G.R. No.

184778

October 2, 2009

BANGKO
SENTRAL
NG
PILIPINAS
MONETARY
BOARD
and
CHUCHI
FONACIER, Petitioners,
vs.
HON. NINA G. ANTONIO-VALENZUELA, in her capacity as Regional Trial Court Judge of
Manila, Branch 28; RURAL BANK OF PARAAQUE, INC.; 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 OF BISAYAS MINGLANILLA (now BANK OF EAST ASIA); and SAN PABLO
CITY DEVELOPMENT BANK, INC., Respondents.
This is a Petition for Review on Certiorari under Rule 45 with Prayer for Issuance of a Temporary
Restraining Order (TRO)/Writ of Preliminary Injunction, questioning the Decision dated September 30,
20081 of the Court of Appeals (CA) in CA-G.R. SP No. 103935. The CA Decision upheld the
Order2 dated June 4, 2008 of the Regional Trial Court (RTC), Branch 28 in Manila, issuing writs of
preliminary injunction in Civil Case Nos. 08-119243, 08-119244, 08-119245, 08-119246, 08-119247, 08119248, 08-119249, 08-119250, 08-119251, and 08-119273, and the Order dated May 21, 2008 that
consolidated the civil cases.
The 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 banks: Rural Bank of Paraaque,
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 or representatives 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, petitioner 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. They also

requested meetings with the BSP audit teams to reconcile audit figures. In response, Fonacier reiterated
the banks failure to comply with the directive for additional capital infusions.
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 docketed as Civil Case No. 08-119243 against
Fonacier, the BSP, Amado M. Tetangco, Jr., Romulo L. Neri, Vicente B. Valdepenas, Jr., Raul A. Boncan,
Juanita D. Amatong, Alfredo C. Antonio, and Nelly F. Villafuerte. RBPI prayed 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 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., Rural Bank of
Darbci, Inc., Rural Bank of Kananga (Leyte), Inc., and Rural Bank de Bisayas Minglanilla followed suit,
filing complaints with the RTC substantially similar to that of RBPI, including the reliefs prayed for,
which were raffled to different branches and docketed as Civil Cases Nos. 08-119244, 08-119245, 08119246, 08-119247, 08-119248, 08-119249, 08-119250, and 08-119251, respectively.
On May 13, 2008, the RTC denied the prayer for a TRO of Pilipino Rural Bank, Inc. The bank filed a
motion for reconsideration the next day.
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 AntonioValenzuela of Branch 28 granted RBPIs prayer for the issuance of a TRO.
The other banks separately filed motions for consolidation of their cases in Branch 28, which motions
were granted. Judge Valenzuela set the complaint of Rural Bank of San Jose (Batangas), Inc. for hearing
on May 15, 2008. Petitioners assailed the validity of the consolidation of the nine cases before the RTC,
alleging that the court had already prejudged the case by the earlier issuance of a TRO in Civil Case No.
08-119243, and moved for the inhibition of respondent judge. Petitioners filed a motion for
reconsideration regarding the consolidation of the subject cases.
On May 16, 2008, San Pablo City Development Bank, Inc. filed a similar complaint against the same
defendants with the RTC, and this was docketed as Civil Case No. 08-119273 that was later on
consolidated with Civil Case No. 08-119243. Petitioners filed an Urgent Motion to Lift/Dissolve the TRO
and an Opposition to the earlier motion for reconsideration of Pilipino Rural Bank, Inc.
On May 19, 2008, Judge Valenzuela issued an Order granting the prayer for the issuance of TROs for the
other seven cases consolidated with Civil Case No. 08-119243. On May 21, 2008, Judge Valenzuela
issued an Order denying petitioners motion for reconsideration regarding the consolidation of cases in
Branch 28. On May 22, 2008, Judge Valenzuela granted the urgent motion for reconsideration of Pilipino
Rural Bank, Inc. and issued a TRO similar to the ones earlier issued.

On May 26, 2008, petitioners 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.
The Ruling of the RTC
After the parties filed their respective memoranda, the RTC, on June 4, 2008, 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.
The Ruling of the CA
Petitioners then brought the matter to the CA via a petition for certiorari under Rule 65 claiming grave
abuse of discretion on the part of Judge Valenzuela when she issued the orders dated May 21, 2008 and
June 4, 2008.
The CA ruled that the RTC committed no grave abuse of discretion when it ordered the issuance of a writ
of preliminary injunction and when it ordered the consolidation of the 10 cases.
It held that petitioners should have first filed a motion for reconsideration of the assailed orders, and
failed to justify why they resorted to a special civil action of certiorari instead.
The CA also found that aside from the technical aspect, there was no grave abuse of discretion on the part
of the RTC, and if there was a mistake in the assessment of evidence by the trial court, that should be
characterized as an error of judgment, and should be correctable via appeal.
The CA held that the principles of fairness and transparency dictate that the respondent banks are entitled
to copies of the ROE.
Regarding the consolidation of the 10 cases, the CA found that there was a similarity of facts, reliefs
sought, issues raised, defendants, and that plaintiffs and defendants were represented by the same sets of
counsels. It found that the joint trial of these cases would prejudice any substantial right of petitioners.
Finding that no grave abuse of discretion attended the issuance of the orders by the RTC, the CA denied
the petition.
On November 24, 2008, a TRO was issued by this Court, restraining the CA, RTC, and respondents from
implementing and enforcing the CA Decision dated September 30, 2008 in CA-G.R. SP No. 103935. 4

By reason of the TRO issued by this Court, the SED was able to submit their ROEs to the MB. The MB
then prohibited the respondent banks from transacting business and placed them under receivership under
Section 53 of Republic Act No. (RA) 87915 and Sec. 30 of RA
76536 through MB Resolution No. 1616 dated December 9, 2008; Resolution Nos. 1637 and 1638 dated
December 11, 2008; Resolution Nos. 1647, 1648, and 1649 dated December 12, 2008; Resolution Nos.
1652 and 1653 dated December 16, 2008; and Resolution Nos. 1692 and 1695 dated December 19, 2008,
with the Philippine Deposit Insurance Corporation as the appointed receiver.
Now we resolve the main petition.
Grounds in Support of Petition
I. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT THE
INJUNCTION ISSUED BY THE REGIONAL TRIAL COURT VIOLATED SECTION 25 OF THE
NEW CENTRAL BANK ACT AND EFFECTIVELY HANDCUFFED THE BANGKO SENTRAL
FROM DISCHARGING ITS FUNCTIONS TO THE GREAT AND IRREPARABLE DAMAGE OF THE
COUNTRYS BANKING SYSTEM;
II. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT
RESPONDENTS ARE ENTITLED TO BE FURNISHED COPIES OF THEIR RESPECTIVE
ROEs BEFORE THE SAME IS SUBMITTED TO THE MONETARY BOARD 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
III. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN DEPARTING FROM WELLESTABLISHED PRECEPTS OF LAW AND JURISPRUDENCE
A. THE EXCEPTIONS CITED BY PETITIONER JUSTIFIED RESORT TO PETITION FOR
CERTIORARI UNDER RULE 65 INSTEAD OF FIRST FILING A MOTION FOR
RECONSIDERATION
B. RESPONDENT BANKS ACT OF RESORTING IMMEDIATELY TO THE COURT WAS
PREMATURE SINCE IT WAS MADE IN UTTER DISREGARD OF THE PRINCIPLE OF
PRIMARY JURISDICTION AND EXHAUSTION OF ADMINISTRATIVE REMEDY
C. THE ISSUANCE OF A WRIT OF PRELIMINARY INJUNCTION BY THE REGIONAL
TRIAL COURT WAS NOT ONLY IMPROPER BUT AMOUNTED TO GRAVE ABUSE OF
DISCRETION7
Our Ruling
The petition is meritorious.
In Lim v. Court of Appeals it was stated:

The requisites for preliminary injunctive relief are: (a) the invasion of right sought to be protected is
material and substantial; (b) the right of the complainant is clear and unmistakable; and (c) there is an
urgent and paramount necessity for the writ to prevent serious damage.
As such, a writ of preliminary injunction may be issued only upon clear showing of an actual existing
right to be protected during the pendency of the principal action. The twin requirements of a valid
injunction are the existence of a right and its actual or threatened violations. Thus, to be entitled to an
injunctive writ, the right to be protected and the violation against that right must be shown. 8
These requirements are absent in the present case.
In granting the writs of preliminary injunction, the trial court held that the submission of the ROEs to the
MB before the respondent banks would violate the right to due process of said banks.
This is erroneous.
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 SEDs
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. Respondent
banks were held by the CA to be entitled to copies of the ROEs prior to or simultaneously with their
submission to the MB, on the principles of fairness and transparency. Further, the CA held that if the
contents of the ROEs are essentially the same as those of the lists of findings/exceptions provided to said
banks, there is no reason not to give copies of the ROEs to the banks. This is a flawed conclusion, since 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, demolishing that
particular argument. The ROEs would then be superfluities to the respondent banks, and should not be the
basis for a writ of preliminary injunction. Also, the reliance of the RTC on Banco Filipino v. Monetary
Board9 is misplaced. The petitioner in that case was held to be entitled to annexes of the Supervision and
Examination Sectors reports, as it already had a copy of the reports themselves. It was not the subject of
the case whether or not the petitioner was entitled to a copy of the reports. And the ruling was made after
the petitioner bank was ordered closed, and it was allowed to be supplied with annexes of the reports in

order to better prepare its defense. In this instance, at the time the respondent banks requested copies of
the ROEs, no action had yet been taken by the MB with regard to imposing sanctions upon said banks.
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 10 refer to the appointment of a conservator or a receiver
for a bank, which is a power of the MB for which they need the ROEs done by the supervising or
examining department. The writs of preliminary injunction issued by the trial court hinder the MB from
fulfilling its function under the law. The actions of the MB under Secs. 29 and 30 of RA 7653 "may not be
restrained or set aside by the court except on petition for certiorari on the ground that the action taken
was in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of
jurisdiction." The 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.
As to the third requirement, 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
was the ruling in Central Bank of the Philippines v. Court of Appeals. 11 This "close now, hear later"
scheme is grounded on practical and legal considerations to prevent unwarranted dissipation of the banks
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. We held
in Rural Bank of San Miguel, Inc. v. Monetary Board, Bangko Sentral ng Pilipinas:
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. 12
The respondent banks cannotthrough 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.13
The respondent banks have failed to show their entitlement to the writ of preliminary injunction. It must
be emphasized that an application for injunctive relief is construed strictly against the pleader. 14 The
respondent banks cannot rely on a simple appeal to procedural due process to prove entitlement. The
requirements for the issuance of the writ have not been proved. No invasion of the rights of respondent
banks has been shown, nor is their right to copies of the ROEs clear and unmistakable. There is also no
necessity for the writ to prevent serious damage. Indeed the issuance of the writ of preliminary injunction
tramples upon the powers of the MB and prevents it from fulfilling its functions. There is no right that the
writ of preliminary injunction would protect in this particular case. In the absence of a clear legal right,
the issuance of the injunctive writ constitutes grave abuse of discretion. 15 In the absence of proof of a
legal right and the injury sustained by the plaintiff, an order for the issuance of a writ of preliminary
injunction will be nullified.16
Courts are hereby reminded to take greater care in issuing injunctive relief to litigants, that it would not
violate any law. The grant of a preliminary injunction in a case rests on the sound discretion of the court
with the caveat that it should be made with great caution. 17 Thus, the issuance of the writ of preliminary
injunction must have basis in and be in accordance with law. All told, while the grant or denial of an
injunction generally rests on the sound discretion of the lower court, this Court may and should intervene
in a clear case of abuse.18
WHEREFORE, the petition is hereby GRANTED. The assailed CA Decision dated September 30, 2008
in CA-G.R. SP No. 103935 is hereby REVERSED. The assailed order and writ of preliminary injunction
of respondent Judge Valenzuela in Civil Case Nos. 08-119243, 08-119244, 08-119245, 08-119246, 08119247, 08-119248, 08-119249, 08-119250, 08-119251, and 08-119273 are hereby declared NULL and
VOID.
Rural Bank of San Miguel v Monetary Board G.R. No. 150886 February 16, 2007
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.
Facts: Monetary Board (MB), the governing board of respondent Bangko Sentral ng Pilipinas (BSP),
issued Resolution No. 105 prohibiting RBSM from doing business in the Philippines, placing it under
receivership and designating respondent Philippine Deposit Insurance Corporation (PDIC) as receiver on
the basis of the comptrollership reports of the banks supervising head. To assist its impaired liquidity and
operations, the RBSM was granted emergency loans on different occasions in the aggregate amount
of P375. As early as November 18, 1998, Land Bank of the Philippines (LBP) advised RBSM that it will
terminate the clearing of RBSMs checks in view of the latters frequent clearing losses and continuing
failure to replenish its Special Clearing Demand Deposit with LBP. The BSP interceded with LBP not to
terminate the clearing arrangement of RBSM to protect the interests of RBSMs depositors and creditors.
On the basis of reports prepared by PDIC stating that RBSM could not resume business with sufficient
assurance of protecting the interest of its depositors, creditors and the general public, the MB passed

Resolution No. 966 directing PDIC to proceed with the liquidation of RBSM under Section 30 of RA
7653.
Issue: Whether or not the Monetary Board can unilaterally close a bank without prior hearing
Held: No. 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.
This case essentially boils down to one core issue: whether Section 30 of RA 7653 (also known as the
New Central Bank Act) and applicable jurisprudence require a current and complete examination of the
bank before it can be closed and placed under receivership. The actions of the Monetary Board taken
under this section or under Section 29 of this Act shall be final and executory, and may not be restrained
or set aside by the court except on petition for certiorari on the ground that the action taken was in excess
of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction. The
petition for certiorari may only be filed by the stockholders of record representing the majority of the
capital stock within ten (10) days from receipt by the board of directors of the institution of the order
directing receivership, liquidation or conservatorship.
G.R. No. L-21146
September 20, 1965RURAL BANK OF LUCENA, INC., petitioner,
vs.
HON. FRANCISCO ARCA, as Judge of the Court of First Instance of Manila, Branch 1, and
CENTRAL BANK OF THE PHILIPPINES, respondents.
The Rural Bank of Lucena, Inc., a banking corporation organized under Republic Act No. 720, instituted,
on June 22, 1961, in the Court of First Instance of Manila (Civil Case No. 47345) an action to collect
damages and to enjoin the Central Bank from enforcing Resolution No. 928 of its Monetary Board,
finding that the Rural Bank of Lucena (Lucena for short), through its officers, directors, and employees,
had committed acts substantially prejudicial to the Government, depositors, and creditors, and directing
Lucena to reorganize its board of directors; to refrain from granting or renewing loans, or accept new
deposits, and not to issue drafts or make disbursements without the approval of the supervising Central
Bank examiners, and threatening Lucena that its management would be taken over if the latter should fail
to comply with the resolution. After issue joined and trial of the case, and while the litigation was still
undecided by the Court of First Instance, the Monetary Board, having been informed that the Director of
its Department of Rural Banks recommended the liquidation of the Rural Bank of Lucena, adopted on
February 2, 1962 its Resolution No. 122 (Petition, Annex "C")
To request the Solicitor General, pursuant to Section 29 of Republic Act No. 265, to file a
petition in the proper courts for the liquidation of the affairs of the Rural Bank of Lucena,
Inc.
Notice was given by Central Bank officials, on February 10, 1962 that the Lucena bank was temporarily
closed pending final decision of the Court, and that business be transacted with Central Bank
representatives only.
Two days later (February 12, 1962), the Lucena bank filed suit in the Court of First Instance of Quezon
(Tayabas) annual Resolution 122 of the Monetary Board (Case No. 6471) and enjoin its enforcement; and
on February 14 the court issued ex parte a writ of preliminary injunction to such effect.

On the same day, the Court of First Instance of Manila, per Judge, now Court of Appeals Justice, Magno
Gatmaitan of Branch XIV, decided Case No. 47345, enjoining enforcement of Resolution No. 928 of the
Monetary Board, for having been issued without the prior hearing prescribed by section 10 of the Rural
Bank Act, and ordering the Central Bank to pay P5,000.00 damages and costs. The Central Bank
appealed.
Upon the other hand, the Court of First Instance of Quezon Province, in its Case No. 6741, on February,
24, 1962, dissolved its preliminary injunction against the enforcement of Resolution 122 of the Monetary
Board. Other than filing a motion for reconsideration (ultimately denied on January 9, 1963) the Lucena
bank took no other steps to prosecute the case it had filed.
On the 31st of March 1962, invoking section 29 of Republic Act 265, the Central Bank, as liquidator,
petitioned the Court of First Instance of Manila for assistance in the liquidation of the Lucena bank (Civil
Case No. 50019). Upon motion, and after hearing the parties, Judge Arca issued on interlocutory order on
March 28, 1963, the dispositive portion of which is to the following effect (Petition, Annex "D"):
The Rural Bank of Lucena thru its duly authorized officers or representatives, is hereby
ordered to turn over to the Central Bank, thru its duly authorized representative, within a
period of five (5) days from receipt of copy of this order, the physical possession of all of
said Rural Bank of Lucena's assets, properties and papers. Should the Rural Bank of
Lucena or its officers fail to comply with the above order within the period indicated
herein, the Central Bank, thru its authorized representatives, is hereby authorized to take
actual and physical possession of all said assets, properties and papers of the Rural Bank
of Lucena, duly inventoried in the presence of the Provincial Fiscal, the Provincial
Commander, the Provincial Treasurer, and the Provincial Auditor of Quezon province, or
their duly authorized representatives.
The Rural Bank of Lucena resorted to this Court on certiorari, claiming that Judge Arca gravely abused
his discretion in issuing the above order, in that
(a) it interferes with the immediately executory judgment of Judge Gatmaitan in Case No.
47345 of the Court of First Instance of Manila;
(b) Section 29 of the Central Bank Act (R.A. 265) does not apply;
(c) there was no prior valid take over of assets nor due hearing of the liquidated Bank;
(d) Judge Gatmaitan's decision constitutes a judicial review of the Monetary Board's
action that cannot be nullified by the challenged order of Judge Area; and
(e) the turn over should not be ordered before trial on the merits.1awphl.nt
This Court issued a temporary restraining order until April 25, 1963, but the same was not renewed when
it expired.
We see no irreconcilable conflict between section 10 (as amended) of Republic Act No. 720 (Rural Banks
Act) and section 29 of Republic Act No. 265 (Central Bank Act). The former provides in substance as
follows:

The director of the Department of the Central Bank designated by the Monetary Board to
supervise Rural Banks ... upon proof that the Rural Bank or its board of directors or
officers are conducting and managing the affairs of the bank in a manner contrary to
laws, orders, instructions, rules and regulations promulgated by the Monetary Board or in
any manner substantially prejudicial to the interests of the government, depositors or
creditors, to take over the management of such bank when specifically authorized to do
so by the Monetary Board after due hearing until a new board of directors and officers are
elected and qualified. ...
It is easily seen that what this section authorized is the take over of the management by the Central Bank,
until the governing body of the offending Rural Bank is recognized with a view to assuring compliance
by it with the laws and regulations.
Upon the other hand, section 29 6f the Central Bank Act (R. A. 265) has in view a much more drastic
step, the liquidation of a rural bank by taking over its assets and converting them into money to pay off its
creditors. Said section prescribes:
SEC. 29. Proceedings upon insolvency. Whenever, upon examination by the
Superintendent or his examiners or agents into the condition of any banking institution, it
shall be disclosed that the condition of the same is one of insolvency, or that its
continuance in business would involve probable loss to its depositors or creditors, it shall
be the duty of the Superintendent forthwith, in writing, to inform the Monetary Board of
the facts, and the Board, upon finding the statement of the Superintendent to be true, shall
forthwith forbid the institution to do business in the Philippines and shall take charge of
its assets and proceeds according to law.
The Monetary Board shall thereupon determine within thirty days whether the institution
may be reorganized or otherwise placed in such a condition so that it may be permitted to
resume business with safety to its creditors and shall prescribe the conditions under
which such resumption of business shall take place. In such case the expenses and fee in
the administration of the institution shall be determined by the Board and shall be paid to
the Central Bank out of the assets of such banking institution.
At any time within ten days after the Monetary Board has taken charge of the assets of
any banking institution, such institution may apply to the Court of First Instance for an
order requiring the Monetary Board to show cause why it should not be enjoined from
continuing such charge of its assets, and the court may direct the Board to refrain from
further proceedings and to surrender charge of its assets.
If the Monetary Board shall determine that the banking institution cannot resume
business with safety to its creditors, it shall, by the Solicitor General, file a petition in the
Court of First Instance reciting the proceedings which have been taken and praying the
assistance and supervision of the court in the liquidation of the affairs of the same. The
Superintendent shall thereafter, upon order of the Monetary Board and under the
supervision of the court and with all convenient speed, convert the assets of the banking
institution to money.
Considering that section 27 of the Rural Banks law (R.A. No. 720) expressly declares that

The provisions of Republic Acts numbered 265 and 337, in so far as applicable and not in
conflict with any provision of this Act, are hereby made a part of this Act.
we find no room for questioning the applicability of section 29 of Republic Act No. 265 (Central Bank
Act) to rural banks organized under Republic Act 720, whenever the Monetary Board should find that the
rural bank affected is insolvent, or that its continuance in business would involve probable loss to its
depositors or creditors, and that it cannot resume business with safety.
It follows that on the assumption that under section 10 of the Rural Banks Act the Monetary Board may
not take over the management of a rural bank without giving the latter a hearing, i.e., an opportunity to
rebut the charge that it has contravened applicable laws, rules and regulations to the substantial prejudice
of the government, its depositors and creditors, such a previous hearing is nowhere required by section 29
of the Central Bank Law. Manifestly, whether a rural bank's "continuance in business would involve
probable loss" to its clients or creditors and that it "cannot resume business with safety," is a matter of
appreciation and judgment that the law entrusts primarily to the Monetary Board. Equally apparent is that
if the rural bank affected is in the condition previously adverted to, every minute of delay in securing its
assets from dissipation inevitably increases the danger to the creditors. For this reason, the statute has
provided for a subsequent judicial review of the Monetary Board, in lieu of a previous hearing.
In point of fact, the petitioner Rural Bank of Lucena did file a petition (Annex "G") for judicial review in
the Court of First Instance of Quezon Province, dated February 12, 1962, and challenged the validity of
Resolution No. 122 of the Monetary Board (Case No. 6471) ; but the Court of First Instance of Quezon
dissolved the preliminary injunction issued in that case and allowed Resolution No. 122 to take effect,
without any steps being taken for a review of such action. This being the case, and in view of the manifest
reluctance the Lucena bank's officials to comply with the Monetary Board's resolution, the Central Bank
had cause to seek judicial assistance for the discharge of its duties as liquidator.
The petitioner rural bank seems to take the view that the proceedings had before Judge Gatmaitan in Case
No. 47345, Branch XIV, of the Court of First Instance of Manila constituted the judicial review required
by section 29 of Republic Act No. 265, the Central Bank Act. Such a stand is untenable, for the case tried
and decided by Judge Gatmaitan concerned an attempt by the Central Bank to take over management
under section 10 of the Rural Banks law (R.A. No. 720) in connection with the Monetary Board's
resolution No. 928 of June 16, 1961. Even more conclusive is the consideration that said action (Case No.
47345) was filed on June 22, 1961, and could not possibly be a judicial review of the Resolution No. 122
adopted eight months later, on February 2, 1962. A review cannot precede the adoption of the resolution
being reviewed. This proposition requires no demonstration.
The narrated events also rebut the contention that the order of Judge Area, issued on March 28, 1963, in
Case No. 50019, constitutes unlawful interference with the enforcement of Judge Gatmaitan's decision of
February 14, 1962, the issues involved being different in each case. As heretofore pointed out one
involved a take over of management under section 10 of the Rural Banks Act, and the other a seizure of
assets and liquidation under section 29 of the Central Bank law (R.A. 265).
Nor can the proceedings before Judge Area be deemed judicial review of the 1962 resolution No. 122 of
the Monetary Board, if only because by law (section 29, R. A. 265) such review must be asked within 10
days from notice of the resolution of the Board. Between the adoption of Resolution No. 122 and the
challenged order of Judge Arca, more than one year had elapsed. Hence, the validity of the Monetary
Board's resolution can no longer be litigated before Judge Arca, whose role under the fourth paragraph of
section 29 is confined to assisting and supervising the liquidation of the Lucena bank.

Whether or not the Central Bank acted with arbitrariness or bad faith in decreeing that circumstances
called for the liquidation of the Lucena Rural Bank, and should be answerable in damages, should be
threshed out and determined, not by Judge Arca but in Case No. 6471 of the Court of First Instance of
Quezon Province, which was filed within the 10-day period prescribed by the Central Bank law, and
which appears to be still pending, unless the Lucena bank had abandoned such litigation, a fact that we
need not decide at present. Suffice it to say that Judge Arca had no reason to inquire into the merits of the
case before issuing the disputed order requiring the surrender of the assets and papers of the Lucena bank,
because: (1) neither the statute (sec. 29, R.A. 265) nor the constitutional requirement of due process
demand that the correctness of the Monetary Board's resolution to stop operation and proceed to the
liquidation of the Lucena Rural Bank should first be adjudged before making the resolution effective, it
being enough that a subsequent judicial review by provided (section 29, R.A. 265; 12 Am. Jur. 305, sec.
611; Bourjois vs. Chapman, 301 U.S. 183, 81 Law Ed. 1027, 1032; American Surety Co. vs. Baldwin, 77
Law Ed. 231, 86 ALR 307; Wilson vs. Standefer, 46 Law Ed. 612); (2) the period for asking such judicial
review had elapsed with excess between the adoption of the Monetary Board Resolution No. 122 and the
filing of the case by the Central Bank in the Court of First Instance of Manila; (3) the correctness of said
resolution had already been put in issue before the Court of Quezon Province; (4) because the latter court
had refused to stop implementation of the Resolution of the Monetary Board when it dissolved its own
preliminary injunction; and (5) because the Lucena Bank had apparently acquiesced in the action taken by
the Court of Quezon Province, since the rural bank had not sought that the action of the Quezon court be
set aside by a higher court.
IN VIEW OF THE FOREGOING, the writ applied for is denied with costs against the petitioner Lucena
Rural Bank, Inc.
RURAL BANK OF BUHI VS. CA
FACTS:
Buhi Bank was a rural bank. Its books were examined by the Rural Banks'
Division of the Central Bank. However, it refused to be examined. As a
consequence, its financial assistance was suspended. Later, a general
examination of the banks affairs and operations were again conducted. The rural
banks division found out massive irregularities in the operations, giving out loans
to unknown and fictitious borrowers, and sums amounting to millions past due to
the Central Bank. There were also promissory notes rediscounted with the
Central Bank for cash.
As a result, the Buhi Bank became insolvent. The division chief, Odra,
recommended that Buhi be placed under receivership. Thus, the Monetary Board
adopted a Resolution # 583, placing the bank under receivership. Odra, the
division chief, was made the receiver. Odra thus implemented the resolution,
authorizing deputies to take control and possession of Buhis assets and
liabilities.
Del Rosario, the Buhi Bank Manager, filed an injunction against the receiver,
arguing that the resolution violated the Rural Banks Act and constitutes gadalej.
The bank claims that there was a violation of due process. They claim that the
bank was not given the chance to deny and disprove the claim of insolvency or
the other grounds and that it was hastily put under receivership.
Later on, the Central Bank Monetary Board ordered the liquidation of the Bank.
The judge ruled in favor of the Bank and issued a writ of execution.
The CA however restrained the enforcement of execution, citing that the Judge did not follow the orders,
and thus required the Bank to yield to the CB.

ISSUE:
Whether or not due process was observed
RULING:
AFFIRMATIVE. CLOSURE VALID.
Under Sec 29 of the RA 265, on proceedings regarding insolvency, there is NO
REQUIREMENT that a hearing be first conducted before a bank may be placed
under receivership. The law explicitly provides that the Monetary Board can
IMMEDIATELY forbid a banking institution from doing business and IMMEDIATELY appoint a receiver
when: 1) there has been an examination by
CB, b) a report to the CB, and c) prima facie showing that the bank is insolvent.
As to the claim that the RA 265 violates due process, the claim is untenable. The
law could not have intended to disregard the constitutional requirement of due
process when it conferred power to place rural banks under receivership.
The closure and liquidation of the bank is considered an exercise of POLICE
POWER. It maybe subject to judicial inquiry and could be set aside if found to be
capricious, discriminatory, whimsical, arbitrary, etc. The appointment of a receiver
may be made by the Monetary Board, WITHOUT NOTICE AND HEARING, but
subject to the JUDICIAL INQUIRY, to insure protection of the banking institution.
Due process does NOT necessarily require a PRIOR HEARING. A hearing or an
OPPORTUNITY TO BE HEARD may be made SUBSEQUENT to the closure.
One could just imagine the dire consequences of a prior hearing: bank runs
would happen, resulting in panic and hysteria. In that way, fortunes will be wiped
out, and disillusionment will run the gamut of the entire banking industry.
There is no question that the action of the MB may be subject to judicial review.
Courts may interfere with the MBs exercise of discretion. Here, the RTC has
jurisdiction to adjudicate the question of whether the MB acted in bad faith when it directed the
dissolution of Buhi Bank.
Ramos et. al vs. Central Bank of the Philippines G.R. No. L-29352, October 4, 1971
Central Bank, by promising to rehabilitate the bank, is estopped from closing it down. The conduct of
the Central Bank reveals a calculated attempt to evade rehabilitating OBM despite its promises. Hence,
respondent Central Bank of the Philippines is directed to comply with it obligations under the voting
trust agreement, and to desist from taking action in violation thereof.
Facts: The Overseas Bank of Manila (OBM) is a commercial banking corporation duly organized and
existing under the laws of the Philippines with principal office at Rosario Street, Manila. Ramos et. al are
the majority and controlling stockholders of Overseas Bank of Manila (OBM). Pursuant to a resolution
from the Central Bank and the Monetary Board, the operation of for various violations of the banking
laws and implementing regulations. Because the financial situation of the OBM had caused mounting
concern in the Central Bank, petitioner Ramos and the OBM management met with respondent Central
Bank on the necessity and urgency of rehabilitating the OBM through the extension of necessary financial
assistance.
In lieu thereof, the Monetary Board issued another resolution dated April, 1967 demanding the
stockholders to mortgage their properties or assign the same to the Central Bank and to execute a voting

trust agreement whereby they will pass the management to Philippine National Bank in order to stave of
liquidation. Hence, Ramos et. al executed the voting trust agreement prepared by Central Bank with
petitioners as cestuis que trust and Central Banks Superintendent of Banks as the Trustee. Petitioners
likewise conveyed by way of mortgage to the Central Bank all their private properties and holdings to
secure the obligations of the OBM to the Central Bank. Accordingly, new directors and officers were
elected and installed and they took over the management and control of the Overseas bank..
However, after 8 months, the Central Bank did not make any positive action to reorganize and resume
OBMs normal operations. Instead, Central Bank issued a resolution excluding OBM from clearing with
it and authorizing the nominee board of directors to suspend operations. Worse, Central Bank Monetary
Board issued a resolution ordering the liquidation the bank. Hence this petition for certiorari, prohibition
and mandamus with prayer for the issuance of a writ of preliminary injunction to restrain respondent
Central Bank of the Philippines from enforcing and implementing the Monetary Board Resolutions.
Petitioners charged that the OBM became financially distressed because of this suspension and the
deprivation by the Central Bank of all the usual credit facilities and accommodations accorded to the
other banks. Central Bank contended that to assail Resolution of the Monetary Board ordering the
liquidation of the Overseas Bank, an action must be filed in the Court of First Instance of Manila by the
Bank itself, and not by petitioning stockholders
Issue: Whether or not the CB had agreed to rehabilitate, normalize and stabilize OBM and whether or
not the Central Bank resolutions were adopted in abuse of discretion.
Held: If jurisdiction was already acquired ito delve into the validity of Resolutions 1263 and 1290 (and
this the Central Bank admits), there is no cogent reason why, after such jurisdiction had been acquired, the
Court should be deprived thereof by the subsequent adoption of Resolution 1333, particularly because the
latter, in relation to the antecedent facts, appears to be no more than a deliberate effort to evade the
jurisdiction of this Court, and have the case thrown back to the Court of First Instance. The Central Bank,
by promising to rehabilitate the bank, is estopped from closing it down. The conduct of the Central Bank
reveals a calculated attempt to evade rehabilitating OBM despite its promises. Hence, respondent Central
Bank of the Philippines is directed to comply with it obligations under the voting trust agreement, and to
desist from taking action in violation thereof.
The Central Bank made express representations to petitioners herein that it would support the OBM, and
avoid its liquidation if the petitioners would execute (a) the voting trust agreement turning over the
management of OBM to the Central Bank or its nominees, and (b) mortgage or assign their properties to
the Central Bank to cover the overdraft balance of OBM. The petitioners having complied with these
conditions and parted with value to the profit of the CB (which thus acquired additional security for its
own advances), the Central Bank may not now renege on its representations and liquidate the OBM, to
the detriment of its stockholders, depositors and other creditors, under the rule of promissory estoppel.
Central Bank vs. Court of Appeals L-50031-32 : July 27, 1981.
While the closure and liquidation of a bank may be considered an exercise of police power, the validity
of such exercise of police power is subject to judicial inquiry and could be set aside if it is either
capricious, discriminatory, whimsical, arbitrary, unjust, or a denial of due process and equal
protection clauses of the Constitution.
Facts: Isidro Fernandez and Jesus Jayme are the majority and controlling stockholders of Provident
Bank. When Provident Savings Bank experienced bankrun, which was triggered off by adverse publicity

in the newspapers, radio and television of investigations conducted by Congress that some banks were
unable to pay deposit withdrawals. The Bank was forced to borrow funds from other banks and the
Central Bank but despite the borrowing, the funds remained insufficient to satisfy the withdrawals.
Hence, the Isidro Fernandez and Jesus Jayme appealed to Central Bank for further assistance. However,
the Central Bank replied to them stating that they have to relinquish and turnover the management and
control of the bank to Iglesia ni Kristo (INK) affiliated entity Eagle Broadcasting in order for it to assist
the distressed provident. Under the agreement, EB agreed to purchase 52,000 capital stock with
provident. The Eagle Broadcasting Corporation, however, did not comply with its commitment to
purchase 53,000 common shares of stock and to convert its deposits into equity. Instead, the new
management of PROVIDENT caused the conversion of the deposits of Iglesia Ni Kristo into bills
payable earning 12% interest, which were subsequently withdrawn. 4 PROVIDENT, under the new
management, also failed to comply with the Monetary Board directives relative to the rehabilitation of the
bank so that it restored the interest rate of 12% on outstanding loans.
These acts were made despite the presence of Central Bank examiners. Subsequently, Central Bank
Monetary Board issued a resolution declaring the closure of Provident Savings Bank and ordering its
liquidation. Hence, Fernandez and Jayme filed with the Court of First Instance a petition for certiorari,
prohibition, and mandamus against Central Bank to annul the resolution and restrain CB from proceeding
with the liquidation which the court granted.
Issue: Whether or not the closure of the bank may be subject to judicial inquiry and whether or not the
resolution was issued arbitrarily and in bad faith.
Held: Having decided in 1968 that PROVIDENT was salvageable and could be permitted to continue in
business with its support, provided there is change in management and introduction of reforms, the CB
should have been vigilant in its overseeing of the faithful compliance by the parties of the terms of the
Memorandum Agreement, as well as in supervising and controlling the operations of the bank under the
management of EAGLE. The persuasive, nay, compulsory, powers of the CB to accomplish these cannot
be doubted. The CB exercises such control of private banks under its broad powers that it can decree life
or death of any bank by simply withholding from it the facilitates that it normally accords banks.
While the closure and liquidation of a bank may be considered an exercise of police power, the validity of
such exercise of police power is subject to judicial inquiry and could be set aside if it is either capricious,
discriminatory, whimsical, arbitrary, unjust, or a denial of due process and equal protection clauses of the
Constitution. The arbitrariness and bad faith of Central Bank is evident from the fact that it pressured
Fernandez and Jayme into relinquishing the management and control of Provident Savings Bank to
Iglesia Ni Kristo which did not have any intention of restoring the bank into its former sound financial
condition but whose interest was merely to recover its deposits from the bank and thereafter allowing
INK to mismanage the bank until the banks financial deterioration and subsequent closure. Central Bank
acted whimsically and withdrew its commitment to support the bank to the detriment of the latter.
If jurisdiction was already acquired ito delve into the validity of Resolutions 1263 and 1290 (and this the
Central Bank admits), there is no cogent reason why, after such jurisdiction had been acquired, the Court
should be deprived thereof by the subsequent adoption of Resolution 1333, particularly because the latter,
in relation to the antecedent facts, appears to be no more than a deliberate effort to evade the jurisdiction
of this Court, and have the case thrown back to the Court of First Instance. The Central Bank, by
promising to rehabilitate the bank, is estopped from closing it down. The conduct of the Central Bank

reveals a calculated attempt to evade rehabilitating OBM despite its promises. Hence, respondent Central
Bank of thePhilippines is directed to comply with it obligations under the voting trust agreement, and to
desist from taking action in violation thereof.
The Central Bank made express representations to petitioners herein that it would support the OBM, and
avoid its liquidation if the petitioners would execute (a) the voting trust agreement turning over the
management of OBM to the Central Bank or its nominees, and (b) mortgage or assign their properties to
the Central Bank to cover the overdraft balance of OBM. The petitioners having complied with these
conditions and parted with value to the profit of the CB (which thus acquired additional security for its
own advances), the Central Bank may not now renege on its representations and liquidate the OBM, to
the detriment of its stockholders, depositors and other creditors, under the rule of promissory estoppel.

Overseas Bank of Manila vs. Court of Appeals G.R. No. L-45866, April 19, 1989
The obligation to pay interest on the deposit ceases the moment the operation of the bank is completely
suspended by the Central Bank. Neither can respondent Cordero recover attorneys fees. Petitioners
refusal to pay was not due to a willful and dishonest refusal to comply with its obligation but to
restrictions imposed by Central Bank.
Facts: Bonifacio Regalado and NAWASA entered a in a contract of sale with instalments for various
materials which the latter agreed to supply to the former. In relation to a contract of sale between
NAWASA, as vendor and Bonifacio Regalado, as vendee, the amount corresponding to the first payment
by Regalado was placed on a time deposit with the Overseas Bank by the NAWASA Treasurer for a
period of 6 months. A second payment having been made by Regalado, another time deposit was made by
the NAWASA Treasurer with the Overseas Bank, this time in the amount respresenting the balance of the
purchase price due from Regalado. The period of this second deposit was fixed 1 year. Subsequently,
NAWASAs Acting General Manager wrote to the Overseas Bank advising that (1) as regards the first
time deposit which had already matured, NAWASA wished to withdraw it immediately, and (2) with
respect to the second time deposit of, it intended to withdraw it 60 days thereafter as authorized by the
parties agreement set forth in the certificate of the deposit. Despite several letter request, nothing was
heard from the Overseas Bank. It did however pay to NAWASA interest on its time deposits.
After maturity of the second time deposit and Overseas Bank not responding to the letter request of
NAWASA for the remittance of the time deposits, NAWASA then wrote to the Central Bank Governor
about the matter. Apparently, even the Central Bank was ignored by Overseas Bank. One last letter was
written by NAWASA to the Overseas Bank, reiterating its demand for the return of its money. Again the
letter went unheeded. NAWASA thus brought suit to recover its deposits and damages. CFI Manila
rendered judgment in favor of NAWASA and ordered the bank to pay. CA affirmed the trial courts ruling.
Hence this petition.
Issue: Whether or not Overseas Bank is liable to pay.
Held: The obligation to pay interest on the deposit ceases the moment the operation of the bank is
completely suspended by the Central Bank. Neither can respondent Cordero recover attorneys fees.
Petitioners refusal to pay was not due to a willful and dishonest refusal to comply with its obligation but
to restrictions imposed by Central Bank.

The banks contention that the punitive actions taken by the Central Bank prevented the bank from
conducting its business is devoid of merit. There is absolutely no evidence of these facts in the record.
Moreover, the suspension of operations in 1968 could not possibly excuse non-compliance with the
obligations in question which matured in 1966. Again, the claim that the Central Bank, by suspending the
Overseas Banks banking operations, had made it impossible for the Overseas Bank to pay its debts,
whatever validity might be accorded thereto, or the further claim that it had fallen into a distressed
financial situation, cannot in any sense excuse it from its obligation to the NAWASA, which had nothing
whatever to do with the Central Banks actuations or the events leading to the banks distressed state.
Banco Filipino Savings and Mortgage Bank vs. Central Bank G.R. No. 70054,
December 11, 1991
Pendency of the case did not diminish the powers and authority of the designated liquidator to
effectuate and carry on the administration of the bank. In the instant case, the basic standards of
substantial due process were not observed.
Facts: Top Management Programs Corporation and Pilar Development Corporation are corporations
engaged in the business of developing residential subdivisions.Top Management and Pilar Development
obtained several loans from Banco Filipino all secured by real estate mortgage in their various properties
in Cavite.
The Monetary Board by Ramon Tiaoqui, Special Assistant to the Governor and Head, SES Department III
submitted a report finding that the bank is insolvent and recommending the appointment of a receiver.
The Monetary Board, based on the Tiaoqui report, issued a resolution finding Banco Filipino insolvent
and placing it under receivership. Subsequently, the Monetary Board issued another resolution placing the
bank under liquidation and designated a liquidator. By virtue of her authority as liquidator, Valenzuela
appointed the law firm of Sycip, Salazar, et al. to represent Banco Filipino in all litigations.
Banco Filipino filed the petition for certiorari questioning the validity of the resolutions issued by the
Monetary Board authorizing the receivership and liquidation of Banco Filipino.A temporary restraining
order was issued enjoining the respondents from executing further acts of liquidation of the bank.
However, acts and other transactions pertaining to normal operations of a bank are not enjoined.
Subsequently, Top Management and Pilar Development failed to pay their loans on the due date. Hence,
the law firm of Sycip, Salazar, et al. acting as counsel for Banco Filipino under authority of the liquidator,
applied for extra-judicial foreclosure of the mortgage over Top Management and Pilar Developments
properties. Thus, the Ex-Officio Sheriff of the Regional Trial Court of Cavite issued a notice of extrajudicial foreclosure sale of the properties. Top Management and Pilar Development filed 2 separate
petitions for injunction and prohibition with the respondent appellate court seeking to enjoin the Regional
Trial Court of Cavite, the ex-officio sheriff of said court and Sycip, Salazar, et al. from proceeding with
foreclosure sale which were subsequently dismissed by the court. Hence this petition
Issue: 1) Whether or not the liquidator has the authority to prosecute as well as to defend suits and to
foreclose mortgages for and behalf of the bank while the issue on the validity of the receivership and
liquidation is still pending resolution.
2) Whether or not the closure of the bank based on the Tiaoqui report is correct.
Held:

1) Whether or not the liquidator has the authority to prosecute as well as to defend suits and to foreclose
mortgages for and behalf of the bank while the issue on the validity of the receivership and liquidation is
still pending resolution.
Section 29 of the Republic Act No. 265, as amended known as the Central Bank Act, provides that when
a bank is forbidden to do business in the Philippines and placed under receivership, the person
designated as receiver shall immediately take charge of the banks assets and liabilities, as expeditiously
as possible, collect and gather all the assets and administer the same for the benefit of its creditors, and
represent the bank personally or through counsel as he may retain in all actions or proceedings for or
against the institution, exercising all the powers necessary for these purposes including, but not limited
to, bringing and foreclosing mortgages in the name of the bank. If the Monetary Board shall later
determine and confirm that banking institution is insolvent or cannot resume business safety to depositors,
creditors and the general public, it shall, public interest requires, order its liquidation and appoint
a liquidator who shall take over and continue the functions of receiver previously appointed by Monetary
Board. The liquid for may, in the name of the bank and with the assistance counsel as he may retain,
institute such actions as may necessary in the appropriate court to collect and recover a counts and assets
of such institution or defend any action ft against the institution.
Pendency of the case did not diminish the powers and authority of the designated liquidator to effectuate
and carry on the administration of the bank. The Court did not prohibit however acts a as receiving
collectibles and receivables or paying off credits claims and other transactions pertaining to normal
operate of a bank. There is no doubt that the prosecution of suits collection and the foreclosure of
mortgages against debtors the bank by the liquidator are among the usual and ordinary transactions
pertaining to the administration of a bank.
2) Whether or not the closure of the bank based on the Tiaoqui report is correct.
Clearly, Tiaoqui based his report on an incomplete examination of petitioner bank and outrightly
concluded therein that the latters financial status was one of insolvency or illiquidity. In the instant case,
the basic standards of substantial due process were not observed. Time and again, We have held in several
cases, that the procedure of administrative tribunals must satisfy the fundamentals of fair play and that
their judgment should express a well-supported conclusion. The test of insolvency laid down in Section
29 of the Central Bank Act is measured by determining whether the realizable assets of a bank are leas
than its liabilities. Hence, a bank is solvent if the fair cash value of all its assets, realizable within a
reasonable time by a reasonable prudent person, would equal or exceed its total liabilities exclusive of
stock liability; but if such fair cash value so realizable is not sufficient to pay such liabilities within a
reasonable time, the bank is insolvent.
Examination appraises the soundness of the institutions assets, the quality and character of management
and determines the institutions compliance with laws, rules and regulations. Audit is a detailed
inspection of the institutions books, accounts, vouchers, ledgers, etc. to determine the recording of all
assets and liabilities. Hence, examination concerns itself with review and appraisal, while audit concerns
itself with verification.
BSP MONETARY BOARD VS. HON ANTONIO VALENZUELA, G.R. NO. 184778, OCT 2,
2009 (same case with no. 1)
Central Bank v Court of Appeals G.R. No. L-45710 October 3, 1985

The banks asking for advance interest for the loan is improper considering that the total loan hasnt
been released. A person cant be charged interest for nonexisting debt. The alleged discovery by the
bank of overvaluation of the loan collateral is not an issue. Since Island Savings Bank failed to
furnish the P63,000.00 balance of the P80,000.00 loan, the real estate mortgage of Sulpicio M.
Tolentino became unenforceable to such extent.
Facts: Island Savings Bank, upon favorable recommendation of its legal department, approved the loan
application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed on the same
day a real estate mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan. The loan called
for a lump sum of P80,000, repayable in semi-annual installments for 3 yrs, with 12% annual interest.
After the agreement, a mere P17K partial release of the loan was made by the bank and Tolentino and his
wife signed a promissory note for the P17,000 at 12% annual interest payable w/in 3 yrs. An advance
interest was deducted fr the partial release but this prededucted interest was refunded to Tolentino after
being informed that there was no fund yet for the release of the P63K balance.
Monetary Board of Central Bank, after finding that bank was suffering liquidity problems, prohibited the
bank fr making new loans and investments. And after the bank failed to restore its solvency, the Central
Bank prohibited Island Savings Bank from doing business in the Philippines. Island Savings Bank in view
of the non-payment of the P17K filed an application for foreclosure of the real estate mortgage. Tolentino
filed petition for specific performance or rescission and damages with preliminary injunction, alleging
that since the bank failed to deliver P63K, he is entitled to specific performance and if not, to rescind the
real estate mortgage.
Issues: 1) Whether or not Tolentinos can collect from the bank for damages
2) Whether or not the mortgagor is liable to pay the amount covered by the promissory note
3) Whether or not the real estate mortgage can be foreclosed
Held:
1) Whether or not Tolentinos can collect from the bank for damages
The loan agreement implied reciprocal obligations. When one party is willing and ready to perform, the
other party not ready nor willing incurs in delay. When Tolentino executed real estate mortgage, he
signified willingness to pay. That time, the banks obligation to furnish the P80K loan accrued. Now, the
Central Bank resolution made it impossible for the bank to furnish the P63K balance. The prohibition on
the bank to make new loans is irrelevant bec it did not prohibit the bank fr releasing the balance of loans
previously contracted. Insolvency of debtor is not an excuse for non-fulfillment of obligation but is a
breach of contract.
The banks asking for advance interest for the loan is improper considering that the total loan hasnt been
released. A person cant be charged interest for nonexisting debt. The alleged discovery by the bank of
overvaluation of the loan collateral is not an issue. The bank officials should have been more responsible
and the bank bears risk in case the collateral turned out to be overvalued. Furthermore, this was not raised
in the pleadings so this issue cant be raised. The bank was in default and Tolentino may choose bet
specific performance or rescission w/ damages in either case. But considering that the bank is now
prohibited fr doing business, specific performance cannot be granted. Rescission is the only remedy left,
but the rescission shld only be for the P63K balance.

2) Whether or not the mortgagor is liable to pay the amount covered by the promissory note
The promissory note gave rise to Sulpicio M. Tolentinos reciprocal obligation to pay the P17,000.00 loan
when it falls due. His failure to pay the overdue amortizations under the promissory note made him a
party in default, hence not entitled to rescission (Article 1191 of the Civil Code). If there is a right to
rescind the promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If
Tolentino had not signed a promissory note setting the date for payment of P17,000.00 within 3 years, he
would be entitled to ask for rescission of the entire loan because he cannot possibly be in default as there
was no date for him to perform his reciprocal obligation to pay. Since both parties were in default in the
performance of their respective reciprocal obligations, that is, Island Savings Bank failed to comply with
its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his obligation to
pay his P17,000.00 debt within 3 years as stipulated, they are both liable for damages.
3) Whether or not the real estate mortgage can be foreclosed
Since Island Savings Bank failed to furnish the P63,000.00 balance of the P80,000.00 loan, the real
estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00 is 78.75% of
P80,000.00, hence the real estate mortgage covering 100 hectares is unenforceable to the extent of 78.75
hectares. The mortgage covering the remainder of 21.25 hectares subsists as a security for the P17,000.00
debt. 21.25 hectares is more than sufficient to secure a P17,000.00 debt.