LIQUIDATION

.R. No. 70054 December 11, 1991

BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner,

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

G.R. No. 68878 December 11, 1991

BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner,

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

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

TOP MANAGEMENT PROGRAMS CORPORATION AND PILAR DEVELOPMENT

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

G.R. No. 78766 December 11, 1991

EL GRANDE CORPORATION, petitioner,

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

G.R. No. 78767 December 11, 1991

METROPOLIS DEVELOPMENT CORPORATION, petitioner,

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

G.R. No. 78894 December 11, 1991

BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner

vs.
COURT OF APPEALS, THE CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ,
JR., CARLOTA P. VALENZUELA, ARNULFO B. AURELLANO AND RAMON
TIAOQUI, respondents.
G.R. No. 81303 December 11, 1991

PILAR DEVELOPMENT CORPORATION, petitioner

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

G.R. No. 81304 December 11, 1991

BF HOMES DEVELOPMENT CORPORATION, petitioner,

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

G.R. No. 90473 December 11, 1991

EL GRANDE DEVELOPMENT CORPORATION, petitioner,

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

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

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

MEDIALDEA, J.:

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

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

G.R No. 68878

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

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

G.R. Nos. 77255-58

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

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

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

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

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

In a resolution dated August 29, 1985, this Court in G.R. No. 70054 resolved to issue a temporary
restraining order, effective during the same period of 30 days, enjoining the respondents from
executing further acts of liquidation of the bank; that acts such as receiving collectibles and
receivables or paying off creditors' claims and other transactions pertaining to normal operations of a
bank are not enjoined. The Central Bank is ordered to designate a comptroller for Banco Filipino.

Subsequently, Top Management failed to pay its loan on the due date. Hence, the law firm of Sycip,
Salazar, et al. acting as counsel for Banco Filipino under authority of Valenzuela as liquidator,
applied for extra-judicial foreclosure of the mortgage over Top Management's properties. Thus, the
Ex-Officio Sheriff of the Regional Trial Court of Cavite issued a notice of extra-judicial foreclosure
sale of the properties on December 16, 1985.

On December 9, 1985, Top Management filed a petition for injunction and prohibition with the
respondent appellate court docketed as CA-G.R. SP No. 07892 seeking to enjoin the Regional Trial
Court of Cavite, the ex-officio sheriff of said court and Sycip, Salazar, et al. from proceeding with
foreclosure sale.
Similarly, Pilar Development defaulted in the payment of its loans. The law firm of Sycip, Salazar, et
al. filed separate applications with the ex-officio sheriff of the Regional Trial Court of Cavite for the
extra-judicial foreclosure of mortgage over its properties.

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

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

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

G.R. No. 78766

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

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

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

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

On March 2, 1987, the Court of Appeals rendered a decision dismissing the petition.

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

G.R. No. 81303

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

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

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

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

G.R. No. 81304

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

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

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

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

The order of dismissal was appealed by the petitioner to the Court of Appeals. On November 4,
1987, the respondent appellate court dismissed the appeal and affirmed the order of the trial court.

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

G.R. No. 90473

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

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

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

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

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

G.R. No. 70054

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

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

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

On the same date, respondent Board issued M.B. Resolution No. 955 placing petitioner bank under
conservatorship of Basilio Estanislao. He was later replaced by Gilberto Teodoro as conservator on
August 10, 1984. The latter submitted a report dated January 8, 1985 to respondent Board on the
conservatorship of petitioner bank, which report shall hereinafter be referred to as the Teodoro
report.

Subsequently, another report dated January 23, 1985 was submitted to the Monetary Board by
Ramon Tiaoqui, Special Assistant to the Governor and Head, SES Department II of the Central
Bank, regarding the major findings of examination on the financial condition of petitioner BF as of
July 31, 1984. The report, which shall be referred to herein as the Tiaoqui Report contained the
following conclusion and recommendation:

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

All the foregoing provides sufficient justification for forbidding the bank from engaging in
banking.
Foregoing considered, the following are recommended:

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

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

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

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

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

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

1. To forbid Banco Filipino Savings and Mortgage Bank and all its branches
to do business in the Philippines;

2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor as Receiver

who is hereby directly vested with jurisdiction and authority to immediately
take charge of the bank's assets and liabilities, and as expeditiously as
possible collect and gather all the assets and administer the same for the
benefit of its creditors, exercising all the powers necessary for these
purposes including but not limited to, bringing suits and foreclosing
mortgages in the name of the bank;

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

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

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

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

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

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

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

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

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

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

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

Sec. 29 of RA No. 265, as amended;

2. The Legal Department, through the Solicitor General, be authorized to file in the
proper court a petition for assistance in th liquidation of the Bank;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The commissioner after evaluation of the evidence presented found and

recommended the following:

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

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

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

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

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

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

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

G.R. No. 78767

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

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

While the motion to dismiss was pending resolution, petitioner herein Metropolis
Development Corporation (Metropolis for brevity) filed a motion to intervene in the
aforestated civil case on the ground that as a stockholder and creditor of Banco
Filipino, it has an interest in the subject of the action.

On July 19, 1985, the trial court denied the motion to dismiss and also denied the
motion for reconsideration of the order later filed by Central Bank. On June 5, 1985,
the trial court allowed the motion for intervention.

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

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

G.R. No. 78894

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

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

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

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

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

After deliberating on the pleadings in the following cases:

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

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

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

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

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

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

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

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

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

Clearly, in G.R. Nos. 68878, 77255-58, 78766 and 90473, the liquidator by himself or
through counsel has the authority to bring actions for foreclosure of mortgages
executed by debtors in favor of the bank. In G.R. No. 81303, the liquidator is likewise
authorized to resist or defend suits instituted against the bank by debtors and
creditors of the bank and by other private persons. Similarly, in G.R. No. 81304, due
to the aforestated reasons, the Central Bank cannot be compelled to fulfill financial
transactions entered into by Banco Filipino when the operations of the latter were
suspended by reason of its closure. The Central Bank possesses those powers and
functions only as provided for in Sec. 29 of the Central Bank Act.

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

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

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

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

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

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

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

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

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

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

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

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

xxx xxx xxx

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The recommended valuation reserves as bases for determining the financial

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

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

Records further show that the examination of petitioner bank was officially terminated
only when Central Bank Examination-charge Dionisio Domingo submitted his final
report of examination on March 4,1985.

It is evident from the foregoing circumstances that the examination contemplated in

Sec. 29 of the CB Act as a mandatory requirement was not completely and fully
complied with. Despite the existence of the partial list of findings in the examination
of the bank, there were still highly significant items to be weighed and determined
such as the matter of valuation reserves, before these can be considered in the
financial condition of the bank. It would be a drastic move to conclude prematurely
that a bank is insolvent if the basis for such conclusion is lacking and insufficient,
especially if doubt exists as to whether such bases or findings faithfully represent the
real financial status of the bank.

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

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

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

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

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

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

The second requirement provided in Section 29, R.A. 265 before a bank may be
closed is that the examination should disclose that the condition of the bank is one of
insolvency.
As to the concept of whether the bank is solvent or not, the respondents contend that
under the Central Bank Manual of Examination Procedures, Central Bank examiners
must recommend valuation reserves, when warranted, to be set up or deducted
against the corresponding asset account to determine the bank's true condition or
net worth. In the case of loan accounts, to which practically all the questioned
valuation reserves refer, the manual provides that:

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

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

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

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

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

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

interchangeable:

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

There is no doubt that the Central Bank Act vests authority upon the Central Bank
and Monetary Board to take charge and administer the monetary and banking
system of the country and this authority includes the power to examine and
determine the financial condition of banks for purposes provided for by law, such as
for the purpose of closure on the ground of insolvency stated in Section 29 of the
Central Bank Act. But express grants of power to public officers should be subjected
to a strict interpretation, and will be construed as conferring those powers which are
expressly imposed or necessarily implied (Floyd Mechem, Treatise on the Law of
Public Offices and Officers, p. 335).

In this case, there can be no clearer explanation of the concept of insolvency than
what the law itself states. Sec. 29 of the Central Bank Act provides that insolvency
under the Act, shall be understood to mean that "the realizable assets of a bank or a
non-bank financial intermediary performing quasi-banking functions as determined by
the Central Bank are insufficient to meet its liabilities."

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

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

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

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

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

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

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

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

The Tiaoqui report dated January 23, 1985, which was based on partial examination
findings on the bank's condition as of July 31, 1984, states that total liabilities of
P5,282.1 million exceeds total assets of P4,947.2 million after deducting from the
assets valuation reserves of P612.2 million. Since, as We have explained in our
previous discussion that valuation reserves can not be legally deducted as there was
no truthful and complete evaluation thereof as admitted by the Tiaoqui report itself,
then an adjustment of the figures win show that the liabilities of P5,282.1 million will
not exceed the total assets which will amount to P5,559.4 if the 612.2 million allotted
to valuation reserves will not be deducted from the assets. There can be no basis
therefore for both the conclusion of insolvency and for the decision of the respondent
Board to close petitioner bank and place it under receivership.

Concerning the financial position of the bank as of January 25, 1985, the date of the
closure of the bank, the consolidated statement of condition thereof as of the
aforesaid date shown in the Valenzuela, Aurellano and Tiaoqui report on the
receivership of petitioner bank, dated March 19, 1985, indicates that total liabilities of
4,540.84 million does not exceed the total assets of 4,981.53 million. Likewise, the
consolidated statement of condition of petitioner bank as of January 25, 1985
prepared by the Central Bank Authorized Deputy Receiver Artemio Cruz shows that
total assets amounting to P4,981,522,996.22 even exceeds total liabilities amounting
to P4,540,836,834.15. Based on the foregoing, there was no valid reason for the
Valenzuela, Aurellano and Tiaoqui report to finally recommend the liquidation of
petitioner bank instead of its rehabilitation.

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

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

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

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

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

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

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

The first paragraph of the aforequoted provision contemplates a situation where the
whole banking community is confronted with financial and economic crisis giving rise
to serious and widespread confusion among the public, which may eventually
threaten and gravely prejudice the stability of the banking system. Here, the
emergency or financial confusion involves the whole banking community and not one
bank or institution only. The second situation on the other hand, provides for a
situation where the Central Bank grants a loan to a bank with uncertain financial
condition but not insolvent.
As alleged by the respondents, the following are the reasons of the Central Bank in
approving the resolution granting the P3 billion loan to petitioner bank and the latter's
reopening after a brief self-imposed banking holiday:

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

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

the banking system;

WHEREAS, the reopening of Banco Filipino would require additional credit

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

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

uncertainty that presently exists;

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

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

In view of the foregoing premises, We believe that the closure of the petitioner bank
was arbitrary and committed with grave abuse of discretion. Granting in gratia
argumenti that the closure was based on justified grounds to protect the public, the
fact that petitioner bank was suffering from serious financial problems should not
automatically lead to its liquidation. Section 29 of the Central Bank provides that a
closed bank may be reorganized or otherwise placed in such a condition that it may
be permitted to resume business with safety to its depositors, creditors and the
general public.
 We are aware of the Central Bank's concern for the safety of Banco Filipino's
depositors as well as its creditors including itself which had granted substantial
financial assistance up to the time of the latter's closure. But there are alternatives to
permanent closure and liquidation to safeguard those interests as well as those of
the general public for the failure of Banco Filipino or any bank for that matter may be
viewed as an irreversible decline of the country's entire banking system and
ultimately, it may reflect on the Central Bank's own viability. For one thing, the
Central Bank and the Monetary Board should exercise strict supervision over Banco
Filipino. They should take all the necessary steps not violative of the laws that will
fully secure the repayment of the total financial assistance that the Central Bank had
already granted or would grant in the future.

ACCORDINGLY, decision is hereby rendered as follows:

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

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

SO ORDERED.

SUBSEQUENT JUDICIAL REVIEW

G.R. No. 76118 March 30, 1993

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

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

Sycip, Salazar, Hernandez & Gatmaitan for petitioners.

Quisumbing, Torres & Evangelista for Triumph Savings Bank.

BELLOSILLO, J.:

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

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

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

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

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

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

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

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

Instead of proceeding to trial, petitioners elevated the twin orders of the RTC to the Court of Appeals
on a petition for certiorari and prohibition under Rule 65.9 On 26 September 1986, the appellate
court, upheld the orders of the trial court thus —
 Petitioners' motion to dismiss was premised on two grounds, namely, that the
complaint failed to state a cause of action and that the Triumph Savings Bank was
without capacity to sue except through its appointed receiver.

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

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

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

xxx xxx xxx

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

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

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

(2) in holding that the "charge of lack of due process" for "want of prior hearing" in a
complaint to annul a Monetary Board receivership resolution under Sec. 29 of R.A.
265 "may be taken as . . allegations of arbitrariness and bad faith"; and
 (3) in holding that the owners and former officers of an insolvent bank may still act or
sue in the name and corporate capacity of such bank, even after it had been ordered
closed and placed under receivership.11

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

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

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

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

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

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

Even in Banco Filipino, 18 We reiterated that Sec. 29 of R.A. 265 does not require a previous hearing
before the Monetary Board can implement its resolution closing a bank, since its action is subject to
judicial scrutiny as provided by law.
It may be emphasized that Sec. 29 does not altogether divest a bank or a non-bank financial
institution placed under receivership of the opportunity to be heard and present evidence on
arbitrariness and bad faith because within ten (10) days from the date the receiver takes charge of
the assets of the bank, resort to judicial review may be had by filing an appropriate pleading with the
court. Respondent TSB did in fact avail of this remedy by filing a complaint with the RTC of Quezon
City on the 8th day following the takeover by the receiver of the bank's assets on 3 June 1985.

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

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

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

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

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

. . . the banking business is properly subject to reasonable regulation under the

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SO ORDERED.
 Doctrine of Promissory estoppel

G.R. No. L-29352 October 4, 1971

EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DE LA

RAMA, HORACIO DE LA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA,
RODOLFO RAMOS, VICTORIA RAMOS TANJUATCO, and TEOFILO TANJUATCO, petitioners,
vs.
CENTRAL BANK OF THE PHILIPPINES, respondent.

Francisco Carreon, Feliciano C. Tumale and Araneta, Mendoza & Papa for petitioners.

Office of the Solicitor General Felix Q. Antonio and F. E. Evangelista, Clara Cruz-Espritu & Iñigo B.
Regalado, Jr. for respondent Bank.

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

This is a 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 (hereinafter designated
as the CB) from enforcing and implementing the Monetary Board Resolution No. 1263, adopted on
30 July 1968, excluding the Overseas Bank of Manila (hereinafter termed the OBM) from clearing
with the Central Bank, that was ordered implemented on 31 July 1968 (Annex "11"), and Resolution
No. 1290, adopted on 1 August 1968, granting authority to the OBM Board of Directors to suspend
operations thereof, which was implemented on 2 August 1968 (Annex "13").

The herein petition is based on the following grounds:

(a) That the aforesaid resolutions were not legally issued and were promulgated by respondent CB
through the Monetary Board in excess of jurisdiction and with grave abuse of discretion;

(b) That the said resolutions are prejudicial to the national interest and against public policy, as they
would erode confidence in the banking system and undermine the integrity and stability thereof,
contrary to the purpose and spirit of the Central Bank Act;

(c) That said resolutions have caused and will cause further irreparable losses, damages and
injuries to the depositors, creditors and stockholders of the OBM;

(d) That said resolutions were promulgated without due process of law, would constitute deprivation
of property likewise without due process of law, and will amount to impairment of the obligations of
contract; and

(e) That there is no appeal nor any plain, speedy and adequate remedy in the ordinary course of
law.

From the pleadings and annexes, the following appears:

The OBM is a commercial banking corporation duly organized and existing under the laws of the
Philippines with principal office at Rosario Street, Manila. Petitioners are the majority and controlling
stockholders thereof. The OBM was opened for business on 6 January 1964 with authorized capital
of P30 million, P10 million subscribed and P8 million thereof paid, but had been suspended by
respondent from clearing with the CB and from lending operations for various violations of the
banking laws and implementing regulations. Petitioners charged that the OBM became financially
distressed because of this suspension and the deprivation by the CB of all the usual credit facilities
and accommodations accorded to the other banks. The alleged exactions of onerous fines and
penalties by respondent was likewise blamed for the aggravated situation. For its deficiencies it was
made subject to penalties of 12% interest on overdrawings and 36% per annum on reserve
deficiencies, which by 1968 amounted to several millions.

By April, 1967, the financial situation of the OBM had caused mounting concern in the CB. Petitioner
Ramos and the OBM management finally met with respondent CB on the necessity and urgency of
rehabilitating the OBM through the extension of necessary financial assistance.

The upshot of these conferences appears from the correspondence exchanged between the CB and
the OBM.

On 2 May 1967, the Governor of the Central Bank, Andres Castillo, upon instructions of the
Monetary Board, wrote a letter (Petition, Annex "B") stating:

This is with reference to the conference had between Mr. Emerito Ramos, Sr.,
Chairman of your Board, and the undersigned, the Deputy Governor, the Acting
Superintendent of Banks, and the Officer-in-Charge, Accounting Department of this
Bank, last Friday evening on the present very precarious condition of the Overseas.
In the conference, we described to Mr. Ramos at length the circumstances which led
to the present precarious conditions of the bank. We stressed the imminent danger of
the bank's being thrown out of clearing, in accordance with existing Central Bank
regulations, on account of its continuous adverse clearing balances, and of the
immediate necessity of putting up additional capital in the amount of at least P3
million, which Mr. Ramos promised to put up when he last appeared before the
Monetary Board.

I informed Mr. Ramos that if his bank is thrown out of clearing, the Central Bank will
proceed in accordance with the existing policy under which he and other
stockholders representing a majority will have to sign a trusteeship agreement with
the Philippine National Bank pursuant to which the Overseas Bank will be managed
by the Philippine National Bank. If the PNB takes over management in such
eventuality, the Central Bank could also announce that it is ready to support the
Philippine National Bank in order to allay the fears of depositors and creditors.

In view of the OBM stockholders' reluctance to execute the Voting Trust suggested, the Monetary
Board adopted Resolution No. 2015 dated 16 October 1967, having the following terms (Petition,
Annex "F"):

(1) To require Mr. Emerito M. Ramos, Sr., the principal stockholder of the Overseas
Bank of Manila, to submit a listing of his properties and to mortgage or assign the
same to the Central Bank to cover the overdraft balance therewith of the Overseas
Bank of Manila;

(2) To require the stockholders of the Overseas Bank of Manila to subscribe to an

appropriate voting trust agreement so that the Central Bank may be able to effect a
 complete reorganization and/or transfer the management of the bank to a nominee of
the Monetary Board;

Further conference ensued, and on 30 October 1967 Governor Castillo of the CB wrote again
(Petition, Annex "G" ):

I wish to refer to the conference had between your goodself and the members of the
Monetary Board at Malacañang of 16 October 1967, relative to the financial condition
and state of affairs of the Overseas Bank of Manila, of which the substantial majority
of stock is owned by you and your family and corporations controlled by you.

Among other things, the Monetary Board, having in mind the overdrawing in your
deposit account with the Central Bank which, on that date, stood at P22.3 million,
together with the balance of your past due emergency loan with the Central Bank
amounting to P10.3 million exclusive of accumulated interest, decided that, as a
measure to stave off liquidation, a voting trust agreement should be executed by you
and your family and the corporations controlled by you in favor of the Superintendent
of Banks, in an instrument similar to the one executed by stockholders of the
Republic Bank in favor of the Philippine National Bank. On 23 October 1967, the
Legal Counsel of this Bank submitted to you a draft of such "Voting Trust Agreement"
desired by the Monetary Board. However, on 25 October 1967, you handed the legal
Counsel your own draft of a "Trust Agreement" which, in essence, is not a voting
trust agreement as desired by the Monetary Board and reiterated in its Resolution
No. 2020 dated 20 October 1967 and confirmed on 24 October 1967.

This was followed up by another letter of 8 November 1967 (Petition, Annex "H"):

In line with the conference this morning between your goodself and the undersigned,
the Deputy Governor, the Acting Superintendent of Banks, and the Central Bank
Legal Counsel, and your manifestation of readiness to abide by the decisions of the
Monetary Board on all matters involving the Overseas Bank of Manila, it is requested
that the voting trust agreement prepared by the Legal Counsel of this Bank be now
signed by you and other members of your family and by the proper officials of the
corporations which are stockholders of the bank and which are controlled by you and
your family.

It is also requested that the execution of the mortgages on the properties you offered
as security for the obligations of the Overseas Bank of Manila to the Central Bank be
finalized, and the shares of stock belonging to you and your family in your
corporations and enterprises be endorsed in favor of the Central Bank and delivered
to us as soon as possible.

Finally, on 20 November 1967, the petitioners herein executed the Voting Trust Agreement prepared
by attorneys of the CB (Petition, Annex "A") with petitioners as Cestuis Que Trust1 and respondent
CB's Superintendent of Banks as the Trustee. The Trustee entered into the agreement pursuant to
the authority given by respondent's Monetary Board under M. B. Resolution No. 2017, dated 17
October 1967. The salient features of the said Voting Trust Agreement are the following:

(a) Objectives. The objectives are stated in the "Whereas Clauses", the pertinent portions of which
read: "... the abovenamed stockholders of the Overseas Bank of Manila believe that it is for and/or
the interest and benefit of the bank depositors, creditors and stockholders that this trust agreement
should be entered into by them for the rehabilitation, normalization and stabilization of the Overseas
Bank of Manila;" and "... TRUSTEE has likewise signified his willingness to accept such trust in
pursuance of the objectives above-mentioned;" (Emphasis supplied)

(b) Term. The life of the trust shall be for three (3) years from 20 November 1967, but the Trustee at
its option, may relinquish the trust upon approval of the Monetary Board. It is provided further that if,
at the expiration of the three-year period the purposes for which the trust has been constituted have
not as yet been fully achieved, the trust agreement shall be considered automatically extended for
such period to be determined by the Monetary Board, similarly terminable within such further period
at the discretion of the Monetary Board;

(c) Powers and authority. The trustee is given all and full authority, subject to the limitations set forth
in the law and other conditions in the contract to: (1) direct the management of the affairs and
accounts and properties of the OBM; (2) vote its directors and choose the officers and employees;
(3) improve, modify, reorganize its operation policies, standards, systems, methods, structure,
organization, personnel, staffing pattern, etc.; (4) hold and vote on the shares of stocks transferred
to him as trustee; (5) safeguard the interests of depositors, creditors and stockholders; and (6) in
general, to exercise all such powers and discharge all such functions as inherently pertain to
the cestui que trust as owners, and/or for the sound management of a banking institution;

(d) Consideration. The cestui que trust hound themselves, among others, to pay the trustee during
the life of the trust an annual honorarium subject to certain conditions.

Petitioners likewise conveyed by way of mortgage to the CB all their private properties and holdings
to secure the obligations of the OBM to the CB, but there is no agreement as to the value of these
properties, petitioners contending that they are worth over 141 million, but the CB appraised them at
around 67 million (Petition, Annexes "B" and "C").

But as early as 25 September 1967, Mr. Martin Oliva, who had become president of OBM only since
13 March 1967, had written to the Superintendent of Banks that transactions worth around P48
million, of which over P43 million were time deposits, at usurious rates of interest, had not been
incorporated in the Bank's books nor reported to the Board of Directors. It was explained2 that the
OBM management had resorted to these unrecorded transactions because the suspension of its
lending activities after 14 months of operation reduced OBM to virtual inactivity, and it had to agree
to pay high premiums or interests on such deposits because this high costs is comparatively
cheaper than the Central Bank's interests on overdrawings at the rate of 12% per annum and a
penalty of 36% per annum on reserve deficiencies.

Oliva's letter prompted a further investigation of OBM records by the CB examiners that revealed
allegedly unrecorded deposits and transactions (which is disputed by Petitioners) amounting to
48,007,211 as of 13 September 1967 (reduced to P35 million when petition was filed); diversion of
deposits to accounts controlled by certain OBM officials (so-called COFICO and EMRACO accounts)
and loans to the Ramos family and firms controlled by them.3Petitioners contend that these
transactions were recorded in subsidiary ledger accounts that were linked to the general ledger
accounts of the Bank under the so-called EMRACO and COFICO accounts, and finally incorporated
in OBM's regular books in September, 1967 upon instructions of President Martin Oliva.4 And as to
the loans to the Ramos family and firms, the same had been written off when around 31 July 1967
the Ramoses conveyed to the OBM properties worth P54.096 million.

On 27 October 1967, the Superintendent of Banks reported that the condition of the OBM was one
of insolvency, calling for application of Section 29 of the Central Bank Act and liquidation of OBM.
However, with the listing of Ramos properties worth 100 million, it was added, a new possibility
emerged to recapitalize the OBM in 100 million.5
 2. However, with the letter dated October 26, 1967 of Mr. Martin R. Oliva, President
of the Overseas Bank of Manila, giving a list of the Ramos properties worth P100
million (?), a radically different possibility has emerged.

If the valuation of the P100 million (net of encumbrances to the parties other than the
CB and TOBM) to the properties is true, or substantially true, then the new
"possibility" may be briefly stated thus:

A Recapitalization of the Overseas Bank of Manila on the amount of P100 million will
save the bank, because — as a general proposition, subject of course to
corroborative quantification — such a magnitude of capital can make good the bad
loans as well as the funds that cannot be legitimately accounted for, and can absorb
the losses in bad debts, can provide it with funds for viable operations, and thus
ultimately give adequate protection to depositors and creditors.

In the same memorandum report, considering the need for liquid funds, the Superintendent of Banks
suggested the following alternatives:

(1) The OBM be required to acquire the properties in payment for frozen or bad loans
or for unaccountable funds, and then mortgage the properties to CB for emergency
advances, or

(2) The owners be required to mortgage the properties to the CB directly, and for CB
to extend loans to OBM depending on the needs.

Three days later, 30 October 1967, the Central Bank governor wrote to the petitioner, Emerito
Ramos, reiterating the need for the OBM stockholders to execute a voting trust agreement "to stave
of liquidation", which letter was followed by another of 8 November 1967, requiring the execution of
the Voting Trust Agreement by the OBM stockholders and of the mortgage of their properties to
secure OBM obligations to the Central Bank and the endorsement of the shares of stock held by
them in their corporations and enterprises (Petition, Annexes "G" and "H", quoted previously).
Petitioners duly complied (Annexes "A", "C" and "S") in November, 1967.

On 5 December 1967, new directors and officers drafted from the CB itself, the PNB and DBP were
elected and installed and they took over the management and control of the Overseas bank.

On 14 June 1968, the CB announced that only P10 million were available as emergency loan to
OBM and requested the management of the latter (appointed under the Voting Trust Agreement to
replace the old Board elected by the stockholders) to project how it could help bail out OBM.

OBM president, Mr. Orosa, submitted a "Projected Cash Flow Statement"6, concluding —

It is pointed out here that with the P10 million loan from the CB, the extremely
distressed financial condition of TOBM will continue to prevail. At best, the P10
million loan will enable TOBM to resume limited lending operations on a highly
selected basis and diminish its estimated loss by some P492.5 thousand assuming
that the loans to be extended have a high turnover rate and a 100% repayment ratio.
Thus, with the P10 million CB loan, the annual loss has been estimated to be P8.9
million. To be able to breakdown in operations, therefore, TOBM needs loanable
funds estimated at P196 million, placing the cost of such funds at 1½ %.
In a memorandum submitted to Governor Calalang 12 days later, 22 July, Mr. Orosa unburdened
himself and deployed CB for hemming and hawing. This caused, he said the loss of "psychological
advantage" initially gained by PNB's take over of the OBM management. He reminded the CB
Governor about the OBM management's request on 6 January 1968 for a P20 million loan to enable
OBM to get on its feet. "At that time", he said, "the aid we are recommending, properly used, would
have staved off panic and restored some confidence."

Eight months of indecision has made depositors lose faith and as a result, we are
faced with more court suits and withdrawals than ever before and more obligations
have matured.7

The next day, 23 July 1968, the Superintendent of Banks recommended to the Monetary Board that
OBM be liquidated under Section 29, Republic Act 265, if its "capital structure cannot be
strengthened to meet the requirements of Section 22 of RA 337",8 and if "massive financing cannot
be given to enable the bank to expand its risk assets." He concluded that:

... The bank's continuance in business under its present extremely precarious
financial condition, without the necessary capital injection and financial aid, will
involve not merely probable, but certain further losses to its depositors and other
creditors and may have further adverse effects on the banking system.

Thereafter, on 13 August 1968, as heretofore stated, the CB Monetary Board adopted Resolution
No. 1333, ordering the Superintendent of Banks to proceed to the liquidation of the OBM, under
Section 29 of the Central Bank Act. As already noted, implementation of this resolution was
restrained by this Court.

Petitioners aver that no adequate financial assistance was granted to the OBM after the execution of
the Voting Trust Agreement. They further ]claim that the said agreement is not only bilateral,
imposing reciprocal obligations for valuable consideration, but was also entered into by respondent
CB in the performance of its duties under the law; and that under said agreement the obligation of
the CB was to act and work for the "rehabilitation, normalization and stabilization" of the OBM,
through the extension of adequate and necessary financial assistance to stave off liquidation, is
legally demandable, as well as a duty specifically enjoined and imposed by law. And that in violation
of its obligations, the CB, "after eight months of delay", adopted the questioned resolutions, without
notice to or hearing the petitioners.

By resolution of this Court, the respondents were required to answer the petition and set for hearing
the petition for a writ of injunction. However, on 13 August 1968, the CB adopted Resolution No.
1333 (Annex "12", Answer) forbidding the OBM from doing business and instructing the
Superintendent of Banks to take charge of the Bank's assets and to take action under Section 29 of
the Central Bank Act (Republic Act 265), which amounted to a directive for the liquidation of the
OBM. Implementation of the resolution was, upon petitioners' motion, restrained by the Court on 14
August 1968.

Justifying Resolutions 1263 and 1290, CB in its answer cited specific instances of OBM's "unusual
and irregular transactions" discovered by examiners or "revealed by OBM officials themselves". By
way of affirmative defenses, CB averred that:

1. The CB is not a party to the Voting Trust agreement, and therefore cannot be compelled to
implement it.
2. Assuming that CB is obliged to rehabilitate OBM, it cannot give more loans to the latter than that
already given to it as of 30 July 1968, without violating Section 90 of the Central Bank Act since
neither OBM nor its stockholders could put up additional capital and additional collaterals to secure
CB's future advances.

3. It would be illegal and contrary to public interest to construe the voting trust agreement as
imposing upon CB the duty to rescue OBM at all cost.

4. No bank has an absolute right to take part in inter-bank clearing, because Section 100, Republic
Act 265, requires a bank as a condition to such participation to keep deposit reserves, which the
OBM does not have — in fact it had overdrawn its reserve account with the CB beyond the
maximum fixed by law.

Several petitions for intervention were denied by the Court.

The issues involved appear to be:

(a) Whether or not this Supreme Court has jurisdiction to restrain the implementation
of CB Resolution No. 1333;

(b) Whether or not the CB had agreed to rehabilitate, normalize and stabilize OBM;

(c) Whether or not CB Resolutions Nos. 1263, 1290 and 1333 were adopted in abuse
of discretion.

On the first issue of jurisdiction, the respondent Central Bank defines its position in its Rejoinder
Memorandum, pages 3-5, as follows:

"We respectfully maintain,"..., that even as this Honorable Court had ample
jurisdiction over the said petition, any action based on the approval and
implementation of the third resolution, Res. 1333 on 13 August 1968 comes already
within the exclusive original jurisdiction of the Court of First Instance, in accordance
with the provisions itself of Section 29 of the Central Bank Act, Rep. Act 265, under
which said resolution was promulgated.

xxx xxx xxx

The point ... is that the situation has changed entirely because of the approval of
Res. 1333 on August 13, 1968, after the main petition had already been filed and
given due course. This resolution has made the two previous questioned resolutions
academic and the main petition pointless.

The CB stand is that to assail Resolution 1333 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, allegedly in view of the provisions of Section 29, Republic Act
No. 265, paragraph 3, reading:

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.

This argument must be rejected, for it overlooks the fact that before the Central Bank adopted said
Resolution No. 1333 on 13 August 1968 this Court had already taken cognizance of the petition
herein, assailing Resolutions Nos. 1263 and 1290 of the Monetary Board as "patent acts of
liquidation," violative of its alleged commitment to rehabilitate the overseas Bank; and the Court, in
fact, already had required the Central Bank to answer the petition on 12 August 1962, prior to the
adoption of Resolution No. 1333. The latter resolution is clearly an act in pursuance of the policy
outlined in the previous resolutions (1263 and 1290) enjoined by this Court. Hence, 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.

In People vs. Pegarum, this Court quoted with approval the rule that:

... the jurisdiction of a court depends upon the state of facts existing at the time it is
invoked, and if the jurisdiction once attaches to the person and subject matter of the
litigation, the subsequent happening of events, although they are of such a character
as would have prevented jurisdiction from attaching in the first instance, will not
operate to oust jurisdiction already attached.

This rule coincides with well-established principles of American law9 to the same effect.

The basic guidelines in the exercise of this Court's original jurisdiction to issue prerogative writs were
expressed in Dimayuga vs. Fernandez, 43 Phil. 306-307, thus:

... It is true, as respondents contend, that as a general rule, a court of equity will not
restrain the authorities of either a state or municipality from the enforcement of a
criminal law, and among the earlier decisions, there was no exception to that rule. By
the modern authorities, an exception is sometimes made, and the writ is granted,
where it is necessary for the orderly administration of justice, or to prevent the use of
the strong arm of the law in an oppressive or vindictive manner, or a multiplicity of
actions.

In legal effect, that was the decision of this court in Kwong Sing vs. City of
Manila. (41 Phil. 103)

The writ of prohibition is somewhat sui generis, and is more or less in the sound legal
discretion of the court and is intended to prevent the unlawful and oppressive
exercise of legal authority, and to bring about the orderly administration of justice.

Nor would it serve the interest of justice to dismiss the case at this stage and let a new petition be
filed in another court. In Bay View vs. Manila Hotel Worker's Union (L-21803, 17 December 1966),
this Court, through Mr. Justice Conrado V. Sanchez, pointed out the evils attending split jurisdictions,
saying:

To draw a tenuous jurisdictional line is to undermine stability in ... litigations. A piece

meal resort to one Court and another gives rise to multiplicity of suits. ... The time to
be lost, effort wasted, anxiety augmented, additional expense incurred — these are
 considerations which weigh heavily against split jurisdiction. Indeed it is more in
keeping with orderly administration of justice that all the causes of action here be
cognizable and heard by only one court... (Cas. cit., 18 SCRA 953).

On Previous occasions, this Court has overruled the defense of jurisdiction in the interest of public
welfare and for the advanced agreement of public policy, where, as in this case, an extraordinary
situation existed. 10 There is no denying that creditors, depositors and the banking community are all
interested in a quick determination whether the Overseas Bank may, under the circumstances, be
closed or allowed to continue operating at the exclusive discretion of respondent Central Bank.

The plea that the Overseas Bank is not a party to the case at bar need not give concern. The
petitioners are the controlling stockholders of that Bank, and are qualified to represent its interests,
so that a judgment may be enforced for or against it, although it is not impleaded by name in the
suits (V. Albert vs. Court of First Instance, L-26361, 29 May 1968, 23 SCRA 948, 964). This is
particularly true considering that the present management of the OBM (Overseas Bank of Manila) is
at present composed of respondent's nominees, pursuant to the Trust Agreement, and they can
hardly be expected to resist the plans and actions of respondent Central Bank (CB).

On the second issue, whether or not the respondent CB agreed to rehabilitate the OBM, Of which
petitioner are the majority stockholders, it is believed that a review of the letters from the CB to the
petitioners (hereinbefore quoted), considered together with the terms of the Voting Trust Agreement,
leaves no doubt that the CB did agree and commit itself to the continued operation of, and
rehabilitation of, the OBM. As early as 2 May 1967, the respondent CB, through its Monetary Board,
caused then Governor Castillo to advise petitioners that —

he and other stockholders representing a majority will have to sign a trusteeship

agreement with the Philippine National Bank pursuant to which the Overseas Bank
will be managed by the Philippine National Bank. If the PNB takes over management
in such eventuality, the Central Bank could also announce that it is ready to support
the Philippine National Bank in order to allay the fears of depositors and
creditors. (Pet., Annex "B") (Emphasis supplied)

CB Resolution No. 2015 of 16 October 1967 (Petition, Annex "F"), in addition to requiring a mortgage
or assignment of petitioners' personal properties to CB, confirmed the quoted memorandum by
requiring the stockholders of OBM to subscribe to an appropriate trust agreement, with the only
difference that instead of the Philippine National Bank, the trust would be executed in favor of the CB
as trustee to enable it to reorganize and transfer management to a nominee of the Monetary Board."
Two weeks later, on 30 October 1967, after a conference at Malacañang, the CB governor once
more wrote to Ramos that the Monetary Board —

decided that, as a measure to stave off liquidation, a voting trust agreement should
be executed by you and your family and the corporations controlled by you in favor of
the Superintendent of Banks, in an instrument similar to the one executed by
stockholders of the Republic Bank in favor of the Philippine National Bank (Petition,
Annex "G") (Emphasis supplied)

The reference to the case of the Republic Bank clarifies the purpose and scope of the demand for a
voting trust agreement "as a measure to stave off liquidation"; for it is well-known, and it is not
denied, that when the Republic Bank previously became distressed, the CB had advanced funds, to
rehabilitate it and allow it to resume operating.
Accordingly, the voting trust agreement that was finally executed (Annex "A"), and which was
admittedly prepared by the Legal Counsel of the Central Bank, recited in its preamble as an
objective of the voting trust agreement, that:

... the above named stockholders of the Overseas Bank of Manila believe that it is for
and/or interest and benefit of the bank depositors, creditors, and stockholders, that
this trust agreement should be entered into by them for the rehabilitation,
normalization and stabilization of the Overseas Bank of Manila.

and that the Superintendent of Banks as

... Trustee has likewise signified his willingness to accept such trust in pursuance of
the objectives above mentioned. ... (Emphasis supplied)

While the trust agreement on its face creates obligations only for the Superintendent of Banks as
trustee, his commitments were undeniably those of the Central Bank itself, since it was the latter that
had from the very beginning insisted upon such voting trust being executed. For the Superintendent
of Banks was an officer of the CB, the chief of its Department of Supervision and Examination of all
banking institutions operating in the country, subject to the instructions of the Monetary Board at all
times, pursuant to Section 25 of the CB charter, Republic Act No. 265; and it is not credible that he
should have understand that he was entering into the trust agreement in his personal capacity.

Bearing in mind that the communications, Annexes "B" and "G," as well as the voting trust
agreement, Annex "A," had been prepared by the CB, and the well-known rule that ambiguities
therein are to be construed against the party that caused them, 11 the record becomes clear that, in
consideration of the execution of the voting trust agreement by the petitioner stockholders of OBM,
and of the mortgage or assignment of their personal properties to the CB (Res. No. 2015, 16
October 1967, Annex "F," Petition), the CB had agreed to announce its readiness to support the new
management "in order to allay the fears of depositors and creditors." (Annex "B"), and to stave off
liquidation" by providing adequate funds for "the rehabilitation, normalization and stabilization" of the
OBM, in a manner similar to what the CB had previously done with the Republic Bank (Portion,
Annex "G," ante). While no express terms in the documents refer to the provision of funds by CB for
the purpose, the same is necessarily implied, for in no other way could it rehabilitate, normalize and
stabilize a distressed bank.

Even in the absence of contract, the record plainly shows that the CB made express representations
to petitioners herein that it would support the OBM, and avoid its liquidation if the petitioners would
execute (a) the Voting Trust Agreement turning over the management of OBM to the CB or its
nominees, and (b) mortgage or assign their properties to the Central Bank to cover the overdraft
balance of OBM. The petitioners having complied with these conditions and parted with value to the
profit of the CB (which thus acquired additional security for its own advances), the CB may not now
renege on its representations and liquidate the OBM, to the detriment of its stockholders, depositors
and other creditors, under the rule of promissory estoppel (19 Am. Jur., pages 657-658; 28 Am. Jur.
2d, 656-657; Ed. Note, 115 ALR, 157).

The broad general rule to the effect that a promise to do or not to do something in the
future does not work an estoppel must be qualified, since there are numerous cases
in which an estoppel has been predicated on promises or assurances as to future
conduct. The doctrine of "promissory estoppel" is by no means new, although the
name has been adopted only in comparatively recent years. According to that
doctrine, an estoppel may arise from the making of a promise, even though without
consideration, if it was intended that the promise should be relied upon and in fact it
 was relied upon, and if a refusal to enforce it would be virtually to sanction the
perpetration of fraud or would result in other injustice. In this respect, the reliance by
the promisee is generally evidenced by action or forbearance on his part, and the
idea has been expressed that such action or forbearance would reasonably have
been expected by the promissor. Mere omission by the promisee to do whatever the
promisor promised to do has been held insufficient "forbearance" to give rise to a
promissory estoppel. (19 Am. Jur., loc. cit.)

Disingenuously, the CB pleaded that the Voting Trust agreement was binding only upon the trustee,
the Superintendent of Banks. But as already pointed out this proposition is unacceptable since the
trust could have no private interest in the matters. Not only that, but CB subsequently caused its own
team of nominees to take over the direction and management of the OBM, through the voting of the
shares conveyed to the trustee. Even more, in August, 1970, the CB gave notice that it would not
extend or renew the voting trust, and attempted to turn back the shares covered by it to the
petitioners, thereby recognizing the obligations under the agreement as its own, and repudiating its
original disclaimer thereof.

How did the CB subsequently treat its commitments?

After execution of the Voting Trust Agreement, on 20 November 1967, the CB elected and installed
new directors and officers drafted from the Central Bank itself, the Philippine National Bank and the
Development Bank of the Philippines. The new team assumed the management and control of the
OBM and elected Augusto E. Orosa as bank president. On 6 January 1968, the new management
requested for a thirty million peso loan to enable the OBM to get on its feet. How this request for aid
was treated appears in a memorandum to the new CB governor, dated 22 July 1968 (Petitioner's
Reply Memorandum, Annex "X," Record, pages 526-527). Mr. Orosa stated:

MEMORANDUM TO:

Governor Alfonso Calalang

SUBJECT: POSITION PAPER OF THE OVERSEAS BANK

OF MANILA

BACKGROUND

A selected PNB team formally took over the management of the Overseas Bank of
Manila on December 7, 1967.

On January 16, 1968 we completed a report on the financial standing of the Bank,
the original of which is in your possession. In that report, we recommended that the
balance of the unpaid capital stock of P11 million be fully paid and P20 million be
advanced by the Central Bank to enable the Bank to resume normal operations. At
that time, we gathered from the books of account that the Bank faced obligations to
be immediately met amounting to about P30 million as against liquid assets of more
than P12 million or an immediate cash requirement of about P17 million.
Nevertheless, and this is a very important point, our feeling was that at that time the
aid we are recommending, properly used, would have staved off panic and restored
some confidence.

The entrance of the PNB team actually was a great initial psychological advantage;
we have used that advantage to full extent: the advantage has faded.
 PRESENT POSITION

Eight months of indecision has made depositors lose faith and as a result, we are
faced with more court suits and withdrawals than ever before and more obligations
have matured.

We are made to understand that an advance of P19 million has been approved for
the Bank and that an initial release of P10 million is under study. Last July 10, 1968,
we wrote the Superintendent of Banks complying with his request to render a
projection of what we can do with P10 million.

There is a great leeway with what we can do with P10 million depending on the
conditions which will accompany its grant. Even under the most liberal conditions that
we can imagine, P10 million will not save the Bank. We are, however, not aware
whether this proposed P10 million will be the start of a series of advances nor as to
how much ultimately the Central Bank will be willing to finance the rehabilitation.

We are faced with both internal and external problems that are daily increasing in
difficulty. If we are requested to make a projection which we believe is a reasonable
request, the present management should be made privy to the following:

(1) What is the real policy of the Central Bank regarding the future of TOBM;

(2) What is the policy of the Central Bank regarding present rates of interest and
penalties on prevailing deficiencies;

(3) What is the rate of interest to be charged on the fresh advances;

(4) What are the conditions to be meted out regarding leeway and operations of
TOBM;

(5) Any other strings that may be attached.

(6) What is the policy of Central Banking regarding unrecorded time deposits.

All these points will greatly affect any projection.

REQUEST:

That the PNB management team be withdrawn from TOBM.

It is obvious from this memorandum that far from heeding the request of its own team for an advance
of P30 million (or P17 million in cash) to enable the OBM to resume normal operations, the Central
Bank did nothing to support the OBM between 6 January to 14 June, for almost six months, and kept
even its own management team largely in the dark as to what to expect. 0n 14 June, CB advised
that only P10 million were to be made available (i.e., one third of the requirements estimated
necessary by its own representatives). This amount was naturally considered insufficient to
normalize, much less rehabilitate, the OBM. And yet all this while, the CB was holding petitioners'
mortgages on their private properties worth at least P67 million in 1967 by the CB's own appraisal.
Petitioners claimed they were worth P100 million which can not be very far from the truth,
considering the continual rise in real estate values.
Not content with procrastinating for 6 months, without taking positive steps to normalize OBM as it
had agreed to do, nor even announcing its support of its own management team or disclosing its
policy regarding the future of OBM, (the CB finally adopted the resolutions now attacked by herein
petitioner stockholders. On 30 July 1968, it excluded the OBM from clearing with the CB (Resol. No.
1263) the contingency that the Voting Trust and the mortgage of the petitioners' private properties
were to guard against. On 1 August 1968, CB authorized (and virtually directed) its nominee Board
of Directors to suspend operations (Resol. No. 1290); and thirteen days thereafter (13 August 1968),
the CB directed its Superintendent of Banks to proceed to liquidate OBM (Resol. No. 1333) under
Section 29 of Republic Act No. 265 (Central Bank Charter), providing that —

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 statements 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.

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.

We are constrained to agree with petitioners that the conduct of the CB from and after January,
1968, reveals a calculated attempt to evade rehabilitating OBM despite its promises. What is more
aggravating is that by the ordered liquidation, depositors and other creditors would have to share in
the assets of the OBM, while the CB's own credits for advances were secured by the new mortgages
it had obtained from the petitioners, thereby gaining for it what amounts to an illegal preference. To
cap it all, the CB disregarded its representations and promises to rehabilitate and normalize the
financial condition of OBM, as it had previously done with the Republic Bank, without even offering
to discharge the mortgages, given by petitioners in consideration for its promises, or notifying
petitioners that it desired to rescind its contract, or bringing action in court for the purpose. And all
the while CB knew that the situation of the OBM was deteriorating daily, with penalties at 3% per
month continually accumulating, while its creditors, depositors and stockholders awaited the
promised aid that never came, and which apparently CB never intended to give.

The deception practiced by the Central Bank, not only on petitioners but on its own management
team, was in violation of Articles 1159 and 1315 of the Civil Code of the Philippines:

ART. 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.

ART. 1315. Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly stipulated but
also to all the consequences which, according to their nature, may be in keeping with
good faith, usage and law. (Emphasis supplied)
The Supreme Court expounded the import of these legal provisions in Abelarde vs. Lopez, 74 Phil.
344, 348, stating:

Cleverness should never take the place of the loyal, upright and straightforward
observance of plighted undertakings.

The CB excuses itself by pleading that the OBM officers had resorted to non-recording of time
deposits in the Bank's books and diverting such deposits to accounting controlled by certain bank
officials, and other irregularities. It is well to note, however, that these "unrecorded" deposits were
revealed to the CB as early as 25 September 1967 by the then President of the OBM, Mr. Martin
Oliva, who had no hand in such irregularities and who informed the Superintendent of Banks that
time deposits worth P43,188,009.29 had not been carried in the books and had not been reported to
the OBM directors. 12 In fact, on 29 September 1967, the CB had already ordered its examiners to
investigate the Bank's records and determine the parties responsible. 13 Notwithstanding knowledge
of these irregularities, the CB did not withdraw its promised support, and insisted on the execution of
the Voting Trust Agreement on 20 November 1967. Such attitude imports that, in its opinion, the
irregularities disclosed were not to be blamed on the OBM itself or its depositors and creditors, but
on the officials responsible; and further, that the OBM could still be saved by adequate aid and
management reform, which was required by CB's duty to maintain the stability of the banking system
and the preservation of public confidence in it.

Respondent CB likewise urges in its defense that the rehabilitation of the OBM has become
impossible, and points out to the reports of the Superintendent of Banks and of Mr. Augusto Orosa
(the President of OBM elected by the CB nominees under the Voting Trust) that the Bank's loanable
funds had to be expanded to P136 million to break even. 14It is to be borne in mind, however, that
these reports were made in July, 1968, after six months of inaction on the part of the CB, without
positive action on its part to comply with its previous commitments. Furthermore, while the
stabilization of the OBM required injections of capital, it would be erroneous to assume that such
capital would have to reach P130 million, or that it would have to be advanced all at once. For had
the CB furnished the original aid of 30 million asked by the Orosa team early in January, 1968, and
the OBM allowed to resume operations with CB support, the restored confidence would have
stimulated new deposits, which, as is well-known, become in turn a source of loanable funds. It thus
becomes apparent that most of the difficulties invoked now by the CB are of its own making, and are
not a lawful excuse for its refusal to comply with its commitments. Finally, in the computations by the
CB examiners, there are included a total of P16.994 million for estimated losses, interests and
penalties 15 that did not represent amounts to be disbursed. More concretely, even in July, 1968, after
six months of CB dilly-dallying, the actual amount needed to be loaned to the OBM for capital
requirements "to support the necessary expansion in risk assets of P126.334 million in order to
break even in its operations" was estimated by the Superintendent of Banks at no more than
P40.730
million. 16 This amount tallies with Mr. A. Orosa's estimate that an advance of P30 million in January,
1968 would have saved OBM. 17 There is no showing that these amounts were beyond the capacity
of CB to make, 18 nor is it proved that they exceeded the amounts supplied for the rehabilitation of the
Republic Bank (the CB, for reasons of its own, refused to disclose the latter amounts despite
requests from the court). Certainly, the ten million increase in advance capital requirements between
January and July of 1968 can not be blamed on the petitioners herein, and was not of their own
making.

The respondent CB cites American cases to the effect that the courts can not interfere with CB's
discretion in determining whether or not a distressed bank should be supported or liquidated. In
none of the cases cited, however, does it appear that the CB engaged to support the distressed
bank in exchange for control of its management and additional mortgages in its favor, and, therefore,
the authorities cited are not in point. Discretion has its limits and has never been held to include
arbitrariness, discrimination or bad faith.

We conclude that having induced the petitioners to part with additional security in reliance upon its
(CB's) promises and commitments to avert liquidation and to support, normalize and rehabilitate the
OBM, the respondent CB is duty bound to comply in good faith with such promises. Consequently,
being contrary thereto, CB Resolutions Nos. 1263, 1290 and 1333 should be annulled and set aside
for having been adopted in abuse of discretion, equivalent to excess of jurisdiction. And never
having attempted to comply, nor even to begin compliance, with its commitments and promises, the
respondent CB is precluded to invoke the expiration of the period specified for the duration of its
obligations under the Voting Trust Agreement. Such period should, in justice and equity, be deemed
to start running from and after the CB begins due performance of its commitments, promises and
representations in good faith.

WHEREFORE, the writs prayed for in the petition are hereby granted, and respondent Central
Bank's resolutions Nos. 1263, 1290 and 1333 (that prohibit the Overseas Bank of Manila to
participate in clearing, direct the suspension of its operations, and ordering liquidation of said bank)
are hereby annulled and set aside; and said 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. Costs against respondent Central Bank of the Philippines.

Dizon, Teehankee, and Villamor, JJ., concur.

Concepcion, Barredo and Makasiar, C.J., took no part.

Zaldivar, J., concurs in the result.

Separate Opinions

FERNANDO, J., concurring:

In the result primarily on the ground that respondent's arbitrary and improvident exercise of its
asserted power in the premises is violative of due process.

MAKALINTAL, J., dissenting:

I fail to see, either from the record of this case or from the opinion of the majority, just how and
where respondent Central Bank acted without or in excess of jurisdiction or with grave abuse of
discretion so as to justify the writs of certiorari and prohibition granted by this Court; and just how
and where said respondent neglected to perform a duty specifically enjoined by law so as to justify
the writ of mandamus. To my mind the acts complained of in the petition, namely, Resolutions Nos.
1263 and 1290, passed by the Monetary Board on July 31 and August 1, 1968, respectively, were, if
anything, a judicious exercise of discretion for the purpose of carrying out the policies laid down by
the Central Bank Act with respect to supervision over the operation of private banking institutions
and this Court, by issuing the writs prayed for, has substituted its own judgment for that of the
Monetary Board in a matter that is peculliarly within the competence of the latter.

The thrust of the decision, as far as I can make out, is that the Voting Trust Agreement of November
20, 1967 created contractual obligations, with which "respondent Central Bank of the Philippines is
directed to comply ." The directive does not specify what those obligations are. The principal
stipulation in the agreement is simply what its title indicates: petitioners here, referred to as the
Cestuis Que Trust, assign to the Trustee "for such purpose" the voting rights to all their shares of
stock in the Overseas Bank of Manila, subject to certain conditions thereafter stated. The purpose
envisaged is expressed in the first of the two "WHEREAS" clauses of the agreement, to wit: "the
abovenamed stockholders (petitioners here) believe that it is for and/or in the interest and benefit of
the bank's depositors, creditors and stockholders that this trust agreement should be entered into by
them for the rehabilitation, normalization and stabilization of the Overseas Bank of Manila."

It seems, from a reading of the decision of this Court, that the purpose for which the Voting Trust
Agreement was entered into — more accurately, the goal sought to be achieved is mistaken for the
obligation thereunder, and that such obligation devolves not upon the Trustee, the Superintendent of
Banks, but upon the Central Bank itself, which is not a party to the agreement. Be that as it may, the
agreement contains an optional rescission clause, which is only logical, since the feasibility of
rehabilitating, normalizing and stabilizing the Overseas Bank, which was then in extremely
distressed circumstances, would depend upon many factors which could not be predicted with
mathematical certitude, but only upon a reasonably considered projection of future probabilities.
Thus while the life of the agreement would be for three years from the date of its execution, it was
provided expressly "that the Trustee may, at its option, relinquish the trust, upon approval of the
Monetary Board."

Resolution No. 1263, adopted July 31, 1968, excluded the Overseas Bank, then under trusteeship,
from clearing with the Central Bank, effective immediately. Resolution No. 1290, adopted the next
day, granted authority to the Board of Directors of the Overseas Bank to suspend operations
pending final action by the Monetary Board. Such final action was evidently meant to be in
connection with the recommendation submitted by the Superintendent of Banks to the Monetary
Board on June 23, 1968, which reads in part as follows:

After considering (1) the Examiners' provisions for estimated losses on the recorded
loans and receivables of P13.766 million (exclusive of estimated losses of P13.243
million on "unrecorded" loans and receivables), plus 2(a) the accrued interest on the
emergency loans by, and overdrawings with, the Central Bank, and 2(b) penalties
payable on deposit reserve deficiencies aggregating P3.228 million, or a total of
P16.994 million, all of these not yet taken up in the books, the bank's capital
accounts per books of P14.356 million as of June 30, 1968, would be wiped out
resulting in an estimated deficiency to creditors of P2.638 million. Since the minimum
capital required under Section 22 of Republic Act No. 337 as of June 30, 1968 is
P19.142 million, the amount of fresh capital needed to be put up to comply with the
minimum capital requirement as of June 30, 1968 would be P21.780 million. In
addition, P18.950 million of new capital must be put up by the Bank to support the
necessary expansion in risk assets of P126.334 million in order to break even in its
operations. Therefore, the total fresh capital which the Bank must put to meet the
requirements of Section 22 of R.A. No. 337, after considering the estimated losses
on loans and other expenses not yet taken up in the books, as well as the necessary
 expansion in risk assets so as to break even in its operations, would be P40.730
million.

xxx xxx xxx

If the capital structure cannot be strengthened to meet the requirements of Section

22 of R.A. No. 337, and massive financing cannot be given to enable the Bank to
expand its risk assets to the level at which it can break even in operations, then there
seems to be no other alternative except to liquidate the Bank under Section 29 of
R.A. No. 265. The Bank's continuance in business under its present extremely
precarious financial condition, without the necessary capital injection and financial
aid, will involve not merely probable, but certain, further losses to its depositors and
other creditors and may have further adverse effects on the banking system.

In the situation depicted by the Superintendent of Banks, which in his opinion presented no other
alternative except to liquidate the Overseas Bank pursuant to Section 29 of Republic Act No. 265
(Charter of the Central Bank), the adoption of Resolutions Nos. 1263 and 1290 was not, in my
opinion, a violation of the Voting Trust Agreement, much less an abuse of discretion on the part of
the Monetary Board.

In a sense the issue with respect to the aforesaid resolutions has become moot and academic in
view of the fact that on August 13, 1968, after the instant petition was filed, the Monetary Board
adopted Resolution No. 1333, wherein it decided as follows:

(1) To forbid the Overseas Bank of Manila to do business in the Philippines;

(2) To instruct the Superintendent of Banks to take charge, in the name of the
Monetary Board of the bank's assets;

(3) To instruct the Superintendent of Banks to take such further action as may be
necessary pursuant to Section 29 of Republic Act No. 265; and

(4) To refer the said memorandum report of the Superintendent of Banks as well as
previous pertinent reports of the examiners of the Department of Supervision and
Examination, particularly those pertaining to unrecorded certificates of time deposits
bearing the signatures of former officers of the bank, to the Central Bank Legal
Counsel for appropriate legal action.

The adoption of Resolution No. 1333, it seems to me, should remove the present controversy from
this Court — if it was properly here at all in the first place, which I doubt — and address it to the
Court of First Instance pursuant to Section 29 of the Central Bank Charter, which provides:

SEC. 29. Proceeding 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 statements 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 fees 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.

My misgiving as to the propriety of the remedy sought by petitioners is that it is essentially for the
enforcement of an alleged contract, presented in the guise of a petition for certiorari, prohibition
and mandamus. This is borne out by the decision of this Court, which directs the Central Bank "to
comply with its obligations under the Voting Trust Agreement, and to desist from taking any action in
violation thereof." It is to be noted that noted that no "act which the law specifically enjoins as a duty
resulting from an office, trust, or station" is ordered to be performed. Compliance with contractual
obligations is beyond the purview of mandamus, and original jurisdiction over an action for that
purpose pertains to the Courts of First Instance. Such an action is a plain, speedy and adequate
remedy in the ordinary course of law which, being available to petitioners, should bar the present
recourse to the extraordinary writ of mandamus, especially because certain vital facts are
controverted by the parties, such as the outstanding liabilities which can not be paid by the Overseas
Bank, the value of the properties mortgaged to the Central Bank by petitioners, the extent of the
loans secured by the mortgage, and the amount of money which the Central Bank is supposed to
advance in order to comply with its supposed undertaking to rehabilitate, normalize and stabilize
Overseas Bank. Curiously enough, as already noted, the decision of this Court merely directs
compliance with the Voting Trust Agreement without specifying — if indeed what is implied is the
rehabilitation of the Overseas Bank — just what should be done to achieve that goal, or just how
many millions of pesos the Central Bank must continue to pump into the Overseas Bank in order to
put it in its feet again. It is no idle speculation to say that the writs granted by this Court may raise
more questions than they answer.

With particular reference to the mortgages executed by petitioners, they say the same were a
consideration of the Voting Trust Agreement. Respondent Central Bank denies this and maintains
that the mortgages were constituted as security for "the huge amounts of emergency loans and
overdrawings advanced in the clearing house to the OBM by the Central Bank." The Voting Trust
Agreement itself is silent on the point. My own reading of the record convinces me of the correctness
of the position of the Central Bank. In any case, considering the existence of a substantial
disagreement on this point, not only between the parties but also among the members of this Court,
the issue could best be resolved in an ordinary action, either for specific performance as
hereinbefore indicated or for rescission of the mortgages and the reconveyance of the mortgaged
properties to petitioners. For the resolution of this issue I believe that this Court is not the proper
forum in the first instance, nor the present petition the proper vehicle.

Going back to Section 29 of Republic Act No. 265, it may be noted that what the Central Bank did,
including its suggestion that a Voting Trust Agreement be executed, was in accordance with its
powers and duties under the said section. Whenever a banking institution is in a state of insolvency
the Monetary Board shall determine whether it "may be reorganized or otherwise placed in such a
condition so that it may be permitted to resume business with safety." A Voting Trust, such as that
which was entered into in the case of the Overseas Bank, is certainly one of the measures which
may be adopted for that purpose. The rehabilitation of the distressed institution is the primary goal of
the authority given to the Monetary Board, and there is nothing so sacrosanct in a voting trust
agreement, or in the use of the word "rehabilitate" therein, that once it is executed the Central Bank
is thereby bound to see the rehabilitation" through as an ordinary contractual commitment, no matter
how costly and impractical it may prove. For Section 29 also provides that "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." This was precisely the step contemplated by the Monetary Board when it
passed Resolution No. 1333 on August 1968, and any questions concerning its validity, in my
opinion, should be raised in a proper case as authorized in the said provision.

In view of the foregoing considerations, I vote to deny the writs prayed for and to dismiss the instant
petition.

G.R. No. L-45866 April 19, 1989

OVERSEAS BANK OF MANILA, petitioner,

vs.
COURT OF APPEALS and NATIONAL WATERWORKS AND SEWERAGE
AUTHORITY, respondents.

NARVASA, J.:

From the Court of Appeals—which rendered judgment in CA-G.R. No. 42948-R entitled "National
Waterworks and Sewerage Authority v. the Overseas Bank of Manila" 1 —the Overseas Bank has come to this
Court on certiorari, seeking reversal of said judgment (as well as that Court's Resolution denying its motion for reconsideration) The
Appellate Court's decision had affirmed the judgment by default of the Manila Court of First Instance 2 which, in an action instituted by the
National Waterworks and Sewerage Authority (NAWASA), had rendered a verdict against the defendant Overseas Bank as follows:

WHEREFORE, the Court hereby renders judgment in favor of the plaintiff and
against the defendant, as follows:

(a) On the first cause of action, ordering the defendant to pay the plaintiff the amount
of P327,257.20 with 4-1/2% per annum thereon from October 8, 1965, until fully paid,
plus legal interest on the said principal and interest from the firing of the complaint
until the said slims are fully paid;

(b) On the second cause of action, ordering the defendant to pay the plaintiff the sum
of P2,945,314.80 with 6-1/2% interest per annum thereon from December 20, 1965,
 until fully paid, plus legal interest on the said principal and interest from the filing of
the complaint until the said sums are fully paid;

(c) On the third cause of action, ordering the defendant to pay the plaintiff attorney's
fees in a sum equivalent to 10% of the said two claims;

(d) Costs of suit. It is ordered that the sum of P212,338.27 which Nawasa received
as interest on the two deposits on December 20, 1966, shall be deducted."

The judgment was predicated on factual findings hereunder briefly narrated.

1. In relation to a contract of sale between NAWASA, as vendor and a certain Bonifacio Regalado,
as vendee, and by authority of the former's board of directors, the amount of P327,257.20 was
placed on a time deposit with the Overseas Bank by the NAWASA Treasurer for a period of 6
months, maturing on April 6, 1966. The amount corresponding to a payment earlier made by
Regalado to the NAWASA, and the time deposit was made so that a refund could quickly be made
to Regalado in the event that his contract with the NAWASA be disapproved by the Office of the
President 3

2. A second payment having been made by Regalado in the same sum of P327,257.20 in connection with his aforesaid contract, another
time deposit was made by the NAWASA Treasurer with the Overseas Bank, this time in the amount of P2,945,314.80, respresenting the
balance of the purchase price due from Regalado. The period of this second deposit was fixed at one (1) year; maturing on December
19,1966. 4

3. On April 21, 1966, NAWASA's Acting General Manager wrote to the Overseas Bank advising that
(1) as regards the first time deposit of P327,257.20 which had already matured on April 6, NAWASA
wished to withdraw it immediately, and (2) with respect to the second time deposit of P2,945,314.80,
it intended to withdraw it sixty (60) days thereafter as authorized by the parties' agreement set forth
in the certificate of the deposit. The Overseas Bank having failed to remit to it, reiterating that
request, one letter being dated May 5, 1966, the other, June 20,1966. But nothing was heard from
the Overseas Bank. 5 It did however pay to NAWASA, on December 20,1966, interest on its time deposits, in the aggregate sum of
P212,338.27. 6

4. After maturity of the second time deposit, NAWASA again sent a letter to the Overseas Bank,
dated January 4, 1967, demanding remittance of both time deposits. Having received no response,
NAWASA wrote to the Bank once more giving it five (5) days to remit the deposited sums, and
warning that it would seek the intervention of the Central Bank for the protection of its interests. Still
no word was received from the bank. 7

5. NAWASA then wrote to the Central Bank Governor about the matter. The latter replied on July 24,
1967 that it was pursuing a suggestion of the Monetary Board for the Overseas Bank to transfer
government deposits in its custody (including those of NAWASA) to the Philippine National Bank
and/or the Development Bank of the Philippines. Apparently, even the Central Bank was ignored by
Overseas Bank. On September 21, 1967, NAWASA informed the Central Bank that it had received
no remittance from the Overseas Bank nor did it appear that the latter had transferred the time
deposits to the PNB or the DBP. The Central Bank wrote back on November 17, 1967, pointing out
that while the matter really had to be resolved by NAWASA and the Overseas Bank according to
their contract, it was nonetheless pursuing an available measures to induce the Overseas Bank to
remit the time deposits in question or at least transfer them to either the PNB or DBP; the Central
Bank also said that it had informed the President of the Philippines of the status of Government
deposits in the Overseas Bank. 8
6. One last letter was written by NAWASA to the Overseas Bank, dated January 11, 1968 reiterating
its demand for the return of its money. Again the letter went unheeded.

NAWASA thus brought suit to recover its deposits and damages, with the results already mentioned.
The Overseas Bank failed to file its answer despite service of summons; it was declared in default;
the Court received NAWASA's evidence ex parte and on the basis thereof, thereafter rendered
judgment by default. The Overseas Bank made no effort whatever to have the order of default lifted,
or to have the judgment by default reconsidered. After being served with notice of the judgment, it i
simply brought the case up to the Court of Appeals.

The Court of Appeals, in its own judgment dated January 26, 1 1977, declared the appeal to be
without merit and affirmed the decision against Overseas Bank with the sole modification that the
words, "plus legal interest" in the dispositive portion thereof was changed to "plus 4-1/2% interest." 9

The petitioner bank now asks this Court to reverse the judgment by default of the Court of First
Instance and the affirming judgment of the Court of Appeals. Under the circumstances, it is difficult
to see how this Court can possibly be persuaded to do so. The circumstances indeed leave the
Court with no alternative except to affirm said judgments. This it now hereby does.

The first argument advanced by the Overseas Bank is that as of July 30,1 968, by reason of
"punitive action taken by the Central Bank," it had been prevented from undertaking banking
operations "which would have generated funds to pay not only its depositors and creditors but
likewise, the interests due on the deposits." 10 The argument is palpably without merit. There is in the first place absolutely
no evidence of these facts in the record: and this is simply because the petitioner bank had made no effort whatever to set aside the default
order against it so that it could present evidence in its behalf before the Trial Court. Moreover, the suspension of operations which took place
in August, 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 Bank's 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 Bank's actuations or the events leading to
the bank's distressed state.

Also futile is the petitioner's invocation of this Court's decision in G.R. No. L-29352, "Emerita M.
Ramos, et al. v. Central Bank," promulgated October 4, 1971 and subsequent resolutions 11 ordering the
"rehabilitation, normalization and stabilization of the Overseas Bank of Manila," and allegedly approving the rehabilitation plan and a
proposed procedure for the payment of the bank's obligations. Obviously, the failure of the Court of Appeals to apply such a rehabilitation
program to the case cannot be error, as the petitioner deposits since the program was approved after the Appellate Court had rendered
judgment. Furthermore, that rehabilitation program or procedure of payment does not in any way negate or diminish the indebtedness of the
Overseas Bank to the NAWASA incurred in 1966, for conceding full faith and credit to such a prescribed procedure of payment, it constitutes
no obstacle to determining the principal and interests of the debts at issue at this time.

As to petitioner's last argument that it should not be made to pay attorney's fees, it suffices to advert
to the factual finding by both the Court of Appeals and the Trial Court that the petitioner bank had
acted with evident bad faith by deliberately ignoring the many requests for payment by the NAWASA
and disdaining to answer any one of them, thus compelling the latter to litigate and incur expenses to
protect its interests. 12 Under the circumstances, the Court of Appeals has deemed it just and equitable that attorney's fees and
expenses of litigation should be recovered. 13 That determination, and its holding that 10% of the amount of recovery is reasonable, are not
attended by any error, and will be and they are hereby sustained.

WHEREFORE, the petition for review on certiorari is DENIED and the judgment of the Court of
Appeals subject thereof is AFFIRMED in toto, as being in accord with the facts and the applicable
law.

SO ORDERED.
G.R. No. 97218 May 17, 1993

PROVIDENT SAVINGS BANK, petitioner,

vs.
COURT OF APPEALS, Former SPECIAL EIGHTH DIVISION and WILSON CHUA, respondents.

Gonzales, Batiller, Bilog & Associates for petitioner.

Resty R. Villanueva for private respondent.

MELO, J.:

The error, if error it be, of respondent Court of Appeals which petitioner seeks to rectify via the
petitioner for certiorari before us refers to respondent court's major conclusion arrived at in CA-G.R.
CV No. 21312 (Javellana (P), Kalalo, Dayrit, JJ) barring petitioner from foreclosing the subject realty
on account of prescription. Petitioner begs to differ, insisting that the period during which it was
placed under receivership by the Central Bank is akin to a caso fortuito and should not thus be
reckoned against it.

Both petitioner and private respondent accepted the synthesized factual backdrop formulated by
respondent court, to wit:

This an appeal by both plaintiff and defendant from the decision of the Regional Trial
Court of the National Capital Judicial 29 September 1988, in Civil Case No. 977-NW,
which directed plaintiff-appellant to pay defendant-appellant the personal obligation
of the spouses Guarin to defendant-appellant in the amount of P62,500.00, together
with the interest, penalties, and bank charges due thereon, and ordering defendant-
appellant thereafter to: (1) release the real estate mortgage executed by the spouses
Lorenzo K. Guarin and Liwayway J. Guarin in favor of defendant bank on 16
February 1967; (2) return to surrender to plaintiff-appellant, as successor-in-interest
of the spouses Guarin, the latter's Owner's Duplicate of Title No. 177014; (3) pay
plaintiff-appellant P20,000.00 as and for attorney's fees; and, (4) pay the costs of
suit.

The established fact are:

On 16 February 1967, the spouses Lorenzo K. Guarin and Liwayway J. Guarin

(Guarins) obtained a loan from defendant-appellant in the amount of P62,500.00
payable on or before 20 June 1967. As security for the loan, they executed a real
estate mortgage in favor of defendant-appellant over a parcel of land covered by
TCT No. 177014. (Exhs. C and D).

In September, 1972, defendant-appellant was placed under receivership by the

Central Bank of the Philippines until 27 July 1981 when the receivership was set
aside by the Honorable Supreme Court.

On 11 December 1984, Lorenzo K. Guarin, in reply to the letter of latter's counsel

informing that the mortgaged property would be sold at public auction on 27
December 1984, assured he and his wife had every intention of paying their
obligation and requesting for a recomputation of their account and a postponement of
the foreclosure sale. (Exh. 1).

On 10 February 1986, the Guarins received a Statement of Account from defendant-

appellant showing two outstanding accounts as of 15 February 1986. One was
account of Lorenzo K. Guarin in the amount of P591,088.80, and the other was the
account of L.K. Guarin Manufacturing Co., Inc. in the amount of P6,287,380.27
(Attachment to Exh. 2)

On 26 February 1986, Lorenzo K. Guarin wrote defendant-appellant stating that he

was ready and willing to pay his obligation in the total amount of P591,088.80 as
recomputed by defendant-appellant whenever defendant-appellant was already to
receive the payment and inquiring as to when his mortgaged title would be available
for him to pick up. (Exh. 2)

Defendant-appellant replied on 27 February 1986 that Lorenzo K. Guarin may make

payment at its office in Makati, Metro Manila, but that the mortgaged title could not be
released to him even after the payment of the obligation of P591,088.80 as it also
served as security for the indebtedness of L.Y. Guarin Manufacturing Co., Inc., to
defendant-appellant which was undertaken by Lorenzo K. Guarin in his personal
capacity and as president of the corporation. (Exh. 3)

On 20 May 1986, plaintiff-appellant wrote defendant-appellant saying that the

mortgaged property of the Guarins had been offered to him as payment of the
judgment he obtained against the Guarins in Civil Case No. Q-47465 entitled,
"Wilson Chua vs. Lorenzo K. Guarin", and requesting for defendant-appellant's
conformity to the assignment and expressing his willingness to pay for the obligation
of Mr. Guarin so that the title could be released by defendant-appellant. (Exh. 4)

On 10 July 1986, the Guarins and plaintiff-appellant executed a Deed of Absolute

Sale With Assumption of Mortgaged whereby the Guarins sold the mortgaged
property to Guarins sold the appellant for the sum of P250,000.00 and plaintiff-
appellant undertook to assume the mortgaged obligation of the Guarins with
defendant-appellant which as of 15 February 1985 amounted to P591,088.80.(Exh.
B).

On 5 August 1986, plaintiff-appellant informed defendant-appellant that as a result of

the judgment in Civil Case No. Q-47645, the mortgaged property had been sold to
him by the Guarins, as evidenced by the Deed of Sale enclosed for guidance and
information of defendant-appellant. He requested that he be allowed to pay the loan
secured by the mortgaged, otherwise, he would be constrained to bring the matter to
court. (Exh. 5) In reply, defendant-appellant, on 11 August 1986, informed plaintiff-
appellant that his request could be granted if he would settle the obligation of L.K.
Guarin Manufacturing Co., Inc., as well and defendant-appellant's letter to Mr. Guarin
dated 27 February 1986. (Exh. 6)

On 3 August 1987, counsel for plaintiff-appellant addressed a letter to defendant-

appellant informing that plaintiff-appellant had purchased the mortgaged property
from the Guarin's and requesting that the owner's copy of TCT No. 177014 in the
possession of defendant-appellant be released to him so that he can register the sale
and have the title to the property transferred in his name. He likewise, informed
defendant-appellant that it had lost whatever right or action had against the Guarins
 because of prescription. (Exh. E) Defendant-appellant replied on 10 August 1987
stating the reasons why they could not comply with plaintiff-appellant's demands.
(Exh. F)

On 21 August 1986, plaintiff-appellant filed a complaint against defendant-appellant

to compel the latter to: (1) release the real estate mortgaged executed by the
Guarins in favor of defendant-appellant on 16 February 1967; (2) return or surrender
to plaintiff-appellant, as successor-in-interest of the Guarins, the latter's owner's
duplicate of TCT No. 177014; and (3) pay plaintiff-appellant P2,750,000.00 as actual
and/or consequential damages, moral damages as may be proved during the trial,
exemplary damages as may be reasonably assessed by the court, and attorney's
fees of P50,00.00. Defendant-appellant answered the complaint thereof and setting
up special and affirmative defenses. After trial, judgment was rendered as stated in
the opening paragraph hereof from which both parties appealed . . . . (pp. 35-
37, Rollo.)

Concerning the challenge posed by Provident Saving Bank against the personality of Wilson Chua to
initiate the action to compel the release of the real estate mortgage and the delivery of the owner's
duplicate copy of the certificate of title, respondent court noted that Wilson Chua can be considered
a real-property-in-interest because he is the successor-in-interest of the Guarins who is naturally
entitled to the realty as against the so-called right of Provident Savings Bank, as mortgagee, to
foreclose the mortgage which had become stale through sheer lapse of time. The matter of novation
in the form of substitution of the debtor without corresponding acquiesence of the mortgagee was
viewed by respondent court to be legally inconsequential due to the demeanor of the mortgagee-
bank in requiring Wilson Chua to pay the indebtedness of Lorenzo Guarin, posterior to the change of
obligors, which act was construed as equivalent to consent.

To the question of whether petitioner can still foreclose the subject realty, respondent court gave a
negative response on account of the absence of proof to indicate that the bank was precluded from
collecting indebtedness while it was under receivership from September, 1972 until July 20,1981.
Thus, there was no legal interruption of the pres-criptive period to speak of, said respondent court,
which intervened between June 20, 1967, the date the mortgage matured, and June 20, 1977 the
last day within which petitioner could have foreclosed the mortgage.

Respondent court did not also heed the suggestion of the petitioner bank to interpret Wilson Chua's
assumption of the mortgage on July 10, 1986 as tantamount to an explicit acknowledgement that the
obligation was outstanding and had not yet prescribed.

As a result of these observations, respondent court reversed the decision of the trial court insofar as
it ordered Wilson Chua to pay the sum of P591,088.80 to the bank and affirmed the other
dispositions made the court of origin (p. 42, Rollo).

Following the unfavorable judgment, the bank filed a motion for reconsideration and a motion for
new trial premised on newly discovered evidence relative to a statement of account unearthed by the
bank's liaison officer from the loose folders on October 18, 1990 which it believed to be of legal
significance to the case. But respondent court was unperturbed, observing that the vital piece of
document could have been located in the course of trial had the slightest degree of prudence been
exercised, considering that the statement of account sprouted the same day the liaison officer was
advised to take an inventory of the records ( p. 45, Rollo).

Hence, the petitioner at bar.

Consistent with its theory premised on fuerza major, petitioner insists that it can not be blamed for
not lifting a finger, so speak, during the period when it was enjoined by the Central Bank on
September 15, 1972 from transacting business until this Court affirmed on July 27,1981 the decision
of the Court of Appeals annulling the proscription against petitioner in Central Bank vs. Court of
Appeals (106 SCRA 143 [1981]. We are not unaware of the rule laid down in Teal Motor Co. vs.
Court of First Instance of Manila (51 Phil. 549 [1928]; Martin, Commentaries and Jurisprudence on
the Philippine Commercial Laws, 1986 Revised ed., p.125) that the appointment of a receiver does
not dissolve the corporation nor does it interfere with the exercise of its corporate rights. But this
principles is, of course, applicable to a situation where there is no restraint imposed on the
corporation, unlike in the case at bar where petitioner Provident Savings Bank was specifically
forbidden and immobilized from doing business in the Philippines on September 15, 1972 through
Monetary Board Resolution No. 1766 until 1981 when the decision in Central Bank vs. Court of
Appeals (supra, at p. 150) was rendered. The question which immediately crops up is whether a
foreclose proceeding falls within the purview of the phrase "doing business". In Mentholatum Co.,
Inc., et al. vs. Mangaliman, et al. (72 Phil. 524 [1941]; Moreno, Philippine Law Dictionary, Second
ed., 1972, p. 186), the term was construed by Justice Laurel to refer to:

. . . a continuity of commercial dealings and arrangements, and contemplates to that

extent, the exercise of some of the words or the normally incident to, and in
progressive prosecution of, the purpose ands object of its organizations. (p. 528;
emphasis supplied.)

Withal, we believe that a foreclose is deemed embraced by the phrase "doing business" as a
preparatory measure to acquiring or holding property for petitioner as a saving bank under Section
34 of the General Banking Act. Like any other banking institution, petitioner is vested with the usual
attributes and powers of a corporation under Section 36 of the Corporation Code (Vitug, Pandect of
Commercial Law and Jurisprudence, 1990 ed., p. 475). The prerogative of a bank to foreclose is
implicit from and is even necessary to enforce collection of secured debts under Section 36(11) and
45 of the Corporation Code, in conjunction with Section 29 of the General Banking Act (6 Fletcher,
206; Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, 1990
ed., p. 325).

When a bank is prohibited to do business by the Central Bank and a receiver is appointed for such
bank, that bank would not be able to do new business, i.e., to grant new loans or to
accept new deposits. However, the receiver of the bank is obliged to collect debts owing to the bank,
which debts form part of the assets of the bank. The receiver must assemble the assets and pay the
obligation of the bank under receivership, and take steps to prevent dissipation of such assets.
Accordingly, the the receiver of the bank is obliged to collect pre-existing debts due to the bank, and
in connection therewith, to foreclose mortgages securing debts. This is not to ignore The Philippine
Trust Co. vs. HSBC (67 Phil. 204 [1939], for in that case, the Court simply rejected the objections of
certain creditors to the report of a receiver, that is, objections that the receiver did not report the
collection made before the beginning of his receivership. It would follow that the bank is bound by
the acts, or failure to act, of the receiver. At the same time, the receiver is liable to the bank for
culpable or negligent failure to collect the assets of such bank and to safeguard said assets.

Having arrived at the conclusion that the foreclosure is part of bank's business activity which could
not have been pursued by the receiver then because of the circumstances discussed in the Central
Bank case, we are thus convinced that the prescriptive period was legally interrupted by fuerza
mayor in 1972 on account on the prohibition imposed by the Monetary Board against petitioner from
transacting business, until the directive of the board was nullified in 1981. Indeed, the period during
which the obligee was prevented by a caso fortuito from enforcing his right is not reckoned against
him (Article 1154, New Civil Code). When prescription is interrupted, all the benefits acquired so far
from the possession cease and when prescription starts anew, it will be entirely a new one. This
concept should not be equated with suspension where the past period is included in the computation
being added to the period after prescription is resumed (4 Tolentino, Commentaries and
Jurisprudence on the Civil Code of the Philippines, 1991 ed., pp. 18-19). Consequently, when the
closure of was set aside in 1981, the period of ten years within which to foreclose under Article 1142
of the New Civil Code began to run again and, therefore, the action filed on August 21, 1986 to
compel petitioner to release the mortgage carried with it the mistaken notion that petitioner's own suit
foreclosure had prescribed. What exacerbates the situation is the letter of private respondent
requesting petitioner on August 6, 1986 that private respondent be allowed to pay the loan secured
by the mortgage as the result of the Deed of Sale executed by the Guarins in his favor on July 10,
1986 (pp. 36-37, Rollo). In point of law, this written communication is synonymous to an express
acknowledgment of the obligation and had the effect of interrupting the prescription for the second
time (Article 1155, New Civil Code; Osmeña vs. Rama, 14 Phil. 99 [1909]; 4 Tolentino, supra at p.
50). And this piece of document necessarily estops private respondent from setting up
prescription vis-a-vis his unfounded supposition that acknowledgment of the debt is of no moment
because the right of the petitioner to foreclose had long prescribed in 1977 (p. 13, Petition; p. 7,
Comment; pp. 19 and 58, Rollo).

Contrary to respondent court's prescription of the existence of novation, the evidence at hand does
not buttress a finding along this line from the mere fact that petitioner supposedly did not question
the substitution when the bank reacted to private respondent's offer to pay the loan (p. 39, Rollo).
What seems to have escaped respondent court's attention was the condition imposed by the
petitioner that it will grant private respondent's request if the latter will also shoulder the obligation
incurred by Lorenzo Guarin in his capacity as president of the corporation (p.37, Rollo). The consent
of the petitioner to the substitution, as creditor, was thus erroneously appreciated.

With the conclusions reached, we need not discuss the other issues raised in the petition.

WHEREFORE, the petition is hereby GRANTED. The decision dated August 31, 1990, including the
resolution dated February 6, 1991 of respondent court are hereby set aside and another one entered
dismissing Wilson Chua's complaint. No special pronouncement is made to costs.

Bidin, Davide, Jr., and Romero, JJ., concur.

Feliciano, J., concurs in the result.

G.R. No. L-20119 June 30, 1967

CENTRAL BANK OF THE PHILIPPINES, petitioner,

vs.
THE HONORABLE JUDGE JESUS P. MORFE and FIRST MUTUAL SAVING AND LOAN
ORGANIZATION, INC.,respondents.

Natalio M. Balboa, F. E. Evangelista and Mariano Abaya for petitioner.

Halili, Bolinao, Bolinao and Associates for respondents.

CONCEPCION, C.J.:

This is an original action for certiorari, prohibition and injunction, with preliminary injunction, against
an order of the Court of First Instance of Manila, the dispositive part of which reads:
 WHEREFORE, upon the petitioner filing an injunction bond in the amount of P3,000.00, let a
writ of preliminary preventive and/or mandatory injunction issue, restraining the respondents,
their agents or representatives, from further searching the premises and properties and from
taking custody of the various documents and papers of the petitioner corporation, whether in
its main office or in any of its branches; and ordering the respondent Central Bank and/or its
co-respondents to return to the petitioner within five (5) days from service on respondents of
the writ of preventive and/or mandatory injunction, all the books, documents, and papers so
far seized from the petitioner pursuant to the aforesaid search warrant. 1äwphï1.ñët

Upon the filing of the petition herein and of the requisite bond, we issued, on August 14, 1962, a writ
of preliminary injunction restraining and prohibiting respondents herein from enforcing the order
above quoted.

The main respondent in this case, the First Mutual Savings and Loan Organization, Inc. —
hereinafter referred to as the Organization — is a registered non-stock corporation, the main
purpose of which, according to its Articles of Incorporation, dated February 14, 1961, is "to
encourage . . . and implement savings and thrift among its members, and to extend financial
assistance in the form of loans," to them. The Organization has three (3) classes of
"members,"1 namely: (a) founder members — who originally joined the organization and have signed
the pre-incorporation papers — with the exclusive right to vote and be voted for ; (b) participating
members — with "no right to vote or be voted for" — to which category all other members belong;
except (c) honorary members, so made by the board of trustees, — "at the exclusive discretion"
thereof — due to "assistance, honor, prestige or help extended in the propagation" of the objectives
of the Organization — without any pecuniary expenses on the part of said honorary members.

On February 14, 1962, the legal department of the Central Bank of the Philippines — hereinafter
referred to as the Bank — rendered an opinion to the effect that the Organization and others of
similar nature are banking institutions, falling within the purview of the Central Bank Act.2 Hence, on
April 1 and 3, 1963, the Bank caused to be published in the newspapers the following:

ANNOUNCEMENT

To correct any wrong impression which recent newspaper reports on "savings and loan
associations" may have created in the minds of the public and other interested parties, as well as to
answer numerous inquiries from the public, the Central Bank of the Philippines wishes to announce
that all "savings and loan associations" now in operation and other organizations using different
corporate names, but engaged in operations similar in nature to said "associations" HAVE NEVER
BEEN AUTHORIZED BY THE MONETARY BOARD OF THE CENTRAL BANK OF THE
PHILIPPINES TO ACCEPT DEPOSIT OF FUNDS FROM THE PUBLIC NOR TO ENGAGE IN THE
BANKING BUSINESS NOR TO PERFORM ANY BANKING ACTIVITY OR FUNCTION IN THE
PHILIPPINES.

Such institutions violate Section. 2 of the General Banking Act, Republic Act No. 337, should they
engage in the "lending of funds obtained from the public through the receipts of deposits or the sale
of bonds, securities or obligations of any kind" without authority from the Monetary Board. Their
activities and operations are not supervised by the Superintendent of Banks and persons dealing
with such institutions do so at their risk.

CENTRAL BANK OF THE PHILIPPINES

Moreover, on April 23, 1962, the Governor of the Bank directed the coordination of "the investigation
and gathering of evidence on the activities of the savings and loan associations which are operating
contrary to law." Soon thereafter, or on May 18, 1962, a member of the intelligence division of the
Bank filed with the Municipal Court of Manila a verified application for a search warrant against the
Organization, alleging that "after close observation and personal investigation, the premises at No.
2745 Rizal Avenue, Manila" — in which the offices of the Organization were housed — "are being
used unlawfully," because said Organization is illegally engaged in banking activities, "by receiving
deposits of money for deposit, disbursement, safekeeping or otherwise or transacts the business of
a savings and mortgage bank and/or building and loan association . . . without having first complied
with the provisions of Republic Act No. 337" and that the articles, papers, or effects enumerated in a
list attached to said application, as Annex A thereof.3 are kept in said premises, and "being used or
intended to be used in the commission of a felony, to wit: violation of Sections 2 and 6 of Republic
Act No. 337."4 Said articles, papers or effects are described in the aforementioned Annex A, as
follows:

I. BOOKS OF ORIGINAL ENTRY

(1) General Journal

(2) Columnar Journal or Cash Book

(a) Cash Receipts Journal or Cash Receipt Book

(b) Cash Disbursements Journal or Cash Disbursement Book

II. BOOKS OF FINAL ENTRY

(1) General Ledger

(2) Individual Deposits and Loans Ledgers

(3) Other Subsidiary Ledgers

III. OTHER ACCOUNTING RECORDS

(1) Application for Membership

(2) Signature Card

(3) Deposit Slip

(4) Passbook Slip

(5) Withdrawal Slip

(6) Tellers Daily Deposit Report

(7) Application for Loan Credit Statement

(8) Credit Report

(9) Solicitor's Report

 (10) Promissory Note

(11) I n d o r s e m e n t

(12) Co-makers' Statements

(13) Chattel Mortgage Contracts

(14) Real Estate Mortgage Contracts

(15) Trial Balance

(16) Minutes Book — Board of Directors

IV. FINANCIAL STATEMENTS

(1) Income and Expenses Statements

(2) Balance Sheet or Statement of Assets and Liabilities

V. OTHERS

(1) Articles of Incorporation

(2) By-Laws

(3) Prospectus, Brochures Etc.

(4) And other documents and articles which are being used or intended to be used in
unauthorized banking activities and operations contrary to law.

Upon the filing of said application, on May 18, 1962, Hon. Roman Cancino, as Judge of the said
municipal court, issued the warrant above referred to,5 commanding the search of the aforesaid
premises at No. 2745 Rizal Avenue, Manila, and the seizure of the foregoing articles, there being
"good and sufficient reasons to believe" upon examination, under oath, of a detective of the Manila
Police Department and said intelligence officer of the Bank — that the Organization has under its
control, in the address given, the aforementioned articles, which are the subject of the offense
adverted to above or intended to be used as means for the commission of said off offense.

Forthwith, or on the same date, the Organization commenced Civil Case No. 50409 of the Court of
First Instance of Manila, an original action for "certiorari, prohibition, with writ of preliminary injunction
and/or writ of preliminary mandatory injunction," against said municipal court, the Sheriff of Manila,
the Manila Police Department, and the Bank, to annul the aforementioned search warrant, upon the
ground that, in issuing the same, the municipal court had acted "with grave abuse of discretion,
without jurisdiction and/or in excess of jurisdiction" because: (a) "said search warrant is a roving
commission general in its terms . . .;" (b) "the use of the word 'and others' in the search warrant . . .
permits the unreasonable search and seizure of documents which have no relation whatsoever to
any specific criminal act . . .;" and (c) "no court in the Philippines has any jurisdiction to try a criminal
case against a corporation . . ."
The Organization, likewise, prayed that, pending hearing of the case on the merits, a writ of
preliminary injunction be issued ex parte restraining the aforementioned search and seizure, or, in
the alternative, if the acts complained of have been partially performed, that a writ of preliminary
mandatory injunction be forthwith issued ex parte, ordering the preservation of the status quo of the
parties, as well as the immediate return to the Organization of the documents and papers so far
seized under, the search warrant in question. After due hearing, on the petition for said injunction,
respondent, Hon. Jesus P. Morfe, Judge, who presided over the branch of the Court of First Instance
of Manila to which said Case No. 50409 had been assigned, issued, on July 2, 1962, the order
complained of.

Within the period stated in said order, the Bank moved for a reconsideration thereof, which was
denied on August 7, 1962. Accordingly, the Bank commenced, in the Supreme Court, the present
action, against Judge Morfe and the Organization, alleging that respondent Judge had acted with
grave abuse of discretion and in excess of his jurisdiction in issuing the order in question.

At the outset, it should be noted that the action taken by the Bank, in causing the aforementioned
search to be made and the articles above listed to be seized, was predicated upon the theory that
the Organization was illegally engaged in banking — by receiving money for deposit, disbursement,
safekeeping or otherwise, or transacting the business of a savings and mortgage bank and/or
building and loan association, — without first complying with the provisions of R.A. No. 337, and that
the order complained of assumes that the Organization had violated sections 2 and 6 of said
Act.6 Yet respondent Judge found the searches and, seizures in question to be unreasonable,
through the following process of reasoning: the deposition given in support of the application for a
search warrant states that the deponent personally knows that the premises of the Organization, at
No. 2745 Rizal Avenue, Manila,7 were being used unlawfully for banking and purposes. Respondent
judge deduce, from this premise, that the deponent " knows specific banking transactions of the
petitioner with specific persons," and, then concluded that said deponent ". . . could have, if he really
knew of actual violation of the law, applied for a warrant to search and seize only books" or records:

covering the specific purportedly illegal banking transactions of the petitioner with specific
persons who are the supposed victims of said illegal banking transactions according to his
knowledge. To authorize and seize all the records listed in Annex A to said application for
search warrant, without reference to specific alleged victims of the purported illegal banking
transactions, would be to harass the petitioner, and its officers with a roving commission or
fishing expedition for evidence which could be discovered by normal intelligence operations
or inspections (not seizure) of books and records pursuant to Section 4 of Republic Act No
337 . . ."

The concern thus shown by respondent judge for the civil liberty involved is, certainly, in line with the
function of courts, as ramparts of justice and liberty and deserves the greatest encouragement and
warmest commendation. It lives up to the highest traditions of the Philippine Bench, which underlies
the people's faith in and adherence to the Rule of Law and the democratic principle in this part of the
World.

At the same time, it cannot be gainsaid the Constitutional injunction against unreasonable searches
and seizures seeks to forestall, not purely abstract or imaginary evils, but specific and concrete
ones. Indeed, unreasonableness is, in the very nature of things, a condition dependent upon the
circumstances surrounding each case, in much the same way as the question whether or not
"probable cause" exists is one which must be decided in the light of the conditions obtaining in given
situations.
Referring particularly to the one at bar, it is not clear from the order complained of whether
respondent Judge opined that the above mentioned statement of the deponent — to the effect that
the Organization was engaged in the transactions mentioned in his deposition — deserved of
credence or not. Obviously, however, a mere disagreement with Judge Cancino, who issued the
warrant, on the credibility of said statement, would not justify the conclusion that said municipal
Judge had committed a grave abuse of discretion, amounting to lack of jurisdiction or excess of
jurisdiction. Upon the other hand, the failure of the witness to mention particular individuals does not
necessarily prove that he had no personal knowledge of specific illegal transactions of the
Organization, for the witness might be acquainted with specific transactions, even if the names of the
individuals concerned were unknown to him.

Again, the aforementioned order would seem to assume that an illegal banking transaction, of the
kind contemplated in the contested action of the officers of the Bank, must always connote the
existence of a "victim." If this term is used to denote a party whose interests have been actually
injured, then the assumption is not necessarily justified. The law requiring compliance with certain
requirements before anybody can engage in banking obviously seeks to protect the public against
actual, as well as potential, injury. Similarly, we are not aware of any rule limiting the use of warrants
to papers or effects which cannot be secured otherwise.

The line of reasoning of respondent Judge might, perhaps, be justified if the acts imputed to the
Organization consisted of isolated transactions, distinct and different from the type of business in
which it is generally engaged. In such case, it may be necessary to specify or identify the parties
involved in said isolated transactions, so that the search and seizure be limited to the records
pertinent thereto. Such, however, is not the situation confronting us. The records suggest clearly that
the transactions objected to by the Bank constitute the general pattern of the business of the
Organization. Indeed, the main purpose thereof, according to its By-laws, is "to extend financial
assistance, in the form of loans, to its members," with funds deposited by them.

It is true, that such funds are referred to — in the Articles of Incorporation and the By-laws — as their
"savings." and that the depositors thereof are designated as "members," but, even a cursory
examination of said documents will readily show that anybody can be a depositor and thus be a
"participating member." In other words, the Organization is, in effect, open to the "public" for deposit
accounts, and the funds so raised may be lent by the Organization. Moreover, the power to so
dispose of said funds is placed under the exclusive authority of the "founder members," and
"participating members" are expressly denied the right to vote or be voted for, their "privileges and
benefits," if any, being limited to those which the board of trustees may, in its discretion, determine
from time to time. As a consequence, the "membership" of the "participating members" is purely
nominal in nature. This situation is fraught, precisely, with the very dangers or evils which Republic
Act No. 337 seeks to forestall, by exacting compliance with the requirements of said Act, before the
transactions in question could be undertaken.

It is interesting to note, also, that the Organization does not seriously contest the main facts, upon
which the action of the Bank is based. The principal issue raised by the Organization is predicated
upon the theory that the aforementioned transactions of the Organization do not amount to "
banking," as the term is used in Republic Act No. 337. We are satisfied, however, in the light of the
circumstance obtaining in this case, that the Municipal Judge did not commit a grave abuse of
discretion in finding that there was probable cause that the Organization had violated Sections 2 and
6 of the aforesaid law and in issuing the warrant in question, and that, accordingly, and in line
with Alverez vs. Court of First Instance (64 Phil. 33), the search and seizure complained of have not
been proven to be unreasonable.
Wherefore, the order of respondent Judge dated July 2, 1962, and the writ of preliminary mandatory
injunction issued in compliance therewith are hereby annulled, and the writ of preliminary injunction
issued by this Court on August 14, 1962, accordingly, made permanent, with costs against
respondent First Mutual Savings and Loan Organization, Inc. It is so ordered.

Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Sanchez and Castro, JJ., concur.
Dizon, J., took no part.