed that the finding of insolvency of petitioner was based on the partial list of
exceptions and findings on the regular examination of the bank as of July 31, 1984
conducted by the Supervision and Examination Sector II of the Central Bank of the
PhilippinesCentral Bank (p. 1, Tiaoqui Report).

On December 17, 1984, this list of exceptions and finding was submitted to the
petitioner bank (p. 6, Tiaoqui Report) This was attached to the letter dated December
17, 1984, of examiner-in-charge Dionisio Domingo of SES Department II of the
Central Bank to Teodoro Arcenas, president of petitione bank, which disclosed that
the examination of the petitioner bank as to its financial condition as of July 31, 1984
was not yet completed or finished on December 17, 1984 when the Central Bank
submitted the partial list of findings of examination to th petitioner bank. The letter
reads:

In connection with the regular examination of your institution a of July 31,

1984, we are submitting herewith a partial list of our exceptions/findings for
your comments.

Please be informed that we have not yet officially terminated our examination
(tentatively scheduled last December 7, 1984) and that we are still awaiting
for the unsubmitted replies to our previous letters requests. Moreover, other
findings/ observations are still being summarized including the classification
of loans and other risk assets. These shall be submitted to you in due time
(p. 810, Rollo, Vol. III; emphasis ours).

It is worthy to note that a conference was held on January 21, 1985 at the Central
Bank between the officials of the latter an of petitioner bank. What transpired and
what was agreed upon during the conference was explained in the Tiaoqui report.

... The discussion centered on the substantial exposure of the bank to the
various entities which would have a relationship with the bank; the manner by
which some bank funds were made indirectly available to several entities
within the group; and the unhealth financial status of these firms in which the
 bank was additionally exposed through new funds or refinancing
accommodation including accrued interest.

Queried in the impact of these clean loans, on the bank solvency Mr. Dizon
(BF Executive Vice President) intimated that, collectively these corporations
have large undeveloped real estate properties in the suburbs which can be
made answerable for the unsecured loans a well as the Central Bank's credit
accommodations. A formal reply of the bank would still be forthcoming. (pp.
58-59, Rollo, Vol. I; emphasis ours)

Clearly, Tiaoqui based his report on an incomplete examination of petitioner bank

and outrightly concluded therein that the latter's financial status was one of
insolvency or illiquidity. He arrived at the said conclusion from the following facts: that
as of July 31, 1984, total capital accounts consisting of paid-in capital and other
capital accounts such as surplus, surplus reserves and undivided profits aggregated
P351.8 million; that capital adjustments, however, wiped out the capital accounts and
placed the bank with a capital deficiency amounting to P334.956 million; that the
biggest adjustment which contributed to the deficit is the provision for estimated
losses on accounts classified as doubtful and loss which was computed at P600.4
million pursuant to the examination. This provision is also known as valuation
reserves which was set up or deducted against the capital accounts of the bank in
arriving at the latter's financial condition.

Tiaoqui however admits the insufficiency and unreliability of the findings of the
examiner as to the setting up of recommended valuation reserves from the assets of
petitioner bank. He stated:

The recommended valuation reserves as bases for determining the financial

status of the bank would need to be discussed with the bank, consistent with
standard examination procedure, for which the bank would in turn reply. Also,
the examination has not been officially terminated. (p. 7. Tiaoqui report; p.
59, Rollo, Vol. I)

In his testimony in the second referral hearing before Justice Santiago, Tiaoqui
testified that on January 21, 1985, he met with officers of petitioner bank to discuss
the advanced findings and exceptions made by Mr. Dionisio Domingo which covered
70%-80% of the bank's loan portfolio; that at that meeting, Fortunato Dizon (BF's
Executive Vice President) said that as regards the unsecured loans granted to
various corporations, said corporations had large undeveloped real estate properties
which could be answerable for the said unsecured loans and that a reply from BF
was forthcoming, that he (Tiaoqui) however prepared his report despite the absence
of such reply; that he believed, as in fact it is stated in his report, that despite the
meeting on January 21, 1985, there was still a need to discuss the recommended
valuation reserves of petitioner bank and; that he however, did not wait anymore for
a discussion of the recommended valuation reserves and instead prepared his report
two days after January 21, 1985 (pp. 3313-3314, Rollo).

Records further show that the examination of petitioner bank was officially terminated
only when Central Bank Examination-charge Dionisio Domingo submitted his final
report of examination on March 4,1985.
It is evident from the foregoing circumstances that the examination contemplated in
Sec. 29 of the CB Act as a mandatory requirement was not completely and fully
complied with. Despite the existence of the partial list of findings in the examination
of the bank, there were still highly significant items to be weighed and determined
such as the matter of valuation reserves, before these can be considered in the
financial condition of the bank. It would be a drastic move to conclude prematurely
that a bank is insolvent if the basis for such conclusion is lacking and insufficient,
especially if doubt exists as to whether such bases or findings faithfully represent the
real financial status of the bank.

The actuation of the Monetary Board in closing petitioner bank on January 25, 1985
barely four days after a conference with the latter on the examiners' partial findings
on its financial position is also violative of what was provided in the CB Manual of
Examination Procedures. Said manual provides that only after the examination is
concluded, should a pre-closing conference led by the examiner-in-charge be held
with the officers/representatives of the institution on the findings/exception, and a
copy of the summary of the findings/violations should be furnished the institution
examined so that corrective action may be taken by them as soon as possible
(Manual of Examination Procedures, General Instruction, p. 14). It is hard to
understand how a period of four days after the conference could be a reasonable
opportunity for a bank to undertake a responsive and corrective action on the partial
list of findings of the examiner-in-charge.

We recognize the fact that it is the responsibility of the Central Bank of the
Philippines to administer the monetary, banking and credit system of the country and
that its powers and functions shall be exercised by the Monetary Board pursuant to
Rep. Act No. 265, known as the Central Bank Act. Consequently, the power and
authority of the Monetary Board to close banks and liquidate them thereafter when
public interest so requires is an exercise of the police power of the state. Police
power, however, may not be done arbitratrily or unreasonably and could be set aside
if it is either capricious, discriminatory, whimsical, arbitrary, unjust or is tantamount to
a denial of due process and equal protection clauses of the Constitution (Central
Bank v. Court of Appeals, Nos. L-50031-32, July 27, 1981, 106 SCRA 143).

In the instant case, the basic standards of substantial due process were not
observed. Time and again, We have held in several cases, that the procedure of
administrative tribunals must satisfy the fundamentals of fair play and that their
judgment should express a well-supported conclusion.

In the celebrated case of Ang Tibay v. Court of Industrial Relations, 69 Phil. 635, this
Court laid down several cardinal primary rights which must be respected in a
proceeding before an administrative body.

However, as to the requirement of notice and hearing, Sec. 29 of RA 265 does not
require a previous hearing before the Monetary Board implements the closure of a
bank, since its action is subject to judicial scrutiny as provided for under the same
law (Rural Bank of Bato v. IAC, G.R. No. 65642, October 15, 1984, Rural Bank v.
Court of Appeals, G.R. 61689, June 20, 1988,162 SCRA 288).

Notwithstanding the foregoing, administrative due process does not mean that the
other important principles may be dispensed with, namely: the decision of the
administrative body must have something to support itself and the evidence must be
substantial. Substantial evidence is more than a mere scintilla. It means such
relevant evidence as a reasonable mind might accept as adequate to support a
conclusion (Ang Tibay vs. CIR, supra). Hence, where the decision is merely based
upon pieces of documentary evidence that are not sufficiently substantial and
probative for the purpose and conclusion they are presented, the standard of fairness
mandated in the due process clause is not met. In the case at bar, the conclusion
arrived at by the respondent Board that the petitioner bank is in an illiquid financial
position on January 23, 1985, as to justify its closure on January 25, 1985 cannot be
given weight and finality as the report itself admits the inadequacy of its basis to
support its conclusion.

The second requirement provided in Section 29, R.A. 265 before a bank may be
closed is that the examination should disclose that the condition of the bank is one of
insolvency.

As to the concept of whether the bank is solvent or not, the respondents contend that
under the Central Bank Manual of Examination Procedures, Central Bank examiners
must recommend valuation reserves, when warranted, to be set up or deducted
against the corresponding asset account to determine the bank's true condition or
net worth. In the case of loan accounts, to which practically all the questioned
valuation reserves refer, the manual provides that:

1. For doubtful loans, or loans the ultimate collection of which is doubtful and in
which a substantial loss is probable but not yet definitely ascertainable as to extent,
valuation reserves of fifty per cent (50%) of the accounts should be recommended to
be set up.

2. For loans classified as loss, or loans regarded by the examiner as absolutely

uncollectible or worthless, valuation reserves of one hundred percent (100%) of the
accounts should be recommended to be set up (p. 8, Objections to Santiago report).

The foregoing criteria used by respondents in determining the financial condition of

the bank is based on Section 5 of RA 337, known as the General Banking Act which
states:

Sec. 5. The following terms shall be held to be synonymous and

interchangeable:

... f. Unimpaired Capital and Surplus, "Combined capital accounts," and "Net
worth," which terms shall mean for the purposes of this Act, the total of the
"unimpaired paid-in capital, surplus, and undivided profits net of such
valuation reserves as may be required by the Central Bank."

There is no doubt that the Central Bank Act vests authority upon the Central Bank
and Monetary Board to take charge and administer the monetary and banking
system of the country and this authority includes the power to examine and
determine the financial condition of banks for purposes provided for by law, such as
for the purpose of closure on the ground of insolvency stated in Section 29 of the
Central Bank Act. But express grants of power to public officers should be subjected
to a strict interpretation, and will be construed as conferring those powers which are
expressly imposed or necessarily implied (Floyd Mechem, Treatise on the Law of
Public Offices and Officers, p. 335).
In this case, there can be no clearer explanation of the concept of insolvency than
what the law itself states. Sec. 29 of the Central Bank Act provides that insolvency
under the Act, shall be understood to mean that "the realizable assets of a bank or a
non-bank financial intermediary performing quasi-banking functions as determined by
the Central Bank are insufficient to meet its liabilities."

Hence, the contention of the Central Bank that a bank's true financial condition is
synonymous with the terms "unimpaired capital and surplus," "combined capital
accounts" and net worth after deducting valuation reserves from the capital, surplus
and unretained earnings, citing Sec. 5 of RA 337 is misplaced.

Firstly, it is clear from the law that a solvent bank is one in which its assets exceed its
liabilities. It is a basic accounting principle that assets are composed of liabilities and
capital. The term "assets" includes capital and surplus" (Exley v. Harris, 267 p. 970,
973, 126 Kan., 302). On the other hand, the term "capital" includes common and
preferred stock, surplus reserves, surplus and undivided profits. (Manual of
Examination Procedures, Report of Examination on Department of Commercial and
Savings Banks, p. 3-C). If valuation reserves would be deducted from these items,
the result would merely be the networth or the unimpaired capital and surplus of the
bank applying Sec. 5 of RA 337 but not the total financial condition of the bank.

Secondly, the statement of assets and liabilities is used in balance sheets. Banks
use statements of condition to reflect the amounts, nature and changes in the assets
and liabilities. The Central Bank Manual of Examination Procedures provides a
format or checklist of a statement of condition to be used by examiners as guide in
the examination of banks. The format enumerates the items which will compose the
assets and liabilities of a bank. Assets include cash and those due from banks,
loans, discounts and advances, fixed assets and other property owned or acquired
and other miscellaneous assets. The amount of loans, discounts and advances to be
stated in the statement of condition as provided for in the manual is computed after
deducting valuation reserves when deemed necessary. On the other hand, liabilities
are composed of demand deposits, time and savings deposits, cashier's, manager's
and certified checks, borrowings, due to head office, branches; and agencies, other
liabilities and deferred credits (Manual of Examination Procedure, p. 9). The amounts
stated in the balance sheets or statements of condition including the computation of
valuation reserves when justified, are based however, on the assumption that the
bank or company will continue in business indefinitely, and therefore, the networth
shown in the statement is in no sense an indication of the amount that might be
realized if the bank or company were to be liquidated immediately (Prentice Hall
Encyclopedic Dictionary of Business Finance, p. 48). Further, based on respondents'
submissions, the allowance for probable losses on loans and discounts represents
the amount set up against current operations to provide for possible losses arising
from non-collection of loans and advances, and this account is also referred to as
valuation reserve (p. 9, Objections to Santiago report). Clearly, the statement of
condition which contains a provision for recommended valuation reserves should not
be used as the ultimate basis to determine the solvency of an institution for the
purpose of termination of its operations.

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

recommend valuation reserves, when warranted, to be set up against the
corresponding asset account (p. 8, Objections to Santiago report). Tiaoqui himself,
as author of the report recommending the closure of petitioner bank admits that the
valuation reserves should still be discussed with the petitioner bank in compliance
with standard examination procedure. Hence, for the Monetary Board to unilaterally
deduct an uncertain amount as valuation reserves from the assets of a bank and to
conclude therefrom without sufficient basis that the bank is insolvent, would be totally
unjust and unfair.

The test of insolvency laid down in Section 29 of the Central Bank Act is measured
by determining whether the realizable assets of a bank are leas than its liabilities.
Hence, a bank is solvent if the fair cash value of all its assets, realizable within a
reasonable time by a reasonable prudent person, would equal or exceed its total
liabilities exclusive of stock liability; but if such fair cash value so realizable is not
sufficient to pay such liabilities within a reasonable time, the bank is insolvent.
(Gillian v. State, 194 N.E. 360, 363, 207 Ind. 661). Stated in other words, the
insolvency of a bank occurs when the actual cash market value of its assets is
insufficient to pay its liabilities, not considering capital stock and surplus which are
not liabilities for such purpose (Exley v. Harris, 267 p. 970, 973,126 Kan. 302;
Alexander v. Llewellyn, Mo. App., 70 S.W. 2n 115,117).

In arriving at the computation of realizable assets of petitioner bank, respondents

used its books which undoubtedly are not reflective of the actual cash or fair market
value of its assets. This is not the proper procedure contemplated in Sec. 29 of the
Central Bank Act. Even the CB Manual of Examination Procedures does not confine
examination of a bank solely with the determination of the books of the bank. The
latter is part of auditing which should not be confused with examination. Examination
appraises the soundness of the institution's assets, the quality and character of
management and determines the institution's compliance with laws, rules and
regulations. Audit is a detailed inspection of the institution's books, accounts,
vouchers, ledgers, etc. to determine the recording of all assets and liabilities. Hence,
examination concerns itself with review and appraisal, while audit concerns itself with
verification (CB Manual of Examination Procedures, General Instructions, p. 5). This
Court however, is not in the position to determine how much cash or market value
shall be assigned to each of the assets and liabilities of the bank to determine their
total realizable value. The proper determination of these matters by using the actual
cash value criteria belongs to the field of fact-finding expertise of the Central Bank
and the Monetary Board. Notwithstanding the fact that the figures arrived at by the
respondent Board as to assets and liabilities do not truly indicate their realizable
value as they were merely based on book value, We will however, take a look at the
figures presented by the Tiaoqui Report in concluding insolvency as of July 31, 1984
and at the figures presented by the CB authorized deputy receiver and by the
Valenzuela, Aurellano and Tiaoqui Report which recommended the liquidation of the
bank by reason of insolvency as o January 25,1985.

The Tiaoqui report dated January 23, 1985, which was based on partial examination
findings on the bank's condition as of July 31, 1984, states that total liabilities of
P5,282.1 million exceeds total assets of P4,947.2 million after deducting from the
assets valuation reserves of P612.2 million. Since, as We have explained in our
previous discussion that valuation reserves can not be legally deducted as there was
no truthful and complete evaluation thereof as admitted by the Tiaoqui report itself,
then an adjustment of the figures win show that the liabilities of P5,282.1 million will
not exceed the total assets which will amount to P5,559.4 if the 612.2 million allotted
to valuation reserves will not be deducted from the assets. There can be no basis
therefore for both the conclusion of insolvency and for the decision of the respondent
Board to close petitioner bank and place it under receivership.
Concerning the financial position of the bank as of January 25, 1985, the date of the
closure of the bank, the consolidated statement of condition thereof as of the
aforesaid date shown in the Valenzuela, Aurellano and Tiaoqui report on the
receivership of petitioner bank, dated March 19, 1985, indicates that total liabilities of
4,540.84 million does not exceed the total assets of 4,981.53 million. Likewise, the
consolidated statement of condition of petitioner bank as of January 25, 1985
prepared by the Central Bank Authorized Deputy Receiver Artemio Cruz shows that
total assets amounting to P4,981,522,996.22 even exceeds total liabilities amounting
to P4,540,836,834.15. Based on the foregoing, there was no valid reason for the
Valenzuela, Aurellano and Tiaoqui report to finally recommend the liquidation of
petitioner bank instead of its rehabilitation.

We take note of the exhaustive study and findings of the Cosico report on the
petitioner bank's having engaged in unsafe, unsound and fraudulent banking
practices by the granting of huge unsecured loans to several subsidiaries and related
companies. We do not see, however, that this has any material bearing on the
validity of the closure. Section 34 of the RA 265, Central Bank Act empowers the
Monetary Board to take action under Section 29 of the Central Bank Act when a bank
"persists in carrying on its business in an unlawful or unsafe manner." There was no
showing whatsoever that the bank had persisted in committing unlawful banking
practices and that the respondent Board had attempted to take effective action on
the bank's alleged activities. During the period from July 27, 1984 up to January 25,
1985, when petitioner bank was under conservatorship no official of the bank was
ever prosecuted, suspended or removed for any participation in unsafe and unsound
banking practices, and neither was the entire management of the bank replaced or
substituted. In fact, in her testimony during the second referral hearing, Carlota
Valenzuela, CB Deputy Governor, testified that the reason for petitioner bank's
closure was not unsound, unsafe and fraudulent banking practices but the alleged
insolvency position of the bank (TSN, August 3, 1990, p. 3316, Rollo, Vol. VIII).

Finally, another circumstance which point to the solvency of petitioner bank is the
granting by the Monetary Board in favor of the former a credit line in the amount of
P3 billion along with the placing of petitioner bank under conservatorship by virtue of
M.B. Resolution No. 955 dated July 27, 1984. This paved the way for the reopening
of the bank on August 1, 1984 after a self-imposed bank holiday on July 23, 1984.

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

emergency loans that can be granted by the Central Bank to a financially distressed
bank:

Sec. 90. ... In periods of emergency or of imminent financial panic which

directly threaten monetary and banking stability, the Central Bank may grant
banking institutions extraordinary advances secured by any assets which are
defined as acceptable by by a concurrent vote of at least five members of the
Monetary Board. While such advances are outstanding, the debtor institution
may not expand the total volume of its loans or investments without the prior
authorization of the Monetary Board.

The Central Bank may, at its discretion, likewise grant advances to banking
institutions, even during normal periods, for the purpose of assisting a bank
in a precarious financial condition or under serious financial pressures
brought about by unforeseen events, or events which, though foreseeable,
 could not be prevented by the bank concerned. Provided, however, That the
Monetary Board has ascertained that the bank is not insolvent and has
clearly realizable assets to secure the advances. Provided, further, That a
concurrent vote of at least five members of the Monetary Board is obtained.
(Emphasis ours)

The first paragraph of the aforequoted provision contemplates a situation where the
whole banking community is confronted with financial and economic crisis giving rise
to serious and widespread confusion among the public, which may eventually
threaten and gravely prejudice the stability of the banking system. Here, the
emergency or financial confusion involves the whole banking community and not one
bank or institution only. The second situation on the other hand, provides for a
situation where the Central Bank grants a loan to a bank with uncertain financial
condition but not insolvent.

As alleged by the respondents, the following are the reasons of the Central Bank in
approving the resolution granting the P3 billion loan to petitioner bank and the latter's
reopening after a brief self-imposed banking holiday:

WHEREAS, the closure by Banco Filipino Savings and Mortgage Bank of its
Banking offices on its own initiative has worked serious hardships on its
depositors and has affected confidence levels in the banking system resulting
in a feeling of apprehension among depositors and unnecessary deposit
withdrawals;

WHEREAS, the Central Bank is charged with the function of administering

the banking system;

WHEREAS, the reopening of Banco Filipino would require additional credit

resources from the Central Bank as well as an independent management
acceptable to the Central Bank;

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

uncertainty that presently exists;

... (M.B. Min. No. 35 dated July 27, 1984 cited in Respondents' Objections to
Santiago Report, p. 26; p. 3387, Rollo, Vol. IX; Emphasis ours).

A perusal of the foregoing "Whereas" clauses unmistakably show that the clear
reason for the decision to grant the emergency loan to petitioner bank was that the
latter was suffering from financial distress and severe bank "run" as a result of which
it closed on July 23, 1984 and that the release of the said amount is in accordance
with the Central Bank's full support to meet Banco Filipino's depositors' withdrawal
requirements (Excerpts of minutes of meeting on MB Min. No. 35, p. 25, Rollo, Vol.
IX). Nothing therein shows that an extraordinary emergency situation exists affecting
most banks, not only as regards petitioner bank. This Court thereby finds that the
grant of the said emergency loan was intended from the beginning to fall under the
second paragraph of Section 90 of the Central Bank Act, which could not have
occurred if the petitioner bank was not solvent. Where notwithstanding knowledge of
the irregularities and unsafe banking practices allegedly committed by the petitioner
bank, the Central Bank even granted financial support to the latter and placed it
under conservatorship, such actuation means that petitioner bank could still be saved
from its financial distress by adequate aid and management reform, which was
required by Central Bank's duty to maintain the stability of the banking system and
the preservation of public confidence in it (Ramos v. Central Bank, No. L-29352,
October 4, 1971, 41 SCRA 565).

In view of the foregoing premises, We believe that the closure of the petitioner bank
was arbitrary and committed with grave abuse of discretion. Granting in gratia
argumenti that the closure was based on justified grounds to protect the public, the
fact that petitioner bank was suffering from serious financial problems should not
automatically lead to its liquidation. Section 29 of the Central Bank provides that a
closed bank may be reorganized or otherwise placed in such a condition that it may
be permitted to resume business with safety to its depositors, creditors and the
general public.

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

ACCORDINGLY, decision is hereby rendered as follows:

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

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

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-17620 August 31, 1962

FAR EASTERN UNIVERSITY, petitioner,

vs.
THE COURT OF INDUSTRIAL RELATIONS, PHILIPPINE ASSOCIATION OF COLLEGES AND
UNIVERSITY PROFESSORS (PACUP) and TOMAS N. AGUIRRE, respondents.

Crispin D. Baizas & Associates for petitioner.

Mariano B. Tuason for respondent Court of Industrial Relations.
Eulogio R. Lerum for the other respondents.

CONCEPCION, J.:

Appeal by certiorari, taken by the Far Eastern University, hereafter referred to as the University, from
resolution of the Court of Industrial Relations sitting en banc, modifying a decision of one of the
Judges of said Court. The main facts are set forth in said decision, from which we quote:

From the evidence on record, it appears that Tomas N. Aguirre became a faculty member of
the respondent in 1948. He was first employed at the rate of P6.00 per hour and then was
contracted to teach in the Boys' High School Department in the same university at the rate of
P30.00 per class, earning an average of P500.00 to P600.00 a month. Aguirre joined the
PACUP, a legitimate labor organization in June 1953. In July or August, 1953, upon orders of
the president of the PACUP, Jose M. Hernandez, Aguirre began to campaign and recruit
members for the PACUP. As a result of his efforts in campaigning for membership, he was
able to influence seven members from the faculty of the university (Exhibits "B", "B-1" to "B-
6", inclusive). In his campaign for membership, he approached practically all of the faculty
members of the respondent's Institute of Education and some from the Arts and Sciences,
Business Administration and Finance, but most of them were afraid to join the union. They
were afraid of any retaliation that the respondent may make because of their joining the
union.
In the year 1953, respondent formed a committee to classify all faculty members and
determine the rates of their backpay and assignments. Ninety-six of the more than four
hundred faculty members were classified as full time instructors. Aguirre was one of those
who was classified by the said committee as full time instructor in the respondent's Institute
of Education, with a fixed compensation of P450.00 a month, effective September 1, 1953.

During the months of December, 1953 up to May, 1954, for teaching in the Far Eastern
University, respondent herein, Aguirre was paid the following: December, 1953-P210.00;
January, 1954 — P302.40; February, 1954 — P313.20; March, 1954 — P249.00. In June,
1954, respondent stopped giving him teaching assignments.

Aguirre claims that in June, 1954, he was no longer given an assignment because of his
union activities while respondent claims that Aguirre was not given assignment because of
decreased enrollment in the university. He further avers that after recruiting some members,
his classification as full time instructor changed to reserved full time instructor and his
teaching load was decreased to two hours a day. Hence, his reduced earnings from
December, 1953 to May, 1954 as previously mentioned. His salary as a full time instructor
was P5,400.00 per annum or P450.00 per month, irrespective of his teaching load.
Respondent, thru its witness, the dean in the Institute of Education where Aguirre was
teaching, testified and admitted that the reason for Aguirre's not receiving any teaching
assignment in June, 1954 was because enrollment in the Institute of Education was going
down steadily in the Filipino Language class where Aguirre was teaching. Among the other
Filipino Language instructors are Baldomero de Jesus, Teodoro Gener, Rosario Bernards,
Dolores Gupit, Inigo Regalado, and Flordeliza Mendoza who are older members of the
faculty than Aguirre except Regalado, Bernards and Mendoza. The dean of the Institute of
Education, Luz A. Zafra, admitted also that in the assignment of subjects to faculty members,
length of service, experience, preparation and professional growth as well as student-faculty
relation were taken into consideration. Hence if these above-mentioned factors, particularly
length of service and experience, were really taken into consideration, Aguirre a full time
professor should have been given the assignment in stead of Regalado and Mendoza who
were only part time professors and who started teaching after him. The other Tagalo
instructors (professors under the classification) who were given assignments when Aguirre
was not, are not members of the PACUP. It should also be noted that since before the last
war, Aguirre had been teaching in the University of the Philippines.

It is true that there were charges brought by respondent against Aguirre but the same had
been investigated and found to be groundless. On the other hand, Aguirre brought charge
against the respondent before the Department of Education when his teaching load was
reduced and the Director of Private Schools, in his decision of November 9, 1954, directed
the respondent to pay the salary differential which Aguirre fail to earn from December 1,
1953 to 1954 and to give Aguirre assignment in the college department during the first
semester of the current school year under the same condition before his teaching load was
reduced. The Secretary of Education, in his decision, dated June 22, 1955, affirmed the
decision of the Director of Private Schools and on December 8, 1956, the Executive
Secretary, by authority of the President of the Philippines affirmed the decision of the
Director of Private School as well as the Secretary of Education's decision, previously
mentioned. Of course, those proceedings in no way could considered as controlling or
affecting the case at bar. At best, they may serve as a grim reminder of the actions, of the
governmental entity that could do something to bolster the relationship between the
university and the faculty members. The allegation of respondent to the effect that it suffered
reduce enrollment in 1953-1954, hence necessitating the laying off of Aguirre, cannot be
taken into consideration after a careful examination of the balance sheet submitted by the
respondent in relation to its motion to dismiss. Said balance sheet shows that in the 1952-
 1953 fiscal year, respondent made a net profit of P158,035.25 and in 1953-1954,
P258,619.98, while in 1954-1955, a net profit of P707,003.70 and in 1955-1956,
P999,766.88. The figures show that respondent from 1952 to 1956, has been steadily
increasing its income until in 1958-1959 when it made net income of P1,511,293.42. And
even on the assumption the enrollment in the department where Aguirre was teaching
reduced, still the Court cannot validly reconcile the fact that Aguirre who was a full time
professor receiving a fixed monthly salary could not any further be given assignment the time
professors and whose length of service in the university cannot compare with that of Aguirre
were given assignment and suffered no reeducating in salary. Undoubtedly, this Court
cannot but conclude that when the respondent changed status of Aguirre from a full time
professor at P450.00 a month to that of a reserved full time professor with a teaching load of
two hours and finally got no assignments in June, 1964, it was motivated other than
decreased enrollment, especially in the case of the evidence that Aguirre campaigned for
union membership among the professors, instructors and teachers of the respondent and the
further fact, that other full time instructors similarly situated but are not union members did
not suffer the same facts of abrupt reduction in their teaching load and salary. As indicated,
Aguirre was later deprived of any teaching load in the Institute of Education. Even part time
professors as Panganiban, Mendoza and Regalado had assignments to the exclusion of
Aguirre who was a full time professor. This eventuality, was apparently, the fear of most of
the faculty members who refused to join the PACUP when Aguirre asked them to become
members.

Ordinarily, back wages are granted whenever there is a finding of a commission of unfair
labor practices. However, in this particular case the testimony of Aguirre, himself as well as
the documentary evidence on the record show that since June, 1958, Aguirre began
teaching at the Philippine College of Commerce with an income of P100.00 a month and on
November 17, 1955, he began working as a permanent employee in the Central Bank of the
Philippines with a compensation of P3,000.00 per annum. On September 5, 1956, his salary
was raised to P3,600.00 per annum. The permanent employment obtained by Aguirre in the
Central Bank of the Philippines as well as in the Philippine College of Commerce is
substantial and under the concept of the Industrial Peace Act, his employment elsewhere in
a permanent capacity is sufficient to bar his reinstatement to his former position in the
respondent. While it may be true that his earnings with the Central Bank may be less than
that he was receiving from the Far Eastern University, yet his status with the Central Bank, is
permanent and he could teach as a sideline in any school, as in fact he is connected with the
Philippine College of Commerce, a fact that could not happen if he were still connected with
the Far Eastern University.

At the instance of the Philippine Association of Colleges and University Professors, hereafter
referred to as the PACUP, and/or Tomas N. Aguirre, on September 28, 1954, an Acting Prosecutor
of the Court of Industrial Relations filed a complaint for unfair labor practice against the University,
which later moved on November 17, 1954, to dismiss the complaint. Subsequently, or on February
4, 1955, the complainant and/or the offended party, Tomas N. Aguirre filed a motion to withdraw said
complaint upon the ground that there was a decision of the Director of Private Schools ordering his
reinstatement and the payment of back wages, as well as wage differential, and that the University
was "using the pendency" of the case "as a ground for not complying with the said decision". Acting
upon this latter motion, on March 29, 1955, the Court dismissed said complaint. However, on August
30, 1955 the order of dismissal was, on motion of the complainant dated April 22, 1955, set aside for
the reason that the expected amicable settlement of the case had not materialized. On October 16,
1955, the University filed a "supplemental pleading" to its motion to dismiss of November 17, 1954
both of which were denied by the Court on June 23, 1956. Later on the University filed its answer
and, the issue having been joined, the case was tried, after which Judge Arsenio L. Martinez of said
Court rendered the aforementioned decision finding the University guilty of unfair labor practice and
sentencing said institution to pay to Aguirre the salary differential due him from December 1, 1953 to
May 31, 1954, based on Aguirre's salary of P450.00 a month, as well as back wages at the same
rate, from June 1, 1954 to November 17, 1955, after deducting therefrom the compensation paid to
him by the Philippine College of Commerce from June 1, 1955 to November 17, 1955, as well as to
cease and desist from further committing unfair labor practices. However, said Judge did not order
the reinstatement of Aguirre in the University, upon the ground that his employment in the Central
Bank of the Philippines, is, within the purview of the Industrial Peace Act, a substantial equivalent of
his position as full time instructor in said University.

On motion for reconsideration filed by the complainant, a majority of the judges of said Court
sitting en banc, affirmed the decision of Judge Martinez, insofar as the commission of unfair labor
practice charged and the payment of the salary differential and back wages are concerned, but held
that Aguirre's employment in the Central Bank and the Philippine College of Commerce are not the
substantial equivalent of his aforementioned position as full time instructor in the University, and,
accordingly, modified said decision by, likewise, sentencing the University to reinstate Tomas N.
Aguirre, in addition to paying him the aforementioned wages differential and back wages plus "other
emoluments". Hence this appeal by certiorari taken by the University. The Court of Industrial
Relation, as one of the appellees herein, has filed a motion, which we consider as its answer, to
dismiss the appeal for lack of merit upon the ground that appellant raises no question of law.

Appellant's contention is that the employment of Aguirre in the Central Bank and his teaching load in
the Philippine College of Commerce are substantially equivalent to his former position in the
University. Upon the other hand, the resolution appealed reached the opposite conclusion for the
following reasons:

(a) Aguirre's work in the respondent university is that of a professor, ]while his work in the
Central Bank is clerical in nature;

(b) As professor Aguirre's maximum teaching period is five (5) hours daily; while in the bank
he works eight (8) hours a day;

(c) Although his work in the bank allows him to teach part time in the Philippine College of
Commerce for one hour, he could also do the same work even if he were employed in the
university; and

(d) Aguirre was receiving from the respondent university P5,400.00 a year, while he receives
from the Central Bank P3,000.00 a year only. This alone fact decides the issue, namely, that
Aguirre's position in the Central Bank is not substantially equivalent to his position in the Far
Eastern University. "Any employment at lower wage rate is not substantially equivalent
employment" [Willard, Inc. (1937 2 NLRB 1094, Moorseville Cotton Mills vs. NLRB (CCA-4,
1940), 2. Labor Cases. 18.576; 110 fed. (2d) 79; Puleski Veneer Corn. (1938) 10 NLRB 136;
Quidnick Dye Works, Inc. (1937) 2 NLRB 963].

Although Mr. Aguirre was, not a professor, but a full time instructor in the University, we agree with
the opinion of the lower court, sitting en banc. In addition to the circumstances relied upon by the
latter, one important factor, not mentioned in the resolution appealed from, is decisively in favor of
the conclusion therein reached, and that is that Mr. Aguirre is an instructor in Tagalog, and that, as
such, his position as researcher in the Central Bank has no future for him. The situation would
perhaps have been different had his line been economics. Inasmuch, however, as Mr. Aguirre has
especialized in the Tagalog dialect, his work as a researcher in the Central Bank is inferior to his job
as full time instructor in the University, not so much because his salary in the latter is substantially
bigger, even if we add thereto his emoluments in the Philippine College of Commerce, but, specially,
because of the future his position as instructor in the University offers him as a career, which is non-
existent in the Central Bank.

WHEREFORE, the resolution appealed from is hereby affirmed, with costs against petitioner. It is so
ordered..1äwphï1.ñët

G.R. No. 73884 September 24, 1987

SPOUSES ROMEO LIPANA and MILAGROS LIPANA, petitioners,

vs.
DEVELOPMENT BANK OF RIZAL, respondent.

PARAS, J.:

This is a petition for review on certiorari of the August 30, 1985 Order of the Regional Trial Court of
Pasig denying petitioners' Motion to Lift Stay of Execution in Civil Case No. 50802.

During the period from 1982 to January, 1984, herein petitioners opened and maintained both time
and savings deposits with the herein respondent Development Bank of Rizal all in the aggregate
amount of P939,737.32. When some of the Time Deposit Certificates matured, petitioners were not
able to cash them but instead were issued a manager's check which was dishonored upon
presentment. Demands for the payment of both time and savings deposits having failed, on March
14, 1984, petitioners filed with the Regional Trial Court of Pasig a Complaint With Prayer For
Issuance of a Writ of Preliminary Attachment for collection of a sum of money with damages,
docketed therein as Civil Case No. 50802 (Record, pp. 3-11).

Respondent Judge, in an Order dated March 19, 1984 (Ibid., p. 19-21), ordered the issuance of a
writ of attachment, and pursuant thereto, a writ of attachment dated March 20, 1984 was issued in
favor of the petitioners (Ibid., p. 33).

On June 27, 1984, respondent bank filed its Answer (Ibid., p. 58-61).

On July 23, 1984, petitioners filed a Motion For Judgment on the Pleadings (Ibid., pp. 68-73),
opposed by respondent bank (Ibid., pp. 74-76), but respondent judge, in a Decision dated November
13, 1984, rendered judgment in favor of petitioners. The dispositive portion of the said Decision,
reads:

IN VIEW OF ALL THE FOREGOING, the Court renders judgment in favor of the
plaintiffs, ordering the defendant to pay the total sum of P939,737.32 plus stipulated
 interest; the sum equivalent to 15% of the amount due as attorney's fees; and costs
of suit.

The counterclaim is dismissed, for lack of merit.

Meanwhile, on August 10, 1984, the Monetary Board, in its Resolution No. 1009, finding that the
condition of respondent bank was one of insolvency and that its continuance in business would
result in probable loss to its depositors and creditors, decided to place it under receivership (Rollo, p.
84).

On December 7, 1984, petitioners filed a Motion for Execution Pending Appeal (Rcd., pp. 91-93),
which was opposed by respondent bank (Ibid., p. 94-96). On December 27, 1984, petitioners filed
their Reply to the opposition (Ibid., pp. 98-101), to which respondent bank filed its Rejoinder on
January 1, 1985 (Ibid., pp. 102-105).

In an order dated January 29, 1985, respondent judge ordered the issuance of a writ of execution
(Ibid., p. 106).

On February 11, 1985, respondent bank filed a Motion for Reconsideration of order dated January
29, 1985 and to Stay Writ of Execution (Ibid., pp. 109-110), opposed by petitioners (Ibid., p. 111) but
in an Order dated March 6, 1985, respondent judge stayed the execution (Ibid., p. 113).

On August 7, 1985, petitioners filed a Motion to Lift Stay of Execution (Ibid., pp. 119-122), opposed
by respondent bank (Ibid., pp. 123-127), and in an Order dated August 30, 1985, respondent judge
denied the said motion (Ibid., p. 130). Hence, the instant petition (Rollo, pp. 8-17).

The Second Division of the Court, in a resolution dated May 5, 1986, resolved to require the
respondent to comment (Ibid., p. 52). In compliance therewith, respondent bank filed its Comment
on June 9, 1986 (Ibid., pp. 53-58).

The petition was given due course in a resolution dated August 11, 1986, and the parties were
required to file their respective memoranda (Ibid., p. 61). In compliance therewith, petitioners filed
their Memorandum on September 19, 1986 (Ibid., p. 63-75), while respondent bank filed its
Memorandum on September 25, 1986 (Ibid., pp. 76-83), and the case was considered submitted for
deliberation in the Resolution dated October 8, 1986 (Ibid., p. 88)

Petitioners raised the following issues:

1. Respondent judge cannot legally stay execution of judgement that has already
become final and executory;

2. The placing under receivership by the Central Bank of the respondent bank, long
after the complaint was filed removed it from the application of the doctrine in
Re: Central Bank vs. Morfe (63 SCRA 113);

3. The filing of the complaint for a sum of money With damages against respondent
bank and the subsequent attachment of its property in Pasig, Metro Manila long
before the receivership took place render inapplicable the doctrine laid down by this
Honorable Supreme Court in the said Morfe case;
 4. The indefinite stay of execution without a ruling as to how long it will last, amounts
to deprivation of petitioners of their property without due process of law.

The instant petition is without merit.

I.

The main issue in this case is whether or not respondent judge could legally stay execution of
judgment that has already become final and executory.

The answer is in the affirmative.

The rule that once a decision becomes final and executory, it is the ministerial duty of the court to
order its execution, admits of certain exceptions as in cases of special and exceptional nature where
it becomes imperative in the higher interest of justice to direct the suspension of its execution
(Vecine vs. Geronimo, 59 O.G. 579); whenever it is necessary to accomplish the aims of justice
(Pascual vs. Tan, 85 Phil. 164); or when certain facts and circumstances transpired after the
judgment became final which could render the execution of the judgment unjust (Cabrias vs. Adil,
135 SCRA 354).

In the instant case, the stay of the execution of judgment is warranted by the fact that respondent
bank was placed under receivership. To execute the judgment would unduly deplete the assets of
respondent bank to the obvious prejudice of other depositors and creditors, since, as aptly stated
in Central Bank of the Philippines vs. Morfe (63 SCRA 114), after the Monetary Board has declared
that a bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its
assets for the equal benefit of all the creditors, including depositors. The assets of the insolvent
banking institution are held in trust for the equal benefit of all creditors, and after its insolvency, one
cannot obtain an advantage or a preference over another by an attachment, execution or otherwise.

Moreover, it will be noted that respondent bank was placed under receivership on August 10, 1984,
and the Decision of respondent judge is dated November 13, 1984. Accordingly, in line with the
ruling in the aforesaid Morfe case, which reads:

The circumstance that the Fidelity Savings Bank, having stopped operations since
February 19, 1969, was forbidden to do business (and that ban would include the
payment of time deposits) implies that suits for the payment of such deposits were
prohibited. What was directly prohibited should not be encompassed indirectly. ...

petitioners 'complaint should have been dismissed.

II.

It is the contention of petitioners, however, that the placing under receivership of respondent bank
long after the filing of the complaint removed it from the doctrine in the said Morfe case.

This contention is untenable. The time of the filing of the complaint is immaterial. It is the execution
that win obviously prejudice the other depositors and creditors. Moreover, as stated in the said Morfe
case, the effect of the judgment is only to fix the amount of the debt, and not give priority over other
depositors and creditors.

III.
Anent the contention of petitioners that the attachment of one of the properties of respondent bank
was erased by virtue of the delayed receivership is to expand the power of the Central Bank, Suffice
it to say that in the case of Central Bank of the Philippines, et al. vs. Court of Appeals, et
al. (Resolution of this Court dated September 17, 1984 in G.R. No. 33302), wherein the original
plaintiff Algue Inc. was able to obtain a writ of preliminary attachment against the original defendant
Island Savings Bank, this Court refused to recognize any preference resulting from such attachment
and ruled that after a declaration of insolvency, the remedy of the depositors is to intervene in the
liquidation proceedings.

IV.

It is also contended by the petitioners that the indefinite stay of execution without ruling as to how
long it will last, amounts to a deprivation of their property without due process of law.

Said contention, likewise, is devoid of merit. Apart from the fact that the stay of execution is not only
in accordance with law but is also supported by jurisprudence, such staying of execution is not
without a time limit. In fact, the Monetary Board, in its resolution No. 4-33 approved the liquidation of
respondent bank on April 26, 1985 and ordered, among others, the filing of a petition in the Regional
Trial Court praying for assistance of said court in the liquidation of the bank. (Rollo, p. 81). The
staying of the writ of execution will be lifted after approval by the liquidation court of the project of
distribution, and the liquidator or his deputy will authorize payments to all claimants concerned in
accordance with the approved project of distribution.

PREMISES CONSIDERED, the instant petition is hereby DISMISSED.

SO ORDERED
 FIRST DIVISION

EQUITABLE PCI BANK,* G.R. No. 171545

AIMEE YU and BEJAN
LIONEL APAS,
Petitioners, Present:
PUNO, C.J., Chairperson,
- v e r s u s - SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA and
LEONARDO-DE CASTRO, JJ.
NG SHEUNG NGOR** doing
business under the name
and style KEN MARKETING, Promulgated:
KEN APPLIANCE DIVISION,
INC. and BENJAMIN E. GO,
Respondents. December 19, 2007
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - x

DECISION

CORONA, J.:

This petition for review on certiorari[1] seeks to set aside the decision[2] of the Court
of Appeals (CA) in CA-G.R. SP No. 83112 and its resolution[3] denying
reconsideration.

On October 7, 2001, respondents Ng Sheung Ngor,[4] Ken Appliance Division,

Inc. and Benjamin E. Go filed an action for annulment and/or reformation of
documents and contracts[5]against petitioner Equitable PCI Bank (Equitable) and its
employees, Aimee Yu and Bejan Lionel Apas, in the Regional Trial Court (RTC),
Branch 16 of Cebu City.[6] They claimed that Equitable induced them to avail of its
peso and dollar credit facilities by offering low interest rates[7] so they accepted
Equitable's proposal and signed the bank's pre-printed promissory notes on various
dates beginning 1996. They, however, were unaware that the documents
contained identical escalation clauses granting Equitable authority to increase
interest rates without their consent.[8]

Equitable, in its answer, asserted that respondents knowingly accepted all the
terms and conditions contained in the promissory notes.[9] In fact, they
continuously availed of and benefited from Equitable's credit facilities for five
years.[10]

After trial, the RTC upheld the validity of the promissory notes. It found that, in
2001 alone, Equitable restructured respondents' loans amounting to US$228,200
and P1,000,000.[11] The trial court, however, invalidated the escalation clause
contained therein because it violated the principle of mutuality of
contracts.[12] Nevertheless, it took judicial notice of the steep depreciation of the
peso during the intervening period[13] and declared the existence of extraordinary
deflation.[14] Consequently, the RTC ordered the use of the 1996 dollar exchange
rate in computing respondents' dollar-denominated loans.[15] Lastly, because the
business reputation of respondents was (allegedly) severely damaged when
Equitable froze their accounts,[16] the trial court awarded moral and exemplary
damages to them.[17]

The dispositive portion of the February 5, 2004 RTC decision[18] provided:

WHEREFORE, premises considered, judgment is hereby rendered:

A) Ordering [Equitable] to reinstate and return the amount of [respondents'] deposit

placed on hold status;

B) Ordering [Equitable] to pay [respondents] the sum of P12 [m]illion [p]esos as

moral damages;

C) Ordering [Equitable] to pay [respondents] the sum of P10 [m]illion [p]esos as

exemplary damages;
 D) Ordering defendants Aimee Yu and Bejan [Lionel] Apas to pay [respondents],
jointly and severally, the sum of [t]wo [m]illion [p]esos as moral and exemplary
damages;

E) Ordering [Equitable, Aimee Yu and Bejan Lionel Apas], jointly and severally, to pay
[respondents'] attorney's fees in the sum of P300,000; litigation expenses in the
sum of P50,000 and the cost of suit;

F) Directing plaintiffs Ng Sheung Ngor and Ken Marketing to pay [Equitable] the
unpaid principal obligation for the peso loan as well as the unpaid obligation for
the dollar denominated loan;

G) Directing plaintiff Ng Sheung Ngor and Ken Marketing to pay [Equitable] interest
as follows:

1) 12% per annum for the peso loans;

2) 8% per annum for the dollar loans. The basis for the payment of the dollar
obligation is the conversion rate of P26.50 per dollar availed of at the time of
incurring of the obligation in accordance with Article 1250 of the Civil Code
of the Philippines;

H) Dismissing [Equitable's] counterclaim except the payment of the aforestated

unpaid principal loan obligations and interest.

SO ORDERED.[19]

Equitable and respondents filed their respective notices of appeal.[20]

In the March 1, 2004 order of the RTC, both notices were denied due course
because Equitable and respondents failed to submit proof that they paid their
respective appeal fees.[21]

WHEREFORE, premises considered, the appeal interposed by defendants from

the Decision in the above-entitled case is DENIED due course. As of February 27, 2004,
the Decision dated February 5, 2004, is considered final and executory in so far
as [Equitable, Aimee Yu and Bejan Lionel Apas] are concerned.[22] (emphasis supplied)

Equitable moved for the reconsideration of the March 1, 2004 order of the
RTC[23] on the ground that it did in fact pay the appeal fees. Respondents, on the
other hand, prayed for the issuance of a writ of execution.[24]

On March 24, 2004, the RTC issued an omnibus order denying Equitable's motion
for reconsideration for lack of merit[25] and ordered the issuance of a writ of
execution in favor of respondents.[26] According to the RTC, because
respondents did not move for the reconsideration of the previous order (denying
due course to the parties notices of appeal),[27]the February 5, 2004 decision
became final and executory as to both parties and a writ of execution against
Equitable was in order.[28]

A writ of execution was thereafter issued[29] and three real properties of Equitable
were levied upon.[30]
On March 26, 2004, Equitable filed a petition for relief in the RTC from the March
1, 2004 order.[31] It, however, withdrew that petition on March 30, 2004[32] and
instead filed a petition for certiorari with an application for an injunction in the CA
to enjoin the implementation and execution of the March 24, 2004 omnibus
order.[33]

On June 16, 2004, the CA granted Equitable's application for injunction. A writ of
preliminary injunction was correspondingly issued.[34]

Notwithstanding the writ of injunction, the properties of Equitable previously

levied upon were sold in a public auction on July 1, 2004. Respondents were the
highest bidders and certificates of sale were issued to them.[35]

On August 10, 2004, Equitable moved to annul the July 1, 2004 auction sale and to
cite the sheriffs who conducted the sale in contempt for proceeding with the
auction despite the injunction order of the CA.[36]

On October 28, 2005, the CA dismissed the petition for certiorari.[37] It found
Equitable guilty of forum shopping because the bank filed its petition for certiorari
in the CA several hours before withdrawing its petition for relief in the
RTC.[38] Moreover, Equitable failed to disclose, both in the statement of material
dates and certificate of non-forum shopping (attached to its petition for certiorari
in the CA), that it had a pending petition for relief in the RTC.[39]

Equitable moved for reconsideration[40] but it was denied.[41] Thus, this petition.
Equitable asserts that it was not guilty of forum shopping because the petition for
relief was withdrawn on the same day the petition for certiorari was filed.[42] It
likewise avers that its petition for certiorari was meritorious because the RTC
committed grave abuse of discretion in issuing the March 24, 2004 omnibus order
which was based on an erroneous assumption. The March 1, 2004 order denying
its notice of appeal for non payment of appeal fees was erroneous because it had
in fact paid the required fees.[43] Thus, the RTC, by issuing its March 24, 2004
omnibus order, effectively prevented Equitable from appealing the patently
wrong February 5, 2004 decision.[44]

This petition is meritorious.

EQUITABLE WAS NOT GUILTY OF FORUM

SHOPPING

Forum shopping exists when two or more actions involving the same transactions,
essential facts and circumstances are filed and those actions raise identical issues,
subject matter and causes of action.[45] The test is whether, in two or more pending
cases, there is identity of parties, rights or causes of actions and reliefs.[46]
Equitable's petition for relief in the RTC and its petition for certiorari in the CA did
not have identical causes of action. The petition for relief from the denial of its
notice of appeal was based on the RTCs judgment or final order preventing it from
taking an appeal by fraud, accident, mistake or excusable negligence.[47] On the
other hand, its petition for certiorari in the CA, a special civil action, sought to
correct the grave abuse of discretion amounting to lack of jurisdiction committed
by the RTC.[48]

In a petition for relief, the judgment or final order is rendered by a court with
competent jurisdiction. In a petition for certiorari, the order is rendered by a court
without or in excess of its jurisdiction.

Moreover, Equitable substantially complied with the rule on non-forum shopping

when it moved to withdraw its petition for relief in the RTC on the same day (in fact
just four hours and forty minutes after) it filed the petition for certiorari in the CA.
Even if Equitable failed to disclose that it had a pending petition for relief in the
RTC, it rectified what was doubtlessly a careless oversight by withdrawing the
petition for relief just a few hours after it filed its petition for certiorari in the CA ―
a clear indication that it had no intention of maintaining the two actions at the
same time.

THE TRIAL COURT COMMITTED GRAVE

ABUSE OF DISCRETION IN ISSUING ITS
MARCH 1, 2004 AND MARCH 24,2004
ORDERS
 Section 1, Rule 65 of the Rules of Court provides:

Section 1. Petition for Certiorari. When any tribunal, board or officer exercising judicial
or quasi-judicial function has acted without or in excess of its or his jurisdiction, or with
grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no
appeal, nor any plain, speedy or adequate remedy in the ordinary course of law, a
person aggrieved thereby may file a verified petition in the proper court, alleging the facts
with certainty and praying that judgment be rendered annulling or modifying the
proceedings of such tribunal, board or officer, and granting such incidental reliefs as law
and justice may require.

The petition shall be accompanied by a certified true copy of the judgment, order or
resolution subject thereof, copies of all pleadings and documents relevant and pertinent
thereto, and a sworn certificate of non-forum shopping as provided in the third paragraph
of Section 3, Rule 46.

There are two substantial requirements in a petition for certiorari. These are:

1. that the tribunal, board or officer exercising judicial or quasi-judicial functions

acted without or in excess of his or its jurisdiction or with grave abuse of
discretion amounting to lack or excess of jurisdiction; and

2. that there is no appeal or any plain, speedy and adequate remedy in the ordinary
course of law.

For a petition for certiorari premised on grave abuse of discretion to prosper,

petitioner must show that the public respondent patently and grossly abused his
discretion and that abuse amounted to an evasion of positive duty or a virtual
refusal to perform a duty enjoined by law or to act at all in contemplation of law,
as where the power was exercised in an arbitrary and despotic manner by reason
of passion or hostility.[49]
The March 1, 2004 order denied due course to the notices of appeal of both
Equitable and respondents. However, it declared that the February 5, 2004 decision
was final and executory only with respect to Equitable.[50] As expected, the March
24, 2004 omnibus order denied Equitable's motion for reconsideration and granted
respondents' motion for the issuance of a writ of execution.[51]

The March 1, 2004 and March 24, 2004 orders of the RTC were obviously
intended to prevent Equitable, et al. from appealing the February 5, 2004
decision. Not only that. The execution of the decision was undertaken with
indecent haste, effectively obviating or defeating Equitable's right to avail of
possible legal remedies. No matter how we look at it, the RTC committed grave
abuse of discretion in rendering those orders.

With regard to whether Equitable had a plain, speedy and adequate remedy in the
ordinary course of law, we hold that there was none. The RTC denied due course
to its notice of appeal in the March 1, 2004 order. It affirmed that denial in the
March 24, 2004 omnibus order. Hence, there was no way Equitable could have
possibly appealed the February 5, 2004 decision.[52]

Although Equitable filed a petition for relief from the March 24, 2004 order, that
petition was not a plain, speedy and adequate remedy in the ordinary course of
law.[53] A petition for relief under Rule 38 is an equitable remedy allowed only in
exceptional circumstances or where there is no other available or adequate
remedy.[54]
Thus, we grant Equitable's petition for certiorari and consequently give due course
to its appeal.

EQUITABLE RAISED PURE QUESTIONS OF

LAW IN ITS PETITION FOR REVIEW

The jurisdiction of this Court in Rule 45 petitions is limited to questions of

law.[55] There is a question of law when the doubt or controversy concerns the
correct application of law or jurisprudence to a certain set of facts; or when the
issue does not call for the probative value of the evidence presented, the truth or
falsehood of facts being admitted.[56]

Equitable does not assail the factual findings of the trial court. Its arguments
essentially focus on the nullity of the RTCs February 5, 2004 decision. Equitable
points out that that decision was patently erroneous, specially the exorbitant
award of damages, as it was inconsistent with existing law and jurisprudence.[57]

THE PROMISSORY NOTES WERE VALID

The RTC upheld the validity of the promissory notes despite respondents
assertion that those documents were contracts of adhesion.
A contract of adhesion is a contract whereby almost all of its provisions are drafted
by one party.[58] The participation of the other party is limited to affixing his
signature or his adhesion to the contract.[59] For this reason, contracts of adhesion
are strictly construed against the party who drafted it.[60]

It is erroneous, however, to conclude that contracts of adhesion are invalid per

se. They are, on the contrary, as binding as ordinary contracts. A party is in reality
free to accept or reject it. A contract of adhesion becomes void only when the
dominant party takes advantage of the weakness of the other party, completely
depriving the latter of the opportunity to bargain on equal footing.[61]

That was not the case here. As the trial court noted, if the terms and conditions
offered by Equitable had been truly prejudicial to respondents, they would have
walked out and negotiated with another bank at the first available instance. But
they did not. Instead, they continuously availed of Equitable's credit facilities for
five long years.

While the RTC categorically found that respondents had outstanding dollar- and
peso-denominated loans with Equitable, it, however, failed to ascertain the total
amount due (principal, interest and penalties, if any) as of July 9, 2001. The trial
court did not explain how it arrived at the amounts of US$228,200
and P1,000,000.[62] In Metro Manila Transit Corporation v. D.M. Consunji,[63] we
reiterated that this Court is not a trier of facts and it shall pass upon them only for
compelling reasons which unfortunately are not present in this case.[64] Hence, we
ordered the partial remand of the case for the sole purpose of determining the
amount of actual damages.[65]

ESCALATION CLAUSE VIOLATED THE

PRINCIPLE OF MUTUALITY OF CONTRACTS

Escalation clauses are not void per se. However, one which grants the creditor an
unbridled right to adjust the interest independently and upwardly, completely
depriving the debtor of the right to assent to an important modification in the
agreement is void. Clauses of that nature violate the principle of mutuality of
contracts.[66] Article 1308[67] of the Civil Code holds that a contract must bind both
contracting parties; its validity or compliance cannot be left to the will of one of
them.[68]

For this reason, we have consistently held that a valid escalation clause provides:

1. that the rate of interest will only be increased if the applicable maximum rate of
interest is increased by law or by the Monetary Board; and

2. that the stipulated rate of interest will be reduced if the applicable maximum rate
of interest is reduced by law or by the Monetary Board (de-escalation clause).[69]
The RTC found that Equitable's promissory notes uniformly stated:

If subject promissory note is extended, the interest for subsequent extensions shall be at
such rate as shall be determined by the bank.[70]

Equitable dictated the interest rates if the term (or period for repayment) of
the loan was extended. Respondents had no choice but to accept them. This was a
violation of Article 1308 of the Civil Code. Furthermore, the assailed escalation
clause did not contain the necessary provisions for validity, that is, it neither
provided that the rate of interest would be increased only if allowed by law or the
Monetary Board, nor allowed de-escalation. For these reasons, the escalation
clause was void.

With regard to the proper rate of interest, in New Sampaguita Builders v. Philippine
National Bank[71] we held that, because the escalation clause was annulled, the
principal amount of the loan was subject to the original or stipulated rate of
interest. Upon maturity, the amount due was subject to legal interest at the rate of
12% per annum.[72]

Consequently, respondents should pay Equitable the interest rates of 12.66% p.a.
for their dollar-denominated loans and 20% p.a. for their peso-denominated loans
from January 10, 2001 to July 9, 2001. Thereafter, Equitable was entitled to legal
interest of 12% p.a. on all amounts due.
THERE WAS NO
EXTRAORDINARY DEFLATION

Extraordinary inflation exists when there is an unusual decrease in the purchasing

power of currency (that is, beyond the common fluctuation in the value of
currency) and such decrease could not be reasonably foreseen or was manifestly
beyond the contemplation of the parties at the time of the obligation.
Extraordinary deflation, on the other hand, involves an inverse situation.[73]

Article 1250 of the Civil Code provides:

Article 1250. In case an extraordinary inflation or deflation of the currency stipulated

should intervene, the value of the currency at the time of the establishment of the
obligation shall be the basis of payment, unless there is an agreement to the contrary.

For extraordinary inflation (or deflation) to affect an obligation, the following

requisites must be proven:
1. that there was an official declaration of extraordinary inflation or deflation from
the Bangko Sentral ng Pilipinas (BSP);[74]

2. that the obligation was contractual in nature;[75] and

3. that the parties expressly agreed to consider the effects of the extraordinary
inflation or deflation.[76]
Despite the devaluation of the peso, the BSP never declared a situation of
extraordinary inflation. Moreover, although the obligation in this instance arose
out of a contract, the parties did not agree to recognize the effects of extraordinary
inflation (or deflation).[77] The RTC never mentioned that there was a such
stipulation either in the promissory note or loan agreement. Therefore,
respondents should pay their dollar-denominated loans at the exchange rate fixed
by the BSP on the date of maturity.[78]

THE AWARD OF MORAL AND EXEMPLARY

DAMAGES LACKEDBASIS

Moral damages are in the category of an award designed to compensate the

claimant for actual injury suffered, not to impose a penalty to the wrongdoer.[79] To
be entitled to moral damages, a claimant must prove:

1. That he or she suffered besmirched reputation, or physical, mental or

psychological suffering sustained by the claimant;

2. That the defendant committed a wrongful act or omission;

3. That the wrongful act or omission was the proximate cause of the damages the
claimant sustained;

4. The case is predicated on any of the instances expressed or envisioned by Article

2219[80] and 2220[81]. [82]
 In culpa contractual or breach of contract, moral damages are recoverable
only if the defendant acted fraudulently or in bad faith or in wanton disregard of
his contractual obligations.[83] The breach must be wanton, reckless, malicious or in
bad faith, and oppressive or abusive.[84]

The RTC found that respondents did not pay Equitable the interest due on February
9, 2001 (or any month thereafter prior to the maturity of the loan)[85] or the amount
due (principal plus interest) due on July 9, 2001.[86] Consequently, Equitable applied
respondents' deposits to their loans upon maturity.

The relationship between a bank and its depositor is that of creditor and
debtor.[87] For this reason, a bank has the right to set-off the deposits in its hands
for the payment of a depositor's indebtedness.[88]

Respondents indeed defaulted on their obligation. For this reason, Equitable had
the option to exercise its legal right to set-off or compensation. However, the RTC
mistakenly (or, as it now appears, deliberately) concluded that Equitable acted
fraudulently or in bad faith or in wanton disregard of its contractual obligations
despite the absence of proof. The undeniable fact was that, whatever damage
respondents sustained was purely the consequence of their failure to pay their
loans. There was therefore absolutely no basis for the award of moral damages to
them.

Neither was there reason to award exemplary damages. Since respondents were
not entitled to moral damages, neither should they be awarded exemplary
damages.[89] And if respondents were not entitled to moral and exemplary
damages, neither could they be awarded attorney's fees and litigation expenses.[90]

ACCORDINGLY, the petition is hereby GRANTED.

The October 28, 2005 decision and February 3, 2006 resolution of the Court of
Appeals in CA-G.R. SP No. 83112 are hereby REVERSED and SET ASIDE.

The March 24, 2004 omnibus order of the Regional Trial Court, Branch 16, Cebu
City in Civil Case No. CEB-26983 is hereby ANNULLED for being rendered with grave
abuse of discretion amounting to lack or excess of jurisdiction. All proceedings
undertaken pursuant thereto are likewise declared null and void.

The March 1, 2004 order of the Regional Trial Court, Branch 16 of Cebu City in Civil
Case No. CEB-26983 is hereby SET ASIDE. The appeal of petitioners Equitable PCI
Bank, Aimee Yu and Bejan Lionel Apas is therefore given due course.

The February 5, 2004 decision of the Regional Trial Court, Branch 16 of Cebu City in
Civil Case No. CEB-26983 is accordingly SET ASIDE. New judgment is hereby
entered:

1. ordering respondents Ng Sheung Ngor, doing business under the

name and style of Ken Marketing, Ken Appliance Division, Inc. and
 Benjamin E. Go to pay petitioner Equitable PCI Bank the principal
amount of their dollar- and peso-denominated loans;

2. ordering respondents Ng Sheung Ngor, doing business under the

name and style of Ken Marketing, Ken Appliance Division, Inc. and
Benjamin E. Go to pay petitioner Equitable PCI Bank interest at:

a) 12.66% p.a. with respect to their dollar-denominated loans

from January 10, 2001 to July 9, 2001;

b) 20% p.a. with respect to their peso-denominated loans from

January 10, 2001 to July 9, 2001;[91]

c) pursuant to our ruling in Eastern Shipping Lines v. Court of

Appeals,[92] the total amount due on July 9, 2001 shall earn legal
interest at 12% p.a. from the time petitioner Equitable PCI Bank
demanded payment, whether judicially or extra-judicially; and

d) after this Decision becomes final and executory, the applicable

rate shall be 12% p.a. until full satisfaction;

3. all other claims and counterclaims are dismissed.

As a starting point, the Regional Trial Court, Branch 16 of Cebu City shall compute
the exact amounts due on the respective dollar-denominated and peso-
denominated loans, as of July 9, 2001, of respondents Ng Sheung Ngor, doing
business under the name and style of Ken Marketing, Ken Appliance Division and
Benjamin E. Go.

SO ORDERED.
 RENATO C. CORONA

Associate Justice

WE CONCUR:

REYNATO S. PUNO
Chief Justice
Chairperson

ANGELINA SANDOVAL-GUTIERREZ ADOLFO S. AZCUNA

Associate Justice Associate Justice

TERESITA J. LEONARDO-DE CASTRO

Associate Justice
 CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions
in the above decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

*
Now, Banco De Oro Unibank.
**
Also referred to as Ng Seung Ngor in the records.
[1]
Under Rule 45 of the Rules of Court.
[2]
Penned by Associate Justice Mercedes Gozo-Dadole (retired) and concurred in by Associate Justices Pampio A.
Abarintos and Enrico A. Lanzanas of the Eighteenth Division of the Court of Appeals. Dated October 28,
2005. Rollo, pp. 88-111.
[3]
Penned by Associate Justice Enrico A. Lanzanas and concurred in by Associate Justices Isaias P. Dicdican and
Pampio A. Abarintos of the Special Former Eighteenth Division of the Court of Appeals. Dated February 3,
2006. Id., pp. 112-115.
[4]
Doing business in the name and style of Ken Marketing.
[5]
Docketed as Civil Case No. CEB-26983. Rollo, pp. 115-143.
[6]
Id., pp. 116-117, 177.
[7]
The interest rate initially offered by Equitable was 12.75% p.a. for dollar-denominated loans. Id., p. 187.
[8]
Id., p. 118.
[9]
Id., pp. 155-175.
[10]
Id.
[11]
Id., pp. 180, 183. SCHEDULE OF LOANS:

Respondents' submission
Principal Interest Date Availed Date of Maturity Amount Due
US$223,000 12.66%, p.a. 10 January 2001 9 July 2001 (total=)
36,700 12.66%, p.a. 10 January 2001 9 July 2001 US$232,248.00
P995,000 20%, p.a. 10 January 2001 9 July 2001 P1,081,703.14

Equitable's submission
 Principal Interest Date Availed Date of Maturity Amount due
US$184,000 12.66%, p.a. 10 January 2001 9 July 2001 US$207,771.78
37,700 12.66%, p.a. 10 January 2001 9 July 2001 41,441.44
P1,050,000 20%, p.a. 10 January 2001 9 July 2001 P1,166,193.34

Note:
1. Equitable and respondents agreed neither as to the amount of the principal nor as to the amount due.
2. The RTC concluded that the rates of interest stated in the promissory notes were only applicable for 30
days (or from January 10, 2001 to February 9, 2001). Thereafter(or every 30 days until the loan matures),
Equitable may change the rates if it so desired without the prior notice to respondents.
3. Interest due must be paid every month beginning February 9, 2001 until maturity.
4. The findings of the trial court, with regard to the amount of respondents' obligation to Equitable, agreed
neither with the submission of Equitable nor with that of respondents. The RTC made its own finding as
to the amount of respondent's obligation to Equitable but did not explain how it arrived at the figures. It
merely stated:
The evidence adduced during trial show [respondents] received the proceeds of peso and
dollar loans from defendant bank as follows: (a) US$228,200 in four (4) different
availments and the (b) principal amount of P1,000,000. xxx
[12]
Id., pp. 185-186.
[13]
Id. The RTC took judicial notice of the fact that the exchange rate in 1996 was US$1 = P26.50 while in 2001, it
was US$1 = P55. Because the cost of purchasing dollar increased by 200% over the relatively short period
of six years, it concluded that there was extraordinary inflation.
[14]
Id.
[15]
Id., p. 190.
[16]
Id., pp. 188-189.
[17]
Id.
[18]
Penned by Judge Agapito L. Hontanosas, Jr. (dismissed from the service per resolution in J. King and Sons
Company, Inc. v. Judge Agapito L. Hontanosas, Jr., A.M. No. RTJ-03-1802, 21 September 2004, 438 SCRA
525). Id., pp. 177-190.
[19]
Id., pp. 189-190.
[20]
Id., pp. 191-193.
[21]
Id., p. 194.
[22]
Id.
[23]
Id., pp. 195-202. Equitable attached proof that it paid the appeal fees.
[24]
Id., pp. 203-204.
[25]
Id., p. 206.
[26]
Id., pp. 205-207.
[27]
Id., p. 205.
[28]
Id., p. 207.
[29]
Id., pp. 208-210.
[30]
Id., p. 218. Covered by TCT No. 124096, TCT No. 118031 and tax declarations GR2K-06-038-00391 and GRK-
06-038-00392.
[31]
Id., pp. 272-276.
See RULES OF COURT, Rule 38, Sec. 2. The section provides:
Sec. 2. Petition for relief from denial of appeal.-- When a judgment or final order is rendered by any
court in a case, and a party thereto, by fraud, accident, mistake or excusable negligence, has been prevented
from taking an appeal, he may file a petition in such court and in the same case praying that the appeal be
given due course.
[32]
Id., pp. 279-281.
[33]
Docketed as CA-G.R. SP No. 83112. Id., p. 221.
[34]
Penned by Associate Justice Estela M. Perlas-Bernabe and concurred in by Associate Justices Monina Arevalo-
Zenarosa and Vicente I. Yap (retired) of the Special Eighteenth Division of the Court of Appeals. Dated June
16, 2004. Id., pp. 221-223.
[35]
Id., pp. 226-231.
[36]
Id., pp. 232-240.
[37]
Supra note 2.
[38]
Id., pp. 106-110. The petition for certiorari was filed in the CA on March 30, 2004 at 9 a.m. while the motion
to withdraw the petition for relief in the RTC was filed also on March 30, 2004 at 1:40 p.m.
[39]
Id.
[40]
Id., pp. 248-271.
[41]
Supra note 3.
[42]
Id., p. 38.
[43]
Id., p. 55.
[44]
Id., pp. 62-68.
[45]
Ligon v. Court of Appeals, G.R. No. 127683, 7 August 1998, 294 SCRA 73, 88.
[46]
Id.
[47]
Supra note 31.
[48]
Florenz B. Regalado, 2 REMEDIAL LAW COMPENDIUM 18th ed., 716 citing Matute v. Macadaeg, et al., 99
Phil. 340 (1956) and de Gala-Sison v. Maddela, et al., 160-B Phil. 626 (1975).
[49]
See Aggabao v. Commission on Elections, G.R. No. 163756, 26 January 2005, 449 SCRA 400. See also Zarate v.
Maybank, G.R. No. 160976, 8 June 2005, 459 SCRA 785. See also Agustin v. Court of Appeals, G.R. No.
162571, 15 June 2005, 460 SCRA 315.
[50]
Rollo, p. 194.
[51]
Id., pp. 225-231.
[52]
See RULES OF COURT, Rule 41, Sec. 2. The section provides:

Section 2. Modes of appeal.--

(a) Ordinary appeal.-- The appeal to the Court of Appeals in cases decided by the Regional Trial Court in the
exercise of its original jurisdiction shall be taken by filing a notice of appeal with the court which
rendered the judgment or final order appealed from and serving a copy thereof upon the adverse
party. No record on appeal shall be required except in special proceedings and other cases of multiple or
separate appeals where the law or these Rules so require. In such cases, the record on appeal shall be filed
and served in the like manner.
(b) Petition for review.-- The appeal to the Court of Appeals in cases decided by the Regional Trial Court in exercise
of its appellate jurisdiction shall be by petition for review in accordance with Rule 42.
(c) Appeal by certiorari.-- In all cases where only questions of law are raised or involved the appeal shall be to the
Supreme Court by petition for review on certiorari in accordance with Rule 45. (emphasis supplied)
[53]
Supra note 48 at 400 citing Palmares, et al. v. Jimenez, et al., 90 Phil. 773. (1952).
[54]
Tuason v. Court of Appeals, G.R. No. 116607, 10 April 1996, 256 SCRA 158, 167. See also Cerezo v. Tuazon, G.R.
No. 141538, 23 March 2004, 426 SCRA 167, 183. See also Azucena v. Foreign Manpower Services, G.R.
No. 147955, 25 October 2004, 441 SCRA 346, 354-355.
[55]
Supra note 52 and Usero v. Court of Appeals, G.R. Nos. 152112 and 155055, 26 January 2005, 449 SCRA 352,
358.
[56]
Bukidnon Doctor's Hospital v. Metropolitan Bank and Trust Company, G.R. No. 161882, 8 July 2005, 463 SCRA
222, 233.
[57]
Rollo, pp. 46-50.
[58]
Citibank, N.A. v. Sabeniano, G.R. No. 156132, 6 February 2007.
[59]
Id.
[60]
Id.
[61]
Perez v. Development Bank of the Philippines, G.R. No. 148541, 11 November 2004, 442 SCRA 238, 249-250
citing Rizal Commercial Banking Corporation v. Court of Appeals, G.R. No. 127139, 19 February 1999, 303
SCRA 449, 454.
[62]
Supra note 11.
[63]
G.R. No. 147594, 7 March 2007.
[64]
Id.
[65]
Id.
[66]
See New Sampaguita Builders Construction, Inc. v. Philippine National Bank, G.R. No. 148753, 30 July 2004, 435
SCRA 565, 581 citing Philippine National Bank v. Court of Appeals, 328 Phil. 54, 62-63 (1996).
[67]
Art. 1308. The contracts must bind both contracting parties; its validity or compliance cannot be left to the will of
one of them.
[68]
Jose B.L. Reyes and Ricardo C. Puno, 4 AN OUTLINE OF PHILIPPINE CIVIL LAW 1957 ed., p. 178.
[69]
Llorin v. Court of Appeals, G.R. No. 103592, 4 February 1993, 218 SCRA 438, 442.
[70]
Rollo, p. 147.
[71]
Supra note 66.
[72]
Id., pp. 608-609.
[73]
Sangrador v. Valderrama, G.R. No. 58122, 29 December 1989, 168 SCRA 215, 228 citing Filipino Pipe and
Foundry Corporation v. National Waterworks and Sewage Authority, G.R. No. L- 43446, 3 May 1988.
[74]
Citibank v. Sabeniano, supra note 58. See also Mobil Oil Philippines v. Court of Appeals, G.R. No. 58122, 29
December 1989, 180 SCRA 651, 667.
[75]
Extraordinary inflation or deflation does not affect obligations which arise from sources other than contracts. See
Velasco v. Manila Electric Company, 149 Phil. 657 (1971).
See CIVIL CODE, Art. 1157. The article provides:
Art. 1157. Obligations arise from:
1. Law;
2. Contracts;
3. Quasi-contracts;
4. Acts or omission punished by law; and
5. Quasi-delicts.
[76]
Commissioner of Public Highway v. Burgos, G.R. No. L-36706, 31 March 1980, 96 SCRA 831, 837.
[77]
The requisites for Article 1250 apply to both extraordinary inflation and deflation. This case involved extraordinary
inflation because, as RTC Judge Hontanosas noted, the peso substantially depreciated during the intervening
period.
For Article 1250 to apply, not only must the obligation be contractual, the parties must more importantly
agree to recognize the effects of extraordinary inflation (or deflation, as the case may be). Here, despite the
fact that the obligation was contractual (i.e., a loan), neither the loan agreement nor the promissory notes
contained a provision stating that the parties agreed to recognize the effects of extraordinary inflation or
deflation. For this reason, Article 1250 was inapplicable.
[78]
Bank of the Philippine Islands v. Leobrera, G.R. Nos. 137147-48, 18 November 2003, 416 SCRA 15, 19 citing
C.F. Sharp & Co. v. Northwest Airlines, Inc., G.R. No. 133498, 18 April 2002, 381 SCRA 314. See also
Jammang v. Takahashi, G.R. No. 149429, 9 October 2006, 504 SCRA 31, 36. Note that Equitable did not
present proof that respondents agreed to pay their dollar-denominated loans in US dollars.
[79]
Supercars Management & Development Corporation v. Flores, G.R. No. 148173, 10 December 2004, 446 SCRA
34, 44.
See CIVIL CODE, Art. 2217. The article provides:
Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar injury. Though incapable of pecuniary
estimation, moral damages may be recovered if they are the proximate result of the defendant's
wrongful act or omission.(emphasis supplied)
[80]
Art. 2219. Moral damages may be recovered in the following and analogous cases:
1. A criminal offense resulting in physical injury;
2. Quasi-delict causing physical injuries;
3. Seduction, abduction, rape or other lascivious acts;
4. Adultery or concubinage;
5. Illegal or arbitrary detention or arrest;
6. Illegal search;
7. Libel, slander or any other form of defamation;
8. Malicious prosecution;
9. Acts mentioned in Art. 309;
10. Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
The parents of the female seduced, abducted, raped or abused, referred to in No. 3 of this article, may also recover
moral damages.
The spouse, descendants, ascendants, brothers and sisters may bring the action mentioned in No. 9 of this article, in
the order named.
[81]
Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find
that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract
where the defendant acted fraudulently or in bad faith. (emphasis supplied)
[82]
Philippine National Bank v. Pike, G.R. No. 157845, 20 September 2005, 470 SCRA 328, 349-350 citing Philippine
Telegraph & Telephone Corporation v. Court of Appeals, G.R. No. 139268, 3 September 2002, 388 SCRA
270.
[83]
Id.
[84]
Id. citing Herbosa v. Court of Appeals, G.R. No. 119086, 25 January 2002, 374 SCRA 578. See also Salvador v.
Court of Appeals, G.R. No. 124899, 30 March 2004, 426 SCRA 433.
[85]
Supra note 11.
[86]
Id.
[87]
Gullas v. National Bank, 62 Phil. 519, 521 (1935) citing Fulton Iron Works Co. v. China Banking Corporation, 55
Phil. 208 (1930) and San Carlos Milling Co. v. Bank of the Philippine Islands and China Banking
Corporation, 59 Phil. 59 (1933).
[88]
Id., pp. 521-522.
[89]
Mahinay v. Velasquez, Jr., G.R. No. 152753, 13 January 2004, 419 SCRA 118, 122.
[90]
Supercars Management & Development Corporation v. Flores, supra note 79 at 44.
[91]
While this case involved extraordinary inflation because of the substantial depreciation of the peso during the
intervening period, Article 1250 of the Civil Code was inapplicable. For Article 1250 to apply, not only must
the obligation be contractual, the parties must, more importantly, agree to recognize the effects of
extraordinary inflation (or deflation, as the case may be). Here, despite the contractual obligation (i.e., a loan),
neither the loan agreement nor the promissory notes contained a provision stating that the parties agreed to
recognize the effects of extraordinary inflation or deflation. (See note 77.)
[92]
G.R. No. 97412, 12 July 1994, 234 SCRA 74, 95.