AMANTE: Under the “independence principle,” banks assume no liability or responsibility for the
TRANSFIELD PHILIPPINES, INC., petitioner, vs. LUZON HYDRO CORPORATION form, sufficiency, accuracy, genuineness, falsification or legal effect of any documents, or for
G.R. No. 146717. November 22, 2004
Facts:
 Respondent Luzon Hydro Corporation entered into a Turnkey Contract.
 Petitioner Transfield, as Turnkey Contractor, undertook to construct, a seventy
Megawatt hydro-electric power station.
 To secure performance of petitioner’s obligation , petitioner opened in favor of LHC
two standby letters of credit (securities).
 Issuer: Australia and New Zealand Banking Group (ANB)
o Security Bank Corporation (SBC)
 Transfield sought multiple extensions due to typhoons etc.
 LHC denied the requests.
 The first of the actions was a Request for Arbitration.
 Transfield contacted both banks to notify them of the arbitration proceedings and not
to furnish the securities to LHC.
 Despite the letters of Transfield, however, both banks informed petitioner that they
would pay on the Securities if and when LHC calls on them.
 Because of the delay, LHC called on the stand-by letters of credit.
 Transfield filed a Complaint for Injunction, with prayer for temporary restraining order
and writ of preliminary injunction, against herein respondents.
 Employing the principle of “independent contract” in letters of credit, the trial court
ruled that LHC should be allowed to draw on the Securities for liquidated damages.
 The appellate court expressed conformity with the trial court’s decision that LHC could
call on the securities.
*LHC informed the SC that the subject letters of credit had been fully drawn.
*Under the contract, there was no stipulation that all disputes must first be settled before the
LHC may call on the securities.
Issue: Whether or not LHC can collect from the letters of credit despite the pending arbitration
case.
Ruling:
The independence principle liberates the issuing bank from the duty of ascertaining
compliance by the parties in the main contract.
The obligation under the letter of credit is independent of the related and originating contract.
In brief, the letter of credit is separate and distinct from the underlying transaction.
Respondent banks had squarely raised the independence principle to justify their releases of
the amounts due under the Securities.
the general and/or particular conditions stipulated in the documents or superimposed
thereon, nor do they assume any liability or responsibility for the description, quantity,
weight, quality, condition, packing, delivery, value or existence of the goods represented by
any documents, or for the good faith or acts and/or omissions, solvency, performance or
standing of the consignor, the carriers, or the insurers of the goods, or any other person
whomsoever.
The independent nature of the letter of credit may be: (a) independence in toto
where the credit is independent from the justification aspect and is a separate obligation from
the underlying agreement; or (b) independence may be only as to the justification aspect,
though in both cases the payment may be enjoined if in the light of the purpose of the credit
the payment of the credit would constitute fraudulent abuse of the credit.
Transfield’s argument that any dispute must first be resolved by the parties, whether
through negotiations or arbitration, before the beneficiary is entitled to call on the letter of
credit in essence would convert the letter of credit into a mere guarantee.
Jurisprudence has laid down a clear distinction between a letter of credit and a
guarantee in that the settlement of a dispute between the parties is not a prerequisite for the
release of funds under a letter of credit.
Pursuant to the independence principle the banks were under no obligation to
determine the veracity of LHC’s certification that default has occurred. Neither were they
bound by petitioner’s declaration that LHC’s call thereon was wrongful. Respondent banks’
undertaking was simply to pay once the required documents are presented by the beneficiary.
Transfield also invoked the “fraud exception” principle.
The “fraud exception” exists when the beneficiary, for the purpose of drawing on the
credit, fraudulently presents to the confirming bank, documents that contain, expressly or by
implication, material representations of fact that to his knowledge are untrue. In such a
situation, injunction is recognized as a remedy.
To be able to declare the call on the Securities wrongful or fraudulent, it is imperative
to resolve, among others, whether petitioner was in fact guilty of delay in the performance of
its obligation.
The SC cannot rule upon the issue of default since it was submitted by the parties to
the jurisdiction of the arbitral tribunals pursuant to the terms embodied in their contract.
At any rate, should Transfield finally prove in the pending arbitration proceedings that
LHC’s draws upon the Securities were wrongful due to the non-existence of the fact of default,
its right to seek indemnification for damages it suffered would not normally be foreclosed
pursuant to general principles of law
Atienza:
ARCENAS vs MARELLA
G.R. No. 169053 June 19, 2009
FACTS:
Ana Kuroga is a minority stockholder of Banco Filipino Savings and Mortgage Bank. She filed
a complaint in Makati RTC against the BOD of Banco Filipino and the members of the Monetary
Board of the BSP for violation of the Corporation Code, inspection of records by a stockholder,
for receivership and for the creation of a management committee. The acts complained of are
as follows:
 Engaging in unsafe, unsound and fraudulent banking practices;
 Granting and approving loans and/or loaned sums of money to six dummy borrower
corporations;
 Diminishing the future cumulative interest income by the bank and a decline in its
liquidity position;
 Giving favorable treatment to Borrower Corporations
 Unlawful refusal to allow petitioner from inspecting or accessing the corporate
records
Arcenas et al moved for the dismissal of the case alleging that the trial court has no jurisdiction
over it.
ISSUE:
Which body has the jurisdiction over the case?
RULING:
The BSP has the jurisdiction over the case. The acts complained of pertain to the
conduct of Banco Filipino’s banking business. The law vests in the BSP the supervision over
operations and activities of banks. The New Central Bank Act provides: Section 25. Supervision
and Examination.—The Bangko Sentral shall have supervision over, and conduct periodic or
special examinations of, banking institutions and quasi-banks, including their subsidiaries and
affiliates engaged in allied activities. The authority to determine whether the bank is engaged
in unsafe and unsound banking practices is also vested to the Monetary Board. Sec. 30 of the
GBL provides that the Monetary Board has the exclusive authority to appoint a receiver. The
term “exclusively” connotes that only the Monetary Board can resolve the issue of whether a
bank is to be placed under receivership and, upon an affirmative finding, it also has authority to
appoint a receiver. This is further affirmed by the fact that the law allows the Monetary Board
to take action “summarily and without need for prior hearing.” The court’s jurisdiction can only
be invoked after the Monetary Board had taken action in the matter and only on the ground
that the action was taken was in excess of jurisdiction or with grave abuse of discretion as to
amount to lack or excess of jurisdiction.
Delica:
Rural Bank of San Miguel and Hilario Soriano
vs. Monetary Board, Bangko Sentral ng Pilipinas, and PDIC
G.R. No. 150886 February 16, 2007
Facts:
Rural Bank of San Miguel (RBSM) was a domestic corporation engaged in banking.
Hilario B. Soriano claims to be the majority stockholder of its outstanding shares of stock. To
assist its impaired liquidity and operations, the RBSM was granted emergency loans in the
aggregate amount of P375Million. The LBP advised RBSM that it will terminate the clearing of
RBSM’s failure to replenish its Special Clearing Demand Deposit with LBP. BSP interceded not
to terminate to protect the interests of RBSM’s depositors and creditors. After a year, LBP finally
terminated the clearing facility of RBSM. Out of P26.189M, P12.6M was not used to service
withdrawals. RBSM declared a bank holiday. The BSP designated Ms. Cabais as comptroller to
examine the books and records of RBSM. Based on Ms. Cabais’ report on the total obligations
of RBSM, Director Domod-ong made a report to the MB. MB issued Resolution No. 105
prohibiting RBSM from doing business in the Philippines, placing under receivership and
designating PDIC as receiver. MB passed Resolution No. 966 directing PDIC to proceed with the
liquidation of RBSM under Section 30 of RA 7653. RBSM and Hilario filed a petition for certiorari
and prohibition in the RTC to nullify Resolution No. 105.
Issue:
Whether or not Section 30 of RA 7653 and applicable jurisprudence require a current
and complete examination of the bank before it can be closed and placed under receivership.
Arguments:
RBSM and Hilario
 R.N. 105 was bereft of any basis since no complete examination had been conducted
before its issuance.
 “Report” under Section 30 refers to the report on the examination of the bank which,
under Section 29, must be made to the MB after examination.
 MB, BSP, PDIC
 RA 7653 merely requires as report of the head of the supervising or examining
department.
 “Report” in Section 30 and “Examination” in Section 29 of the old law are not
synonymous.
Ruling:
 No. It is well settled that the closure of a bank may be considered as an exercise of
police power. The action of the MB on this matter is final and executor. RA 265 was expressly
repealed by RA 7653. In RA 7652, only a “report of the head of the supervising or examining
department” is necessary. This court cannot look or impose another meaning on the term
“report” or to construe it as synonymous with “examination”. From the words used in Section
30, it is clear that RA 7653 no longer requires that an examination be made before the MB can
issue a closure order. The purpose of the law is to make the closure of a bank summary and
expeditious in order to protect public interest. This is also why prior notice and hearing are no
longer required for a bank can be closed.
MB had sufficient basis to justify the closure of RBSM. It relied on the report of Mr.
Domo-ong that:
1. RBSM was unable to pay its liabilities as they become due in the ordinary course of business;
and
2. RBSM could not continue in business without incurring probable loss to its depositors and
creditors.
In short, MB and BSP complied with all the requirements of RA 7653. By relying on a
report before placing a bank under receivership, the MB and BSP did not only follow the letter
of the law, they were also faithful to its spirit, which was to act expeditiously. Accordingly, the
issuance of Resolution No. 105 was untainted with arbitrariness.
WHEREFORE, the petition is DENIED.
Macala:
In Re: Petition for Assistance in the Liquidation of the Rural Bank of Bokod (Benguet), Inc.,
PDIC vs. Bureau of Internal Revenue
Facts:
Rural Bank of Bokod (Benguet), Inc. (RBBI) conducted a special examination of RBBI was
conducted by the Supervision and Examination Sector (SES) Department III of what is now the
Bangko Sentral ng Pilipinas (BSP),4 wherein various loan irregularities were uncovered. In a
letter, dated 20 May 1986, the SES Department III required the RBBI management to infuse
fresh capital into the bank, within 30 days from date of the advice, and to correct all the
exceptions noted. However, up to the termination of the subsequent general examination
conducted by the SES Department III, no concrete action was taken by the RBBI management.
A memorandum and report, dated 28 August 1990, were submitted by the Director of the SES
Department III concluding that the RBBI remained in insolvent financial condition and it can no
longer safely resume business with the depositors, creditors, and the general public.
BSP liquidator of RBBI caused the filing with the RTC of a Petition for Assistance in the
Liquidation of RBBI, the Monetary Board transferred to herein petitioner Philippine Deposit
Insurance Corporation (PDIC) the receivership/liquidation of RBBI.The respondent Bureau of
Internal Revenue (BIR), through Atty. Justo Reginaldo, manifested that PDIC should secure a tax
clearance certificate from the appropriate BIR Regional Office, pursuant to Section 52(C) of
Republic Act No. 842. PDIC argues that the closure of banks under Section 30 of the New Central
Bank Act is summary in nature and procurement of tax clearance as required under Section
52(C) of the Tax Code of 1997 is not a condition precedent.
Issue:
Whether or not a bank ordered closed and placed under receivership by the Monetary
Board of the BSP still needs to secure a tax clearance certificate
Held:
Section 52(C) of the Tax Code of 1997 and the BIR-SEC Regulations No. 1 regulate the
relations only as between the SEC and the BIR, making a certificate of tax clearance a prior
requirement before the SEC could approve the dissolution of a corporation. In Spec. Proc. No.
91-SP-0060 pending before the RTC, RBBI was placed under receivership and ordered liquidated
by the BSP, not the SEC; and the SEC is not even a party in the said case, although the BIR is.
This Court cannot find any basis to extend the SEC requirements for dissolution of a corporation
to the liquidation proceedings of RBBI before the RTC when the SEC is not even involved therein.
The receiver shall immediately gather and take charge of all the assets and liabilities of the
institution, administer the same for the benefit of its creditors, and exercise the general powers
of a receiver under the Revised Rules of Court but shall not, with the exception of administrative
expenditures, pay or commit any act that will involve the transfer or disposition of any asset of
the institution: Provided, That the receiver may deposit or place the funds of the institution in
non-speculative investments. The receiver shall determine as soon as possible, but not later
than ninety (90) days from take over, whether the institution may be rehabilitated or otherwise
placed in such a condition that it may be permitted to resume business with safety to its
depositors and creditors and the general public: Provided, That any determination for the
resumption of business of the institution shall be subject to prior approval of the Monetary
Board.
Under the Corporation Code, the SEC may dissolve a corporation, upon the filing of a verified
complaint and after proper notice and hearing, on grounds provided by existing laws, rules, and
regulations. Upon receipt by the corporation of the order of suspension from the SEC, it is
required to notify and submit a copy of the said order, together with its final tax return, to the
BIR. The SEC is also required to furnish the BIR a copy of its order of suspension. The BIR is
supposed to issue a tax clearance to the corporation within 30 days from receipt of the
foregoing documentary requirements. The SEC shall issue the final order of dissolution only
after the corporation has submitted its tax clearance; or in case of involuntary dissolution, the
SEC may proceed with the dissolution after 30 days from receipt by the BIR of the documentary
requirements without a tax clearance having been issued. The corporation is allowed to
continue as a body corporate for three years after its dissolution, for the purpose of prosecuting
and defending suits by or against it, to settle and close its affairs, and to dispose of and convey
its property and distribute its assets, but not for the purpose of continuing its business. The
corporation may undertake its own liquidation, or at any time during the said three years, it
may convey all of its property to trustees for the benefit of its stockholders, members, creditors,
and other persons in interest.
In contrast, the Monetary Board may summarily and without need for prior hearing,
forbid the banking corporation from doing business in the Philippines, for causes enumerated
in Section 30 of the New Central Bank Act; and appoint the PDIC as receiver of the bank. PDIC
shall immediately gather and take charge of all the assets and liabilities of the closed bank and
administer the same for the benefit of its creditors. The summary nature of the procedure for
the involuntary closure of a bank is especially stressed in Section 30 of the New Central Bank
Act, which explicitly states that the actions of the Monetary Board under the said Section or
Section 29 shall be final and executory, and may not be restrained or set aside by the court
except on a Petition for Certiorari filed by the stockholders of record of the bank representing
a majority of the capital stock. PDIC, as the appointed receiver, shall file ex parte with the proper
RTC, and without requirement of prior notice or any other action, a petition for assistance in
the liquidation of the bank. The bank is not given the option to undertake its own liquidation.
Montecillo:
First Philippine International Bank vs. Court of Appeals
G.R. No. 115849 January 24, 1996.
Facts:
First Philippine International Bank (formerly Producers Bank) acquired six parcels of land
previously owned by BYME Investment Corporation with a total area of 101 hectares. Upon
suggestion of BYME, Demetria & Janolo met with Mercurio Rivera (Manager of the Bank) to buy
the said property. First, Janolo made a formal purchase offer to the bank in the amount of P3.5
million. Then, Producers bank, through Rivera, made a counter-offer in the amount of P5.5
million. As such, Janolo amended its previous offer to the bank in the amount of P4.250 million.
After that Janolo received no response from the bank. Janolo sent another letter accepting the
offer to purchase in the amount of P5.5 million. On Oct. 12, 1987 the conservator of the bank
was replaced by an Acting Conservator. After the replacement, Rivera (the Bank Manager) sent
a letter to Demetria that their proposal is still under study of the newly created committee for
submission to the newly designated Acting Conservator. Demetria and Janolo made series of
demands for compliance of the bank on what they considered as a perfected contract of sale.
It was only then that Producers Bank, through Acting Conservator Encarnation refused to
receive both payment and letters. Thus, Janolo & Demetria filed a suit for specific performance
with damages against Producers Bank, Rivera, & Acting Conservator Encarnacion.
Issue:
Whether or not a Conservator may revoke the perfected and enforceable contract.
Arguments:
Producers Bank (FPIB): The Conservator can unilaterally repudiate authority of bank officers
and/or revoke the contract of sale between Producers Bank (FPIB) and Demetria & Janolo
(Ejercito).
Demetria & Janolo: The contract of sale has been perfected.
Ruling:
No.
Section 28-A of R.A. 265 merely gives the conservator power to revoke contracts that
are, under existing law, deemed to be defective—the conservator merely takes the place of a
bank’s board of directors, and what the said board cannot do, the conservator cannot do either.
His authority would be only to bring court actions to assail such contracts.
The Banks repudiation, through Conservator Encarnacion, of Rivera’s authority and
action came only on May 12, 1988 or more than seven (7) months after Janolos acceptance.
There is absolutely no evidence that the Conservator, at the time the contract was perfected,
actually repudiated or overruled said contract of sale.
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.
Ona:
Central Bank of the Philippines vs. Court of Appeals
FACTS:
Examination report submitted by the SES of the CB that the Triumph Savings Bank (TSB) is
insolvent and would cause probable loss to its creditors and depositors.
ISSUE: Whether or not Sec. 29 of R.A. 265 is unconstitutional as it violates procedural due
process
Arguments
CENTRAL BANK AND TIAOQUI
CB has the power to take over a bank even if without prior notice and hearing given to the
bank.
Prior hearing and notice not required as it will only cause unnecessary delay which will
prejudice depositors and creditors of TSB.
RULING:
1. No, Sec. 29 of R.A. 265 is constitutional
Contrary to the argument of TSB, Sec. 29 does not require prior notice and hearing
before a bank may be directed to stop operations and placed under receivership.
Previous hearing is not required and the Monetary Board Resolution cannot be stopped with
the use of the constitutional requirement of due process .
2. “Close now and hear later” scheme is grounded on practical and legal consideration to
prevent unwarranted dissipation of the bank’s assets
Valid exercise of police power to protect the public.
3. Procedural rights invoked by TSB must not take precedence over the substantive interests
of the depositors, creditors, and stockholders over the assets of the bank.
Sec. 29 is designed to protect the interest of all concerned.
Procedural due process cannot outweigh the evil sought to be prevented
4. Does not have the same facts as the Banco Filipino case
Perez:
ABACUS REAL ESTATE DEVELOPMENT CENTER, INC.vs. THE MANILA BANKING
CORPORATION
G.R. No. 162270 April 6, 2005
FACTS:
The bank started to construct a 14-storey building on their land. However, the bank
encountered financial difficulties which rendered it unable to finish construction of the building.
The Central Bank ordered the closure of the bank and placed it under receivership.The bank’s
acting president, Vicente Puyat, started to scout investors who could finance the completion of
the building. The Laureano group offered to lease the building and wanted to be given an
exclusive option to purchase the building. The offer was accepted and the building was
subleased to petitioner, Abacus Real Estate. When Abacus expressed its desire to exercise its
exclusive option to purchase the building, Manila Bank refused to honor it. Abacus insists that
the option to purchase the lot and building granted to it by Puyat was binding upon Manila
Bank. On the other hand, the bank insists that Puyat had no authority to act for Manila bank, as
it was already placed under receivership by the Central Bank at the time of the granting of the
exclusive option to purchase.
ISSUE/S:
1. Whether or not Manila Bank’s acting President, Vicente G. Puyat is authorized to grant
the exclusive option to purchase.
2. Whether or not the receiver, Atty. Renan Santos may approve the exclusive option to
purchase.
RULING:
1. NO.
There can be no quibbling that respondent Manila Bank was under receivership, pursuant to
Central Bank’s MB Resolution No. 505 dated May 22, 1987, at the time the late Vicente G. Puyat
granted the “exclusive option to purchase”to the Laureano group of investors. Owing to this
defining reality, the appellate court was correct in declaring that Vicente G. Puyat was without
authority to grant the exclusive option to purchase the lot and building in question.
As held in Villanueva vs. CA:
. . . 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. 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.
With respondent bank having been already placed under receivership, its officers, inclusive of
its acting president, Vicente G. Puyat, were no longer authorized to transact business in
connection with the bank’s assets and property. Clearly then, the “exclusive option to purchase”
granted by Vicente G. Puyat was and still is unenforceable against Manila Bank.
2. NO.
Even assuming, in gratia argumenti, that Atty. Renan Santos, Manila Bank’s receiver,
approved the “exclusive option to purchase” granted by Vicente G. Puyat, the same would still
be of no force and effect.
Section 29 of the Central Bank Act, as amended provides:
…..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.
Clearly, the receiver appointed by the Central Bank to take charge of the properties of
Manila Bank only had authority to administer the same for the benefit of its creditors. Granting
or approving an “exclusive option to purchase” is not an act of administration, but an act of
strict ownership, involving, as it does, the disposition of property of the bank. Not being an act
of administration, the so-called “approval” by Atty. Renan Santos amounts to no approval at all,
a bank receiver not being authorized to do so on his own.
Reyes:
Banco Filipino v. Monetary Board
Facts:
• 9 Consolidated Cases:
1. Gr. No. 68878 - Granting Writ of Possession against Celestine Pahimuntung.
2. Gr. No. 77255-68 - Foreclosure of properties of Top Management Programs Corp. and
Pilar Development Corp. (Loan)
3. Gr. No.78766 - Foreclosure of properties of El Grande Devt. Corp. (Credit
Accommodation)
4. Gr. No.81303 - Confession of judgement for Pilar Dev’t Corp. (Loan)
5. Gr. No. 81304 - BF Homes files for restoration of financing facilities of BF.
6. Gr. No. 90473 - Foreclosure of properties of El Grande Devt. Corp. (Loan)
ALL CASES ABOVE CONTENDS THAT BF HAS NO MORE POWER TO FORECLOSE, RESIST OR
DEFEND SUITS INSTITUTED AGAINST IT.
7. Gr. No.70054 - Validity of Receivership and Liquidation of BF.
8. Gr. No.78767 - Validity of Receivership and Liquidation of BF.
9. Gr. No.78894 - Validity of Receivership and Liquidation of BF.
MAIN CASE:
• July 9, 1964 - Banco Filipino(BF) commenced operations.
• June 29, 1984 - Emergency Advance and P3B credit line given to BF and placed under
conservatorship
• August 10, 1984 - BF placed under conservatorship by Gilberto Tedoro, which resulted to
Teodoro
Report -> Insolvent, BF must be put into receivership.
• January 23, 1985 - Tiaoqui Report (CB officer) recommended receivership on BF as well.
• January 25, 1985 - Order of Closure of BF.
1. Forbid BF to do Business
2. Designate Valenzuela as Receiver and Aurellano as Deputy
3. Terminate Conservatorship over BF
• March 19, 1985 - Valenzuela Report - recommends BF to Liquidated.
• January 20, 1988 - Judge Cosico Report - Upheld closure and liquidation.
• January 28, 1991 - Santiago Report during the trial, recommends otherwise.
1. Teodoro and Tiaoqui reports not substantial for closure / liquidation.
2. BF’s closure is null and void.
3. BF should be allowed to reopen.
• June 18, 1991 - Oral Arguments in light of conflicting reports and thereafter submitted for
decision.
Issues:
1. Whether or not the receiver/ liquidator has the authority to prosecute, defend suits and to
foreclose mortgages in behalf of the bank while the issue on the validity of the receivership and
liquidation is still pending.
2. Whether or not the Closure and Liquidation of Banco Filipino is valid?
Held:
1. Yes, the receiver/ liquidator has the authority to prosecute, defend suits and to foreclose
mortgages in behalf of the bank while the issue on the validity of the receivership and
liquidation is still pending.
Section 29 of 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 liquidator 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.
2. No. The closure and liquidation of BF is invalid. 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:
1. 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;
2. 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;
3. the department head concerned shall inform the Monetary Board in writing, of the
facts;
4. the Monetary Board shall find the statements of the department head to be true.
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.
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 conclusion arrived at by the Board cannot be given weight and finality as the report
itself admits the inadequacy of its basis to support its conclusion.
Robis:
Ong v. CA (G.R. No. 112830. February 1, 1996)
Bellosillo, J.
Facts:
The Rural Bank of Olongapo, Inc. (RBO) was the owner of two parcels of land situated
in Tagaytay City described in TCT No. 13769 and TCT No. 13770. The said properties were
mortgaged by RBO in favor of Jerry Ong to guarantee the payment of Omnibus Finance, Inc.
Omnibus failed to settle its obligations with Ong. In effect, the mortgaged properties were
extrajudicially foreclosed in favor of Ong. Failure of RBO and Omnibus to redeem the foreclosed
properties, Ong executed an Affidavit of Consolidation of Ownership which has not been
submitted to the RD because of the refusal of RBO to surrender the titles of the properties.
Consequently, Ong filed with the Regional Trial Court (RTC) Quezon City a petition for the
surrender of TCT Nos. 13769 and 13770 against RBO.
Issue: Whether or not the RTC Quezon City has jurisdiction over the petition for the surrender
of titles filed by Ong against RBO which is a bank undergoing a liquidation proceeding.
Held: No.
Section 29, par.3 of R.A. 265 as amended by P.D. 1287 provides –
“If the Monetary Board shall determine and confirm (within 60 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 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 a monetary board.”
As can be gleaned from the provision, the court shall have jurisdiction in the same
proceedings to adjudicate disputed claims against the bank. Moreover, it was held in the case
of Hernandez v. Rural Bank of Lucena, Inc. that all claims against the insolvent bank should be
filed in the liquidation proceeding.
To vindicate his claim, Ong further argued that his petition before the RTC of QC cannot be
considered a disputed claim for there is no pending action filed before any court or agency
which contests his rights over the properties. Contrary to Ong’s argument, it is not necessary
that a claim be initially disputed in a court or agency before it is filed with the liquidation court.
As stated in the Hernandez case, the disputed claim in the above-quoted provision connotes
that – in the course of the liquidation, contentious cases might arise wherein a full-dress hearing
would be required and legal issues would have to resolved. Hence, it would be necessary in
justice to all concerned that the RTC x x x assist and supervise the liquidation x x x act as umpire
or arbitrator in the allowance and disallowance of claims.
Therefore, the RTC of Quezon City did not have jurisdiction over the petition without prejudice
to Ong’s right to file his claim before the RTC of Olongapo wherein the liquidation proceeding
was lodged.
 VIVAS vs. MB and PDIC
G.R. No. 191424 August 7, 2013
FACTS:
- Vivas, together with his principals are holders of the controlling interest of the Rural Bank of
Faire, Inc. (RBFI), later known as EuroCredit Community Bank, Inc. (ECBI).
- Vivas filed this present petition for prohibition with prayer to order a writ of injunction for the
respondent to desist from closing ECBI and placing it under receivership.
Upon the general examination of the books and records by the MB, it issued Resolution
No. 276 placing ECBI under receivership, based on the following findings that ECBI:
1. is unable to pay its liabilities as they become due in the ordinary course of business;
2. has insufficient realizable assets to meet liabilities;
3. cannot continue in business without involving probable losses to its depositors and creditors;
4. has willfully violated a cease and desist order of the Monetary Board for acts or transactions
which are considered unsafe and unsound banking practices and other acts or transactions
constituting fraud or dissipation of the assets of the institution;
5. failure of the Board of Directors/management of Eurocredit Bank to restore the bank’s
financial health and viability despite considerable time given to address the bank’s financial
problems; and
6. that the bank had been accorded due process
Thus MB in accordance with Section 30 of Republic Act No. 7653 approved the
recommendations of ISD II:
a. To prohibit the Eurocredit Bank from doing business in the Philippines and to place its
assets and affairs under receivership; and
b. To designate the Philippine Deposit Insurance Corporation as Receiver of the bank.
ISSUES:
I. WON there is grave abuse of discretion on the part of MB in placing ECBI under receivership
II. WON petition for prohibition is the proper remedy
III. WON there is undue delegation of power such that the legislature granted the MB with
unrestrained power to closed down financially troubled banks and placed it under receivership
HELD:
I. On WON there is grave abuse of discretion on the part of MB in placing ECBI under
receivership
- Vivas invokes Sec 11 of RA 7352 (Rural Act of 1992)
“… upon proof that the rural bank or its Board of Directors, or officers are conducting
and managing the affairs of the bank in a manner contrary to laws, orders, instructions, rules
and regulations promulgated by the Monetary Board or in a manner substantially prejudicial to
the interest of the Government, depositors or creditors, to take over the management of such
bank when specifically authorized to do so by the Monetary Board after due hearing process
until a new board of directors and officers are elected and qualified…”
The BSP should have taken over the management of ECBI and extended loans to the
financially distrained bank pursuant to Sections 11 and 14 of R.A. No. 7353 because the BSP’s
power is limited only to supervision and management take-over of banks, and not receivership.
VIVAS’ CONTENTION ABOVE IS ERRONEOUS!
- MB may forbid a bank from doing business and place it under receivership without prior
notice and hearing. Section 30 of R.A. No. 7653 provides, viz:
Sec. 30. Proceedings in Receivership and Liquidation. – Whenever, upon report of the head of
the supervising or examining department, the Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due in the ordinary course of business:
Provided, That this shall not include inability to pay caused by extraordinary demands
induced by financial panic in the banking community;
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its
liabilities; or
(c) cannot continue in business without involving probable losses to its depositors or
creditors; or
(d) has wilfully violated a cease and desist order under Section 37 that has become final,
involving acts or transactions which amount to fraud or a dissipation of the assets of the
institution; in which cases, the Monetary Board may summarily and without need for prior
hearing forbid the institution from doing business in the Philippines and designate the
Philippine Deposit Insurance Corporation as receiver of the banking institution.
- Accordingly, there is no conflict which would call for the application of the doctrine that
a special law should prevail over a general law. RA 7653 is a later law which expanded the power
of the MB over banks, including rural banks.
- "CLOSE NOW, HEAR LATER" doctrine has already been justified as a measure for the
protection of the public interest. Swift action is called for on the part of the BSP when it finds
that a bank is in dire straits. Unless adequate and determined efforts are taken by the
government against distressed and mismanaged banks, public faith in the banking system is
certain to deteriorate to the prejudice of the national economy itself, not to mention the losses
suffered by the bank depositors, creditors, and stockholders, who all deserve the protection of
the government.
- The doctrine is founded on practical and legal considerations to obviate unwarranted
dissipation of the bank’s assets and as a valid exercise of police power to protect the depositors,
creditors, stockholders, and the general public. Swift, adequate and determined actions must
be taken against financially distressed and mismanaged banks by government agencies lest the
public faith in the banking system deteriorate to the prejudice of the national economy.
- Accordingly, the MB can immediately implement its resolution prohibiting a banking
institution to do business in the Philippines and appoint the PDIC as receiver. The procedure for
the involuntary closure of a bank is summary and expeditious in nature. Such action of the MB
shall be final and executory, but may be later subjected to a judicial scrutiny via a petition for
certiorari to be filed by the stockholders of record of the bank representing a majority of the
capital stock. Obviously, this procedure is designed to protect the interest of all concerned, that
is, the depositors, creditors and stockholders, the bank itself and the general public. The
protection afforded public interest warrants the exercise of a summary closure
place them under receivership. The legislature has clearly spelled out the reasonable
parameters of the power entrusted to the MB and assigned to it only the manner of enforcing
said power. In other words, the MB was given a wide discretion and latitude only as to how the
law should be implemented in order to attain its objective of protecting the interest of the
public, the banking industry and the economy.

II. On WON petition for prohibition is a proper remedy

- Vivas availed of the wrong remedy…
The MB issued Resolution No. 276, dated March 4, 2010, in the exercise of its power
under R.A. No. 7653. Under Section 30 thereof, any act of the MB placing a bank under
conservatorship, receivership or liquidation may not be restrained or set aside except on a
petition for certiorari. Pertinent portions of R.A. 7653 read:
Section 30. –… The actions of the Monetary Board taken under this section or under Section 29
of this Act shall be final and executory, and may not be restrained or set aside by the court except
on petition for certiorari on the ground that the action taken was in excess of jurisdiction or with
such grave abuse of discretion as to amount to lack or excess of jurisdiction. The petition for
certiorari may only be filed by the stockholders of record representing the majority of the capital
stock within ten (10) days from receipt by the board of directors of the institution of the order
directing receivership, liquidation or conservatorship.
As a rule, the proper function of a writ of prohibition is to prevent the doing of an act
which is about to be done. It is not intended to provide a remedy for acts already accomplished.
In this case, Vivas seeks to prevent the acts of closing of ECBI and placing it under
receivership. The resolution on the matter had already been issued by the MB and the closure
of ECBI and its placement under receivership by the PDIC were already accomplished
- Even if treated as a petition for certiorari, the petition should have been filed with the
CA

III. … On WON there is undue delegation of power

- In this case, under the two tests, there was no undue delegation of legislative authority
in the issuance of R.A. No. 7653.
COMPLETENESS TEST: the law must be complete in all its terms and conditions when it
leaves the legislature such that when it reaches the delegate the only thing he will have to do is
enforce it
SUFFICIENT STANDARD TEST: there must be adequate guidelines or stations in the law
to map out the boundaries of the delegate's authority and prevent the delegation from running
riot.
- To address the growing concerns in the banking industry, the legislature has sufficiently
empowered the MB to effectively monitor and supervise banks and financial institutions and, if
circumstances warrant, to forbid them to do business, to take over their management or to