[G.R. NO. 154499.
February 27, 2004] The Motion for Reconsideration of Reyes As directed
ALBERTO V. REYES, WILFREDO B. and Domo-ong is anchored on the following
DOMO-ONG and HERMINIO C. grounds: (1) it was not under their
PRINCIPIO, Petitioners, v. RURAL BANK auspices that the seminar which used
OF SAN MIGUEL (BULACAN), INC., training materials containing two case
represented by HILARIO P. SORIANO, studies on RBSMIs financial distress was
President and Principal conducted but under that of another
Stockholder, Respondent. department and other officials of BSP; and,
RESOLUTION (2) they did not do any act which
TINGA, J.: constituted brokering of the sale of RBSMI
This deals with the Motion for or deviated from the standards of
Reconsideration of petitioners Alberto V. professionalism.
Reyes and Wilfredo B. Domo-ong, A brief revisit of the operative milieu is
both Bangko Sentral ng Pilipinas (BSP) warranted to gain the needed perspective.
officials,1 and the Motion for Partial In a letter dated May 19, 1999, addressed
Reconsideration of respondent Rural Bank to then BSP Governor Singson, RBSMI
of San Miguel (Bulacan), Inc. charged the petitioners with violation
In the Decision2 of March 14, 2003, this of Republic Act No. 6713 (Code of Conduct
Court found Deputy Governor Reyes and and Ethical Standards for Public Officials
Director Domo-ong liable for violation of and Employees). The Monetary Board (MB)
the standards of professionalism of the BSP created an Ad Hoc Committee to
prescribed by the Code of Conduct and investigate the matter.
Ethical Standards for Public Officials and The ensuing investigation disclosed that
Employees (Republic Act No. 6713) in that sometime in September 1996, RBSMI,
they used the distressed financial condition which had a history of major
of respondent Rural Bank of San Miguel violations/exceptions dating back to 1995,
(Bulacan), Inc. (RBSMI) as the subject of a underwent periodic examination by the
case study in one of the BSP seminars and BSP.The examination team headed by
did the brokering of the sale of RBSMI. The Principio noted 20 serious
Court modified the Decision of the Court of exceptions/violations and deficiencies of
Appeals in CA-GR SP No. 601843 by RBSMI.5 cralawred
reducing the penalty imposed by the Through Resolution No. 96, the MB
appellate court from a fine equivalent to six required RBSMI to submit within 15 days a
months salary to a fine of two months written explanation with respect to the
salary for Reyes and one month salary for findings of the examiner. It also directed
Domo-ong. the Department of Rural Banks (DRB), to
In the Decision, the Court exonerated verify, monitor and report to the Deputy
petitioner Herminio C. Principio4 of the Governor, Supervision and Examination
administrative charges. The exoneration is Sector (SES) on the findings/exceptions
the subject of RBSMIs Motion For Partial noted, until the same shall have been
Reconsideration. corrected.
by the MB, another
examination team conducted a special
examination on RBSMI. RBSMI President
Hilario Soriano claimed that he was
pressured into issuing a memorandum to
the bank employees authorizing the team
to review the banks accounting and
internal control system.
Soriano also alleged that sometime in
March 1997, Reyes started urging him to
consider selling the bank. He specified that
on May 28, 1997, Reyes introduced him
through telephone to Mr. Exequiel
Villacorta, President and Chief Executive
Officer of the TA Bank. They agreed to
meet on the following day. In
his Affidavit,6 Villacorta confirmed that he
and Soriano indeed met but the meeting
never got past the exploratory stage since
he (Villacorta) immediately expressed
disinterest because Soriano wanted to sell
all his equity shares while he was merely
contemplating a possible buy-in.
Soriano further alleged that when the talks
with Villacorta failed, Reyes asked him
whether he wanted to meet another buyer,
to which he answered in the affirmative.
Thereafter, Reyes introduced him by
telephone to Benjamin P. Castillo of the
Export and Industry Bank (EIB), whom he
met on June 26, 1997. No negotiation took
place because Soriano desired a total sale
while EIB merely desired a joint venture
arrangement or a buy-in to allow EIB to
gain control of RBSMI.
Meanwhile, on June 13, 1997, the MB
approved Resolution No. 7247 ordering
RBSMI to correct the major exceptions
noted within 30 days from receipt of the
advice, and to remit to the BSP the amount
of P2,538,483.00 as fines and penalties for
incurring deficiencies in reserves against
deposit liabilities.
On July 21, 1997, Soriano submitted
RBSMIs answers to the BSP
exceptions/findings mentioned. He stated
that the actions taken or to be taken by the
bank (RBSMI) were deliberated and ratified
by the Board of Directors in its regular
meeting held on July 9, 1997. Among the
board approved actions was the banks
request addressed to Domo-ong for BSP to
debit the demand deposit of the bank in the
amount of P2,538,483.00 representing the
payment of fines and penalties.
More than a year after, however, the
RBSMI asked for a reconsideration of
MB Resolution No. 724 insofar as the
imposition of fine amounting
to P2,538,483.00.On January 21, 1999,
the MB adopted Resolution No.
8
71, authorizing the conditional reversal of
sixty percent (60%) of the penalty pending
resolution of the dispute on the findings on
reserve deficiency. Subsequently, on April
7, 1999, the MB approved the interim
reversal of the entire amount of the penalty
pending the outcome of the study on the
legal and factual basis for the imposition of
the penalty.
The above incidents, particularly the
alleged brokering by Reyes and the
petitioners unsupported recommendation
to impose a penalty of P2,538,483.00 for
legal reserve deficiency, prompted the
respondent to file the letter-complaint
charging the petitioners with
unprofessionalism.
The Motion for Reconsideration bid of
Reyes and Domo-ong is meritorious.
In pinning liability on Reyes and Domo-ong
for the seminar which used the rural bank
as a case study, the court made this
ratiocination, viz:chanroblesvirtua1awlibra
ry
(W) hile there was indeed no
evidence showing that either petitioner
Reyes or petitioner Domo-ong distributed
or used the materials, the very fact that the
seminar was conducted under their
auspices is enough to make them liable to
a certain extent. Petitioner Reyes, as
Head of the BSP Supervision and
Examination Sector, and petitioner Domo-
ong, as Director of the BSP Department of
Rural Banks, should have
exercised their power of control and
supervision so that the incident could
have been prevented or at the very
least remedied. (Emphasis
supplied)cralawlibrary
Plainly, conclusion on petitioners culpability
is grounded, not on an established fact but
on a mere inference that the seminar was
conducted under their auspices. Indeed,
the pronouncement on the petitioners role
is evidently conjectural and evaluation of
the extent of their responsibility admittedly
uncertain.
It is conceded that there was no evidence
that the seminar was conducted under
petitioners patronage. And it was assumed,
as indeed there was absolutely paucity of
proof, that they exercised supervision and
control over the persons responsible in
organizing the seminar. On the contrary, as
shown in the Motion For Reconsideration, it
was the Bangko Sentral ng Pilipinas
Institute (BSPI), an office separate and
independent from the SES which is directly
under the control and supervision
of another Deputy Governor, that for
the Resource Management Sector
(RMS) 9 which is charged with conducting
seminars and lectures for the BSP,
including the seminar involved in this case.
In its Comment,10 RBSMI argues that since
information on the state of its finances
found its way as a training material of RMS,
the event could have transpired only
because the SES permitted it. Even if the
subordinates of petitioners were the source
of information, RBSMI further claims in
ostensible reference to the principle of
command responsibility, petitioners could
be held liable for negligence.
It is noteworthy again that petitioners
alleged role in the disclosure of information
is not anchored on any concrete piece of
evidence. That explains the RBSMIs effort
to cast liability vicariously on the
petitioners by a superficial resort to the
principle of command responsibility which
this Court did not reject. But neither the
principle itself which is an accepted notion
in military or police structural dynamics or
its counterpart of respondent superior in
the law on quasi-delicts11 would be
relevant in this case, involving as it does
the actual performance in office of the
petitioners and given the fact that
petitioners are high ranking officers of the
countrys central monetary
authority.Indeed, as such officers,
petitioners cannot be expected to monitor
the activities of their subalterns. In Arias v.
Sandiganbayan,12 this Court held that all
heads of offices have to rely to a
reasonable extent on the good faith of their
subordinates. The case specifically involved
the liability of the head of office in the
preparation of bids, purchase of supplies
and contract negotiations done by his
subordinates. In the same fashion,
petitioners in this case owing to their high
ranks cannot be expected to acquaint
themselves with such minutiae as the flow
of files and documents which leave their
desks. Myriad details such as those are, by
office practice, left to subalterns and minor
employees. Delegation of function is part of
sound management.
From another perspective, the negligence
of the subordinate cannot be ascribed to his
superior in the absence of evidence of the
latters own negligence. Indeed, the
negligence of the subordinate is not
tantamount to negligence of the superior
official so the Court ruled in a case13 where
the mandated responsibilities of the
superior do not include actual monitoring of
projects. In another case,14 this Court
rejected the principle of command
responsibility although the case involved a
provincial constabulary commander, aptly
noting that there was neither allegation nor
proof that he had been in any way guilty of
fault or negligence in connection with the
unlawful raid and arrest effected by his
subordinates.
The immunity of public officers from
liability for the non-feasances, negligence
or omissions of duty of their official
subordinates and even for the latters
misfeasances or positive wrongs rests,
according to Mechem, upon obvious
considerations of public policy, the
necessities of the public service and the
perplexities and embarrassments of a
contrary doctrine.15 These official
subordinates, he notes further, are
themselves public officers though of an
inferior grade, and therefore directly liable
in the cases in which any public officer is
liable, for their own misdeeds or
defaults.16 cralawred
Significantly, Mechems disquisition
provides the mooring of the Administrative
Code of 1987 which provides that a head of
a department or a superior officer shall not
be civilly liable for the wrongful acts,
omissions of duty, negligence, or
misfeasance of his subordinates, unless he
has actually authorized by written order the
specific act or misconduct complained
of.17 cralawred
Now, the label of unprofessionalism
bestowed by the Court on the petitioners at
the instance of RBSMI.
In the assailed Decision, the Court
categorized Reyes telephone introduction
of officials of other banks to RBSMIs
President in connection with the latters
expressed desire to sell the bank as
brokering which in turn constitutes,
according to the Court, violation of the
standards of professionalism. The
standards are set forth in Section 4 (A) (b)
of Republic Act 6713, as
follows:chanroblesvirtua1awlibrary
Sec. 4. Norms of Conduct of Public Officials
and Employees. (A) Every public official
and employee shall observe the following
as standards of personal conduct in the
discharge and execution of official
duties:chanroblesvirtua1awlibrary
.. .
(b) Professionalism. Public officials and
employees shall perform and discharge
their duties with the highest degree of
excellence, professionalism, intelligence
and skill. They shall enter public service
with utmost devotion and dedication to
duty. They shall endeavor to discourage
wrong perceptions of their roles as
dispensers or peddlers of undue patronage.
The Court equates brokering with
unprofessionalism. According to Websters
Third New International
Dictionary,professionalism means the
conduct, aims, or qualities that
characterize or mark a profession. Any
standard thesaurus defines a professional
as a person who engages in an activity with
great competence. Indeed, to call a person
a professional is to describe him as
competent, efficient, experienced,
proficient or polished.
The crucial question, therefore, is whether
Reyes conducted himself in an
unprofessional manner in doing the acts
imputed to him.
The Court rules in the negative.
In the first place, the acts of Reyes do not
constitute brokering. Case law18 defines a
broker as one who is engaged, for
others, on a commission, negotiating
contracts relative to property with the
custody of which he has no concern; the
negotiator between other parties, never
acting in his own name but in the name of
those who employed him.. .. a broker is
one whose occupation is to bring the
parties together, in matters of trade,
commerce or navigation. According
to Bouviers Law Dictionary, brokerage
refers to the trade or occupation of a
broker; the commissions paid to a broker
for his services, while brokers are those
who are engaged for others on the
negotiation of contracts relative to
property, with the custody of which they
have no concern.19 cralawred
Thus, the word brokering clearly indicates
the performance of certain acts for
monetary consideration or compensation.
To give it another definition such as that
imputed by RBSMI to the acts of Reyes is
to distort the accepted jurisprudential
meaning of the term.
From the evidence, all that Reyes did was
to introduce RBSMIs President to the
President of TA Bank and EIB. Nothing
more. There was not even a hint that he
was motivated by monetary consideration
or swayed by any personal interest in doing
what he did.
On his part, Soriano who is RBSMIs
President himself admitted that the talks
with Villacorta and Castillo never got past
the exploratory stage because the two
wanted a buy-in while he was for a total
sell-out. This is an indelible indication that
Reyes was not personally involved in the
transaction.If he were, he would at least
have an inkling of the plans of Villacorta
and Castillo; otherwise, he would not have
wasted his time introducing them to
Soriano.
Indeed, RBSMI miserably failed to establish
that Reyes had breached the standard of
professional conduct required of a public
servant. It appears to the Court that in
keeping with the standards of
professionalism and heeding the mandate
of his position, he made the telephone
introductions for no other purpose but to
pave the way for a possible consolidation
or merger of RBSMI with interested banks.
As this Court found in its Decision, it is
indeed the policy of the BSP to promote
mergers and consolidations by providing
incentives to banks that would undergo
such corporate combinations.20 To
effectively implement the policy, it was
necessary that the banks be advised and
assisted by a person knowledgeable about Reconsideration of the petitioners Deputy
the transactions like Reyes. The benefits Governor Alberto V. Reyes and Director
which may ultimately arise out of any Wilfredo B. Domo-ong. The Decision dated
preliminary facilitation step such as what March 14, 2003 is SET ASIDE and another
Reyes undertook will not accrue to the entered, DISMISSING the administrative
facilitator but to the parties to the complaint and EXONERATING all the
transaction themselves and, of course, the petitioners. The Motion for Partial
institution whose policy initiative is being Reconsideration of the respondent Rural
carried out. Bank of San Miguel (Bulacan), Inc. is
All told, there is neither legal nor factual DENIED.
support for holding Reyes and Domo-ong SO ORDERED
liable.
As to the motion for partial reconsideration
filed by RBSMI, it is argued that Principio
should be administratively penalized for his
undue haste in submitting his report to the
MB, in making an unsupported
recommendation for imposition of penalties
for legal reserve deficiencies, and for taking
charge of the examinations of RBSMI three
consecutive times. RBSMIs arguments are
not new, they having been previously
presented to and squarely ruled upon by
the Court.
In closing, it cannot be overemphasized
that the BSP is an independent body
corporate bestowed under its
21
charter with fiscal and administrative
autonomy. As such, its officials should be
granted a certain degree of flexibility in the
performance of their duties and provided
insulation from interference and vexatious
suits, especially when moves of the kind
are resorted to as counterfoil to the
exercise of their regulatory mandate.
Elsewise, the institutional independence
and autonomy of the BSP as the central
mandatory authority would be rendered
illusory.
IN VIEW OF THE FOREGOING, the Court
RESOLVES to GRANT the Motion for
[G.R. NO. 168859 : June 30, 2009]
UNITED COCONUT PLANTERS BANK,
JERONIMO U. KILAYKO, LORENZO V.
TAN, ENRIQUE L. GANA, JAIME W.
JACINTO and EMILY R.
LAZARO, Petitioners, v. E. GANZON,
INC., Respondent.
[G.R. NO. 168897 : June 30, 2009]
E. GANZON, INC., Petitioner, v. UNITED
COCONUT PLANTERS BANK, JAIME W.
JACINTO and EMILY R.
LAZARO, Respondents.
DECISION
CHICO-NAZARIO, J.:
These are two consolidated1 Petitions for
Review on Certiorari under Rule 45 of the
1997 Revised Rules of Civil Procedure.
United Coconut Planters Bank (UCPB) is a
universal bank duly organized and existing
under Philippine Laws. In G.R. No. 168859,
UCPB and its corporate officers, i.e.,
Jeronimo U. Kilayko, Lorenzo V. Tan,
Enrique L. Gana, Jaime W. Jacinto and
Emily R. Lazaro (UCPB, et al.) seek the
reversal and setting aside of the
Decision2 dated 14 October 2004 and
Resolution3 dated 7 July 2005 of the Court
of Appeals in CA-G.R. SP No. 81385 and the
affirmation, instead, of the letter-
decision4 dated 16 September 2003 of the
Monetary Board of the Bangko Sentral ng
Pilipinas (BSP). The Court of Appeals, in its
assailed Decision, set aside the aforesaid
letter-decision of the BSP Monetary Board
and remanded the case to the latter for
further proceedings; and in its questioned
Resolution, denied for lack of merit the
Motion for Reconsideration of UCPB, et al.,
as well as the Partial Motion for
Reconsideration of E. Ganzon, Inc. (EGI).
On the other hand, EGI is a corporation
duly organized and existing under
Philippine laws and engaged in real estate
construction and development business. In
G.R. No. 168897, EGI prays for this Court
to review the same Decision dated 14
October 2004 and Resolution dated 7 July
2005 of the Court of Appeals in CA-G.R. SP
No. 81385, and to order the appellate court
to (1) act on its findings in the case instead
of remanding the same to the BSP
Monetary Board for further proceedings;
(2) direct the BSP Monetary Board to
impose the applicable administrative
sanctions upon UCPB, et al.; and (3) to
amend its assailed Decision and Resolution
by deleting therefrom the statements
requiring the BSP Monetary Board to
scrutinize and dig deeper into the acts of
UCPB, et al., and to determine if, indeed,
there were irregular and unsound practices
in its business dealings with EGI.
The factual antecedents of these
consolidated petitions are as follows:
Beginning 1995 to 1998, EGI availed itself
of credit facilities from UCPB to finance its
business expansion. To secure said credit
facilities, EGI mortgaged to UCPB its
condominium unit inventories in EGI Rufino
Plaza, located at the intersection of
Buendia and Taft Avenues, Manila.
Initially, EGI was able to make periodic
amortization payments of its loans to
UCPB. When the negative effects of the
Asian economic crisis on the property
development sector finally caught up with
the corporation in the middle of 1998, EGI
started defaulting in its payment of
amortizations, thus, making all of its
obligations due and demandable.
Subsequently, EGI was declared in default
by UCPB in its letters dated 2 October
19985 and 16 February 1999.6 Thereafter,
UCPB stopped sending EGI monthly
statements of its accounts.
In 1999, EGI and UCPB explored the
possibility of using the mortgaged
condominium unit inventories of EGI in EGI
Rufino Plaza as payment for the loans of
EGI to UCPB. Upon agreeing on the
valuation of said mortgaged properties,
EGI and UCPB entered into a Memorandum
of Agreement (MOA)7 on 28 December
1998 in settlement of the loans of EGI from
UCPB. Based on this MOA, the outstanding
loan obligations of EGI with UCPB
amounted to P915,838,822.50, inclusive of
all interest, charges and fees. UCPB,
through its corporate officers, assured EGI
that the said amount already represented
the total loan obligations of EGI to UCPB.
On 18 January 2000, EGI and UCPB
executed an Amendment of Agreement 8 to
reflect the true and correct valuation of the
properties of EGI listed in the MOA that
would be transferred to UCPB in settlement
of the total loan obligations of the former
with the latter. The properties of EGI to be
used in paying for its debt with UCPB were
valued at P904,491,052.00.
According to the MOA and its amendments,
titles to the properties of EGI shall be
transferred to UCPB by the following
modes: (1) foreclosure of mortgage; (2)
dacion en pago; (3) creation of a holding
company; and (4) use of other alternatives
as may be deemed appropriate by UCPB.
UCPB proceeded to foreclose some of the
properties of EGI listed in the MOA. Per the
Certificate of Sale9 dated 13 April 2000, the
foreclosure proceeds of said properties
amounted only to P723,592,000.00, less
than the value of the properties of EGI
stipulated in its amended MOA with UCPB.
UCPB applied the entire foreclosure
proceeds of P723,592,000.00 to the
principal amount of the loan obligations of
EGI, pursuant to BSP Circular No.
239,10 which provided that partial property
payments shall first be applied to the
principal. After deducting the said amount
from the total loan obligations of EGI, there
was still an unpaid balance
of P192,246,822.50.
On 8 May 2001, some of the other
properties of EGI at EGI Rufino Plaza,
valued at P166,127,369.50, were
transferred by way of dacion en pago to
UCPB. However, during the signing of the
transaction papers for the dacion en pago,
EGI Senior Vice-President, Architect Grace
S. Layug (Layug), noticed that said papers
stated that the remaining loan balance of
EGI in the amount of P192,246,822.50 had
increased to P226,963,905.50. The
increase was allegedly due to the addition
of the transaction costs amounting
to P34,717,083.00. EGI complained to
UCPB about the increase, yet UCPB did not
take any action on the matter.
This prompted EGI President Engineer
Eulalio Ganzon (Ganzon) and Senior Vice-
President Layug to review their files to
verify the figures on the loan obligations of
EGI as computed by UCPB. In the process,
they discovered the UCPB Internal
Memorandum dated 22 February
2001,11 signed by UCPB corporate officers.
The said Internal Memorandum presented
two columns, one with the heading
"ACTUAL" and the other "DISCLOSED TO
EGI." The figures in the two columns were
conflicting. The figures in the "DISCLOSED
TO EGI" column computed the unpaid
balance of the loan obligations of EGI to
be P226,967,194.80, the amount which
UCPB actually made known to and
demanded from EGI. The figures in the
"ACTUAL" column calculated the remaining
loan obligations of EGI to be
only P146,849,412.58.
Consequently, EGI wrote UCPB a letter
dated 21 May 2001,12 which included,
among other demands, the refund by UCPB
to EGI of the over-payment
of P83,000,000.00;13 return to EGI of all
the remaining Transfer Certificates of Title
(TCTs)/Condominium Certificates of Title
(CCTs) in the possession of UCPB; and cost
of damage to EGI for the delay in the
release of its certificates of title.
In response, UCPB explained14 that the
"ACTUAL" column in its Internal
Memorandum dated 22 February 2001
contained the same amounts reflected or
recorded in its financial statements, in
accordance with the Manual of Accounts for
Banks, Manual of Regulations for
Banks15 and BSP Circular No. 202,16 Series
of 1999. In contrast, the "DISCLOSED TO
EGI" column showed the total amount still
due from EGI, including the total principal,
interests, transaction and other costs after
the foreclosure, whether reflected in the
financial books of UCPB or not. Further,
UCPB maintained that the difference in the
figures in the two columns was because
BSP Circular No. 202 and Section X305.4 of
the Manual of Regulations for Bank
disallowed banks from accruing in its books
interest on loans which had become non-
performing.
Despite the explanation of UCPB, EGI
insisted that the figures appearing in the
"ACTUAL" column of the former's Internal
Memorandum dated 22 February 2001
revealed the true and actual amount of its
loan obligations to
UCPB, P146,849,412.58.
EGI Senior Vice-President Layug met with
UCPB Vice-President, Jaime W. Jacinto
(Jacinto) to discuss the demand of EGI for
the return of its overpayment. UCPB Vice-
President Jacinto, however, refused to
concede that UCPB had any obligation to
make a refund to EGI and, instead, insisted
that EGI Senior Vice-President Layug
disclose who gave her a copy of the UCPB
Internal Memorandum dated 22 February
2001.
Based on the possession by EGI of the
UCPB Internal Memorandum dated 22
February 2001, UCPB filed a criminal case
for theft and/or discovery of secrets
against EGI President Ganzon and Senior
Vice-President Layug, but the said case
was dismissed.17
On 5 November 2002, EGI, also on the
basis of the UCPB Internal Memorandum
dated 22 February 2001, EGI filed with the
BSP an administrative complaint 18 against
UCPB, et al., for violation of Sections
3619 and 37,20 Article IV of Republic Act No.
7653,21 in relation to Section 55.1(a)22 of
Republic Act No. 8791;23 and for the
commission of irregularities and conducting
business in an unsafe or unsound manner.
In a letter-decision24 dated 16 September
2003, the BSP Monetary Board dismissed
the administrative complaint of EGI,
holding as follows:
Please be informed that the Monetary
Board decided to dismiss the complaint
based on the evaluation conducted by the
Supervision and Examination Department I
and the Office of the General Counsel and
Legal Services to the effect that:
1. UCPB computed interest on the loans
based on BSP rules and regulations which
prohibit banks from accruing interest on
loans that have become non-performing
(BSP Circular No. 202). This is different
from interest which may have run and
accrued based on the promissory
notes/loan documents from the date of
default up to settlement date.
2. Fair market value of assets to be
foreclosed is different from the bid price
submitted during foreclosure and there is
no statutory obligation for the latter to be
equivalent to the former.
3. Regarding the alleged P145,163,000.00
fabricated loan, the documents showed
that there were the EGI Board Resolution
to borrow, promissory note signed by Mr.
Eulalio Ganzon, and Loan Agreement
stating that the proceeds shall be used to
pay outstanding availments and interest
servicing.
4. There is no finding by Supervision and
Examination Department I on the alleged
double charging and/or padding of
transaction costs.25
EGI filed a Motion for Reconsideration and
a Supplemental Motion for Reconsideration
of the aforequoted letter-decision of the
BSP Monetary Board. The BSP Monetary
Board denied both motions in its
letter26 dated 8 December 2003 as there
was no sufficient basis to grant the same.
EGI then filed a Petition for Review under
Rule 43 of the 1997 Revised Rules of Civil
Procedure with the Court of Appeals raising
the sole issue of "whether the Bangko
Sentral ng Pilipinas erred in dismissing the
administrative complaint filed by EGI
against UCPB, et al." The case was
docketed as CA-G.R. SP No. 81385.
On 14 October 2004, the Court of Appeals
rendered its assailed Decision granting the
Petition for Review of EGI, thus, setting
aside the BSP letter-decision dated 16
September 2003 and remanding the case
to the BSP Monetary Board for further
proceedings.
UCPB, et al., moved for the reconsideration
of the 14 October 2004 Decision of the
appellate court, praying for a new
judgment dismissing the appeal of EGI for
lack of jurisdiction and/or lack of merit. EGI
also filed a Partial Motion for
Reconsideration of the same Court of
Appeals Decision, with the prayer that the
appellate court, instead of still remanding
the case to the BSP Monetary Board for
further proceedings, already direct the
latter to impose the applicable
administrative sanctions upon UCPB, et
al.,.
In a Resolution dated 7 July 2005, the
Court of Appeals denied for lack of merit
both the Motion for Reconsideration of
UCPB, et al. and the Motion for Partial
Reconsideration of EGI.
G.R. No. 168859
Aggrieved by the 14 October 2004 Decision
and 7 July 2005 Resolution of the Court of
Appeals, UCPB, et al. comes before this
Court, via a Petition for Review
on Certiorari under Rule 45 of the 1997
Revised Rules of Civil Procedure, based on
the following assignment of errors:
I. THE HONORABLE COURT OF APPEALS
ACTED WITHOUT JURISDICTION AND
GRAVELY ERRED IN HOLDING THAT IT HAS
APPELLATE JURISDICTION OVER
DECISIONS OF THE BSP/MONETARY
BOARD.
II. THE HONORABLE COURT OF APPEALS
GRAVELY ERRED IN HOLDING THAT THE
BANGKO SENTRAL SUMMARILY
DISMISSED THE COMPLAINT OF [EGI].
III. THE HONORABLE COURT OF APPEALS
GRAVELY ERRED IN DISREGARDING THE
FINDINGS OF FACT OF THE BANGKO
SENTRAL AND IN HOLDING THAT [UCPB, et
al.] COMMITTED IRREGULAR AND
UNSOUND BANKING PRACTICES IN THE
SUBJECT TRANSACTIONS.27
The Petition is docketed as G.R. No.
168859.
UCPB, et al., aver that the Court of Appeals
has no appellate jurisdiction over decisions,
orders and/or resolutions of the BSP
Monetary Board on administrative matters.
The BSP Monetary Board is not among the
quasi-judicial agencies enumerated under
Rule 43 of the 1997 Revised Rules of Civil
Procedure, over which the Court of Appeals
has appellate jurisdiction. Further, there is
nothing in Republic Act No. 7653 or in
Republic Act No. 8791 which explicitly
allows an appeal of the decisions or orders
of the BSP Monetary Board to the Court of
Appeals. Resultantly, the Court of Appeals
has no power to review, much less set
aside, the findings of fact of the BSP
Monetary Board as contained in its letter-
decision dated 16 September 2003.
UCPB, et al. also claim that, contrary to the
ruling of the Court of Appeals, the letter-
decision dated 16 September 2003 of the
BSP Monetary Board plainly reveals that
the administrative complaint of EGI against
UCPB, et al. was not summarily dismissed.
The charges of EGI against UCPB, et al. was
resolved only after the BSP Monetary Board
thoroughly reviewed pertinent bank
records and studied the arguments raised
by EGI in its complaint and Motion for
Partial Reconsideration. In its letter-
decision dated 16 September 2003, the
BSP Monetary Board stated in no uncertain
terms that the dismissal of the complaint of
EGI was based on the evaluation conducted
by its Supervision and Examination
Department I and the Office of the General
Counsel and Legal Services. Also, in its
letter dated 8 December 2003, the BSP
Monetary Board denied the Motion for
Reconsideration and Supplemental Motion
for Reconsideration of EGI because the
latter did not present any new evidence in
support of its motions. Hence, there is no
basis for the claim of EGI that the BSP
Monetary Board overlooked and completely
ignored its accusations of irregular and
unsound banking practice against UCPB, et
al.
Finally, UCPB, et al., maintain that the
findings of fact of administrative bodies like
the BSP Monetary Board are accorded great
respect, if not finality, especially if
supported by substantial evidence. Such
findings are to be respected by the courts,
especially in the absence of grave abuse of
discretion or grave errors by the BSP
Monetary Board. No other office, much less
an appellate tribunal, can substitute its
own findings of fact over that of the
concerned administrative agency in view of
the expertise and specialized knowledge
acquired by it on matters falling within its
areas of concern. UCPB, et al. insist that it
is the BSP which has the necessary
expertise to draft guidelines for the
evaluation of the performance and conduct
of banks. Thus, the Court of Appeals
committed grave error in disregarding the
findings of fact of the BSP Monetary Board
which justified the latter's dismissal of the
administrative complaint of EGI against
UCPB, et al.
The issue of jurisdiction of the Court of
Appeals over appeals of decisions, orders
and/or resolutions of the BSP Monetary
Board on administrative matters must first
be resolved, before the other issues raised
herein by UCPB, et al.
Truly, there is nothing in Republic Act No.
7653 or in Republic Act No. 8791 which
explicitly allows an appeal of the decisions
of the BSP Monetary Board to the Court of
Appeals. However, this shall not mean that
said decisions are beyond judicial review.
Section 9(3) of Batas Pambansa Blg. 129,
otherwise known as The Judiciary
Reorganization Act of 1980, as amended,
reads:
SEC. 9. Jurisdiction. - The Court of Appeals
shall exercise:
xxx
(3) Exclusive appellate jurisdiction over all
final judgments, decisions, resolutions,
orders or awards of Regional Trial Courts
and quasi-judicial agencies,
instrumentalities, boards or commissions,
including the Securities and Exchange
Commission, the Social Security
Commission, the Employees Compensation
Commission and the Civil Service
Commission, except those falling within the
appellate jurisdiction of the Supreme Court
in accordance with the Constitution, the
Labor Code of the Philippines under
Presidential Decree No. 442, as amended,
the provisions of this Act, and of
subparagraph (1) of the third paragraph
and subparagraph 4 of the fourth
paragraph of Section 17 of the Judiciary Act
of 1948. (Emphasis ours.)
In accordance with the afore-quoted
provision, Rule 43 of the 1997 Revised
Rules of Civil Procedure, on Appeals from
the Court of Tax Appeals and Quasi-Judicial
Agencies to the Court of Appeals, defines
its scope as follows:
SECTION 1. Scope. - This Rule shall
apply to appeals from judgments or final
orders of the Court of Tax Appeals and
from awards, judgments, final orders
or resolutions of or authorized by any
quasi-judicial agency in the exercise of
its quasi-judicial functions. Among
these agencies are the Civil Service
Commission, Central Board of Assessment
Appeals, Securities and Exchange
Commission, Office of the President, Land
Registration Authority, Social Security
Commission, Civil Aeronautics Board,
Bureau of Patents, Trademarks and
Technology Transfer, National
Electrification Administration, Energy
Regulatory Board, National
Telecommunications Commission,
Department of Agrarian Reform under
Republic Act No. 6657, Government
Service Insurance System, Employees
Compensation Commission, Agricultural
Inventions Board, Insurance Commission,
Philippine Atomic Energy Commission,
Board of Investments, Construction
Industry Arbitration Commission, and
voluntary arbitrators authorized by law.
(Emphasis ours.)
A perusal of Section 9(3) of Batas
Pambansa Blg. 129, as amended, and
Section 1, Rule 43 of the 1997 Revised
Rules of Civil Procedure reveals that the
BSP Monetary Board is not included among
the quasi-judicial agencies explicitly named
therein, whose final judgments, orders,
resolutions or awards are appealable to the
Court of Appeals. Such omission, however,
does not necessarily mean that the Court
of Appeals has no appellate jurisdiction
over the judgments, orders, resolutions or
awards of the BSP Monetary Board.
It bears stressing that Section 9(3) of
Batas Pambansa Blg. 129, as amended, on
the appellate jurisdiction of the Court of
Appeals, generally refers to quasi-judicial
agencies, instrumentalities, boards, or
commissions. The use of the word
"including" in the said provision, prior to
the naming of several quasi-judicial
agencies, necessarily conveys the very idea
of non-exclusivity of the enumeration. The
principle of expressio unius est exclusio
alterius does not apply where other
circumstances indicate that the
enumeration was not intended to be
exclusive, or where the enumeration is by
way of example only.28
Similarly, Section 1, Rule 43 of the 1997
Revised Rules of Civil Procedure merely
mentions several quasi-judicial agencies
without exclusivity in its
phraseology.29 The enumeration of the
agencies therein mentioned is not
exclusive.30 The introductory phrase
"[a]mong these agencies are" preceding
the enumeration of specific quasi-judicial
agencies only highlights the fact that the
list is not meant to be exclusive or
conclusive. Further, the overture stresses
and acknowledges the existence of other
quasi-judicial agencies not included in the
enumeration but should be deemed
included.31
A quasi-judicial agency or body is an organ
of government other than a court and other
than a legislature, which affects the rights
of private parties through either
adjudication or rule-making.32 The very
definition of an administrative agency
includes its being vested with quasi-judicial
powers. The ever increasing variety of
powers and functions given to
administrative agencies recognizes the
need for the active intervention of
administrative agencies in matters calling
for technical knowledge and speed in
countless controversies which cannot
possibly be handled by regular courts.33 A
"quasi-judicial function" is a term which
applies to the action, discretion, etc., of
public administrative officers or bodies,
who are required to investigate facts, or
ascertain the existence of facts, hold
hearings, and draw conclusions from them,
as a basis for their official action and to
exercise discretion of a judicial nature.34
Undoubtedly, the BSP Monetary Board is a
quasi-judicial agency exercising quasi-
judicial powers or functions. As aptly
observed by the Court of Appeals, the BSP
Monetary Board is an independent central
monetary authority and a body corporate
with fiscal and administrative autonomy,
mandated to provide policy directions in
the areas of money, banking and
credit.35 It has power to issue subpoena, to
sue for contempt those refusing to obey the
subpoena without justifiable reason,36 to
administer oaths and compel presentation
of books, records and others, needed in its
examination,37 to impose fines and other
sanctions and to issue cease and desist
order.38 Section 37 of Republic Act No.
7653,39 in particular, explicitly provides
that the BSP Monetary Board shall exercise
its discretion in determining whether
administrative sanctions should be
imposed on banks and quasi-banks, which
necessarily implies that the BSP Monetary
Board must conduct some form of
investigation or hearing regarding the
same.
Having established that the BSP Monetary
Board is indeed a quasi-judicial body
exercising quasi-judicial functions; then as
such, it is one of those quasi-judicial
agencies, though not specifically
mentioned in Section 9(3) of Batas
Pambansa Blg. 129, as amended, and
Section 1, Rule 43 of the 1997 Revised
Rules of Civil Procedure, are deemed
included therein. Therefore, the Court of
Appeals has appellate jurisdiction over final
judgments, orders, resolutions or awards
of the BSP Monetary Board on
administrative complaints against banks
and quasi-banks, which the former
acquires through the filing by the aggrieved
party of a Petition for Review under Rule 43
of the 1997 Revised Rules of Civil
Procedure.
As a futile effort of UCPB, et al. to convince
this Court that the Court of Appeals has no
appellate jurisdiction over the final
judgments, orders, resolutions or awards
of the BSP Monetary Board, it cited Salud
v. Central Bank of the Philippines.40
The invocation of UCPB, et al. of Salud is
evidently misplaced.
The present case involves a decision of the
BSP Monetary Board as regards an
administrative complaint against a bank
and its corporate officers for the alleged
violation of Sections 36 and 37, Article IV
of Republic Act No. 7653, in relation to
Section 55.1(a) of Republic Act No.
8791, and for the commission of
irregularity and unsafe or unsound
banking practice. There is nothing in
the aforesaid laws which state that the final
judgments, orders, resolutions or awards
of the BSP Monetary Board on
administrative complaints against banks or
quasi-banks shall be final and executory
and beyond the subject of judicial review.
Without being explicitly excepted or
exempted, the final judgments, orders,
resolutions or awards of the BSP Monetary
Board are among those appealable to the
Court of Appeals by way of Petition for
Review, as provided in Section 9(3) of
Batas Pambansa Blg. 129, as amended,
and Section 1, Rule 43 of the 1997 Revised
Rules of Civil Procedure.
Although in Salud, this Court declared that
the Intermediate Appellate Court (now
Court of Appeals) has no appellate
jurisdiction over resolutions or orders of
the Monetary Board of the Central Bank of
the Philippines (CBP, now BSP), because no
law prescribes any mode of appeal
therefrom, the factual settings of the said
case are totally different from the one
presently before us. Salud involved a
resolution issued by the Monetary Board,
pursuant to Section 29 of Republic Act
No. 265, otherwise known as the old
Central Bank Act, forbidding banking
institutions to do business on account of a
"condition of insolvency" or because "its
continuance in business would involve
probable loss to depositors or creditors;" or
appointing a receiver to take charge of the
assets and liabilities of the bank; or
determining whether the banking
institutions should be rehabilitated or
liquidated, and if in the latter case,
appointing a liquidator towards this end.
The said Section 29 of the old Central Bank
Act was explicit that the determination by
the Monetary Board of whether a banking
institution is insolvent, or should
be rehabilitated or liquidated, is final
and executory. However, said
determination could be set aside by the
trial court if there was convincing proof that
the Monetary Board acted arbitrarily or in
bad faith. Under the circumstances
obtaining in Salud, it is apparent that
our ruling therein is limited to cases of
insolvency, and not to all cases
cognizable by the Monetary Board.
At any rate, under the new law, i.e.,
Section 30 of Republic Act No. 7653,
otherwise known as The New Central Bank
Act, which took effect on 3 July 1993, the
order of the BSP Monetary Board, even
regarding the liquidation of a bank, can be
questioned via a Petition
for Certiorari before a court when the same
was issued in excess of jurisdiction or with
such grave abuse of discretion as to
amount to lack or excess of jurisdiction.
The court referred to therein can be
construed to mean the Court of Appeals
because it is in the said court where a
Petition for Certiorari can be filed following
the hierarchy of courts.
Moreover, the appellate jurisdiction of the
Court of Appeals over the final judgments,
orders, resolutions or awards of the BSP
Monetary Board in administrative cases
involving directors and officers of banks,
quasi-banks, and trust entities, is affirmed
in BSP Circular No. 477, Series of 2005.
The said BSP Circular expressly provides
that the resolution rendered by the BSP
Monetary Board in administrative cases
may be appealed to the Court of Appeals
within the period and the manner provided
under Rule 43 of the 1997 Revised Rules of
Civil Procedure.
With all the foregoing, it cannot now be
questioned that the Court of Appeals has
appellate jurisdiction over the final
judgments, orders, resolutions or awards
rendered by the BSP Monetary Board in
administrative cases against banks and
their directors and officers, such as UCPB,
et al.
The Court then proceeds to resolve the
issue of whether the Court of Appeals erred
in holding that the BSP Monetary Board
summarily dismissed the administrative
complaint of EGI against UCPB, et al.
After a meticulous scrutiny of the 16
September 2003 letter-decision of the BSP
Monetary Board, this Court rules in the
negative and affirms the finding of the
Court of Appeals that the BSP Monetary
Board did, indeed, summarily dismiss
administrative complaint of EGI against
UCPB, et al., for violation of Sections 36
and 37, Article IV of Republic Act No. 7653,
in relation to Section 55.1(a) of Republic
Act No. 8791, and for the commission of
irregularity and unsafe or unsound banking
practice.
Given the gravity and seriousness of the
charges of EGI against UCPB, et al., the
sweeping statement of the BSP Monetary
Board that it was inclined to dismiss the
complaint of EGI based on the evaluation
made by its Supervision and Examination
Department I and Office of the General
Counsel and Legal Services, is simply
insufficient and unsatisfactory. Worse, the
BSP Monetary Board merely presented the
following conclusions without bothering to
explain its bases for the same: (1) UCPB
computed interest on loans based on BSP
rules and regulations which prohibit banks
from accruing interest on loans that have
become non-performing (BSP Circular No.
202); (2) fair market value of assets to be
foreclosed is different from the bid price
submitted during foreclosure and there is
no statutory obligation for the latter to be
equivalent to the former; (3) regarding the
alleged P145,163,000.00 fabricated loan,
the documents showed that there were the
EGI Board resolution to borrow, promissory
note signed by Mr. Eulalio Ganzon, and
Loan Agreement stating the proceeds shall
be used to pay outstanding availments and
interest servicing; and (4) there is no
finding by Supervision and Examination
Department I on the alleged double
charging and/or padding of transaction
costs.
Further, in resolving the matter before it,
the BSP Monetary Board never considered
the UCPB Internal Memorandum dated 22
February 2001, which was the heart of the
administrative complaint of EGI against
UCPB, et al. The BSP Monetary Board did
not even attempt to establish whether it
was regular or sound practice for a bank to
keep a record of its borrower's loan
obligations with two different sets of
figures, one higher than the other; and to
disclose to the borrower only the higher
figures. The explanation of UCPB, et al.,
adopted by the BSP Monetary Board - that
the figures in the "ACTUAL" column were
lower than those in the "DISCLOSED TO
EGI" column because the former was
computed in accordance with BSP rules and
regulations prohibiting the accrual of
interest on loans that have become non-
performing - gives rise to more questions
than answers. Examples of some of these
questions would be whether the loan
obligations of EGI have become non-
performing; whether the differences
between the figures in the "ACTUAL" and
"DISCLOSED TO EGI" columns indeed
corresponded to the interest that should be
excluded from the figures in the first
column per BSP rules and regulations; and
whether the computations of the figures in
both columns should have been freely
disclosed and sufficiently explained to EGI
in the name of transparency.
The BSP Monetary Board similarly failed to
clarify whether UCPB can foreclose the
mortgaged properties of EGI in amounts
that were less than the values of the said
properties as determined and stipulated by
EGI and UCPB in their amended MOA. The
Court once more agrees in the ruling of the
Court of Appeals that the MOA entered into
by EGI and UCPB serves as a contract
between them, and it is the law that should
govern their relationship, which neither of
the parties can simply abrogate, violate, or
disregard. Unfortunately, the BSP
Monetary Board never even referred to the
MOA executed by the parties in its letter-
decision dated 16 September 2003.
Moreover, the BSP Monetary Board found
that the P145,163,000.00 loan of EGI from
UCPB was not fabricated based on several
documents. However, there is absolute
lack of explanation by the BSP Monetary
Board as to why said documents deserved
more weight vis - à-vis evidence of EGI of
suspicious circumstances surrounding the
said loan, such as UCPB granting EGI said
loan even when the latter was already in
default on its prior loan obligations, and
without requiring additional security,
detailed business plan, and financial
projections from EGI.
The disregard by BSP Monetary Board of all
the foregoing facts and issues in its letter-
decision dated 16 September 2003 leads
this Court to declare that it summarily
dismissed the administrative complaint of
EGI against UCPB, et al. There can be no
complete resolution of the administrative
complaint of EGI without consideration of
these facts and judgment on said issues.
Finally, there is no merit in the assertion of
UCPB, et al. that the Court of Appeals erred
in disregarding the findings of fact of the
BSP Monetary Board in the absence of
grave abuse of discretion or lack of basis
for the same.
Although, as a general rule, findings of
facts of an administrative agency, which
has acquired expertise in the particular
field of its endeavor, are accorded great
weight on appeal, such rule cannot be
applied with respect to the assailed findings
of the BSP Monetary Board in this case.
Rather, what applies is the recognized
exception that if such findings are not
supported by substantial evidence, the
Court can make its own independent
evaluation of the facts.41
The standard of substantial evidence
required in administrative proceedings is
more than a mere scintilla. It means such
relevant evidence as a reasonable mind
might accept as adequate to support a
conclusion. While rules of evidence
prevailing in courts of law and equity shall
not be controlling, the obvious purpose
being to free administrative boards from
the compulsion of technical rules so that
the mere admission of matter which would
be deemed incompetent in judicial
proceedings would not invalidate the
administrative order, this assurance of a
desirable flexibility in administrative
procedure does not go so far as to justify
orders without basis in evidence having
rational probative force.42
It cannot be convincingly said herein that
the factual findings of the BSP Monetary
Board in its letter-decision dated 16
September 2003 was supported by
substantial evidence since (1) most of the
findings were not supported by references
to specific evidence; and (2) the findings
were made without consideration of the
primary evidence presented by EGI (i.e.,
the MOA and its amendments and the UCPB
Internal Memorandum dated 22 February
2001).
Even then, the Court of Appeals stopped
short of categorically ruling that UCPB, et
al. committed irregularities, or unsound or
unsafe banking practice in its transactions
with EGI. What the Court of Appeals
positively pronounced was that the BSP
Monetary Board failed to give the
necessary consideration to the
administrative complaint of EGI, summarily
dismissing the same in its 16 September
2003 letter-decision. The 14 October 2004
Decision of the Court of Appeals clearly
remanded the case to the BSP for further
proceedings since the BSP, with its
specialized knowledge and expertise on
banking matters, is more up to task to
receive evidence, hold hearings, and
thereafter resolve the issues based on its
findings of fact and law.
G.R. No. 168897
Also unsatisfied with the Decision dated 14
October 2004 and Resolution dated 7 July
2005 of the Court of Appeals, EGI filed with
this Court its own Petition for Review
on Certiorari under Rule 45 of the 1997
Revised Rules of Civil Procedure, raising
the following issues:
I. The Honorable Court of Appeals does
have appellate jurisdiction over decisions,
orders, and resolutions of the
BSP/Monetary Board.
II. The Honorable Court of Appeals was
correct in FINDING that the [BSP]
summarily dismissed the complaint of EGI.
III. Whether or not the Honorable Court of
Appeals committed patent, grave, and
reversible error when it remanded the case
to the [BSP] for further proceedings
instead of acting upon its findings as
narrated in its Decision.
IV. Whether or not the Honorable Court of
Appeals committed patent, grave, and
reversible error in not directing the [BSP]
to impose the appropriate penalties against
[UCPB, et al.].43
The Petition is docketed as G.R. No.
168897.
Since the first two "issues" have already
been addressed by this Court in its previous
discussion herein on G.R. No. 168859, we
now proceed to resolve the next two issues
raised by EGI in its Petition in G.R. No.
168897.
EGI avers that the Court of Appeals
committed reversible error when it
remanded the case to the BSP for further
proceedings instead of directing the BSP to
impose the applicable sanctions on UCPB,
et al. EGI reasons that the appellate court,
in its Decision dated 14 October 2004,
already found that UCPB had committed
several acts of serious irregularity and
conducted business in an unsafe and
unsound manner. By reason thereof, there
was no more need for the Court of Appeals
to remand this case to the BSP for a further
determination of whether there were
irregular and unsound practices by UCPB,
et al. in its dealings with EGI. Should this
case be remanded to the BSP, there would
be nothing to prevent the BSP from ruling
again that UCPB, et al., did not commit any
irregularity and unsafe or unsound
business practice. To require that this case
be reviewed by the BSP would only lead to
multiplicity of suits, promote unnecessary
delay and negate the constitutional rights
of all persons to a speedy disposition of
their cases before all judicial, quasi-judicial
or administrative bodies.
The Court reiterates that the Court of
Appeals did not yet make conclusive
findings in its Decision dated 14 October
2004, that UCPB, et al., committed
irregularities and unsound or unsafe
banking practices in their business dealings
with EGI. The appellate court only
adjudged that the BSP Monetary Board
summarily dismissed the administrative
complaint of EGI, without fully appreciating
the facts and evidence presented by the
latter. Given the seriousness of the charges
of EGI against UCPB, et al., the BSP
Monetary Board should have conducted a
more intensive inquiry and rendered a
more comprehensive
decision.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
By remanding the case to the BSP
Monetary Board, the Court of Appeals only
acted in accordance with Republic Act No.
7653 and Republic Act No. 8791, which
tasked the BSP, through the Monetary
Board, to determine whether a particular Jaime W. Jacinto and Emily R. Lazaro, in
act or omission, which is not otherwise G.R. No. 168859; as well as the Petition for
prohibited by any law, rule or regulation Review on Certiorari of E. Ganzon, Inc. in
affecting banks, quasi-banks or trust G.R. No. 168897, are hereby DENIED. The
entities, may be deemed as conducting Decision dated 14 October 2004 and
business in an unsafe or unsound manner. Resolution dated 7 July 2005 of the Court
Also, the BSP Monetary Board is the proper of Appeals in CA-G.R. SP No. 81385 are
body to impose the necessary hereby AFFIRMED in toto. No costs.
administrative sanctions for the erring SO ORDERED.
bank and its directors or officers.
The Court of Appeals did not deem it
appropriate, on appeal, to outright reverse
the judgment of the BSP Monetary Board.
The Court of Appeals held that the BSP
Monetary Board did not have sufficient
basis for dismissing the administrative
complaint of EGI in its 16 September 2003
letter-decision; yet, the appellate court
likewise did not find enough evidence on
record to already resolve the
administrative complaint in favor of EGI
and against UCPB, et al., precisely the
reason why it still remanded the case to the
BSP Monetary Board for further
proceedings. The Court of Appeals never
meant to give EGI an assurance of a
favorable judgment; it only ensured that
the BSP Monetary Board shall accord all
parties concerned to equal opportunity for
presentation and consideration of their
allegations, arguments, and evidence.
While the speedy disposition of cases is a
constitutionally mandated right, the
paramount duty of the courts, as well as
quasi-judicial bodies, is to render justice by
following the basic rules and principles of
due process and fair play.
WHEREFORE, premises considered, the
Petition for Review on Certiorari of United
Coconut Planters Bank, Jeronimo U.
Kilayko, Lorenzo V. Tan, Enrique L. Gana,
G.R. No. L-14279 October 31,
1961
THE COMMISSIONER OF CUSTOMS and
THE COLLECTOR OF
CUSTOMS, petitioners,
vs.
EASTERN SEA TRADING, respondent.
Office of the Solicitor General for
petitioners.
Valentin Gutierrez for respondent.
CONCEPCION, J.:
Petition for review of a judgment of the
Court of Tax Appeals reversing a decision
of the Commissioner of Customs.
Respondent Eastern Sea Trading was the
consignee of several shipments of onion
and garlic which arrived at the Port of
Manila from August 25 to September 7,
1954. Some shipments came from Japan
and others from Hong Kong. In as much as
none of the shipments had the certificate
required by Central Bank Circulars Nos. 44
and 45 for the release thereof, the goods
thus imported were seized and subjected to
forfeiture proceedings for alleged violations
of section 1363(f) of the Revised
Administrative Code, in relation to the
aforementioned circulars of the Central
Bank. In due course, the Collector of
Customs of Manila rendered a decision on
September 4, 1956, declaring said goods
forfeited to the Government and — the
goods having been, in the meantime,
released to the consignees on surety
bonds, filed by the same, as principal, and
the Alto Surety & Insurance Co., Inc., as
surety, in compliance with orders of the
Court of First Instance of Manila, in Civil
Cases Nos. 23942 and 23852 thereof —
directing that the amounts of said bonds be
paid, by said principal and surety, jointly
and severally, to the Bureau of Customs,
within thirty (30) days from notice.
On appeal taken by the consignee, said
decision was affirmed by the Commissioner
of Customs on December 27, 1956.
Subsequently, the consignee sought a
review of the decision of said two (2)
officers by the Court of Tax Appeals, which
reversed the decision of the Commissioner
of Customs and ordered that the
aforementioned bonds be cancelled and
withdrawn. Hence, the present petition of
the Commissioner of Customs for review of
the decision of the Court of Tax Appeals.
The latter is based upon the following
premises, namely: that the Central Bank
has no authority to regulate transactions
not involving foreign exchange; that the
shipments in question are in the nature of
"no-dollar" imports; that, as such, the
aforementioned shipments do not involve
foreign exchange; that, insofar as a Central
Bank license and a certificate authorizing
the importation or release of the goods
under consideration are required by Central
Bank Circulars Nos. 44 and 45, the latter
are null and void; and that the seizure and
forfeiture of the goods imported from Japan
cannot be justified under Executive Order
No. 328,1 not only because the same seeks
to implement an executive agreement 2 —
extending the effectivity of our3 Trades and
Financial Agreements4 with Japan — which
(executive agreement), it believed, is of
dubious validity, but, also, because there is
no governmental agency authorized to
issue the import license required by the
aforementioned executive order.
The authority of the Central Bank to
regulate no-dollar imports and the validity
of the aforementioned Circulars Nos. 44,
and 45 have already been passed upon and
repeatedly upheld by this Court (Pascual
vs. Commissioner of Customs, L-10979
[June 30, 1959]; Acting Commissioner of
Customs vs. Leuterio, L-9142 [October 17,
1959] Commissioner of Customs vs.
Pascual, L-9836 [November 18, 1959];
Commissioner of Customs vs. Serree
Investment Co., L-12007 [May 16, 1960];
Commissioner of Customs vs. Serree
Investment Co., L-14274 [November 29,
1960]), for the reason that the broad
powers of the Central Bank, under its
charter, to maintain our monetary stability
and to preserve the international value of
our currency, under section 2 of Republic
Act No. 265, in relation to section 14 of said
Act — authorizing the bank to issue such
rules and regulations as it may consider
necessary for the effective discharge of the
responsibilities and the exercise of the
powers assigned to the Monetary Board
and to the Central Bank — connote the
authority to regulate no-dollar imports,
owing to the influence and effect that the
same may and do have upon the stability
of our peso and its international value.
The Court of Tax Appeals entertained
doubts on the legality of the executive
agreement sought to be implemented by
Executive Order No. 328, owing to the fact
that our Senate had not concurred in the
making of said executive agreement. The
concurrence of said House of Congress is
required by our fundamental law in the
making of "treaties" (Constitution of the
Philippines, Article VII, Section 10[7]),
which are, however, distinct and different
from "executive agreements," which may
be validly entered into without such
concurrence.
Treaties are formal documents which
require ratification with the approval of two
thirds of the Senate. Executive agreements
become binding through executive action
without the need of a vote by the Senate
or by Congress.
xxx xxx xxx
. . . the right of the Executive to enter into
binding agreements without the necessity
of subsequent Congressional approval has
been confirmed by long usage. From the
earliest days of our history we have
entered into executive agreements
covering such subjects as commercial and
consular relations, most-favored-nation
rights, patent rights, trademark and
copyright protection, postal and navigation
arrangements and the settlement of
claims. The validity of these has never
been seriously questioned by our courts.
xxx xxx xxx
Agreements with respect to the registration
of trade-marks have been concluded by the
Executive with various countries under the
Act of Congress of March 3, 1881 (21 Stat.
502). Postal conventions regulating the
reciprocal treatment of mail matters,
money orders, parcel post, etc., have been
concluded by the Postmaster General with
various countries under authorization by
Congress beginning with the Act of
February 20, 1792 (1 Stat. 232, 239). Ten
executive agreements were concluded by
the President pursuant to the McKinley
Tariff Act of 1890 (26 Stat. 567, 612), and
nine such agreements were entered into
under the Dingley Tariff Act 1897 (30 Stat.
151, 203, 214). A very much larger number
of agreements, along the lines of the one
with Rumania previously referred to,
providing for most-favored-nation
treatment in customs and related matters
have been entered into since the passage
of the Tariff Act of 1922, not by direction of
the Act but in harmony with it.
xxx xxx xxx
International agreements involving political
issues or changes of national policy and
those involving international arrangements
of a permanent character usually take the
form of treaties. But international
agreements embodying adjustments of
detail carrying out well-established
national policies and traditions and those
involving arrangements of a more or less
temporary nature usually take the form of
executive agreements.
xxx xxx xxx
Furthermore, the United States Supreme
Court has expressly recognized the validity
and constitutionality of executive
agreements entered into without Senate
approval. (39 Columbia Law Review, pp.
753-754) (See, also, U.S. vs. Curtis-Wright
Export Corporation, 299 U.S. 304, 81 L. ed.
255; U.S. vs. Belmont, 301 U.S. 324, 81 L.
ed. 1134; U.S. vs. Pink, 315 U.S. 203, 86
L. ed. 796; Ozanic vs. U.S., 188 F. 2d. 288;
Yale Law Journal, Vol. 15, pp. 1905-1906;
California Law Review, Vol. 25, pp. 670-
675; Hyde on International Law [Revised
Edition], Vol. 2, pp. 1405, 1416-1418;
Willoughby on the U.S. Constitutional Law,
Vol. I [2d ed.], pp. 537-540; Moore,
International Law Digest, Vol. V, pp. 210-
218; Hackworth, International Law Digest,
Vol. V, pp. 390-407). (Emphasis supplied.)
In this connection, Francis B. Sayre, former
U.S. High Commissioner to the Philippines,
said in his work on "The Constitutionality of
Trade Agreement Acts":
Agreements concluded by the President
which fall short of treaties are commonly
referred to as executive agreements and
are no less common in our scheme of
government than are the more formal
instruments — treaties and conventions.
They sometimes take the form of
exchanges of notes and at other times that
of more formal documents denominated
"agreements" time or "protocols". The
point where ordinary correspondence
between this and other governments ends
and agreements — whether denominated
executive agreements or exchanges of
notes or otherwise — begin, may
sometimes be difficult of ready
ascertainment. It would be useless to
undertake to discuss here the large variety
of executive agreements as such,
concluded from time to time. Hundreds of
executive agreements, other than those
entered into under the trade-agreements
act, have been negotiated with foreign
governments. . . . It would seem to be
sufficient, in order to show that the trade
agreements under the act of 1934 are not
anomalous in character, that they are not
treaties, and that they have abundant
precedent in our history, to refer to certain
classes of agreements heretofore entered
into by the Executive without the approval
of the Senate. They cover such subjects as
the inspection of vessels, navigation dues,
income tax on shipping profits, the
admission of civil aircraft, customs
matters, and commercial relations
generally, international claims, postal
matters, the registration of trademarks and
copyrights, etcetera. Some of them were
concluded not by specific congressional
authorization but in conformity with
policies declared in acts of Congress with even if the aforementioned Executive Order
respect to the general subject matter, such had been silent thereon.
as tariff acts; while still others, particularly WHEREFORE, the decision appealed from is
those with respect of the settlement of hereby reversed and another one shall be
claims against foreign governments, were entered affirming that of the Commissioner
concluded independently of any of Customs, with cost against respondents
legislation." (39 Columbia Law Review, pp. defendant-appellee, Eastern Sea Trading.
651, 755.) It is so ordered.
The validity of the executive agreement in Bengzon, C.J., Padilla, Bautista Angelo,
question is thus patent. In fact, the so- Labrador, Reyes, J.B.L., Paredes, Dizon
called Parity Rights provided for in the and De Leon, JJ., concur.
Ordinance Appended to our Constitution Barrera, J., took no part.
were, prior thereto, the subject of an
executive agreement, made without the
concurrence of two-thirds (2/3) of the
Senate of the United States.
Lastly, the lower court held that it would be
unreasonable to require from respondent-
appellee an import license when the Import
Control Commission was no longer in
existence and, hence, there was, said court
believed, no agency authorized to issue the
aforementioned license. This conclusion is
untenable, for the authority to issue the
aforementioned licenses was not vested
exclusively upon the Import Control
Commission or Administration. Executive
Order No. 328 provided for export or
import licenses "from the Central Bank of
the Philippines or the Import Control
Administration" or Commission. Indeed,
the latter was created only to perform the
task of implementing certain objectives of
the Monetary Board and the Central
Bank, which otherwise had to be
undertaken by these two (2) agencies.
Upon the abolition of said Commission, the
duty to provide means and ways for the
accomplishment of said objectives had
merely to be discharged directly by the
Monetary Board and the Central Bank,
[G.R. No. 88435. January 16, 2002.]
DEVELOPMENT BANK OF THE
PHILIPPINES, JESUS P. ESTANISLAO,
DOLORES A. SANTIAGO, LYNN H.
CATUNCAN, NORMA O. TERREL, MA.
ANTONIA G. REBUENO, Petitioners, v.
COMMISSION ON AUDIT, Respondent.
DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari 1
of the letter-decision of the Chairman of
the Commission on Audit 2 ("COA" for
brevity) and the letter-decision of the COA
en banc 3 , prohibiting the Development
Bank of the Philippines ("DBP" for brevity)
from hiring a private external auditor. This
petition raises a question of first
impression, whether or not the
constitutional power of the COA to examine
and audit the DBP is exclusive and
precludes a concurrent audit of the DBP by
a private external auditor.chanrob1es
virtua1 1aw 1ibrary
The Antecedent Facts
In 1986, the Philippine government, under
the administration of then President
Corazon C. Aquino, obtained from the
World Bank an Economic Recovery Loan
("ERL" for brevity) in the amount of
US$310 million. The ERL was intended to
support the recovery of the Philippine
economy, at the time suffering severely
from the financial crisis that hit the country
during the latter part of the Marcos regime.
As a condition for granting the loan, the
World Bank required the Philippine
government to rehabilitate the DBP which
was then saddled with huge non-
performing loans. Accordingly, the
government committed to rehabilitate the
DBP to make it a viable and self-sustaining
financial institution in recognition of its
developmental role in the economy. The
DBP was expected to continue "providing
principally medium and long-term
financing to projects with risks higher than
the private sector may be willing to accept
under reasonable terms." 4 The
government’s commitment was embodied
in the Policy Statement for the
Development Bank of the Philippines which
stated in part:jgc:chanrobles.com.ph
"4. Furthermore, like all financial
institutions under Central Bank
supervision, DBP will now be required to
have a private external audit, and its Board
of Directors will now be opened to
adequate private sector representation. It
is hoped that with these commitments,
DBP can avoid the difficulties of the past
and can function as a competitive and
viable financial institution within the
Philippine financial system." 5 (Emphasis
supplied)
On November 28, 1986, the Monetary
Board adopted Resolution No. 1079
amending the Central Bank’s Manual of
Regulations for Banks and other Financial
Intermediaries, in line with the
government’s commitment to the World
Bank to require a private external auditor
for DBP. Thus, on December 5, 1986, the
Central Bank Governor issued Central Bank
Circular No. 1124, providing
that:jgc:chanrobles.com.ph
"SECTION 1. Subsection 1165.5 (Book I) is
amended to read as follows:chanrob1es
virtual 1aw library
1165.5 Financial Audit. — Each Bank,
whether Government-owned or controlled
or private, shall cause an annual financial
audit to be conducted by an external
independent auditor not later than thirty
(30) days after the close of the calendar
year or the fiscal year adopted by the bank.
. . .
. . . The Audit of a Government-owned or
controlled bank by an external independent
auditor shall be in addition to and without
prejudice to that conducted by the
Commission on Audit in the discharge of its
mandate under existing law. . . .
x x x
"SECTION 3. The requirements for an
annual financial audit by an external
independent auditor shall extend to
specialized and unique government banks
such as the Land Bank of the Philippines
and the Development Bank of the
Philippines," 6
On December 12, 1986, pursuant to
Central Bank Circular No. 1124 and the
government’s commitment to the World
Bank, DBP Chairman Jesus Estanislao
wrote the COA seeking approval of the
DBP’s engagement of a private external
auditor in addition to the COA. 7
On January 2, 1987, to formalize its
request for the ERL, the Philippine
government sent the World Bank a letter
assuring the World Bank that pursuant to
Central Bank Circular No. 1124, "all Banks,
including government banks, shall be fully
audited by external independent auditors .
. . in addition to that provided by the
Commission on Audit." The letter was
signed by the Central Bank Governor and
the Ministers of Finance, Trade and
Industry, and Economic Planning of the
Philippine government. 8
On January 8, 1987, the Philippine
government and World Bank negotiating
panels reached final agreement on the
private audit of the DBP, as
follows:jgc:chanrobles.com.ph
"13. With respect to the draft Policy
Statement, it was agreed that Sections 4,
7 and 11 would be amended as
follows:chanrob1es virtual 1aw library
. . . (iii) Section 11 should in line with the
letter of Development Policy, confirm that
the external independent audits would
commence with a balance sheet audit as of
December 31, 1986 and a full financial
audit, including income statements,
starting with the period July 1 to December
31, 1986. A copy of COA’s letter (referred
to in par. 1, a draft of which is attached as
Annex VIII) regarding DBP’s appointment
of a private external auditor will be sent to
the Bank before the distribution of the loan
documents to the Bank’s Board, along with
a copy of the scope of audit as approved by
COA and satisfactory to the
Bank.chanrob1es virtua1 1aw 1ibrary
With regard to the scope of the audit to be
undertaken by the private external
auditors, the terms of reference which will
be issued to the selected auditors should
be generally consistent with the attached
model terms of reference for financial
audits (Annex IX). These general terms of
reference were discussed during
negotiations and form a part of the World
Bank’s guidelines for financial information
on financial institutions." 9 that:jgc:chanrobles.com.ph
On January 20, 1987, the COA Chairman
Teofisto Guingona, Jr. replied to the
December 12, 1986 letter of the DBP
Chairman. The COA Chairman’s reply
stated that:jgc:chanrobles.com.ph
". . . the Commission on Audit (COA) will
interpose no objection to your engagement
of a private external auditor as required by
the Economic Recovery Program Loan
Agreements of 1987 provided that the
terms for said audit are first reviewed and
approved by the Commission." 10
The following day, the COA Chairman also
informed the Consultant of the Central
Bank that the COA interposed no objection
to the proposed scope of audit services to
be undertaken by the private external
auditors to be engaged by the DBP. 11
On February 18, 1987, the Board of
Directors of the DBP approved the hiring of
Joaquin Cunanan & Co. as the DBP’s private
external auditor for calendar year 1986 as
required by Central Bank Circular No. 1224
and the World Bank. The DBP Board of
Directors placed a ceiling on the amount of
reimbursable out-of-pocket expenses that
could be charged by the private auditor. 12
On February 23, 1987, the World Bank
President, in his report to the Bank’s
Executive Directors on the Philippine
government’s application for the ERL,
certified that the Philippine government
was complying with the requirement of a
private external auditor. The World Bank
President’s certification stated
"74. Accounting and Auditing. — All banks
both government and private are now
subject to accounting and auditing
standards as established by the Central
Bank. To ensure full public accountability,
the Monetary Board now requires that all
government banks be subject to annual
audits by independent private auditing
firms, in addition to those normally
undertaken by the Government’s
Commission on Audit. DBP and PNB have
already selected private auditors, and
audited accounts for 1986 and 1987 will be
a requirement for the releases of the
second and third tranches, respectively, of
the ERL." 13
However, a change in the leadership of the
COA suddenly reversed the course of
events. On April 27, 1987, the new COA
Chairman, Eufemio Domingo, wrote the
Central Bank Governor protesting the
Central Bank’s issuance of Circular No.
1124 which allegedly encroached upon the
COA’s constitutional and statutory power to
audit government agencies. The COA
Chairman’s letter informed the Governor
that:jgc:chanrobles.com.ph
"This Commission hereby registers its
strong objection to that portion of the CBP
Circular No. 1124 which requires
government banks to engage private
auditors in addition to that conducted by
the Commission on Audit, and urges the
immediate amendment thereof. It is the
position of the Commission that the said
requirement: (a) infringes on Article IX-D
of the Philippine Constitution; (b) violates
Section 26 and 32 of the Government
Auditing Code of the Philippines; (c)
exposes the financial programs and
strategies of the Philippine Government to
high security risks; (d) allows the
unnecessary and unconscionable
expenditure of government funds; and (e)
encourage unethical encroachment among
professionals." 14
On May 13, 1987, after learning that the
DBP had signed a contract with a private
auditing firm for calendar year 1986, the
new COA Chairman wrote the DBP
Chairman that the COA resident auditors
were under instructions to disallow any
payment to the private auditor whose
services were unconstitutional, illegal and
unnecessary. 15
On July 1, 1987, the DBP Chairman sent to
the COA Chairman a copy of the DBP’s
contract with Joaquin Cunanan & Co.,
signed four months earlier on March 5,
1987. The DBP Chairman’s covering
handwritten note sought the COA’s
concurrence to the contract. 16
During the pendency of the DBP
Chairman’s note-request for concurrence,
the DBP paid the billings of the private
auditor in the total amount of P487,321.14
17 despite the objection of the COA. On
October 30, 1987, the COA Chairman
issued a Memorandum disallowing the
payments, and holding the following
persons personally liable for such
payment:jgc:chanrobles.com.ph
"SVP Fajardo who approved the voucher for
payment; VP Santiago who certified that
the expenditure was authorized, necessary
and lawful; SM Terrel, Catuncan and
Rebueno who signed the checks; and the
head of office who signed the contract and
who is immediately and primarily
responsible for the funds of the Bank." 18
On January 19, 1988, the DBP Chairman
wrote the COA Chairman seeking
reconsideration of the COA Chairman’s
Memorandum. 19 However, the DBP
received no response until August 29, 1988
when the COA Chairman issued a letter-
decision denying petitioner’s July 1, 1987
note-request for concurrence. The letter-
decision, one of the two COA decisions
assailed in this petition, declared in part as
follows:jgc:chanrobles.com.ph
"(a) In the letter to the Central Bank
Governor . . ., this Commission clearly
stated its non-negotiable stand on the
issue in the following terms:chanrob1es
virtual 1aw library
‘. . . the very essence of the Commission
on Audit as an independent constitutional
commission in the total scheme of
Government is its singular function to
‘[E]xamine, audit, and settle, . . . all
accounts pertaining to . . . the
Government, or any of its subdivisions, . .
. including government-owned or
controlled corporations.’ To allow private
firms to interfere in this governmental
audit domain would be to derogate the
Constitutional supremacy of State audit as
the Government’s guardian of the people’s
treasury, and as the prime advocate of
economy in the use of government
resources.’chanrob1es virtua1 1aw 1ibrary
x x x
"(c) In the letter to the Secretary of
Finance dated January 28, 1988 . . ., this
Commission maintains:chanrob1es virtual
1aw library
1.’COA is in no way prepared to permit ‘use
of private auditors’ except insofar as the
law allows, which is ‘to deputize and retain
in the name of the Commission such
certified public accountants and other
licensed professionals not in the public
service as it may deem necessary to assist
the government auditors in undertaking
specialized audit engagements’ (Sec. 31,
PD No. 1445). Outside of this, the
Commission does not consider the matter
of hiring private auditing firms a negotiable
matter, and this we want to emphasize to
avoid future embarrassment to the
Government. The Commission on Audit is a
constitutionally-created independent and
separate body, and neither Congress nor
the Executive Department has the power to
detract from its mandated duties,
functions, and powers.
2.’Since the proceeds of the proposed loan
accrue to the Republic of the Philippines as
borrower, it follows that its accounting and
audit must comply with the laws of this
country. To specify in the Loan Agreement
that the loan account, once released to the
Government, shall be ‘audited by
independent auditors acceptable to the
Bank’ is not only to entirely by-pass this
Commission but to ignore as well the
Constitution and the laws of this country
which vests in this Commission the ‘power,
authority, and duty to examine, audit, and
settle all accounts pertaining to the
revenue and receipts of, and expenditures
of uses of funds and property . . .
pertaining to the Government.’ (Sec. 2,
Art. IX-D, Phil. Const.).
‘Such brazen disregard of the fundamental
law of this country cannot be countenanced
by this Commission.’
"In view of all the foregoing, you are
hereby advised:jgc:chanrobles.com.ph
"1. To desist from proceeding with the
audit of Joaquin Cunanan & Co. of the
Bank’s financial statements for the year
ending December 31, 1987.
"2. To refrain from making any payments
out of the funds of the Development Bank
of the Philippines, in the event that such
audit services have already been rendered,
attention being invited to the following
provisions of the Government Auditing
Code of the Philippines:chanrob1es virtual
1aw library
‘Sec. 108. General liability for unlawful
expenditures. — Expenditures of
government funds or uses of government
property in violation of law or regulations
shall be a personal liability of the official or
employee found to be directly responsible
therefore.’
"3. To restitute, within thirty (30) days
from receipt hereof, the total amount of
P513,549.24 under CV Nos. 9136, 5014,
6201 and 4082 for professional services
rendered in the audit of the 1986 financial
operations of the Bank. Pursuant to the
aforequoted provisions of law, such
unlawful expenditure is the personal
liability of the official directly responsible
therefore.
Please be guided accordingly." 20
On September 26, 1988, the DBP Chairman
appealed the letter decision to the COA en
banc. On May 20, 1989, the COA en banc,
in a letter-decision, denied the DBP’s
appeal. This letter-decision, now also
assailed by the DBP, held
that:jgc:chanrobles.com.ph
"Upon a circumspect evaluation of the
grounds upon which your instant request is
predicated, this Commission finds the same
to be devoid of merit. As hereunder
demonstrated, the justifications offered do
not inspire rational belief in the mind of this
Commission.
"First, it bears stress that CB Circular No.
1124, series of 1986, which has earlier
been shown to be constitutionally and
legally infirm, cannot by any means
possess any binding and conclusive effect
upon this Commission and, hence, may not
be properly invoked in support of the
instant appeal.
"Secondly, it was not the International
Bank for Reconstruction and Development
which required the audit of government
banks by private auditing firm, but the
Central Bank itself.
"Thirdly, insofar as this Commission is
concerned, PD 2029 is an anachronism of
sorts if viewed in the light of the present
Constitution recognizing this Commission
as the supreme and exclusive audit
institution of the government. This is
necessarily implicit from the bare language
of Section 2(1), Article IX-D thereof which,
despite the absence of the qualifying
adjective "exclusive" that anyway would be
a surplusage, ought to be reasonably
construed as vesting in this Commission
the "power, authority, and duty" to audit all
government accounts to the exclusion of
any other person or entity, whether in the
public or the private sector. Expressio
unius est exclusio alterius. A contrary
interpretation, such as that being pressed
upon this Commission, would reduce this
constitutional ordinance to an absurdity
(reductio ad absurdum) as it thereby would
give rise to the rather confusing spectacle,
as it were, of a government agency or
corporation being audited not only by this
Commission but also and in addition
thereto by one or two or several private
accounting firms — certainly a situation
never intended by the framers of the
Constitution.
"Lastly, while this Commission has not lost
sight of the letter of then COA Chairman
Guingona, Jr. to the DBP Chairman, dated
January 20, 1987, it has opted to be guided
and influenced by the more persuasive and
controlling COA Circular No. 860254 dated
March 24, 1986, which in categorical and
precise terms ordained that:chanrob1es
virtual 1aw library
‘Accordingly, by way of reassertion and
reaffirmation of its primary audit
jurisdiction, as herein above defined, the
Commission on Audit hereby issues the
following directives:chanrob1es virtual 1aw
library
1. Any ongoing audit of a government-
owned and/or controlled corporation or any
of its subsidiaries or corporate offsprings
being conducted by a private auditor or
accounting firm shall cease and terminate
on April 15, 1986. Henceforth, from and
after said date, the audit of said corporate
entity shall be undertaken solely and
exclusively by the Commission on Audit. .
.’
"Premises considered, it is regretted that
your instant request for reconsideration
has to be, as it is hereby, denied." 21
Hence, on June 14, 1989 the DBP filed this
petition for review with prayer for a
temporary restraining order, assailing the
two COA letter-decisions for being contrary
to the Constitution and existing laws. On
June 15, 1989 this Court issued a
temporary restraining order directing the
COA to cease and desist from enforcing its
challenged letter-decisions. The Office of
the Solicitor General, in a Manifestation
dated October 18, 1989, declined to appear
on behalf of the COA on the ground that the
Solicitor General was "taking a position
adverse to that of the COA." Consequently,
a private counsel on pro bono basis
represented the COA.
The Issues
The DBP’s petition raises the following
issues:chanrob1es virtual 1aw library
1. Does the Constitution vest in the COA
the sole and exclusive power to examine
and audit government banks so as to
prohibit concurrent audit by private
external auditors under any circumstance?
2. Is there an existing statute that prohibits
government banks from hiring private
auditors in addition to the COA? If there is
none, is there an existing statute that
authorizes government banks to hire
private auditors in addition to the COA?
3. If there is no legal impediment to the
hiring by government banks of a private
auditor, was the hiring by the DBP of the
private auditor in the case at bar
necessary, and were the fees paid by DBP
to the private auditor reasonable, under
the circumstances?
The Court’s Ruling
The DBP’s petition is meritorious.
First Issue: Power of COA to Audit under
the Constitution
The resolution of the primordial issue of
whether or not the COA has the sole and
exclusive power to examine and audit
government banks involves an
interpretation of Section 2, Article IX-D of
the 1987 Constitution. This Section
provides as follows:jgc:chanrobles.com.ph
"Sec. 2. (1) The Commission on Audit shall
have the power, authority, and duty to
examine, audit, and settle all accounts
pertaining to the revenue and receipts of,
and expenditures or uses of funds and
property, owned and held in trust by, or
pertaining to, the Government, or any of its
subdivisions, agencies, or
instrumentalities, including government-
owned or controlled corporations with
original charters, . . .
"(2) The Commission shall have the
exclusive authority, subject to the
limitations in this Article, to define the
scope of its audit and examination,
establish the techniques and methods
required therefore, and promulgate
accounting and auditing rules and
regulations, including those for the
prevention and disallowance of irregular,
unnecessary, excessive, extravagant, or
unconscionable expenditures, or uses of
government funds and properties."
(Emphasis supplied)chanrob1es virtua1
1aw 1ibrary
The COA vigorously asserts that under the
first paragraph of Section 2, the COA
enjoys the sole and exclusive power to
examine and audit all government
agencies, including the DBP. The COA
contends this is similar to its sole and
exclusive authority, under the second
paragraph of the same Section, to define
the scope of its audit, promulgate auditing
rules and regulations, including rules on
the disallowance of unnecessary
expenditures of government agencies. The
bare language of Section 2, however,
shows that the COA’s power under the first
paragraph is not declared exclusive, while
its authority under the second paragraph is
expressly declared "exclusive." There is a
significant reason for this marked
difference in language.
During the deliberations of the
Constitutional Commission, Commissioner
Serafin Guingona proposed the addition of
the word "exclusive" in the first paragraph
of Section 2, thereby granting the COA the
sole and exclusive power to examine and
audit all government agencies. However,
the Constitutional Commission rejected the
addition of the word "exclusive" in the first
paragraph of Section 2 and Guingona was
forced to withdraw his proposal.
Commissioner Christian Monsod explained
the rejection in this
manner:jgc:chanrobles.com.ph
"MR. MONSOD. Earlier Commissioner
Guingona, in withdrawing his amendment
to add "EXCLUSIVE" made a statement
about the preponderant right of COA.
"For the record, we would like to clarify the
reason for not including the word. First, we
do not want an Article that would constitute
a disincentive or an obstacle to private
investment. There are government
institutions with private investments in
them, and some of these investors —
Filipinos, as well as in some cases,
foreigners — require the presence of
private auditing firms, not exclusively, but
concurrently. So this does not take away
the power of the Commission on Audit.
Second, there are certain instances where
private auditing may be required, like the
listing in the stock exchange. In other
words, we do not want this provision to be
an unnecessary obstacle to privatization of
these companies or attraction of
investments." 22 (Emphasis supplied)
Shortly thereafter, Commissioner
Guingona attempted to resurrect his
amendment by proposing the following
provision:jgc:chanrobles.com.ph
"Private auditing firms may not examine or
audit accounts pertaining to the revenue
receipts of, and expenditures or uses of
funds and property owned or held in trust
by or pertaining to the Government or any
of its subdivisions, agencies or
instrumentalities." 23
Guingona argued that a private audit in
addition to the COA audit would be a
useless duplication and an unnecessary
expense on the part of government.
The Constitutional Commission also
rejected this proposed provision, after
Commissioner Monsod made the following
explanation:jgc:chanrobles.com.ph
"MR. MONSOD. . . But it is also a fact that
even government agencies,
instrumentalities and subdivisions
sometimes borrow money from abroad.
And if we are at all going to preclude the
possibility of any concurrent auditing, if
that is required, and insist that it is only
exclusively the government which can
audit, we may be unnecessarily tying their
hands without really accomplishing much
more than what we want. As long as the
COA is there, and the COA’s power cannot
be eliminated by law, by decree or anything
of that sort, then the government funds are
protected.
As far as the question of fees is concerned,
this is always negotiable. Besides, if one
talks about auditing fees, these are
governed by certain regulations within the
auditing profession beyond which auditing
firms cannot go. Furthermore, the
government can always refuse to pay
unconscionable fees. So, that matter really
is not that relevant. But I think what we
want to insist on is that there should be
some flexibility so that a procedural
requirement does not impede a substantive
transaction as long as COA is there." 24
(Emphasis supplied)
The rejection of Guingona’s second
proposal put an end to all efforts to grant
the COA the sole and exclusive power to
examine and audit government agencies.
In sharp contrast, the Constitutional
Commission placed the word "exclusive" to
qualify the authority of the COA under the
second paragraph of the same Section 2 in
the 1935 and 1973 Constitutions. 25 There
is no dispute that the COA’s authority
under the second paragraph of Section 2 is
exclusive as the language of the
Constitution admits of no other meaning.
Thus, the COA has the exclusive authority
to decide on disallowance of unnecessary
government expenditures. Other
government agencies and their officials, as
well as private auditors engaged by them,
cannot in any way intrude into this
exclusive function of the COA.
The qualifying word "exclusive" in the
second paragraph of Section 2 cannot be
applied to the first paragraph which is
another sub-section of Section 2. A
qualifying word is intended to refer only to
the phrase to which it is immediately
associated, and not to a phrase distantly
located in another paragraph or sub-
section. 26 Thus, the first paragraph of
Section 2 must be read the way it appears,
without the word "exclusive", signifying
that non-COA auditors can also examine
and audit government agencies. Besides,
the framers of the Constitution
intentionally omitted the word "exclusive"
in the first paragraph of Section 2 precisely
to allow concurrent audit by private
external auditors.
The clear and unmistakable conclusion
from a reading of the entire Section 2 is
that the COA’s power to examine and audit
is non-exclusive. On the other hand, the
COA’s authority to define the scope of its
audit, promulgate auditing rules and
regulations, and disallow unnecessary
expenditures is exclusive.
Moreover, as the constitutionally mandated
auditor of all government agencies, the
COA’s findings and conclusions necessarily
prevail over those of private auditors, at
least insofar as government agencies and
officials are concerned. The superiority or
preponderance of the COA audit over
private audit can be gleaned from the
records of the Constitutional Commission,
as follows:jgc:chanrobles.com.ph
"MR. GUINGONA. Madam President, after
consultation with the honorable members
of the Committee, I have amended my
proposed amendment by deleting the word
EXCLUSIVE because I was made to
understand that the Commission on Audit
will still have the preponderant power and
authority to examine, audit and settle." 27
(Emphasis supplied)
The findings and conclusions of the private
auditor may guide private investors or
creditors who require such private audit.
Government agencies and officials,
however, remain bound by the findings and
conclusions of the COA, whether the matter
falls under the first or second paragraph of
Section 2, unless of course such findings
and conclusions of the COA, whether the
matter falls under the first or second
paragraph of Section 2, unless of course
such findings and conclusions are modified
or reversed by the courts.
The power of the COA to examine and audit
government agencies, while non-exclusive,
cannot be taken away from the COA.
Section 3, Article IX-D of the Constitution
mandates that:jgc:chanrobles.com.ph
"Sec. 3. Now law shall be passed
exempting any entity of the Government or
its subsidiary in any guise whatsoever, or
any investment of public funds, from the
jurisdiction of the Commission on
Audit."cralaw virtua1aw library
The mere fact that private auditors may
audit government agencies does not divest
the COA of its power to examine and audit
the same government agencies. The COA
is neither by-passed nor ignored since even
with a private audit the COA will still
conduct its usual examination and audit,
and its findings and conclusions will still
bind government agencies and their
officials. A concurrent private audit poses
no danger whatsoever of public funds or
assets escaping the usual scrutiny of a COA
audit.
Manifestly, the express language of the
Constitution, and the clear intent of its
framers, point to only one indubitable
conclusion — the COA does not have the
exclusive power to examine and audit
government agencies. The framers of the
Constitution were fully aware of the need
to allow independent private audit of
certain government agencies in addition to
the COA audit, as when there is a private
investment in a government-controlled
corporation, or when a government
corporation is privatized or publicly listed,
or as in the case at bar when the
government borrows money from
abroad.chanrob1es virtua1 1aw 1ibrary
In these instances the government enters
the marketplace and competes with the
rest of the world in attracting investments
or loans. To succeed, the government must
abide with the reasonable business
practices of the marketplace. Otherwise no
investor or creditor will do business with
the government, frustrating government
efforts to attract investments or secure
loans that may be critical to stimulate
moribund industries or resuscitate a badly
shattered national economy as in the case
at bar. By design the Constitution is flexible
enough to meet these exigencies. Any
attempt to nullify this flexibility in the
instances mentioned, or in similar
instances, will be ultra vires, in the absence
of a statute limiting or removing such
flexibility.
The deliberations of the Constitutional
Commission reveal eloquently the intent of
Section 2, Article IX-D of the Constitution.
As this Court has ruled repeatedly, the
intent of the law is the controlling factor in
the interpretation of the law. 28 If a law
needs interpretation, the most dominant
influence is the intent of the law. 29 The
intent of the law is that which is expressed
in the words of the law, which should be
discovered within its four corners aided, if
necessary, by its legislative history. 30 In
the case of Section 2, Article IX-D of the
Constitution, the intent of the framers of
the Constitution is evident from the bare
language of Section 2 itself. The
deliberations of the Constitutional
Commission confirm expressly and even
elucidate further this intent beyond any
doubt whatsoever.
There is another constitutional barrier to
the COA’s insistence of exclusive power to
examine and audit all government
agencies. The COA’s claim clashes directly
with the Central Bank’s constitutional
power of "supervision" over banks under
Section 20, Article VII of the Constitution.
This provision states as
follows:jgc:chanrobles.com.ph
"Sec. 20. The Congress shall establish an
independent central monetary authority,
the members of whose governing board
must be natural-born Filipino citizens, of
known probity, integrity, and patriotism,
the majority of whom shall come from the
private sector. They shall also be subject to
such other qualifications and disabilities as
may be prescribed by law. The authority
shall provide policy direction in the areas of
money, banking, and credit. It shall have
supervision over the operations of banks
and exercise such regulatory powers as
may be provided by law over the
operations of finance companies and other
institutions performing similar functions."
(Emphasis supplied)
Historically, the Central Bank has been
conducting periodic and special
examination and audit of banks to
determine the soundness of their
operations and the safety of the deposits of
the public. Undeniably, the Central Bank’s
power of "supervision" includes the power
to examine and audit banks, as the banking
laws have always recognized this power of
the Central Bank. 31 Hence, the COA’s
power to examine and audit government
banks must be reconciled with the Central
Bank’s power to supervise the same banks.
The inevitable conclusion is that the COA
and the Central Bank have concurrent
jurisdiction, under the Constitution, to
examine and audit government banks.
However, despite the Central Bank’s
concurrent jurisdiction over government
banks, the COA’s audit still prevails over
that of the Central Bank since the COA is
the constitutionally mandated auditor of
government banks. And in matters falling
under the second paragraph of Section 2,
Article IX-D of the Constitution, the COA’s
jurisdiction is exclusive. Thus, the Central
Bank is devoid of authority to allow or
disallow expenditures of government banks
since this function belongs exclusively to
the COA.
Second Issue: Statutes Prohibiting or
Authorizing Private Auditors
THE COA argues that Sections 26, 31 and
32 of PD No. 1445, otherwise known as the
Government Auditing Code of the
Philippines, prohibit the hiring of private
auditors by government agencies. Section
26 of PD No. 1445 provides
that:jgc:chanrobles.com.ph
"SECTION 26. General Jurisdiction. — The
authority and powers of the Commission
shall extend to and comprehend all matters
relating to auditing procedures, systems
and controls, the keeping of the general
accounts of the Government, the
preservation of vouchers pertaining thereto
for a period of ten years, the examination
and inspection of the books, records, and
papers relating to those accounts; and the
audit and settlement of the accounts of all
persons respecting funds or property
received or held by them in an accountable
capacity, as well as the examination, audit,
and settlement of all debts and claims of
any sort due or owing to the Government
or any of its subdivisions, agencies or
instrumentalities. The said jurisdiction
extends to all government-owned or
controlled corporations, including their
subsidiaries, and other self-governing
boards, commissions, or agencies of the
government, and as herein prescribed,
including non-governmental entities
subsidized by the government, those
funded by donations through the
government, those required to pay levies
or government share, and those for which
the government has put up a counterpart
fund or those partly funded by the
government."cralaw virtua1aw library
Section 26 defines the extent and scope of
the powers of the COA. Considering the
comprehensive definition in Section 26, the
COA’s jurisdiction covers all government
agencies, offices, bureaus and units,
including government-owned or controlled
corporations, and even non-governmental
entities enjoying subsidy from the
government. However, there is nothing in
Section 26 that states, expressly or
impliedly, that the COA’s power to examine
and audit government banks is exclusive,
thereby preventing private audit of
government agencies concurrently with the
COA audit.
Section 26 is a definition of the COA’s
"general jurisdiction." Jurisdiction may be
exclusive or concurrent. Section 26 of PD
No. 1445 does not state that the COA’s
jurisdiction is exclusive, and there are
other laws providing for concurrent
jurisdiction. Thus, Section 26 must be
applied in harmony with Section 58 32 of
the General Banking Law of 2000 (R.A. No.
8791) which authorizes unequivocally the
Monetary Board to require banks to hire
independent auditors. Section 58 of the
General Banking Law of 2000 states as
follows:jgc:chanrobles.com.ph
"SECTION 58. Independent Auditor. — The
Monetary Board may require a bank, quasi-
bank or trust entity to engage the services
of an independent auditor to be chosen by
the bank, quasi-bank or trust entity
concerned from a list of certified public
accountants acceptable to the Monetary
Board. The term of the engagement shall
be as prescribed by the Monetary Board
which may either be on a continuing basis
where the auditor shall act as resident
examiner, or on the basis of special
engagements; but in any case, the
independent auditor shall be responsible to
the bank’s, quasi-bank’s or trust entity’s
board of directors. A copy of the report
shall be furnished to the Monetary Board. .
. ." (Emphasis supplied)
Moreover, Section 26 must also be applied
in conformity with Sections 25 and 28 33
of the New Central Bank Act (RA No. 7653)
which authorize expressly the Monetary
Board to conduct periodic or special
examination of all banks. Sections 25 and
28 of the New Central Bank Act state as
follows:jgc:chanrobles.com.ph
"Sec. 25. Supervision and Examination. —
The Bangko Sentral shall have supervision
over, and conduct periodic or special
examinations of, banking institutions . . .
(Emphasis supplied)
x x x oftener than once a year from the last date
"Sec. 28. Examination and Fees. — The
supervising and examining department
head, personally or by deputy, shall
examine the books of every banking
institution once in every twelve (12)
months, and at such other time as the
Monetary Board by an affirmative vote of
five (5) members may deem expedient and
to make a report on the same to the
Monetary Board: . . ." (Emphasis supplied)
The power vested in the Monetary Board
under Section 58 of the General Banking
Law of 2000, and Sections 25 and 28 of the
New Central Bank Act, emanates from the
Central Bank’s explicit constitutional
mandate to exercise "supervision over the
operations of banks." Under Section 4 of
the General Banking Law of 2000, the term
"supervision" 34 is defined as
follows:jgc:chanrobles.com.ph
"SECTION 4. Supervisory Powers. — The
operations and activities of banks shall be
subject to supervision of the Bangko
Sentral. "Supervision" shall include the
following:chanrob1es virtual 1aw library
x x x
4.2. The conduct of examination to
determine compliance with laws and
regulations if the circumstances so warrant
as determined by the Monetary Board;
x x x
4.4 Regular investigation which shall not be
of examination to determine whether an
institution is conducting its business on a
safe or sound basis: Provided, That the
deficiencies/irregularities found by or
discovered by an audit shall immediately
be addressed;
x x x" (Emphasis supplied)
Clearly, under existing laws, the COA does
not have the sole and exclusive power to
examine and audit government banks. The
Central Bank has concurrent jurisdiction to
examine and audit, or cause the
examination and audit, of government
banks.
Section 31 of PD No. 1445, another
provision of law claimed by the COA to
prohibit the hiring of private auditors by
government agencies, provides as
follows:jgc:chanrobles.com.ph
"SECTION 31. Deputization of private
licensed professionals to assist government
auditors. — (1) The Commission may,
when the exigencies of the service so
require, deputize and retain in the name of
the Commission such certified public
accountants and other licensed
professionals not in the public service as it
may deem necessary to assist government
auditors in undertaking specialized audit
engagements.
"(2) The deputized professionals shall be
entitled to such compensation and
allowances as may be stipulated, subject to
pertinent rules and regulations on
compensation and fees."cralaw virtua1aw
library
According to the COA, Section 31 is the
maximum extent that private auditors can
participate in auditing government
agencies and anything beyond this is
without legal basis. Hence, the COA
maintains that the hiring of private auditors
who act in their own name and operate
independently of the COA is unlawful.
Section 31 is bereft of any language that
prohibits, expressly or impliedly, the hiring
of private auditors by government
agencies. This provision of law merely
grants authority to the COA to hire and
deputize private auditors to assist the COA
in the auditing of government agencies.
Such private auditors operate under the
authority of the COA. By no stretch of
statutory construction can this provision be
interpreted as an absolute statutory ban on
the hiring of private auditors by
government agencies. Evidently, the
language of the law does not support the
COA’s claim.
Moreover, the COA further contends that
Section 32 of PD No. 1445 is another
provision of law that prohibits the hiring of
private auditors by government agencies.
Section 32 provides as
follows:jgc:chanrobles.com.ph
"SECTION 32. Government contracts for
auditing, accounting, and related services.
— (1) No government agency shall enter
into any contract with any private person
or firm for services to undertake studies
and services relating to government
auditing, including services to conduct, for
a fee, seminars or workshops for
government personnel on these topics,
unless the proposed contract is first
submitted to the Commission to enable it
to determine if it has the resources to
undertake such studies or services. The
Commission may engage the services of
experts from the public or private sector in
the conduct of these studies.
"(2) Should the Commission decide not to
undertake the study or service, it shall
nonetheless have the power to review the
contract in order to determine the
reasonableness of its costs." (Emphasis
supplied)
Section 32 refers to contract for studies
and services "relating to government
auditing" which the COA may or may not
want to undertake itself for a government
agency. Stated another way, Section 32
speaks of studies and services that the COA
may choose not to render to a government
agency. Obviously, the subject of these
contracts is not the audit itself of a
government agency because the COA is
compelled to undertake such audit and
cannot choose not to conduct such audit.
The Constitution and existing law mandate
the COA to audit all government agencies.
Section 2, Article IX-D of the Constitution
commands that the COA "shall have the . .
. duty to examine, audit, and settle all
accounts" of government agencies
(Emphasis supplied). Similarly, the Revised
Administrative Code of 1987 directs that
the "Commission on Audit shall have the .
. . duty to examine, audit, and settle all
accounts" 35 of government agencies
(Emphasis supplied.) Hence, the COA
cannot refuse to audit government
agencies under any
circumstance.chanrob1es virtua1 1aw
1ibrary
The subject of the contracts referred to in
Section 32 is necessarily limited to studies,
seminars, workshops, research and other
services on government auditing which the
COA may or may not undertake at its
discretion, thereby excluding the audit
itself of government agencies. Since the
COA personnel have the experience on
government auditing and are in fact the
experts on this subject, it is only proper for
the COA to be granted the right of first
refusal to undertake such services if
required by government agencies. This is
what Section 32 is all about and nothing
more. Plainly, there is nothing in Section 32
which prohibits the hiring of private
auditors to audit government agencies
concurrently with the COA audit.
On the other hand, the DBP cites Central
Bank Circular No. 1124 36 as legal basis for
hiring a private auditor. This Circular
amended Subsection 1165.5 (Book I) of
the Manual of Regulations for Banks and
other Financial Intermediaries to require"
[E]ach bank, whether government-owned
or controlled or private, . . . (to) cause an
annual financial audit to be conducted by
an external auditor . . ." Moreover, the
Circular states that the "audit of
government-owned or controlled bank by
an external independent auditor shall be in
addition to and without prejudice to that
conducted by the Commission on Audit in
the discharge of its mandate under existing
law." Furthermore, the Circular provides
that the "requirement for an annual audit
by an external independent auditor shall
extend to specialized and unique
government banks such as the Land Bank
of the Philippines and the Development
Bank of the Philippines."cralaw virtua1aw
library
The Central Bank promulgated Circular No.
1124 on December 5, 1986 pursuant to its
power under the Freedom Constitution, the
fundamental law then in force, as well as
pursuant to its general rule making
authority under the General Banking Act
(RA No. 337), the banking law in effect at
the time. Under the Freedom Constitution,
the Central Bank exercised supervisory
authority over the banking system. Section
14, Article XV of the 1973 Constitution,
which was re-adopted in the Freedom
Constitution, provided as
follows:jgc:chanrobles.com.ph
"SECTION 14. The Batasang Pambansa
shall establish a central monetary authority
which shall provide policy direction in the
areas of money, banking and credit. It shall
be supervisory authority over the
operations of banks and exercise such
regulatory authority as may be provided by
law over the operations of finance
companies and other institutions
performing similar functions. Until the
Batasang Pambansa shall otherwise
provide, the Central Bank of the
Philippines, operating under existing laws,
shall function as the central monetary
authority." (Emphasis supplied)
Section 6-D of the General Banking Act (RA
No. 337) vested the Monetary Board with
the specific power to "require a bank to
engage the services of an independent
auditor to be chosen by the bank concerned
from a list of certified public accountants
acceptable to the Monetary Board."cralaw
virtua1aw library
The 1987 Constitution created an
independent central monetary authority
with substantially the same powers as the
Central Bank under the 1973 Constitution
and the Freedom Constitution provides that
the Monetary Board "shall have supervision
over the operations of banks." The specific
power of the Central Bank under the
General Banking Act (RA No. 337) to
require an independent audit of banks was
re-enacted in Section 58 of the General
Banking Law of 2000 (RA No. 8791).
Indubitably, the Central Bank had the
express constitutional and statutory power
to promulgate Circular No. 1124 on
December 5, 1986. The power granted to
the Central Bank to issue Circular No. 1124
with respect to the independent audit of
banks is direct, unambiguous, and beyond
dispute. The Bangko Sentral ng Pilipinas,
which succeeded the Central Bank,
retained under the 1987 Constitution and
the General Banking Law of 2000 (RA No.
8791) the same constitutional and
statutory power the Central Bank had
under the Freedom Constitution and the
General Banking Act (RA No. 337) with
respect to the independent audit of banks.
Circular No. 1124 has the force and effect
of law. In a long line of decisions, 37 this
Court has held consistently that the rules
and regulations issued by the Central Bank
pursuant to its supervisory and regulatory
powers have the force and effect of law.
The DBP, being a bank under the
constitutional and statutory supervision of
the Central Bank, was under a clear legal
obligation to comply with the requirement
of Circular No. 1124 on the private audit of
banks. Refusal by the DBP to comply with
the Circular would have rendered the DBP
and its officers liable to the penal
provisions of the General Banking Act, 38
as well as the administrative and penal
sanctions under the Central Bank Act. 39
The DBP also relies on Section 8 of PD No.
2029 as its statutory basis for hiring a
private auditor. This Section states in part
as follows:jgc:chanrobles.com.ph
"The audit of government corporations by
the Commission on Audit shall not preclude
government corporations from engaging
the services of private auditing firms:
Provided, however, that even if the
services of the latter are availed of, the
audit report of the Commission on Audit
shall serve as the report for purposes of
compliance with audit requirements as
required of government corporations under
applicable law."cralaw virtua1aw library
Section 8 of PD No. 2029, however, also
provides that the "policy of withdrawal of
resident auditors shall be fully
implemented . . ." Section 2 of the same
decree also excludes from the term
"government-owned or controlled
corporation" two classes of corporations.
The first are originally private corporations
the majority of the shares of stock of which
are acquired by government financial
institutions through foreclosure or dacion
en pago. The second are subsidiary
corporations of government corporations,
which subsidiaries are organized
exclusively to own, manage or lease
physical assets acquired by government
financial institutions through foreclosure or
dacion en pago. Claiming that PD No. 2029
operates to exempt certain government-
owned corporations from the COA’s
jurisdiction in violation of Section 3 Article
IX-D of the Constitution, the COA is
questioning the constitutionality of PD No.
2029.
There is, however, no compelling need to
pass upon the constitutionality of PD No.
2029 because the Constitution and existing
banking laws allow such hiring. The issues
raised in this Case can be resolved
adequately without resolving the
constitutionality of PD No. 2029. This Court
will leave the issue of the constitutionality
of PD No. 2029. This Court will leave the
issue of the constitutionality of PD No. 2029
to be settled in another case where its
resolution is an absolute necessity. 40
Third Issue: Necessity of Private Auditor
and Reasonableness of the Fees
The remaining issue to be resolved is
whether or not the DBP’s hiring of a private
auditor was necessary and the fees it paid
reasonable under the circumstances. The
hiring by the DBP of a private auditor was
a condition imposed by the World Bank for
the grant to the Philippine government in
early 1987 of a US$310 million Economic
Recovery Loan, at a time when the
government desperately needed funds to
revive a badly battered economy. One of
the salient objectives of the US$310 million
loan was the rehabilitation of the DBP
which was then burdened with enormous
bad loans. The rehabilitation of the DBP
was important in the overall recovery of the
national economy.
On February 23, 1986, the World Bank
President reported to the Bank’s Executive
Directors that the private audited accounts
of the DBP for 1986 and 1987 "will be a
requirement for the release of the second
and third tranches, respectively of the ERL"
(Emphasis supplied). Moreover, the Agreed
Minutes of Negotiations on the Philippine
Economic Recovery Program 41 signed by
the Philippine government and World Bank
negotiating panels on January 8, 1987,
required that "a copy of COA’s letter . . .
regarding DBP’s appointment of a private
external auditor will be sent to the (World)
Bank before the distribution of the loan
documents to the Bank’s Board, along with
a copy of the scope of audit as approved by
COA and satisfactory to the Bank"
(Emphasis supplied).
As a creditor, the World Bank needed the
private audit for its own information to
monitor the progress of the DBP’s
rehabilitation. This is apparent from the
said Agreed Minutes which provided that
the "general terms of reference (for the
hiring of private external audit) were
discussed during the negotiations and form
part of the World Bank’s guidelines for
financial information on financial
institutions" 42 (Emphasis supplied).
The hiring of a private auditor being an
express condition for the grant of the
US$310 million Economic Recovery Loan, a
major objective of which was the DBP’s
rehabilitation, the same was a necessary
corporate act on the part of the DBP. The
national government, represented by the
Central Bank Governor, as well as the
Ministers of Finance, Trade, and Economic
Planning, had already committed to the
hiring by all government banks for private
auditors in addition to the COA. For the DBP
to refuse to hire a private auditor would
have aborted the vital loan and derailed the
national economic recovery, resulting in
grave consequences to the entire nation.
The hiring of a private auditor was not only
necessary based on the government’s loan
covenant with the World Bank, it was also
necessary because it was mandated by
Central Bank Circular No. 1124 under pain
of administrative and penal sanctions.
The last matter to determine is the
reasonableness of the fees charged by
Joaquin C. Cunanan & Co., the private
auditor hired by the DBP. The COA
describes the private auditor’s fees as an
"excessive, extravagant or unconscionable
expenditure" of government funds. For the
audit of the DBP’s financial statements in
1986, the private auditor billed the DBP the
amount of P487,321.14. 43 In 1987, the
private auditor billed the DBP the amount
of P529,947.00. 44 In comparison, the COA
billed the DBP an audit fee of
P27,015,963.00 45 in 1988, and
P15,421,662.00 46 in 1989. Even granting
that the COA’s scope of audit services was
broader, 47 still it could not be said that the
private auditor’s fees are excessive,
extravagant or unconscionable compared
to the COA’s billings.
The hiring of a private auditor by the DBP
being a condition of the US$310 million
World Bank loan to the Philippine
government, the fees of such private
auditor are in reality part of the
government’s cost of borrowing from the
World Bank. The audit report of the private
auditor is primarily intended for the World
Bank’s information 48 on the financial
status of the DBP whose rehabilitation was
one of the objectives of the loan. An annual
private audit fee of about half a million
pesos added to the interest on a US$310
million loan would hardly make the cost
borrowing excessive, extravagant or
unconscionable. Besides, the condition
imposed by a lender, whose money is at
risk, requiring the borrower or its majority-
owned subsidiaries to submit to audit by an
independent public accountant, is a
reasonable and normal business
practice.chanrob1es virtua1 1aw 1ibrary
WHEREFORE, the petition is hereby
GRANTED. The letter decision of the
Chairman of the Commission on Audit
dated August 29, 1988, and the letter-
decision promulgated by the Commission
on Audit en banc dated May 20, 1989, are
hereby SET ASIDE, and the temporary
restraining order issued by the court
enjoining respondent Commission on Audit
from enforcing the said decision is hereby
made PERMANENT.
SO ORDERED.
G.R. No. L-41480 April 30, 1976
GONZALO SY, doing business under
the name and style of GONZALO SY
TRADING, petitioner-appellant,
vs. CENTRAL BANK OF THE
PHILIPPINES, respondent-appellee.
De Santos, Balgos & Perez for petitioner-
appellant.chanrobles virtual law library
F. E. Evangelista & Glecerio T. Orsolino for
respondent-appellee.
MARTIN, J.:
This is an appeal from the decision of the
Court of First Instance of Manila in its Civil
Case No. 81051, which was certified to Us
by the Court of Appeals on August 28,
1975, raising the question of whether or
not petitioner-appellant's Special Import
Permit granted by the Central Bank of the
Philippines authorizing it to import fresh
fruits from Japan on a "no-dollar" basis has
already expired when it made the
importations under
litigation.chanroblesvirtualawlibrarychanro
bles virtual law library
The petitioner-appellant is a trading
company engaged in the importation of
fresh fruits like oranges, grapes, apples
and lemons from the different parts of the
world for the last nineteen years. On
September 28, 1968, it wrote to the
Deputy Governor of the Central Bank of the
Philippines, Mr. Amado R. Briñas
requesting authority to import from the
country of Japan on "no-dollar" basis fresh
fruits in the total amount of
US$715,000.00. The pertinent portions of
petitioner-appellant's letter 1 read.
We are importers for the last 19 years. Our
line of business is the importation of fresh
fruits like fresh oranges, grapes and apples
from various parts of the
world.chanroblesvirtualawlibrarychanroble
s virtual law library
We are fully aware of the Central Bank
policies and regulations with respect to
imports particularly the effects of Central
Bank Circular 260 to authorized agent
banks. Our item of importations which is
fresh fruits calls for 175% Special Time
Deposit for 120-days. With the fast
approaching Christmas season we are
certain we cannot cope with the demands
of our buyers of fresh fruits under this
requirement imposed on importers. We
have brought this matter to the attention
of our various shippers of fresh apples from
Japan for their proper
guidance.chanroblesvirtualawlibrarychanro
bles virtual law library
xxx xxx xxxchanrobles virtual law library
In this connection, we respectfully request
your good office for an authority or issue
us Special Import Permit on No-Dollar
Basis, to enable us to receive the goods
from our reliable and helpful suppliers who
have complete trust and confidence in us.
As manifested in their respective letters to
us, we can pay or remit them the payment
of the fruits shipped to us even after the
season, which is around April of next year,
and if our dollar position is favorable. We
honestly believe, that this offer from our
suppliers is very inducive and if possible,
we would not like to miss this opportunity.
On October 2, 1968, Mr. Julian D. Mercado,
the Executive Assistant to Deputy Governor
Briñas denied the request, stating that "...
since only the transactions specifically
enumerated in Central Bank Circular No.
247 dated July 21, 1967 are allowed as 'no-
dollar importation', we regret to advise that
your request cannot be given due course
by this office." 2 chanrobles virtual law
library
Petitioner-appellant sought a
reconsideration of this denial on October
22, 1968 thru Deputy Governor Amado R.
Briñas explaining that their "... case is a
very special one and different from regular
importation," at the same time reminding
that "... this item of fresh apples is very
much needed in the coming Christmas
season and we are confident that if our
request be given consideration, we will be
able to put good stock of fresh apples in the
market at a cheaper cost for the benefit of
the consuming public." 3 chanrobles virtual
law library
Another letter was coursed by petitioner-
appellant on November 6, 1968 to the
Monetary Board of the Central Bank thru
Deputy Governor Amado R. Briñas
requesting "your good office for an
authority to import on no Letter of Credit
basis, or issue us Special Import Permit for
the amount of US$715,000.00 on No-
Dollar Basis, to enable us to import
the fresh fruits which we need for
Christmas, from our reliable and helpful
suppliers." In this letter, petitioner-
appellant points out that "the items called
for such as apples, oranges and grapes are
perishable in nature and can not be stored
for a longer period of time, and the main
purpose of this importation is to serve the
requirements during the Christmas
4
Season." chanrobles virtual law library
On November 19, 1968, the Monetary
Board of the Central Bank issued
Resolution No. 2038 approving petitioner-
appellant's request for Special Import
Permit on No-Dollar Basis, 5 thus:
The Board, by unanimous vote, authorized
Gonzalo Sy Trading to import on a no-
dollar basis, without letters of credit, fresh
fruits from Japan valued at
$35000.00, subject to the special time
deposit of 100% which shall be held by the
bank concerned for a period of 120 days as
well as to the normal customs duties and
taxes. It is understood that there shall be
no commitment on the part of the Central
Bank to provide foreign exchange to cover
the said importation.
Deputy Governor Amado R. Briñas
communicated this approval of the request
to petitioner-appellant, thru its Assistant
Manager, Mr. E. B. Pidlaoan on November
21, 1968. 6 chanrobles virtual law library
On November 27, 1968, petitioner-
appellant sent a letter 7 to the then
Chairman of the Monetary Board, Mr.
Eduardo Romualdez, reading:
Thank you very much for your approval to
our request for special permit to import on
no-dollar basis, without letter of credit
fresh fruits valued at US$350,000.00.
We noted however, that 100% special time
deposit for 120 days is required. We beg to
point out that this particular importation is
only for the Christmas Season, and if we
will deposit the amount of about
P1,400,000.00 which will not be touched
for 120 days, and considering the fact that
on this importation alone, we will pay the
government in the form of customs taxes
and duties, no less than P700,000.00, then
we will be needing more than
P3,000,000.00.chanroblesvirtualawlibraryc
hanrobles virtual law library
We beg to request therefore, for a
reconsideration by your good office, and
allow us to put up 20% special time deposit
for 120 days instead of 100%.
The request was denied by Deputy
Governor Briñas in a letter, dated
December 9, 1968. 8 chanrobles virtual law
library
Thereafter, on February 25,
1969, petitioner-appellant made his first
importation from Japan. 9 The bulk of the
importations from August 7, 1969 thru
November 5, 1969 came from San
Francisco, California and Australia. 10 The
importation on January 5, 1970, consisting
of fresh oranges and lychees came from
Taipei, Taiwan, 11 while those of March 16,
1970, consisting of fresh oranges, came
from Israel. 12 For these importations, the
Prudential Bank and Trust Company acted
as the agent of the Central Bank in the
issuance of the corresponding release
certificates for the entry of the goods. By
the beginning of June, 1970, the total
amount used out of the $350,000.00
Special Import Permit was already
$314,142.51, leaving a balance of
$35,857.49. 13 chanrobles virtual law
library
As early as October 30, 1969, petitioner-
appellant requested from Deputy Governor
Amado R. Briñas 14 "an amendment of
the country of origin of our importations to
include other countries except communist
countries" since the fresh fruits from Japan
"are seasonal (and) our shippers cannot
fully fill up our requirements to comply with
their total commitments to us without
procuring from other sources like Australia,
Taiwan, U.S.A. and other countries with
whom we have trade relations." chanrobles
virtual law library
On November 19, 1969, the Deputy
Governor, Mr. Amado R. Briñas replied: 15
This has reference to your letter dated
October 30, 1969 requesting amendment
of the country of origin of your importations
of fresh fruits from Japan to include other
countries except communist countries as
authorized by Monetary Board Resolution
No. 2038 dated November 19, 1968.
We regret to inform you that the authority
granted to you by the Monetary Board per
above-stated MB Resolution No. 2038, was
intended only for the Christmas season of
1968 and does not extend through
1969. Furthermore, under existing
regulations, importations of fruits are
covered by the moratorium on the opening
of letters of credit.
It so happened that two days after or on
November 21 1969, Director A. V.
Antiporda, of the Foreign Exchange
Department of the Central Bank, wrote to
Mr. Renato L. Santos, Assistant Vice-
President of the Prudential Bank and Trust
Company, in reply to the letters of the
latter, dated November 14 and 19,
1969, 16 furnishing the Foreign Exchange
Department copies of the release
certificates the Prudential Bank and Trust
Company issued to Gonzalo Sy Trading.
The pertinent portion of Antiporda's
letter 17 reads:
On the basis of your report that the total
value of the shipments so far made by your
client against the $350,000.00 grant
amounts to $144,306.15 only, you may
continue to issue release certificates to
cover the No-Dollar importations of fresh
fruits by your client, subject to the same
and conditions imposed by Monetary Board
under the abovementioned resolution.
Then, on April 17, 1970, the Assistant to
the Governor, Mr. Cesar Lomotan,
informed the Prudential Bank and Trust
Company 18 that the authority granted to
petitioner-appellant under MB Resolution
No. 2038 was intended only for the
Christmas season of 1968 and does not
extend through 1969, enclosing therewith
the letter, dated November 19, 1969, of
Deputy Governor
Briñas.chanroblesvirtualawlibrarychanrobl
es virtual law library
On May 27, 1970, petitioner-appellant
notified Mr. Cesar Lomotan that the
Prudential Bank and Trust Company
refused to issue them any release
certificate for their importations due to his
letter of April 17, 1970. On June 3, 1970,
petitioner-appellant sent a follow-up letter
to Mr. Lomotan, reiterating "our request for
a reconsideration on the matter and to
allow us utilize the balance of our Permit in
the amount of $35,857.49." In the same
letter, petitioner-appellant advised that
"we have shipments coming on June 4th
and June 6th respectively which is within
the balance of our permit." chanrobles
virtual law library
On June 10, 1970, Deputy Governor
Amado R. Briñas wrote petitioner-appellant
that its request cannot be given due
course, inviting attention to the basic letter
of November 19, 1969, informing it that
the Special Import Permit was intended
only for the Christmas season of 1968 and
does not extend through
1969. 19chanrobles virtual law library
On June 5 and 16, 1970, the Collector of
Customs for the Port of Manila, Mr. Jose T.
Viduya, issued warrants of seizure and
detention against:
1. 700 Cartons of Fresh Oranges, on board
SS "Taviata";chanrobles virtual law library
2. 1,000 Cartons of Fresh Oranges, on
board SS "Fernlake"; chanrobles virtual
law library
3. 500 Cartons of Fresh Oranges, on board
SS "Arizona"; chanrobles virtual law library
4. 100 Cartons of Fresh Lemons and 1000
Cartons of Fresh Oranges, on board SS
"Turandot";chanrobles virtual law library
5. 560 Cartons of Fresh Apples on board SS
"Anshun" and chanrobles virtual law library
6. 1,662 Cartons of Fresh Apples on board
SS "Anshun.";
consigned to petitioner-appellant, with a
total FOB value of US$17,568.49, "for
having been imported in violation of
Central Bank Circular No. 289, in relation
to Section 2530 (f) of the Tariff and
Customs Code." 20 chanrobles virtual law
library
On July 17, 1970, Deputy Governor Amado
R. Briñas wrote to the Commissioner of
customs: 21
Since fresh fruits are classified as Non-
Essential Consumer goods, and therefore
banned under Circular No. 289 dated
February 21, 1970, it is requested that the
above shipments (fresh oranges, lemons
and apples with total value of $21,763.00)
be subject to appropriate seizure
proceedings. Likewise, all other
importations of fresh fruits now under
Customs custody should be subjected to
appropriate seizure proceedings and any
release certificates issued by the banks for
such importations should be disregarded.
On July 30, 1970, the Collector of Customs
issued a notice for the auction sale of the
confiscated June 1970 shipment on the
following August 12. Whereupon,
petitioner-appellant, along with another
importer, Tomas Y. de Leon, commenced
an injunction suit before the Court of First
Instance of Manila, docketed as Civil Case
No. 80655, against the Commissioner and
Collector of Customs for the Port of Manila.
On August 26, 1970, the Manila Court of
First Instance, presided over by trial Judge
Federico C. Alikpala, ordered the release of
the seized goods under bonds totalling
P513,865.46. However, the Commissioner
and Collector of Customs elevated the
matter to this Court, seeking to have the
August 26, 1970 order declared null and
void. 22 chanrobles virtual law library
Meanwhile, the second shipment consigned
to petitioner-appellant arrived at the Port
of Manila on September 6 and 15, 1970.
This shipment consisted of 1,000 cartons of
fresh sunkist oranges, 1,000 cartons of
fresh grapes and 100 cartons of fresh
lemons, all valued at P71,549.49. Like the
June, 1970 importation, this September,
1970 shipment was also seized by the
Customs
authorities.chanroblesvirtualawlibrarychan
robles virtual law library
On September 21, 1970, petitioner-
appellant instituted before the Court of
First Instance of Manila the subject petition
for mandamus with damages which was
docketed as Civil Case No. 81051. This case
was consolidated with Civil Case No. 80655
assigned to the sala, of trial Judge Federico
C. Alikpala upon motion of petitioner-
appellant. 23 In this petition, petitioner-
appellant prayed for the issuance of a writ
of mandamus to direct the Central Bank of
the Philippines to release the imported
fruits and to provide the necessary release
certificates therefor. Likewise, it prayed for
the award of damages amounting to
P838,495.28.chanroblesvirtualawlibrarych
anrobles virtual law library
On November 26, 1970, this Court
promulgated its decision in
the Alikpala case 24sustaining the Order of
August 26, 1970, ordering the release of
the June, 1970 importation upon bond,
with a directive to the importers, Gonzalo
Sy Trading and Tomas Y. de Leon, to cause
the reinsurance of the bonds amounting to
more than P340,000.00 not covered by
reinsurance or to put up other surety bonds
acceptable to the Collector of Customs. In
the following month, December, 1970, the
June, 1970 shipment was released to
petitioner-appellant on
bond.chanroblesvirtualawlibrarychanrobles
virtual law library
On November 27, 1971, Judge Alikpala
rendered judgment in Civil Case No. 81051
dismissing petitioner-appellant's complaint
for mandamus with damages and ordering
the Collector of Customs to proceed with
the seizure proceedings it initiated against
the June, 1970 importation and, if
favorable to the government, to enforce
the same against the surety bonds of
petitioner-appellant posted upon the
release of the goods in December, 1970.
The shipment of September, 1970 was
condemned and only the recovery of
whatever charges and/or penalties against
petitioner-appellant was
ordered.chanroblesvirtualawlibrarychanrob
les virtual law library
From this adverse judgment, petitioner-
appellant appealed to the Court of Appeals,
but the Appellate Court certified the case to
Us as involving only pure questions of
law.chanroblesvirtualawlibrarychanrobles
virtual law library
We rule that the Special Import Permit
granted to petitioner-appellant on
November 19, 1968, allowing it to import
fresh fruits from Japan on a "no-dollar"
basis, has already lost its validity when the
questioned importations of June and
September, 1970 were
made.chanroblesvirtualawlibrarychanroble
s virtual law library
1. It is one of the first principles in the field
of administrative law that a license or a
permit is not a contract between the
sovereignty and the licensee or permitee,
and is not a property in any constitutional
sense, as to which the constitutional
prescription against impairment of the
obligation of contracts may extend. A
license is rather in the nature of a special
privilege, of a permission or authority to do
what is within its terms. 25 It is not in any
way vested, permanent, or absolute. A
license granted by the State is always
revocable. As a necessary consequence of
its main power to grant license or permit,
the State or its instrumentalities have the
correlative power to revoke or recall the
same. And this power to revoke can only
be restrained by an explicit contract upon
good consideration to that effect. 26 The
absence of an expiry date in, a license does
not make it perpetual. Notwithstanding
that absence, the license cannot last
beyond the life of the basic authority -
under which it was issued. 27 chanrobles
virtual law library
The series of correspondence exchanged
between petitioner-appellant and
respondent-appellee in the case at bar
plainly reveals that the Special Import
Permit granted to petitioner-appellant
covers only the Christmas season of 1968.
As reflected in its first letter, dated
September 28, 1968, the cause or
the compelling reason why petitioner-
appellant sought for the Special Import
Permit on No-Dollar Basis was because the
importation of fresh fruits calls for 175%
Special Time Deposit for 120 days and
"(w)ith the fast approaching Christmas
season," petitioner-appellant "cannot cope
with the demands of [its] buyers of fresh
fruits under this requirement imposed on
importers." Upon denial of its request,
petitioner-appellant explained to Deputy
Governor Amado R. Briñas in its letter of
October 22, 1968 that their "..., case is
a very special one" and that "... this item
of fresh apples is very much needed in
the coming Christmas season ..."
Complementary to this letter, petitioner-
appellant pointed out to the Monetary
Board in its letter of November 6, 1968 that
"the items called for such as apples,
oranges and grapes are perishable in
nature and cannot be stored for a longer
period of time, and the main purpose of
this importation is to serve the
requirements during the Christmas
Season." After the Special Import Permit
was granted by the Monetary Board on
November 19, 1968, petitioner-appellant
expressed its gratitude to the then
Chairman of the Monetary Board, Mr.
Eduardo Romualdez, in a letter of
November 27, 1968 and, at the same time,
requested that it be allowed "to put up 20%
special time deposit for 120 days instead of
100%. again pointing out that "this
particular importation is only for the
Christmas season ..." It was upon all these
representations and assurances by
petitioner-appellant that the Monetary
Board of the Central Bank finally issued the
Special Import Permit. As a result, the
conclusion becomes inevitable that the
Special Import Permit thus granted lasts
only until the Christmas Season of
1968.chanroblesvirtualawlibrarychanroble
s virtual law library
The omission of an expiry date in the
Special Import Permit affords no legal basis
for petitioner-appellant to conclude that
the said permit is impressed with
continuous validity, i.e., not merely limited
to the Christmas season of 1968. The
totality of petitioner appellant's
representations which led to the issuance
of the permit cannot be lightly glossed
over. It was petitioner-appellant itself
which furnished the life span of the permit,
consistently pointing out that "the main
purpose of this importation is to serve the
requirements during the Christmas
Season" of 1968. In the logical sequence of
things, no imperative reason arises for the
Monetary Board to still specify the expiry
date of the permit. It would far-fetched for
the Monetary Board to grant more than
what was asked for, considering that it was
opposed to the granting of the permit from
the very start, in view of the existing
stringent policies against "no-dollar"
importation of "non-essential consumer'
goods like fresh fruits. That is why, the
Monetary Board, while it thus issued the
Special Import Permit, subjected the same
to a "special time deposit of 100% which
shall be held by the bank concerned for a
period of 120 days as well as to the normal
customs duties and taxes." This
requirement was maintained by the'
Monetary Board even after petitioner-
appellant sought for a reconsideration
thereof. Withal, it can be gleaned that
petitioner-appellant's Special Import
Permit bears all the marks of a
mere special concession from the issuing
authority, to the effect that no extensive
privileges are licitly inferrable from
it.chanroblesvirtualawlibrarychanrobles
virtual law library
Petitioner-appellant mistakenly asserts
that the continuous validity of its Special
Import Permit has already been passed
upon by this Court in Commissioner of
Customs v. Alikpala. 28 What was raised in
that case is the question of whether the
Collector of Customs for the Port of Manila
has observed the rediments of
administrative due process in ordering the
seizure and sale at public auction of
petitioner-appellant's imported goods in
particular that arrived in June, 1970, as
well as the question of the legality of the
Collector's order requiring only cash bond,
surety bond not accepted, for the release
of the goods. The Court made no ruling on
the continuity of petitioner-appellant's
Special Import Permit after the Christmas
season of 1968. Petitioner-appellant's
referral 29 to the statement of the Court
that the November 21, 1969 letter of Mr.
A. V. Antiporda, Director of the Foreign
Exchange Department, authorized the
Prudential Bank and Trust Company to 94
continue to issue release certificates to
cover the No-Dollar importations of fresh
fruits by your client" misses the preceding
prefatory statement of the Court in regard
to the details of the case, thus: "For a
proper understanding and resolution of the
issues it is necessary to state the facts in
greater detail, as they appear from the
pleadings and memoranda submitted by
the parties as well as from the different
documents attached thereto marked as
annexes." In other words, the subsequent
statement of the Court on the Antiporda
letter is but a portion of its recital of the
facts involved without necessarily making a
resolution
thereon.chanroblesvirtualawlibrarychanrob
les virtual law library
2. Controversy rises between petitioner-
appellant and respondent-appellee on the
receipt of Deputy Governor Briñas letter,
dated November 19, 1969, purportedly
informing petitioner-appellant that its
Special Import Permit "was intended only
for Christmas season of 1968 and does not
extend through 1969." While petitioner-
appellant contends that the said letter was
never served upon it, respondent-appellee
maintains that it is quite surprising for
petitioner-appellant to disclaim receipt
thereof when all prior and subsequent
letters from the Central Bank have been
satisfactorily received by it. This question
is not of decisive import. The all-governing
point is the reasonable assumptions of
petitioner-appellant's knowledge or
awareness of the duration of its Special
Import Permit, since it was petitioner-
appellant itself which established the
terminal date of its permit representing
that "the main purpose of this importation
is to serve the requirements during the
Christmas season" of 1968, upon which
representation the Monetary Board finally
granted the permit. The equitable principle
of estoppel forbids petitioner-appellant
from taking an inconsistent position now
and claims that the permit extends beyond
the period it itself asked for. Where conduct
or representation has induced another to
change its position in good faith or the
same is such that reasonable man would
rely thereon, the consequences of such
conduct or representation cannot later on
be disowned. 30 The preliminary
representations and assurances of
petitioner-appellant, most important of
which is the life span of the permit, are
deemed incorporated into the Special
Import Permit subsequently issued. At
most, the letter of Deputy Governor Briñas
may serve only to remind petitioner-
appellant of the resolutory period of its
permit. Whether there was such letter or
not, the time limit proffered by petitioner-
appellant and approved by the Central
Bank
controls.chanroblesvirtualawlibrarychanro
bles virtual law library
3. The doctrine of "promissory estoppel" is
invoked by, petitioner-appellant to
preclude respondent-appellee from
contesting the legality of its importations.
Petitioner-appellant draws authority from
the letter of Director A. V. Antiporda, dated
November 21, 1969, informing the
Prudential Bank and Trust Company that it
"may continue to issue release certificates
to cover the No-Dollar Importations of
fresh fruits by your client" after noting that
only $144,306.15 has been utilized out of
the $350,000.00-permit. According to that
doctrine, "an estoppel may arise from the
making of a promise even though without
consideration, if it was intended that the
promise should be relied upon and in fact it
was relied upon, and if a refusal to enforce
it would be virtually to sanction the
perpetration of fraud or would result in
other injustice." 31 Like the related
principles of volenti non fit injuria (consent
to injury), waiver, and acquiescence, it
finds its origin generally in the equitable
notion that one may not change his
position and profit from his own
wrongdoing when he has caused another to
suffer a detriment by relying on his
former promises or
representations. 32 But, a promise cannot
be the basis of an estoppel if any other
essential element is
lacking. Justifiable reliance or irreparable
detriment to the promises are requisite
factors. 33 We failed to see in Antiporda's
letter the making of a promise upon which
petitioner-appellant could justifiably rely.
On the contrary, while the letter advised
the agent bank that it may continue issuing
release certificates to cover petitioner-
appellant's "no-dollar" importations of
fresh fruits, it at the same time subjects the
issuance of release certificates "to the
same terms and conditions imposed by the
Monetary board" on the Special Import
Permit, one of which is the resolutory term
of 1968. That is the import of the
Antiporda's letter ex vi termini. Director
Antiporda could not have modified the
Special Import Permit by creating a longer
period, for the plain reason that no such
authority resides in him. An administrative
officer has only such powers as are
expressly granted to him and those
necessarily implied in the exercise
thereof. 34 As earlier pointed out, it was the
Monetary Board which issued the permit;
correspondingly, it too posseses
the sole power to modify the
same.chanroblesvirtualawlibrarychanroble
s virtual law library
On the gratuitous assumption that the
Antiporda's letter purported to impress,
albeit erroneously, that further
importations could be made by petitioner-
appellant beyond the Christmas season of
1968, the same produces no estoppel
against the issuing authority. The long-
settled jurisprudence states that the
"doctrine of estoppel" does not operate
against the Government, of which the
Central Bank is an instrumentality, in its
capacity as sovereign or asserting
governmental rights; the Government is
never estopped by the mistake or errors on
the part of its agents. Moreover, estoppel
cannot give validity to an act that is
prohibited by law or against public
policy. 35 The erroneous application of the
statute and enforcement of the law do not
block subsequent correct application
thereof 36 or bar a future action in
accordance with law. 37 To hold that
merely the Antiporda's letter could be the
basis for such estoppel would be going in
the direction of suspending and repealing
the conditions or terms of the Special
Import Permit without any action on the
part of the Monetary Board. 38 chanrobles
virtual law library
4. The cases of Ramos v. Central
Bank 39and Commissioner of Customs v.
Auyong Hian 40 cannot be relied upon by
petitioner-appellant to fore close the issue
on the continuous validity of its Special
Import Permit. In Ramos, the Court held
that after the Central Bank has made
express commitments to petitioners
therein that it would support the Overseas
Bank of Manila, and avoid its liquidation if
the petitioners would execute (a) the
Voting Trust Agreement turning over the
management of OBM to the CB or its
nominees, and (b) mortgage or assign their
properties to the Central Bank to cover the
overdraft balance of OBM which petitioners
did, the. Central Bank may not retreat from
its representations and liquidate the
Overseas Bank of Manila, to the prejudice
of petitioners, depositors and other
creditors, under the rule of "promissory
estoppel." The Central Bank cannot just
unilaterally disregard its representations
and promises to rehabilitate and normalize
the financial condition of the OBM without
violating Article 1159 of the Civil Code of
the Philippines, which provides that
"(o)bligations arising from contracts have
the force of law between the contracting
parties and should be complied with in
good faith," as well as Article 1315, stating
that "(c)ontracts are perfected by mere
consent, and from that moment the parties
are bound not only to the fulfillment of
what has been expressly stipulated but also
to all the consequences which, according to
their nature, may be in keeping with good
faith, usage and law." In other words, by
making the foregoing representations and
commitments to the OBM the Central Bank
had thereby assumed a contractual
obligation in favor of the OBM such that it
cannot unceremoniously ignore the same.
No such kind of contractual obligation or
commitments have been perfected
between the Central Bank and the
petitioner-appellant in the present case.
The issuance of the Special Import Permit
by the Monetary Board to the petitioner-
appellant can hardly be considered as
constitutive of a contractual obligation
assumed by the Central Bank in favor of
petitioner-appellant. This is because a
permit is not, by its very nature, a contract
but a mere special privilege. For a permit
to be impressed with a contractual
character, it must be categorically
demonstrated that the very administrative
agency, which is the source of the permit,
would place such a burden on
itself. 41 Auyong Hian on the other hand,
tells of an importation of old newspapers in
four shipments under a "no-dollar"
arrangement, pursuant to a license issued
by the Import Control Commission. When
the last shipment arrived in Manila, the
Customs authorities seized the same on the
ground that the importation was made
without the license required under Central
Bank Circular No. 45. 42 While the seizure
proceedings were pending before the
Collector of Customs, the President of the
Philippines, acting through its
Cabinet, cancelled the aforesaid license for
the reason that it was illegally issued "in
that no fixed date of expiration is
stipulated." On review, the Court held that
the cancellation of the license on the sole
ground that it does not bear ay expiry date
even if the importation had already been
accomplished was inequitable. In the
present case, however, no such
cancellation of license or permit appears
the legality of the issuance of petitioner-
appellant's Special Import Permit is not in
question. On the contrary, what is being
sought in this case is the enforcement of
the terms and conditions of the Special
Import Permit, one of which, is the
resolutory period of 1968. As earlier
discussed, after the lapse of this period, the
permit can no longer yield valid
effect.chanroblesvirtualawlibrarychanroble
s virtual law library
5. The authority of the Central Bank to
regulate "no-dollar" imports, owing to the
influence and effect that the same may
exert upon the stability of our peso and its
international value, cannot be seriously
contested. Such authority clearly emanates
from its broad powers to maintain our
monetary stability and to preserve the
international value of our currency 43as
well as its corollary power to issue such
rules and regulations for the effective
discharge of its responsibilities and
exercise of powers. 44 On February 31,
1970, the Central Bank promulgated its
Circular No. 269, prohibiting the
importation of "non-essential consumer"
goods like fresh fruits. Section 5 thereof
directs that "(a)uthorized agent banks may
sell foreign exchange for
imports except those falling under the UC,
SUC and NEC categories, without prior
specific approval of the Central Bank." In
the recent case of Balmaceda vs.
Corominas 45 We ruled that "the entry of
NEC ("non-essential commodities") is thus
halted at bay." With regard to "no- dollar"
imports, the Central Bank promulgated
Circular No. 247 on July 21, 1967,
specifically enumerating the items
exempted from the requirement of release
certificates. The enumeration mostly refers
to personal effects and gifts of returning
residents, tourists, immigrants, etc. Fresh
fruits are not included. Circular No. 247
was amended by Circular No. 294 on March
10, 1970, providing that "(n)o-dollar
imports not covered by Circular No. 247
shall not be issued any release certificates
and shall be referred to the Central Bank
for official transmittal to the Bureau of
Customs for appropriate seizure
proceedings. " On March 20, 1970, Circular
No. 295 was passed. This circular reiterates
the exemption of the "no-dollar" imports
enumerated under Circular No. 247 from
the release certificate requirements, but
imposes an express ban on all other "no-
dollar" imports not covered by Circular No.
247. These include "fresh fruits" like fresh
apples oranges, grapes, and lemons. 46 It
can thus be readily seen that petitioner-
appellant's "fresh fruits" importations of
June and September, 1970 violate the
quoted Central Bank Circulars, hence,
liable to seizure action by the Customs
authorities. While the said goods may not
be considered "merchandise of prohibited
importation," they nevertheless fall within
the other category of merchandise
imported "contrary to law", because
regulations issued pursuant to "customs
law" form part thereof. The term "customs
law" includes not only the provisions of said
law proper but also any regulations made
pursuant thereto like the aforementioned
Central Bank circulars, 47 which also have
the force and effect of
law. 48 Consequently, violation of these
circulars comes within the purview of
Section 2530 (f) of the Tariff and Customs
Code, which authorizes the forfeiture of
"(a)ny article the importation or
exportation of which is effected or
attempted contrary to law." 49 chanrobles
virtual law library
6. Petitioner-appellant disputes the
disposition of the trial court directing the
Collector of Customs to proceed against the
surety bonds it posted for the release of its
June, 1970 importation sometime in
December, 1970. There is no doubt that
the surety bonds were posted by
petitioner-appellant in Civil Case No. This is specially true when the sufficiency
80655, which was terminated by the or solvency of the bonds has been
mutual agreement of the parties 50 after previously passed upon by the same trial
the Court has handed down its decision judge hearing the second case. Besides,
thereon on appeal. 51 However, it must be Civil Case No. 80655 has already been
remembered that the said surety bonds terminated by the mutual agreement of the
were undertaken by petitioner-appellant parties such that no enforcement of the
for the release of its June, 1970 undertaking of the bonds could be easily
importation. A fortiori in any litigation made therein. 54 chanrobles virtual law
where in any litigation where the release of library
this June, 1970 shipment is involved, the ACCORDINGLY, the judgment of the lower
said surety bonds are answerable. The court, subject matter of this present
statutory undertaking of a bond is to review, is hereby affirmed. Costs against
answer for all damages that may result petitioner-
from an injunction should the court finally appellant.chanroblesvirtualawlibrarychanr
decide that the injunction was not proper obles virtual law library
or that the party in whose favor the SO ORDERED.
injunctive writ was issued was not entitled
thereto. 52 Although petitioner-appellant's
surety bonds were filed in Civil Case No.
80655, the undertaking therein to answer
for damages in case the release of the
June, 1970 shipment is found improper
attaches to the present case, Civil Case No.
81051. The case where the Surety bonds
were posted is but incidental. The all-
important factor to consider is the event or
judicial action secured by the bonds. Since
the surety bonds in question were intended
to secure the liabilities which petitioner-
appellant may incur for the release of its
June, 1970 importation, the said bonds can
be proceeded against in any case where the
propriety of impropriety of said release has
been resolved. The bonds become
immediately answerable for the
undertaking once this condition has
occurred. 53 It would be a useless expense
of judicial time and effort if the surety
bonds were yet to be litigated in another
suit just to enforce the undertaking therein.
G.R. No. 70054 December 11, 1991 SYCIP, SALAZAR, FELICIANO AND vs.
BANCO FILIPINO SAVINGS AND HERNANDEZ, respondents. THE COURT OF APPEALS, THE
MORTGAGE BANK, petitioner, G.R. No. 78767 December 11, 1991 EXECUTIVE JUDGE of the Regional
vs. METROPOLIS DEVELOPMENT Trial Court of Cavite, CLERK OF COURT
THE MONETARY BOARD, CENTRAL CORPORATION, petitioner, and Ex-Officio Sheriff ADORACION
BANK OF THE PHILIPPINES, JOSE B. vs. VICTA, BANCO FILIPINO SAVINGS
FERNANDEZ, CARLOTA P. COURT OF APPEALS, CENTRAL BANK AND MORTGAGE BANK, CARLOTA P.
VALENZUELA, ARNULFO B. OF THE PHILIPPINES, JOSE B. VALENZUELA AND SYCIP, SALAZAR,
AURELLANO and RAMON V. FERNANDEZ, JR., CARLOTA P. HERNANDEZ AND
TIAOQUI, respondents. VALENZUELA, ARNULFO AURELLANO GATMAITAN, respondents.
G.R. No. 68878 December 11, 1991 AND RAMON TIAOQUI, respondents. Panganiban, Benitez, Barinaga & Bautista
BANCO FILIPINO SAVINGS AND G.R. No. 78894 December 11, 1991 Law Offices collaborating counsel for
MORTGAGE BANK, petitioner, BANCO FILIPINO SAVINGS AND petitioner.
vs. MORTGAGE BANK, petitioner Florencio T. Domingo, Jr. and Crisanto S.
HON. INTERMEDIATE APPELLATE vs. Cornejo for intervenors.
COURT and CELESTINA S. COURT OF APPEALS, THE CENTRAL
PAHIMUNTUNG, assisted by her BANK OF THE PHILIPPINES, JOSE B.
husband, respondents. FERNANDEZ, JR., CARLOTA P. MEDIALDEA, J.:
G.R. No. 77255-58 December 11, 1991 VALENZUELA, ARNULFO B. This refers to nine (9) consolidated cases
TOP MANAGEMENT PROGRAMS AURELLANO AND RAMON concerning the legality of the closure and
CORPORATION AND PILAR TIAOQUI, respondents. receivership of petitioner Banco Filipino
DEVELOPMENT G.R. No. 81303 December 11, 1991 Savings and Mortgage Bank (Banco Filipino
CORPORATION, petitioners, PILAR DEVELOPMENT for brevity) pursuant to the order of
vs. CORPORATION, petitioner respondent Monetary Board. Six (6) of
THE COURT OF APPEALS, The vs. these cases, namely, G.R. Nos. 68878,
Executive Judge of the Regional Trial COURT OF APPEALS, HON. MANUEL M. 77255-68, 78766, 81303, 81304 and
Court of Cavite, Ex-Officio Sheriff COSICO, in his capacity as Presiding 90473 involve the common issue of
REGALADO E. EUSEBIO, BANCO Judge of Branch 136 of the Regional whether or not the liquidator appointed by
FILIPINO SAVINGS AND MORTGAGE Trial Court of Makati, CENTRAL BANK the respondent Central Bank (CB for
BANK, CARLOTA P. VALENZUELA AND OF THE PHILIPPINES AND CARLOTA P. brevity) has the authority to prosecute as
SYCIP, SALAZAR, HERNANDEZ AND VALENZUELA, respondents. well as to defend suits, and to foreclose
GATMAITAN, respondents. G.R. No. 81304 December 11, 1991 mortgages for and in behalf of the bank
G.R. No. 78766 December 11, 1991 BF HOMES DEVELOPMENT while the issue on the validity of the
EL GRANDE CORPORATION, petitioner, CORPORATION, petitioner, receivership and liquidation of the latter is
vs. vs. pending resolution in G.R. No. 7004.
THE COURT OF APPEALS, THE THE COURT OF APPEALS, CENTRAL Corollary to this issue is whether the CB
EXECUTIVE JUDGE of The Regional BANK AND CARLOTA P. can be sued to fulfill financial commitments
Trial Court and Ex-Officio Sheriff VALENZUELA, respondents. of a closed bank pursuant to Section 29 of
REGALADO E. EUSEBIO, BANCO G.R. No. 90473 December 11, 1991 the Central Bank Act. On the other hand,
FILIPINO SAVINGS AND MORTGAGE EL GRANDE DEVELOPMENT the other three (3) cases, namely, G.R.
BANK, CARLOTA P. VALENZUELA AND CORPORATION, petitioner, 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.
Narvasa, C.J., Gutierrez, Jr., Cruz, Bidin
and Regalado, JJ., concur.
Paras, Feliciano, Padilla, Davide, Jr. and
Nocon, JJ., took no part.
Separate Opinions
MELENCIO-HERRERA, J., dissenting:
I join Mme. Justice Carolina G. Aquino in
her dissent and vote to deny the prayer, in
G.R. No. 70054, to annul Monetary Board
Resolution No. 75 placing Banco Filipino
(BF) under receivership.
Even assuming that the BF was not, as
alleged, in a literal state of insolvency at
the time of the passage of said Resolution,
there was a finding in the Teodoro report
that, based on that Bank's illiquidity, to
have allowed it to continue in operation
would have meant probable loss to
depositors and creditors. That is also a
ground for placing the bank under
receivership, as a first step, pursuant to
Section 29 of the Central Bank Act (Rep.
Act No. 265, as amended). The closure of
BF, therefore, can not be said to have been
arbitrary or made in bad faith. There was
sufficient justification, considering its
inability to meet the heavy withdrawals by
its depositors and to pay its liabilities as
they fell due, to forbid the bank from
further engaging in banking.
The matter of reopening, reorganization or
rehabilitation of BF is not within the
competence of this Court to ordain but is
better addressed to the Monetary Board
and the Central Bank considering the
latter's enormous infusion of capital into BF
to the tune of approximately P3.5 Billion in
total accommodations, after a thorough
assessment of whether or not BF is, indeed,
possessed, as it stoutly contends, of
sufficient assets and capabilities with which
to repay such huge indebtedness, and can
operate without loss to its many depositors
and creditors.
GRIÑO-AQUINO, J., dissenting:
Although these nine (9) Banco Filipino (BF)
cases have been consolidated under one
ponencia, all of them except one, raise
issues unrelated to the receivership and
liquidation of said bank. In fact, two of
these cases (G.R. No. 68878 and 81303)
have already been decided by this Court
and are only awaiting the resolution of the
motions for reconsideration filed therein.
Only G.R. No. 70054 "Banco Filipino
Savings and Mortgage Bank (BF) vs. the
Monetary Board (MB), Central Bank of the
Philippines (CB), et al.," is an original
action for mandamus and certiorari filed in
this Court by former officials of BF to annul
the Monetary Board Resolution No. 75
dated January 25, 1985 (ordering the
closure of Banco Filipino [BF] and
appointing Carlota Valenzuela as receiver
of the bank) on the ground that the
resolution was issued "without affording BF
a hearing on the reports" on which the
Monetary Board based its decision to close
the bank, hence, without "administrative
due process.", The prayer of the petition
reads:
WHEREFORE, petitioner respectfully prays
that a writ of mandamus be issued
commanding respondents immediately to
furnish it copies of the reports of
examination of BF employed by respondent
Monetary Board to support its Resolution of
January 25, 1985 and thereafter to afford
it a hearing prior to any resolution that may
be issued under Section 29 of R.A. 265,
meanwhile annulling said Resolution of
January 25, 1985 by writ of certiorari as
made without or in excess ofjurisdiction or
with grave abuse of discretion.
So as to expedite proceedings, petitioner
prays that the assessment of the damages
respondents should pay it be deferred and
referred to commissioners.
Petitioner prays for such other remedy as
the Court may deem just and equitable in
the premises.
Quezon City for Manila, February 28, 1985.
(p. 8, Rollo I-)
and the prayer of the Supplement to
Petition reads:
WHEREFORE, in addition to its prayer for
mandamus and certiorari contained in its
original petition, petitioner respectfully
prays that Sections 28-A and 29 of the
Central Bank charter (R.A. 265) including
its amendatory Presidential Decrees Nos.
72, 1771, 1827 and 1937 be annulled as
unconstitutional.
Quezon City for Manila, March 4, 1985. (p.
11-G, Rollo I.)
The other eight (8) cases merely involve
transactions of BF with third persons and
certain "related" corporations which had
defaulted on their loans and sought to
prohibit the extrajudicial foreclosure of the
mortgages on their properties by the
receiver of BF. These eight (8) cases are:
1. G.R. No. 68878 "BF vs. Intermediate
Appellate Court and Celestina
Pahimutang" involves the repossession by
BF of a house and lot which the buyer
(Pahimutang) claimed to have completely
paid for on the installment plan. The
appellate court's judgment for the buyer
was reversed by this Court. The buyer's
motion for reconsideration is awaiting
resolution by this Court;
2. G.R. Nos. 77255-58, "Top Management
Programs Corporation and Pilar
Development Corporation vs. Court of
appeals, et al." (CA-G.R. SP No. 07892)
and "Pilar Development Corporation vs.
Executive Judge, RTC, Cavite" (CA-G.R. SP
Nos. 0896264) is a consolidated petition for
review of the Court of Appeals' joint
decision dismissing the petitions for
prohibition in which the petitioners seek to
prevent the receiver/liquidator of BF from
extrajudicially foreclosing the P4.8 million
mortgage on Top Management's properties
and the P18-67 million mortgage on Pilar
Development properties. The Court of
Appeals dismissed the petitions on October
30, 1986 on the ground that "the functions
of the liquidator, as receiver under Section
29 (R.A. 265), include taking charge of the
insolvent's assets and administering the
same for the benefit of its creditors and of
bringing suits and foreclosing mortgages in
the name of the bank;"
3. G.R. No. 78766, "El Grande Corporation
vs. Court of Appeals, et al.," is an appeal
from the Court of Appeals' decision in CA-
G.R. SP No. 08809 dismissing El Grande's
petition for prohibition to prevent the
foreclosure of BF's P8 million mortgage on
El Grande's properties;
4. G.R. No. 78894, "Banco Filipino Savings
and Mortgage Bank vs. Court of Appeals, et
al." is an appeal of BFs old management
(using the name of BF) from the decision of
the Court of Appeals in CA-G.R. SP No.
07503 entitled, "Central Bank, et al. vs.
Judge Zoilo Aguinaldo, et al" dismissing the
complaint of "BF" to annul the receivership,
for no suit may be brought or defended in
the name of the bank except by its
receiver;
5. G.R. No. 87867, "Metropolis
Development Corporation vs. Court of
Appeals" (formerly AC-G.R. No. 07503,
"Central Bank, et al. vs. Honorable Zoilo
Aguinaldo, et al.') is an appeal of the
intervenor (Metropolis) from the same
Court of Appeals' decision subject of G.R.
No. 78894, which also dismissed
Metropolis' complaint in intervention on the
ground that a stockholder (Metropolis) may
not bring suit in the name of BF while the
latter is under receivership, without the
authority of the receiver;
6. G.R. No. 81303, "Pilar Development
Corporation vs. Court of Appeals, et al." is
an appeal from the decision dated October
22, 1987 of the Court of Appeals in CA-G.R.
SP No. 12368, "Pilar Development
Corporation, et al. vs. Honorable Manuel
Cosico, et al.," dismissing the petition
for certiorari against Judge Manuel Cosico,
Br. 136, RTC, Makati, who dismissed the
complaint filed by Pilar Development
Corporation against BF, for specific
performance of certain developer
contracts. An answer filed by Norberto
Quisumbing and Associates, as BF's
supposed counsel, virtually confessed
judgment in favor of Pilar Development. On
motion of the receiver, the answer was
expunged and the complaint was
dismissed. On a petition for certiorari in
this Court, we held that: "As liquidator of
BF by virtue of a valid appointment from
the Central Bank, private respondent
Carlota Valenzuela has the authority to
direct the operation of the bank in
substitution of the former management,
which authority includes the retainer of
counsel to represent it in bringing or
resisting suits in connection with such
liquidation and, in the case at bar, to take
the proper steps to prevent collusion, to
the prejudice of the legitimate creditors,
between BF and the petitioners herein
which appear to be owned and controlled
by the same interest controlling BF" (p. 49,
Rollo). The petitioners' motion for
reconsideration of that decision is pending
resolution.
7. G.R. No. 81304, "BF Homes
Development Corporation vs. Court of
Appeals, et al." is an appeal from the
decision dated November 4, 1987 of the
Court of Appeals in CA-G.R. CV No. 08565
affirming the trial court's order dismissing
BF Homes' action to compel the Central
Bank to restore the financing facilities of
BF, because the plaintiff (BF Homes) has no
cause of action against the CB.
8. G.R. No. 90473, "El Grande
Development Corporation vs. Court of
Appeals, et al.," is a petition to review the
decision dated June 6, 1989 in CA-G.R. SP
No. 08676 dismissing El Grande's petition
for prohibition to stop foreclosure
proceedings against it by the receiver of
BF.
As previously stated, G.R. No. 70054 "BF
vs. Monetary Board, et al.," is an original
special civil action for certiorari and
mandamus filed in this Court by the old
management of BF, through their counsel,
N.J. Quisumbing & Associates, using the
name of the bank and praying for the
annulment of MB Resolution No. 75 which
ordered the closure of BF and placed it
under receivership. It is a "forum-
shopping" case because it was filed here on
February 28, 1985 three weeks after they
had filed on February 2, 1985 Civil Case No.
9675 "Banco Filipino vs. Monetary Board,
et al." in the Regional Trial Court of Makati,
Br. 143 (presided over by Judge Zoilo
Aguinaldo) for the same purpose of
securing a declaration of the nullity of MB
Resolution No. 75 dated January 25, 1985.
On August 25, 1985, this Court ordered the
transfer and consolidation of Civil Case No.
9676 (to annul the receivership) from Br.
143 to Br. 136 (Judge Manuel Cosico) of
the Makati Regional Trial Court where Civil
Case No. 8108 (to annul the
conservatorship) and Civil Case No. 10183
(to annul the liquidation) of BF were and
are still pending. All these three (3) cases
were archived on June 30, 1988 by Judge
Cosico pending the resolution of G.R. No.
70054 by this Court.
Because of my previous participation, as a
former member of the Court of Appeals, in
the disposition of AC-G.R. No. 02617 (now
G.R. No. 68878) and AC-G.R. SP No. 07503
(now G.R. Nos. 78767 and 78894), I am
taking no part in G.R. Nos. 68878, 78767
and 78894. It may be mentioned in this
connection that neither in AC-G.R. SP No.
02617, nor in AC-G.R. SP No. 07503, did
the Court of Appeals rule on the
constitutionality of Sections 28-A and 29 of
Republic Act 265 (Central Bank Act), as
amended, and the validity of MB Resolution
No. 75, for those issues were not raised in
the Court of Appeals.
I concur with the ponencia insofar as it
denies the motion for reconsideration in
G.R. No. 81303, and dismisses the
petitions for review in G.R. Nos. 77255-58,
78766, 81304, and 90473.
I respectfully dissent from the majority
opinion in G.R. No. 70054 annulling and
setting aside MB Resolution No. 75 and
ordering the respondents, Central Bank of
the Philippines and the Monetary Board —
to reorganize petitioner Banco Filipino
Savings and Mortgage Bank, and allow the
latter to resume business in the Philippines
under the comptrollership of both the
Central Bank and the Monetary Board and
under such conditions as may be
prescribed by the latter until such time that
petitioner bank can continue in business
with safety to its creditors, depositors and
the general public.
for I believe that this Court has neither the
authority nor the competence to determine
whether or not, and under what conditions,
BF should be reorganized and reopened.
That decision should be made by the
Central Bank and the Monetary Board, not
by this Court.
All that we may determine in this case is
whether the actions of the Central Bank
and the Monetary Board in closing BF and
placing it under receivership were "plainly
arbitrary and made in bad faith.
Section 29 of Republic Act No. 265
provides:
Section 29. Proceedings upon insolvency.
— Whenever, upon examination by the
head of the appropriate supervising and
examining department or his examiners or
agents into the condition of any banking
institution, it shall be disclosed that the
condition of the same is one of insolvency,
or that its continuance in business would
involve probable loss to its depositors or
creditors, it shall be the duty of the
department head concerned forthwith, in
writing, to inform the Monetary Board of
the facts, and the Board may, upon 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.
The Monetary Board shall thereupon
determine within sixty days whether the
institution may be reorganized or otherwise
placed in such a condition so that it may be
permitted to resume business with safety
to its depositors and creditors and the
general public and shall prescribe the
conditions under which such resumption of
business shall take place as well as the time
for fulfillment of such conditions. In such
case, the expenses and fees in the
collection and administration of the assets
of the institution shall be determined by the
Board and shall be paid to the Central Bank
out of the assets of such banking
institution.
If the Monetary Board shall determine and
confirm within the said period that the
banking institution is insolvent or cannot
resume business with safety to its
depositors, creditors and the general
public, it shall, if the public interest
requires, order its liquidation, indicate the
manner of its liquidation and approve a
liquidation plan. The Central Bank shall, by
the Solicitor General, file a petition in the
Court of First Instance, reciting the
proceedings which have been taken and
praying the assistance of the court in the
liquidation of the banking institutions. The
court shall have jurisdiction in the same
proceedings to adjudicate disputed claims
against the bank and enforce individual
liabilities of the stockholders and do all that
is necessary to preserve the assets of the
banking institution and to implement the
liquidation plan approved by the Monetary
Board. The Monetary Board shall designate
an official of the Central Bank as liquidator
who shall take over the functions of the
receiver previously appointed by the
Monetary Board under this section. The
liquidator shall, with all convenient speed,
convert the assets of the banking
institution to money or sell, assign or
otherwise dispose of the same to creditors
and other parties for the purpose of paying
the debts of such bank and he may, in the
name of the banking institution, institute
such actions as may be necessary in the
appropriate court to collect and recover
accounts and assets of the banking
institution.
The provisions of any law to the contrary
notwithstanding, the actions of the
Monetary Board under this section and the
second paragraph of Section 34 of this
Act shall be final and executory, and can be
set aside by the court only if there is
convincing proof that theaction is plainly
arbitrary and made in bad faith. No
restraining order or injunction shall be
issued by the court enjoining the Central
Bank from implementing its actions under
this section and the second paragraph of
Section 34 of this Act, unless there is
convincing proof that the action of the
Monetary Board is plainly arbitrary and
made in bad faith and the petitioner or
plaintiff files with the clerk or judge of the
court in which the action is pending a bond
executed in favor of the Central Bank, in an
amount to be fixed by the court. The
restraining order or injunction shall be
refused or, if granted, shall be dissolved
upon filing by the Central Bank of a bond,
which shall be in the form of cash or Central
Bank cashier's check, in an amount twice
the amount of the bond of the petitioner or
plaintiff, conditioned that it will paythe
which the petitioner or plaintiff may suffer
by the refusalor the dissolution of the
injunction. The provisions of Rule 58 of the
new Rules of Court insofar as they are
applicable and not inconsistent with the
provisions of this section shall govern the
issuance and dissolution of the restraining
order or injunction contemplated in this
section.
Insolvency, under this Act, shall be
understood to mean the inability of a
banking institution to pay its liabilities as
they fall due in the usual and ordinary
course of business, provided, however,
that this shall not include the inability to
pay of an otherwise non-insolvent bank
caused by extra-ordinary demands induced
by financial panic commonly evidenced by
a run on the banks in the banking
community.
The determinative factor in the closure,
receivership, and liquidation of a bank is
the finding, upon examination by the SES
of the Central Bank, that its condition "is
one of insolvency, or that its continuance in
business would involve probable loss to its
depositors and creditors." (Sec. 29, R.A.
265.) It should be pointed out that
insolvency is not the only statutory ground
for the closure of a bank. The other ground
is when "its continuance in business would
involve probable loss to its depositors and
creditors.
Was BF insolvent i.e., unable to pay its
liabilities as they fell due in the usual and
ordinary course of business, on and for
some time before January 25, 1985 when
the Monetary Board issued Resolution No.
75 closing the bank and placing it under
receivership? Would its continued
operation involve probable loss to its
depositors and creditors?
The answer to both questions is yes. Both
the conservator Gilberts Teodoro and the
head of the SES (Supervision and
Examination Sector) Ramon V. Tiaoqui
opined that BF's continuance in business
would cause probable loss to depositors
and creditors. Tiaoqui further categorically
found that BF was insolvent. Why was this
so?
The Teodoro and Tiaoqui reports as well as
the report of the receivers, Carlota
Valenzuela, Arnulfo B. Aurellano and
Ramon V. Tiaoqui, showed that since the
end of November 1983 BF had already
been incurring "chronic reserve
deficiencies' and experiencing severe
liquidity problems. So much so, that it had
become "a substantial borrower in the call
loans market" and in June 1984 it obtained
a P30 million emergency loan from the
Central Bank. (p. 2, Receiver's Report.)
Additional emergencyt loans (a total of
P119.7 millions) were extended by the
Central Bank to BF that month (MB Res.
No. 839 dated June 29,1984). On July 12,
1984, BFs chairman, Anthony Aguirre,
offered to "turn over the administration of
the affairs of the bank" to the Central Bank
(Aguirre's letter to Governor Jose
Fernandez, Annex 7 of Manifestation dated
May 3,1991). On July 23,1984, unable to
meet heavy deposit withdrawals, BF's
management motu proprio, without
obtaining the conformity of the Central
Bank, closed the bank and declared a bank
holiday. On July 27, 1984, the CB,
responding to BFs pleas for additional
financial assistance, granted BF a P3 billion
credit line (MB Res. No. 934 of July 27,
1984) to enable it to reopen and resume
business on August 1, 1984. P2.3601
billions of the credit line were availed of by
the end of 1984 exclusive of an overdraft
of P932.4 millions (p. 2, Tiaoqui Report).
Total accommodations granted to BF
amounted to P3.4122 billions (p. 19, Cosico
Report).
Presumably to assure that the financial
assistance would be properly used, the MB
appointed Basilio Estanislao as conservator
of the bank. A conservatorship team of 78
examiners and accountants was assigned
at the bank to keep track of its activities
and ascertain its financial condition (p. 8,
Tiaoqui Report).
Estanislao resigned after two weeks for
health reasons. He was succeeded by
Gilberto Teodoro as conservator in August,
1984 up to January 8, 1985.
Besides the conservatorship team, Teodoro
hired financial consultants Messrs. Tirso G.
Santillan, Jr. and Plorido P. Casuela to
make an analysis of BF's financial
condition. Teodoro also engaged the
accounting firm of Sycip, Gorres, Velayo
and Company to make an asset evaluation.
The Philippine Appraisal Company (PAC)
appraised BFs real estate properties,
acquired assets, and collaterals held. On
January 9, 1985, Teodoro submitted his
Report. Three weeks later, on January 23,
1985, Tiaoqui also submitted his Report.
Both reports showedthat, in violation of
Section 37 of the General Banking Act
(R.A.337): 2
1. BF had been continually deficient in
liquidity reserves (Teodoro Report). The
bank had been experiencing a severe drop
in liquidity levels. The ratio of liquid assets
to deposits and borrowings plunged from
about 20% at end-1983, to about 8.6% by or "related accounts" to which it continued
end-May 1984, much below the statutory lending even when it was already suffering
requirements of 24% for demand from liquidity stresses. (Teodoro Report.)
deposits/deposit substitutes and 14% for This was done in violation of Section 38 of
savings and time deposits. (p. 2, Tiaoqui the General Banking Act (R.A. 337). 3
Report.)
8. During the period of marked decline in liquidity levels the loan
2. Deficiencies in average daily legal
portfolio grew by P417.3 million in the first five months of 1984 —
reserves rose from P63.0 million during the
and by another P105.l million in the next two months. (pp. 2-3,
week of November 21-25, 1983 to a high
Tiaoqui Report.)
of P435.9 million during the week of June
11-15, 1984 (pp. 2-3, Tiaoqui Report).
9. The loan portfolio stood at P3.679 billion at the end of July 1984,
Accumulated penalties on reserve
56.2% of it channeled to companies whose stockholders, directors
deficiencies amounted to P37.4 million by
and officers were related to the officers, directors, and some
July 31, and rose to P48 million by the end
stockholders of BF. (p. 8, Tiaoqui Report.) Here again BF violated
of 1984. (Tiaoqui Report.)
the General Banking Act (R.A. 337). 4
3. Deposit levels, which were at P3,845
million at end-May l984 (its last "normal"
10. Some of the loans were used to acquire preferred stocks of BF.
month), dropped to P935 million at the end
Between September 17, 1983 and February 10, 1984, P49.9
of November 1984 or a loss of P2,910
million of preferred non-convertible stocks were issued. About
million. This represented an average
85% or P42.4 million was paid out of the proceeds of loans to
monthly loss of P485 million vs. an average
stockholders/ borrowers with relationship to the bank (Annex D).
monthly gain of P26 million during the first
Around P18.8 million were issued in the name of an entity other
5 months of 1984. (pp. 2-3, Tiaoqui
than the purchaser of the stocks. (Tiaoqui Report.)
Report.)
11. Loans amounting to some P69.3 million were granted simply
4. Deposits had declined at the rate of P20
to pay-off old loans including accrued interest, as an
million during the month of December
accommodation for the direct maturing loans of some firms and as
1984, but expenses of about P17 million
a way of paying-off loans of other borrower firms which have their
per month were required to maintain the
own credit lines with the bank. These helped to make otherwise
bank's operation. (p. 6, Teodoro Report.)
delinquent loans appear "current" and deceptively "improved" the
5. Based on the projected outlook, the
quality of the loan portfolio. (Tiaoqui Report.)
Bank's average yield on assets of 16.3%
12. Examination of the collaterals for the loan accounts of 63 major
p.a., was insufficient to meet the average
borrowers and 32 other selected borrowers as of July 31, 1984,
cost of funds of 19.5% p.a. and operating
showed that:
expenses of 4.8% p.a. (p. 5 Teodoro
(a) 2,658 TCT's which BF evaluated to be worth P1,487 million
Report.)
6. An imprudently large proportion of were appraised by PAC to be worth only P1,196 million, hence,
deficient by P291 million.
assets were locked into long-term
(b) Other properties (collaterals) supposedly worth P711 million
applications. (Teodoro Report.)
could not be evaluated by PAC because the details submitted by
7. BF overextended itself in lending to the
the bank were insufficient;
real estate industry, committing as much
as 52% of its peso deposits to its affiliates
(c) While P674 million in loans were supposedly guaranteed by the creditors ... in the light of the bank's worsening condition." (p. 5, employees for activities which led to its insolvent position." (pp. 9-

Home Financing Corporation (HFIC), the latter confirmed only Teodoro Report.) 10, Tiaoqui Report.)

P427 million. P247 million in loans were not guaranteed by HFC. On January 23, 1985, Tiaoqui submitted his report to the Monetary On January 25, 1985 or two days after the submission of Tiaoqui's

(Teodoro Report.) Board, Like Teodoro, Tiaoqui believed that the principal cause of Report, and three weeks after it received Teodoro's Report, the

(d) Per SGV's report, loans totalling P1.882 million including the bank's failure was that in violation of the General Banking Law Monetary Board, then composed of:

accrued interest, were secured by collateral worth only Pl.54 and CB rules and regulations, BF's major stockholders, directors Chairman: Jose B. Fernandez, Jr.

billion. Hence, BFs unsecured exposure amounted to P586.2 and officers, through their "related" companies: (i.e. companies CB Governor

million. BF Homes, Inc., a related company which has filed with owned or controlled by them of their relatives) had been Members:
the SEC a petition for suspension of payments, owes P502 million "borrowing" huge chunks of the money of the depositors. His 1. Cesar E.A. Virata, Prime Minister & Concurrently Minister of

to BF. Conclusion and Recommendations were: Finance

13. BF had been suffering heavy losses. — 2. Roberto V. Ongpin, Minister of Trade & Industry & Chairman of

a) For the eleven (11) months ended November 30, 1984, the Board of Investment

estimated net loss was P372.6 Million; The Conservator, in his report to the Monetary Board dated 3. Vicente B. Valdepeñas, Jr., Minister of Economic Planning &
b) For the twelve (12) months from November 1984, the projected January 8, 1985, has stated that the continuance of the bank in Director General of NEDA

net loss would be P390.7 Million and would continue unabated; (p. business would involve probable loss to its depositors and 4. Cesar A. Buenaventura, President of Filipinas Shell Petroleum

2, Teodoro Report) creditors. It has recommended that a more effective action be Corp. (p. 37, Annual Report 1985)
c) Around 71.7% of the total accommodations of P2.0677 billions taken to protect depositors and creditors. issued Resolution No. 75 closing BF and placing it under

to the related/linked entities were adversely classified. Close to The examination findings as of July 31, 1984 as shown earlier, receivership. The MB Resolution reads as follows:

33.7% or P697.1 millions were clean loans or against PNs indicate one of insolvency and illiquidity and further confirms the

(promissory notes) of these entities. Of the latter, 52.6% were above conclusion of the Conservator.

classified as loss." (P. 5, Tiaoqui Report.) All the foregoing provides sufficient justification for forbidding the After considering the report dated January 8, 1985 of the

d) The bank's financial condition as of date of examination, after bank from further engaging in banking. Conservator for Banco Filipino Savings and Mortgage Bank that the

setting up the additional valuation reserves of P612.2 millions and Foregoing considered, the following are recommended: continuance in business of the bank would involve probable loss to

accumulated net loss of P48.2 millions, indicates one of 1. Forbid the Banco Filipino Savings & Mortgage Bank to do its depositors and creditors, and after discussing and finding to be

insolvency. Total liabilities of P5,282.1 million exceeds total assets business in the Philippines effective the beginning of office on true the statements of the Special Assistant to the Governor and

of P4,947.2 million by 6.8%. Total capital account of P334.9 January, 1985, pursuant to Sec. 29 of R.A. No. 265, as amended; Head, Supervision and Examination Sector (SES) Department II,

million) is deficient by P322.7 million against the minimum capital 2. Designate the Head of the Conservator Team at the bank, as as recited in his memorandum dated January 23, 1985. that the

required of P657.6 million (Annex F). Capital to risk assets ratio is Receiver of Banco Filipino Savings & Mortgage Bank, to Banco Filipino Savings and Mortgage Bank is insolvent and that its

negative 10.38%. immediately take charge of the assets and liabilities, as continuance in business would involve probable loss to its

e) Total loans and investment portfolio amounted to P3,914.3 expeditiously as possible collect and gather all the assets and depositors and creditors, and in pursuance of Section 29 of R.A.
millions (gross), of which P194.0 millions or 5.0% were past due administer the same for the benefit of all the creditors, and No. 265, as amended, the Board decided:

and P1,657.1 millions or 42.3% were adversely classified exercise all the powers necessary for these purposes including but 1. To forbid Banco Filipino Savings and Mortgage Bank and all its

(Substandard — P1,011.4 millions; Doubtful — P274.6 millions and not limited to bringing suits and foreclosing mortgages in the name branches to do business in the Philippines;
Loss — P371.1 millions). Accounts adversely classified included of the bank. 2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor, as

unmatured loan of Pl,482.0 million to entities related with each 3. The Board of directors and the principal officers from Senior Vice Receiver who is hereby directly vested with jurisdiction and

other and to the bank, several of which showed distressed President, as listed in the attached Annex "A" be included in the authority to immediately take charge of the bank's assets and

conditions. (p. 7, Tiaoqui Report.) watchlist of the Supervision and Examination Sector until such liabilities, and as expeditiously as possible collect and gather all

Teodoro's conclusion was that "the continuance of the bank in time that they shall have cleared themselves. the assets and administer the same for the benefit of its creditors,

business would involve probable loss to its depositors and 4. Refer to the Central Banles Legal Department and Office of exercising all the- powers necessary for these purposes including,

creditors." He recommended "that the Monetary Board take a more Special Investigation the report on the findings on Banco Filipino but not limited to, bringing suits and foreclosing mortgages in the

effective and responsible action to protect the depositors and for investigation and possible prosecution of directors, officers and name of the bank;
3. To designate Mr. Arnulfo B. Aurellano, Special Assistant to the deficiencies in legal reserves (P49.07 million), unhooked interest Even if assets and liabilities were to be factored into a formula for

Governor, and Mr. Ramon V. Tiaoqui, Special Assistant to the on overdrawings, emergency advance of P569.49 million from determining whether or not BF was already insolvent on or before

Governor and Head, Supervision and Examination Sector Central Bank, and additional valuation reserves of P124.5 million. January 25, 1985, the result would be no different. The bank's

Department II. as Deputy Receivers who are likewise hereby (pp. 3-4, Receivers' Report.) assets as of the end of 1984 amounted to P4.891 billions (not P6

directly vested with jurisdiction and authority to do all things The Receivers further noted that — billions) according to the Report signed and submitted to the CB

necessary or proper to carry out the functions entrusted to them After BF was closed as of January 25, 1985, there were no by BF's own president, and its total liabilities were P4.478 billions

by the Receiver and otherwise to assist the Receiver in carrying collections from loans granted to firms related to each other and (p. 58, Cosico Report). While Aguirre's Report showed BF ahead

out the functions vested in the Receiver by law or Monetary Board to BF classified as "doubtful" or "loss," there were no substantial with a net worth of P412.961 millions, said report did not make
resolutions; improvements on other loans classified "doubtful"or "loss;" there any provision for estimated valuation reserves amounting to

4. To direct and authorize Management to do all other things and was no further increase in the value of assets owned/acquired P600.5 millions, (50% of face value of doubtful loans and 100% of

carry out all other measures necessary or proper to implement this supported by new appraisals and there was no infusion of face value of loss accounts) which BF had granted to its

Resolution and to safeguard the interests of depositors/credition additional capital such that the estimated realizable assets of BF related/linked companies. The estimated valuation reserves of

and the general public; and remained at P3,909.23, (millions) while the total liabilities P600.5 millions plus BF's admitted liabilities of P4.478 billions, put
5. In consequence of the foregoing, to terminate the amounted to P5,159.44 (millions). Thus, BF together, would wipe out BFs realizable assets of P4.891 billions

conservatorship over Banco Filipino Savings and Mortgage Bank. remains insolvent with estimated deficiency to creditors of and confirm its insolvent condition to the tune of P187.538

(pp. 126-127, Rollo I.) Pl,250.21 (millions). millions.

On March 19,1985, the receiver, Carlota Valenzuela, and the Moreover, there were no efforts on the part of the stockholders of BF's and Judge (now CA Justice) Consuelo Y. Santiago's argument

deputy receivers, Arnulfo B. Aurellano and Ramon V. Tiaoqui, the bank to improve its financial condition and the possibility of that valuation reserves should not be considered because the

submitted a report to the Monetary Board as required in Section rehabilitation has become more remote. (P. 8, Receivers' Report.) matter was not discussed by Tiaoqui with BF officials is not well

29, 2nd paragraph of R.A. 265 which provides that within sixty In the light of the results of the examination of BF by the Teodoro taken for:

(60) days from date of the receivership, the Monetary Board shall and Tiaoqui teams, I do not find that the CB's Resolution No. 75 (1) The records of the defaulting debtors were in the possession

determine whether the bank may be reorganized and permitted to ordering BF to cease banking operations and placing it under of BF.

resume business, or be liquidated. The receivers recommended receivership was "plainly arbitrary and made in bad faith." The (2) The "adversely classified" loans were in fact included in the List

that BF be placed under litigation. For, among other things, they receivership was justified because BF was insolvent and its of Exceptions and Findings (of irregularities and violations of laws

found that: continuance in business would cause loss to its depositors and and CB rules and regulations) prepared by the SES, a copy of

1. BF had been suffering a capital deficiency of P336.5 million as creditors. Insolvency, as defined in Rep. Act 265, means 'the which was furnished BF on December 1 7, 1984;

of July 31, 1984 (pp. 2 and 4, Receivers' Report). inability of a banking institution to pay its liabilities as they fall due (3) A conference on the matter washeld on January 2l, 1985 with

2. The bank's weekly reserve deficiencies averaged P146.67 in the usual and ordinary course of business. Since June 1984, BF senior officials of BF headed by EVP F. Dizon,. (pp. 14-15, Cosico

million from November 25, 1983 up to March 16, 1984, rising to a had been unable to meet the heavy cash withdrawals of its Report.) BF did not formally protest against the CBs estimate of

peak of P338.09 million until July 27, 1984. Its reserve deficiencies depositors and pay its liabilities to its creditors, the biggest of them valuation reserves. The CB could not wait forever for BF to respond
against deposits and deposit substitutes began on the week ending being the Central Bank, hence, the Monetary Board correctly found for the CB had to act with reasonable promptness to protect the

June 15, 1984 up to December 7, 1984, with average daily reserve its condition to be one of insolvency. depositors and creditors of BF because the bank continued to

deficiencies of P2.98 million. All the discussion in the Santiago Report concerning the bank's operate.
3. Estimated losses or "unhooked valuation reserves" for loans to assets and liabilities as determinants of BF's solvency or insolvency (4) Subsequent events proved correct the SES classification of the

entities with relationships to certain stockholder/directors and is irrelevant and inconsequential, for under Section 29 of Rep. Act. loan accounts as "doubtful" or "loss' because as of January 25,

officers of the bank amounted to P600.5 million. Combined with 265, a bank's insolvency is not determined by its excess of 1985 none of the loans, except three, had been paid either partially

other adjustments in the amount of P73.2 million, they will entirely liabilities over assets, but by its "inability to pay its liabilities as or in full, even if they had already matured (p. 53, Cosico Report).

wipe out the bank's entire capital account and leave a capital they fall due in the ordinary course of business" and it was The recommended provision for valuation reserves of P600.5

deficiency of P336.5 million. The bank was already insolvent on abundantly shown that BF was unable to pay its liabilities to millions for "doubtful" and "loss" accounts was a proper factor to

July 31, 1984. The capital deficiency increased to P908.4 million depositors for over a six-month-period before it was placed under consider in the capital adjustments of BF and was in accordance

as of January 26, 1985 on account of unhooked penalties for receivership. with accounting rules. For, if the uncollectible loan accounts would
be entered in the assets column as "receivables," without a withdrawal of their money, BF channeled and diverted a

corresponding entry in the liabilities column for estimated losses substantial portion of the finds into the coffers of its related/linked

or valuation reserves arising from their uncollectability, the result companies. Up to this time, its officers, directors and major GRIÑO-AQUINO, J., dissenting:

would be a gravely distorted picture of the financial condition of stockholders have neither repaid the Central Bank's P3.6 billion Although these nine (9) Banco Filipino (BF) cases have been

BF. financial assistance, nor put up adequate collaterals therefor, nor consolidated under one ponencia, all of them except one, raise

BF's strange argument that it was not insolvent for otherwise the submitted a credible plan for the rehabilitation of the bank. What issues unrelated to the receivership and liquidation of said bank.

CB would not have given it financial assistance does not merit authority has this Court to require the Central Bank to reopen and In fact, two of these cases (G.R. No. 68878 and 81303) have

serious consideration for precisely BF needed financial assistance rehabilitate the bank, and in effect risk more of the Government's already been decided by this Court and are only awaiting the
because it was insolvent. money in the moribund bank? I respectfully submit that decision resolution of the motions for reconsideration filed therein. Only

Tiaoqui's admission that the examination of BF had "not yet been is for the Central Bank, not for this Court, to make. G.R. No. 70054 "Banco Filipino Savings and Mortgage Bank (BF)

officially terminated" when he submitted his report on January 23, WHEREFORE, I vote to dismiss the petition for certiorari and vs. the Monetary Board (MB), Central Bank of the Philippines (CB),

1985 did not make the action of the Monetary Board of closing the mandamus in G.R. No. 70054 for lack of merit. et al.," is an original action for mandamus and certiorari filed in

bank and appointing receivers for it, 'plainly arbitrary and in bad Romero, J., concurs. this Court by former officials of BF to annul the Monetary Board
faith." For what had been examined by the SES was more than Resolution No. 75 dated January 25, 1985 (ordering the closure of

enough to warrant a finding that the bank was "insolvent and could Banco Filipino [BF] and appointing Carlota Valenzuela as receiver

not continue in business without probable loss to its depositors or # Separate Opinions of the bank) on the ground that the resolution was issued "without
creditors," and what had not been examined was negligible and MELENCIO-HERRERA, J., dissenting: affording BF a hearing on the reports" on which the Monetary

would not have materially altered the result. In any event, the I join Mme. Justice Carolina G. Aquino in her dissent and vote to Board based its decision to close the bank, hence, without

official termination of the examination with the submission by the deny the prayer, in G.R. No. 70054, to annul Monetary Board "administrative due process.", The prayer of the petition reads:

Chief Examiner of his report to the Monetary Board in March 1985, Resolution No. 75 placing Banco Filipino (BF) under receivership. WHEREFORE, petitioner respectfully prays that a writ of

did not contradict, but in fact confirmed, the findings in the Tiaoqui Even assuming that the BF was not, as alleged, in a literal state of mandamus be issued commanding respondents immediately to

Report. insolvency at the time of the passage of said Resolution, there was furnish it copies of the reports of examination of BF employed by

The responsibility of administering the Philippine monetary and a finding in the Teodoro report that, based on that Bank's respondent Monetary Board to support its Resolution of January

banking systems is vested by law in the Central Bank whose duty illiquidity, to have allowed it to continue in operation would have 25, 1985 and thereafter to afford it a hearing prior to any

it is to use the powers granted to it under the law to achieve the meant probable loss to depositors and creditors. That is also a resolution that may be issued under Section 29 of R.A. 265,

objective, among others, of maintaining monetary stability in the ground for placing the bank under receivership, as a first step, meanwhile annulling said Resolution of January 25, 1985 by writ

country (Sec. 2, Rep. Act 265). I do not think it would be proper pursuant to Section 29 of the Central Bank Act (Rep. Act No. 265, of certiorari as made without or in excess ofjurisdiction or with

and advisable for this Court to interfere with the CB's exercise of as amended). The closure of BF, therefore, can not be said to have grave abuse of discretion.

its prerogative and duty to discipline banks which have persistently been arbitrary or made in bad faith. There was sufficient So as to expedite proceedings, petitioner prays that the

engaged in illegal, unsafe, unsound and fraudulent banking justification, considering its inability to meet the heavy assessment of the damages respondents should pay it be deferred
practices causing tremendous losses and unimaginable anxiety withdrawals by its depositors and to pay its liabilities as they fell and referred to commissioners.

and prejudice to depositors and creditors and generating due, to forbid the bank from further engaging in banking. Petitioner prays for such other remedy as the Court may deem just

widespread distrust and loss of confidence in the banking system. The matter of reopening, reorganization or rehabilitation of BF is and equitable in the premises.
The damage to the banking system and to the depositing public is not within the competence of this Court to ordain but is better Quezon City for Manila, February 28, 1985. (p. 8, Rollo I-)

bigger when the bank, like Banco Filipino, is big. With 89 branches addressed to the Monetary Board and the Central Bank considering and the prayer of the Supplement to Petition reads:

nationwide, 46 of them in Metro Manila alone, pumping the hard- the latter's enormous infusion of capital into BF to the tune of WHEREFORE, in addition to its prayer for mandamus

earned savings of 3 million depositors into the bank, BF had no approximately P3.5 Billion in total accommodations, after a and certiorari contained in its original petition, petitioner

reason to go bankrupt if it were properly managed. The Central thorough assessment of whether or not BF is, indeed, possessed, respectfully prays that Sections 28-A and 29 of the Central Bank

Bank had to infuse almost P3.5 billions into the bank in its as it stoutly contends, of sufficient assets and capabilities with charter (R.A. 265) including its amendatory Presidential Decrees

endeavor to save it. But even this financial assistance was which to repay such huge indebtedness, and can operate without Nos. 72, 1771, 1827 and 1937 be annulled as unconstitutional.

misused, for instead of satisfying the depositors' demands for the loss to its many depositors and creditors. Quezon City for Manila, March 4, 1985. (p. 11-G, Rollo I.)
The other eight (8) cases merely involve transactions of BF with (Metropolis) from the same Court of Appeals' decision subject of filed in this Court by the old management of BF, through their

third persons and certain "related" corporations which had G.R. No. 78894, which also dismissed Metropolis' complaint in counsel, N.J. Quisumbing & Associates, using the name of the bank

defaulted on their loans and sought to prohibit the extrajudicial intervention on the ground that a stockholder (Metropolis) may not and praying for the annulment of MB Resolution No. 75 which

foreclosure of the mortgages on their properties by the receiver of bring suit in the name of BF while the latter is under receivership, ordered the closure of BF and placed it under receivership. It is a

BF. These eight (8) cases are: without the authority of the receiver; "forum-shopping" case because it was filed here on February 28,

1. G.R. No. 68878 "BF vs. Intermediate Appellate Court and 6. G.R. No. 81303, "Pilar Development Corporation vs. Court of 1985 three weeks after they had filed on February 2, 1985 Civil

Celestina Pahimutang" involves the repossession by BF of a house Appeals, et al." is an appeal from the decision dated October 22, Case No. 9675 "Banco Filipino vs. Monetary Board, et al." in the

and lot which the buyer (Pahimutang) claimed to have completely 1987 of the Court of Appeals in CA-G.R. SP No. 12368, "Pilar Regional Trial Court of Makati, Br. 143 (presided over by Judge
paid for on the installment plan. The appellate court's judgment Development Corporation, et al. vs. Honorable Manuel Cosico, et Zoilo Aguinaldo) for the same purpose of securing a declaration of

for the buyer was reversed by this Court. The buyer's motion for al.," dismissing the petition for certiorari against Judge Manuel the nullity of MB Resolution No. 75 dated January 25, 1985.

reconsideration is awaiting resolution by this Court; Cosico, Br. 136, RTC, Makati, who dismissed the complaint filed by On August 25, 1985, this Court ordered the transfer and

2. G.R. Nos. 77255-58, "Top Management Programs Corporation Pilar Development Corporation against BF, for specific consolidation of Civil Case No. 9676 (to annul the receivership)

and Pilar Development Corporation vs. Court of appeals, et performance of certain developer contracts. An answer filed by from Br. 143 to Br. 136 (Judge Manuel Cosico) of the Makati
al." (CA-G.R. SP No. 07892) and "Pilar Development Corporation Norberto Quisumbing and Associates, as BF's supposed counsel, Regional Trial Court where Civil Case No. 8108 (to annul the

vs. Executive Judge, RTC, Cavite" (CA-G.R. SP Nos. 0896264) is a virtually confessed judgment in favor of Pilar Development. On conservatorship) and Civil Case No. 10183 (to annul the

consolidated petition for review of the Court of Appeals' joint motion of the receiver, the answer was expunged and the liquidation) of BF were and are still pending. All these three (3)
decision dismissing the petitions for prohibition in which the complaint was dismissed. On a petition for certiorari in this Court, cases were archived on June 30, 1988 by Judge Cosico pending

petitioners seek to prevent the receiver/liquidator of BF from we held that: "As liquidator of BF by virtue of a valid appointment the resolution of G.R. No. 70054 by this Court.

extrajudicially foreclosing the P4.8 million mortgage on Top from the Central Bank, private respondent Carlota Valenzuela has Because of my previous participation, as a former member of the

Management's properties and the P18-67 million mortgage on Pilar the authority to direct the operation of the bank in substitution of Court of Appeals, in the disposition of AC-G.R. No. 02617 (now

Development properties. The Court of Appeals dismissed the the former management, which authority includes the retainer of G.R. No. 68878) and AC-G.R. SP No. 07503 (now G.R. Nos. 78767

petitions on October 30, 1986 on the ground that "the functions of counsel to represent it in bringing or resisting suits in connection and 78894), I am taking no part in G.R. Nos. 68878, 78767 and

the liquidator, as receiver under Section 29 (R.A. 265), include with such liquidation and, in the case at bar, to take the proper 78894. It may be mentioned in this connection that neither in AC-

taking charge of the insolvent's assets and administering the same steps to prevent collusion, to the prejudice of the legitimate G.R. SP No. 02617, nor in AC-G.R. SP No. 07503, did the Court of

for the benefit of its creditors and of bringing suits and foreclosing creditors, between BF and the petitioners herein which appear to Appeals rule on the constitutionality of Sections 28-A and 29 of

mortgages in the name of the bank;" be owned and controlled by the same interest controlling BF" (p. Republic Act 265 (Central Bank Act), as amended, and the validity

3. G.R. No. 78766, "El Grande Corporation vs. Court of Appeals, 49, Rollo). The petitioners' motion for reconsideration of that of MB Resolution No. 75, for those issues were not raised in the

et al.," is an appeal from the Court of Appeals' decision in CA-G.R. decision is pending resolution. Court of Appeals.

SP No. 08809 dismissing El Grande's petition for prohibition to 7. G.R. No. 81304, "BF Homes Development Corporation vs. Court I concur with the ponencia insofar as it denies the motion for

prevent the foreclosure of BF's P8 million mortgage on El Grande's of Appeals, et al." is an appeal from the decision dated November reconsideration in G.R. No. 81303, and dismisses the petitions for
properties; 4, 1987 of the Court of Appeals in CA-G.R. CV No. 08565 affirming review in G.R. Nos. 77255-58, 78766, 81304, and 90473.

4. G.R. No. 78894, "Banco Filipino Savings and Mortgage Bank vs. the trial court's order dismissing BF Homes' action to compel the I respectfully dissent from the majority opinion in G.R. No. 70054

Court of Appeals, et al." is an appeal of BFs old management Central Bank to restore the financing facilities of BF, because the annulling and setting aside MB Resolution No. 75 and ordering the
(using the name of BF) from the decision of the Court of Appeals plaintiff (BF Homes) has no cause of action against the CB. respondents, Central Bank of the Philippines and the Monetary

in CA-G.R. SP No. 07503 entitled, "Central Bank, et al. vs. Judge 8. G.R. No. 90473, "El Grande Development Corporation vs. Court Board —

Zoilo Aguinaldo, et al" dismissing the complaint of "BF" to annul of Appeals, et al.," is a petition to review the decision dated June to reorganize petitioner Banco Filipino Savings and Mortgage Bank,

the receivership, for no suit may be brought or defended in the 6, 1989 in CA-G.R. SP No. 08676 dismissing El Grande's petition and allow the latter to resume business in the Philippines under

name of the bank except by its receiver; for prohibition to stop foreclosure proceedings against it by the the comptrollership of both the Central Bank and the Monetary

5. G.R. No. 87867, "Metropolis Development Corporation vs. Court receiver of BF. Board and under such conditions as may be prescribed by the

of Appeals" (formerly AC-G.R. No. 07503, "Central Bank, et al. vs. As previously stated, G.R. No. 70054 "BF vs. Monetary Board, et latter until such time that petitioner bank can continue in business

Honorable Zoilo Aguinaldo, et al.') is an appeal of the intervenor al.," is an original special civil action for certiorari and mandamus with safety to its creditors, depositors and the general public.
for I believe that this Court has neither the authority nor the plan. The Central Bank shall, by the Solicitor General, file a petition Insolvency, under this Act, shall be understood to mean the

competence to determine whether or not, and under what in the Court of First Instance, reciting the proceedings which have inability of a banking institution to pay its liabilities as they fall due

conditions, BF should be reorganized and reopened. That decision been taken and praying the assistance of the court in the in the usual and ordinary course of business, provided, however,

should be made by the Central Bank and the Monetary Board, not liquidation of the banking institutions. The court shall have that this shall not include the inability to pay of an otherwise non-

by this Court. jurisdiction in the same proceedings to adjudicate disputed claims insolvent bank caused by extra-ordinary demands induced by

All that we may determine in this case is whether the actions of against the bank and enforce individual liabilities of the financial panic commonly evidenced by a run on the banks in the

the Central Bank and the Monetary Board in closing BF and placing stockholders and do all that is necessary to preserve the assets of banking community.

it under receivership were "plainly arbitrary and made in bad faith. the banking institution and to implement the liquidation plan The determinative factor in the closure, receivership, and
Section 29 of Republic Act No. 265 provides: approved by the Monetary Board. The Monetary Board shall liquidation of a bank is the finding, upon examination by the SES

Section 29. Proceedings upon insolvency. — Whenever, upon designate an official of the Central Bank as liquidator who shall of the Central Bank, that its condition "is one of insolvency, or that

examination by the head of the appropriate supervising and take over the functions of the receiver previously appointed by the its continuance in business would involve probable loss to its

examining department or his examiners or agents into the Monetary Board under this section. The liquidator shall, with all depositors and creditors." (Sec. 29, R.A. 265.) It should be pointed

condition of any banking institution, it shall be disclosed that the convenient speed, convert the assets of the banking institution to out that insolvency is not the only statutory ground for the closure
condition of the same is one of insolvency, or that its continuance money or sell, assign or otherwise dispose of the same to creditors of a bank. The other ground is when "its continuance in business

in business would involve probable loss to its depositors or and other parties for the purpose of paying the debts of such bank would involve probable loss to its depositors and creditors.

creditors, it shall be the duty of the department head concerned and he may, in the name of the banking institution, institute such Was BF insolvent i.e., unable to pay its liabilities as they fell due
forthwith, in writing, to inform the Monetary Board of the facts, actions as may be necessary in the appropriate court to collect and in the usual and ordinary course of business, on and for some time

and the Board may, upon finding the statements of the department recover accounts and assets of the banking institution. before January 25, 1985 when the Monetary Board issued

head to be true, forbid the institution to do business in the The provisions of any law to the contrary notwithstanding, the Resolution No. 75 closing the bank and placing it under

Philippines and shall designate an official of the Central Bank as actions of the Monetary Board under this section and the second receivership? Would its continued operation involve probable loss

receiver to immediately take charge of its assets and liabilities, as paragraph of Section 34 of this Act shall be final and executory, to its depositors and creditors?

expeditiously as possible collect and gather all the assets and and can be set aside by the court only if there is convincing proof The answer to both questions is yes. Both the conservator Gilberts

administer the same for the benefit of its creditors, exercising all that theaction is plainly arbitrary and made in bad faith. No Teodoro and the head of the SES (Supervision and Examination

the powers necessary for these purposes including, but not limited restraining order or injunction shall be issued by the court Sector) Ramon V. Tiaoqui opined that BF's continuance in business

to, bringing suits and foreclosing mortgages in the name of the enjoining the Central Bank from implementing its actions under would cause probable loss to depositors and creditors. Tiaoqui

banking institution. this section and the second paragraph of Section 34 of this Act, further categorically found that BF was insolvent. Why was this so?

The Monetary Board shall thereupon determine within sixty unless there is convincing proof that the action of the Monetary The Teodoro and Tiaoqui reports as well as the report of the

days whether the institution may be reorganized or otherwise Board is plainly arbitrary and made in bad faith and the petitioner receivers, Carlota Valenzuela, Arnulfo B. Aurellano and Ramon V.

placed in such a condition so that it may be permitted to resume or plaintiff files with the clerk or judge of the court in which the Tiaoqui, showed that since the end of November 1983 BF had

business with safety to its depositors and creditors and the action is pending a bond executed in favor of the Central Bank, in already been incurring "chronic reserve deficiencies' and
general public and shall prescribe the conditions under which such an amount to be fixed by the court. The restraining order or experiencing severe liquidity problems. So much so, that it had

resumption of business shall take place as well as the time for injunction shall be refused or, if granted, shall be dissolved upon become "a substantial borrower in the call loans market" and in

fulfillment of such conditions. In such case, the expenses and fees filing by the Central Bank of a bond, which shall be in the form of June 1984 it obtained a P30 million emergency loan from the
in the collection and administration of the assets of the institution cash or Central Bank cashier's check, in an amount twice the Central Bank. (p. 2, Receiver's Report.) Additional emergencyt

shall be determined by the Board and shall be paid to the Central amount of the bond of the petitioner or plaintiff, conditioned that loans (a total of P119.7 millions) were extended by the Central

Bank out of the assets of such banking institution. it will paythe which the petitioner or plaintiff may suffer by the Bank to BF that month (MB Res. No. 839 dated June 29,1984). On

If the Monetary Board shall determine and confirm within the said refusalor the dissolution of the injunction. The provisions of Rule July 12, 1984, BFs chairman, Anthony Aguirre, offered to "turn

period that the banking institution is insolvent or cannot resume 58 of the new Rules of Court insofar as they are applicable and not over the administration of the affairs of the bank" to the Central

business with safety to its depositors, creditors and the general inconsistent with the provisions of this section shall govern the Bank (Aguirre's letter to Governor Jose Fernandez, Annex 7 of

public, it shall, if the public interest requires, order its liquidation, issuance and dissolution of the restraining order or injunction Manifestation dated May 3,1991). On July 23,1984, unable to meet

indicate the manner of its liquidation and approve a liquidation contemplated in this section. heavy deposit withdrawals, BF's management motu
proprio, without obtaining the conformity of the Central Bank,
closed the bank and declared a bank holiday. On July 27, 1984,
the CB, responding to BFs pleas for additional financial assistance,
granted BF a P3 billion credit line (MB Res. No. 934 of July 27,
1984) to enable it to reopen and resume business on August 1,
1984. P2.3601 billions of the credit line were availed of by the end
of 1984 exclusive of an overdraft of P932.4 millions (p. 2, Tiaoqui
Report). Total accommodations granted to BF amounted to
P3.4122 billions (p. 19, Cosico Report).
Presumably to assure that the financial assistance would be
properly used, the MB appointed Basilio Estanislao as conservator
of the bank. A conservatorship team of 78 examiners and
accountants was assigned at the bank to keep track of its activities
and ascertain its financial condition (p. 8, Tiaoqui Report).
Estanislao resigned after two weeks for health reasons. He was
succeeded by Gilberto Teodoro as conservator in August, 1984 up
to January 8, 1985.
Besides the conservatorship team, Teodoro hired financial
consultants Messrs. Tirso G. Santillan, Jr. and Plorido P. Casuela
to make an analysis of BF's financial condition. Teodoro also
engaged the accounting firm of Sycip, Gorres, Velayo and
Company to make an asset evaluation. The Philippine Appraisal
Company (PAC) appraised BFs real estate properties, acquired
assets, and collaterals held. On January 9, 1985, Teodoro
submitted his Report. Three weeks later, on January 23, 1985,
Tiaoqui also submitted his Report. Both reports showedthat, in
violation of Section 37 of the General Banking Act (R.A.337): 2
1. BF had been continually deficient in
liquidity reserves (Teodoro Report). The
bank had been experiencing a severe drop
in liquidity levels. The ratio of liquid assets
to deposits and borrowings plunged from
about 20% at end-1983, to about 8.6% by
end-May 1984, much below the statutory
requirements of 24% for demand
deposits/deposit substitutes and 14% for
savings and time deposits. (p. 2, Tiaoqui
Report.)
2. Deficiencies in average daily legal
reserves rose from P63.0 million during the
and by another P105.l million in the next two months. (pp. 2-3,
week of November 21-25, 1983 to a high
Tiaoqui Report.)
of P435.9 million during the week of June
11-15, 1984 (pp. 2-3, Tiaoqui Report).
9. The loan portfolio stood at P3.679 billion at the end of July 1984,
Accumulated penalties on reserve
56.2% of it channeled to companies whose stockholders, directors
deficiencies amounted to P37.4 million by
and officers were related to the officers, directors, and some
July 31, and rose to P48 million by the end
stockholders of BF. (p. 8, Tiaoqui Report.) Here again BF violated
of 1984. (Tiaoqui Report.)
the General Banking Act (R.A. 337). 4
3. Deposit levels, which were at P3,845
million at end-May l984 (its last "normal"
10. Some of the loans were used to acquire preferred stocks of BF.
month), dropped to P935 million at the end
Between September 17, 1983 and February 10, 1984, P49.9
of November 1984 or a loss of P2,910
million of preferred non-convertible stocks were issued. About
million. This represented an average
85% or P42.4 million was paid out of the proceeds of loans to
monthly loss of P485 million vs. an average
stockholders/ borrowers with relationship to the bank (Annex D).
monthly gain of P26 million during the first
Around P18.8 million were issued in the name of an entity other
5 months of 1984. (pp. 2-3, Tiaoqui
than the purchaser of the stocks. (Tiaoqui Report.)
Report.)
11. Loans amounting to some P69.3 million were granted simply
4. Deposits had declined at the rate of P20
to pay-off old loans including accrued interest, as an
million during the month of December
accommodation for the direct maturing loans of some firms and as
1984, but expenses of about P17 million
a way of paying-off loans of other borrower firms which have their
per month were required to maintain the
own credit lines with the bank. These helped to make otherwise
bank's operation. (p. 6, Teodoro Report.)
delinquent loans appear "current" and deceptively "improved" the
5. Based on the projected outlook, the
quality of the loan portfolio. (Tiaoqui Report.)
Bank's average yield on assets of 16.3%
12. Examination of the collaterals for the loan accounts of 63 major
p.a., was insufficient to meet the average
borrowers and 32 other selected borrowers as of July 31, 1984,
cost of funds of 19.5% p.a. and operating
showed that:
expenses of 4.8% p.a. (p. 5 Teodoro
(a) 2,658 TCT's which BF evaluated to be worth P1,487 million
Report.)
were appraised by PAC to be worth only P1,196 million, hence,
6. An imprudently large proportion of
deficient by P291 million.
assets were locked into long-term
(b) Other properties (collaterals) supposedly worth P711 million
applications. (Teodoro Report.)
could not be evaluated by PAC because the details submitted by
7. BF overextended itself in lending to the
the bank were insufficient;
real estate industry, committing as much
(c) While P674 million in loans were supposedly guaranteed by the
as 52% of its peso deposits to its affiliates
Home Financing Corporation (HFIC), the latter confirmed only
or "related accounts" to which it continued
P427 million. P247 million in loans were not guaranteed by HFC.
lending even when it was already suffering
(Teodoro Report.)
from liquidity stresses. (Teodoro Report.)
(d) Per SGV's report, loans totalling P1.882 million including
This was done in violation of Section 38 of
the General Banking Act (R.A. 337). 3 accrued interest, were secured by collateral worth only Pl.54
billion. Hence, BFs unsecured exposure amounted to P586.2
8. During the period of marked decline in liquidity levels the loan million. BF Homes, Inc., a related company which has filed with
portfolio grew by P417.3 million in the first five months of 1984 —
the SEC a petition for suspension of payments, owes P502 million "borrowing" huge chunks of the money of the depositors. His 1. Cesar E.A. Virata, Prime Minister & Concurrently Minister of

to BF. Conclusion and Recommendations were: Finance

13. BF had been suffering heavy losses. — 2. Roberto V. Ongpin, Minister of Trade & Industry & Chairman of

a) For the eleven (11) months ended November 30, 1984, the Board of Investment

estimated net loss was P372.6 Million; The Conservator, in his report to the Monetary Board dated 3. Vicente B. Valdepeñas, Jr., Minister of Economic Planning &

b) For the twelve (12) months from November 1984, the projected January 8, 1985, has stated that the continuance of the bank in Director General of NEDA

net loss would be P390.7 Million and would continue unabated; (p. business would involve probable loss to its depositors and 4. Cesar A. Buenaventura, President of Filipinas Shell Petroleum

2, Teodoro Report) creditors. It has recommended that a more effective action be Corp. (p. 37, Annual Report 1985)
c) Around 71.7% of the total accommodations of P2.0677 billions taken to protect depositors and creditors. issued Resolution No. 75 closing BF and placing it under

to the related/linked entities were adversely classified. Close to The examination findings as of July 31, 1984 as shown earlier, receivership. The MB Resolution reads as follows:

33.7% or P697.1 millions were clean loans or against PNs indicate one of insolvency and illiquidity and further confirms the

(promissory notes) of these entities. Of the latter, 52.6% were above conclusion of the Conservator.

classified as loss." (P. 5, Tiaoqui Report.) All the foregoing provides sufficient justification for forbidding the After considering the report dated January 8, 1985 of the
d) The bank's financial condition as of date of examination, after bank from further engaging in banking. Conservator for Banco Filipino Savings and Mortgage Bank that the

setting up the additional valuation reserves of P612.2 millions and Foregoing considered, the following are recommended: continuance in business of the bank would involve probable loss to

accumulated net loss of P48.2 millions, indicates one of 1. Forbid the Banco Filipino Savings & Mortgage Bank to do its depositors and creditors, and after discussing and finding to be
insolvency. Total liabilities of P5,282.1 million exceeds total assets business in the Philippines effective the beginning of office on true the statements of the Special Assistant to the Governor and

of P4,947.2 million by 6.8%. Total capital account of P334.9 January, 1985, pursuant to Sec. 29 of R.A. No. 265, as amended; Head, Supervision and Examination Sector (SES) Department II,

million) is deficient by P322.7 million against the minimum capital 2. Designate the Head of the Conservator Team at the bank, as as recited in his memorandum dated January 23, 1985. that the

required of P657.6 million (Annex F). Capital to risk assets ratio is Receiver of Banco Filipino Savings & Mortgage Bank, to Banco Filipino Savings and Mortgage Bank is insolvent and that its

negative 10.38%. immediately take charge of the assets and liabilities, as continuance in business would involve probable loss to its

e) Total loans and investment portfolio amounted to P3,914.3 expeditiously as possible collect and gather all the assets and depositors and creditors, and in pursuance of Section 29 of R.A.

millions (gross), of which P194.0 millions or 5.0% were past due administer the same for the benefit of all the creditors, and No. 265, as amended, the Board decided:

and P1,657.1 millions or 42.3% were adversely classified exercise all the powers necessary for these purposes including but 1. To forbid Banco Filipino Savings and Mortgage Bank and all its

(Substandard — P1,011.4 millions; Doubtful — P274.6 millions and not limited to bringing suits and foreclosing mortgages in the name branches to do business in the Philippines;

Loss — P371.1 millions). Accounts adversely classified included of the bank. 2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor, as

unmatured loan of Pl,482.0 million to entities related with each 3. The Board of directors and the principal officers from Senior Vice Receiver who is hereby directly vested with jurisdiction and

other and to the bank, several of which showed distressed President, as listed in the attached Annex "A" be included in the authority to immediately take charge of the bank's assets and

conditions. (p. 7, Tiaoqui Report.) watchlist of the Supervision and Examination Sector until such liabilities, and as expeditiously as possible collect and gather all

Teodoro's conclusion was that "the continuance of the bank in time that they shall have cleared themselves. the assets and administer the same for the benefit of its creditors,
business would involve probable loss to its depositors and 4. Refer to the Central Banles Legal Department and Office of exercising all the- powers necessary for these purposes including,

creditors." He recommended "that the Monetary Board take a more Special Investigation the report on the findings on Banco Filipino but not limited to, bringing suits and foreclosing mortgages in the

effective and responsible action to protect the depositors and for investigation and possible prosecution of directors, officers and name of the bank;
creditors ... in the light of the bank's worsening condition." (p. 5, employees for activities which led to its insolvent position." (pp. 9- 3. To designate Mr. Arnulfo B. Aurellano, Special Assistant to the

Teodoro Report.) 10, Tiaoqui Report.) Governor, and Mr. Ramon V. Tiaoqui, Special Assistant to the

On January 23, 1985, Tiaoqui submitted his report to the Monetary On January 25, 1985 or two days after the submission of Tiaoqui's Governor and Head, Supervision and Examination Sector

Board, Like Teodoro, Tiaoqui believed that the principal cause of Report, and three weeks after it received Teodoro's Report, the Department II. as Deputy Receivers who are likewise hereby

the bank's failure was that in violation of the General Banking Law Monetary Board, then composed of: directly vested with jurisdiction and authority to do all things

and CB rules and regulations, BF's major stockholders, directors Chairman: Jose B. Fernandez, Jr. necessary or proper to carry out the functions entrusted to them

and officers, through their "related" companies: (i.e. companies CB Governor by the Receiver and otherwise to assist the Receiver in carrying

owned or controlled by them of their relatives) had been Members:

out the functions vested in the Receiver by law or Monetary Board to BF classified as "doubtful" or "loss," there were no substantial with a net worth of P412.961 millions, said report did not make

resolutions; improvements on other loans classified "doubtful"or "loss;" there any provision for estimated valuation reserves amounting to

4. To direct and authorize Management to do all other things and was no further increase in the value of assets owned/acquired P600.5 millions, (50% of face value of doubtful loans and 100% of

carry out all other measures necessary or proper to implement this supported by new appraisals and there was no infusion of face value of loss accounts) which BF had granted to its

Resolution and to safeguard the interests of depositors/credition additional capital such that the estimated realizable assets of BF related/linked companies. The estimated valuation reserves of

and the general public; and remained at P3,909.23, (millions) while the total liabilities P600.5 millions plus BF's admitted liabilities of P4.478 billions, put

5. In consequence of the foregoing, to terminate the amounted to P5,159.44 (millions). Thus, BF together, would wipe out BFs realizable assets of P4.891 billions

conservatorship over Banco Filipino Savings and Mortgage Bank. remains insolvent with estimated deficiency to creditors of and confirm its insolvent condition to the tune of P187.538
(pp. 126-127, Rollo I.) Pl,250.21 (millions). millions.

On March 19,1985, the receiver, Carlota Valenzuela, and the Moreover, there were no efforts on the part of the stockholders of BF's and Judge (now CA Justice) Consuelo Y. Santiago's argument

deputy receivers, Arnulfo B. Aurellano and Ramon V. Tiaoqui, the bank to improve its financial condition and the possibility of that valuation reserves should not be considered because the

submitted a report to the Monetary Board as required in Section rehabilitation has become more remote. (P. 8, Receivers' Report.) matter was not discussed by Tiaoqui with BF officials is not well

29, 2nd paragraph of R.A. 265 which provides that within sixty In the light of the results of the examination of BF by the Teodoro taken for:
(60) days from date of the receivership, the Monetary Board shall and Tiaoqui teams, I do not find that the CB's Resolution No. 75 (1) The records of the defaulting debtors were in the possession

determine whether the bank may be reorganized and permitted to ordering BF to cease banking operations and placing it under of BF.

resume business, or be liquidated. The receivers recommended receivership was "plainly arbitrary and made in bad faith." The (2) The "adversely classified" loans were in fact included in the List
that BF be placed under litigation. For, among other things, they receivership was justified because BF was insolvent and its of Exceptions and Findings (of irregularities and violations of laws

found that: continuance in business would cause loss to its depositors and and CB rules and regulations) prepared by the SES, a copy of

1. BF had been suffering a capital deficiency of P336.5 million as creditors. Insolvency, as defined in Rep. Act 265, means 'the which was furnished BF on December 1 7, 1984;

of July 31, 1984 (pp. 2 and 4, Receivers' Report). inability of a banking institution to pay its liabilities as they fall due (3) A conference on the matter washeld on January 2l, 1985 with

2. The bank's weekly reserve deficiencies averaged P146.67 in the usual and ordinary course of business. Since June 1984, BF senior officials of BF headed by EVP F. Dizon,. (pp. 14-15, Cosico

million from November 25, 1983 up to March 16, 1984, rising to a had been unable to meet the heavy cash withdrawals of its Report.) BF did not formally protest against the CBs estimate of

peak of P338.09 million until July 27, 1984. Its reserve deficiencies depositors and pay its liabilities to its creditors, the biggest of them valuation reserves. The CB could not wait forever for BF to respond

against deposits and deposit substitutes began on the week ending being the Central Bank, hence, the Monetary Board correctly found for the CB had to act with reasonable promptness to protect the

June 15, 1984 up to December 7, 1984, with average daily reserve its condition to be one of insolvency. depositors and creditors of BF because the bank continued to

deficiencies of P2.98 million. All the discussion in the Santiago Report concerning the bank's operate.

3. Estimated losses or "unhooked valuation reserves" for loans to assets and liabilities as determinants of BF's solvency or insolvency (4) Subsequent events proved correct the SES classification of the

entities with relationships to certain stockholder/directors and is irrelevant and inconsequential, for under Section 29 of Rep. Act. loan accounts as "doubtful" or "loss' because as of January 25,

officers of the bank amounted to P600.5 million. Combined with 265, a bank's insolvency is not determined by its excess of 1985 none of the loans, except three, had been paid either partially

other adjustments in the amount of P73.2 million, they will entirely liabilities over assets, but by its "inability to pay its liabilities as or in full, even if they had already matured (p. 53, Cosico Report).
wipe out the bank's entire capital account and leave a capital they fall due in the ordinary course of business" and it was The recommended provision for valuation reserves of P600.5

deficiency of P336.5 million. The bank was already insolvent on abundantly shown that BF was unable to pay its liabilities to millions for "doubtful" and "loss" accounts was a proper factor to

July 31, 1984. The capital deficiency increased to P908.4 million depositors for over a six-month-period before it was placed under consider in the capital adjustments of BF and was in accordance
as of January 26, 1985 on account of unhooked penalties for receivership. with accounting rules. For, if the uncollectible loan accounts would

deficiencies in legal reserves (P49.07 million), unhooked interest Even if assets and liabilities were to be factored into a formula for be entered in the assets column as "receivables," without a

on overdrawings, emergency advance of P569.49 million from determining whether or not BF was already insolvent on or before corresponding entry in the liabilities column for estimated losses

Central Bank, and additional valuation reserves of P124.5 million. January 25, 1985, the result would be no different. The bank's or valuation reserves arising from their uncollectability, the result

(pp. 3-4, Receivers' Report.) assets as of the end of 1984 amounted to P4.891 billions (not P6 would be a gravely distorted picture of the financial condition of

The Receivers further noted that — billions) according to the Report signed and submitted to the CB BF.

After BF was closed as of January 25, 1985, there were no by BF's own president, and its total liabilities were P4.478 billions BF's strange argument that it was not insolvent for otherwise the

collections from loans granted to firms related to each other and (p. 58, Cosico Report). While Aguirre's Report showed BF ahead CB would not have given it financial assistance does not merit
serious consideration for precisely BF needed financial assistance rehabilitate the bank, and in effect risk more of the Government's

because it was insolvent. money in the moribund bank? I respectfully submit that decision

Tiaoqui's admission that the examination of BF had "not yet been is for the Central Bank, not for this Court, to make.

officially terminated" when he submitted his report on January 23, WHEREFORE, I vote to dismiss the petition for certiorari and

1985 did not make the action of the Monetary Board of closing the mandamus in G.R. No. 70054 for lack of merit.

bank and appointing receivers for it, 'plainly arbitrary and in bad

faith." For what had been examined by the SES was more than

enough to warrant a finding that the bank was "insolvent and could
not continue in business without probable loss to its depositors or

creditors," and what had not been examined was negligible and

would not have materially altered the result. In any event, the

official termination of the examination with the submission by the

Chief Examiner of his report to the Monetary Board in March 1985,

did not contradict, but in fact confirmed, the findings in the Tiaoqui

Report.

The responsibility of administering the Philippine monetary and

banking systems is vested by law in the Central Bank whose duty

it is to use the powers granted to it under the law to achieve the

objective, among others, of maintaining monetary stability in the

country (Sec. 2, Rep. Act 265). I do not think it would be proper

and advisable for this Court to interfere with the CB's exercise of

its prerogative and duty to discipline banks which have persistently

engaged in illegal, unsafe, unsound and fraudulent banking

practices causing tremendous losses and unimaginable anxiety

and prejudice to depositors and creditors and generating

widespread distrust and loss of confidence in the banking system.

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

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

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

earned savings of 3 million depositors into the bank, BF had no

reason to go bankrupt if it were properly managed. The Central

Bank had to infuse almost P3.5 billions into the bank in its

endeavor to save it. But even this financial assistance was

misused, for instead of satisfying the depositors' demands for the

withdrawal of their money, BF channeled and diverted a

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

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

stockholders have neither repaid the Central Bank's P3.6 billion

financial assistance, nor put up adequate collaterals therefor, nor

submitted a credible plan for the rehabilitation of the bank. What

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