RA 7653 (The New Central Bank Act) as amended by RA 11211 fines and penalties for incurring deficiencies in reserves
es in reserves against
Establishment and Organization
of the Bangko Sentral ng Pilipinas
Reyes v. Rural Bank of San Miguel
G.R. No. 154499, February 27, 2004
DOCTRINE
The BSP is an independent body corporate bestowed under its
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.
FACTS:
The petitioners are officials of the Bangko Sentral ng Pilipinas (BSP):
(1) Alberto Reyes, Deputy Governor and Head of the Supervision
and Examination Sector (SES); (2) Wilfredo B. Domo-ong, Director of
the Department of Rural Banks (DRB); and (3) Herminio Principio, an
Examiner of the DRB.
This 2004 case deals with the Motion for Reconsideration of Rural
Bank of San Miguel (RBSMI). In the 2003 Decision of the Supreme
Court, it found Reyes and Domo-ong liable for violation of the
"standards of professionalism" prescribed by the Code of Conduct
and Ethical Standards for Public Officials and Employees (Republic
Act No. 6713) in that they used the distressed financial condition of
respondent Rural Bank of San Miguel (Bulacan), Inc. (RBSMI) as the
subject of a case study in one of the BSP seminars and did the
"brokering" of the sale of RBSMI.
The factual antecedents are: RBSMI charged Reyes, et al. with
violation R.A. No. 6713. The Monetary Board (MB) of the BSP
created an Ad Hoc Committee to investigate the matter. The ensuing
investigation disclosed that sometime in September 1996, RBSMI,
which had a history of major violations/exceptions dating back to
1995, underwent periodic examination by the BSP. The examination
team headed by Principio noted 20 serious exceptions/violations
and deficiencies of RBSMI. As directed by the MB, another
examination team conducted a special examination on RBSMI.
RBSMI President Hilario Soriano claimed that he was pressured into
issuing a memorandum to the bank employees authorizing the team
to review the bank’s accounting and internal control system.
Re: Brokering
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, Villacorta
confirmed that he and Soriano indeed met but the meeting never
got past the exploratory stage since he immediately expressed
disinterest because Soriano wanted to sell all his equity shares while
he was merely contemplating a possible buy-in. 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, the MB approved Resolution No. 724 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 ₱2,538,483.00 as
deposit liabilities. Thereafter, Soriano submitted RBSMI’s 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 bank’s request
addressed to Domo-ong for BSP "to debit the demand deposit of the
bank in the amount of ₱2,538,483.00" 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 ₱2,538,483.00. On January 21, 1999, the MB
adopted Resolution No. 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 Reyes et al.’s "unsupported" recommendation to impose a
penalty of ₱2,538,483.00 for legal reserve deficiency, prompted
RBSMI to file the letter-complaint charging Reyes et al. with
"unprofessionalism" under R.A. No. 6713.
ISSUE:
Was Reyes engaged in Brokering?
RULING: No.
Re: Brokering
In the 2003 Decision, the SC categorized Reyes’ telephone
introduction of officials of other banks to RBSMI’s President in
connection with the latter’s expressed desire to sell the bank as
"brokering" which in turn constitutes, according to the Court,
violation of the standards of professionalism. The standards are set
forth in Section 4 (A) (b) of Republic Act 6713, as follows:
Sec. 4. Norms of Conduct of Public Officials and Employees. —
(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 SC (in the 2003 Decision) equates "brokering" with
unprofessionalism. According to Webster’s Third New International
Dictionary, "professionalism" means "the conduct, aims, or qualities
that characterize or mark a profession." Any standard thesaurus
defines a "professional" as a person who engages in an activity with
great competence. Indeed, to call a person a professional is to
describe him as competent, efficient, experienced, proficient or
polished.
The crucial question, therefore, is whether Reyes conducted himself
in an unprofessional manner in doing the acts imputed to him. The
Court rules in the negative.
In the first place, the acts of Reyes do not constitute "brokering. "
Case law 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 Bouvier’s 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." 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 RBSMI’s
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.
the seminar. On the contrary, as shown in the MR, 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) which is charged with conducting
seminars and lectures for the BSP, including the seminar involved in
this case.

On his part, Soriano who is RBSMI’s 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. It is indeed the policy of the BSP to promote
mergers and consolidations by providing incentives to banks that
would undergo such corporate combinations. To effectively
implement the policy, it was necessary that the banks be advised
and assisted by a person knowledgeable about the transactions like
Reyes. The benefits which may ultimately arise out of any
preliminary facilitation step such as what Reyes undertook will not
accrue to the facilitator but to the parties to the transaction
themselves and, of course, the institution whose policy initiative is
being carried out.

Independence of the BSP

It cannot be overemphasized that the BSP is an independent body
corporate bestowed under its charter (Republic Act No. 7653. Sec. 1,
Declaration of Policy) 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 case asked:
Re: Allegation on Case Study
In the 2003 Decision, it was ruled that "While 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." Plainly, conclusion
on Reyes et al.’s culpability is grounded, not on an established fact
but on a mere inference that the seminar was conducted under their
auspices. Indeed, the pronouncement 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

United Coconut Planters Bank vs E. Ganzon, Inc.
G.R. 168859 & G.R. 1688597 (2009)
*NOT YET DONE
DOCTRINE
Decision of BSP Monetary Board, an admin agency, can be appealed
to the CA, as it utilized quasi judicial functions, under Rule 43.
FACTS:
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.
Initially, EGI was able to make periodic amortization payments of its
loans to UCPB. 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.
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 as payment for the
loans. Upon agreeing on the valuation they entered into a
Memorandum of Agreement (MOA). Based on it, the outstanding
loan obligations 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.
On January 2000, EGI and UCPB executed an Amendment of
Agreement to reflect the true and correct valuation of the
properties at P904,491,052.00.
UCPB proceeded to foreclose some of the properties of EGI listed in
the MOA. Per the Certificate of Sale, the foreclosure proceeds of
said properties amounted only to P723,592,000.
UCPB applied the entire foreclosure proceeds to the principal
amount of the loan obligations of EGI, pursuant to BSP Circular No.
239, 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 May 2001, some of the other properties of EGI, valued at
P166,127,369.50, were transferred by way of dacion en pago to
UCPB. However, during the signing of the transaction papers, EGI
Senior Vice-President, Architect Grace Layug, noticed that said
papers stated that the remaining loan balance 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.
Consequently, EGI wrote UCPB a letter which included, among other
demands, the refund by UCPB to EGI of the overpayment of P83M;
return to EGI of all the remaining 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.
ISSUE:
Whether or not CA has jurisdiction over the decisions of the BSP
Monetary Board. YES.
RULING:
Truly, there is nothing in R.A. 7653 or in R.A. 8791 which explicitly
allows an appeal of the decisions of the BSP Monetary Board to the
CA. However, this shall not mean that said decisions are beyond
judicial review.
A perusal of Sec. 9(3) of Batas Pambansa Blg. 129, as amended, and
Sec. 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 CA has no appellate jurisdiction over the judgments, orders,
resolutions or awards of the BSP Monetary Board.
It bears stressing that Sec. 9(3) 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.
Undoubtedly, the BSP Monetary Board is a quasi-judicial agency
exercising quasi-judicial powers or functions. As aptly observed by
the CA, 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. It has power to issue
subpoena, to sue for contempt those refusing to obey the subpoena
without justifiable reason, to administer oaths and compel
presentation of books, records and others, needed in its
examination, to impose fines and other sanctions and to issue cease
and desist order. Sec. 37 of RA 7653 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.
 Commissioner of Customs vs Eastern Sea Trading
GR No. L-14279, October 31, 1961
DOCTRINE
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.
FACTS:
Respondent Eastern Sea Trading was the consignee of several
shipments of onion and garlic from Japan and others from
Hongkong. It appeared that none of the shipments had the
certificate required by Central Bank Circulars Nos. 44 and 45 for its
release, the goods 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
Eastern Sea Trading now argues that the transactions involved are
“no-dollar” imports which do not involve foreign exchange and thus
it alleges that the Central Bank has no authority to regulate such
transactions which do not involve foreign exchange.
ISSUE:
Does the Central Bank have the authority to regulate transactions
not involving foreign exchange? YES.
RULING:
Yes, the authority of the Central Bank to regulate no-dollar imports
and the validity of the Circulars Nos. 44, and 45 have already been
passed upon and repeatedly upheld by the Supreme Court.
The reason is 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.
DBP v COA
G.R. No. 88435, January 16, 2002
DOCTRINE
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. 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.
FACTS:
The case revolves around the hiring by the DBP of a private auditor
which 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 privately audited accounts of the
DBP for 1986 and 1987 "will be a requirement for the releases of the
second and third tranches, respectively, of the ERL"..
On December 5, 1986, in line with the government's commitment to
the World Bank to require a private external auditor for DBP, the
Central Bank Governor issued Central Bank Circular No. 1124 where
it states that each Bank, whether Government-owned or controlled
or private, shall cause an annual financial audit to be conducted by
an external independent auditor.
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 to 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.
On May 13, 1987, after learning that the DBP had signed a contract
with a private auditing firm (Joaquin Cunanan & Co.) 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.
ISSUE:
W/N the COA has the sole and exclusive power to examine and
audit government banks
RULING:
No. To resolve the issue, Section 2, Article IX-D of the 1987
Constitution must be interpreted. This Section provides as follows:
"Sec. 2. (1) The Commission on Audit shall have the power,
authority, and duty to examine, audit, and settle all accounts
pertaining to the revenue and receipts of, and expenditures or uses
of funds and property, owned and held in trust by, or pertaining to,
the Government, or any of its subdivisions, agencies, or
instrumentalities, including government-owned or controlled
corporations with original charters, x x x.
"(2) The Commission shall have the exclusive authority, subject to
the limitations in this Article, to define the scope of its audit and
examination, establish the techniques and methods required
therefore, and promulgate accounting and auditing rules and
regulations, including those for the prevention and disallowance of
irregular, unnecessary, excessive, extravagant, or unconscionable
expenditures, or uses of government funds and properties."
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, the COA's claim clashes directly with the Central Bank's
constitutional power of "supervision" over banks under Section 20,
Article XII of the Constitution where the latter 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.
General Banking Law of 2000 (RA No. 8791) which authorizes
unequivocally the Monetary Board to require banks to hire
independent auditors.
Moreover, Section 26 must also be applied in conformity with
Sections 25 and 28 of the New Central Bank Act which states that
the Bangko Sentral shall have supervision over, and conduct
periodic or special examinations of, banking institutions.
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" includes the conduct of the following:
1. Examination to determine compliance with laws and
regulations if the circumstances so warrant as determined
by the Monetary Board.
2. Regular investigation which shall not be oftener than once
a year from the last date of examination to determine
whether an institution is conducting its business on a safe
or sound basis: Provided, That the
deficiencies/irregularities found by or discovered by an
audit shall immediately be addressed.
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.

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. 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.

Likewise, there is nothing in Section 26 of PD No. 1445 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 of the

Gonzalo Sy vs. Central Bank of the Philippines
G.R. No. L-41480, April 30, 1976
DOCTRINE
The authority of the Central Bank to regulate "no-dollar" imports
emanates from its broad powers to maintain our monetary stability
and to preserve the international value of our currency as well as its
corollary power to issue such rules and regulations for the effective
discharge of its responsibilities and exercise of powers.
FACTS:
Gonzalo Sy Trading 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.
In the letter, the trading company points out that: “"the items called
for such as apples, oranges and grapes is to serve the requirements
during the Christmas Season (1968).”
On November 19, 1968, the Monetary Board of the Central Bank
issued Resolution No. 2038 approving Gonzalo Sy Trading's request
for Special Import Permit on No-Dollar Basis, 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.
On November 27, 1968, Gonzalo Sy Trading sent a letter to the then
Chairman of the Monetary Board, Mr. Eduardo Romualdez:
We noted however, that 100% special time deposit for
120 days is required. We beg to point out that this
particular importation is only for the Christmas Season,
and if we will deposit the amount of about P1,400,000.00
which will not be touched for 120 days, and considering
the fact that on this importation alone, we will pay the
government in the form of customs taxes and duties, no
less than P700,000.00, then we will be needing more than
P3,000,000.00.
We beg to request therefore, for a reconsideration by
your good office, and allow us to put up 20% special time
deposit for 120 days instead of 100%.
The request was denied.
Thereafter, on February 25, 1969, Gonzalo Sy made his first
importation from Japan.
On October 30, 1969, Gonzalo Sy requested from Deputy Governor
Amado R. Briñas "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. Mr. Amado R. Briñas replied: “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.”
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, furnishing the
Foreign Exchange Department copies of the release certificates the
Prudential Bank and Trust Company issued to Gonzalo Sy Trading.
The letter states: “xxx you may continue to issue release certificates
to cover the No-Dollar Importations of fresh fruits by your client,
subject to the same terms and conditions imposed by Monetary
Board under the
above-mentioned resolution.”
On April 17, 1970, the Assistant to the Governor, Mr. Cesar
Lomotan, informed the Prudential Bank and Trust Company that the
authority granted to Gonzalo Sy under MB Resolution No. 2038 was
intended only for the Christmas season of 1968 and does not extend
through 1969.
Because of this, the Prudential Bank Prudential Bank and Trust
Company refused to issue to Gonzalo Sy Trading any release
certificate for their importations.
Hence, On June 5 and 16, 1970, the Collector of Customs for the
Port of Manila issued warrants of seizure and detention against
shipments of fruits consigned to Gonzalo Sy.
Another shipment consigned to Gonzalo Sy arrived at the Port of
Manila on September 6 and 15, 1970. Like the June 1970
importation, this September 1970 shipment was also seized by the
Customs authorities.
On September 21, 1970, Gonzalo Sy instituted a petition for
mandamus with damages. In this petition, Gonzalo Sy, 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 therefore.
ISSUE 1:
WON the Central Bank may regulate “no-dollar” imports.
RULING:
YES. 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 as well as its corollary power to
issue such rules and regulations for the effective discharge of its
responsibilities and exercise of powers.
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, 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.
It can thus be readily seen that Gonzalo Sy'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,
which also have the force and effect of law. 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."
ISSUE 2:
WON Gonzalo Sy's Special Import Permit granted by the Central
Bank authorizing it to import fresh fruits from Japan on a "no-dollar"
basis has already expired.
RULING:
YES. We rule that the Special Import Permit granted to Gonzalo Sy
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.
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.
Operations of the Bangko Sentral
Banco Filipino Savings and Mortgage Bank vs Monetary Board
(G.R. No. 70054, 68878, 77255-5878766, 78767, 78894, 81303,
81304 and 90473, December 11, 1991)
DOCTRINE
Section 29 of Republic Act No. 265 known as the Central Bank Act
provides the person designated as receiver to immediately take
charge of the bank’s assets and liabilities, 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 and to bring and foreclose mortgages in the
name of the bank.
Pendency of a case against the designated liquidator did not
diminish his powers and authority to effectuate and carry on the
administration of the bank.
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:
First, 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;
second, 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;
third, 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.
FACTS:
This refers to nine (9) consolidated cases concerning the legality of
the closure and receivership of petitioner Banco Filipino Savings and
Mortgage Bank (Banco Filipino) pursuant to the order of respondent
Monetary Board. Six (6) of these cases involve the common issue of
whether or not the liquidator appointed by the respondent Central
Bank (CB) has the authority to prosecute as well as to defend suits,
and to foreclose mortgages for and in behalf of the bank. Corollary
to this issue is whether the CB can be sued to fulfill financial
commitments of a closed bank pursuant to Section 29 of the Central
Bank Act. On the other hand, the other three (3) cases all seek to
annul and set aside M.B. Resolution issued by respondents
Monetary Board and Central Bank.
G.R. No. 68878
This is a motion for reconsideration, filed by respondent Celestina
Pahimuntung which annulled the writ of possession issued by the
trial court in favor of Banco Filipino.
The Pahimuntung contends that the Banco Filipino has no more
personality to continue prosecuting the instant case considering
that petitioner bank was placed under receivership by the Central
Bank pursuant to the resolution of the Monetary Board.
G.R. Nos. 77255-58
Petitioners Top Management Programs Corporation (Top
Management) and Pilar Development Corporation (Pilar
Development) are corporations engaged in the business of
developing residential subdivisions.
Top Management obtained a loan from Banco Filipino payable in
three years. The loan was secured by real estate mortgage on its
various properties in Cavite. Likewise, Pilar Development obtained
loans from Banco Filipino between 1982 and 1983. To secure the
loan, Pilar Development mortgaged to Banco Filipino various
properties in Dasmariñas, Cavite.
In 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.
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.
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 RTC issued a notice of extra-judicial
foreclosure sale of the properties.
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 RTC for the extra-judicial foreclosure of
mortgage over its properties.
Hence, this petition was filed by the petitioners Top Management
and Pilar Development alleging that 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 the court in a different case(G.R. 70054).
G.R. No. 78766
Petitioner El Grande Development Corporation (El Grande) 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, El Grande was granted a
loan secured by real estate mortgages on its various estates..
In 1985, the Monetary Board forbade Banco Filipino to do business,
placed it under receivership and designated Deputy Governor
Carlota Valenzuela as receiver. The Monetary Board confirmed
Banco Filipino's insolvency and designated the receiver Valenzuela
as liquidator.
When petitioner El Grande failed to pay its indebtedness to Banco
Filipino, the latter thru its liquidator, Valenzuela, initiated the
foreclosure. Subsequently, the ex-officio sheriff issued the notice of
extra-judicial sale of the mortgaged properties of El Grande.
In order to stop the public auction sale, petitioner El Grande filed a
petition for prohibition with the Court of Appeals alleging that
respondent Valenzuela could not proceed with the foreclosure of its
mortgaged properties on the ground that in another case(G.R.
70054) issued issued by the Court restrained Valenzuela from acting
as liquidator and allowed Banco Filipino to resume banking
operations only under a Central Bank comptroller.
G.R. No. 81304
Petitioner BF Homes Incorporated (BF Homes) 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
Valenzuela as receiver of Banco Filipino Savings and Mortgage Bank.
G.R. No. 90473
Petitioner El Grande Development Corporation (El Grande) obtained
a loan from Banco Filipinosecured by a mortgage over its five
parcels of land.
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. The ex-officio
sheriff issued a notice of extrajudicial foreclosure sale of the
properties of petitioner.
G.R. No. 70054
Banco Filipino Savings and Mortgage Bank was authorized to
operate.
Although, the Monetary Board issued M.B. Resolution placing Banco
Filipino bank under conservatorship of Basilio Estanislao. He was
later replaced by Gilberto Teodoro as conservator. The latter
submitted a report to respondent Board on the conservatorship of
Banco Filipinp, which report shall hereinafter be referred to as the
Teodoro report.
Subsequently, another report 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 Banco Filipino.
The Monetary Board issued the assailed MB Resolution which
ordered the closure of BF.
G.R. No. 78767
Banco Filipino filed a complaint with the trial court d to annul the
resolution of the Monetary Board which ordered the closure of the
bank and placed it under receivership.
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 the Court whereby it was 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) filed a
motion to intervene in the aforestated civil case on ground that as a
stockholder and creditor of Banco Filipino, it has an interest in the
subject of the action.
G.R. No. 78894
A complaint was filed with the trial court in the name of Banco
Filipino to annul the resolution of the Monetary Board 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.
The Central Bank and the receivers filed a motion to dismiss the
complaint on the ground that the receiver had not authorized
anyone to file the action.
The Monetary Board placed the bank under liquidation and
designated Valenzuela as liquidator and Aurellano and Tiaoqui as
deputy liquidators.
A petition was filed with the Banco Filipino 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.
ISSUE:
(1)Was the foreclosure made by the designated liquidator of
Banco Filipino valid? YES.
RULING:
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 the banking institution is insolvent
or cannot resume business with safety to depositors, creditors and
the general public, it shall, if public interest requires, order its
liquidation and appoint nu liquidator who shall take over and
continue the functions of the receiver previously appointed by
Monetary Board. The liquidator may, in the name of the bank 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.
When the issue on the validity of the closure and receivership of
Banco Filipino bank was raised in G.R. No. 70054, the 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 fact when the Court adopted a resolution and issued
a restraining order to respondents Monetary Board and Central
Bank, the Court enjoined merely 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 same to creditors and other parties for the purpose of paying
the debts of such institution. The Court did not prohibit however
acts such as receiving collectibles and receivables or paying off
creditors’ claims and other transactions pertaining to normal
operations of a bank.
Clearly, in G.R. Nos. 68878, 77255–68, 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.
ISSUE:
(2) Was the issuance of the Monetary Board of resolution
mandating the closure and receivership of Banco Filipino bank
valid? NO.
RULING:
While the Court recognized the actual closure of Banco Filipino and
the consequent legal effects thereof on its operations, the Court
cannot uphold the legality of its closure and thus, find the petitions
in G.R. Nos. 70054, 78767 and 78894 impressed with merit. The
Court held that the closure and receivership of petitioner bank,
which was ordered by respondent Monetary Board on January 25,
1985, is null and void.
Based on the aforequoted provision, the Monetary Board may
order the cessation of operations of a bank in the Philippines and
place it under receivership upon a finding of insolvency or when its
continuance in business would involve probable loss to 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.
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:
First, 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;
second, 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;
third, 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.
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 Court recognized 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.
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.
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.
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 less 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. 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.
ln view of the foregoing premises, the Court believed 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.
GENERAL BANK AND TRUST COMPANY v. CENTRAL BANK OF THE
PHILIPPINES
G.R. No. 152551, June 15, 2006
DOCTRINE
The exclusionary rule on insolvency presupposes that the struggling
bank should, in the first place, be an “otherwise non-insolvent bank”
and the exercise 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 Central Bank or
the Monetary Board from ordering its closure due to its insolvency.
FACTS:
The Monetary Board granted GenBank an emergency loan initially
from 150 million to 350 million pesos. The emergency loan was used
to fix the financial difficulties of GenBank, which resulted from the
unsound banking practices employed by its management.
On March 29, 1977, the Monetary Board adopted a resolution
determining and confirming that GenBank was insolvent and could
not resume business with safety to its depositors, creditors, and
general public, thereby ordering liquidation of GenBank, the
designation of Arnulfo 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. Thereafter, a
Memorandum of Agreement was executed wherein Aurellano, as
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.
On May 5, 1982, Worldwide Insurance & Surety Company, Midland
Insurance Corporation, and Standard Insurance Co., Inc. filed a
motion for intervention in the liquidation proceeding alleging that
the closure and liquidation were done arbitrarily and in bad faith.
A couple of years later, GenBank joined the intervention, claiming
that it was not insolvent when the Resolution was issued. Its assets
at that time stood at over 599 million whereas its total liabilities
only amounted to over 586 million, thus having surplus assets.
GenBank even insisted that the exclusionary principle on insolvency
applied on its case because while it was then not in a position to
generate funds by itself in order to meet the drawdowns on its
deposit and deposit substitutes and to pay for maturing obligations,
as well as its advances from the Central Bank, what it experienced
was a liquidity problem attributed to a bank run, not insolvency.
ISSUE:
WON the exclusionary rule on insolvency can be applied in the case
of GenBank
RULING:
NO, the exclusionary rule on insolvency cannot apply.
Presidential Decree No. 1007, which amended Republic Act 625,
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.”
However, this exclusion presupposes that the struggling bank
should, in the first place, be an “otherwise non-insolvent bank” and
the exercise 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 Central Bank or the Monetary Board from
ordering its closure due to its insolvency.
IN THIS CASE, the Central Bank had, as it were, ample basis other
than the bank run to consider GenBank insolvent.
The financial predicament of GenBank did not crop-up overnight,
nor was 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 the management.
● All-out financial support to Filcapital amounting to 54.9
million pesos, which is a related interest of the Yujuico
Family Group and directors and officers of GenBank
● Standing practice of extending directors, officers,
stockholders, and related interests (DOSRI) loans, which
reached a peak of 172.3 million or 26% of the total loan
portfolio of 666.78 million,
○ 59.4% thereof was classified as doubtful and
○ 505,000 as uncollectible
○ 91.7% 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.
Note: 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.
Abacus Real Estate Development Center vs The Manila Banking
Corporation
G.R. No. 162270 April 06, 2005
DOCTRINE
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 Bank owns a land where it constructed a 14-storey building.
the bank encountered financial difficulties that rendered it unable to
finish construction of the building. The Central Bank ordered the
closure of Manila Bank and placed it under receivership. The
legality of the closure was contested by the bank before the proper
court.
The Central Bank ordered the liquidation of Manila Bank and
designated Atty. Santos as Liquidator and later as Statutory
Receiver. The liquidation was held in abeyance pending the
outcome of the earlier suit filed by Manila Bank regarding the
legality of its closure.
In the interim, the bank’s acting president 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. Laureano
group wrote to Puyat offering to lease the building for ten years and
to advance the cost to complete the same. Also, the group wanted
to be given the exclusive option to purchase the building and the lot
on which it was constructed. This offer was accepted by Puyat and
granted it an exclusive option to purchase the lot and building for
150M. Since no disposition of assets could be made due to the
litigation concerning Manila Banks closure, an arrangement was
thought of whereby the property would first be leased to Manila
Equities Corporation (MEQCO), a wholly-owned subsidiary of Manila
Bank, with MEQCO thereafter subleasing the property to Abacus
Real Estate Development Center, Inc. (Abacus), a corporation
formed by the Laureano group for the purpose.
The Laureano group was unable to finish the building. It offered its
rights in Abacus and its exclusive option to purchase to Benjamin
Bitanga. Bitanga alleged that Atty. Santos (Receiver) then verbally
approved his entry into Abacus and his take-over of the sublease
and option to purchase. Thereafter, 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.
Abacus filed a complaint for specific performance and damages
against Manila Bank.
Abacus’ contentions: the option to purchase the lot and building in
question granted to it by Puyat, then acting president, was binding
upon the Manila bank; and the exclusive option to purchase was
ratified by Manila Bank’s receiver, Atty. Renan Santos, during a
lunch meeting held with Benjamin Bitanga.
ISSUE:
WON Puyat has the authority to grant the exclusive option to
purchase the lot and building while Manila Bank was under
receivership by the Central Bank.
RULING:
NO. Manila Bank was under receivership, pursuant to Central Banks
MB Resolution No. 505 dated May 22, 1987, at the time Puyat
granted the exclusive option to purchase to the Laureano group of
investors. Hence, the CA was correct in declaring that Vicente G.
Puyat was without authority to grant the exclusive option to
purchase the lot and building in question.
In Villanueva vs. CA, the court held that:
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 Manilabank having been already placed under receivership, its
officers, inclusive of its acting president were no longer authorized
to transact business in connection with the banks assets and
property. Clearly then, the exclusive option to purchase granted by
Vicente G. Puyat was and still is unenforceable against Manila Bank.
Citing Sections 29 and 30 of the Central Bank Act, SC held that the
receiver appointed by the Central Bank to take charge of the
properties of Manila Bank only had authority to administer the same
for the benefit of its creditors. Granting or approving an exclusive
option to purchase is not an act of administration, but an act of
strict ownership, involving, as it does, the disposition of property
of the bank. Not being an act of administration, the so-called
approval by Atty. Renan Santos amounts to no approval at all, a
bank receiver not being authorized to do so on his own.
Sec. 29. Proceedings upon insolvency. Whenever, upon examination
by the head of the appropriate supervising and examining
department or his examiners or agents into the condition of any
banking institution, it shall be disclosed that the condition of the
same is one of insolvency, or that its continuance in business would
involve probable loss to its depositors or creditors, it shall be the
duty of the department head concerned forthwith, in writing, to
inform the Monetary Board of the facts, and the Board may, upon
finding the statements of the department head to be true, forbid the
institution to do business in the Philippines and shall designate an
official of the Central Bank as receiver to immediately take charge of
its assets and liabilities, as expeditiously as possible collect and
gather all the assets and administer the same for the benefit of its
creditors, exercising all the powers necessary for these purposes
including, but not limited to, bringing suits and foreclosing
mortgages in the name of the banking institution.
Section 30 of the New Central Bank Act 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, Atty. Santos, as receiver, was without any power to approve
or ratify the exclusive option to purchase granted by Puyat, who, in
the first place, was himself bereft of any authority, to bind the bank
under such exclusive option. Manila Bank may not thus be
compelled to sell the land and building in question to petitioner
Abacus under the terms of the latters exclusive option to purchase.
In Re: Petition For Assistance in the Liquidation of the Rural Bank
of Bokod Inc., Philippine Deposit Insurance Corporation vs. BIR
G.R. No. 158261, December 18, 2006
DOCTRINE
When a bank is ordered closed and placed under receivership by the
Monetary Board of the BSP, there is no longer a need to secure a
tax clearance certificate from the BIR before the liquidation court
can approve the project of distribution of the assets of the bank.
Notes:
▪ RBBI - Rural Bank of Bokod (Benguet) Inc.
▪ PDIC - Philippine Deposit Insurance Corporation
FACTS:
In 1986, a special examination of RBBI was conducted by the BSP
wherein various loan irregularities were uncovered. The RBBI Board
of Directors were told that unless capital was immediately infused
to rehabilitate the bank, it will recommend that the bank be placed
under receivership. However, no action was taken by the RBBI BOD,
thus the bank was indeed placed under receivership.
And since the bank remained in insolvent financial condition, it can
no longer safely resume business with the depositors, creditors, and
the general public. Thus, the Monetary Board ordered the
liquidation of the bank. A petition for Assistance in the Liquidation
of RBBI was filed before the courts and receivership/liquidation of
RBBI was transferred to the Philippine Deposit Insurance
Corporation (PDIC). During the hearing, the BIR manifested that the
PDIC should secure a tax clearance certificate before it could
proceed with the dissolution of RBBI.
ISSUE:
Whether or not a bank ordered closed and placed under
receivership by the Monetary Board of the BSP still needs to secure
a tax clearance certificate from the BIR before the liquidation court
approves the project of distribution of the assets of the bank.
RULING:
No, a tax clearance certificate is no longer necessary in the case at
bar.
The BIR anchors its position that a tax clearance is necessary on the
Tax Code of 1997. However, the same only regulates the relations 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 the case at bar, RBBI was placed under receivership
and ordered liquidated by the BSP, not the SEC. The SC 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. 
The SEC has the authority to order the dissolution of a corporation
under the Corporation Code (BP 68, Sec. 121). However, the
Corporation Code 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
Here, the liquidation of RBBI is undertaken according to Sections 30
of the New Central Bank Act. The said provision lays down the
proceedings for receivership and liquidation of a bank. Although it is
silent as regards the securing of a tax clearance from the BIR, the
omission, nonetheless, cannot compel the SC to apply by analogy
the tax clearance requirement of the SEC, as stated in the Tax Code
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.
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.  of the BSP the power to, summarily and without need for prior
Procedure under the Corporation Code:
(1) 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.
(2) 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.
(3) The BIR is supposed to issue a tax clearance to the
corporation within 30 days from receipt of the foregoing
documentary requirements.
(4) 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.
Although the SC 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 liquidation proceedings before the RTC is summary in nature. 
Section 30(d) of the New Central Bank Act gives the Monetary Board
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. 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. 

(5) 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.

(6) 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.

Procedure under the Monetary Board:

(1) 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.

(2) 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.

Note: The actions of the Monetary Board 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.

(3) 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.

(4) The bank is not given the option to undertake its own
liquidation. 
 Merchants Rural Bank of Talavera Inc. v. Monetary Board
G.R No. 175114 January 26, 2006 Section 30 provides that “actions of the Monetary Board (on
NOTE: THIS IS A COURT OF APPEALS CASE NOT SC CASE proceedings in receivership and liquidation) shall be final and
executory and may not be restrained or set aside by the court
DOCTRINE except on petition for certiorari which may only be filed by the
Sec. 30 RA no. 7653 provides that actions of the Monetary Board stockholders of record representing the majority of the capital
shall be final and executory, and may not be restrained or set aside stock.
by the court except on petition for certiorari which may on be filed
by the stockholders of record representing the majority of the Indubitably, petitioner bank is not the stockholders of record but
capital stock. the corporation itself. Hence, petitioner bank does not have the
legal capacity to file the instant petition.
FACTS:
On March 21, 2005, the Bangko Sentral ng Pilipinas (BSP) extended
an emergency loan of 100 million to Petitioner Merchants Rural
Bank of Talavera, Inc. (Bank). Pending the required general
examination of the Bank’s assets and affairs, the BSP relreased a
portion of the loan amounting to 32.947 million. The BSP refused to
issue the remaining proceeds of the loan until the controlling
stockholders have signed the required Deed of Negative Pledge,
Surety Agreement and Joint and Several Undertaking.

The Bank’s President, Atty. Peralta, thus requested the BSP to place
the Bank under Conservatorship in accordance with Section 29 of RA
7653 (New Central Bank Act) and reiterated their appeal for the
release of the remaining proceeds of the loan. The BSP denied said
request and held that assigning a Conservator is not proper and
suitable considering the Bank’s situation.

Subsequently, the BSP concluded its general examination in August

2005 and on January 3, 2006, found that the Bank’s liabilities
exceeded its realizable assets by 26.28 million. Thus, the BSP
supervisor and examination department IV recommended that the
Bank be placed under Receivership pursuant to Section 30 of RA
7653.

The assailed resolution of Monetary Board of BSP decided on the

following:

1. To prohibit MRBTI from doing business in the Philippines and to

place its assets and affairs under receivership in accordance with
Section 30 of RA 7653; and

2. To designate the Philippine Deposit Insurance Corporation as

Recover of MRBTI.

Aggrieved, petitioner bank filed this petition raising the sole issue:

ISSUE:
WON the Monetary Board committed grave abuse of discretion
amounting to lack or excess of jurisdiction in issuing the questioned
resolution prohibiting Merchants Rural Bank of Talavera, Inc. from
doing business in the Philippines and placing its assets and affairs
under the receivership of the Philippine deposit Insurance
Corporation.-- NO.

RULING:
No, the Monetary Board did not commit grave abuse of discretion
amounting to lack or excess of jurisdiction in issuing the resolution.

The petition was dismissed because petitioner sailed to comply with

rule on Hierarchy of Courts-- they resorted in filing the petition for
certiorari in CA instead of filing it in RTC. Although RTC, CA and SC
have concurrent jurisdiction to issue the writ of certiorari, petitioner
must still follow the rule on Hierarchy of Courts.

But assuming that they have complied with the rules, their petition
will still fail in accordance with Section 30 of RA 7653: (note: this is
the focus of the lesson)
 Bangko Sentral v. Hon. Valenzuela
G.R. No. 184778 October 2, 2009
DOCTRINE
Sec. 28 of the New Central Bank Act, which governs examinations of
banking institutions, provides that the ROE shall be submitted to the
MB; the bank examined is not mentioned as a recipient of the ROE.
Allowing banks to view the ROEs and act upon them to forestall any
sanctions the MB might impose has no basis in law and violates the
"close now, hear later" doctrine.
FACTS:
In September of 2007, the Supervision and Examination Department
(SED) of the Bangko Sentral ng Pilipinas (BSP) conducted
examinations of the books of the following respondent banks: Rural
Bank of Parañaque, Inc. (RBPI), Rural Bank of San Jose (Batangas),
Inc., Rural Bank of Carmen (Cebu), Inc., Pilipino Rural Bank, Inc.,
Philippine Countryside Rural Bank, Inc., Rural Bank of Calatagan
(Batangas), Inc. (now Dynamic Rural Bank), Rural Bank of Darbci,
Inc., Rural Bank of Kananga (Leyte), Inc. (now First Interstate Rural
Bank), Rural Bank de Bisayas Minglanilla (now Bank of East Asia),
and San Pablo City Development Bank, Inc.
After the examinations, exit conferences were held with the officers
of the banks wherein the SED examiners provided them with copies
of Lists of Findings/Exceptions containing the deficiencies
discovered during the examinations. These banks were then
required to comment and to undertake the remedial measures
stated in these lists within 30 days from their receipt of the lists,
which remedial measures included the infusion of additional capital.
Though the banks claimed that they made the additional capital
infusions, Chuchi Fonacier, officer-in-charge of the SED, sent
separate letters to the Board of Directors of each bank, informing
them that the SED found that the banks failed to carry out the
required remedial measures. In response, the banks requested that
they be given time to obtain BSP approval to amend their Articles of
Incorporation, that they have an opportunity to seek investors. They
requested as well that the basis for the capital infusion figures be
disclosed, and noted that none of them had received the Report of
Examination (ROE) which finalizes the audit findings.
On May 12, 2008, the RBPI filed a complaint for nullification of the
BSP ROE with application for a TRO and writ of preliminary
injunction before the RTC against Fonacier and the BSP, praying
that Fonacier, her subordinates, agents, or any other person acting
in her behalf be enjoined from submitting the ROE or any similar
report to the Monetary Board (MB), or if the ROE had already been
submitted, the MB be enjoined from acting on the basis of said
ROE, on the allegation that the failure to furnish the bank with a
copy of the ROE violated its right to due process. The other
respondent banks followed suit, filing complaints with the RTC
substantially similar to that of RBPI.
On May 14, 2008, Fonacier and the BSP filed their opposition to the
application for a TRO and writ of preliminary injunction in Civil Case
No. 08-119243 with the RTC. Respondent Judge Nina Antonio-
Valenzuela granted RBPI’s prayer for the issuance of a TRO. Judge
Valenzuela issued an Order granting the prayer for the issuance of
TROs for the other seven other consolidated cases
On May 26, 2008, BSP MB and Fonacier filed a Motion to Dismiss
against all the complaints (except that of the San Pablo City
Development Bank, Inc.), on the grounds that the complaints stated
no cause of action and that a condition precedent for filing the cases
had not been complied with. On May 29, 2008, a hearing was
conducted on the application for a TRO and for a writ of preliminary
injunction of San Pablo City Development Bank, Inc.
RTC Ruling
The RTC ruled that ruled that the banks were entitled to the writs of
preliminary injunction prayed for. It held that it had been the
practice of the SED to provide the ROEs to the banks before
submission to the MB. It further held that as the banks are the
subjects of examinations, they are entitled to copies of the ROEs.
The denial by petitioners of the banks’ requests for copies of the
ROEs was held to be a denial of the banks’ right to due process.
CA Ruling
The Court of Appeals held that the principles of fairness and
transparency dictate that the respondent banks are entitled to
copies of the ROE.
Contention of BSP and Fonacier
They contend that the injunction issued by the RTC violated Section
25 of the New Central Bank Act and effectively handcuffed the BSP
from discharging its functions to the great and irreparable damage
of the country’s banking system. They also contend that the
respondent banks are not entitled to be furnished copies of their
respective ROEs before the same is submitted to the Monetary
Board (MB) in view of the principles of fairness and transparency
despite lack of express provision in the New Central Bank Act
requiring BSP to do the same.
ISSUE:
Was the issuance of the TRO proper? Are the banks entitled to be
furnished copies of their respective ROEs before they are submitted
to the MB?
RULING:
(1) The issuance of the TRO was not proper. The respondent banks
are not entitled to be furnished copies of ROEs.
The respondent banks have failed to show that they are entitled to
copies of the ROEs. They can point to no provision of law, no
section in the procedures of the BSP that shows that the BSP is
required to give them copies of the ROEs. Sec. 28 of RA 7653, or the
New Central Bank Act, which governs examinations of banking
institutions, provides that the ROE shall be submitted to the MB; the
bank examined is not mentioned as a recipient of the ROE.
The respondent banks cannot claim a violation of their right to due
process if they are not provided with copies of the ROEs. The same
ROEs are based on the lists of findings/exceptions containing the
deficiencies found by the SED examiners when they examined the
books of the respondent banks. As found by the RTC, these lists of
findings/exceptions were furnished to the officers or representatives
of the respondent banks, and the respondent banks were required to
comment and to undertake remedial measures stated in said lists.
Despite these instructions, respondent banks failed to comply with
the SED’s directive.
Respondent banks are already aware of what is required of them by
the BSP, and cannot claim violation of their right to due process
simply because they are not furnished with copies of the ROEs. If
the banks are already aware of the contents of the ROEs, they
cannot say that fairness and transparency are not present. If
sanctions are to be imposed upon the respondent banks, they are
already well aware of the reasons for the sanctions, having been
informed via the lists of findings/exceptions. The ROEs would then
be superfluities to the respondent banks and should not be the basis
for a writ of preliminary injunction.
The issuance by the RTC of writs of preliminary injunction is an
unwarranted interference with the powers of the MB. Secs. 29 and
30 of RA 7653 refer to the appointment of a conservator or a The respondent banks have failed to show their entitlement to the
receiver for a bank, which is a power of the MB for which they need writ of preliminary injunction. The issuance of the writ of
the ROEs done by the supervising or examining department. The preliminary injunction tramples upon the powers of the MB and
writs of preliminary injunction issued by the trial court hinder the prevents it from fulfilling its functions. There is no right that the writ
MB from fulfilling its function under the law. The actions of the MB of preliminary injunction would protect in this particular case. In the
under Secs. 29 and 30 of RA 7653 "may not be restrained or set absence of as clear legal right, the issuance of the injunctive writ
aside by the court except on petition for certiorari on the ground constitutes grave abuse of discretion.
that the action taken was in excess of jurisdiction or with such grave
abuse of discretion as to amount to lack or excess of jurisdiction."
The writs of preliminary injunction order are precisely what cannot
be done under the law by preventing the MB from taking action
under either Sec. 29 or Sec. 30 of RA 7653.

(2) Close now, hear later doctrine

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 trial court required the MB to respect the respondent banks’

right to due process by allowing the respondent banks to view the
ROEs and act upon them to forestall any sanctions the MB might
impose. Such procedure has no basis in law and does in fact violate
the "close now, hear later" doctrine.

As held in Rural Bank of San Miguel, Inc. v. Monetary Board, BSP:

It is well-settled that the closure of a bank may be considered
as an exercise of police power. The action of the MB on this
matter is final and executory. Such exercise may nonetheless
be subject to judicial inquiry and can be set aside if found to be
in excess of jurisdiction or with such grave abuse of discretion
as to amount to lack or excess of jurisdiction.

Remedy is Subsequent
The respondent banks cannot—through seeking a writ of
preliminary injunction by appealing to lack of due process, in a
roundabout manner— prevent their closure by the MB. Their
remedy, as stated, is a subsequent one, which will determine
whether the closure of the bank was attended by grave abuse of
discretion. Judicial review enters the picture only after the MB has
taken action; it cannot prevent such action by the MB. The threat of
the imposition of sanctions, even that of closure, does not violate
their right to due process, and cannot be the basis for a writ of
preliminary injunction.

The "close now, hear later" doctrine has already been justified as a
measure for the protection of the public interest. Swift action is
called for on the part of the BSP when it finds that a bank is in dire
straits. Unless adequate and determined efforts are taken by the
government against distressed and mismanaged banks, public faith
in the banking system is certain to deteriorate to the prejudice of
the national economy itself, not to mention the losses suffered by
the bank depositors, creditors, and stockholders, who all deserve
the protection of the government.

Central Bank vs Dela Cruz
G.R. No. 59957 November 12, 1990
DOCTRINE
The actions of the Monetary Board in proceedings on insolvency are
explicitly declared by law to be "final and executory." They may not
be set aside, or restrained, or enjoined by the courts, except upon
"convincing proof that the action is plainly arbitrary and made in
bad faith.”
FACTS: Libmanan Bank started operations in 1965 under and by
virtue of R.A. 720 (Rural Banks’ Act). Originally owned and managed
by the Albas’ family, Libmanan Bank was later sold to Manuel Villar
and Alex Durante, who commenced banking operations in January
1979.
the CB, respondent Judge committed a grave abuse of discretion
tantamount to excess, or lack of jurisdiction.
Respondent Judge abused his discretion in authorizing the Libmanan
Bank to withdraw funds from its deposits in other banks. The Rural
Bank had become insolvent as a result of mismanagement, frauds,
irregularities and violations of banking laws, rules, and regulations
by its officers. Its remaining assets should therefore be conserved to
pay its creditors. Allowing the Rural Bank to withdraw its deposits in
other banks would result in the further diminution and dissipation
of its assets to the prejudice of its depositors and creditors, and to
the unlawful advantage of the very officers who brought about the
bank’s insolvency.

In 1979, the Department of Rural Banks and Savings and Loan

Associations (DRBSLA) of the Central Bank of the Philippines (CB)
conducted examinations of the books and affairs of Libmanan Bank
DRBSLA director, Consolacion Odra, found serious irregularities in its
lending and deposit operations, including false entries and false
statements in the bank’s records to give it the appearance of solidity
and soundness which it did not possess. As a result of its
questionable transactions, the bank became insolvent.

Finding the report to be true, the Monetary Board adopted

Resolution No. 929 placing Libmanan Bank under statutory
receivership and designating Director Odra, as Receiver, pursuant to
R.A. 265 (Sec. 29), as amended.

Libmanan Bank was informed of the Monetary Board Resolution No.

929, and advised to submit to the Monetary Board an acceptable
reorganization and rehabilitation program. Meanwhile, Director
Odra, as receiver, took possession and control of the assets and
records of the rural bank.

As Libmanan Bank failed to submit the required acceptable

reorganization and rehabilitation plan, the Monetary Board issued
Resolution No. 1852 ordering its liquidation.

ISSUE: Whether or not respondent Judge acted with grave abuse of

discretion or without or in excess of his jurisdiction in issuing the
questioned orders. YES, regular courts cannot issue a restraining
order against Central Bank in placing a bank under insolvency.

RULING: The authority for the receivership of Libmanan Bank is

found in Section 29 of the Central Bank Act (P.D. 1827).

It is noteworthy that the actions of the Monetary Board in

proceedings on insolvency are explicitly declared by law to be "final
and executory." They may not be set aside, or restrained, or
enjoined by the courts, except upon "convincing proof that the
action is plainly arbitrary and made in bad faith.”

Respondent Judge acted in plain disregard of the fourth paragraph

of Section 29 of the Central Bank Act, when he restrained the
petitioners from closing and liquidating the Rural Bank of Libmanan,
prevented them from performing their functions, and ordered them
to return the management and control of the rural bank to its board
of directors without receiving convincing proof that the action of
the CB was plainly arbitrary and made in bad faith.

By using his own standards, instead of the standards set forth in

Section 29 of the law, as basis for issuing a restraining order against

Busuego v. Court of Appeals
(GR No. 95326, March 11, 1999)
DOCTRINE
Central Bank of the Philippines, through the Monetary Board, is the
government agency charged with the responsibility of administering
the monetary, banking and credit system of the country and is
granted the power of supervision and examination over banks and
non-bank financial institutions performing quasi-banking functions
of which savings and loan associations.
FACTS: The 16th regular examination of the books and records of
the PAL Employees Savings and Loan Association, Inc. ("PESALA")
was conducted by the Central Bank (CB). Several anomalies and
irregularities committed by PESALA were discovered:
1. Questionable investment In a multi-million peso real
estate project (Pesalaville)
2. Conflict of interest in the conduct of business
3. Unwarranted declaration and payment of dividends
4. Commission of unsound and unsafe business practices.
Central Bank’s Supervision and Examination Section Director Ricardo
F. Lirio sent a letter to the Board of Directors of PESALA inviting
them to a conference to discuss the findings of the examination, but
petitioners did not attend such conference.
Renato Lim wrote the PESALA's Board of Directors explaining his
side on the said examination of PESALA's records and requesting
that a copy of his letter be furnished to the CB. PESALA's Board of
Directors sent to Director Lirio a letter concerning the 16th regular
examination of PESALA's records.
The Monetary Board adopted and issued MB Resolution No. 805 the
pertinent provisions of which are as follows:
1. To note the report on the examination of the PESALA as
of December 31, 1987, as submitted in a memorandum of
the Director, SES.
2. To require the board of directors of PESALA to
immediately inform the members of PESALA of the results
of the "Central Bank examination. and their effects on the
financial condition of the Association;
XXX
5. To include the names of Mr. Catalino Banez, Mr. Romeo
Busuego and Mr. Renato Lim in the Sector's watchlist to
prevent them from holding responsible positions in any
institution under Central Bank supervision;
6. To require PESALA to enforce collection of the
overpayment to the Vista Grande Management and
Development Corporation and to require the accounting
of P12.28 million unaccounted and unremitted bank loan
proceeds and P3.9 million other unsupported cash
disbursements from the responsible directors and officers;
or to properly charge these against their respective
accounts, if necessary;
7. To require the board of directors of PESALA to file civil
and criminal cases against Messrs. Catalino Banez, Romeo
Busuego and Renato Lim for all the misfeasance and
malfeasance committed by them, as warranted by the
evidence;
8. To require the board of directors of PESALA to improve
the operations of the Association; correct all violations
noted, and adopt internal control measures to prevent the
recurrence of similar incidents as shown in Annex E of the
subject memorandum of the Director, SES Department IV
ISSUE:
1. Were the petitioners deprived of their right to a notice
prior to the issuance of monetary board resolution no.
805? No
2. Is the Monetary Board Resolution no. 805 null and void
for being violative of petitioners' rights to due process? No
RULING:
1. NO. Petitioners were duly afforded their right to due process by
the Monetary Board, it appearing that:
1. Petitioners were invited by Director Lirio to a conference
scheduled for July 21, 1988 to discuss the findings made in
the 16th regular examination of PESALA's records.
However, petitioners did not attend said conference;
2. Petitioner Renato Lim's letter of July 28, 1988 to PESALA.'s
Board of Directors, explaining his side of the controversy,
was forwarded to the Monetary Board which the latter
considered in adopting Monetary Board Resolution No.
805; and
3. PESALA's Board of Directors letter, dated July 29, 1988, to
the Monetary Board, explaining the Board's side of the
controversy was properly considered in the adoption of
Monetary Board Resolution No. 805.
Petitioners, therefore, cannot complain of deprivation of their right
to due process, as they were given ample opportunity by the
Monetary Board to air their submission and defenses as to the
findings of irregularity during the said 16th regular examination.
The essence of due process is to be afforded a reasonable
opportunity to be heard and to submit any evidence one may have
in support of his defense. What is offensive to due process is the
denial of the opportunity to be heard. Petitioners having availed of
their opportunity to present their position to the Monetary Board
by their letters-explanation, they were not denied due process.
2. NO. It must be remembered that the Central Bank of the
Philippines, through the Monetary Board, is the government
agency charged with the responsibility of administering the
monetary, banking and credit system of the country and is granted
the power of supervision and examination over banks and non-
bank financial institutions performing quasi-banking functions of
which savings and loan associations, such as PESALA, from part of.
Republic Act No. 3779, as amended, otherwise known as the
"Savings and Loan Association Act” authorizes the Monetary Board
to conduct regular yearly examinations of the books and records of
savings and loans associations, to suspend a savings and loan
association for violation of law, to decide any controversy over the
obligations and duties of directors and officers, and to take
remedial measures, among others.
Thus, the Central Bank, through the Monetary Board, is
empowered to conduct investigations and examine the records of
savings and loan associations. If any irregularity is discovered in the
process, the Monetary Board may impose appropriate sanctions,
such as suspending the offender from holding office or from being
employed with the Central Bank or placing the names of the
offenders in a watchlist.
The requirement of prior notice is also relaxed under Section 28 (c)
of RA 3779 as investigations or examinations may be conducted
with or without prior notice "but always with fairness and
reasonable opportunity for the association or any of its officials to
give their side." As may be gathered from the records, the said
requirement was properly complied with by the respondent
Monetary Board.
 Apex Bancrights vs. Bangko Sentral ng Pilipinas
G.R. No. 214866, October 02, 2017

DOCTRINE
Nothing in Section 30 of RA 7653 requires the BSP, through the
Monetary Board, to make an independent determination of whether
a bank may still be rehabilitated or not.

FACTS:

Sometime in July 2001, EIB entered into a three-way merger with

Urban Bank, Inc. (UBI) and Urbancorp Investments, Inc. (UII) in an
attempt to rehabilitate UBI which was then under receivership.
Following the said merger, EIB itself encountered financial
difficulties which prompted respondent the Philippine Deposit
Insurance Corporation (PDIC) to extend financial assistance to it.
However, EIB still failed to overcome its financial problems, thereby
causing PDIC to release in May 2005 additional financial assistance
to it, conditioned upon the infusion by EIB stockholders of additional
capital whenever EIB's adjusted Risk Based Capital Adequacy Ratio
falls below 12.5%. Despite this, EIB failed to comply with the BSP's
capital requirements, causing EIB's stockholders to commence the
process of selling the bank.

Initially, Banco de Oro (BDO) expressed interest in acquiring EIB.

However, certain issues derailed the acquisition. In the end, BDO's
acquisition of EIB did not proceed and the latter's financial condition
worsened. Thus, in a letter dated April 26, 2012, EIB's president and
chairman voluntarily turned-over the full control of EIB to BSP.

On April 26, 2012, the BSP, through the Monetary Board, issued
Resolution No. 686 prohibiting EIB from doing business in the
Philippines and placing it under the receivership of PDIC, in
accordance with Section 30 of Republic Act No. (RA) 7653, otherwise
known as "The New Central Bank Act." Accordingly, PDIC took over
EIB.

In due course, PDIC submitted its initial receivership report to the

Monetary Board which contained its finding that EIB can be
rehabilitated or permitted to resume business; provided, that a
bidding for its rehabilitation would be conducted, and that the
following conditions would be met: (a) there are qualified interested
banks that will comply with the parameters for rehabilitation of a
closed bank, capital strengthening, liquidity, sustainability and
viability of operations, and strengthening of bank governance; and
(b) all parties (including creditors and stockholders) agree to the
rehabilitation and the revised payment terms and conditions of
outstanding liabilities.

However, PDIC informed BSP that EIB can hardly be rehabilitated.

Based on PDIC's report that EIB was insolvent, the Monetary Board
passed Resolution No. 571 on April 4, 2013 directing PDIC to
proceed with the liquidation of EIB.

On April 29, 2013, petitioners, who are stockholders representing

the majority stock of EIB, filed a petition for certiorari[16] before the
CA challenging Resolution No. 571.

Apex et al’s contentions

They blame PDIC for the failure to rehabilitate EIB, contending that
PDIC: (a) imposed unreasonable and oppressive conditions which
delayed or frustrated the transaction between BDO and EIB; (b)
frustrated EIB's efforts to increase its liquidity when PDIC
disapproved EIB's proposal to sell its MRT bonds to a private third
party and, instead, required EIB to sell the same to government
entities; (c) imposed impossible and unnecessary bidding
requirements; and (d) delayed the public bidding which dampened
investors' interest.

PDIC’s defense
Petitioners were already estopped from assailing the placement of
EIB under receivership and its eventual liquidation since they had
already surrendered full control of the bank to the BSP as early as
April 26, 2012.
ISSUE: WON the CA correctly ruled that the Monetary Board did
not gravely abuse its discretion in issuing Resolution No. 571 which
directed the PDIC to proceed with the liquidation of EIB.
RULING: YES. The CA did not gravely abuse its discretion.
To recount, after the Monetary Board issued Resolution No. 686
which placed EIB under the receivership of PDIC, the latter
submitted its initial findings to the Monetary Board, stating that EIB
can be rehabilitated or permitted to resume business; provided,
that a bidding for its rehabilitation would be conducted, and that
the following conditions would be met:
principal agencies mandated by law to determine the financial
viability of banks and quasi-banks, and facilitate the receivership
and liquidation of closed financial institutions, upon a factual
determination of the latter's insolvency.
In sum, the Monetary Board's issuance of Resolution No. 571
ordering the liquidation of EIB cannot be considered to be tainted
with grave abuse of discretion as it was amply supported by the
factual circumstances at hand and made in accordance with
prevailing law and jurisprudence. To note, the "actions of the
Monetary Board in proceedings on insolvency are explicitly declared
by law to be 'final and executory.' They may not be set aside, or
restrained, or enjoined by the courts, except upon 'convincing proof
that the action is plainly arbitrary and made in bad faith,' which is
absent in this case.

(a) there are qualified interested banks that will comply

with the parameters for rehabilitation of a closed bank,
capital strengthening, liquidity, sustainability and viability
of operations, and strengthening of bank governance; and

(b) all parties (including creditors and stockholders) agree

to the rehabilitation and the revised payment terms and
conditions of outstanding liabilities.

However, the foregoing conditions for EIB's rehabilitation "were not

met because the bidding and re-bidding for the bank's
rehabilitation were aborted since none of the pre-qualified
Strategic Third Party Investors (STPI) submitted a letter of interest to
participate in the bidding," thereby resulting in the PDIC's finding
that EIB is already insolvent and must already be liquidated - a
finding which eventually resulted in the Monetary Board's issuance
of Resolution No. 571.

In an attempt to forestall EIB's liquidation, petitioners insist that the

Monetary Board must first make its own independent finding that
the bank could no longer be rehabilitated - instead of merely relying
on the findings of the PDIC before ordering the liquidation of a bank.
Such position is untenable.

As correctly held by the CA, nothing in Section 30 of RA 7653

requires the BSP, through the Monetary Board, to make an
independent determination of whether a bank may still be
rehabilitated or not. As expressly stated in the afore-cited provision,
once the receiver determines that rehabilitation is no longer
feasible, the Monetary Board is simply obligated to: (a) notify in
writing the bank's board of directors of the same; and (b) direct the
PDIC to proceed with liquidation, viz.:

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. x x x

Suffice it to say that if the law had indeed intended that the
Monetary Board make a separate and distinct factual determination
before it can order the liquidation of a bank or quasi-bank, then
there should have been a provision to that effect. There being none,
it can safely be concluded that the Monetary Board is not so
required when the PDIC has already made such determination.

It must be stressed that the BSP (the umbrella agency of the

Monetary Board), in its capacity as government regulator of banks,
and the PDIC, as statutory receiver of banks under RA 7653, are the
 Issue of Means of Payment
Philippine Airlines vs CA
G.R. No. L-49188, January 30, 1990
DOCTRINE
Since a negotiable instrument is only a substitute for money and not
money, the delivery of such an instrument does not, by itself,
operate as payment. A check, whether a manager’s check or
ordinary check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be
refused receipt by the oblige or creditor.
FACTS:
On November 8, 1967, Amelia Tan, under the name and style of
Able Printing Press commenced a complaint for damages before the
CFI Manila against PAL.
CFI rendered judgment in favor of Amelia Tan. PAL appealed with
the CA.
CA rendered its decision modifying the award that PAL shall pay to
Tan P25,000 as damages and P5,000 as attorney’s fees. No further
appeal having been taken by the parties, the judgment became final
and executory.
The case was remanded to the trial court for execution and on
September 2, 1977, Tan filed a motion praying for the issuance of a
writ of execution of the judgment rendered by the CA. The trial
court issued its order of execution in favor of Tan.
Four months later, on February 11, 1978, Tan moved for the
issuance of an alias writ of execution stating that the judgment
rendered remained unsatisfied.
PAL filed an opposition to the motion for the issuance of an alias
writ of execution stating that it had already fully paid its obligation
to plaintiff through the deputy sheriff of the respondent court,
Emilio Z. Reyes, as evidenced by cash vouchers properly signed and
receipted by said Emilio Z. Reyes.
CA denied the issuance of the alias writ for being premature,
ordering the Sheriff Reyes to appear with his return and explain the
reason for his failure to surrender the amounts paid to him by PAL.
However, the order could not be served upon Deputy Sheriff Reyes
who had absconded or disappeared.
Tan filed another motion for alias writ of execution which the court
granted.
ISSUE:
W/N the payment of judgment to the implementing officer as
directed in the writ of execution constitutes satisfaction of
judgment.
RULING:
No. Under the initial judgment, Amelia Tan was found to have been
wronged by PAL and Ms. Tan won her case. Almost 22 years later,
She has not seen a centavo of what the courts have solemnly
declared as rightfully hers. Through absolutely no fault of her own,
she has been deprived of what, technically, she should have been
paid from the start without need of her going to court to enforce
her rights. And all because PAL did not issue the checks intended for
her, in her name.
Under the peculiar circumstances of this case, the payment to the
absconding sheriff by check in his name did not operate as a
satisfaction of the judgment debt.
In general, a payment, in order to be effective to discharge an
obligation, must be made to the proper person.
Article 1240 provides that payment must be made to the obligee
himself or to an agent having authority, express or implied, to
receive the particular payment.
Under ordinary circumstances, payment by the judgment debtor in
the case at bar, to the sheriff should be valid payment to extinguish
the judgment debt.
However, there are circumstances in this case which compel a
different conclusion.
The payment made by PAL to the absconding sheriff was not in cash
or legal tender but in checks. The checks were not payable to
Amelia Tan or Able Printing Press but to the absconding sheriff.
Article 1249 provides that the delivery of promissory notes payable
to order, or bills of exchange or other mercantile documents shall
produce the effect of payment only when they have been cashed, or
when through the fault of the creditor they have been impaired.
In the absence of an agreement, either express or implied, payment
means the discharge of a debt or obligation in money, and unless
the parties so agree, a debtor has no rights, except at his own peril,
to substitute something in lieu of cash as medium of payment of his
debt.
Consequently, unless authorized to do so by law or by consent of
the oblige, a public officer has no authority to accept anything other
than money in payment of an obligation under a judgment being
executed. Strictly speaking, the acceptance by the sheriff of the
petitioner’s checks, in the case at bar, does not, per se, operate as a
discharge of the judgment debt.
Since a negotiable instrument is only a substitute for money and not
money, the delivery of such an instrument does not, by itself,
operate as payment. A check, whether a manager’s check or
ordinary check, is not legal tender, and an offer of a check in
payment of a debt is not a valid tender of payment and may be
refused receipt by the oblige or creditor. Mere delivery of check
does not discharge the obligation under judgment. The obligation is
not extinguished and remains suspended until the payment by
commercial document is actually realized.
If payment to Sheriff Reyes was made in cash, would there have
been payment in full legal contemplation?
Payment in money or cash to the implementing officer may be
deemed absolute payment of the judgment debt, but the Court has
never, in the least bit, suggested that judgment debtors should
settle their obligations by turning over huge amounts of cash or
legal tender to sheriffs and other executing officers.
As a protective measure, therefore, the court encourage the
practice of payments by check provided adequate controls are
instituted to prevent wrongful payment and illegal withdrawal or
disbursement of funds.
If particularly big amounts are involved, escrow arrangement with a
bank and carefully supervised by the court would be the safer
procedure. Actual transfer of funds takes place within the safety of
bank premises.
It is indeed out of the ordinary that checks intended for a particular
payee are made out in the name of another. Making the checks
payable to the judgment creditor would have prevented the
encashment or the taking of undue advantage by the sheriff, or any
person into whose hands the checks may have fallen, whether
wrongfully or in behalf of the creditor.
Having failed to employ the proper safeguards to protect itself, the
judgment debtor whose act made possible the loss had but itself to
blame.
Far East Bank & Trust Company vs Diaz Realty Inc.
G.R. No. 138588 August 23, 2001
DOCTRINE
For a valid tender of payment, it is necessary that there be a fusion
of intent, ability and capability to make good such offer, which must
be absolute and must cover the amount due. Though a check is not
legal tender, and a creditor may validly refuse to accept it if
tendered as payment, one who in fact accepted a fully funded check
after the debtors manifestation that it had been given to settled an
obligation is estopped from later on denouncing the efficacy of such
tender of payment.
FACTS:
In August 1973, Diaz and Co. obtained a loan from the former Pacific
Banking Corp. (PaBC) in the amount of P720,000.00. The loan was
secured by a REM over two parcels of land owned by Diaz Realty. In
1981, Allied Banking Corp. (ABC) rented an office space in the
building constructed on the properties mortgaged (with conformity
of mortgagee PaBC). It was agreed that the monthly rentals shall be
paid directly to PaBC for the lessor’s (Diaz) account, either to partly
or fully pay off the aforesaid mortgage indebtedness. So, ABC paid
the monthly rentals to PaBC instead of Diaz.
On July 5, 1985, the Central Bank closed PaBC, placed it under
receivership, and appointed Renan Santos as its liquidator. In
December 1986, FEBTC purchased the credit of Diaz & Co. in favor
of PaBC, but it was only in March 23, 1988 that Diaz was informed
about it. Diaz was informed that FEBTC had acquired PaBC. Diaz
asked FEBTC to make an accounting of the monthly rental payments
made ABC. On December 14, 1988, Diaz tendered to FEBTC the
amount of P1,450,000 through an Interbank check, in order to
prevent the imposition of additional interest, penalties and
surcharges on its loan. FEBTC did not accept it as payment. Diaz was,
instead, asked to deposit the amount with FEBTC’s Davao City
Branch Office. Later, FEBTC told him to change the 1.450M deposit
into a money market placement, which he did. However, the money
market placement expired. There was still no news from FEBTC
whether or not it would accept his tender of payment. Thus, Diaz
filed this case at RTC Davao City.
FEBTC’s contention: There was no valid tender of payment made by
Diaz. FEBTC points out that the check tendered by Diaz to settle its
outstanding obligation could not be considered legal tender.
ISSUE:
WON there was a valid tender of payment.
RULING:
Yes, there was. True, jurisprudence holds that, in general, a check
does not constitute legal tender, and that a creditor may validly
refuse it. It must be emphasized, however, that this dictum does not
prevent a creditor from accepting a check as payment. In other
words, the creditor has the option and the discretion of refusing or
accepting it.
In the present case, FEBTC did not refuse Diaz check. On the
contrary, it accepted the check which, it insisted, was a deposit.
SC defined tender of payment: It is the definitive act of offering the
creditor what is due him or her, together with the demand that the
creditor accepts the same. More important, there must be a fusion
of intent, ability and capability to make good such offer, which must
be absolute and must cover the amount due.
In the case at bar, Diaz intended to settle its obligation with FEBTC.
Diaz presented the check to FEBTC with the specific notation that it
was for full payment of its PaBC account that had been purchased
by FEBTC. FEBTC accepted the check, even if it now insists that it is
considered as a mere deposit. The check was sufficiently funded, as
in fact it was honored by the drawee bank. When FEBTC refused to
release the REM, Diaz instituted the present case to compel the
bank to acknowledge the tender of payment, accept payment and
cancel the mortgage. These acts demonstrate respondents intent,
ability and capability to fully settled and extinguish its obligation to
FEBTC.
FEBTC contends that tender of payment extinguishes the obligation
only after proper consignation, which Diaz did not do. SC do not
agree.
For a consignation to be necessary, the creditor must have refused,
without just case, to accept the debtor’s payment. However, FEBTC
accepted Diaz check.
The tender was made by Diaz for the purpose of settling its
obligation. It was incumbent upon petitioner to refuse, or accept it
as payment. The latter did not have the right or the option to accept
and treat it as a deposit.
Thus, by accepting the tendered check and converting it into money,
FEBTC is presumed to have accepted it as payment.
Operations in Gold and Foreign Exchange
Bacolod-Murcia Milling Co vs Central Bank
(G.R. No. L-12610, October 25, 1963)
DOCTRINE
Section 4 (a) of Circular No. 20 of the Central Bank is beyond the
power of the Central Bank to adopt under the provisions of its
Charter, particularly Section 74 thereof.
The provisions of Republic Act 265 are so broad and encompassing
with respect to the Bank's powers that it is difficult to believe that
exchange control was not authorized within the scope of the
Charter.
The Central Bank Act merely authorizes the Monetary Board to
license or to restrict or regulate foreign exchange; said Act does not
authorize it to commandeer foreign exchange earned by exporters
and pay for it the price it
FACTS:
In 1956, Bacolod Murcia Mining sold and exported to Olavarria &
Co., Inc. of New York, United States of America 48,192 piculs
(equivalent to 3,000 tons) of sugar for the total price of $416,640.00
U.S. currency, and as a consequence drew against said Olavarria two
(2) drafts for the total sum of $336,995.40 U.S. Currency, to cover an
initial payment of 95% of said purchase price; said drafts were then
entrusted and delivered for collection to the Philippine Bank of
Commerce(PBC).
PBC called the attention of Bacolod Murcia that under existing rules
and regulations all exchange proceeds of the drafts must be sold to
the Central Bank authorities at the prevailing rate of exchange set
up by the Central Bank creating a reserve supply of dollars which the
Central Bank thereafter disposed to parties in need but at the rate
of 2 to 1.
The defenses presented by Central Bank in its answer are
(1) that Circular No. 20 is presumed to be valid;
(2) that the Philippines is a signatory member of the International
Monetary Fund Agreement and as such is bound to respect or to
maintain the par value of the Philippine currency;
(3) that Circular No. 20 was approved in an exchange crisis in
accordance with Section 74 of the Central Bank Act and said circular
was approved by the President of the Philippines and by the
International Monetary Fund;
(4) that the powers of the Central Bank to curtail, regulate and
license the use of foreign exchange include the right to require that
all foreign exchange be surrendered and that the plaintiff has not
exhausted all the administrative remedies available in the ordinary
course of law, etc.
In its brief,Bacolod Murcia argued that the court below failed to
pass upon the specific objections of appellant to the circular and its
provision, namely,
That the compulsory sale regulation expressly violates Section 73 of
the Central Bank Charter, that it may engage in exchange
transactions only with banking- institutions and other entities
specified;
That the circular establishes a monopoly by allowing,
commandeering of foreign exchange, when its charter allows
commandeering only of gold (Sec. 72) ;
That compelling private persons to sell foreign exchange to the
Central Bank can not be included in the power "to subject to license
all transactions in gold and foreign exchange during an exchange
crisis" as defined in Section 74 of the Charter.
ISSUE:
Whether the exchange control provision contained in Section 4 (a)
of Central Bank Circular No. 20, may be considered as sufficiently
authorized by the provisions of the Charter. NO.
RULING:
The disputed Section 4 (a) of Circular No. 20 of the Central Bank is
beyond the power of the Central Bank to adopt under the
provisions of its Charter, particularly Section 74 thereof.
The provisions of Republic Act 265 are so broad and encompassing
with respect to the Bank's powers that it is difficult to believe that
exchange control was not authorized within the scope of the
Charter.
The fact that the Charter does not expressly grant the Bank the
power to require the forcible sale of foreign exchange is no reason,
per se, for holding that the Bank may not do so.
In Section 70, the Central Bank shall take remedial measures as are
appropriate and within the powers granted whenever the
international reserve falls "to an amount which the Monetary Board
considers inadequate to meet the prospective net demands on the
Central Bank for foreign currencies, or whenever the international
reserve appears to be in imminent danger of falling to such a level,
or whenever the international reserve is falling as a result of
payments or remittances abroad, which, in the opinion of the
Monetary Board, are contrary to the national welfare."
Under Section 14 the Monetary Board is given the authority to
"prepare and issue such rules and regulations as it considers
necessary for the effective discharge of the responsibilities and
exercise the powers assigned to the Monetary Board and to the
Central Bank." This is reiterated under Section 70 aforecited, under
which when the international stability of the peso is threatened, the
Central Bank may "take such remedial measures as are appropriate
and within the power granted to the Monetary Board and the
Central Bank under the provisions of this Act." (R.A. No. 265)
Under Section 70 of the Central Bank Charter the Bank may adopt
such remedial measures as are appropriate to maintain the
international reserve to a desired level, as directed in Section 70 of
the Charter, which provides:
"Sec. 70. Action when the international stability of the peso is
threatened. Whenever the international reserve of the Central Bank
falls to an amount which the Monetary Board considers inadequate
to meet the prospective net demands on the Central Bank for
foreign currencies, or whenever the international reserve appears to
be in imminent danger of falling to such a level, or whenever the
international reserve is falling as a result of payments or remittances
abroad which, in the opinion of the Monetary Board, are contrary to
the national welfare, the Monetary Board shall:
"(a) Take such remedial measures as are appropriate and within the
powers granted to the Monetary Board and the Central Bank under
the provisions of this Act."
However, the Central Bank cannot be said to have been given the
authority to pass or enact by law the exchange control provision
that it had established.
It is true that the remedial measures must be within the powers
granted under the provisions of the Act. The Court ventured the
suggestion that the commandeering of an exporter's dollars for a
price less by 50% than its value and the selling of said dollars to an
importer to the exclusion of the exporter himself, cannot be said
to be authorized even under the pretext of an exchange crisis, by
the provisions acts taken to remedy an exchange crisis must be
within the powers granted and exchange control is not mere
licensing of foreign exchange or the restriction thereof.
The forcible sale of foreign exchange to the Central Bank, in relation
to the powers and responsibilities given to it in Secs. 2, 14, 64, 68,
70, 74 and other sections of R. A. No. 265 can be regarded as falling
within the category of "implied powers" as those necessary for the
effective discharge of its responsibilities.
The Central Bank Act merely authorizes the Monetary Board to
license or to restrict or regulate foreign exchange; said Act does
not authorize it to commandeer foreign exchange earned by
exporters and pay for it the price it fixes, later selling it to
importers at the same rate of purchase.
The exchange control helped to ward off the exchange crisis is
true; but it was by no means the only way to do so. It was not
necessary for the bank to commandeer all foreign exchange to
maintain the international monetary reserve. This could be done
by mere licensing of the sale of foreign exchange, directing those
that earn the dollars, for example, to sell to those that are licensed
to import the foreign commodities needed by the country's
population and economy. As the exports are to be licensed also, the
bank could merely restrict the freedom of the exporter holding the
foreign exchange, requiring him to sell the foreign exchange to the
licensed importer.
Estoppel
As Bacolod Murcia obtained the license to export under the
provisions of Circular No. 20, it may not now question the right or
power of the Bank to enforce the provisions of said circular
requiring surrender of the proceeds of the shipment obtained
through the use of the license. When the Bacolod Murcia secured
the license it was aware of the fact that the license was being issued
under gen-eral Circular No. 20, subject to the right of the Bank to
com-mandeer the proceeds of the exportation. The action on the
part of the petitioner to recover the actual value of the dollar is
barred by estoppel.
Barred by Republic’s exchange commitments.
To comply with its obligations under the International Monetary
Fund Agreement, especially as regards exchange stability, the
Central Bank may not change the par value of the peso in relation to
the dollar without previous consultation or approval by the other
signatories to the agreement. The said Bank, therefore, may not be
compelled to pay in pesos more than its par value in relation to the
U. S. dollar.
Barred by Republic Act No. 265
The Central Bank does not have the power to change the par value
of the peso in relation to the U.S. dollar, under Article 49 of Republic
Act No. 265. Such a change can be done only by the President upon
proposal of the Monetary Board and with the approval of Congress.