G.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.

Narvasa, C.J., Gutierrez, Jr., Cruz, Bidin and Regalado, JJ., concur.
Paras, Feliciano, Padilla, Davide, Jr. and Nocon, JJ., took no part.

Separate Opinions

MELENCIO-HERRERA, J., dissenting:

I join Mme. Justice Carolina G. Aquino in

her dissent and vote to deny the prayer, in
G.R. No. 70054, to annul Monetary Board
Resolution No. 75 placing Banco Filipino
(BF) under receivership.

Even assuming that the BF was not, as

alleged, in a literal state of insolvency at
the time of the passage of said Resolution,
there was a finding in the Teodoro report
that, based on that Bank's illiquidity, to
have allowed it to continue in operation
would have meant probable loss to
depositors and creditors. That is also a
ground for placing the bank under
receivership, as a first step, pursuant to
Section 29 of the Central Bank Act (Rep.
Act No. 265, as amended). The closure of
BF, therefore, can not be said to have
been arbitrary or made in bad faith. There
was sufficient justification, considering its
inability to meet the heavy withdrawals by
its depositors and to pay its liabilities as
they fell due, to forbid the bank from
further engaging in banking.

The matter of reopening, reorganization or

rehabilitation of BF is not within the
competence of this Court to ordain but is
better addressed to the Monetary Board
and the Central Bank considering the
latter's enormous infusion of capital into
BF to the tune of approximately P3.5
Billion in total accommodations, after a
thorough assessment of whether or not BF
is, indeed, possessed, as it stoutly
contends, of sufficient assets and
capabilities with which to repay such huge
indebtedness, and can operate without
loss to its many depositors and creditors.

GRIÑO-AQUINO, J., dissenting:

Although these nine (9) Banco Filipino

(BF) cases have been consolidated under
one ponencia, all of them except one, raise
issues unrelated to the receivership and
liquidation of said bank. In fact, two of
these cases (G.R. No. 68878 and 81303)
have already been decided by this Court
and are only awaiting the resolution of the
motions for reconsideration filed therein.
Only G.R. No. 70054 "Banco Filipino
Savings and Mortgage Bank (BF) vs. the
Monetary Board (MB), Central Bank of the
Philippines (CB), et al.," is an original
action for mandamus and certiorari filed in
this Court by former officials of BF to annul
the Monetary Board Resolution No. 75
dated January 25, 1985 (ordering the
closure of Banco Filipino [BF] and
appointing Carlota Valenzuela as receiver
of the bank) on the ground that the
resolution was issued "without affording BF
a hearing on the reports" on which the
Monetary Board based its decision to close
the bank, hence, without "administrative
due process.", The prayer of the petition
reads:

WHEREFORE, petitioner respectfully

prays that a writ of mandamus be
issued commanding respondents
immediately to furnish it copies of the
reports of examination of BF
employed by respondent Monetary
Board to support its Resolution of
January 25, 1985 and thereafter to
afford it a hearing prior to any
resolution that may be issued under
Section 29 of R.A. 265, meanwhile
annulling said Resolution of January
25, 1985 by writ of certiorari as made
without or in excess ofjurisdiction or
with grave abuse of discretion.

So as to expedite proceedings,
petitioner prays that the assessment
of the damages respondents should
pay it be deferred and referred to
commissioners.

Petitioner prays for such other remedy

as the Court may deem just and
equitable in the premises.
 Quezon City for Manila, February 28,
1985. (p. 8, Rollo I-)

and the prayer of the Supplement to

Petition reads:

WHEREFORE, in addition to its

prayer for mandamus and certiorari
contained in its original petition,
petitioner respectfully prays that
Sections 28-A and 29 of the Central
Bank charter (R.A. 265) including its
amendatory Presidential Decrees
Nos. 72, 1771, 1827 and 1937 be
annulled as unconstitutional.

Quezon City for Manila, March 4,

1985. (p. 11-G, Rollo I.)

The other eight (8) cases merely involve

transactions of BF with third persons and
certain "related" corporations which had
defaulted on their loans and sought to
prohibit the extrajudicial foreclosure of the
mortgages on their properties by the
receiver of BF. These eight (8) cases are:

1. G.R. No. 68878 "BF vs. Intermediate

Appellate Court and Celestina
Pahimutang" involves the repossession by
BF of a house and lot which the buyer
(Pahimutang) claimed to have completely
paid for on the installment plan. The
appellate court's judgment for the buyer
was reversed by this Court. The buyer's
motion for reconsideration is awaiting
resolution by this Court;

2. G.R. Nos. 77255-58, "Top Management

Programs Corporation and Pilar
Development Corporation vs. Court of
appeals, et al." (CA-G.R. SP No. 07892)
and "Pilar Development Corporation vs.
Executive Judge, RTC, Cavite" (CA-G.R.
SP Nos. 0896264) is a consolidated
petition for review of the Court of Appeals'
joint decision dismissing the petitions for
prohibition in which the petitioners seek to
prevent the receiver/liquidator of BF from
extrajudicially foreclosing the P4.8 million
mortgage on Top Management's properties
and the P18-67 million mortgage on Pilar
Development properties. The Court of
Appeals dismissed the petitions on
October 30, 1986 on the ground that "the
functions of the liquidator, as receiver
under Section 29 (R.A. 265), include taking
charge of the insolvent's assets and
administering the same for the benefit of
its creditors and of bringing suits and
foreclosing mortgages in the name of the
bank;"

3. G.R. No. 78766, "El Grande Corporation

vs. Court of Appeals, et al.," is an appeal
from the Court of Appeals' decision in CA-
G.R. SP No. 08809 dismissing El Grande's
petition for prohibition to prevent the
foreclosure of BF's P8 million mortgage on
El Grande's properties;

4. G.R. No. 78894, "Banco Filipino

Savings and Mortgage Bank vs. Court of
Appeals, et al." is an appeal of BFs old
management (using the name of BF) from
the decision of the Court of Appeals in CA-
G.R. SP No. 07503 entitled, "Central Bank,
et al. vs. Judge Zoilo Aguinaldo, et al"
dismissing the complaint of "BF" to annul
the receivership, for no suit may be
brought or defended in the name of the
bank except by its receiver;

5. G.R. No. 87867, "Metropolis

Development Corporation vs. Court of
Appeals" (formerly AC-G.R. No. 07503,
"Central Bank, et al. vs. Honorable Zoilo
Aguinaldo, et al.') is an appeal of the
intervenor (Metropolis) from the same
Court of Appeals' decision subject of G.R.
No. 78894, which also dismissed
Metropolis' complaint in intervention on the
ground that a stockholder (Metropolis) may
not bring suit in the name of BF while the
latter is under receivership, without the
authority of the receiver;

6. G.R. No. 81303, "Pilar Development

Corporation vs. Court of Appeals, et al." is
an appeal from the decision dated October
22, 1987 of the Court of Appeals in CA-
G.R. SP No. 12368, "Pilar Development
Corporation, et al. vs. Honorable Manuel
Cosico, et al.," dismissing the petition for
certiorari against Judge Manuel Cosico, Br.
136, RTC, Makati, who dismissed the
complaint filed by Pilar Development
Corporation against BF, for specific
performance of certain developer
contracts. An answer filed by Norberto
Quisumbing and Associates, as BF's
supposed counsel, virtually confessed
judgment in favor of Pilar Development.
On motion of the receiver, the answer was
expunged and the complaint was
dismissed. On a petition for certiorari in
this Court, we held that: "As liquidator of
BF by virtue of a valid appointment from
the Central Bank, private respondent
Carlota Valenzuela has the authority to
direct the operation of the bank in
substitution of the former management,
which authority includes the retainer of
counsel to represent it in bringing or
resisting suits in connection with such
liquidation and, in the case at bar, to take
the proper steps to prevent collusion, to
the prejudice of the legitimate creditors,
between BF and the petitioners herein
which appear to be owned and controlled
by the same interest controlling BF" (p. 49,
Rollo). The petitioners' motion for
reconsideration of that decision is pending
resolution.
7. G.R. No. 81304, "BF Homes
Development Corporation vs. Court of
Appeals, et al." is an appeal from the
decision dated November 4, 1987 of the
Court of Appeals in CA-G.R. CV No. 08565
affirming the trial court's order dismissing
BF Homes' action to compel the Central
Bank to restore the financing facilities of
BF, because the plaintiff (BF Homes) has
no cause of action against the CB.

8. G.R. No. 90473, "El Grande

Development Corporation vs. Court of
Appeals, et al.," is a petition to review the
decision dated June 6, 1989 in CA-G.R.
SP No. 08676 dismissing El Grande's
petition for prohibition to stop foreclosure
proceedings against it by the receiver of
BF.

As previously stated, G.R. No. 70054 "BF

vs. Monetary Board, et al.," is an original
special civil action for certiorari and
mandamus filed in this Court by the old
management of BF, through their counsel,
N.J. Quisumbing & Associates, using the
name of the bank and praying for the
annulment of MB Resolution No. 75 which
ordered the closure of BF and placed it
under receivership. It is a "forum-
shopping" case because it was filed here
on February 28, 1985 three weeks after
they had filed on February 2, 1985 Civil
Case No. 9675 "Banco Filipino vs.
Monetary Board, et al." in the Regional
Trial Court of Makati, Br. 143 (presided
over by Judge Zoilo Aguinaldo) for the
same purpose of securing a declaration of
the nullity of MB Resolution No. 75 dated
January 25, 1985.

On August 25, 1985, this Court ordered the

transfer and consolidation of Civil Case
No. 9676 (to annul the receivership) from
Br. 143 to Br. 136 (Judge Manuel Cosico)
of the Makati Regional Trial Court where
Civil Case No. 8108 (to annul the
conservatorship) and Civil Case No. 10183
(to annul the liquidation) of BF were and
are still pending. All these three (3) cases
were archived on June 30, 1988 by Judge
Cosico pending the resolution of G.R. No.
70054 by this Court.

Because of my previous participation, as a

former member of the Court of Appeals, in
the disposition of AC-G.R. No. 02617 (now
G.R. No. 68878) and AC-G.R. SP No.
07503 (now G.R. Nos. 78767 and 78894),
I am taking no part in G.R. Nos. 68878,
78767 and 78894. It may be mentioned in
this connection that neither in AC-G.R. SP
No. 02617, nor in AC-G.R. SP No. 07503,
did the Court of Appeals rule on the
constitutionality of Sections 28-A and 29 of
Republic Act 265 (Central Bank Act), as
amended, and the validity of MB
Resolution No. 75, for those issues were
not raised in the Court of Appeals.

I concur with the ponencia insofar as it

denies the motion for reconsideration in
G.R. No. 81303, and dismisses the
petitions for review in G.R. Nos. 77255-58,
78766, 81304, and 90473.

I respectfully dissent from the majority

opinion in G.R. No. 70054 annulling and
setting aside MB Resolution No. 75 and
ordering the respondents, Central Bank of
the Philippines and the Monetary Board —

to reorganize petitioner Banco Filipino

Savings and Mortgage Bank, and
allow the latter to resume business in
the Philippines under the
comptrollership of both the Central
Bank and the Monetary Board and
under such conditions as may be
prescribed by the latter until such time
 that petitioner bank can continue in
business with safety to its creditors,
depositors and the general public.

for I believe that this Court has neither the

authority nor the competence to determine
whether or not, and under what conditions,
BF should be reorganized and reopened.
That decision should be made by the
Central Bank and the Monetary Board, not
by this Court.

All that we may determine in this case is

whether the actions of the Central Bank
and the Monetary Board in closing BF and
placing it under receivership were "plainly
arbitrary and made in bad faith.

Section 29 of Republic Act No. 265

provides:

Section 29. Proceedings upon

insolvency. — Whenever, upon
examination by the head of the
appropriate supervising and
examining department or his
examiners or agents into the condition
of any banking institution, it shall be
disclosed that the condition of the
same is one of insolvency, or that its
continuance in business would involve
probable loss to its depositors or
creditors, it shall be the duty of the
department head concerned forthwith,
in writing, to inform the Monetary
Board of the facts, and the Board may,
upon finding the statements of the
department head to be true, forbid the
institution to do business in the
Philippines and shall designate an
official of the Central Bank as receiver
to immediately take charge of its
assets and liabilities, as expeditiously
as possible collect and gather all the
assets and administer the same for
the benefit of its creditors, exercising
all the powers necessary for these
purposes including, but not limited to,
bringing suits and foreclosing
mortgages in the name of the banking
institution.

The Monetary Board shall thereupon

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

If the Monetary Board shall determine

and confirm within the said period that
the banking institution is insolvent or
cannot resume business with safety to
its depositors, creditors and the
general public, it shall, if the public
interest requires, order its liquidation,
indicate the manner of its liquidation
and approve a liquidation plan. The
Central Bank shall, by the Solicitor
General, file a petition in the Court of
First Instance, reciting the
proceedings which have been taken
and praying the assistance of the
court in the liquidation of the banking
institutions. The court shall have
jurisdiction in the same proceedings to
adjudicate disputed claims against the
bank and enforce individual liabilities
of the stockholders and do all that is
necessary to preserve the assets of
the banking institution and to
implement the liquidation plan
approved by the Monetary Board. The
Monetary Board shall designate an
official of the Central Bank as
liquidator who shall take over the
functions of the receiver previously
appointed by the Monetary Board
under this section. The liquidator shall,
with all convenient speed, convert the
assets of the banking institution to
money or sell, assign or otherwise
dispose of the same to creditors and
other parties for the purpose of paying
the debts of such bank and he may, in
the name of the banking institution,
institute such actions as may be
necessary in the appropriate court to
collect and recover accounts and
assets of the banking institution.
The provisions of any law to the
contrary notwithstanding, the actions
of the Monetary Board under this
section and the second paragraph of
Section 34 of this Act shall be final
and executory, and can be set aside
by the court only if there is convincing
proof that theaction is plainly arbitrary
and made in bad faith. No restraining
order or injunction shall be issued by
the court enjoining the Central Bank
from implementing its actions under
this section and the second paragraph
of Section 34 of this Act, unless there
is convincing proof that the action of
the Monetary Board is plainly arbitrary
and made in bad faith and the
petitioner or plaintiff files with the clerk
or judge of the court in which the
action is pending a bond executed in
favor of the Central Bank, in an
amount to be fixed by the court. The
restraining order or injunction shall be
refused or, if granted, shall be
dissolved upon filing by the Central
Bank of a bond, which shall be in the
form of cash or Central Bank cashier's
check, in an amount twice the amount
of the bond of the petitioner or plaintiff,
conditioned that it will paythe which
the petitioner or plaintiff may suffer by
the refusalor the dissolution of the
injunction. The provisions of Rule 58
of the new Rules of Court insofar as
they are applicable and not
inconsistent with the provisions of this
section shall govern the issuance and
dissolution of the restraining order or
injunction contemplated in this
section.

Insolvency, under this Act, shall be

understood to mean the inability of a
banking institution to pay its liabilities
 as they fall due in the usual and
ordinary course of business, provided,
however, that this shall not include the
inability to pay of an otherwise non-
insolvent bank caused by extra-
ordinary demands induced by financial
panic commonly evidenced by a run
on the banks in the banking
community.

The determinative factor in the closure,

receivership, and liquidation of a bank is
the finding, upon examination by the SES
of the Central Bank, that its condition "is
one of insolvency, or that its continuance in
business would involve probable loss to its
depositors and creditors." (Sec. 29, R.A.
265.) It should be pointed out that
insolvency is not the only statutory ground
for the closure of a bank. The other ground
is when "its continuance in business would
involve probable loss to its depositors and
creditors.

Was BF insolvent i.e., unable to pay its

liabilities as they fell due in the usual and
ordinary course of business, on and for
some time before January 25, 1985 when
the Monetary Board issued Resolution No.
75 closing the bank and placing it under
receivership? Would its continued
operation involve probable loss to its
depositors and creditors?

The answer to both questions is yes. Both

the conservator Gilberts Teodoro and the
head of the SES (Supervision and
Examination Sector) Ramon V. Tiaoqui
opined that BF's continuance in business
would cause probable loss to depositors
and creditors. Tiaoqui further categorically
found that BF was insolvent. Why was this
so?
The Teodoro and Tiaoqui reports as well
as the report of the receivers, Carlota
Valenzuela, Arnulfo B. Aurellano and
Ramon V. Tiaoqui, showed that since the
end of November 1983 BF had already
been incurring "chronic reserve
deficiencies' and experiencing severe
liquidity problems. So much so, that it had
become "a substantial borrower in the call
loans market" and in June 1984 it obtained
a P30 million emergency loan from the
Central Bank. (p. 2, Receiver's Report.)
Additional emergencyt loans (a total of
P119.7 millions) were extended by the
Central Bank to BF that month (MB Res.
No. 839 dated June 29,1984). On July 12,
1984, BFs chairman, Anthony Aguirre,
offered to "turn over the administration of
the affairs of the bank" to the Central Bank
(Aguirre's letter to Governor Jose
Fernandez, Annex 7 of Manifestation dated
May 3,1991). On July 23,1984, unable to
meet heavy deposit withdrawals, BF's
management motu proprio, without
obtaining the conformity of the Central
Bank, closed the bank and declared a
bank holiday. On July 27, 1984, the CB,
responding to BFs pleas for additional
financial assistance, granted BF a P3
billion credit line (MB Res. No. 934 of July
27, 1984) to enable it to reopen and
resume business on August 1, 1984.
P2.3601 billions of the credit line were
availed of by the end of 1984 exclusive of
an overdraft of P932.4 millions (p. 2,
Tiaoqui Report). Total accommodations
granted to BF amounted to P3.4122
billions (p. 19, Cosico Report).

Presumably to assure that the financial

assistance would be properly used, the MB
appointed Basilio Estanislao as
conservator of the bank. A conservatorship
team of 78 examiners and accountants
was assigned at the bank to keep track of
its activities and ascertain its financial
condition (p. 8, Tiaoqui Report).

Estanislao resigned after two weeks for

health reasons. He was succeeded by
Gilberto Teodoro as conservator in August,
1984 up to January 8, 1985.

Besides the conservatorship team,

Teodoro hired financial consultants
Messrs. Tirso G. Santillan, Jr. and Plorido
P. Casuela to make an analysis of BF's
financial condition. Teodoro also engaged
the accounting firm of Sycip, Gorres,
Velayo and Company to make an asset
evaluation. The Philippine Appraisal
Company (PAC) appraised BFs real estate
properties, acquired assets, and collaterals
held. On January 9, 1985, Teodoro
submitted his Report. Three weeks later,
on January 23, 1985, Tiaoqui also
submitted his Report. Both reports
showedthat, in violation of Section 37 of
the General Banking Act (R.A.337): 2

1. BF had been continually deficient in

liquidity reserves (Teodoro Report).
The bank had been experiencing a
severe drop in liquidity levels. The
ratio of liquid assets to deposits and
borrowings plunged from about 20%
at end-1983, to about 8.6% by end-
May 1984, much below the statutory
requirements of 24% for demand
deposits/deposit substitutes and 14%
for savings and time deposits. (p. 2,
Tiaoqui Report.)

2. Deficiencies in average daily legal

reserves rose from P63.0 million
during the week of November 21-25,
1983 to a high of P435.9 million during
the week of June 11-15, 1984 (pp. 2-
3, Tiaoqui Report). Accumulated
penalties on reserve deficiencies
amounted to P37.4 million by July 31,
and rose to P48 million by the end of
1984. (Tiaoqui Report.)

3. Deposit levels, which were at

P3,845 million at end-May l984 (its
last "normal" month), dropped to P935
million at the end of November 1984
or a loss of P2,910 million. This
represented an average monthly loss
of P485 million vs. an average
monthly gain of P26 million during the
first 5 months of 1984. (pp. 2-3,
Tiaoqui Report.)

4. Deposits had declined at the rate of

P20 million during the month of
December 1984, but expenses of
about P17 million per month were
required to maintain the bank's
operation. (p. 6, Teodoro Report.)
5. Based on the projected outlook, the
Bank's average yield on assets of
16.3% p.a., was insufficient to meet
the average cost of funds of 19.5%
p.a. and operating expenses of 4.8%
p.a. (p. 5 Teodoro Report.)

6. An imprudently large proportion of

assets were locked into long-term
applications. (Teodoro Report.)

7. BF overextended itself in lending to

the real estate industry, committing as
much as 52% of its peso deposits to
its affiliates or "related accounts" to
which it continued lending even when
it was already suffering from liquidity
stresses. (Teodoro Report.) This was
done in violation of Section 38 of the
General Banking Act (R.A. 337). 3
8. During the period of marked decline
in liquidity levels the loan portfolio
grew by P417.3 million in the first five
months of 1984 — and by another
P105.l million in the next two months.
(pp. 2-3, Tiaoqui Report.)

9. The loan portfolio stood at P3.679

billion at the end of July 1984, 56.2%
of it channeled to companies whose
stockholders, directors and officers
were related to the officers, directors,
and some stockholders of BF. (p. 8,
Tiaoqui Report.) Here again BF
violated the General Banking Act (R.A.
337). 4

10. Some of the loans were used to

acquire preferred stocks of BF.
Between September 17, 1983 and
February 10, 1984, P49.9 million of
preferred non-convertible stocks were
issued. About 85% or P42.4 million
was paid out of the proceeds of loans
to stockholders/ borrowers with
relationship to the bank (Annex D).
Around P18.8 million were issued in
the name of an entity other than the
purchaser of the stocks. (Tiaoqui
Report.)

11. Loans amounting to some P69.3

million were granted simply to pay-off
old loans including accrued interest,
as an accommodation for the direct
maturing loans of some firms and as a
way of paying-off loans of other
borrower firms which have their own
credit lines with the bank. These
helped to make otherwise delinquent
loans appear "current" and
deceptively "improved" the quality of
the loan portfolio. (Tiaoqui Report.)

12. Examination of the collaterals for

the loan accounts of 63 major
borrowers and 32 other selected
borrowers as of July 31, 1984,
showed that:

(a) 2,658 TCT's which BF

evaluated to be worth P1,487
million were appraised by PAC to
be worth only P1,196 million,
hence, deficient by P291 million.

(b) Other properties (collaterals)

supposedly worth P711 million
could not be evaluated by PAC
because the details submitted by
the bank were insufficient;

(c) While P674 million in loans

were supposedly guaranteed by
the Home Financing Corporation
 (HFIC), the latter confirmed only
P427 million. P247 million in
loans were not guaranteed by
HFC. (Teodoro Report.)

(d) Per SGV's report, loans

totalling P1.882 million including
accrued interest, were secured by
collateral worth only Pl.54 billion.
Hence, BFs unsecured exposure
amounted to P586.2 million. BF
Homes, Inc., a related company
which has filed with the SEC a
petition for suspension of
payments, owes P502 million to
BF.

13. BF had been suffering heavy

losses. —

a) For the eleven (11) months

ended November 30, 1984, the
estimated net loss was P372.6
Million;

b) For the twelve (12) months

from November 1984, the
projected net loss would be
P390.7 Million and would
continue unabated; (p. 2, Teodoro
Report)

c) Around 71.7% of the total

accommodations of P2.0677
billions to the related/linked
entities were adversely classified.
Close to 33.7% or P697.1 millions
were clean loans or against PNs
(promissory notes) of these
entities. Of the latter, 52.6% were
classified as loss." (P. 5, Tiaoqui
Report.)

d) The bank's financial condition

as of date of examination, after
setting up the additional valuation
reserves of P612.2 millions and
accumulated net loss of P48.2
millions, indicates one of
insolvency. Total liabilities of
P5,282.1 million exceeds total
assets of P4,947.2 million by
6.8%. Total capital account of
P334.9 million) is deficient by
P322.7 million against the
minimum capital required of
P657.6 million (Annex F). Capital
to risk assets ratio is negative
10.38%.

e) Total loans and investment

portfolio amounted to P3,914.3
millions (gross), of which P194.0
millions or 5.0% were past due
and P1,657.1 millions or 42.3%
were adversely classified
(Substandard — P1,011.4
 millions; Doubtful — P274.6
millions and Loss — P371.1
millions). Accounts adversely
classified included unmatured
loan of Pl,482.0 million to entities
related with each other and to the
bank, several of which showed
distressed conditions. (p. 7,
Tiaoqui Report.)

Teodoro's conclusion was that "the

continuance of the bank in business
would involve probable loss to its
depositors and creditors." He
recommended "that the Monetary
Board take a more effective and
responsible action to protect the
depositors and creditors ... in the light
of the bank's worsening condition." (p.
5, Teodoro Report.)

On January 23, 1985, Tiaoqui

submitted his report to the Monetary
Board, Like Teodoro, Tiaoqui believed
that the principal cause of the bank's
failure was that in violation of the
General Banking Law and CB rules
and regulations, BF's major
stockholders, directors and officers,
through their "related" companies: (i.e.
companies owned or controlled by
them of their relatives) had been
"borrowing" huge chunks of the
money of the depositors. His
Conclusion and Recommendations
were:

The Conservator, in his report to

the Monetary Board dated
January 8, 1985, has stated that
the continuance of the bank in
business would involve probable
loss to its depositors and
creditors. It has recommended
that a more effective action be
taken to protect depositors and
creditors.

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 further
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 on
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 President, 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

Banles 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. 9-10,
Tiaoqui Report.)
On January 25, 1985 or two days
after the submission of Tiaoqui's
Report, and three weeks after it
received Teodoro's Report, the
Monetary Board, then composed
of:

Chairman: Jose B.
Fernandez, Jr.
CB Governor

Members:

1. Cesar E.A. Virata, Prime

Minister & Concurrently
Minister of Finance

2. Roberto V. Ongpin,
Minister of Trade & Industry
& Chairman of Board of
Investment

3. Vicente B. Valdepeñas, Jr.,

Minister of Economic
 Planning & Director General
of NEDA

4. Cesar A. Buenaventura,
President of Filipinas Shell
Petroleum Corp. (p. 37,
Annual Report 1985)

issued Resolution No. 75 closing

BF and placing it under
receivership. The MB Resolution
reads as follows:

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 and
Mortgage Bank is insolvent
and that its continuance in
business would involve
probable loss to its
depositors and creditors, and
in pursuance of Section 29 of
R.A. No. 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/credition
and the general public;
and

5. In consequence of the
foregoing, to terminate
 the conservatorship over
Banco Filipino Savings
and Mortgage Bank. (pp.
126-127, Rollo I.)

On March 19,1985, the

receiver, Carlota Valenzuela,
and the deputy receivers,
Arnulfo B. Aurellano and
Ramon V. Tiaoqui, submitted
a report to the Monetary
Board as required in Section
29, 2nd paragraph of R.A.
265 which provides that
within sixty (60) days from
date of the receivership, the
Monetary Board shall
determine whether the bank
may be reorganized and
permitted to resume
business, or be liquidated.
The receivers recommended
that BF be placed under
litigation. For, among other
things, they found that:

1. BF had been suffering a

capital deficiency of P336.5
million as of July 31, 1984
(pp. 2 and 4, Receivers'
Report).

2. The bank's weekly reserve

deficiencies averaged
P146.67 million from
November 25, 1983 up to
March 16, 1984, rising to a
peak of P338.09 million until
July 27, 1984. Its reserve
deficiencies against deposits
and deposit substitutes
began on the week ending
June 15, 1984 up to
December 7, 1984, with
average daily reserve
deficiencies of P2.98 million.

3. Estimated losses or
"unhooked valuation
reserves" for loans to entities
with relationships to certain
stockholder/directors and
officers of the bank
amounted to P600.5 million.
Combined with other
adjustments in the amount of
P73.2 million, they will
entirely wipe out the bank's
entire capital account and
leave a capital deficiency of
P336.5 million. The bank was
already insolvent on July 31,
1984. The capital deficiency
increased to P908.4 million
as of January 26, 1985 on
account of unhooked
penalties for deficiencies in
legal reserves (P49.07
million), unhooked interest on
overdrawings, emergency
advance of P569.49 million
from Central Bank, and
additional valuation reserves
of P124.5 million. (pp. 3-4,
Receivers' Report.)

The Receivers further noted

that —

After BF was closed as

of January 25, 1985,
there were no collections
from loans granted to
firms related to each
other and to BF
classified as "doubtful"
or "loss," there were no
substantial
improvements on other
loans classified
"doubtful"or "loss;" there
was no further increase
in the value of assets
owned/acquired
supported by new
appraisals and there
was no infusion of
additional capital such
that the estimated
realizable assets of BF
remained at P3,909.23,
(millions) while the total
liabilities amounted to
P5,159.44 (millions).
Thus, BF remains
insolvent with estimated
deficiency to creditors of
Pl,250.21 (millions).

Moreover, there were no

efforts on the part of the
 stockholders of the bank
to improve its financial
condition and the
possibility of
rehabilitation has
become more remote.
(P. 8, Receivers' Report.)

In the light of the results of

the examination of BF by the
Teodoro and Tiaoqui teams, I
do not find that the CB's
Resolution No. 75 ordering
BF to cease banking
operations and placing it
under receivership was
"plainly arbitrary and made in
bad faith." The receivership
was justified because BF
was insolvent and its
continuance in business
would cause loss to its
depositors and creditors.
Insolvency, as defined in
Rep. Act 265, means 'the
inability of a banking
institution to pay its liabilities
as they fall due in the usual
and ordinary course of
business. Since June 1984,
BF had been unable to meet
the heavy cash withdrawals
of its depositors and pay its
liabilities to its creditors, the
biggest of them being the
Central Bank, hence, the
Monetary Board correctly
found its condition to be one
of insolvency.

All the discussion in the

Santiago Report concerning
the bank's assets and
liabilities as determinants of
BF's solvency or insolvency
is irrelevant and
inconsequential, for under
Section 29 of Rep. Act. 265,
a bank's insolvency is not
determined by its excess of
liabilities over assets, but by
its "inability to pay its
liabilities as they fall due in
the ordinary course of
business" and it was
abundantly shown that BF
was unable to pay its
liabilities to depositors for
over a six-month-period
before it was placed under
receivership.

Even if assets and liabilities

were to be factored into a
formula for determining
whether or not BF was
already insolvent on or
before January 25, 1985, the
result would be no different.
The bank's assets as of the
end of 1984 amounted to
P4.891 billions (not P6
billions) according to the
Report signed and submitted
to the CB by BF's own
president, and its total
liabilities were P4.478 billions
(p. 58, Cosico Report). While
Aguirre's Report showed BF
ahead with a net worth of
P412.961 millions, said
report did not make any
provision for estimated
valuation reserves amounting
to P600.5 millions, (50% of
face value of doubtful loans
and 100% of face value of
loss accounts) which BF had
granted to its related/linked
companies. The estimated
valuation reserves of P600.5
millions plus BF's admitted
liabilities of P4.478 billions,
put together, would wipe out
BFs realizable assets of
P4.891 billions and confirm
its insolvent condition to the
tune of P187.538 millions.

BF's and Judge (now CA

Justice) Consuelo Y.
Santiago's argument that
valuation reserves should not
be considered because the
matter was not discussed by
Tiaoqui with BF officials is
not well taken for:

(1) The records of the

defaulting debtors were in
the possession of BF.
(2) The "adversely classified"
loans were in fact included in
the List of Exceptions and
Findings (of irregularities and
violations of laws and CB
rules and regulations)
prepared by the SES, a copy
of which was furnished BF on
December 1 7, 1984;

(3) A conference on the

matter washeld on January
2l, 1985 with senior officials
of BF headed by EVP F.
Dizon,. (pp. 14-15, Cosico
Report.) BF did not formally
protest against the CBs
estimate of valuation
reserves. The CB could not
wait forever for BF to
respond for the CB had to act
with reasonable promptness
to protect the depositors and
creditors of BF because the
bank continued to operate.

(4) Subsequent events

proved correct the SES
classification of the loan
accounts as "doubtful" or
"loss' because as of January
25, 1985 none of the loans,
except three, had been paid
either partially or in full, even
if they had already matured
(p. 53, Cosico Report).

The recommended provision

for valuation reserves of
P600.5 millions for "doubtful"
and "loss" accounts was a
proper factor to consider in
the capital adjustments of BF
and was in accordance with
accounting rules. For, if the
uncollectible loan accounts
would be entered in the
assets column as
"receivables," without a
corresponding entry in the
liabilities column for
estimated losses or valuation
reserves arising from their
uncollectability, the result
would be a gravely distorted
picture of the financial
condition of BF.

BF's strange argument that it

was not insolvent for
otherwise the CB would not
have given it financial
assistance does not merit
serious consideration for
precisely BF needed financial
assistance because it was
insolvent.
Tiaoqui's admission that the
examination of BF had "not
yet been officially terminated"
when he submitted his report
on January 23, 1985 did not
make the action of the
Monetary Board of closing
the bank and appointing
receivers for it, 'plainly
arbitrary and in bad faith."
For what had been examined
by the SES was more than
enough to warrant a finding
that the bank was "insolvent
and could not continue in
business without probable
loss to its depositors or
creditors," and what had not
been examined was
negligible and would not
have materially altered the
result. In any event, the
official termination of the
examination with the
submission by the Chief
Examiner of his report to the
Monetary Board in March
1985, did not contradict, but
in fact confirmed, the findings
in the Tiaoqui Report.

The responsibility of
administering the Philippine
monetary and banking
systems is vested by law in
the Central Bank whose duty
it is to use the powers
granted to it under the law to
achieve the objective, among
others, of maintaining
monetary stability in the
country (Sec. 2, Rep. Act
265). I do not think it would
be proper and advisable for
this Court to interfere with the
CB's exercise of its
prerogative and duty to
discipline banks which have
persistently engaged in
illegal, unsafe, unsound and
fraudulent banking practices
causing tremendous losses
and unimaginable anxiety
and prejudice to depositors
and creditors and generating
widespread distrust and loss
of confidence in the banking
system. The damage to the
banking system and to the
depositing public is bigger
when the bank, like Banco
Filipino, is big. With 89
branches nationwide, 46 of
them in Metro Manila alone,
pumping the hard-earned
savings of 3 million
depositors into the bank, BF
had no reason to go bankrupt
if it were properly managed.
The Central Bank had to
infuse almost P3.5 billions
into the bank in its endeavor
to save it. But even this
financial assistance was
misused, for instead of
satisfying the depositors'
demands for the withdrawal
of their money, BF channeled
and diverted a substantial
portion of the finds into the
coffers of its related/linked
companies. Up to this time,
its officers, directors and
major stockholders have
neither repaid the Central
Bank's P3.6 billion financial
assistance, nor put up
adequate collaterals therefor,
nor submitted a credible plan
for the rehabilitation of the
bank. What authority has this
Court to require the Central
Bank to reopen and
rehabilitate the bank, and in
effect risk more of the
Government's money in the
moribund bank? I respectfully
submit that decision is for the
Central Bank, not for this
Court, to make.

WHEREFORE, I vote to
dismiss the petition for
certiorari and mandamus in
G.R. No. 70054 for lack of
merit.

Romero, J., concurs.

# Separate Opinions

MELENCIO-HERRERA, J.,
dissenting:

I join Mme. Justice Carolina

G. Aquino in her dissent and
vote to deny the prayer, in
G.R. No. 70054, to annul
Monetary Board Resolution
No. 75 placing Banco Filipino
(BF) under receivership.

Even assuming that the BF

was not, as alleged, in a
literal state of insolvency at
the time of the passage of
said Resolution, there was a
finding in the Teodoro report
that, based on that Bank's
illiquidity, to have allowed it
to continue in operation
would have meant probable
loss to depositors and
creditors. That is also a
ground for placing the bank
under receivership, as a first
step, pursuant to Section 29
of the Central Bank Act (Rep.
Act No. 265, as amended).
The closure of BF, therefore,
can not be said to have been
arbitrary or made in bad faith.
There was sufficient
justification, considering its
inability to meet the heavy
withdrawals by its depositors
and to pay its liabilities as
they fell due, to forbid the
bank from further engaging in
banking.

The matter of reopening,

reorganization or
rehabilitation of BF is not
within the competence of this
Court to ordain but is better
addressed to the Monetary
Board and the Central Bank
considering the latter's
enormous infusion of capital
into BF to the tune of
approximately P3.5 Billion in
total accommodations, after
a thorough assessment of
whether or not BF is, indeed,
possessed, as it stoutly
contends, of sufficient assets
and capabilities with which to
repay such huge
indebtedness, and can
operate without loss to its
many depositors and
creditors.
GRIÑO-AQUINO, J.,
dissenting:

Although these nine (9)

Banco Filipino (BF) cases
have been consolidated
under one ponencia, all of
them except one, raise
issues unrelated to the
receivership and liquidation
of said bank. In fact, two of
these cases (G.R. No. 68878
and 81303) have already
been decided by this Court
and are only awaiting the
resolution of the motions for
reconsideration filed therein.
Only G.R. No. 70054 "Banco
Filipino Savings and
Mortgage Bank (BF) vs. the
Monetary Board (MB),
Central Bank of the
Philippines (CB), et al.," is an
original action for mandamus
and certiorari filed in this
Court by former officials of
BF to annul the Monetary
Board Resolution No. 75
dated January 25, 1985
(ordering the closure of
Banco Filipino [BF] and
appointing Carlota
Valenzuela as receiver of the
bank) on the ground that the
resolution was issued
"without affording BF a
hearing on the reports" on
which the Monetary Board
based its decision to close
the bank, hence, without
"administrative due
process.", The prayer of the
petition reads:
WHEREFORE,
petitioner respectfully
prays that a writ of
mandamus be issued
commanding
respondents
immediately to furnish it
copies of the reports of
examination of BF
employed by respondent
Monetary Board to
support its Resolution of
January 25, 1985 and
thereafter to afford it a
hearing prior to any
resolution that may be
issued under Section 29
of R.A. 265, meanwhile
annulling said
Resolution of January
25, 1985 by writ of
certiorari as made
without or in excess
ofjurisdiction or with
grave abuse of
discretion.

So as to expedite
proceedings, petitioner
prays that the
assessment of the
damages respondents
should pay it be deferred
and referred to
commissioners.

Petitioner prays for such

other remedy as the
Court may deem just
and equitable in the
premises.

Quezon City for Manila,

February 28, 1985. (p. 8,
Rollo I-)
and the prayer of the
Supplement to Petition
reads:

WHEREFORE, in
addition to its prayer for
mandamus and
certiorari contained in its
original petition,
petitioner respectfully
prays that Sections 28-A
and 29 of the Central
Bank charter (R.A. 265)
including its amendatory
Presidential Decrees
Nos. 72, 1771, 1827 and
1937 be annulled as
unconstitutional.

Quezon City for Manila,

March 4, 1985. (p. 11-G,
Rollo I.)
The other eight (8) cases
merely involve transactions
of BF with third persons and
certain "related" corporations
which had defaulted on their
loans and sought to prohibit
the extrajudicial foreclosure
of the mortgages on their
properties by the receiver of
BF. These eight (8) cases
are:

1. G.R. No. 68878 "BF vs.

Intermediate Appellate Court
and Celestina Pahimutang"
involves the repossession by
BF of a house and lot which
the buyer (Pahimutang)
claimed to have completely
paid for on the installment
plan. The appellate court's
judgment for the buyer was
reversed by this Court. The
buyer's motion for
reconsideration is awaiting
resolution by this Court;

2. G.R. Nos. 77255-58, "Top

Management Programs
Corporation and Pilar
Development Corporation vs.
Court of appeals, et al." (CA-
G.R. SP No. 07892) and
"Pilar Development
Corporation vs. Executive
Judge, RTC, Cavite" (CA-
G.R. SP Nos. 0896264) is a
consolidated petition for
review of the Court of
Appeals' joint decision
dismissing the petitions for
prohibition in which the
petitioners seek to prevent
the receiver/liquidator of BF
from extrajudicially
foreclosing the P4.8 million
mortgage on Top
Management's properties
and the P18-67 million
mortgage on Pilar
Development properties. The
Court of Appeals dismissed
the petitions on October 30,
1986 on the ground that "the
functions of the liquidator, as
receiver under Section 29
(R.A. 265), include taking
charge of the insolvent's
assets and administering the
same for the benefit of its
creditors and of bringing suits
and foreclosing mortgages in
the name of the bank;"

3. G.R. No. 78766, "El

Grande Corporation vs.
Court of Appeals, et al.," is
an appeal from the Court of
Appeals' decision in CA-G.R.
SP No. 08809 dismissing El
Grande's petition for
prohibition to prevent the
foreclosure of BF's P8 million
mortgage on El Grande's
properties;

4. G.R. No. 78894, "Banco

Filipino Savings and
Mortgage Bank vs. Court of
Appeals, et al." is an appeal
of BFs old management
(using the name of BF) from
the decision of the Court of
Appeals in CA-G.R. SP No.
07503 entitled, "Central
Bank, et al. vs. Judge Zoilo
Aguinaldo, et al" dismissing
the complaint of "BF" to
annul the receivership, for no
suit may be brought or
defended in the name of the
bank except by its receiver;

5. G.R. No. 87867,

"Metropolis Development
Corporation vs. Court of
Appeals" (formerly AC-G.R.
No. 07503, "Central Bank, et
al. vs. Honorable Zoilo
Aguinaldo, et al.') is an
appeal of the intervenor
(Metropolis) from the same
Court of Appeals' decision
subject of G.R. No. 78894,
which also dismissed
Metropolis' complaint in
intervention on the ground
that a stockholder
(Metropolis) may not bring
suit in the name of BF while
the latter is under
receivership, without the
authority of the receiver;

6. G.R. No. 81303, "Pilar

Development Corporation vs.
Court of Appeals, et al." is an
appeal from the decision
dated October 22, 1987 of
the Court of Appeals in CA-
G.R. SP No. 12368, "Pilar
Development Corporation, et
al. vs. Honorable Manuel
Cosico, et al.," dismissing the
petition for certiorari against
Judge Manuel Cosico, Br.
136, RTC, Makati, who
dismissed the complaint filed
by Pilar Development
Corporation against BF, for
specific performance of
certain developer contracts.
An answer filed by Norberto
Quisumbing and Associates,
as BF's supposed counsel,
virtually confessed judgment
in favor of Pilar
Development. On motion of
the receiver, the answer was
expunged and the complaint
was dismissed. On a petition
for certiorari in this Court, we
held that: "As liquidator of BF
by virtue of a valid
appointment from the Central
Bank, private respondent
Carlota Valenzuela has the
authority to direct the
operation of the bank in
substitution of the former
management, which authority
includes the retainer of
counsel to represent it in
bringing or resisting suits in
connection with such
liquidation and, in the case at
bar, to take the proper steps
to prevent collusion, to the
prejudice of the legitimate
creditors, between BF and
the petitioners herein which
appear to be owned and
controlled by the same
interest controlling BF" (p.
49, Rollo). The petitioners'
motion for reconsideration of
that decision is pending
resolution.

7. G.R. No. 81304, "BF

Homes Development
Corporation vs. Court of
Appeals, et al." is an appeal
from the decision dated
November 4, 1987 of the
Court of Appeals in CA-G.R.
CV No. 08565 affirming the
trial court's order dismissing
BF Homes' action to compel
the Central Bank to restore
the financing facilities of BF,
because the plaintiff (BF
Homes) has no cause of
action against the CB.

8. G.R. No. 90473, "El

Grande Development
Corporation vs. Court of
Appeals, et al.," is a petition
to review the decision dated
June 6, 1989 in CA-G.R. SP
No. 08676 dismissing El
Grande's petition for
prohibition to stop
foreclosure proceedings
against it by the receiver of
BF.
As previously stated, G.R.
No. 70054 "BF vs. Monetary
Board, et al.," is an original
special civil action for
certiorari and mandamus
filed in this Court by the old
management of BF, through
their counsel, N.J.
Quisumbing & Associates,
using the name of the bank
and praying for the
annulment of MB Resolution
No. 75 which ordered the
closure of BF and placed it
under receivership. It is a
"forum-shopping" case
because it was filed here on
February 28, 1985 three
weeks after they had filed on
February 2, 1985 Civil Case
No. 9675 "Banco Filipino vs.
Monetary Board, et al." in the
Regional Trial Court of
Makati, Br. 143 (presided
over by Judge Zoilo
Aguinaldo) for the same
purpose of securing a
declaration of the nullity of
MB Resolution No. 75 dated
January 25, 1985.

On August 25, 1985, this

Court ordered the transfer
and consolidation of Civil
Case No. 9676 (to annul the
receivership) from Br. 143 to
Br. 136 (Judge Manuel
Cosico) of the Makati
Regional Trial Court where
Civil Case No. 8108 (to annul
the conservatorship) and
Civil Case No. 10183 (to
annul the liquidation) of BF
were and are still pending. All
these three (3) cases were
archived on June 30, 1988
by Judge Cosico pending the
resolution of G.R. No. 70054
by this Court.

Because of my previous
participation, as a former
member of the Court of
Appeals, in the disposition of
AC-G.R. No. 02617 (now
G.R. No. 68878) and AC-
G.R. SP No. 07503 (now
G.R. Nos. 78767 and 78894),
I am taking no part in G.R.
Nos. 68878, 78767 and
78894. It may be mentioned
in this connection that neither
in AC-G.R. SP No. 02617,
nor in AC-G.R. SP No.
07503, did the Court of
Appeals rule on the
constitutionality of Sections
28-A and 29 of Republic Act
265 (Central Bank Act), as
amended, and the validity of
MB Resolution No. 75, for
those issues were not raised
in the Court of Appeals.

I concur with the ponencia

insofar as it denies the
motion for reconsideration in
G.R. No. 81303, and
dismisses the petitions for
review in G.R. Nos. 77255-
58, 78766, 81304, and
90473.

I respectfully dissent from the

majority opinion in G.R. No.
70054 annulling and setting
aside MB Resolution No. 75
and ordering the
respondents, Central Bank of
the Philippines and the
Monetary Board —

to reorganize petitioner
Banco Filipino Savings
and Mortgage Bank, and
allow the latter to
resume business in the
Philippines under the
comptrollership of both
the Central Bank and the
Monetary Board and
under such conditions as
may be prescribed by
the latter until such time
that petitioner bank can
continue in business
with safety to its
creditors, depositors and
the general public.

for I believe that this Court

has neither the authority nor
the competence to determine
whether or not, and under
what conditions, BF should
be reorganized and
reopened. That decision
should be made by the
Central Bank and the
Monetary Board, not by this
Court.

All that we may determine in

this case is whether the
actions of the Central Bank
and the Monetary Board in
closing BF and placing it
under receivership were
"plainly arbitrary and made in
bad faith.

Section 29 of Republic Act

No. 265 provides:
Section 29. Proceedings
upon insolvency. —
Whenever, upon
examination by the head
of the appropriate
supervising and
examining department
or his examiners or
agents into the condition
of any banking
institution, it shall be
disclosed that the
condition of the same is
one of insolvency, or
that its continuance in
business would involve
probable loss to its
depositors or creditors, it
shall be the duty of the
department head
concerned forthwith, in
writing, to inform the
Monetary Board of the
facts, and the Board
may, upon finding the
statements of the
department head to be
true, forbid the institution
to do business in the
Philippines and shall
designate an official of
the Central Bank as
receiver to immediately
take charge of its assets
and liabilities, as
expeditiously as possible
collect and gather all the
assets and administer
the same for the benefit
of its creditors,
exercising all the powers
necessary for these
purposes including, but
not limited to, bringing
suits and foreclosing
mortgages in the name
of the banking institution.

The Monetary Board

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

If the Monetary Board

shall determine and
confirm within the said
period that the banking
institution is insolvent or
cannot resume business
with safety to its
depositors, creditors and
the general public, it
shall, if the public
interest requires, order
its liquidation, indicate
the manner of its
liquidation and approve
a liquidation plan. The
Central Bank shall, by
the Solicitor General, file
a petition in the Court of
First Instance, reciting
the proceedings which
have been taken and
praying the assistance of
the court in the
liquidation of the banking
institutions. The court
shall have jurisdiction in
the same proceedings to
adjudicate disputed
claims against the bank
and enforce individual
liabilities of the
stockholders and do all
that is necessary to
preserve the assets of
the banking institution
and to implement the
liquidation plan
approved by the
Monetary Board. The
Monetary Board shall
designate an official of
the Central Bank as
liquidator who shall take
over the functions of the
receiver previously
appointed by the
Monetary Board under
this section. The
liquidator shall, with all
convenient speed,
convert the assets of the
banking institution to
money or sell, assign or
otherwise dispose of the
same to creditors and
other parties for the
purpose of paying the
debts of such bank and
he may, in the name of
the banking institution,
institute such actions as
may be necessary in the
appropriate court to
collect and recover
accounts and assets of
the banking institution.

The provisions of any

law to the contrary
notwithstanding, the
actions of the Monetary
Board under this section
and the second
paragraph of Section 34
of this Act shall be final
and executory, and can
be set aside by the court
only if there is
convincing proof that
theaction is plainly
arbitrary and made in
bad faith. No restraining
order or injunction shall
be issued by the court
enjoining the Central
Bank from implementing
its actions under this
section and the second
paragraph of Section 34
of this Act, unless there
is convincing proof that
the action of the
Monetary Board is
plainly arbitrary and
made in bad faith and
the petitioner or plaintiff
files with the clerk or
judge of the court in
which the action is
pending a bond
executed in favor of the
Central Bank, in an
amount to be fixed by
the court. The
restraining order or
injunction shall be
refused or, if granted,
shall be dissolved upon
filing by the Central
Bank of a bond, which
shall be in the form of
cash or Central Bank
cashier's check, in an
amount twice the
amount of the bond of
the petitioner or plaintiff,
conditioned that it will
paythe which the
petitioner or plaintiff may
suffer by the refusalor
the dissolution of the
injunction. The
provisions of Rule 58 of
the new Rules of Court
insofar as they are
applicable and not
inconsistent with the
provisions of this section
shall govern the
issuance and dissolution
of the restraining order
or injunction
contemplated in this
section.

Insolvency, under this

Act, shall be understood
to mean the inability of a
banking institution to
pay its liabilities as they
fall due in the usual and
ordinary course of
business, provided,
 however, that this shall
not include the inability
to pay of an otherwise
non-insolvent bank
caused by extra-ordinary
demands induced by
financial panic
commonly evidenced by
a run on the banks in the
banking community.

The determinative factor in

the closure, receivership, and
liquidation of a bank is the
finding, upon examination by
the SES of the Central Bank,
that its condition "is one of
insolvency, or that its
continuance in business
would involve probable loss
to its depositors and
creditors." (Sec. 29, R.A.
265.) It should be pointed out
that insolvency is not the only
statutory ground for the
closure of a bank. The other
ground is when "its
continuance in business
would involve probable loss
to its depositors and
creditors.

Was BF insolvent i.e., unable

to pay its liabilities as they
fell due in the usual and
ordinary course of business,
on and for some time before
January 25, 1985 when the
Monetary Board issued
Resolution No. 75 closing the
bank and placing it under
receivership? Would its
continued operation involve
probable loss to its
depositors and creditors?

The answer to both

questions is yes. Both the
conservator Gilberts Teodoro
and the head of the SES
(Supervision and
Examination Sector) Ramon
V. Tiaoqui opined that BF's
continuance in business
would cause probable loss to
depositors and creditors.
Tiaoqui further categorically
found that BF was insolvent.
Why was this so?

The Teodoro and Tiaoqui

reports as well as the report
of the receivers, Carlota
Valenzuela, Arnulfo B.
Aurellano and Ramon V.
Tiaoqui, showed that since
the end of November 1983
BF had already been
incurring "chronic reserve
deficiencies' and
experiencing severe liquidity
problems. So much so, that it
had become "a substantial
borrower in the call loans
market" and in June 1984 it
obtained a P30 million
emergency loan from the
Central Bank. (p. 2,
Receiver's Report.)
Additional emergencyt loans
(a total of P119.7 millions)
were extended by the Central
Bank to BF that month (MB
Res. No. 839 dated June
29,1984). On July 12, 1984,
BFs chairman, Anthony
Aguirre, offered to "turn over
the administration of the
affairs of the bank" to the
Central Bank (Aguirre's letter
to Governor Jose Fernandez,
Annex 7 of Manifestation
dated May 3,1991). On July
23,1984, unable to meet
heavy deposit withdrawals,
BF's management motu
proprio, without obtaining the
conformity of the Central
Bank, closed the bank and
declared a bank holiday. On
July 27, 1984, the CB,
responding to BFs pleas for
additional financial
assistance, granted BF a P3
billion credit line (MB Res.
No. 934 of July 27, 1984) to
enable it to reopen and
resume business on August
1, 1984. P2.3601 billions of
the credit line were availed of
by the end of 1984 exclusive
of an overdraft of P932.4
millions (p. 2, Tiaoqui
Report). Total
accommodations granted to
BF amounted to P3.4122
billions (p. 19, Cosico
Report).

Presumably to assure that

the financial assistance
would be properly used, the
MB appointed Basilio
Estanislao as conservator of
the bank. A conservatorship
team of 78 examiners and
accountants was assigned at
the bank to keep track of its
activities and ascertain its
financial condition (p. 8,
Tiaoqui Report).
Estanislao resigned after two
weeks for health reasons. He
was succeeded by Gilberto
Teodoro as conservator in
August, 1984 up to January
8, 1985.

Besides the conservatorship

team, Teodoro hired financial
consultants Messrs. Tirso G.
Santillan, Jr. and Plorido P.
Casuela to make an analysis
of BF's financial condition.
Teodoro also engaged the
accounting firm of Sycip,
Gorres, Velayo and
Company to make an asset
evaluation. The Philippine
Appraisal Company (PAC)
appraised BFs real estate
properties, acquired assets,
and collaterals held. On
January 9, 1985, Teodoro
submitted his Report. Three
weeks later, on January 23,
1985, Tiaoqui also submitted
his Report. Both reports
showedthat, in violation of
Section 37 of the General
Banking Act (R.A.337): 2

1. BF had been
continually deficient in
liquidity reserves
(Teodoro Report). The
bank had been
experiencing a severe
drop in liquidity levels.
The ratio of liquid assets
to deposits and
borrowings plunged
from about 20% at end-
1983, to about 8.6% by
end-May 1984, much
below the statutory
requirements of 24% for
demand
deposits/deposit
substitutes and 14% for
savings and time
deposits. (p. 2, Tiaoqui
Report.)

2. Deficiencies in
average daily legal
reserves rose from
P63.0 million during the
week of November 21-
25, 1983 to a high of
P435.9 million during the
week of June 11-15,
1984 (pp. 2-3, Tiaoqui
Report). Accumulated
penalties on reserve
deficiencies amounted to
P37.4 million by July 31,
and rose to P48 million
by the end of 1984.
(Tiaoqui Report.)

3. Deposit levels, which

were at P3,845 million at
end-May l984 (its last
"normal" month),
dropped to P935 million
at the end of November
1984 or a loss of P2,910
million. This represented
an average monthly loss
of P485 million vs. an
average monthly gain of
P26 million during the
first 5 months of 1984.
(pp. 2-3, Tiaoqui
Report.)

4. Deposits had declined

at the rate of P20 million
during the month of
December 1984, but
expenses of about P17
million per month were
required to maintain the
bank's operation. (p. 6,
Teodoro Report.)

5. Based on the
projected outlook, the
Bank's average yield on
assets of 16.3% p.a.,
was insufficient to meet
the average cost of
funds of 19.5% p.a. and
operating expenses of
4.8% p.a. (p. 5 Teodoro
Report.)

6. An imprudently large
proportion of assets
were locked into long-
term applications.
(Teodoro Report.)

7. BF overextended itself
in lending to the real
estate industry,
committing as much as
52% of its peso deposits
to its affiliates or "related
accounts" to which it
continued lending even
when it was already
suffering from liquidity
stresses. (Teodoro
Report.) This was done
in violation of Section 38
of the General Banking
Act (R.A. 337). 3

8. During the period of

marked decline in
liquidity levels the loan
portfolio grew by P417.3
million in the first five
months of 1984 — and
by another P105.l million
in the next two months.
(pp. 2-3, Tiaoqui
Report.)

9. The loan portfolio

stood at P3.679 billion at
the end of July 1984,
56.2% of it channeled to
companies whose
stockholders, directors
and officers were related
to the officers, directors,
and some stockholders
of BF. (p. 8, Tiaoqui
Report.) Here again BF
violated the General
Banking Act (R.A. 337).
4

10. Some of the loans

were used to acquire
preferred stocks of BF.
Between September 17,
1983 and February 10,
1984, P49.9 million of
preferred non-
convertible stocks were
issued. About 85% or
P42.4 million was paid
out of the proceeds of
loans to stockholders/
borrowers with
relationship to the bank
(Annex D). Around
P18.8 million were
issued in the name of an
entity other than the
purchaser of the stocks.
(Tiaoqui Report.)

11. Loans amounting to

some P69.3 million were
granted simply to pay-off
old loans including
accrued interest, as an
accommodation for the
direct maturing loans of
some firms and as a way
of paying-off loans of
other borrower firms
which have their own
credit lines with the
bank. These helped to
make otherwise
delinquent loans appear
"current" and deceptively
"improved" the quality of
the loan portfolio.
(Tiaoqui Report.)
12. Examination of the
collaterals for the loan
accounts of 63 major
borrowers and 32 other
selected borrowers as of
July 31, 1984, showed
that:

(a) 2,658 TCT's

which BF evaluated
to be worth P1,487
million were
appraised by PAC
to be worth only
P1,196 million,
hence, deficient by
P291 million.

(b) Other properties

(collaterals)
supposedly worth
P711 million could
not be evaluated by
PAC because the
details submitted by
the bank were
insufficient;

(c) While P674

million in loans were
supposedly
guaranteed by the
Home Financing
Corporation (HFIC),
the latter confirmed
only P427 million.
P247 million in
loans were not
guaranteed by HFC.
(Teodoro Report.)

(d) Per SGV's

report, loans
totalling P1.882
million including
accrued interest,
 were secured by
collateral worth only
Pl.54 billion. Hence,
BFs unsecured
exposure amounted
to P586.2 million.
BF Homes, Inc., a
related company
which has filed with
the SEC a petition
for suspension of
payments, owes
P502 million to BF.

13. BF had been

suffering heavy losses.
—

a) For the eleven

(11) months ended
November 30, 1984,
the estimated net
loss was P372.6
Million;

b) For the twelve

(12) months from
November 1984, the
projected net loss
would be P390.7
Million and would
continue unabated;
(p. 2, Teodoro
Report)

c) Around 71.7% of
the total
accommodations of
P2.0677 billions to
the related/linked
entities were
adversely classified.
Close to 33.7% or
P697.1 millions
were clean loans or
against PNs
(promissory notes)
of these entities. Of
the latter, 52.6%
were classified as
loss." (P. 5, Tiaoqui
Report.)

d) The bank's
financial condition
as of date of
examination, after
setting up the
additional valuation
reserves of P612.2
millions and
accumulated net
loss of P48.2
millions, indicates
one of insolvency.
Total liabilities of
P5,282.1 million
exceeds total assets
of P4,947.2 million
by 6.8%. Total
capital account of
P334.9 million) is
deficient by P322.7
million against the
minimum capital
required of P657.6
million (Annex F).
Capital to risk
assets ratio is
negative 10.38%.

e) Total loans and

investment portfolio
amounted to
P3,914.3 millions
(gross), of which
P194.0 millions or
5.0% were past due
and P1,657.1
 millions or 42.3%
were adversely
classified
(Substandard —
P1,011.4 millions;
Doubtful — P274.6
millions and Loss —
P371.1 millions).
Accounts adversely
classified included
unmatured loan of
Pl,482.0 million to
entities related with
each other and to
the bank, several of
which showed
distressed
conditions. (p. 7,
Tiaoqui Report.)

Teodoro's conclusion
was that "the
continuance of the bank
in business would
involve probable loss to
its depositors and
creditors." He
recommended "that the
Monetary Board take a
more effective and
responsible action to
protect the depositors
and creditors ... in the
light of the bank's
worsening condition." (p.
5, Teodoro Report.)

On January 23, 1985,

Tiaoqui submitted his
report to the Monetary
Board, Like Teodoro,
Tiaoqui believed that the
principal cause of the
bank's failure was that in
violation of the General
Banking Law and CB
rules and regulations,
BF's major stockholders,
directors and officers,
through their "related"
companies: (i.e.
companies owned or
controlled by them of
their relatives) had been
"borrowing" huge chunks
of the money of the
depositors. His
Conclusion and
Recommendations were:

The Conservator, in
his report to the
Monetary Board
dated January 8,
1985, has stated
that the
continuance of the
bank in business
would involve
probable loss to its
depositors and
creditors. It has
recommended that
a more effective
action be taken to
protect depositors
and creditors.

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 further
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 on
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
President, 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 Banles
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.
9-10, Tiaoqui
Report.)
On January 25,
1985 or two days
after the submission
of Tiaoqui's Report,
and three weeks
after it received
Teodoro's Report,
the Monetary Board,
then composed of:

Chairman: Jose
B. Fernandez,
Jr.
CB Governor

Members:

1. Cesar E.A.
Virata, Prime
Minister &
Concurrently
Minister of
Finance
2. Roberto V.
Ongpin,
Minister of
Trade &
Industry &
Chairman of
Board of
Investment

3. Vicente B.
Valdepeñas,
Jr., Minister of
Economic
Planning &
Director
General of
NEDA

4. Cesar A.
Buenaventura,
President of
Filipinas Shell
Petroleum
 Corp. (p. 37,
Annual Report
1985)

issued Resolution
No. 75 closing BF
and placing it under
receivership. The
MB Resolution
reads as follows:

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
and Mortgage
Bank is
insolvent and
that its
continuance in
business would
involve
probable loss to
its depositors
and creditors,
and in
pursuance of
Section 29 of
R.A. No. 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
immediatel
y take
charge of
the bank's
assets and
liabilities,
and as
expeditious
ly 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,
Supervisio
n and
Examinatio
n Sector
Departmen
t 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
Manageme
nt 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/
credition
and the
 general
public; and

5. In
consequen
ce of the
foregoing,
to
terminate
the
conservato
rship over
Banco
Filipino
Savings
and
Mortgage
Bank. (pp.
126-127,
Rollo I.)

On March
19,1985, the
receiver,
Carlota
Valenzuela,
and the deputy
receivers,
Arnulfo B.
Aurellano and
Ramon V.
Tiaoqui,
submitted a
report to the
Monetary
Board as
required in
Section 29, 2nd
paragraph of
R.A. 265 which
provides that
within sixty (60)
days from date
of the
receivership,
the Monetary
Board shall
determine
whether the
bank may be
reorganized
and permitted
to resume
business, or be
liquidated. The
receivers
recommended
that BF be
placed under
litigation. For,
among other
things, they
found that:

1. BF had been
suffering a
capital
deficiency of
P336.5 million
as of July 31,
1984 (pp. 2 and
4, Receivers'
Report).

2. The bank's
weekly reserve
deficiencies
averaged
P146.67 million
from November
25, 1983 up to
March 16,
1984, rising to
a peak of
P338.09 million
until July 27,
1984. Its
reserve
deficiencies
against
deposits and
deposit
substitutes
began on the
week ending
June 15, 1984
up to
December 7,
1984, with
average daily
reserve
deficiencies of
P2.98 million.

3. Estimated
losses or
"unhooked
valuation
reserves" for
loans to entities
with
relationships to
certain
stockholder/dire
ctors and
officers of the
bank amounted
to P600.5
million.
Combined with
other
adjustments in
the amount of
P73.2 million,
they will entirely
wipe out the
bank's entire
capital account
and leave a
capital
deficiency of
P336.5 million.
The bank was
already
insolvent on
July 31, 1984.
The capital
deficiency
increased to
P908.4 million
as of January
26, 1985 on
account of
unhooked
penalties for
deficiencies in
legal reserves
(P49.07
million),
unhooked
interest on
overdrawings,
emergency
advance of
P569.49 million
from Central
Bank, and
additional
valuation
reserves of
P124.5 million.
(pp. 3-4,
Receivers'
Report.)

The Receivers
further noted
that —

After BF
was closed
as of
January
25, 1985,
there were
no
collections
from loans
granted to
firms
related to
each other
and to BF
classified
as
"doubtful"
or "loss,"
there were
no
substantial
improveme
nts on
other loans
classified
"doubtful"o
r "loss;"
there was
no further
increase in
the value
of assets
owned/acq
uired
supported
by new
appraisals
and there
was no
infusion of
additional
capital
such that
the
estimated
realizable
assets of
BF
remained
at
P3,909.23,
(millions)
while the
total
liabilities
amounted
to
P5,159.44
(millions).
Thus, BF
remains
insolvent
with
estimated
deficiency
to creditors
of
Pl,250.21
(millions).

Moreover,
there were
no efforts
on the part
of the
 stockholde
rs of the
bank to
improve its
financial
condition
and the
possibility
of
rehabilitati
on has
become
more
remote. (P.
8,
Receivers'
Report.)

In the light of
the results of
the examination
of BF by the
Teodoro and
Tiaoqui teams,
I do not find
that the CB's
Resolution No.
75 ordering BF
to cease
banking
operations and
placing it under
receivership
was "plainly
arbitrary and
made in bad
faith." The
receivership
was justified
because BF
was insolvent
and its
continuance in
business would
cause loss to
its depositors
and creditors.
Insolvency, as
defined in Rep.
Act 265, means
'the inability of
a banking
institution to
pay its liabilities
as they fall due
in the usual and
ordinary course
of business.
Since June
1984, BF had
been unable to
meet the heavy
cash
withdrawals of
its depositors
and pay its
liabilities to its
creditors, the
biggest of them
being the
Central Bank,
hence, the
Monetary
Board correctly
found its
condition to be
one of
insolvency.

All the
discussion in
the Santiago
Report
concerning the
bank's assets
and liabilities as
determinants of
BF's solvency
or insolvency is
irrelevant and
inconsequential
, for under
Section 29 of
Rep. Act. 265,
a bank's
insolvency is
not determined
by its excess of
liabilities over
assets, but by
its "inability to
pay its liabilities
as they fall due
in the ordinary
course of
business" and it
was abundantly
shown that BF
was unable to
pay its liabilities
to depositors
for over a six-
month-period
before it was
placed under
receivership.

Even if assets
and liabilities
were to be
factored into a
formula for
determining
whether or not
BF was already
insolvent on or
before January
25, 1985, the
result would be
no different.
The bank's
assets as of the
end of 1984
amounted to
P4.891 billions
(not P6 billions)
according to
the Report
signed and
submitted to
the CB by BF's
own president,
and its total
liabilities were
P4.478 billions
(p. 58, Cosico
Report). While
Aguirre's
Report showed
BF ahead with
a net worth of
P412.961
millions, said
report did not
make any
provision for
estimated
valuation
reserves
amounting to
P600.5 millions,
(50% of face
value of
doubtful loans
and 100% of
face value of
loss accounts)
which BF had
granted to its
related/linked
companies.
The estimated
valuation
reserves of
P600.5 millions
plus BF's
admitted
liabilities of
P4.478 billions,
put together,
would wipe out
BFs realizable
assets of
P4.891 billions
and confirm its
insolvent
condition to the
tune of
P187.538
millions.

BF's and Judge

(now CA
Justice)
Consuelo Y.
Santiago's
argument that
valuation
reserves should
not be
considered
because the
matter was not
discussed by
Tiaoqui with BF
officials is not
well taken for:

(1) The records

of the
defaulting
debtors were in
the possession
of BF.

(2) The
"adversely
classified"
loans were in
fact included in
the List of
Exceptions and
Findings (of
irregularities
and violations
of laws and CB
rules and
regulations)
prepared by the
SES, a copy of
which was
furnished BF on
December 1 7,
1984;

(3) A
conference on
the matter
washeld on
January 2l,
1985 with
senior officials
of BF headed
by EVP F.
Dizon,. (pp. 14-
15, Cosico
Report.) BF did
not formally
protest against
the CBs
estimate of
valuation
reserves. The
CB could not
wait forever for
BF to respond
for the CB had
to act with
reasonable
promptness to
protect the
depositors and
creditors of BF
because the
bank continued
to operate.

(4) Subsequent
events proved
correct the SES
classification of
the loan
accounts as
"doubtful" or
"loss' because
as of January
25, 1985 none
of the loans,
except three,
had been paid
either partially
or in full, even if
they had
already
matured (p. 53,
Cosico Report).
The
recommended
provision for
valuation
reserves of
P600.5 millions
for "doubtful"
and "loss"
accounts was a
proper factor to
consider in the
capital
adjustments of
BF and was in
accordance
with accounting
rules. For, if the
uncollectible
loan accounts
would be
entered in the
assets column
as
"receivables,"
without a
corresponding
entry in the
liabilities
column for
estimated
losses or
valuation
reserves arising
from their
uncollectability,
the result would
be a gravely
distorted
picture of the
financial
condition of BF.

BF's strange
argument that it
was not
insolvent for
otherwise the
CB would not
have given it
financial
assistance
does not merit
serious
consideration
for precisely BF
needed
financial
assistance
because it was
insolvent.

Tiaoqui's
admission that
the examination
of BF had "not
yet been
officially
terminated"
when he
submitted his
report on
January 23,
1985 did not
make the action
of the Monetary
Board of
closing the
bank and
appointing
receivers for it,
'plainly arbitrary
and in bad
faith." For what
had been
examined by
the SES was
more than
enough to
warrant a
finding that the
bank was
"insolvent and
could not
continue in
business
without
probable loss to
its depositors or
creditors," and
what had not
been examined
was negligible
and would not
have materially
altered the
result. In any
event, the
official
termination of
the examination
with the
submission by
the Chief
Examiner of his
report to the
Monetary
Board in March
1985, did not
contradict, but
in fact
confirmed, the
findings in the
Tiaoqui Report.

The
responsibility of
administering
the Philippine
monetary and
banking
systems is
vested by law
in the Central
Bank whose
duty it is to use
the powers
granted to it
under the law
to achieve the
objective,
among others,
of maintaining
monetary
stability in the
country (Sec. 2,
Rep. Act 265). I
do not think it
would be
proper and
advisable for
this Court to
interfere with
the CB's
exercise of its
prerogative and
duty to
discipline banks
which have
persistently
engaged in
illegal, unsafe,
unsound and
fraudulent
banking
practices
causing
tremendous
losses and
unimaginable
anxiety and
prejudice to
depositors and
creditors and
generating
widespread
distrust and
loss of
confidence in
the banking
system. The
damage to the
banking system
and to the
depositing
public is bigger
when the bank,
like Banco
Filipino, is big.
With 89
branches
nationwide, 46
of them in
Metro Manila
alone, pumping
the hard-
earned savings
of 3 million
depositors into
the bank, BF
had no reason
to go bankrupt
if it were
properly
managed. The
Central Bank
had to infuse
almost P3.5
billions into the
bank in its
endeavor to
save it. But
even this
financial
assistance was
misused, for
instead of
satisfying the
depositors'
demands for
the withdrawal
of their money,
BF channeled
and diverted a
substantial
portion of the
finds into the
coffers of its
related/linked
companies. Up
to this time, its
officers,
directors and
major
stockholders
have neither
repaid the
Central Bank's
P3.6 billion
financial
assistance, nor
put up
adequate
collaterals
therefor, nor
submitted a
credible plan
for the
rehabilitation of
the bank. What
authority has
this Court to
require the
Central Bank to
reopen and
rehabilitate the
bank, and in
effect risk more
of the
Government's
money in the
moribund
bank? I
respectfully
submit that
decision is for
the Central
Bank, not for
this Court, to
make.

WHEREFORE,
I vote to
dismiss the
petition for
certiorari and
mandamus in
G.R. No. 70054
for lack of
merit.

Romero, J.,
concurs.

Footnotes
Griño-
Aquino,
dissenting :

1 P. 3,
Petition.

2 Sec. 37.
All savings
and
mortgage
banks shall
maintain
on deposit
with the
Central
Bank of the
Philippines
such
reserves
against
their
deposit
liabilities
as the
Monetary
Board shall
determine
in
accordanc
e with the
pertinent
provisions
of the
Central
Bank Act.

3 Sec. 38.
Whenever
there is a
call by
depositors
of a saving
bank for
repayment
of their
deposits
and the
call so
made shall
result in
reducing
its legal
reserves
below the
amount
required by
the
Monetary
Board,
such bank
shall not
make any
new loans
or
investment
0 the funds
of
depositors
or earnings
of such
funds until
the call of
the
depositors
has been
satisfied
and its
legal
reserves
have been
restored to
the
required
minimum.

4 Sec- 83.
No director
or officer of
any
banking
institution
shall,
either
directly or
indirectly,
for himself
or as the
representat
ive or
agent of
others,
borrow any
of the
deposits of
funds of
such
bank ... .