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New Central Bank Act Case Digest
1. Central Bank of the Philippines vs. Court of Appeals
220 SCRA 536(1993)
FACTS: Based on examination reports submitted by the
Supervision and Examination Sector of the Central Bank "that the
financial condition of TSBis one of insolvency and its continuance
in business would involve probable loss to its depositors and
creditors," the Monetary Board issued a RESOLUTION ordering
the closure of Triumph Savings Bank, forbidding it from doing
business in the Philippines, placing it under receivership, and
appointing Ramon V. Tiaoqui as receiver. One week later, TSB
filed a complaint against Central Bank and Ramon V. Tiaoqui
challenging in the process the constitutionality of Sec. 29 of R.A.
269, otherwise known as "The Central Bank Act," as amended,
insofar as it authorizes the Central Bank to take over a banking
institution even if it is not charged with violation of any law or
regulation, much less found guilty thereof. The RTC granted a
TRO against the CB resolution.
Central Bank filed a motion to dismiss the complaint before the
RTC forfailure to state a cause of action, i.e., it did not allege
ultimate facts showing that the action was plainly arbitrary and
made in bad faith, which are the only grounds for the annulment
of Monetary Board resolutions placing a bank under
conservatorship, and that TSB was without legal capacity to sue
except through its receiver. These were denied. The denial was
elevated to the CA, which upheld the orders of the RTC. Thus, this
petition for (Rule45)certiorari.
ISSUES
1) Is absence of prior notice and hearing constitutive of acts of
arbitrariness and bad faith, as to annul the MB resolution?2) Is it
only the receiver who has a right of action to question the
resolution of the CB, and not the stockholders of the corporation?
HELD
NO. Contrary to the notion of private respondent, Sec. 29 does
not contemplate prior notice and hearing before a bank may be
directed to stop operations and placed under receivership. When
par. 4 provides for the filing of a case within ten (10) days after
the receiver takes charge of the assets of the bank, it is
unmistakable that the assailed actions should precede the filing of
the case. Plainly, the legislature could not have intended to
authorize "no prior notice and hearing" in the closure of the bank
and at the same time allow a suit to annul it on the basis of
absence thereof. A previous hearing is NOT required. It is enough
that a subsequent judicial review be provided.
This "close now and hear later" scheme is grounded on practical
and legal considerations to prevent unwarranted dissipation of the
bank's assets and as a valid exercise of police power to protect
the depositors, creditors, stockholders and the general public. The
mere filing of a case for receivership by the Central Bank can
trigger a bank run and drain its assets in days or even hours
leading to insolvency even if the bank be actually solvent. The
procedure prescribed in Sec. 29 is truly designed to protect the
interest of all concerned, i.e., the depositors, creditors and
stockholders, the bank itself, and the general public.
The absence of notice and hearing is not a valid ground to annul a
Monetary Board resolution placing a bank under receivership. The
absence of prior notice and hearing cannot be deemed acts of
arbitrariness and badfaith.2) As regards the second ground, to
rule that only the receiver may bring suit in behalf of the bank is,
to echo the respondent appellate court, "asking for the
impossible, for it cannot be expected that the master, the CB, will
allow the receiver it has appointed to question that very
appointment. "Consequently, only stockholders of a bank could
file an action for annulment of a Monetary Board resolution
placing the bank under receivership and prohibiting it from
continuing operations.
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2. Bangko Sentral v. Valenzuela
FACTS: Acting on a BSP Report of Examination [on the books of
the private respondents], the BSP required the private
respondents to undertake certain remedial measures. Private
respondents are asking for the nullification of a BSP Report of
Examination (ROE) and the issuance of a writ of preliminary
investigation on the ground that they were not furnished copies of
the ROE, despite the fact that they’ve been requesting for copies
of the said report. The lower court nevertheless granted the
request.
ISSUE: Was the issuance of the writ valid?
HELD: NO.
The respondent banks have shown no necessity for the writ of
preliminary injunction to prevent serious damage. The serious
damage contemplated by the trial court was the possibility of the
imposition of sanctions upon respondent banks, even the sanction
of closure. Under the law, the sanction of closure could be
imposed upon a bank by the BSP even without notice and
hearing. The apparent lack of procedural due process would not
result in the invalidity of action by the MB. This "close now, hear
later" scheme is grounded on practical and legal considerations to
prevent unwarranted dissipation of the bank’s assets and as a
valid exercise of police power to protect the depositors, creditors,
stockholders, and the general public. The writ of preliminary
injunction cannot, thus, prevent the MB from taking action, by
preventing the submission of the ROEs and worse, by preventing
the MB from acting on such ROEs.
The "close now, hear later" doctrine has already been justified as
a measure for the protection of the public interest. Swift action is
called for on the part of the BSP when it finds that a bank is in
dire straits. Unless adequate and determined efforts are taken by
the government against distressed and mismanaged banks, public
faith in the banking system is certain to deteriorate to the
prejudice of the national economy itself, not to mention the losses
suffered by the bank depositors, creditors, and stockholders, who
all deserve the protection of the government.
3. Rural Bank of Lucena v. Arca
The Monetary Board shall determine if the rural bank affected, is
insolvent, or that its continuance in business would involve
probable loss to its depositors or creditors, or if it can resume
business with safety to its creditors.
FACTS:
Rural Bank of Lucena, Inc.(Lucena bank) instituted in the CFI of
Manila an action to collect damages and to enjoin the Central
Bank from enforcing Resolution No. 928 of its Monetary Board,
finding that the Lucena bank had committed acts substantially
prejudicial to the Government, depositors, and creditors, and
directing Lucena to reorganize its board of directors and that its
management would be taken over if the it should fail to comply
with the resolution.
While the litigation was still undecided, the Monetary Board,
adopted its Resolution No. 122: "To request the Solicitor General,
pursuant to section 29 of Republic Act No. 265, to file a petition in
the proper courts for the liquidation of the affairs of the Rural
Bank of Lucena, Inc.”
Two days later, the Lucena bank filed suit in the CFI of Quezon to
annul Resolution No.122 and to enjoin its enforcement. The court
issued ex parte a writ of preliminary injunction to such effect, but
subsequently dissolved said preliminary injunction. Aside from a

denied MR, Lucena bank took no other steps to prosecute the
case it had filed
CFI of Manila, as per Judge Magno Gatmaitan of Branch XIV,
enjoined the enforcement of Resolution No. 928 of the Monetary
Board, for having been issued without the prior hearing
prescribed by section 10 of the Rural Bank Act, and ordering the
Central Bank to pay P5,000.00 damages and costs. The Central
Bank appealed.
Central Bank petitioned the CFI of Manila for assistance in the
liquidation of the Lucena bank. Judge Arca issued an interlocutory
order for Lucena bank to turn over to the Central Bank the
physical possession of all assets, properties and papers and if
Lucena bank fails to comply, the Central Bank is authorized to
take actual and physical possession of all of said assets,
properties and papers.
Rural Bank of Lucena petitioned, claiming that Judge Arca gravely
abused his discretion in issuing the order. The court issued a
temporary restraining order until April 25, 1963, but the same
was not renewed when it expired.
ISSUE:
1) Whether or not there is a conflict between section 10 of
Republic Act No. 720 and section 29 of Republic Act No. 265 (NO)
2) Whether or not Judge Arca gravely abused his discretion in
issuing the interlocutory order (NO)
RULING:
1) NO. The court sees no irreconcilable conflict between section
10 of Republic Act No. 720 (Rural Banks Act) and section 29 of
Republic Act No. 265 (Central Bank Act). The former authorizes
the take over of the management by the Central Bank, until the
governing body of the offending Rural Bank is recognized with a
view to assuring compliance by it with the laws and regulations.
While the latter provides for the liquidation of a rural bank by
taking over its assets and converting them into money to pay off
its creditors. It is applicable in cases such as the one in hand,
when the Monetary Board should find that the rural bank affected,
is insolvent, or that its continuance in business would involve
probable loss to its depositors or creditors, and that it can not
resume business with safety.
On the assumption that under section 10 of the Rural Banks Act
the Monetary Board may not take over the management of a rural
bank without giving the latter a hearing, such a previous hearing
is nowhere required by section 29 of the Central Bank law. The
statute has provided for a subsequent judicial review of the
Monetary Board, in lieu of a previous hearing.
2) NO. In the order of Judge Arca and Judge Gatmaitan's
decision, the issues involved are different in each case. One
involved a take over of management under section 10 of the
Rural Banks Act, and the other a seizure of assets and liquidation
under section 29 of the Central Bank law.
Judge Arca had no reason to inquire into the merits of the case
before issuing the disputed order requiring the surrender of the
assets and papers of the Lucena bank, because: (1) neither the
statute (sec. 29, R. A. 265) nor the constitutional requirement of
due process demand that the correctness of the Monetary Board's
resolution to stop operations and proceed to the liquidation of the
Lucena Bank should first be adjudged before making the
resolution effective, it being enough that a subsequent judicial
review be provided; (2) the period for asking such Judicial review
had elapsed with excess between the adoption of the Monetary
Board Resolution No. 122 (February 2, 1962) and the filing of the
case by the Central Bank in the Court of First Instance of Manila
(March 31,1962); (3) the correctness of said resolution had
already been put in issue before the CFI of Quezon; (4) the latter
court had refused to stop implementation of the Resolution of the
Monetary Board when it dissolved its own preliminary injunction;
and (5) because the Lucena Bank had apparently acquiesced in
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the action taken by the CFI of Quezon Province, since the Rural
Bank had not sought that the action of the Quezon court be set
aside by a higher court.
Whether or not the Central Bank acted with arbitrariness or bad
faith in decreeing that circumstances called for the liquidation of
the Lucena Rural Bank should be determined, not by Judge Arca
but in CFI of Quezon Province, which appears to be still pending.
4. Central Bank v. CA 1981
In 1968, the Central Bank committed itself to support and
rehabilitate the Provident Savings Bank which had become
financially distressed as a result of a bank run, but in return
compelled private respondents to relinquish their control and
management of the bank in favor of the Iglesia Ni Kristo, a major
depositor. However, after the transfer, the new management
committed irregularities which ultimately led to the bank's
collapse, and the consequent passage of a Monetary Board
resolution forbidding "the Provident Savings Bank to do business
in the Philippines." This prompted private respondents to petition
the Court of First Instance to annul and set aside said Monetary
Board resolution. Later, the Central Bank petitioned the tame
court for liquidation of Provident Savings Bank. After a joint
hearing of the two cases, the trial court set aside the disputed
resolution; ordered the Central Bank to desist from liquidating
Provident and to specifically perform its obligation to support and
rehabilitate the distressed bank; and directed the Central Bank
and the Iglesia Ni Kristo group to pay damages and attorney's
fees to private respondents.
Petitioner appealed, but the Court of Appeals sustained the lower
court's judgment except the award of damages and attorney's
fees.
Hence, this petition.
ISSUE:
1. WoN the court erred in ordering the closure and
liquidation of a bank. NO
2. WoN the action of the Monetary Board in ordering the
closure and liquidation of an insolvent bank is final and executory.
YES but may be set aside if arbitrary and in BF
HELD: NO. Decision affirmed.
The Supreme Court held that under Republic Act No. 265, as
amended by P.D. No. 1007, the law then prevailing, the action of
the Monetary Board in ordering the closure and liquidation of a
bank is final and executory, but may be set aside upon a showing
that it is clearly arbitrary and made in bad faith, as in the instant
case
Under section 29 of Republic Act No. 265, as amended by
Presidential Decree No. 1007, the action of the Monetary Board in
ordering the closure and liquidation of an insolvent bank is final
and executory and can be set aside only if there is convincing
proof that the action is plainly arbitrary and made in bad faith.
While there may not be gross and evident bad faith on the part of
the Central Bank and Eagle Broadcasting Corporation to sustain
the award of damages to private respondents Fernandez and
Jayme, as ordered by the trial court, the action of the Monetary
Board in forbidding Provident from doing business in the
Philippines and ordering its liquidation is clearly arbitrary and was
made in bad faith. The arbitrariness and bad faith of the
petitioner Central Bank is evident from the fact that it pressured
Fernandez and Jayme into relinquishing the management and
control of Provident to the Iglesia Ni Kristo (INK) which did not
have any intention of restoring the bank into its former sound
financial condition but whose interest was merely to recover its
deposits from Provident, and, thereafter, allowing the Iglesia Ni
Kristo to mismanage Provident until the Bank's financial
deterioration and subsequent closure.

While the closure and liquidation of a bank may be considered an
exercise of police power, the validity of such exercise of police
power is subject to judicial inquiry and could be set aside if it is
either capricious, discriminatory, whimsical, arbitrary, unjust, or a
denial of the due process and equal protection clauses of the
Constitution.
The doctrine of promissory estoppel applies. 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 if a refusal to enforce
it would be virtually to sanction the perpetration of fraud or would
result in other injustice. In this respect, the reliance by the
promisee is generally evidenced by action or forbearance on his
part, and the idea has been expressed that such an action of
forbearance would reasonably have been expected by the
promissor. Mere omission by the promisee to do whatever the
promissor promised to do has been held insufficient `forbearance'
to give rise to a promissory estoppel. The Central Bank had
committed itself to support Provident Savings Bank and restore it
to its former sound financial position provided that Fernandez and
Jayme should relinquish and give up their control and
management of the Bank to the Iglesia Ni Kristo. It may not now,
therefore, whimsically withdraw such support to the detriment of
Provident, under the rule of promissory estoppel
5. First Phil Intl Bank v. CA
FACTS: Producer Bank of the Philippines acquired 6 parcels of
land at Laguna. The property used to be owned by BYME
Investment and Development Corporation which had them
mortgaged with the bank as collateral for a loan. Demetrio
Demetria and Jose O. Janolo wanted to purchase the property and
thus initiated negotiations for that purpose.
In August 1987, Demetria and Janolo met with Mercurio Rivera,
Manager of the Property Management Department of the Bank to
discuss their plan to buy the property. Thereafter, they had a
series of letters where parties accepted the offer of Demetria and
Janolo. Later in October, the conservator of the bank (which has
been placed under conservatorship by the Central Bank since
1984) was replaced; and subsequently the proposal of Demetria
and Janolo to buy the properties was under study pursuant to the
new conservator’s mandate. After which, a series of demands
ensued.
ISSUE: WON the conservator may revoke a perfected and
enforceable contract. NO.
RULING: Section 28-A of Republic Act No. 265 (otherwise known
as the Central Bank Act) as follows:
Section 28-A - Whenever, on the basis of a report submitted by
the appropriate supervising or examining department, the
Monetary Board finds that a bank or a non-bank financial
intermediary performing quasi-banking functions is in a state of
continuing inability or unwillingness to maintain a state of liquidity
deemed adequate to protect the interest of depositors and
creditors, the Monetary Board may appoint a conservator to take
charge of the assets, liabilities, and the management of that
institution, collect all monies and debts due said institution and
exercise all powers necessary to preserve the assets of the
institution, reorganize the management thereof, and restore its
viability. He shall have the power to overrule or revoke the
actions of the previous management and board of directors of the
bank or non-bank financial intermediary performing quasi-
banking functions, any provision of law to the contrary
notwithstanding, and such other powers as the Monetary Board
shall deem necessary.
While admittedly, the Central Bank law gives vast and far-
reaching powers to the conservator of a bank, it must be pointed
out that such powers must be related to the "(preservation of)
the assets of the bank, (the reorganization of) the management
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thereof and (the restoration of) its viability." Such powers,
enormous and extensive as they are, cannot extend to the post-
facto repudiation of perfected transactions, otherwise they would
infringe against the non-impairment clause of the Constitution.
Section 28-A merely gives the conservator power to revoke
contracts that are, under existing law, deemed to be defective.
Hence, the conservator merely takes the place of a bank's board
of directors, so what the board cannot do; the conservator cannot
do either. His power is however, not unilateral as he cannot
simply repudiate valid obligations of the Bank. His authority would
be only to bring court actions to assail such contracts.
In the case, it is not disputed that the bank was under a
conservator placed by the Central Bank of the Philippines during
the time that the negotiation and perfection of the contract of sale
took place. Moreover, there was absolutely no evidence that the
Conservator, at the time the contract was perfected, actually
repudiated or overruled said contract of sale. The bank never
objected to the sale, what it unilaterally repudiated was—not the
contract —but the authority of Rivera to make a binding offer —
and which unarguably came months after the perfection of the
contract.
The conservator’s authority would be only to bring court actions
to assail such contracts —as he has already done so in the instant
case. A contrary understanding of the law would simply not be
permitted by the Constitution. Neither by common sense. To rule
otherwise would be to enable a failing bank to become solvent, at
the expense of third parties, by simply getting the conservator to
unilaterally revoke all previous dealings which had one way or
another or come to be considered unfavorable to the Bank,
yielding nothing to perfected contractual rights nor vested
interests of the third parties who had dealt with the Bank.
6. Vivas on Behalf of Shareholders of Eucredit v. Monetary
Board
Facts:
Petitioner Vivas and his principals acquired the controlling interest
in Rural Bank Faire, a bank whose corporate life has already
expired. BSP authorized extending the banks’ corporate life and
was later renamed to EuroCredit Community Bank (ECBI).
Through a series of examinations conducted by the BSP, the
findings bore that ECBI was illiquid, insolvent, and was
performing transactions which are considered unsafe and
unsound banking practices. Consequently ECBI was placed under
receivership. Petitioner contends that the implementation of the
questioned resolution was tainted with arbitrariness and bad faith,
stressing that ECBI was placed under receivership without due
and prior hearing in violation of his and the bank’s right to due
process.
Issue:
Whether or not ECBI was entitled to due and prior hearing before
its being placed under receivership.
Ruling: YES.
In the case of Bangko Sentral Ng Pilipinas Monetary Board v. Hon.
Antonio-Valenzuela, the Court reiterated the doctrine of “close
now, hear later,” stating that it was justified as a measure for the
protection of the public interest. Thus:
The “close now, hear later” doctrine has already been justified as
a measure for the protection of the public interest. Swift action is
called for on the part of the BSP when it finds that a bank is in
dire straits. Unless adequate and determined efforts are taken by
the government against distressed and mismanaged banks, public
faith in the banking system is certain to deteriorate to the
prejudice of the national economy itself, not to mention the losses
suffered by the bank depositors, creditors, and stockholders, who
all deserve the protection of the government.

In Rural Bank of Buhi, Inc. v. Court of Appeals, the Court also
wrote that
x x x due process does not necessarily require a prior hearing; a
hearing or an opportunity to be heard may be subsequent to the
closure. One can just imagine the dire consequences of a prior
hearing: bank runs would be the order of the day, resulting in
panic and hysteria. In the process, fortunes may be wiped out
and disillusionment will run the gamut of the entire banking
community.
The doctrine is founded on practical and legal considerations to
obviate unwarranted dissipation of the bank’s assets and as a
valid exercise of police power to protect the depositors, creditors,
stockholders, and the general public. Swift, adequate and
determined actions must be taken against financially distressed
and mismanaged banks by government agencies lest the public
faith in the banking system deteriorate to the prejudice of the
national economy.
7. Abacus Real Estate v. Manila Banking
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.
Facts: Manila Banking Corporation (Manila Bank, for brevity),
owns a 1,435-square meter parcel of land located along Gil Puyat
Avenue Extension, Makati City and covered by Transfer Certificate
of Title (TCT) No. 132935 of the Registry of Deeds of Makati.
Prior to 1984, the bank began constructing on said land a 14-
storey building. Not long after, however, the bank encountered
financial difficulties that rendered it unable to finish construction
of the building. Central Bank of the Philippines, now Bangko
Sentral ng Pilipinas, ordered the closure of Manila Bank and
placed it under receivership, with Feliciano Miranda, Jr. being
initially appointed as Receiver. The legality of the closure was
contested by the bank before the proper court. Manila Bank’s
then acting president, the late Vicente G. Puyat, in a bid to save
the bank’s investment, started scouting for possible investors who
could finance the completion of the building earlier mentioned.
A group of investors, represented by Calixto Y. Laureano
(hereafter referred to as Laureano group), wrote Vicente G. Puyat
offering to lease the building for ten (10) years and to advance
the cost to complete the same, with the advanced cost to be
amortized and offset against rental payments during the term of
the lease. Likewise, the letter-offer stated that in consideration of
advancing the construction cost, the group wanted to be given
the “exclusive option to purchase” the building and the lot on
which it was constructed. 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
(P150,000,000.00). Later, or on October 31, 1989, the building
was leased to MEQCO for a period of ten (10) years pursuant to a
contract of lease bearing that date. 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.
Issue: Whether or not Vicente Puyat, acting as president of
Manila Bank, has the power to sell the disputed properties.
Held: 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
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authority to grant the exclusive option to purchase the lot and
building in question. The invocation by the appellate court of the
following pronouncement inVillanueva vs. Court of Appeals 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.
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.
8. Banco Filipino v. Central Bank
Pendency of the case did not diminish the powers and authority of
the designated liquidator to effectuate and carry on the
administration of the bank. In the instant case, the basic
standards of substantial due process were not observed.
Facts: Top Management Programs Corporation and Pilar
Development Corporation are corporations engaged in the
business of developing residential subdivisions.Top Management
and Pilar Development obtained several loans from Banco Filipino
all secured by real estate mortgage in their various properties in
Cavite.
The Monetary Board by Ramon Tiaoqui, Special Assistant to the
Governor and Head, SES Department III submitted a report
finding that the bank is insolvent and recommending the
appointment of a receiver. The Monetary Board, based on the
Tiaoqui report, issued a resolution finding Banco Filipino insolvent
and placing it under receivership. Subsequently, the Monetary
Board issued another resolution placing the bank under
liquidation and designated a 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.
Banco Filipino filed the petition for certiorari questioning the
validity of the resolutions issued by the Monetary Board
authorizing the receivership and liquidation of Banco Filipino.A
temporary restraining order was issued enjoining the respondents
from executing further acts of liquidation of the bank. However,
acts and other transactions pertaining to normal operations of a
bank are not enjoined. Subsequently, Top Management and Pilar
Development failed to pay their loans on the due date. Hence, the
law firm of Sycip, Salazar, et al. acting as counsel for Banco
Filipino under authority of the liquidator, applied for extra-judicial
foreclosure of the mortgage over Top Management and Pilar
Development’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. Top Management and Pilar
Development filed 2 separate petitions for injunction and
prohibition with the respondent appellate court 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 which were subsequently dismissed by the court. Hence this
petition
Issue: 1) Whether or not the liquidator has the authority to
prosecute as well as to defend suits and to foreclose mortgages

for and behalf of the bank while the issue on the validity of the
receivership and liquidation is still pending resolution.
2) Whether or not the closure of the bank based on the
Tiaoqui report is correct.
Held:
1) Whether or not the liquidator has the authority to prosecute as
well as to defend suits and to foreclose mortgages for and behalf
of the bank while the issue on the validity of the receivership and
liquidation is still pending resolution.
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.
Pendency of the case did not diminish the powers and authority of
the designated liquidator to effectuate and carry on the
administration of the bank. The Court 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.
2) Whether or not the closure of the bank based on the Tiaoqui
report is correct.
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. 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. 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.
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.
9. Salud v. Central Bank
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Resolutions of the Monetary Board forbidding banking institutions
to do business; or appointing a receiver to take charge of the
bank’s assets and liabilities; or determining whether the banking
institutions may be rehabilitated, or should be liquidated and
appointing a liquidator towards this end are by law final and
executory. But they can be set aside by the court on one specific
ground, and that is, if there is convincing proof that the action is
plainly arbitrary and made in bad faith.
Facts: The Monetary Board adopted 2 resolutions forbidding the
Muntinlupa Bank to do business, designating a statutory receiver,
and ordering the liquidation of the same bank after confirmation
that it is insolvent. Muntinlupa bank opposed the liquidation and
alleged that the action of the Monetary Board was premature and
void since there was no prior effort to reorganize the
management of the bank and restore its viability and that it was
made arbitrarily and in bad faith. The Regional Trial Court,
treating the opposition of the bank as a motion to dismiss, ruled
in favor of it and declared the action of the Monetary Board
arbitrary after finding that the bank had more assets than
liabilities. The Intermediate Appellate Court reversed the decision
and gave due course to the petition for liquidation. Hence this
petition
Issue: Whether or not the action of the Monetary Board is
within the jurisdiction of the Regional Trial Court and may rule on
its validity based on arbitrariness and bad faith.
Held: Resolutions of the Monetary Board forbidding banking
institutions to do business; or appointing a receiver to take
charge of the bank’s assets and liabilities; or determining whether
the banking institutions may be rehabilitated, or should be
liquidated and appointing a liquidator towards this end are by law
final and executory. But they can be set aside by the court on one
specific ground, and that is, if there is convincing proof that the
action is plainly arbitrary and made in bad faith. The Central Bank
concedes this power in the court, but insists that that setting
aside cannot be done in the same proceeding for assistance in
liquidation, but in a separate action instituted specifically for the
purpose. However, there is no provision of law which expressly or
even by implication imposes the requirement for a separate
proceeding exclusively occupied with adjudicating this issue.
Hence, such action may be asserted as an affirmative defense of
a counterclaim in the proceeding for assistance in liquidation that
the Central Bank has filed in the Regional Trial Court.
10. Lipana v. Development Bank of Rizal
Facts:
Petitioners opened and maintained both time and savings
deposits with herein respondent bank. Upon maturity of some of
their time deposit certificates, petitioners were not able to cash
them but instead were issued a manager’s check which was
dishonored upon presentment. Demands for the payment of
deposits having failed, petitioners moved for the issuance of a
writ of preliminary attachment for collection of a sum of money.
Respondent Judge ordered the issuance of a writ and later,
rendered judgment in favor of petitioners. Meanwhile, the
Monetary Board finding that respondent bank was insolvent,
decided to place it under receivership. Petitioners then moved for
the execution which was granted, but was subsequently stayed
upon reconsideration. Petitioners moved to lift the stay but were
denied. Hence, the instant petition.
Issue:
Whether or not the stay of execution of judgment against a bank
placed under receivership is valid.
Ruling: YES.
In the instant case, the stay of the execution of judgment is
warranted by the fact that respondent bank was placed under
receivership. To execute the judgment would unduly deplete the
assets of respondent bank to the obvious prejudice of other
depositors and creditors, since, as aptly stated in Central Bank of
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the Philippines vs. Morfe, after the Monetary Board has declared
that a bank is insolvent and has ordered it to cease operations,
the Board becomes the trustee of its assets for the equal benefit
of all the creditors, including depositors. The assets of the
insolvent banking institution are held in trust for the equal benefit
of all creditors, and after its insolvency, one cannot obtain an
advantage or a preference over another by an attachment,
execution or otherwise.

The instant petition is hereby DISMISSED.