Doctrine: 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.
Fast Facts (tl;dr): This refers to 9 consolidated cases concerning the legality of the closure and receivership of petitioner Banco Filipino pursuant to the order of respondent Monetary Board.
The Monetary Board ordered the closure of Banco Filipino and placed it under receivership. Then, it was placed under liquidation.
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Facts: This refers to 9 consolidated cases concerning the legality of the closure and receivership of petitioner Banco Filipino pursuant to the order of respondent Monetary Board.
G.R No. 68878
This is a motion for reconsideration, filed by respondent Celestina Pahimuntung, of the decision promulgated by the SC 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 by the Central Bank pursuant to the resolution of the Monetary Board.
G.R. Nos. 77255-58
Petitioners Top Management Programs Corporation and Pilar Development Corporation are corporations engaged in the business of developing residential subdivisions. Top Management and Pilar Development obtained loans from Banco Filipino. The loans were secured by mortgages in its respective various properties in Cavite.
The Monetary Board issued a resolution finding Banco Filipino insolvent and unable to do business without loss to its creditors and depositors. It placed Banco Filipino under receivership of Carlota Valenzuela, Deputy Governor of the Central Bank.
The Monetary Board issued another resolution placing the bank under liquidation and designating Valenzuela as liquidator. By virtue of her authority as liquidator, Valenzuela appointed the law firm of Sycip, Salazar, et al. to represent Banco Filipino in all litigations.
Banco Filipino filed the petition for certiorari questioning the validity of the resolutions issued by the Monetary Board authorizing the receivership and liquidation of Banco Filipino.
The SC resolved to issue a TRO enjoining the respondents from executing further acts of liquidation of the bank; that acts such as receiving collectibles and receivables or paying off creditors' claims and other transactions pertaining to normal operations of a bank are not enjoined. The Central Bank is ordered to designate a comptroller for Banco Filipino.
Subsequently, Top Management failed to pay its loan on the due date. Hence, the law firm of Sycip, Salazar, et al. acting as counsel for Banco Filipino under authority of Valenzuela as liquidator, applied for extra-judicial foreclosure of the mortgage over Top Management's properties. Top Management filed a petition for injunction and prohibition with the respondent appellate court seeking to enjoin RTC 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 RTC 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 seeking to enjoin the same respondents from enforcing the foreclosure sale of its properties.
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 the SC.
G.R. No. 78766
Petitioner El Grande Development Corporation 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 secured by real estate mortgages on its various estates located in Cavite.
The Monetary Board forbade Banco Filipino to do business, placed it under receivership and designated Deputy Governor Carlota Valenzuela as receiver. The Monetary Board confirmed Banco Filipino's insolvency and designated the receiver 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, the ex-officio sheriff issued the notice of extra-judicial sale of the mortgaged properties of El Grande.
In order to stop the public auction sale, petitioner El Grande filed a petition for prohibition with the CA alleging that respondent Carlota Valenzuela could not proceed with the foreclosure of its mortgaged properties on the ground that the SC in G.R. No. 70054 issued a resolution which restrained Carlota Valenzuela from acting as liquidator and allowed Banco Filipino to resume banking operations only under a Central Bank comptroller. CA dismissed the petition.
Hence this petition for review on certiorari was filed alleging that the respondent court erred when it held in its decision that although Carlota P. Valenzuela was restrained by this Honorable Court from exercising acts in liquidation of Banco Filipino Savings & Mortgage Bank, she was not legally precluded from foreclosing the mortgage over the properties of the petitioner through counsel retained by her for the purpose.
G.R. No. 81303
Pilar Development filed an action against Banco Filipino, the Central Bank and Carlota Valenzuela for specific performance. It appears that the former management of Banco Filipino appointed Quisumbing & Associates as counsel for Banco Filipino. The said law firm filed an answer for Banco Filipino which confessed judgment against Banco Filipino.
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. 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. 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. CA dismissed the petition. A petition was filed with the SC but was denied. Hence, this instant motion for reconsideration.
G.R. No. 81304
On July 9, 1985, petitioner BF Homes Incorporated 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.
Petitioner filed a second supplemental complaint to which respondents filed a motion to dismiss. The trial court granted the motion to dismiss the supplemental complaint on the grounds (1) that plaintiff has no contractual relation with the defendants, and (2) that the Intermediate Appellate Court in a previous decision in AC-G.R. SP. No. 04609 had stated that Banco Filipino has been ordered closed and placed under receivership pending liquidation, and thus, the continuation of the facility sued for by the plaintiff has become legally impossible and the suit has become moot.
The order of dismissal was appealed by the petitioner to the Court of Appeals. On November 4, 1987, the respondent appellate court dismissed the appeal and affirmed the order of the trial court.
Hence, this petition for review on certiorari was filed, alleging that the respondent court erred when it found that the private respondents should not be the ones to respond to the cause of action asserted by the petitioner and the petitioner did not have any cause of action against the respondents Central Bank and Carlota Valenzuela.
G.R. No. 90473
Petitioner El Grande Development Corporation obtained a loan from Banco Filipino, secured by a mortgage over its five parcels of land located in 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 RTC Cavite for the extrajudicial foreclosure of the mortgage constituted over petitioner's properties.
Petitioner filed with the CA 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. CA dismissed 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. It has 89 operating branches, 46 of which are in Manila, with more than 3 million depositors.
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. This was augmented with a P3 billion credit line under M.B. Resolution No. 934.
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. The latter submitted a report (Teodoro report) to respondent Board on the conservatorship of petitioner bank. Subsequently, another report (Tiaoqui Report) was submitted to the Monetary Board by Ramon Tiaoqui, Special Assistant to the Governor and Head, SES Department II of the Central Bank, regarding the major findings of examination on the financial condition of petitioner BF.
Petitioner filed a motion before the SC 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. The SC issued TRO.
The SC resolved to 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 30 days. The Court further resolved to issue TRO 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. The Court also ordered the consolidation of Civil Cases Nos. 8108, 9676 and 10183 in RTC Makati.
Justice Consuelo Santiago of the CA submitted her report (Santiago Report) and recommendation. Respondents filed their objections to the Santiago Report. 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) and the other (Santiago Report) 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 the SC
The parties, having submitted their respective memoranda, the case is now submitted for decision.
G.R. No. 78767
Banco Filipino filed a complaint with the trial court to annul the resolution of the Monetary Board which ordered the closure of the bank and placed it under receivership.
The Central Bank and the receivers filed a motion to dismiss the complaint on the ground that the receivers had not authorized anyone to file the action. While the motion to dismiss was pending resolution, petitioner herein Metropolis Development Corporation 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.
The trial court denied the motion to dismiss and also denied the motion for reconsideration of the order later filed by Central Bank. 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 the Civil Case.
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.
G.R. No. 78894
A complaint was filed with the trial court in the name of Banco Filipino to annul the resolution o the Monetary Board which ordered the closure of Banco Filipino and placed it under receivership. The receivers appointed by the Monetary Board were Carlota Valenzuela, Arnulfo Aurellano and Ramon Tiaoqui.
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.
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. 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.
Issue: Whether or not the closure of BF Savings is proper.
Held: No. 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. Based on the 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 60 days that the bank is insolvent or can no longer resume business with safety to its depositors, creditors and the general public, it shall, if public interest will be served, order its liquidation.
There is no question that under Section 29 of the Central Bank Act, the following are the mandatory requirements to be complied with before a bank found to be insolvent is ordered closed and forbidden to do business in the Philippines: 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.
The actuation of the Monetary Board in closing petitioner bank 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. 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.
In the instant case, the basic standards of substantial due process were not observed. 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).
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.
The test of insolvency laid down in Section 29 of the Central Bank Act is measured by determining whether the realizable assets of a bank are less than its liabilities. Hence, a bank is solvent if the fair cash value of all its assets, realizable within a reasonable time by a reasonable prudent person, would equal or exceed its total liabilities exclusive of stock liability; but if such fair cash value so realizable is not sufficient to pay such liabilities within a reasonable time, the bank is insolvent. (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).
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