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G.R. No. 115849             January 24, 1996FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and MERCURIO RIVERA, petitioners, vs.COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and JOSE JANOLO, respondents.D E C I S I O NPANGANIBAN, J.:In the absence of a formal deed of sale, may commitments given by bank officers in an exchange of letters and/or in a meeting with the buyers constitute a perfected and enforceable contract of sale over 101 hectares of land in Sta. Rosa, Laguna? Does the doctrine of "apparent authority" apply in this case? If so, may the Central Bank-appointed conservator of Producers Bank (now First Philippine International Bank) repudiate such "apparent authority" after said contract has been deemed perfected? During the pendency of a suit for specific performance, does the filing of a "derivative suit" by the majority shareholders and directors of the distressed bank to prevent the enforcement or implementation of the sale violate the ban against forum-shopping?

Simply stated, these are the major questions brought before this Court in the instant Petition for review on certiorari under Rule 45 of the Rules of Court, to set aside the Decision promulgated January 14, 1994 of the respondent Court of Appeals1 in CA-G.R CV No. 35756 and the Resolution promulgated June 14, 1994 denying the motion for reconsideration. The dispositive portion of the said Decision reads:

WHEREFORE, the decision of the lower court is MODIFIED by the elimination of the damages awarded under paragraphs 3, 4 and 6 of its dispositive portion and the reduction of the award in paragraph 5 thereof to P75,000.00, to be assessed against defendant bank. In all other aspects, said decision is hereby AFFIRMED.All references to the original plaintiffs in the decision and its dispositive portion are deemed, herein and hereafter, to legally refer to the plaintiff-appellee Carlos C. Ejercito.Costs against appellant bank.

The dispositive portion of the trial court's2 decision dated July 10, 1991, on the other hand, is as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against the defendants as follows:1. Declaring the existence of a perfected contract to buy and sell over the six (6) parcels of land situated at Don Jose, Sta. Rosa, Laguna with an area of 101 hectares, more or less, covered by and embraced in Transfer Certificates of Title Nos. T-106932 to T-106937, inclusive, of the Land Records of Laguna, between the plaintiffs as buyers and the defendant Producers Bank for an agreed price of Five and One Half Million (P5,500,000.00) Pesos;2. Ordering defendant Producers Bank of the Philippines, upon finality of this decision and receipt from the plaintiffs the amount of P5.5 Million, to execute in favor of said plaintiffs a deed of absolute sale over the aforementioned six (6) parcels of land, and to immediately deliver to the plaintiffs the owner's copies of T.C.T. Nos. T-106932 to T- 106937, inclusive, for purposes of registration of the same deed and transfer of the six (6) titles in the names of the plaintiffs;3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and Demetrio Demetria the sums of P200,000.00 each in moral damages;4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P100,000.00 as exemplary damages ;5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of P400,000.00 for and by way of attorney's fees;6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and moderate damages in the amount of P20,000.00;With costs against the defendants.

After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply to sur-rejoinder, the petition was given due course in a Resolution dated January 18, 1995. Thence, the parties filed their respective memoranda and reply memoranda. The First Division transferred this case to the Third Division per resolution dated October 23, 1995. After carefully deliberating on the aforesaid submissions, the Court assigned the case to the undersigned ponente for the writing of this Decision.

The PartiesPetitioner First Philippine International Bank (formerly Producers Bank of the Philippines; petitioner Bank, for brevity) is a banking institution organized and existing under the laws of the Republic of the Philippines. Petitioner Mercurio Rivera (petitioner Rivera, for brevity) is of legal age and was, at all times material to this case, Head-Manager of the Property Management Department of the petitioner Bank.Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the assignee of original plaintiffs-appellees Demetrio Demetria and Jose Janolo.Respondent Court of Appeals is the court which issued the Decision and Resolution sought to be set aside through this petition.

The FactsThe facts of this case are summarized in the respondent Court's Decision3 as follows:

(1) In the course of its banking operations, the defendant Producer Bank of the Philippines acquired six parcels of land with a total area of 101 hectares located at Don Jose, Sta. Rose, Laguna, and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. The property used to be owned by BYME Investment and Development Corporation which had them mortgaged with the bank as collateral for a loan. The original plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted to purchase the property and thus initiated negotiations for that purpose.(2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME investment's legal counsel, Jose Fajardo, met with defendant Mercurio Rivera, Manager of the Property Management Department of the defendant bank. The meeting was held pursuant to plaintiffs' plan to buy the property (TSN of Jan. 16, 1990, pp. 7-10). After the meeting, plaintiff Janolo, following the advice of defendant Rivera, made a formal purchase offer to the bank through a letter dated August 30, 1987 (Exh. "B"), as follows:

August 30, 1987The Producers Bank of the PhilippinesMakati, Metro ManilaAttn. Mr. Mercurio Q. RiveraManager, Property Management Dept.Gentleman:I have the honor to submit my formal offer to purchase your properties covered by titles listed hereunder located at Sta. Rosa, Laguna, with a total area of 101 hectares, more or less.

TCT NO. AREAT-106932 113,580 sq.

m.T-106933 70,899 sq. m.T-106934 52,246 sq. m.T-106935 96,768 sq. m.T-106936 187,114 sq.

m.T-106937 481,481 sq.

m.My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND (P3,500,000.00) PESOS, in cash.Kindly contact me at Telephone Number 921-1344.(3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal reply by letter which is hereunder quoted (Exh. "C"):

September 1, 1987JP M-P GUTIERREZ ENTERPRISES142 Charisma St., Doña Andres IIRosario, Pasig, Metro ManilaAttention: JOSE O. JANOLODear Sir:Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa, Laguna (formerly owned by Byme Industrial Corp.). Please be informed however that the bank's counter-offer is at P5.5 million for more than 101 hectares on lot basis.We shall be very glad to hear your position on the on the matter.Best regards.(4) On September 17, 1987, plaintiff Janolo, responding to Rivera's aforequoted reply, wrote (Exh. "D"):

September 17, 1987Producers BankPaseo de RoxasMakati, Metro ManilaAttention: Mr. Mercurio RiveraGentlemen:In reply to your letter regarding my proposal to purchase your 101-hectare lot located at Sta. Rosa, Laguna, I would like to amend my previous offer and I now propose to buy the said lot at P4.250 million in CASH..Hoping that this proposal meets your satisfaction.(5) There was no reply to Janolo's foregoing letter of September 17, 1987. What took place was a meeting on September 28, 1987 between the plaintiffs and Luis Co, the Senior Vice-President of defendant bank. Rivera as well as Fajardo, the BYME lawyer, attended the meeting. Two days later, or on September 30, 1987, plaintiff Janolo sent to the bank, through Rivera, the following letter (Exh. "E"):The Producers Bank of the PhilippinesPaseo de Roxas, MakatiMetro ManilaAttention: Mr. Mercurio Rivera

Re: 101 Hectares of Landin Sta. Rosa, Laguna

Gentlemen:Pursuant to our discussion last 28 September 1987, we are pleased to inform you that we are accepting your offer for us to purchase the property at Sta. Rosa, Laguna, formerly owned by Byme Investment, for a total price of PESOS: FIVE MILLION FIVE HUNDRED THOUSAND (P5,500,000.00).Thank you.(6) On October 12, 1987, the conservator of the bank (which has been placed under conservatorship by the Central Bank since 1984) was replaced by an Acting Conservator in the person of defendant Leonida T. Encarnacion. On November 4, 1987, defendant Rivera wrote plaintiff Demetria the following letter (Exh. "F"):Attention: Atty. Demetrio DemetriaDear Sir:Your proposal to buy the properties the bank foreclosed from Byme investment Corp. located at Sta. Rosa, Laguna is under study yet as of this time by the newly created committee for submission to the newly designated Acting Conservator of the bank.For your information.(7) What thereafter transpired was a series of demands by the plaintiffs for compliance by the bank with what plaintiff considered as a perfected contract of sale, which demands were in one form or another refused by the bank. As detailed by the trial court in its decision, on November 17, 1987, plaintiffs through a letter to defendant Rivera (Exhibit "G") tendered payment of the amount of P5.5 million "pursuant to (our) perfected sale agreement." Defendants refused to receive both the payment and the letter. Instead, the parcels of land involved in the transaction were advertised by the bank for sale to any interested buyer (Exh, "H" and "H-1"). Plaintiffs demanded the execution by the bank of the documents on what was considered as a "perfected agreement." Thus:Mr. Mercurio RiveraManager, Producers BankPaseo de Roxas, MakatiMetro ManilaDear Mr. Rivera:

This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your 101-hectare lot located in Sta. Rosa, Laguna, and which are covered by TCT No. T-106932 to 106937.From the documents at hand, it appears that your counter-offer dated September 1, 1987 of this same lot in the amount of P5.5 million was accepted by our client thru a letter dated September 30, 1987 and was received by you on October 5, 1987.In view of the above circumstances, we believe that an agreement has been perfected. We were also informed that despite repeated follow-up to consummate the purchase, you now refuse to honor your commitment. Instead, you have advertised for sale the same lot to others.In behalf of our client, therefore, we are making this formal demand upon you to consummate and execute the necessary actions/documentation within three (3) days from your receipt hereof. We are ready to remit the agreed amount of P5.5 million at your advice. Otherwise, we shall be constrained to file the necessary court action to protect the interest of our client.We trust that you will be guided accordingly.(8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing letter and stated, in its communication of December 2, 1987 (Exh. "I"), that said letter has been "referred . . . to the office of our Conservator for proper disposition" However, no response came from the Acting Conservator. On December 14, 1987, the plaintiffs made a second tender of payment (Exh. "L" and "L-1"), this time through the Acting Conservator, defendant Encarnacion. Plaintiffs' letter reads:PRODUCERS BANK OFTHE PHILIPPINESPaseo de Roxas,Makati, Metro Manila

Attn.: Atty. NIDA ENCARNACIONCentral Bank Conservator

We are sending you herewith, in - behalf of our client, Mr. JOSE O. JANOLO, MBTC Check No. 258387 in the amount of P5.5 million as our agreed purchase price of the 101-hectare lot covered by TCT Nos. 106932, 106933, 106934, 106935, 106936 and 106937 and registered under Producers Bank.This is in connection with the perfected agreement consequent from your offer of P5.5 Million as the purchase price of the said lots. Please inform us of the date of documentation of the sale immediately.Kindly acknowledge receipt of our payment.(9) The foregoing letter drew no response for more than four months. Then, on May 3, 1988, plaintiff, through counsel, made a final demand for compliance by the bank with its obligations under the considered perfected contract of sale (Exhibit "N"). As recounted by the trial court (Original Record, p. 656), in a reply letter dated May 12, 1988 (Annex "4" of defendant's answer to amended complaint), the defendants through Acting Conservator Encarnacion repudiated the authority of defendant Rivera and claimed that his dealings with the plaintiffs, particularly his counter-offer of P5.5 Million are unauthorized or illegal. On that basis, the defendants justified the refusal of the tenders of payment and the non-compliance with the obligations under what the plaintiffs considered to be a perfected contract of sale.(10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages against the bank, its Manager Rivers and Acting Conservator Encarnacion. The basis of the suit was that the transaction had with the bank resulted in a perfected contract of sale, The defendants took the position that there was no such perfected sale because the defendant Rivera is not authorized to sell the property, and that there was no meeting of the minds as to the price.On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip Salazar Hernandez and Gatmaitan, filed a motion to intervene in the trial court, alleging that as owner of 80% of the Bank's outstanding shares of stock, he had a substantial interest in resisting the complaint. On July 8, 1991, the trial court issued an order denying the motion to intervene on

the ground that it was filed after trial had already been concluded. It also denied a motion for reconsideration filed thereafter. From the trial court's decision, the Bank, petitioner Rivera and conservator Encarnacion appealed to the Court of Appeals which subsequently affirmed with modification the said judgment. Henry Co did not appeal the denial of his motion for intervention.

In the course of the proceedings in the respondent Court, Carlos Ejercito was substituted in place of Demetria and Janolo, in view of the assignment of the latters' rights in the matter in litigation to said private respondent.On July 11, 1992, during the pendency of the proceedings in the Court of Appeals, Henry Co and several other stockholders of the Bank, through counsel Angara Abello Concepcion Regala and Cruz, filed an action (hereafter, the "Second Case") — purportedly a "derivative suit" — with the Regional Trial Court of Makati, Branch 134, docketed as Civil Case No. 92-1606, against Encarnacion, Demetria and Janolo "to declare any perfected sale of the property as unenforceable and to stop Ejercito from enforcing or implementing the sale"4 In his answer, Janolo argued that the Second Case was barred by litis pendentia by virtue of the case then pending in the Court of Appeals. During the pre-trial conference in the Second Case, plaintiffs filed a Motion for Leave of Court to Dismiss the Case Without Prejudice. "Private respondent opposed this motion on the ground, among others, that plaintiff's act of forum shopping justifies the dismissal of both cases, with prejudice."5 Private respondent, in his memorandum, averred that this motion is still pending in the Makati RTC.In their Petition6 and Memorandum7, petitioners summarized their position as follows:

I.The Court of Appeals erred in declaring that a contract of sale was perfected between Ejercito (in substitution of Demetria and Janolo) and the bank.

II.The Court of Appeals erred in declaring the existence of an enforceable contract of sale between the parties.

III.The Court of Appeals erred in declaring that the conservator does not have the power to overrule or revoke acts of previous management.

IV.The findings and conclusions of the Court of Appeals do not conform to the evidence on record.

On the other hand, petitioners prayed for dismissal of the instant suit on the ground8 that:I.

Petitioners have engaged in forum shopping.II.

The factual findings and conclusions of the Court of Appeals are supported by the evidence on record and may no longer be questioned in this case.

III.The Court of Appeals correctly held that there was a perfected contract between Demetria and Janolo (substituted by; respondent Ejercito) and the bank.

IV.The Court of Appeals has correctly held that the conservator, apart from being estopped from repudiating the agency and the contract, has no authority to revoke the contract of sale.

The IssuesFrom the foregoing positions of the parties, the issues in this case may be summed up as follows:

1) Was there forum-shopping on the part of petitioner Bank?2) Was there a perfected contract of sale between the parties?3) Assuming there was, was the said contract enforceable under the statute of frauds?4) Did the bank conservator have the unilateral power to repudiate the authority of the bank officers and/or to revoke the said contract?5) Did the respondent Court commit any reversible error in its findings of facts?

The First Issue: Was There Forum-Shopping?In order to prevent the vexations of multiple petitions and actions, the Supreme Court promulgated Revised Circular No. 28-91 requiring that a party "must certify under oath . . . [that] (a) he has not (t)heretofore commenced any other action or proceeding involving the same issues in the Supreme Court, the Court of Appeals, or any other tribunal or agency; (b) to the best of his knowledge, no such action or proceeding is pending" in said courts or agencies. A violation of the said circular entails sanctions that include the summary dismissal of the multiple petitions or complaints. To be sure, petitioners have included a VERIFICATION/CERTIFICATION in their Petition stating "for the record(,) the pendency of Civil Case No. 92-1606 before the Regional Trial Court of Makati, Branch 134, involving a derivative suit filed by stockholders of petitioner Bank against the conservator and other defendants but which is the subject of a pending Motion to Dismiss Without Prejudice.9

Private respondent Ejercito vigorously argues that in spite of this verification, petitioners are guilty of actual forum shopping because the instant petition pending before this Court involves "identical parties or interests represented, rights asserted and reliefs sought (as that) currently pending before the Regional Trial Court, Makati Branch 134 in the Second Case. In fact, the issues in the two cases are so interwined that a judgement or resolution in either case will constitute res judicata in the other." 10

On the other hand, petitioners explain 11 that there is no forum-shopping because:1) In the earlier or "First Case" from which this proceeding arose, the Bank was impleaded as a defendant, whereas in the "Second Case" (assuming the Bank is the real party in interest in a derivative suit), it was plaintiff;2) "The derivative suit is not properly a suit for and in behalf of the corporation under the circumstances";3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank president and attached to the Petition identifies the action as a "derivative suit," it "does not mean that it is one" and "(t)hat is a legal question for the courts to decide";4) Petitioners did not hide the Second Case at they mentioned it in the said VERIFICATION/CERTIFICATION.

We rule for private respondent.To begin with, forum-shopping originated as a concept in private international law.12, where non-resident litigants are given the option to choose the forum or place wherein to bring their suit for various reasons or excuses, including to secure procedural advantages, to annoy and harass the defendant, to avoid overcrowded dockets, or to select a more friendly venue. To combat these less than honorable excuses, the principle of forum non conveniens was developed whereby a court, in conflicts of law cases, may refuse impositions on its jurisdiction where it is not the most "convenient" or available forum and the parties are not precluded from seeking remedies elsewhere.In this light, Black's Law Dictionary 13 says that forum shopping "occurs when a party attempts to have his action tried in a particular court or jurisdiction where he feels he will receive the most favorable judgment or verdict." Hence, according to Words and Phrases14, "a litigant is open to the charge of "forum shopping" whenever he chooses a forum with slight connection to factual circumstances surrounding his suit, and litigants should be encouraged to attempt to settle their differences without imposing undue expenses and vexatious situations on the courts".In the Philippines, forum shopping has acquired a connotation encompassing not only a choice of venues, as it was originally understood in conflicts of laws, but also to a choice of remedies. As to the first (choice of venues), the Rules of Court, for example, allow a plaintiff to commence personal actions "where the defendant or any of the defendants resides or may be found, or where the plaintiff or any of the plaintiffs resides, at the election of the plaintiff" (Rule 4, Sec, 2 [b]). As to remedies, aggrieved parties, for example, are given a choice of pursuing civil liabilities independently of the criminal, arising from the same set of facts. A passenger of a public utility vehicle involved in a vehicular accident may sue on culpa contractual, culpa aquiliana or culpa criminal — each remedy being available independently of the others — although he cannot recover more than once.

In either of these situations (choice of venue or choice of remedy), the litigant actually shops for a forum of his action, This was the original concept of the term forum shopping.Eventually, however, instead of actually making a choice of the forum of their actions, litigants, through the encouragement of their lawyers, file their actions in all available courts, or invoke all relevant remedies simultaneously. This practice had not only resulted to (sic) conflicting adjudications among different courts and consequent confusion enimical (sic) to an orderly administration of justice. It had created extreme inconvenience to some of the parties to the action.Thus, "forum shopping" had acquired a different concept — which is unethical professional legal practice. And this necessitated or had given rise to the formulation of rules and canons discouraging or altogether prohibiting the practice. 15

What therefore originally started both in conflicts of laws and in our domestic law as a legitimate device for solving problems has been abused and mis-used to assure scheming litigants of dubious reliefs.To avoid or minimize this unethical practice of subverting justice, the Supreme Court, as already mentioned, promulgated Circular 28-91. And even before that, the Court had prescribed it in the Interim Rules and Guidelines issued on January 11, 1983 and had struck down in several cases 16 the inveterate use of this insidious malpractice. Forum shopping as "the filing of repetitious suits in different courts" has been condemned by Justice Andres R. Narvasa (now Chief Justice) in Minister of Natural Resources, et al., vs. Heirs of Orval Hughes, et al., "as a reprehensible manipulation of court processes and proceedings . . ." 17 when does forum shopping take place?

There is forum-shopping whenever, as a result of an adverse opinion in one forum, a party seeks a favorable opinion (other than by appeal or certiorari) in another. The principle applies not only with respect to suits filed in the courts but also in connection with litigations commenced in the courts while an administrative proceeding is pending, as in this case, in order to defeat administrative processes and in anticipation of an unfavorable administrative ruling and a favorable court ruling. This is specially so, as in this case, where the court in which the second suit was brought, has no jurisdiction.18

The test for determining whether a party violated the rule against forum shopping has been laid dawn in the 1986 case of Buan vs. Lopez 19, also by Chief Justice Narvasa, and that is, forum shopping exists where the elements of litis pendentia are present or where a final judgment in one case will amount to res judicata in the other, as follows:

There thus exists between the action before this Court and RTC Case No. 86-36563 identity of parties, or at least such parties as represent the same interests in both actions, as well as identity of rights asserted and relief prayed for, the relief being founded on the same facts, and the identity on the two preceding particulars is such that any judgment rendered in the other action, will, regardless of which party is successful, amount to res adjudicata in the action under consideration: all the requisites, in fine, of auter action pendant.

xxx       xxx       xxxAs already observed, there is between the action at bar and RTC Case No. 86-36563, an identity as regards parties, or interests represented, rights asserted and relief sought, as well as basis thereof, to a degree sufficient to give rise to the ground for dismissal known as auter action pendant or lis pendens. That same identity puts into operation the sanction of twin dismissals just mentioned. The application of this sanction will prevent any further delay in the settlement of the controversy which might ensue from attempts to seek reconsideration of or to appeal from the Order of the Regional Trial Court in Civil Case No. 86-36563 promulgated on July 15, 1986, which dismissed the petition upon grounds which appear persuasive.

Consequently, where a litigant (or one representing the same interest or person) sues the same party against whom another action or actions for the alleged violation of the same right and the enforcement of the same relief is/are still pending, the defense of litis pendencia in one case is bar to the others; and, a final judgment in one would constitute res judicata and thus would cause the dismissal of the rest. In either case, forum shopping could be cited by the other party as a ground to

ask for summary dismissal of the two 20 (or more) complaints or petitions, and for imposition of the other sanctions, which are direct contempt of court, criminal prosecution, and disciplinary action against the erring lawyer.Applying the foregoing principles in the case before us and comparing it with the Second Case, it is obvious that there exist identity of parties or interests represented, identity of rights or causes and identity of reliefs sought.Very simply stated, the original complaint in the court a quo which gave rise to the instant petition was filed by the buyer (herein private respondent and his predecessors-in-interest) against the seller (herein petitioners) to enforce the alleged perfected sale of real estate. On the other hand, the complaint 21 in the Second Case seeks to declare such purported sale involving the same real property "as unenforceable as against the Bank", which is the petitioner herein. In other words, in the Second Case, the majority stockholders, in representation of the Bank, are seeking to accomplish what the Bank itself failed to do in the original case in the trial court. In brief, the objective or the relief being sought, though worded differently, is the same, namely, to enable the petitioner Bank to escape from the obligation to sell the property to respondent. In Danville Maritime, Inc. vs. Commission on Audit. 22, this Court ruled that the filing by a party of two apparently different actions, but with the same objective, constituted forum shopping:

In the attempt to make the two actions appear to be different, petitioner impleaded different respondents therein — PNOC in the case before the lower court and the COA in the case before this Court and sought what seems to be different reliefs. Petitioner asks this Court to set aside the questioned letter-directive of the COA dated October 10, 1988 and to direct said body to approve the Memorandum of Agreement entered into by and between the PNOC and petitioner, while in the complaint before the lower court petitioner seeks to enjoin the PNOC from conducting a rebidding and from selling to other parties the vessel "T/T Andres Bonifacio", and for an extension of time for it to comply with the paragraph 1 of the memorandum of agreement and damages. One can see that although the relief prayed for in the two (2) actions are ostensibly different, the ultimate objective in both actions is the same, that is, approval of the sale of vessel in favor of petitioner and to overturn the letter-directive of the COA of October 10, 1988 disapproving the sale. (emphasis supplied).

In an earlier case 23 but with the same logic and vigor, we held:In other words, the filing by the petitioners of the instant special civil action for certiorari and prohibition in this Court despite the pendency of their action in the Makati Regional Trial Court, is a species of forum-shopping. Both actions unquestionably involve the same transactions, the same essential facts and circumstances. The petitioners' claim of absence of identity simply because the PCGG had not been impleaded in the RTC suit, and the suit did not involve certain acts which transpired after its commencement, is specious. In the RTC action, as in the action before this Court, the validity of the contract to purchase and sell of September 1, 1986, i.e., whether or not it had been efficaciously rescinded, and the propriety of implementing the same (by paying the pledgee banks the amount of their loans, obtaining the release of the pledged shares, etc.) were the basic issues. So, too, the relief was the same: the prevention of such implementation and/or the restoration of the status quo ante. When the acts sought to be restrained took place anyway despite the issuance by the Trial Court of a temporary restraining order, the RTC suit did not become functus oficio. It remained an effective vehicle for obtention of relief; and petitioners' remedy in the premises was plain and patent: the filing of an amended and supplemental pleading in the RTC suit, so as to include the PCGG as defendant and seek nullification of the acts sought to be enjoined but nonetheless done. The remedy was certainly not the institution of another action in another forum based on essentially the same facts, The adoption of this latter recourse renders the petitioners amenable to disciplinary action and both their actions, in this Court as well as in the Court a quo, dismissible.

In the instant case before us, there is also identity of parties, or at least, of interests represented. Although the plaintiffs in the Second Case (Henry L. Co. et al.) are not name parties in the First Case, they represent the same interest and entity, namely, petitioner Bank, because:Firstly, they are not suing in their personal capacities, for they have no direct personal interest in the matter in controversy. They are not principally or even subsidiarily liable; much less are they direct parties in the assailed contract of sale; andSecondly, the allegations of the complaint in the Second Case show that the stockholders are bringing a "derivative suit". In the caption itself, petitioners claim to have brought suit "for and in behalf of the Producers Bank of the Philippines" 24. Indeed, this is the very essence of a derivative suit:

An individual stockholder is permitted to institute a derivative suit on behalf of the corporation wherein he holdsstock in order to protect or vindicate corporate rights, whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold the control of the corporation. In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party in interest. (Gamboa v. Victoriano, 90 SCRA 40, 47 [1979]; emphasis supplied).

In the face of the damaging admissions taken from the complaint in the Second Case, petitioners, quite strangely, sought to deny that the Second Case was a derivative suit, reasoning that it was brought, not by the minority shareholders, but by Henry Co et al., who not only own, hold or control over 80% of the outstanding capital stock, but also constitute the majority in the Board of Directors of petitioner Bank. That being so, then they really represent the Bank. So, whether they sued "derivatively" or directly, there is undeniably an identity of interests/entity represented.Petitioner also tried to seek refuge in the corporate fiction that the personality Of the Bank is separate and distinct from its shareholders. But the rulings of this Court are consistent: "When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals." 25

In addition to the many cases 26 where the corporate fiction has been disregarded, we now add the instant case, and declare herewith that the corporate veil cannot be used to shield an otherwise blatant violation of the prohibition against forum-shopping. Shareholders, whether suing as the majority in direct actions or as the minority in a derivative suit, cannot be allowed to trifle with court processes, particularly where, as in this case, the corporation itself has not been remiss in vigorously prosecuting or defending corporate causes and in using and applying remedies available to it. To rule otherwise would be to encourage corporate litigants to use their shareholders as fronts to circumvent the stringent rules against forum shopping.Finally, petitioner Bank argued that there cannot be any forum shopping, even assuming arguendo that there is identity of parties, causes of action and reliefs sought, "because it (the Bank) was the defendant in the (first) case while it was the plaintiff in the other (Second Case)",citing as authority Victronics Computers, Inc., vs. Regional Trial Court, Branch 63, Makati, etc. et al., 27 where Court held:

The rule has not been extended to a defendant who, for reasons known only to him, commences a new action against the plaintiff — instead of filing a responsive pleading in the other case — setting forth therein, as causes of action, specific denials, special and affirmative defenses or even counterclaims, Thus, Velhagen's and King's motion to dismiss Civil Case No. 91-2069 by no means negates the charge of forum-shopping as such did not exist in the first place. (emphasis supplied)

Petitioner pointed out that since it was merely the defendant in the original case, it could not have chosen the forum in said case.Respondent, on the other hand, replied that there is a difference in factual setting between Victronics and the present suit. In the former, as underscored in the above-quoted Court ruling, the defendants did not file any responsive pleading in the first case. In other words, they did not make any denial or

raise any defense or counter-claim therein In the case before us however, petitioners filed a responsive pleading to the complaint — as a result of which, the issues were joined.Indeed, by praying for affirmative reliefs and interposing counter–claims in their responsive pleadings, the petitioners became plaintiffs themselves in the original case, giving unto themselves the very remedies they repeated in the Second Case.Ultimately, what is truly important to consider in determining whether forum-shopping exists or not is the vexation caused the courts and parties-litigant by a party who asks different courts and/or administrative agencies to rule on the same or related causes and/or to grant the same or substantially the same reliefs, in the process creating the possibility of conflicting decisions being rendered by the different fora upon the same issue. In this case, this is exactly the problem: a decision recognizing the perfection and directing the enforcement of the contract of sale will directly conflict with a possible decision in the Second Case barring the parties front enforcing or implementing the said sale. Indeed, a final decision in one would constitute res judicata in the other 28.The foregoing conclusion finding the existence of forum-shopping notwithstanding, the only sanction possible now is the dismissal of both cases with prejudice, as the other sanctions cannot be imposed because petitioners' present counsel entered their appearance only during the proceedings in this Court, and the Petition's VERIFICATION/CERTIFICATION contained sufficient allegations as to the pendency of the Second Case to show good faith in observing Circular 28-91. The Lawyers who filed the Second Case are not before us; thus the rudiments of due process prevent us from motu propio imposing disciplinary measures against them in this Decision. However, petitioners themselves (and particularly Henry Co, et al.) as litigants are admonished to strictly follow the rules against forum-shopping and not to trifle with court proceedings and processes They are warned that a repetition of the same will be dealt with more severely.Having said that, let it be emphasized that this petition should be dismissed not merely because of forum-shopping but also because of the substantive issues raised, as will be discussed shortly.

The Second Issue: Was The Contract Perfected?The respondent Court correctly treated the question of whether or not there was, on the basis of the facts established, a perfected contract of sale as the ultimate issue. Holding that a valid contract has been established, respondent Court stated:

There is no dispute that the object of the transaction is that property owned by the defendant bank as acquired assets consisting of six (6) parcels of land specifically identified under Transfer Certificates of Title Nos. T-106932 to T-106937. It is likewise beyond cavil that the bank intended to sell the property. As testified to by the Bank's Deputy Conservator, Jose Entereso, the bank was looking for buyers of the property. It is definite that the plaintiffs wanted to purchase the property and it was precisely for this purpose that they met with defendant Rivera, Manager of the Property Management Department of the defendant bank, in early August 1987. The procedure in the sale of acquired assets as well as the nature and scope of the authority of Rivera on the matter is clearly delineated in the testimony of Rivera himself, which testimony was relied upon by both the bank and by Rivera in their appeal briefs. Thus (TSN of July 30, 1990. pp. 19-20):

A: The procedure runs this way: Acquired assets was turned over to me and then I published it in the form of an inter-office memorandum distributed to all branches that these are acquired assets for sale. I was instructed to advertise acquired assets for sale so on that basis, I have to entertain offer; to accept offer, formal offer and upon having been offered, I present it to the Committee. I provide the Committee with necessary information about the property such as original loan of the borrower, bid price during the foreclosure, total claim of the bank, the appraised value at the time the property is being offered for sale and then the information which are relative to the evaluation of the bank to buy which the Committee considers and it is the Committee that evaluate as against the exposure of the bank and it is also the Committee that submit to the Conservator for final approval and once approved, we have to execute the deed of sale and it is the Conservator that sign the deed of sale, sir.

The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of buying the property, dealt with and talked to the right person. Necessarily, the agenda was the price of the property, and plaintiffs were dealing with the bank official authorized to entertain offers, to accept offers and to present the offer to the Committee before which the said official is authorized to discuss information relative to price determination. Necessarily, too, it being inherent in his authority, Rivera is the officer from whom official information regarding the price, as determined by the Committee and approved by the Conservator, can be had. And Rivera confirmed his authority when he talked with the plaintiff in August 1987. The testimony of plaintiff Demetria is clear on this point (TSN of May 31,1990, pp. 27-28):

Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did you ask him point-blank his authority to sell any property?A: No, sir. Not point blank although it came from him, (W)hen I asked him how long it would take because he was saying that the matter of pricing will be passed upon by the committee. And when I asked him how long it will take for the committee to decide and he said the committee meets every week. If I am not mistaken Wednesday and in about two week's (sic) time, in effect what he was saying he was not the one who was to decide. But he would refer it to the committee and he would relay the decision of the committee to me.Q — Please answer the question.A — He did not say that he had the authority (.) But he said he would refer the matter to the committee and he would relay the decision to me and he did just like that.

"Parenthetically, the Committee referred to was the Past Due Committee of which Luis Co was the Head, with Jose Entereso as one of the members.What transpired after the meeting of early August 1987 are consistent with the authority and the duties of Rivera and the bank's internal procedure in the matter of the sale of bank's assets. As advised by Rivera, the plaintiffs made a formal offer by a letter dated August 20, 1987 stating that they would buy at the price of P3.5 Million in cash. The letter was for the attention of Mercurio Rivera who was tasked to convey and accept such offers. Considering an aspect of the official duty of Rivera as some sort of intermediary between the plaintiffs-buyers with their proposed buying price on one hand, and the bank Committee, the Conservator and ultimately the bank itself with the set price on the other, and considering further the discussion of price at the meeting of August resulting in a formal offer of P3.5 Million in cash, there can be no other logical conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by letter that "the bank's counter-offer is at P5.5 Million for more than 101 hectares on lot basis," such counter-offer price had been determined by the Past Due Committee and approved by the Conservator after Rivera had duly presented plaintiffs' offer for discussion by the Committee of such matters as original loan of borrower, bid price during foreclosure, total claim of the bank, and market value. Tersely put, under the established facts, the price of P5.5 Million was, as clearly worded in Rivera's letter (Exh. "E"), the official and definitive price at which the bank was selling the property.There were averments by defendants below, as well as before this Court, that the P5.5 Million price was not discussed by the Committee and that price. As correctly characterized by the trial court, this is not credible. The testimonies of Luis Co and Jose Entereso on this point are at best equivocal and considering the gratuitous and self-serving character of these declarations, the bank's submission on this point does not inspire belief. Both Co ad Entereso, as members of the Past Due Committee of the bank, claim that the offer of the plaintiff was never discussed by the Committee. In the same vein, both Co and Entereso openly admit that they seldom attend the meetings of the Committee. It is important to note that negotiations on the price had started in early August and the plaintiffs had already offered an amount as purchase price, having been made to understand by Rivera, the official in charge of the negotiation, that the price will be submitted for approval by the bank and that the bank's decision will be relayed to plaintiffs. From the facts, the official bank price. At any rate, the

bank placed its official, Rivera, in a position of authority to accept offers to buy and negotiate the sale by having the offer officially acted upon by the bank. The bank cannot turn around and later say, as it now does, that what Rivera states as the bank's action on the matter is not in fact so. It is a familiar doctrine, the doctrine of ostensible authority, that if a corporation knowingly permits one of its officers, or any other agent, to do acts within the scope of an apparent authority, and thus holds him out to the public as possessing power to do those acts, the corporation will, as against any one who has in good faith dealt with the corporation through such agent, he estopped from denying his authority (Francisco v. GSIS, 7 SCRA 577, 583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370; Prudential Bank v. Court of Appeals, G.R. No. 103957, June 14, 1993). 29

Article 1318 of the Civil Code enumerates the requisites of a valid and perfected contract as follows: "(1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established."There is no dispute on requisite no. 2. The object of the questioned contract consists of the six (6) parcels of land in Sta. Rosa, Laguna with an aggregate area of about 101 hectares, more or less, and covered by Transfer Certificates of Title Nos. T-106932 to T-106937. There is, however, a dispute on the first and third requisites.Petitioners allege that "there is no counter-offer made by the Bank, and any supposed counter-offer which Rivera (or Co) may have made is unauthorized. Since there was no counter-offer by the Bank, there was nothing for Ejercito (in substitution of Demetria and Janolo) to accept." 30 They disputed the factual basis of the respondent Court's findings that there was an offer made by Janolo for P3.5 million, to which the Bank counter-offered P5.5 million. We have perused the evidence but cannot find fault with the said Court's findings of fact. Verily, in a petition under Rule 45 such as this, errors of fact — if there be any - are, as a rule, not reviewable. The mere fact that respondent Court (and the trial court as well) chose to believe the evidence presented by respondent more than that presented by petitioners is not by itself a reversible error. In fact, such findings merit serious consideration by this Court, particularly where, as in this case, said courts carefully and meticulously discussed their findings. This is basic.Be that as it may, and in addition to the foregoing disquisitions by the Court of Appeals, let us review the question of Rivera's authority to act and petitioner's allegations that the P5.5 million counter-offer was extinguished by the P4.25 million revised offer of Janolo. Here, there are questions of law which could be drawn from the factual findings of the respondent Court. They also delve into the contractual elements of consent and cause.The authority of a corporate officer in dealing with third persons may be actual or apparent. The doctrine of "apparent authority", with special reference to banks, was laid out in Prudential Bank vs. Court of Appeals31, where it was held that:

Conformably, we have declared in countless decisions that the principal is liable for obligations contracted by the agent. The agent's apparent representation yields to the principal's true representation and the contract is considered as entered into between the principal and the third person (citing National Food Authority vs. Intermediate Appellate Court, 184 SCRA 166).

A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings of the officers in their representative capacity but not for acts outside the scape of their authority (9 C.J.S., p. 417). A bank holding out its officers and agents as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds even though no benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021).

Application of these principles is especially necessary because banks have a fiduciary relationship with the public and their stability depends on the confidence of the people in their honesty and efficiency. Such faith will be eroded where banks do not exercise strict care in the selection and supervision of its employees, resulting in prejudice to their depositors.

From the evidence found by respondent Court, it is obvious that petitioner Rivera has apparent or implied authority to act for the Bank in the matter of selling its acquired assets. This evidence includes the following:

(a) The petition itself in par. II-i (p. 3) states that Rivera was "at all times material to this case, Manager of the Property Management Department of the Bank". By his own admission, Rivera was already the person in charge of the Bank's acquired assets (TSN, August 6, 1990, pp. 8-9);(b) As observed by respondent Court, the land was definitely being sold by the Bank. And during the initial meeting between the buyers and Rivera, the latter suggested that the buyers' offer should be no less than P3.3 million (TSN, April 26, 1990, pp. 16-17);(c) Rivera received the buyers' letter dated August 30, 1987 offering P3.5 million (TSN, 30 July 1990, p.11);(d) Rivera signed the letter dated September 1, 1987 offering to sell the property for P5.5 million (TSN, July 30, p. 11);(e) Rivera received the letter dated September 17, 1987 containing the buyers' proposal to buy the property for P4.25 million (TSN, July 30, 1990, p. 12);(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final price of the Bank (TSN, January 16, 1990, p. 18);(g) Rivera arranged the meeting between the buyers and Luis Co on September 28, 1994, during which the Bank's offer of P5.5 million was confirmed by Rivera (TSN, April 26, 1990, pp. 34-35). At said meeting, Co, a major shareholder and officer of the Bank, confirmed Rivera's statement as to the finality of the Bank's counter-offer of P5.5 million (TSN, January 16, 1990, p. 21; TSN, April 26, 1990, p. 35);(h) In its newspaper advertisements and announcements, the Bank referred to Rivera as the officer acting for the Bank in relation to parties interested in buying assets owned/acquired by the Bank. In fact, Rivera was the officer mentioned in the Bank's advertisements offering for sale the property in question (cf. Exhs. "S" and "S-1").

In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et. al.32, the Court, through Justice Jose A. R. Melo, affirmed the doctrine of apparent authority as it held that the apparent authority of the officer of the Bank of P.I. in charge of acquired assets is borne out by similar circumstances surrounding his dealings with buyers.To be sure, petitioners attempted to repudiate Rivera's apparent authority through documents and testimony which seek to establish Rivera's actual authority. These pieces of evidence, however, are inherently weak as they consist of Rivera's self-serving testimony and various inter-office memoranda that purport to show his limited actual authority, of which private respondent cannot be charged with knowledge. In any event, since the issue is apparent authority, the existence of which is borne out by the respondent Court's findings, the evidence of actual authority is immaterial insofar as the liability of a corporation is concerned 33.Petitioners also argued that since Demetria and Janolo were experienced lawyers and their "law firm" had once acted for the Bank in three criminal cases, they should be charged with actual knowledge of Rivera's limited authority. But the Court of Appeals in its Decision (p. 12) had already made a factual finding that the buyers had no notice of Rivera's actual authority prior to the sale. In fact, the Bank has not shown that they acted as its counsel in respect to any acquired assets; on the other hand, respondent has proven that Demetria and Janolo merely associated with a loose aggrupation of lawyers (not a professional partnership), one of whose members (Atty. Susana Parker) acted in said criminal cases.Petitioners also alleged that Demetria's and Janolo's P4.25 million counter-offer in the letter dated September 17, 1987 extinguished the Bank's offer of P5.5 million 34 .They disputed the respondent

Court's finding that "there was a meeting of minds when on 30 September 1987 Demetria and Janolo through Annex "L" (letter dated September 30, 1987) "accepted" Rivera's counter offer of P5.5 million under Annex "J" (letter dated September 17, 1987)", citing the late Justice Paras35, Art. 1319 of the Civil Code 36 and related Supreme Court rulings starting with Beaumont vs. Prieto 37.However, the above-cited authorities and precedents cannot apply in the instant case because, as found by the respondent Court which reviewed the testimonies on this point, what was "accepted" by Janolo in his letter dated September 30, 1987 was the Bank's offer of P5.5 million as confirmed and reiterated to Demetria and Atty. Jose Fajardo by Rivera and Co during their meeting on September 28, 1987. Note that the said letter of September 30, 1987 begins with"(p)ursuant to our discussion last 28 September 1987 . . .Petitioners insist that the respondent Court should have believed the testimonies of Rivera and Co that the September 28, 1987 meeting "was meant to have the offerors improve on their position of P5.5. million."38 However, both the trial court and the Court of Appeals found petitioners' testimonial evidence "not credible", and we find no basis for changing this finding of fact.Indeed, we see no reason to disturb the lower courts' (both the RTC and the CA) common finding that private respondents' evidence is more in keeping with truth and logic — that during the meeting on September 28, 1987, Luis Co and Rivera "confirmed that the P5.5 million price has been passed upon by the Committee and could no longer be lowered (TSN of April 27, 1990, pp. 34-35)"39. Hence, assuming arguendo that the counter-offer of P4.25 million extinguished the offer of P5.5 million, Luis Co's reiteration of the said P5.5 million price during the September 28, 1987 meeting revived the said offer. And by virtue of the September 30, 1987 letter accepting this revived offer, there was a meeting of the minds, as the acceptance in said letter was absolute and unqualified.We note that the Bank's repudiation, through Conservator Encarnacion, of Rivera's authority and action, particularly the latter's counter-offer of P5.5 million, as being "unauthorized and illegal" came only on May 12, 1988 or more than seven (7) months after Janolo' acceptance. Such delay, and the absence of any circumstance which might have justifiably prevented the Bank from acting earlier, clearly characterizes the repudiation as nothing more than a last-minute attempt on the Bank's part to get out of a binding contractual obligation.Taken together, the factual findings of the respondent Court point to an implied admission on the part of the petitioners that the written offer made on September 1, 1987 was carried through during the meeting of September 28, 1987. This is the conclusion consistent with human experience, truth and good faith.It also bears noting that this issue of extinguishment of the Bank's offer of P5.5 million was raised for the first time on appeal and should thus be disregarded.

This Court in several decisions has repeatedly adhered to the principle that points of law, theories, issues of fact and arguments not adequately brought to the attention of the trial court need not be, and ordinarily will not be, considered by a reviewing court, as they cannot be raised for the first time on appeal (Santos vs. IAC, No. 74243, November 14, 1986, 145 SCRA 592).40

. . . It is settled jurisprudence that an issue which was neither averred in the complaint nor raised during the trial in the court below cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process (Dihiansan vs. CA, 153 SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA 434 [1987]; Dulos Realty & Development Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs. IAC, 175 SCRA 70 [1989]; Gevero vs. IAC, G.R. 77029, August 30, 1990).41

Since the issue was not raised in the pleadings as an affirmative defense, private respondent was not given an opportunity in the trial court to controvert the same through opposing evidence. Indeed, this is a matter of due process. But we passed upon the issue anyway, if only to avoid deciding the case on purely procedural grounds, and we repeat that, on the basis of the evidence already in the record and as appreciated by the lower courts, the inevitable conclusion is simply that there was a perfected contract of sale.

The Third Issue: Is the Contract Enforceable?

The petition alleged42:Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million during the meeting of 28 September 1987, and it was this verbal offer that Demetria and Janolo accepted with their letter of 30 September 1987, the contract produced thereby would be unenforceable by action — there being no note, memorandum or writing subscribed by the Bank to evidence such contract. (Please see article 1403[2], Civil Code.)

Upon the other hand, the respondent Court in its Decision (p, 14) stated:. . . Of course, the bank's letter of September 1, 1987 on the official price and the plaintiffs' acceptance of the price on September 30, 1987, are not, in themselves, formal contracts of sale. They are however clear embodiments of the fact that a contract of sale was perfected between the parties, such contract being binding in whatever form it may have been entered into (case citations omitted). Stated simply, the banks' letter of September 1, 1987, taken together with plaintiffs' letter dated September 30, 1987, constitute in law a sufficient memorandum of a perfected contract of sale.

The respondent Court could have added that the written communications commenced not only from September 1, 1987 but from Janolo's August 20, 1987 letter. We agree that, taken together, these letters constitute sufficient memoranda — since they include the names of the parties, the terms and conditions of the contract, the price and a description of the property as the object of the contract.But let it be assumed arguendo that the counter-offer during the meeting on September 28, 1987 did constitute a "new" offer which was accepted by Janolo on September 30, 1987. Still, the statute of frauds will not apply by reason of the failure of petitioners to object to oral testimony proving petitioner Bank's counter-offer of P5.5 million. Hence, petitioners — by such utter failure to object — are deemed to have waived any defects of the contract under the statute of frauds, pursuant to Article 1405 of the Civil Code:

Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefits under them.

As private respondent pointed out in his Memorandum, oral testimony on the reaffirmation of the counter-offer of P5.5 million is a plenty — and the silence of petitioners all throughout the presentation makes the evidence binding on them thus;

A Yes, sir, I think it was September 28, 1987 and I was again present because Atty. Demetria told me to accompany him we were able to meet Luis Co at the Bank.

xxx       xxx       xxxQ Now, what transpired during this meeting with Luis Co of the Producers Bank?A Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.Q What price?A The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio Rivera is the final price and that is the price they intends (sic) to have, sir.Q What do you mean?.A That is the amount they want, sir.Q What is the reaction of the plaintiff Demetria to Luis Co's statement (sic) that the defendant Rivera's counter-offer of 5.5 million was the defendant's bank (sic) final offer?A He said in a day or two, he will make final acceptance, sir.Q What is the response of Mr. Luis Co?.A He said he will wait for the position of Atty. Demetria, sir.

[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]Q What transpired during that meeting between you and Mr. Luis Co of the defendant Bank?A We went straight to the point because he being a busy person, I told him if the amount of P5.5 million could still be reduced and he said that was already passed upon by the committee. What the bank expects which was contrary to what Mr. Rivera stated. And he told me that is the final offer of the bank P5.5 million and we should indicate our position as soon as possible.

Q What was your response to the answer of Mr. Luis Co?A I said that we are going to give him our answer in a few days and he said that was it. Atty. Fajardo and I and Mr. Mercurio [Rivera] was with us at the time at his office.Q For the record, your Honor please, will you tell this Court who was with Mr. Co in his Office in Producers Bank Building during this meeting?A Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.Q By Mr. Co you are referring to?A Mr. Luis Co.Q After this meeting with Mr. Luis Co, did you and your partner accede on (sic) the counter offer by the bank?A Yes, sir, we did.? Two days thereafter we sent our acceptance to the bank which offer we accepted, the offer of the bank which is P5.5 million.

[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]Q According to Atty. Demetrio Demetria, the amount of P5.5 million was reached by the Committee and it is not within his power to reduce this amount. What can you say to that statement that the amount of P5.5 million was reached by the Committee?A It was not discussed by the Committee but it was discussed initially by Luis Co and the group of Atty. Demetrio Demetria and Atty. Pajardo (sic) in that September 28, 1987 meeting, sir.

[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]The Fourth Issue: May the Conservator Revoke

the Perfected and Enforceable Contract.It is not disputed that the petitioner Bank was under a conservator placed by the Central Bank of the Philippines during the time that the negotiation and perfection of the contract of sale took place. Petitioners energetically contended that the conservator has the power to revoke or overrule actions of the management or the board of directors of a bank, under Section 28-A of Republic Act No. 265 (otherwise known as the Central Bank Act) as follows:

Whenever, on the basis of a report submitted by the appropriate supervising or examining department, the Monetary Board finds that a bank or a non-bank financial intermediary performing quasi-banking functions is in a state of continuing inability or unwillingness to maintain a state of liquidity deemed adequate to protect the interest of depositors and creditors, the Monetary Board may appoint a conservator to take charge of the assets, liabilities, and the management of that institution, collect all monies and debts due said institution and exercise all powers necessary to preserve the assets of the institution, reorganize the management thereof, and restore its viability. He shall have the power to overrule or revoke the actions of the previous management and board of directors of the bank or non-bank financial intermediary performing quasi-banking functions, any provision of law to the contrary notwithstanding, and such other powers as the Monetary Board shall deem necessary.

In the first place, this issue of the Conservator's alleged authority to revoke or repudiate the perfected contract of sale was raised for the first time in this Petition — as this was not litigated in the trial court or Court of Appeals. As already stated earlier, issues not raised and/or ventilated in the trial court, let alone in the Court of Appeals, "cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due process."43

In the second place, there is absolutely no evidence that the Conservator, at the time the contract was perfected, actually repudiated or overruled said contract of sale. The Bank's acting conservator at the time, Rodolfo Romey, never objected to the sale of the property to Demetria and Janolo. What petitioners are really referring to is the letter of Conservator Encarnacion, who took over from Romey after the sale was perfected on September 30, 1987 (Annex V, petition) which unilaterally repudiated — not the contract — but the authority of Rivera to make a binding offer — and which unarguably came months after the perfection of the contract. Said letter dated May 12, 1988 is reproduced hereunder:

May 12, 1988Atty. Noe C. ZarateZarate Carandang Perlas & Ass.Suite 323 Rufino BuildingAyala Avenue, Makati, Metro-ManilaDear Atty. Zarate:This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and Demetria regarding the six (6) parcels of land located at Sta. Rosa, Laguna.We deny that Producers Bank has ever made a legal counter-offer to any of your clients nor perfected a "contract to sell and buy" with any of them for the following reasons.In the "Inter-Office Memorandum" dated April 25, 1986 addressed to and approved by former Acting Conservator Mr. Andres I. Rustia, Producers Bank Senior Manager Perfecto M. Pascua detailed the functions of Property Management Department (PMD) staff and officers (Annex A.), you will immediately read that Manager Mr. Mercurio Rivera or any of his subordinates has no authority, power or right to make any alleged counter-offer. In short, your lawyer-clients did not deal with the authorized officers of the bank.Moreover, under Sec. 23 and 36 of the Corporation Code of the Philippines (Bates Pambansa Blg. 68.) and Sec. 28-A of the Central Bank Act (Rep. Act No. 265, as amended), only the Board of Directors/Conservator may authorize the sale of any property of the corportion/bank..Our records do not show that Mr. Rivera was authorized by the old board or by any of the bank conservators (starting January, 1984) to sell the aforesaid property to any of your clients. Apparently, what took place were just preliminary discussions/consultations between him and your clients, which everyone knows cannot bind the Bank's Board or Conservator.We are, therefore, constrained to refuse any tender of payment by your clients, as the same is patently violative of corporate and banking laws. We believe that this is more than sufficient legal justification for refusing said alleged tender.Rest assured that we have nothing personal against your clients. All our acts are official, legal and in accordance with law. We also have no personal interest in any of the properties of the Bank.Please be advised accordingly.Very truly yours,(Sgd.) Leonida T. EncarnacionLEONIDA T. EDCARNACIONActing Conservator

In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers to the conservator of a bank, it must be pointed out that such powers must be related to the "(preservation of) the assets of the bank, (the reorganization of) the management thereof and (the restoration of) its viability." Such powers, enormous and extensive as they are, cannot extend to the post-facto repudiation of perfected transactions, otherwise they would infringe against the non-impairment clause of the Constitution 44. If the legislature itself cannot revoke an existing valid contract, how can it delegate such non-existent powers to the conservator under Section 28-A of said law?Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are, under existing law, deemed to be defective — i.e., void, voidable, unenforceable or rescissible. Hence, the conservator merely takes the place of a bank's board of directors. What the said board cannot do — such as repudiating a contract validly entered into under the doctrine of implied authority — the conservator cannot do either. Ineluctably, his power is not unilateral and he cannot simply repudiate valid obligations of the Bank. His authority would be only to bring court actions to assail such contracts — as he has already done so in the instant case. A contrary understanding of the law would simply not be permitted by the Constitution. Neither by common sense. To rule otherwise would be to enable a failing bank to become solvent, at the expense of third parties, by simply getting the conservator to unilaterally revoke all previous dealings which had one way or another or come to

be considered unfavorable to the Bank, yielding nothing to perfected contractual rights nor vested interests of the third parties who had dealt with the Bank.

The Fifth Issue: Were There Reversible Errors of Facts?Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court, findings of fact by the Court of Appeals are not reviewable by the Supreme Court. In Andres vs. Manufacturers Hanover & Trust Corporation, 45, we held:

. . . The rule regarding questions of fact being raised with this Court in a petition for certiorari under Rule 45 of the Revised Rules of Court has been stated in Remalante vs. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus:The rule in this jurisdiction is that only questions of law may be raised in a petition for certiorari under Rule 45 of the Revised Rules of Court. "The jurisdiction of the Supreme Court in cases brought to it from the Court of Appeals is limited to reviewing and revising the errors of law imputed to it, its findings of the fact being conclusive " [Chan vs. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737, reiterating a long line of decisions]. This Court has emphatically declared that "it is not the function of the Supreme Court to analyze or weigh such evidence all over again, its jurisdiction being limited to reviewing errors of law that might have been committed by the lower court" (Tiongco v. De la Merced, G. R. No. L-24426, July 25, 1974, 58 SCRA 89; Corona vs. Court of Appeals, G.R. No. L-62482, April 28, 1983, 121 SCRA 865; Baniqued vs. Court of Appeals, G. R. No. L-47531, February 20, 1984, 127 SCRA 596). "Barring, therefore, a showing that the findings complained of are totally devoid of support in the record, or that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings must stand, for this Court is not expected or required to examine or contrast the oral and documentary evidence submitted by the parties" [Santa Ana, Jr. vs. Hernandez, G. R. No. L-16394, December 17, 1966, 18 SCRA 973] [at pp. 144-145.]

Likewise, in Bernardo vs. Court of Appeals 46, we held:The resolution of this petition invites us to closely scrutinize the facts of the case, relating to the sufficiency of evidence and the credibility of witnesses presented. This Court so held that it is not the function of the Supreme Court to analyze or weigh such evidence all over again. The Supreme Court's jurisdiction is limited to reviewing errors of law that may have been committed by the lower court. The Supreme Court is not a trier of facts. . . .

As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock Construction and Development Corp. 47:

The Court has consistently held that the factual findings of the trial court, as well as the Court of Appeals, are final and conclusive and may not be reviewed on appeal. Among the exceptional circumstances where a reassessment of facts found by the lower courts is allowed are when the conclusion is a finding grounded entirely on speculation, surmises or conjectures; when the inference made is manifestly absurd, mistaken or impossible; when there is grave abuse of discretion in the appreciation of facts; when the judgment is premised on a misapprehension of facts; when the findings went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee. After a careful study of the case at bench, we find none of the above grounds present to justify the re-evaluation of the findings of fact made by the courts below.

In the same vein, the ruling of this Court in the recent case of South Sea Surety and Insurance Company Inc. vs. Hon. Court of Appeals, et al. 48 is equally applicable to the present case:

We see no valid reason to discard the factual conclusions of the appellate court, . . . (I)t is not the function of this Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties, particularly where, such as here, the findings of both the trial court and the appellate court on the matter coincide. (emphasis supplied)

Petitioners, however, assailed the respondent Court's Decision as "fraught with findings and conclusions which were not only contrary to the evidence on record but have no bases at all," specifically the findings that (1) the "Bank's counter-offer price of P5.5 million had been determined by the past due committee and approved by conservator Romey, after Rivera presented the same for

discussion" and (2) "the meeting with Co was not to scale down the price and start negotiations anew, but a meeting on the already determined price of P5.5 million" Hence, citing Philippine National Bank vs. Court of Appeals 49, petitioners are asking us to review and reverse such factual findings.The first point was clearly passed upon by the Court of Appeals 50, thus:

There can be no other logical conclusion than that when, on September 1, 1987, Rivera informed plaintiffs by letter that "the bank's counter-offer is at P5.5 Million for more than 101 hectares on lot basis, "such counter-offer price had been determined by the Past Due Committee and approved by the Conservator after Rivera had duly presented plaintiffs' offer for discussion by the Committee . . . Tersely put, under the established fact, the price of P5.5 Million was, as clearly worded in Rivera's letter (Exh. "E"), the official and definitive price at which the bank was selling the property. (p. 11, CA Decision)

xxx       xxx       xxx. . . The argument deserves scant consideration. As pointed out by plaintiff, during the meeting of September 28, 1987 between the plaintiffs, Rivera and Luis Co, the senior vice-president of the bank, where the topic was the possible lowering of the price, the bank official refused it and confirmed that the P5.5 Million price had been passed upon by the Committee and could no longer be lowered (TSN of April 27, 1990, pp. 34-35) (p. 15, CA Decision).

The respondent Court did not believe the evidence of the petitioners on this point, characterizing it as "not credible" and "at best equivocal and considering the gratuitous and self-serving character of these declarations, the bank's submissions on this point do not inspire belief."To become credible and unequivocal, petitioners should have presented then Conservator Rodolfo Romey to testify on their behalf, as he would have been in the best position to establish their thesis. Under the rules on evidence 51, such suppression gives rise to the presumption that his testimony would have been adverse, if produced.The second point was squarely raised in the Court of Appeals, but petitioners' evidence was deemed insufficient by both the trial court and the respondent Court, and instead, it was respondent's submissions that were believed and became bases of the conclusions arrived at.In fine, it is quite evident that the legal conclusions arrived at from the findings of fact by the lower courts are valid and correct. But the petitioners are now asking this Court to disturb these findings to fit the conclusion they are espousing, This we cannot do.To be sure, there are settled exceptions where the Supreme Court may disregard findings of fact by the Court of Appeals 52. We have studied both the records and the CA Decision and we find no such exceptions in this case. On the contrary, the findings of the said Court are supported by a preponderance of competent and credible evidence. The inferences and conclusions are seasonably based on evidence duly identified in the Decision. Indeed, the appellate court patiently traversed and dissected the issues presented before it, lending credibility and dependability to its findings. The best that can be said in favor of petitioners on this point is that the factual findings of respondent Court did not correspond to petitioners' claims, but were closer to the evidence as presented in the trial court by private respondent. But this alone is no reason to reverse or ignore such factual findings, particularly where, as in this case, the trial court and the appellate court were in common agreement thereon. Indeed, conclusions of fact of a trial judge — as affirmed by the Court of Appeals — are conclusive upon this Court, absent any serious abuse or evident lack of basis or capriciousness of any kind, because the trial court is in a better position to observe the demeanor of the witnesses and their courtroom manner as well as to examine the real evidence presented.

Epilogue.In summary, there are two procedural issues involved forum-shopping and the raising of issues for the first time on appeal [viz., the extinguishment of the Bank's offer of P5.5 million and the conservator's powers to repudiate contracts entered into by the Bank's officers] — which per se could justify the dismissal of the present case. We did not limit ourselves thereto, but delved as well into the substantive issues — the perfection of the contract of sale and its enforceability, which required the determination of questions of fact. While the Supreme Court is not a trier of facts and as a rule we are not required to look into the factual bases of respondent Court's decisions and resolutions, we did so

just the same, if only to find out whether there is reason to disturb any of its factual findings, for we are only too aware of the depth, magnitude and vigor by which the parties through their respective eloquent counsel, argued their positions before this Court.We are not unmindful of the tenacious plea that the petitioner Bank is operating abnormally under a government-appointed conservator and "there is need to rehabilitate the Bank in order to get it back on its feet . . . as many people depend on (it) for investments, deposits and well as employment. As of June 1987, the Bank's overdraft with the Central Bank had already reached P1.023 billion . . . and there were (other) offers to buy the subject properties for a substantial amount of money." 53

While we do not deny our sympathy for this distressed bank, at the same time, the Court cannot emotionally close its eyes to overriding considerations of substantive and procedural law, like respect for perfected contracts, non-impairment of obligations and sanctions against forum-shopping, which must be upheld under the rule of law and blind justice.This Court cannot just gloss over private respondent's submission that, while the subject properties may currently command a much higher price, it is equally true that at the time of the transaction in 1987, the price agreed upon of P5.5 million was reasonable, considering that the Bank acquired these properties at a foreclosure sale for no more than P3.5 million 54. That the Bank procrastinated and refused to honor its commitment to sell cannot now be used by it to promote its own advantage, to enable it to escape its binding obligation and to reap the benefits of the increase in land values. To rule in favor of the Bank simply because the property in question has algebraically accelerated in price during the long period of litigation is to reward lawlessness and delays in the fulfillment of binding contracts. Certainly, the Court cannot stamp its imprimatur on such outrageous proposition.WHEREFORE, finding no reversible error in the questioned Decision and Resolution, the Court hereby DENIES the petition. The assailed Decision is AFFIRMED. Moreover, petitioner Bank is REPRIMANDED for engaging in forum-shopping and WARNED that a repetition of the same or similar acts will be dealt with more severely. Costs against petitioners.SO ORDERED.Narvasa, C.J., Davide Jr., Melo and Francisco, JJ., concur.

G.R. No. 109373 October 13, 1995PACIFIC BANKING CORPORATION EMPLOYEES ORGANIZATION, PAULA S. PAUG, and its officers and members, petitioners, vs.THE HONORABLE COURT OF APPEALS and VITALIANO N. NAÑAGAS II, as Liquidator of Pacific Banking Corporation, respondents.G.R. No. 112991 October 13, 1995THE PRESIDENT OF THE PHILIPPINE DEPOSIT INSURANCE CORPORATION, as Liquidator of the Pacific Banking Corporation, petitioner, vs.COURT OF APPEALS, HON. JUDGE REGINO T. VERIDIANO II, DEPUTY SHERIFF RAMON ENRIQUEZ and ANG ENG JOO, ANG KEONG LAN and E.J ANG INT'L. LTD., represented by their Attorney-in-fact, GONZALO C. SY, respondents.

R E S O L U T I O N 

MENDOZA, J.:This relates to the Motion to Cite in Contempt, filed by petitioner in G.R. No. 112991, against Judge Regino T. Veridiano II, Deputy Sheriff Carmelo V. Cachero and Atty. Marino E. Eslao in connection with their attempt to execute the Court's decision in this case before its finality.

It appears that just four days after the promulgation of the decision on March 24, 1995, Atty. Marino E. Eslao, counsel for private respondents in G.R. No. 112991, already sent a written request 1 to Deputy Sheriff Carmelo V. Cachero of the Regional Trial Court of Manila, Branch 31, "for the immediate enforcement of the Writ of Execution" issued on October 28, 1992 by respondent Judge Regino T. Veridiano II in Sp. Proc. No. 86-35313 and "to further demand from the depository banks the immediate release of the garnished funds (of the Pacific Banking Corporation or PaBC) sufficient to satisfy the claims" of Atty. Eslao's clients.Acting on the request, the sheriff sent notices to the Land Bank of the Philippines (LBP) and the Philippine National Bank (PNB), depositories of the garnished funds of the PaBC, demanding the immediate release and delivery of the amounts in question.In compliance with the demand, the LBP released on March 29, 1995 the amount of P1,393,178.05, covered by Cashier's Check No . 075937, 2 which was received by respondent sheriff on the same day. 3 But as the PNB refused to comply with his demand, the respondent reported the matter to the judge and prayed for the issuance of an order to the PNB to release the amount.On April 3, 1995, respondent judge issued an order granting the sheriff's prayer. The dispositive portion of his order stated: 4

WHEREFORE, the Court declares that there is no more legal obstacle for the release of the garnished amounts and the Depository Bank PNB thru its President, his Agents, Representatives and Assigns, are hereby directed to immediately release the garnished amounts to satisfy the Decision of this Court in SP. Proc. No. 86-35313 as per Writ of Execution issued as early as October 28, 1992.SO ORDERED.

As the PNB still refused to release the amount garnished, respondent sheriff on April 4, 1995 asked the court (1) that a bench warrant be issued against the President of the PNB, his Agents, Representatives and Assigns, for their refusal to comply with the order of the court, (2) that they be required to explain the delay and (3) that if their explanation was unmeritorious, they be confined at the Manila City Jail "until such time that they have released the garnished amounts." 5

On the same day, respondent judge issued an order with the following dispositive portion: 6

WHEREFORE, President of PNB, its Agents, Representatives and/or Assigns are hereby directed to appear before this Court immediately upon receipt of this Order to personally explain the delay of the release of the garnished amounts mentioned in its order dated April 3, 1995 in the satisfaction of the Decision in Sp. Proc. No. 86-35313 and to show cause why they should not be cited for contempt of court.SO ORDERED.

Because of respondent judge's orders, the Corporate Secretary and Chief Legal Counsel of the PNB wrote Ms. Rosalina U. Casiguran, Chief Legal Counsel of the respondent Philippine Deposit Insurance Corporation, that respondent had until 11:00 A.M. of April 7, 1995 to secure a restraining order from this Court, otherwise the PNB would release the garnished amount to the sheriff. 7

On April 5, 1995, the Bank Liquidator filed with this Court an Urgent Motion for Status Quo Order to respondents not to continue enforcing the writ until such time that the motions for reconsideration were resolved.On April 7, 1995, this Court ordered respondents to cease and desist, effective immediately and continuing until further orders, from further implementing and enforcing the lower court's writ of execution.Meanwhile, the Bank Liquidator, petitioner in G.R. No. 112991, filed a motion for reconsideration on April 11, 1995 of the decision in this case. To this motion private respondents (Stockholders/Investors) filed an Opposition.On June 14, 1995, the Bank Liquidator filed this motion to cite in contempt of court respondent Judge Regino T. Veridiano II, the Deputy Sheriff Carmelo V. Cachero, the Branch Clerk of Court Antonio B. Valencia, Jr. and Atty. Marino E. Eslao. He accuses respondent judge and deputy sheriff of "acting with undue haste and unconscionable dispatch in enforcing and implementing the Writ of Execution." The Bank Liquidator accuses the Branch Clerk of Court, Antonio B. Valencia, Jr., of issuing a false

certification that there was no record on appeal filed in Sp. Proc. No. 86-35313 in order to mislead this Court and make it dismiss petitioner's appeal. With respect to respondent Atty. Eslao, the Bank Liquidator alleges that, by procuring the immediate execution of the writ of execution despite his knowledge that the decision of this Court had not yet become final and executory and by affirming in his verified comment that the Liquidator never filed a record on appeal, respondent Atty. Eslao engaged in improper conduct tending, directly and indirectly, to impede, obstruct or degrade the administration of justice.The respondents filed an Opposition to the Liquidator's motion to cite them in contempt, alleging that they had acted in good faith and in the honest belief that the judgment of the RTC was already final and executory. Atty. Eslao pleads that "he should not be punished for contempt in his eagerness to protect the lawful rights of his clients and to blunt the deplorable acts and tactics" of the Bank Liquidator. Both Atty. Eslao and respondent deputy sheriff defend the certification issued by the Branch Clerk of Court as a truthful statement of the facts and claim that respondent judge acted in the sincere belief that there was no further legal obstacle to the execution of the judgment. In the event this Court finds them to be disrespectful and discourteous, respondents say that they wish to express sincere apology for their acts and they beg that their acts be forgiven.Respondent judge, who was particularly required by this Court to comment on the motion for contempt, alleges:

1. There was no intent to disobey, disregard or obstruct or interfere with the administration of justice;2. The respondent Judge was merely impelled to act on the Reports submitted to him by Deputy Sheriff Carmelo V. Cachero;3. There was no malice or bad faith by the Presiding Judge in issuing the implementing Orders as it was done in good faith in the honest belief that it was in the regular performance of his official duty in view of the Honorable Supreme Court's decision that "because of the Liquidator's failure to perfect his appeal, the Order granting the claims of the Stockholders/Investors became final." Hence, the undersigned had presumed that there was no further legal obstacle to the writ of execution which was issued three (3) years ago; and4. The petitioner PDIC despite these Sheriff's Reports and the implementing Orders of this Court for the immediate release and delivery of the garnished amounts failed to file any motion before this Court to stop the release of these amounts until the Urgent Ex-Parte Motion was filed before this Court on April 7, 1995 and which motion, this Court immediately granted on the same date, thereby belying the allegation that this Court had already acted in undue haste in implementing its questioned Orders issued on September 11 and October 28, 1992.

The Court finds the Bank Liquidator's motion to be meritorious and hereby adjudges respondent judge, sheriff and Atty. Eslao guilty of contempt. Their claim of good faith cannot be given credit. Writ large on the record of this case is conduct on their part that borders on lawlessness and certainly constitutes willfulness or bad faith and disrespect for the Court.First. All of the respondents knew that there was an existing temporary restraining order issued on January 6, 1994 by this Court, "ordering respondents to CEASE and DESIST from enforcing and/or implementing the writ of execution dated October 28, 1992 issued by respondent judge in Sp. Proc. No. 86-35313." While the petition in G.R. No. 112991, in which the restraining order was issued, had been dismissed by this Court in its decision of March 20, 1995, the fact was that it was not yet final and executory and the temporary restraining order had not yet been lifted at the time respondents tried to enforce the lower court's writ of execution. The restraining order was expressly made "effective until further orders from this Court," which means that it was not automatically lifted upon the dismissal of the main case. (Tolentino v. Secretary of Finance, resolution, G.R. No . 115455, Sept. 23, 1995) No protestation of innocence can therefore excuse respondents' conduct.Second. Indeed, all the respondents in this motion for contempt cannot pretend ignorance of the fact that the decision of this Court was not yet final. Promulgated on March 20, 1995, it could not have

been final on March 24, 1995, just four days later, when respondent Atty. Eslao asked respondent Deputy Sheriff Carmelo V. Cachero to demand from the LBP and the PNB the release of the garnished funds, or on April 3, 1995 when the deputy sheriff in turn asked respondent Judge Regino T. Veridiano II for an order to the two banks to release the funds.As a matter of fact, the decision in this case was served on the Bank Liquidator only on March 29, 1995 and, therefore, he had until April 13, 1995, within which to file a motion for reconsideration, which he in fact filed on April 11, 1995.It is therefore plainly erroneous for respondent judge to suppose that, because the decision of this Court stated that the effect of the Bank Liquidator's failure to perfect his appeal was to render the lower court's decision final, he could order the immediate execution of his decision. This Court's decision declaring the lower court's decision to have become final was not yet final.It is just as plainly erroneous for respondent judge to say that because the Bank Liquidator failed to object to the motions for the release of the garnished funds, he had no choice but to grant the motions. The Bank Liquidator was kept out of all the proceedings leading to the issuance of the orders to the LBP and the PNB and therefore could not have objected to the premature execution of the decision. As already stated, Atty. Eslao wrote the letter to Deputy Sheriff Cachero on March 24, 1994 asking for the enforcement of the trial court's writ of execution. He did not notify the Bank Liquidator of this request. In turn Cachero asked Judge Veridiano for an order to the PNB to release the garnished funds without notice to the Bank Liquidator. Respondent judge issued his order of April 3, 1995 granting the sheriff's request without furnishing the Bank Liquidator a copy. When the PNB did not release the funds, respondent sheriff complained to respondent judge, again without notifying the Bank Liquidator. Finally when the respondent judge issued another order dated April 4, 1995 threatening the PNB with contempt if it did not release the amounts demanded by the sheriff, the judge again did not notify the Bank Liquidator. Under these circumstances how could the respondent judge say straight faced that he granted the request for execution because there was no opposition from the Bank Liquidator? Even in executions pending appeal notice of any motion for this purpose is required to be served on the adverse party (Rule 39, §2) as exception to the rule that motion for execution of final decisions may be made ex parte.In Reliance Procoma, Inc. v. Phil.-Asia Tobacco Corp., 57 SCRA 370 (1974) a judge of the Court of First Instance, who tried to circumvent a restraining order of the Court of Appeals enjoining him from enforcing a writ of garnishment he had issued by issuing an order prohibiting a creditor corporation from transferring the garnished funds to the defendant owners, was found guilty of contempt of court, together with the plaintiff's representative, and fined P500.00. They appealed to this Court. In affirming the decision of the appellate court, we held:

Under the circumstances, the willfulness or bad faith of the respondents is manifest. They knowingly disregarded and negated partially the directive of the Appellate Court. The least that they could have done was to ask for the reconsideration of the restraining order or to secure leave and clearance from the Court of Appeals for the freezing of Phil-Asia's funds in the custody of the PVTA.(At 376-377)

Justice Fernando filed a separate concurring opinion in which he stated:This Court has ever been insistent on the rule of law being observed. Concerning the specific question involved, the settled rule is that an order from the bench issued by a court acting within its jurisdiction is entitled to respect. It may come from a municipal or city court, or one of the next higher rank as that of occupied by respondent Judge or the Court of Appeals, as did happen here. This Court does not have to be the source. What cannot be ignored is that it would be productive of confusion if parties could just disregard what has been so ordained. The appropriate procedure always is for the matter as thus decreed by any tribunal to be taken up on appeal. Where as did happen here, the Court of Appeals had spoken, the judge of the court of first instance was bound by what it said. If there is room for disagreement, a reconsideration can be sought, or the matter can be taken up, whenever appropriate, to this Court.

In the meanwhile, no evasion, much less defiance, is allowable. It is bad enough if the parties would be minded to do so. It is infinitely worse if the offender, as was the case here, was a judge of the Court of First Instance. It would make a mockery of the legal order if one like the respondent Judge, precisely called upon to assure respect for legal processes, would act otherwise. To say that he has been recreant to his trust is to put it mildly. For the contumacious conduct manifested by him has a much more corrosive effect in the public mind. To paraphrase Justice Brandeis, a government of laws demands that public officials observe scrupulously orders emanating from tribunals vested with competence. For the public looks up to them. For good or for ill, what they do sets the example. Disrespect for the law is contagious. If a judge does not observe judicial norms, he is to all intents and purposes just as much a law-breaker. His conduct breeds contempt for the rule of law. It may ultimately lead to anarchy. This may be to conjure too extreme an evil. It may be so, but where the observance of judicial decorum is concerned, more specifically the requirement of strict conformity to an order of an appellate tribunal, even the slightest infraction is not to be tolerated. Obsta principiies should be the rule. (emphasis added)(At 379-380)

There is need to reaffirm the ruling in that case because its teaching seems to have been lost on respondent judge in this case.With respect to respondent Deputy Sheriff Cachero, the following statement from Pacis v. Averia, 124 Phil. 1541, 1556 (1966) is particularly apropos:

The Court cannot tolerate evasion of its commands by any omission, negligence, artifice or contrivance of any kind, nor would it countenance any disregard of its authority. For it is essential to the effective administration of justice that the processes of the courts be obeyed. And upon no one else does this obligation of obedience rest with more binding force than a judicial officer such as respondent sheriff.

Particularly deserving rebuke is the display of unusual interest on the part of respondent sheriff in enforcing the writ of execution by reporting to respondent judge the refusal of the PNB to comply with his demand and asking respondent judge to order the arrest of the PNB officials concerned and their confinement in the city jail until they complied. Respondent sheriff may have been requested by the counsel for the Stockholders/Investors to immediately enforce the writ but it was incumbent upon him to wait for an order from the judge. It could not have escaped him that sheriffs are agents of the court, not of any of the parties.On the other hand, of Atty. Eslao it may be said that no amount of devotion to his client's cause could justify the overeagerness he showed in losing no time in running over to the sheriff's office to get the latter to enforce the writ of execution which theretofore had been enjoined from being enforced.But we find no basis for holding the Branch Clerk of Court, Antonio B. Valencia, Jr., guilty of wrongdoing in certifying that the Bank Liquidator failed to file a record on appeal. As explained in our resolution denying the Bank Liquidator's Motion for Reconsideration, there is no proof to show that a record on appeal was in fact filed by the Bank Liquidator in Sp. Proc. No. 86-35313.WHEREFORE, in accordance with Rule 71, §3 (b) (d) and §6 of the Rules of Court, the Court finds Judge Regino T. Veridiano II, Deputy Sheriff Carmelo V. Cachero and Atty. Marino E. Eslao GUILTY of indirect contempt and sentences each one to pay a FINE of One Thousand Pesos (P1,000.00) within ten (10) days from notice, or, in default thereof, to suffer IMPRISONMENT of one (1) month, and warns them that a repetition of the act herein dealt with will be punished more severely.SO ORDERED.Narvasa, C.J., Regalado, Puno and Francisco, JJ., concur.

G.R. No. 114870 May 26, 1995

MIGUELA R. VILLANUEVA, RICHARD R. VILLANUEVA, and MERCEDITA VILLANUEVA-TIRADOS, petitioners, vs.COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES, ILDEFONSO C. ONG, and PHILIPPINE VETERANS BANK, respondents.

 

DAVIDE, JR., J.:

Do petitioners have a better right than private respondent Ildefonso Ong to purchase from the Philippine Veterans Bank (PVB) the two parcels of land described as Lot No. 210-D-1 and Lot No. 210-D-2 situated at Muntinglupa, Metro Manila, containing an area of 529 and 300 square meters, respectively? This is the principal legal issue raised in this petition.

In its decision of 27 January 1994 in CA-G.R. CV No. 35890, 1 the Court of Appeals held for Ong, while the trial court, Branch 39 of the Regional Trial Court (RTC) of Manila, ruled for the petitioners in its joint decision of 31 October 1991 in Civil Case No. 87-42550 2 and Sp. Proc. No. 85-32311. 3

The operative antecedent facts are set forth in the challenged decision as follows:

The disputed lots were originally owned by the spouses Celestino Villanueva and Miguela Villanueva, acquired by the latter during her husband's sojourn in the United States since 1968. Sometime in 1975, Miguela Villanueva sought the help of one Jose Viudez, the then Officer-in-Charge of the PVB branch in Makati if she could obtain a loan from said bank. Jose Viudez told Miguela Villanueva to surrender the titles of said lots as collaterals. And to further facilitate a bigger loan, Viudez, in connivance with one Andres Sebastian, swayed Miguela Villanueva to execute a deed of sale covering the two (2) disputed lots, which she did but without the signature of her husband Celestino. Miguela Villanueva, however, never got the loan she was expecting. Subsequent attempts to contact Jose Viudez proved futile, until Miguela Villanueva thereafter found out that new titles over the two (2) lots were already issued in the name of the PVB. It appeared upon inquiry from the Registry of Deeds that the original titles of these lots were canceled and new ones were issued to Jose Viudez, which in turn were again canceled and new titles issued in favor of Andres Sebastian, until finally new titles were issued in the name of PNB [should be PVB] after the lots were foreclosed for failure to pay the loan granted in the name of Andres Sebastian.

Miguela Villanueva sought to repurchase the lots from the PVB after being informed that the lots were about to be sold at auction. The PVB told her that she can redeem the lots for the price of P110,416.00. Negotiations for the repurchase of the lots nevertheless were stalled by the filing of liquidation proceedings against the PVB on August of 1985.

Plaintiff-appellant [Ong] on the other hand expounds on his claim over the disputed lots in this manner:

In October 1984, plaintiff-appellant offered to purchase two pieces of Land that had been acquired by PVB through foreclosure. To back-up plaintiff-appellant's offer he deposited the sum of P10,000.00.

In 23 November 1984, while appellant was still abroad, PVB approved his subject offer under Board Resolution No. 10901-84. Among the conditions

imposed by PVB is that: "The purchase price shall be P110,000.00 (Less deposit of P10,000.00) payable in cash within fifteen (15) days from receipt of approval of the offer."

In mid-April 1985, appellant returned to the country. He immediately verified the status of his offer with the PVB, now under the control of CB, where he was informed that the same had already been approved. On 16 April 1985, appellant formally informed CB of his desire to pay the subject balance provided the bank should execute in his favor the corresponding deed of conveyance. The letter was not answered.

Plaintiff-appellant sent follow-up Letters that went unheeded, the last of which was on 21 May 1987. On 26 May 1987, appellant's payment for the balance of the subject properties were accepted by CB under Official Receipt #0816.

On 17 September 1987, plaintiff-appellant through his counsel, sent a letter to CB demanding for the latter to execute the corresponding deed of conveyance in favor of appellant. CB did not bother to answer the same. Hence, the instant case.

While appellant's action for specific performance against CB was pending, Miguela Villanueva and her children filed their claims with the Liquidation court. (Appellant's Brief, pp. 3-4). 4

From the pleadings, the following additional or amplificatory facts are established:

The efforts of Miguela Villanueva to reacquire the property began on 8 June 1983 when she offered to purchase the lots for P60,000.00 with a 20% downpayment and the balance payable in five years on a quarterly amortization basis.  5

Her offer not having been accepted, 6 Miguela Villanueva increased her bid to P70,000.00. It was only at this time that she disclosed to the bank her private transactions with Jose Viudez.  7

After this and her subsequent offers were rejected, 8 Miguela sent her sealed bid of P110,417.00 pursuant to the written advice of the vice president of the PVB. 9

The PVB was placed under receivership pursuant to Monetary Board (MB) Resolution No. 334 dated 3 April 1985 and later, under liquidation pursuant to MB Resolution No. 612 dated 7 June 1985. Afterwards, a petition for liquidation was filed with the RTC of Manila, which was docketed as Sp. Proc. No. 85-32311 and assigned to Branch 39 of the said court.

On 26 May 1987, Ong tendered the sum of P100,000.00 representing the balance of the purchase price of the litigated lots. 10 An employee of the PVB received the amount conditioned upon approval by the Central Bank liquidator. 11 Ong's demand for a deed of conveyance having gone unheeded, he filed on 23 October 1987 with the RTC of Manila an action for specific performance against the Central Bank.  12 It was raffled to Branch 47 thereof. Upon learning that the PVB had been placed under liquidation, the presiding judge of Branch 47 ordered the transfer of the case to Branch 39, the liquidation court.  13

On 15 June 1989, then Presiding Judge Enrique B. Inting issued an order allowing the purchase of the two lots at the price of P150,000.00. 14 The Central Bank liquidator of the PVB moved for the

reconsideration of the order asserting that it is contrary to law as the disposal of the lots should be made through public auction. 15

On 26 July 1989, Miguela Villanueva filed her claim with the liquidation court. She averred, among others, that she is the lawful and registered owner of the subject lots which were mortgaged in favor of the PVB thru the falsification committed by Jose Viudez, the manager of the PVB Makati Branch, in collusion with Andres Sebastian; that upon discovering this fraudulent transaction, she offered to purchase the property from the bank; and that she reported the matter to the PC/INP Criminal Investigation Service Command, Camp Crame, and after investigation, the CIS officer recommended the filing of a complaint for estafa through falsification of public documents against Jose Viudez and Andres Sebastian. She then asked that the lots be excluded from the assets of the PVB and be conveyed back to her. 16 Later, in view of the death of her husband, she amended her claim to include her children, herein petitioners Mercedita Villanueva-Tirados and Richard Villanueva. 17

On 31 October 1991, the trial court rendered judgment 18 holding that while the board resolution approving Ong's offer may have created in his favor a vested right which may be enforced against the PVB at the time or against the liquidator after the bank was placed under liquidation proceedings, the said right was no longer enforceable, as he failed to exercise it within the prescribed 15-day period. As to Miguela's claim, the court ruled that the principle of estoppel bars her from questioning the transaction with Viudez and the subsequent transactions because she was a co-participant thereto, though only with respect to her undivided one-half (1/2) conjugal share in the disputed lots and her one-third (1/3) hereditary share in the estate of her husband.

Nevertheless, the trial court allowed her to purchase the lots if only to restore their status as conjugal properties. It further held that by reason of estoppel, the transactions having been perpetrated by a responsible officer of the PVB, and for reasons of equity, the PVB should not be allowed to charge interest on the price of the lots; hence, the purchase price should be the PVB's claim as of 29 August 1984 when it considered the sealed bids, i.e., P110,416.20, which should be borne by Miguela Villanueva alone.

The dispositive portion of the decision of the trial court reads as follows:

WHEREFORE, judgment is hereby rendered as follows:

1. Setting aside the order of this court issued on June 15, 1989 under the caption Civil Case No. 87-42550 entitled "Ildefonso Ong vs. Central Bank of the Phils., et al.;

2. Dismissing the claim of Ildefonso Ong over the two parcels of land originally covered by TCT No. 438073 and 366364 in the names of Miguela Villanueva and Celestino Villanueva, respectively which are now covered by TCT No. 115631 and 115632 in the name of the PVB;

3. Declaring the Deed of Absolute Sale bearing the signature of Miguela Villanueva and the falsified signature of Celestino [sic] Viudez under date May 6, 1975 and all transactions and related documents executed thereafter referring to the two lots covered by the above stated titles as null and void;

4. Ordering the Register of Deeds of Makati which has jurisdiction over the two parcels of land in question to re-

instate in his land records, TCT No. 438073 in the name of Miguela Villanueva and TCT No. 366364 in the name of Celestino Villanueva who were the registered owners thereof, and to cancel all subsequent titles emanating therefrom; and

5. Ordering the Liquidator to reconvey the two lots described in TCT No. 115631 and 115632 and executing the corresponding deed of conveyance of the said lots upon the payment of One Hundred Ten Thousand Four Hundred Sixteen and 20/100 (P110,416.20) Pesos without interest and less the amount deposited by the claimant, Miguela Villanueva in connection with the bidding where she had participated and conducted by the PVB on August 29, 1984.

Cost against Ildefonso Ong and the PVB.

SO ORDERED. 19

Only Ong appealed the decision to the Court of Appeals. The appeal was docketed as CA-G.R. CV No. 35890. In its decision of 27 January 1994, the Court of Appeals reversed the decision of the trial court and ruled as follows:

WHEREFORE, premises considered, the assailed decision is hereby REVERSED and SET ASIDE, and a new one entered ordering the disputed-lots be awarded in favor of plaintiff-appellant Ildefonso Ong upon defendant-appellee Central Bank's execution of the corresponding deed of sale in his favor. 20

In support thereof, the Court of Appeals declared that Ong's failure to pay the balance within the prescribed period was excusable because the PVB neither notified him of the approval of his bid nor answered his letters manifesting his readiness to pay the balance, for which reason he could not have known when to reckon the 15-day period prescribed under its resolution. It went further to suggest that the Central Bank was in estoppel because it accepted Ong's late-payment of the balance. As to the petitioners' claim, the Court of Appeals stated:

The conclusion reached by the lower court favorable to Miguela Villanueva is, as aptly pointed out by plaintiff-appellant, indeed confusing. While the lower court's decision declared Miguela Villanueva as estopped from recovering her proportionate share and interest in the two (2) disputed lots for being a "co-participant" in the fraudulent scheme perpetrated by Jose Viudez and Andres Sebastian — a factual finding which We conform to and which Miguela Villanueva does not controvert in this appeal by not filing her appellee's brief, yet it ordered the reconveyance of the disputed lots to Miguela Villanueva as the victorious party upon her payment of P110,416.20. Would not estoppel defeat the claim of the party estopped? If so, which in fact must be so, would it not then be absurd or even defiant for the lower court to finally entitle Miguela Villanueva to the disputed lots after having been precluded from assailing their subsequent conveyance in favor of Jose Viudez by reason of her own negligence and/or complicity therein? The intended punitive effect of estoppel would merely be a dud if this Court leaves the lower court's conclusion unrectified. 21

Their motion for reconsideration 22 having been denied, 23 the petitioners filed this petition for review on certiorari.24

Subsequently, the respondent Central Bank apprised this Court that the PVB was no longer under receivership or liquidation and that the PVB has been back in operation since 3 August 1992. It then prayed that it be dropped from this case or at least be substituted by the PVB, which is the real party in interest. 25

In its Manifestation and Entry of Appearance, the PVB declared that it submits to the jurisdiction of this Court and that it has no objection to its inclusion as a party respondent in this case in lieu of the Central Bank. 26 The petitioners did not object to the substitution. 27

Later, in its Comment dated 10 October 1994, the PVB stated that it "submits to and shall abide by whatever judgment this Honorable Supreme Tribunal may announce as to whom said lands may be awarded without any touch of preference in favor of one or the other party litigant in the instant case." 28

In support of their contention that the Court of Appeals gravely erred in holding that Ong is better entitled to purchase the disputed lots, the petitioners maintain that Ong is a disqualified bidder, his bid of P110,000.00 being lower than the starting price of P110,417.00 and his deposit of P10,000.00 being less than the required 10% of the bid price; that Ong failed to pay the balance of the price within the 15-day period from notice of the approval of his bid; and that his offer of payment is ineffective since it was conditioned on PVB's execution of the deed of absolute sale in his favor.

On the other hand, Ong submits that his offer, though lower than Miguela ViIlanueva's bid by P417.00, is much better, as the same is payable in cash, while Villanueva's bid is payable in installment; that his payment could not be said to have been made after the expiration of the 15-day period because this period has not even started to run, there being no notice yet of the approval of his offer; and that he has a legal right to compel the PVB or its liquidator to execute the corresponding deed of conveyance.

There is no doubt that the approval of Ong's offer constitutes an acceptance, the effect of which is to perfect the contract of sale upon notice thereof to Ong. 29 The peculiar circumstances in this case, however, pose a legal obstacle to his claim of a better right and deny support to the conclusion of the Court of Appeals.

Ong did not receive any notice of the approval of his offer. It was only sometime in mid-April 1985 when he returned from the United States and inquired about the status of his bid that he came to know of the approval.

It must be recalled that the PVB was placed under receivership pursuant to the MB Resolution of 3 April 1985 after a finding that it was insolvent, illiquid, and could not operate profitably, and that its continuance in business would involve probable loss to its depositors and creditors. The PVB was then prohibited from doing business in the Philippines, and the receiver appointed was directed 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."

Under Article 1323 of the Civil Code, an offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party before acceptance is conveyed. The reason for this is that:

[T]he contract is not perfected except by the concurrence of two wills which exist and continue until the moment that they occur. The contract is not yet perfected at any time before acceptance is conveyed; hence, the disappearance of either party or his loss of capacity before perfection prevents the contractual tie from being formed. 30

It has been said that where upon the insolvency of a bank a receiver therefor is appointed, the assets of the bank pass beyond its control into the possession and control of the receiver whose duty it is to administer the assets for the benefit of the creditors of the bank. 31 Thus, the appointment of a receiver operates to suspend the authority of the bank and of its directors and officers over its property and effects, such authority being reposed in the receiver, and in this respect, the receivership is equivalent to an injunction to restrain the bank officers from intermeddling with the property of the bank in any way. 32

Section 29 of the Central Bank Act, as amended, provides thus:

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, 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 of its creditors . . . exercising all the powers necessary for these purposes. . . .

xxx xxx xxx

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 exemp from any order of garnishment, levy, attachment, or execution.

In a nutshell, the insolvency of a bank and the consequent appointment of a receiver restrict the bank's capacity to act, especially in relation to its property, Applying Article 1323 of the Civil Code, Ong's offer to purchase the subject lots became ineffective because the PVB became insolvent before the bank's acceptance of the offer came to his knowledge. Hence, the purported contract of sale between them did not reach the stage of perfection. Corollarily, he cannot invoke the resolution of the bank approving his bid as basis for his alleged right to buy the disputed properties.

Nor may the acceptance by an employee of the PVB of Ong's payment of P100,000.00 benefit him since the receipt of the payment was made subject to the approval by the Central Bank liquidator of the PVB thus:

Payment for the purchase price of the former property of Andres Sebastian per approved BR No. 10902-84 dated 11/13/84, subject to the approval of CB liquidator. 33

This payment was disapproved on the ground that the subject property was already in custodia legis, and hence, disposable only by public auction and subject to the approval of the liquidation court. 34

The Court of Appeals therefore erred when it held that Ong had a better right than the petitioners to the purchase of the disputed lots.

Considering then that only Ong appealed the decision of the trial court, the PVB and the Central Bank, as well as the petitioners, are deemed to have fully and unqualifiedly accepted the judgment, which thus became final as to them for their failure to appeal.

WHEREFORE, the instant petition is GRANTED and the challenged decision of the Court of Appeals of 27 January 1994 in CA-G.R. CV No. 35890 is hereby SET ASIDE. The decision of Branch 39 of the Regional Trial Court of Manila of 31 October 1991 in Civil Case No. 87-42550 and Sp. Proc. No. 85-32311 is hereby REINSTATED.

Respondent Philippine Veterans Bank is further directed to return to private respondent Ildefonso C. Ong the amount of P100,000.00.

No pronouncement as to costs.

SO ORDERED.

Padilla, Bellosillo and Kapunan, JJ., concur.

Quiason, J., is on leave.

[G.R. No. 95326. March 11, 1999]ROMEO P. BUSUEGO, CATALINO F. BANEZ and RENATO F. LIM, petitioners, vs. THE HONORABLE COURT OF APPEALS and THE MONETARY BOARD OF THE CENTRAL BANK OF THE PHILIPPINES, respondents.D E C I S I O NPURISIMA, J.:This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking a reversal of the Decisioni[1], dated September 14, 1990, of the Court of Appeals in CA-G.R. CV No. 23656.As culled from the records, the facts of the case are as follows:The 16th regular examination of the books and records of the PAL Employees Savings and Loan Association, Inc. ("PESALA") was conducted from March 14 to April 16, 1988 by a team of CB examiners headed by Belinda Rodriguez. Following the said examination, several anomalies and irregularities committed by the herein petitioners; PESALA's directors and officers, were uncovered, among which are:1. Questionable investment In a multi-million peso real estate project (Pesalaville)2. Conflict of interest in the conduct of business3. Unwarranted declaration and payment of dividends4. Commission of unsound and unsafe business practices.On July 19, 1988,, Central Bank ("CB") Supervision and Examination Section ("SES") Department IV Director Ricardo. F. Lirio sent a letter to the Board of Directors of PESALA inviting them to a conference on July 21, 1988 to discuss subject findings noted in the said 16th regular examination, but petitioners did not attend such conference.On July 28, 1988, petitioner Renato Lim wrote the PESALA's Board of Directors explaining his side on the said examination of PESALA's records and requesting that a copy of his letter be furnished the CB, which was fortwith made by the Board.ii[2]

On July 29, 1988, PESALA's Board of Directors sent to Director Lirio a letter concerning the 16th regular examination of PESALA's records.On September 9, 1988, the Monetary Board adopted and issued MB Resolution No. 805 the pertinent provisions of which are as follows:

"1. To note the report on the examination of the PAL Employees' Savings and Loan Association, Inc. (PESALA) as of December 31, 1987, as submitted in a memorandum of the Director, Supervision and Examination Section (SES) Department IV, dated August 19, 1988;2. To require the board of directors of PESALA to immediately inform the members of PESALA of the results of the Central Bank examination and their effects on the financial condition of the Association;

x x x

iG.R. No. L-45710 October 3, 1985CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF THE DEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in his capacity as statutory receiver of Island Savings Bank, petitioners, vs.THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO, respondents. I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners. Antonio R. Tupaz for private respondent.MAKASIAR, CJ.: This is a petition for review on certiorari to set aside as null and void the decision of the Court of Appeals, in C.A.-G.R. No. 52253-R dated February 11, 1977, modifying the decision dated February 15, 1972 of the Court of First Instance of Agusan, which dismissed the petition of respondent Sulpicio M. Tolentino for injunction, specific performance or rescission, and damages with preliminary injunction. On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal department, approved the loan application for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed on the same day a real estate mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan, and covered by TCT No. T-305, and which mortgage was annotated on the said title the next day. The approved loan application called for a lump sum P80,000.00 loan, repayable in semi-annual installments for a period of 3 years, with 12% annual interest. It was required that Sulpicio M. Tolentino shall use the loan proceeds solely as an additional capital to develop his other property into a subdivision. On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank; and Sulpicio M. Tolentino and his wife Edita Tolentino signed a promissory note for P17,000.00 at 12% annual interest, payable within 3 years from the date of execution of the contract at semi-annual installments of P3,459.00 (p. 64, rec.). An advance interest for the P80,000.00 loan covering a 6-month period amounting to P4,800.00 was deducted from the partial release of P17,000.00. But this pre-deducted interest was refunded to Sulpicio M. Tolentino on July 23, 1965, after being informed by the Bank that there was no fund yet available for the release of the P63,000.00 balance (p. 47, rec.). The Bank, thru its vice-president and treasurer, promised repeatedly the release of the P63,000.00 balance (p. 113, rec.). On August 13, 1965, the Monetary Board of the Central Bank, after finding Island Savings Bank was suffering liquidity problems, issued Resolution No. 1049, which provides:

In view of the chronic reserve deficiencies of the Island Savings Bank against its deposit liabilities, the Board, by unanimous vote, decided as follows: 1) To prohibit the bank from making new loans and investments [except investments in government securities] excluding extensions or renewals of already approved loans, provided that such extensions or renewals shall be subject to review by the Superintendent of Banks, who may impose such limitations as may be necessary to insure correction of the bank's deficiency as soon as possible;

xxx xxx xxx

5. To include the names of Mr. Catalino Banez, Mr. Romeo Busuego and Mr. Renato Lim in the Sector's watchlist to prevent them from holding responsible positions in any institution under Central Bank supervision;6. To require PESALA to enforce collection of the overpayment to the Vista Grande Management and Development Corporation and to require the accounting of P12.28 million unaccounted and unremitted bank loan proceeds and P3.9 million other unsupported cash disbursements from the responsible directors and officers; or to properly charge these against their respective accounts, if necessary;7. To require the board of directors of PESALA to file civil and criminal cases against Messrs. Catalino Banez, Romeo Busuego and Renato Lim for all the misfeasance and malfeasance committed by them, as warranted by the evidence;

(p. 46, rec.). On June 14, 1968, the Monetary Board, after finding thatIsland Savings Bank failed to put up the required capital to restore its solvency, issued Resolution No. 967 which prohibited Island Savings Bank from doing business in the Philippines and instructed the Acting Superintendent of Banks to take charge of the assets of Island Savings Bank (pp. 48-49, rec). On August 1, 1968, Island Savings Bank, in view of non-payment of the P17,000.00 covered by the promissory note, filed an application for the extra-judicial foreclosure of the real estate mortgage covering the 100-hectare land of Sulpicio M. Tolentino; and the sheriff scheduled the auction for January 22, 1969. On January 20, 1969, Sulpicio M. Tolentino filed a petition with the Court of First Instance of Agusan for injunction, specific performance or rescission and damages with preliminary injunction, alleging that since Island Savings Bank failed to deliver the P63,000.00 balance of the P80,000.00 loan, he is entitled to specific performance by ordering Island Savings Bank to deliver the P63,000.00 with interest of 12% per annum from April 28, 1965, and if said balance cannot be delivered, to rescind the real estate mortgage (pp. 32-43, rec.). On January 21, 1969, the trial court, upon the filing of a P5,000.00 surety bond, issued a temporary restraining order enjoining the Island Savings Bank from continuing with the foreclosure of the mortgage (pp. 86-87, rec.). On January 29, 1969, the trial court admitted the answer in intervention praying for the dismissal of the petition of Sulpicio M. Tolentino and the setting aside of the restraining order, filed by the Central Bank and by the Acting Superintendent of Banks (pp. 65-76, rec.). On February 15, 1972, the trial court, after trial on the merits rendered its decision, finding unmeritorious the petition of Sulpicio M. Tolentino, ordering him to pay Island Savings Bank the amount of PI 7 000.00 plus legal interest and legal charges due thereon, and lifting the restraining order so that the sheriff may proceed with the foreclosure (pp. 135-136. rec. On February 11, 1977, the Court of Appeals, on appeal by Sulpicio M. Tolentino, modified the Court of First Instance decision by affirming the dismissal of Sulpicio M. Tolentino's petition for specific performance, but it ruled that Island Savings Bank can neither foreclose the real estate mortgage nor collect the P17,000.00 loan pp. 30-:31. rec.). Hence, this instant petition by the central Bank. The issues are:

1. Can the action of Sulpicio M. Tolentino for specific performance prosper?2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered by the promissory note? 3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists, can his real estate mortgage be foreclosed to satisfy said amount?

When Island Savings Bank and Sulpicio M. Tolentino entered into an P80,000.00 loan agreement on April 28, 1965, they undertook reciprocal obligations. In reciprocal obligations, the obligation or promise of each party is the consideration for that of the other (Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs, Pelarca 29 SCRA 1 [1969]); and when one party has performed or is ready and willing to perform his part of the contract, the other party who has not performed or is not

8. To require the board of directors of PESALA to improve the operations of the Association, correct all violations noted, and adopt internal control measures to prevent the recurrence of similar incidents as shown in Annex E of the subject memorandum of the Director, SES Department IV;"iii[3]

xxx xxx xxxOn January 23, 1989, petitioners filed a Petition for Injunction with Prayer for the Immediate Issuance of a Temporary Restraining Orderiv[4] docketed as Civil Case No. Q-89-1617 before Branch 104 of the Regional Trial Court of Quezon City.On January 26 1989, the said court issued a temporary restraining orderv[5] enjoining the defendant, the Monetary Board of the Central Bank, (now Banko Sentral ng Pilipinas) from including the names of petitioners in the watchlist.

ready and willing to perform incurs in delay (Art. 1169 of the Civil Code). The promise of Sulpicio M. Tolentino to pay was the consideration for the obligation of Island Savings Bank to furnish the P80,000.00 loan. When Sulpicio M. Tolentino executed a real estate mortgage on April 28, 1965, he signified his willingness to pay the P80,000.00 loan. From such date, the obligation of Island Savings Bank to furnish the P80,000.00 loan accrued. Thus, the Bank's delay in furnishing the entire loan started on April 28, 1965, and lasted for a period of 3 years or when the Monetary Board of the Central Bank issued Resolution No. 967 on June 14, 1968, which prohibited Island Savings Bank from doing further business. Such prohibition made it legally impossible for Island Savings Bank to furnish the P63,000.00 balance of the P80,000.00 loan. The power of the Monetary Board to take over insolvent banks for the protection of the public is recognized by Section 29 of R.A. No. 265, which took effect on June 15, 1948, the validity of which is not in question. The Board Resolution No. 1049 issued on August 13,1965 cannot interrupt the default of Island Savings Bank in complying with its obligation of releasing the P63,000.00 balance because said resolution merely prohibited the Bank from making new loans and investments, and nowhere did it prohibit island Savings Bank from releasing the balance of loan agreements previously contracted. Besides, the mere pecuniary inability to fulfill an engagement does not discharge the obligation of the contract, nor does it constitute any defense to a decree of specific performance (Gutierrez Repide vs. Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere fact of insolvency of a debtor is never an excuse for the non-fulfillment of an obligation but 'instead it is taken as a breach of the contract by him (vol. 17A, 1974 ed., CJS p. 650) The fact that Sulpicio M. Tolentino demanded and accepted the refund of the pre-deducted interest amounting to P4,800.00 for the supposed P80,000.00 loan covering a 6-month period cannot be taken as a waiver of his right to collect the P63,000.00 balance. The act of Island Savings Bank, in asking the advance interest for 6 months on the supposed P80,000.00 loan, was improper considering that only P17,000.00 out of the P80,000.00 loan was released. A person cannot be legally charged interest for a non-existing debt. Thus, the receipt by Sulpicio M. 'Tolentino of the pre-deducted interest was an exercise of his right to it, which right exist independently of his right to demand the completion of the P80,000.00 loan. The exercise of one right does not affect, much less neutralize, the exercise of the other. The alleged discovery by Island Savings Bank of the over-valuation of the loan collateral cannot exempt it from complying with its reciprocal obligation to furnish the entire P80,000.00 loan. 'This Court previously ruled that bank officials and employees are expected to exercise caution and prudence in the discharge of their functions (Rural Bank of Caloocan, Inc. vs. C.A., 104 SCRA 151 [1981]). It is the obligation of the bank's officials and employees that before they approve the loan application of their customers, they must investigate the existence and evaluation of the properties being offered as a loan security. The recent rush of events where collaterals for bank loans turn out to be non-existent or grossly over-valued underscore the importance of this responsibility. The mere reliance by bank officials and employees on their customer's representation regarding the loan collateral being offered as loan security is a patent non-performance of this responsibility. If ever bank officials and employees totally reIy on the representation of their customers as to the valuation of the loan collateral, the bank shall bear the risk in case the collateral turn out to be over-valued. The

On February 10, 1989, the same trial court issued a writ of preliminary injunctionvi[6], conditioned upon the filing by petitioners of a bond in the amount of Ten Thousand (P10,000.00) Pesos each. The Monetary Board presented a Motion for Reconsiderationvii[7] of the said Order, but the same was denied.On September 11, 1989, the trial court handed down its Decision,viii[8] disposing thus:"WHEREFORE, judgment is hereby rendered declaring Monetary Board Resolution No. 805 as void and inexistent. The writ of preliminary prohibitory injunctions issued on February 10, 1989 is deemed permanent. Costs against respondent."The Monetary Board appealed the aforesaid Decision to the Court of Appeals which came out with a Decisionix[9] of reversal on September 14, 1990, the decretal portion of which is to the following effect:

representation made by the customer is immaterial to the bank's responsibility to conduct its own investigation. Furthermore, the lower court, on objections of' Sulpicio M. Tolentino, had enjoined petitioners from presenting proof on the alleged over-valuation because of their failure to raise the same in their pleadings (pp. 198-199, t.s.n. Sept. 15. 1971). The lower court's action is sanctioned by the Rules of Court, Section 2, Rule 9, which states that "defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived." Petitioners, thus, cannot raise the same issue before the Supreme Court. Since Island Savings Bank was in default in fulfilling its reciprocal obligation under their loan agreement, Sulpicio M. Tolentino, under Article 1191 of the Civil Code, may choose between specific performance or rescission with damages in either case. But since Island Savings Bank is now prohibited from doing further business by Monetary Board Resolution No. 967, WE cannot grant specific performance in favor of Sulpicio M, Tolentino.Rescission is the only alternative remedy left. WE rule, however, that rescission is only for the P63,000.00 balance of the P80,000.00 loan, because the bank is in default only insofar as such amount is concerned, as there is no doubt that the bank failed to give the P63,000.00. As far as the partial release of P17,000.00, which Sulpicio M. Tolentino accepted and executed a promissory note to cover it, the bank was deemed to have complied with its reciprocal obligation to furnish a P17,000.00 loan. The promissory note gave rise to Sulpicio M. Tolentino's reciprocal obligation to pay the P17,000.00 loan when it falls due. His failure to pay the overdue amortizations under the promissory note made him a party in default, hence not entitled to rescission (Article 1191 of the Civil Code). If there is a right to rescind the promissory note, it shall belong to the aggrieved party, that is, Island Savings Bank. If Tolentino had not signed a promissory note setting the date for payment of P17,000.00 within 3 years, he would be entitled to ask for rescission of the entire loan because he cannot possibly be in default as there was no date for him to perform his reciprocal obligation to pay. Since both parties were in default in the performance of their respective reciprocal obligations, that is, Island Savings Bank failed to comply with its obligation to furnish the entire loan and Sulpicio M. Tolentino failed to comply with his obligation to pay his P17,000.00 debt within 3 years as stipulated, they are both liable for damages. Article 1192 of the Civil Code provides that in case both parties have committed a breach of their reciprocal obligations, the liability of the first infractor shall be equitably tempered by the courts. WE rule that the liability of Island Savings Bank for damages in not furnishing the entire loan is offset by the liability of Sulpicio M. Tolentino for damages, in the form of penalties and surcharges, for not paying his overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for interest on his PI 7,000.00 debt shall not be included in offsetting the liabilities of both parties. Since Sulpicio M. Tolentino derived some benefit for his use of the P17,000.00, it is just that he should account for the interest thereon. WE hold, however, that the real estate mortgage of Sulpicio M. Tolentino cannot be entirely foreclosed to satisfy his P 17,000.00 debt.The consideration of the accessory contract of real estate mortgage is the same as that of the principal contract (Banco de Oro vs. Bayuga, 93 SCRA 443 [1979]). For the debtor, the consideration of his obligation to pay is the existence of a debt. Thus, in the accessory contract of real estate

"WHEREFORE, the decision appealed from is hereby reversed and another one entered dismissing the petition for injunction."Dissatisfied with the said Decision of the Court of Appeals, petitioners have come to this Court via the present petition for review on certiorari.On June 5, 1992, petitioners filed an "Urgent Motion for the Immediate Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction against the Secretary of Justice and the City Prosecutor of Pasay"x[10] stating that several complaints were lodged against the petitioners before the Office of the City Prosecutor of Pasay City pursuant to Monetary Board Resolution No. 805; that the said complaints were dismissed by the City Prosecutor and the dismissals were appealed to the Secretary of Justice for review, some of which have been reversed already. Petitioners prayed that a Temporary Restraining Order and/or Writ of

mortgage, the consideration of the debtor in furnishing the mortgage is the existence of a valid, voidable, or unenforceable debt (Art. 2086, in relation to Art, 2052, of the Civil Code). The fact that when Sulpicio M. 'Tolentino executed his real estate mortgage, no consideration was then in existence, as there was no debt yet because Island Savings Bank had not made any release on the loan, does not make the real estate mortgage void for lack of consideration. It is not necessary that any consideration should pass at the time of the execution of the contract of real mortgage (Bonnevie vs. C.A., 125 SCRA 122 [1983]). lt may either be a prior or subsequent matter. But when the consideration is subsequent to the mortgage, the mortgage can take effect only when the debt secured by it is created as a binding contract to pay (Parks vs, Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed., Jones on Mortgage, Vol. 2, pp. 5-6). And, when there is partial failure of consideration, the mortgage becomes unenforceable to the extent of such failure (Dow. et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol. 59, 1974 ed. CJS, p. 138). Where the indebtedness actually owing to the holder of the mortgage is less than the sum named in the mortgage, the mortgage cannot be enforced for more than the actual sum due (Metropolitan Life Ins. Co. vs. Peterson, Vol. 19, F(2d) p. 88, cited in 5th ed., Wiltsie on Mortgage, Vol. 1, P. 180). Since Island Savings Bank failed to furnish the P63,000.00 balance of the P8O,000.00 loan, the real estate mortgage of Sulpicio M. Tolentino became unenforceable to such extent. P63,000.00 is 78.75% of P80,000.00, hence the real estate mortgage covering 100 hectares is unenforceable to the extent of 78.75 hectares. The mortgage covering the remainder of 21.25 hectares subsists as a security for the P17,000.00 debt. 21.25 hectares is more than sufficient to secure a P17,000.00 debt. The rule of indivisibility of a real estate mortgage provided for by Article 2089 of the Civil Code is inapplicable to the facts of this case. Article 2089 provides:

A pledge or mortgage is indivisible even though the debt may be divided among the successors in interest of the debtor or creditor. Therefore, the debtor's heirs who has paid a part of the debt can not ask for the proportionate extinguishment of the pledge or mortgage as long as the debt is not completely satisfied. Neither can the creditor's heir who have received his share of the debt return the pledge or cancel the mortgage, to the prejudice of other heirs who have not been paid.

The rule of indivisibility of the mortgage as outlined by Article 2089 above-quoted presupposes several heirs of the debtor or creditor which does not obtain in this case. Hence, the rule of indivisibility of a mortgage cannot apply WHEREFORE, THE DECISION OF THE COURT OF APPEALS DATED FEBRUARY 11, 1977 IS HEREBY MODIFIED, AND 1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY IN FAVOR OF HEREIN PETITIONERS THE SUM OF P17.000.00, PLUS P41,210.00 REPRESENTING 12% INTEREST PER ANNUM COVERING THE PERIOD FROM MAY 22, 1965 TO AUGUST 22, 1985, AND 12% INTEREST ON THE TOTAL AMOUNT COUNTED FROM AUGUST 22, 1985 UNTIL PAID; 2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS REAL ESTATE MORTGAGE COVERING 21.25 HECTARES SHALL BE FORECLOSED TO SATISFY HIS TOTAL

Preliminary Injunction issue "restraining and enjoining the Secretary of Justice and the City Prosecutor of Pasay City from proceeding and taking further actions, and more specially from filing Informations in I.S. Nos.-90-1836; 90-1831; 90-1835; 90-1832; 90-1248; 90-1249; 90-3031; 90-3032; 90-1837; 90-1834, pending the final resolution of the case at bar xxx." However, in the Resolutionxi[11] dated September 9, 1992, the court denied the said motion.The petition poses as issues for resolution.I

WHETHER OR NOT THE PETITIONERS WERE DEPRIVED OF THEIR RIGHT TO A NOTICE AND THE OPPORTUNITY TO BE HEARD BY THE MONETARY BOARD PRIOR TO ITS ISSUANCE OF MONETARY BOARD RESOLUTION NO. 805.

INDEBTEDNESS; AND 3. THE REAL ESTATE MORTGAGE COVERING 78.75 HECTARES IS HEREBY DECLARED UNEN FORCEABLE AND IS HEREBY ORDERED RELEASED IN FAVOR OF SULPICIO M. TOLENTINO.

NO COSTS. SO ORDERED. Concepcion, Jr., Escolin, Cuevas and Alampay, JJ., concur. Aquino (Chairman) and Abad Santos, JJ., took no part.

G.R. No. 70054 December 11, 1991BANCO 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, 1991BANCO 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, 1991TOP 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

IIWHETHER OR NOT THE RESPONDENT BOARD IS LEGALLY BOUND TO OBSERVE THE ESSENTIAL REQUIREMENTS OF DUE PROCESS OF A VALID CHARGE, NOTICE AND OPPORTUNITY TO BE HEARD INSOFAR AS THE PETITIONERS' SUBJECT CASE IS CONCERNED.

IIIWHETHER OR NOT MONETARY BOARD RESOLUTION NO. 805 IS NULL AND VOID FOR BEING VIOLATIVE OF PETITIONERS' RIGHTS TO DUE PROCESS.

With respect to the first issue, the trial court said:

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, 1991METROPOLIS 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, 1991BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitionervs.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, 1991PILAR DEVELOPMENT CORPORATION, petitionervs.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, 1991BF HOMES DEVELOPMENT CORPORATION, petitioner, vs.THE COURT OF APPEALS, CENTRAL BANK AND CARLOTA P. VALENZUELA, respondents.G.R. No. 90473 December 11, 1991EL 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.:pThis 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

"The evidence submitted preponderates in favor of petitioners. The deprivation of petitioners' rights in the Resolution undermines the constitutional guarantee of due process. Petitioners were never notified that they were being investigated, much so, they were not informed of any charges against them and were not afforded the opportunity to adduce countervailing evidence so as to deserve the punitive measures promulgated in Resolution No. 805 of the Monetary Board. xxx”xii[12]The foregoing disquisition by the trial court is untenable under the facts and circumstances of the case. Petitioners were duly afforded their right to due process by the Monetary Board, it appearing that:1. Petitioners were invited by Director Lirio to a conference scheduled for July 21, 1988 to discuss the findings made in the 16th regular examination of PESALA's records. Petitioners did not attend, said conference;

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. 68878This 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. 77255-58Petitioners 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

2. Petitioner Renato Lim's letter of July 28, 1988 to PESALA's Board of Directors, explaining his side of the controversy, was forwarded to the Monetary Board which the latter considered in adopting Monetary Board Resolution No. 805; and3. PESALA's Board of Director's letter, dated July 29, 1988, to the Monetary Board, explaining the Board's side of the controversy, was properly considered in the adoption of Monetary Board Resolution No. 805.Petitioners therefore cannot complain of deprivation of their right to due process, as they were given ample opportunity by the Monetary Board to air their Submission and defenses as to the findings of irregularity during the said 16th regular examination. The essence of due process is to be afforded a reasonable opportunity to be heard and to submit any evidence one may have in support of his defense.xiii[13] What is offensive to due process is the denial of the opportunity to be heard.xiv[14] Petitioners having availed of their opportunity to

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. 78766Petitioner 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

present their position to the Monetary Board by their letters-explanation, they were not denied due processxv[15].Petitioners cite Ang Tibay v. CIRxvi[16] and assert that the following requisites of procedural due process were not observed by the Monetary Board:

1. The right to a hearing, which includes the right to present one's case and submit evidence in support thereof;

2. The tribunal must consider the evidence presented;3. The decision must have something to support itself;4. The evidence must be substantial;5. The decision must be rendered on the evidence presented at the hearing, or at least contained in the

record and disclosed to the parties affected;

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. 81303On 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. 81304On 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.

6. The tribunal or body or any of its judges must act or its or his own independent consideration of the law and facts of the controversy and not simply accept the view of a subordinate in arriving at a decision;

7. The board or body should, in all controversial questions, render its decision in such a manner that the parties to the proceedings can know the various issues involved, and the reason for the decision rendered.Contrary to petitioners' allegation, it appears that the requisites of procedural due process were complied with by the Monetary Board before it issued the questioned Monetary Board Resolution No. 805. Firstly, the petitioners were invited to a conference to discuss the findings gathered during the 16th regular examination of PESALA's records. (The requirement of a hearing is complied with as long as there was an opportunity to be heard, and not necessarily that an actual hearing was conducted.xvii[17]) Secondly, the Monetary Board considered the evidence presented. Thirdly, fourthly and fifthly, Monetary Board Resolution No. 805 was adopted on the basis of said findings unearthed during the 16th regular examination of PESALA's records and

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. 90473Petitioner 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.

derived from the letter-comments submitted by the parties. Sixthly, the members of the Monetary Board acted independently on their own in issuing subject Resolution, placing reliance on the said findings made during the 16th regular examination. Lastly, the reason for the issuance of Monetary Board Resolution No. 805 is readily apparent, which is to prevent further irregularities from being committed and to prosecute the officials responsible therefor.With respect to the second issue, there is tenability in petitioners' contention that the Monetary Board, as an administrative agency, is legally bound to observe due process, although they are free from the rigidity of certain procedural requirements. As held in Adamson and Adamson, Inc. v. Amoresxviii[18]:"While administrative tribunals exercising quasi-judicial functions are free from the rigidity of certain procedural requirements they are bound by law and practice to observe the fundamental and essential requirements of due process in justiciable cases presented before them. However, the standard of due process

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;

that must be met in administrative tribunals allows a certain latitude as long as the element of fairness is not ignored. Hence, there is no denial of due process where records show that hearings were held with prior notice to adverse parties. But even in the absence of previous notice, there is no denial of procedural due, process as long as the parties are given the opportunity to be heard."Even Section 28, (c) and (d), of Republic Act No. 3779 ("RA 3779") delineating the powers of the Monetary Board over savings and loan associations, require observance of due process in the exercise of its powers:“x x x(c) To conduct at least once every year, and whenever necessary, any inspection, examination or investigation of the books, and records, business affairs, administration, and financial condition of any savings and loan association with or without prior notice but always with fairness and reasonable opportunity for the association or any of its officials to give their side of the case. x x x

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; and5. 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; and4. 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)

(d) After proper notice and hearing, to suspend a savings and loan association for violation of law, for unsafe and unsound practices or for reason of insolvency. x x x

x x x.(f) To decide, after appropriate notice and hearings any controversy as to the rights or obligations of the savings and loan association, its directors, officers, stockholders and members under its charter, and, by order, to enforce the same;

x x x" (italics supplied)Anent the third issue, petitioners theorize that Monetary Board Resolution No. 805 is null and void for being violative of petitioners' right to due process. To support their stance, they cite the trial court's ruling, to wit:

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

"A reading of Monetary Board Resolution No. 805 discloses that it imposes administrative sanctions against petitioners. In fact, it does not only penalize petitioners by including them in the watchlist to prevent them from holding responsible positions in any institution under Central Bank supervision,' it mandates the PESALA Board of Directors as well to file Civil and Criminal charges against them 'for all the misfeasance and malfeasance committed by them, as warranted by the evidence.' Monetary Board Resolution No. 805 virtually deprives petitioners their respective gainful employment, and at the same time marks them for judicial prosecution. The crucial question here is that were petitioners afforded due process in the investigations conducted which prompted the issuance of Monetary Board Resolution No. 805?x x x Although the Monetary Board is free from the rigidity of certain procedural requirements, it failed 'to observe the essential requirement of due process' (Adamson and Adamson, Inc. v. Amores, 152 SCRA 237)

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.

specifically its failure to afford petitioners the opportunity to be heard. In short, there is a clear showing of arbitrariness resulting in an irreparable injury against petitioners as the Resolution certainly affects their 'life, liberty and property.'Monetary Board Resolution No. 805 Violates basic and essential requirements. It must therefore be, as it is hereby, declared, as void and inexistent because among other things, it openly derogates the fundamental rights of petitioners."Petitioners opine that with the issuance of Monetary Board Resolution No. 805, "they are now barred from being elected or designated as officers again of PESALA, and are likewise prevented from future engagements or employments in all institutions under the supervision of the Central Bank thereby virtually depriving them of the opportunity to seek employments in the field which they can excel and are best fitted." According to them,

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. 78767On 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.

the Monetary Board is not vested with "the authority to disqualify persons from occupying positions in institutions under the supervision of the Central Bank without proper notice and hearing" nor is it vested with authority "to file civil and criminal cases against its officers/directors for suspected fraudulent acts."Petitioners' contentions are untenable. It must be remembered that the Central Bank of the. Philippines (now Bangko Sentral ng Pilipinas), through the Monetary Board, is the government agency charged with the responsibility of administering the monetary, banking and credit system of the countryxix[19] and is granted the power of supervision and examination over banks and non-bank financial institutions performing quasi-banking functions, of which savings and loan associations, such as PESALA, form part ofxx[20].The special law governing savings and loan association is Republic Act No. 3779, as amended, otherwise known as the "Savings and Loan Association Act." Said law authorizes the Monetary Board to conduct regular

G.R. No. 78894On 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.

yearly examinations of the books and records of savings and loan associations, to suspend, a savings and loan association for violation of law, to decide any controversy over the obligations and duties of directors and officers, and to take remedial measures, among others. Section 28 of Rep. Act No. 3779, reads:"SEC. 28. Supervisory powers over savings and loan associations. - In addition to whatever powers have been conferred by the foregoing provisions, the Monetary Board shall have the power to exercise the following:

x x x(c) To conduct at least once every year, and whenever- necessary, any inspection, examination or investigation of the books and records, business affairs, administration, and financial condition of any savings and loan association with or without prior notice but always with fairness and reasonable opportunity for the association or any of its officials to give their side of the case. Whenever an inspection, examination or investigation is

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

conducted under this grant of power, the person authorized to do so may seize books and records and keep them under his custody after giving proper receipts therefor; may make any marking or notation on any paper, record, document or book to show that it has been examined and verified and may padlock or seal shelves, vaults, safes, receptacles or similar containers and prohibit the opening thereof without first securing authority therefor, for as long as may be necessary in connection with the investigation or examination being conducted. The official of the Central Bank in charge of savings and loan associations and his deputies are hereby authorized to administer oaths to any director, officer or employee of any association under the supervision of the Monetary Board;

x x x(d) After proper notice and hearing, to suspend a savings and loan association for violation of law, for unsafe and unsound practices or for reason of insolvency. The Monetary Board may likewise, upon the proof that a

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

savings and loan association or its board or directors or officers are conducting and managing its affairs in a manner contrary to laws, orders, instructions, rules and regulations promulgated by the Monetary Board or in a manner substantially prejudicial to the interest of the government, depositors or creditor, take over the management of the savings and loan association after due hearing, until a new board of directors and officers are elected and qualified without prejudice to the prosecution of the persons responsible for such violations. The management by the Monetary Board shall be without expense to the savings and loan association, except such as is actually necessary for its operation, pending the election and qualification of a new board of directors and officers to take the place of those responsible for the violation or acts contrary to the interest of the government, depositors or creditors;

x x x

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

(f) To decide, after appropriate notice and hearings any controversy as to the rights or obligations of the savings and loan association, its directors, officers, stockholders and members under its charter, and, by order, to enforce the same;

x x x(l) To conduct such investigations, take such remedial measures, exercise all powers which are now or may hereafter be conferred upon it by Republic Act Numbered Two Hundred sixty-five in the enforcement of this legislation, and impose upon associations, whether stock or noti-stock their directors and/or officers administrative sanctions under Sections 34-A or 34-B of Republic Act Two Hundred sixty-five, as amended."From the foregoing, it is gleanable that the Central Bank, through the Monetary Board, is empowered to conduct investigations and examine the records of savings and loan associations. If any irregularity is

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 xxxBased 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).

discovered in the process, the Monetary Board may impose appropriate sanctions, such as suspending the offender from holding office or from being employed with the Central Bank, or placing the names of the offenders in a watchlist.The requirement of prior notice is also relaxed under Section 28 (c) of RA 3779 as investigations or examinations may be conducted with or without prior notice "but always with fairness and reasonable opportunity for the association or any of its officials to give their side." As may be gathered from the records, the said requirement was properly complied with by the respondent Monetary Board.We sustain the ruling of the Court of Appeals that petitioners' suspension was only preventive in nature and therefore, no notice or, hearing was necessary. Until such time that the petitioners have proved their innocence,

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

they may be preventively suspended from holding office so as not to influence the conduct of investigation, and to prevent the commission of further irregularities.Neither were petitioners deprived of their lawful calling as they are free to look for another employment so long as the agency or company involved is not subject to Central Bank control and supervision. Petitioners can still practise their profession or engage in business as long as these are not within the ambit of Monetary Board Resolution No. 805.All things studiedly considered, the court upholds the validity of Monetary Board Resolution No. 805 and affirms the decision of the respondent court.WHEREFORE, the petition is DENIED, and the assailed Decision dated September 14, 1990 of the Court of Appeals AFFIRMED. No pronouncement as to costs.

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

SO ORDERED.Romero, (Chairman), Vitug, Panganiban, and Gonzaga-Reyes, JJ., concur.

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). 38. 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). 410. 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 Finance2. Roberto V. Ongpin, Minister of Trade & Industry & Chairman of Board of Investment3. Vicente B. Valdepeñas, Jr., Minister of Economic Planning & Director General of NEDA4. 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; and5. 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. 

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iv. [G.R. No. 112830.  February 1, 1996]

JERRY ONG, petitioner, vs. COURT OF APPEALS and RURAL BANK OF OLONGAPO, INC., represented by its Liquidator, GUILLERMO G. REYES, JR. and Deputy Liquidator ABEL ALLANIGUE, respondents.

D E C I S I O NBELLOSILLO, J.:

The jurisdiction of a regular court over a bank undergoing liquidation is the issue in this petition for review of the decision of the Court of Appeals.[1]

On 5 February 1991 Jerry Ong filed with the Regional Trial Court of Quezon City a petition for the surrender of TCT Nos. 13769 and 13770 pursuant to the provisions of Secs. 63(b) and 107 of P.D. 1529[2] against Rural Bank of Olongapo, Inc. (RBO), represented by its liquidator Guillermo G. Reyes, Jr. and deputy liquidator Abel Allanigue.[3] The petition averred inter alia that -

2. The RBO was the owner in fee simple of two parcels of land including the improvements thereon situated in Tagaytay City x x x particularly described in TCT Nos. 13769 and 13770 x x x

3. Said parcels of land were duly mortgaged by RBO in favor of petitioner on December 29, 1983 to guarantee the payment of Omnibus Finance, Inc., which is likewise now undergoing liquidation

proceedings of its money market obligations to petitioner in the principal amount of P863,517.02 x x x

4.       Omnibus Finance, Inc., not having seasonably settled its obligations to petitioner, the latter proceeded to effect the extrajudicial foreclosure of said mortgages, such that on March 23, 1984, the City Sheriff of Tagaytay City issued a Certificate of Sale in favor of petitioner xxx

5.       Said Certificate of Sale x x x was duly registered with the Registry of Deeds of Tagaytay City on July 16, 1985, as shown in the certified true copies of the aforementioned titles x x x

6. Respondents failed to seasonably redeem said parcels of land, for which reason, petitioner has executed an Affidavit of Consolidation of Ownership which, to date, has not been submitted to the Registry of Deeds of Tagaytay City, in view of the fact that possession of the aforesaid titles or owner’s duplicate certificates of title remains with the RBO.

7. To date, petitioner has not been able to effect the registration of said parcels of land in his name in view of the persistent refusal of respondents, despite demand, to surrender RBO’s copies of its owner’s certificates of title for the parcels of land covered by TCT Nos. 13769 and 13770. [4]

Respondent RBO filed a motion to dismiss on the ground of res judicata alleging that petitioner had earlier sought a similar relief from Br. 18 of the Regional Trial Court of Tagaytay City, which case was dismissed with finality on appeal before the Court of Appeals.

In a supplemental motion to dismiss, respondent RBO contended that it was undergoing liquidation and, pursuant to prevailing jurisprudence, it is the liquidation court which has exclusive jurisdiction to take cognizance of petitioner’s claim.

On 7 May 1991 the trial court denied the motion to dismiss because it found that the causes of action in the previous and present cases were different although it was silent on the jurisdictional issue.  Accordingly, respondent RBO filed a motion for reconsideration but the same was similarly rejected in the order of June 11, 1991 holding that: (a) subject parcels of land were sold to petitioner through public bidding on 23 March 1984 and, consequently, said pieces of realty were no longer part of the assets of respondent RBO; and, (b) in the same token, subject lots were no longer considered assets of respondent RBO when its liquidation was commenced by the Central Bank on 9 November 1984 and when the petition for assistance in its liquidation was approved by the Regional Trial Court

of Olongapo City on 30 May 1985.

On 5 July 1991 respondent RBO filed a manifestation and urgent motion for reconsideration arguing that the validity of the certificate of sale issued to petitioner was still at issue in another case between them and therefore the properties covered by said certificate were still part and parcel of its assets.

Still unpersuaded by respondent RBO’s arguments, the trial court denied reconsideration in its order of 18 September 1991 prompting the bank to elevate the case to respondent Court of Appeals by way of a petition for certiorari and prohibition.  On 12 February 1992 respondent court rendered a decision annulling the challenged order of the court a quo dated 19 June 1991 which sustained the jurisdiction of the trial court as well as the order of 18 September 1991 denying reconsideration thereof.  Moreover, the trial judge was ordered to dismiss Civil Case No. Q-91-8019 without prejudice to the right of petitioner to file his claim in the liquidation proceedings (Sp. Proc. No. 170-0-85) pending before Br. 73 of the Regional Trial Court of Olongapo City.[5]

In reversing the trial court the appellate court noted that Sec. 29, par. 3, of R.A. 265 as amended by P.D. 1827[6] does not limit the jurisdiction of the liquidation court to claims against the assets of the insolvent bank.  The provision is general in that it clearly and unqualifiedly states that the liquidation court shall have jurisdiction to adjudicate disputed claims against the bank.  “Disputed claims” refer to all claims, whether they be against the assets of the insolvent bank, for specific performance, breach of contract, damages, or whatever.  To limit the jurisdiction of the liquidation court to those claims against the assets of the bank is to remove significantly and without basis the cases that may be brought against a bank in case of insolvency.

Respondent court also noted that the certificates of title are still in the name of respondent RBO.  As far as third persons are concerned (and these include claimants in the liquidation court), registration is the operative act which would convey title to the property.

Petitioner submits that Civil Case No. Q-91-8019 may proceed independently of Sp. Proc. No. 170-0-85.  He argues that the disputed parcels of land have been extrajudicially foreclosed and the corresponding certificate of sale issued in his favor; that considering that respondent RBO failed to redeem said properties he should now be allowed to consolidate his title thereto; that respondent RBO’s mortgage of TCT Nos. 13769 and 13770 in favor of petitioner and its subsequent foreclosure are presumed valid and

regular; and, that the liquidation court has no jurisdiction over subject parcels of land since they are no longer assets of respondent RBO.

We find no merit in the petition. Section 29, par. 3, of R.A. 265 as amended by P. D. 1827 provides –

If the Monetary Board shall determine and confirm within (sixty days) that the bank x x x 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[7] reciting the proceedings which have been taken and praying the assistance of the court in the liquidation of such institution.  The court shall have jurisdiction in the same proceedings to adjudicate disputed claims against the bank x x x and enforce individual liabilities of the stockholders and do all that is necessary to preserve the assets of such institution and to implement the liquidation plan approved by the Monetary Board (italics supplied).

Applying the aforequoted provision in Hernandez v. Rural Bank of Lucena, Inc., [8] this Court ruled –

The fact that the insolvent bank is forbidden to do business, that its assets are turned over to the Superintendent of Banks, as a receiver, for conversion into cash, and that its liquidation is undertaken with judicial intervention means that, as far as lawful and practicable, all claims against the insolvent bank should be filed in the liquidation proceeding (italics supplied).

We explained therein the rationale behind the provision, i.e., the judicial liquidation is intended to prevent multiplicity of actions against the insolvent bank.  It is a pragmatic arrangement designed to establish due process and orderliness in the liquidation of the bank, to obviate the proliferation of litigations and to avoid injustice and arbitrariness.  The lawmaking body contemplated that for convenience only one court, if possible, should pass upon the claims against the insolvent bank and that the liquidation court should assist the Superintendent of Banks and regulate his operations.

The phrase “(T)he court shall have jurisdiction in the same proceedings to adjudicate disputed claims against the bank” appears to have misled petitioner.  He argues that to the best of his personal knowledge there is no pending action filed before any court or agency which contests his right over subject properties.  Thus his petition before the Regional Trial Court of Quezon City cannot be considered a “disputed claim” as

contemplated by law.

It is not necessary that a claim be initially disputed in a court or agency before it is filed with the liquidation court.  As may be gleaned in theHernandez case, the term “disputed claim” in the provision simply connotes that –

[n] the course of the liquidation, contentious cases might arise wherein a full-dress hearing would be required and legal issues would have to be resolved. Hence, it would be necessary injustice to all concerned that a Court of First Instance (now Regional Trial Court) x x x assist and supervise the liquidation and x x x act as umpire or arbitrator in the allowance and disallowance of claims.

Petitioner must have overlooked the fact that since respondent RBO is insolvent other claimants not privy to their transaction may be involved.  As far as those claimants are concerned, in the absence of certificates of title in the name of petitioner, subject lots still form part of the assets of the insolvent bank.

On the basis of the Hernandez case as well as Sec. 29, par. 3, of R.A. 265 as amended by P.D. 1827, respondent Court of Appeals was correct in holding that the Regional Trial Court of Quezon City, Br. 79, did not have jurisdiction over the petition, much less in ordering the dismissal of Civil Case No. Q-91-8019, without prejudice to petitioner’s right to file his claim in Sp. Proc. No. 170-0-85 before the Regional Trial Court of Olongapo City, Br. 73.

WHEREFORE, the petition is DENIED. The decision of respondent Court of Appeals dated 12 February 1992 is AFFIRMED. Costs against petitioner.

SO ORDERED.Padilla (Chairman), Vitug. Kapunan, and Hermosisima, Jr., JJ., concur.

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