I. SHORT TITLE: FIRST PHIL. INT’L BANK v.

CA

II. FULL TITLE: FIRST 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.

III. PONENTE: PANGANIBAN, J.

IV. TOPIC: New Central Bank Act

V. STATEMENT OF FACTS:

In the course of its banking operations, defendant Producers Bank of the Philippines (PBP)
acquired six (6) parcels of land (101 hectares) located at Don Jose, Sta. Rosa, Laguna. Formerly
owned by BYME Investment and Development Corporation (BYME), the parcels of land were
mortgaged with the bank as collateral for a loan. The original plaintiffs named Demetria and Janolo
respectively entered into initial negotiations with the intention to purchase the property. For this
purpose, on August 1987, the said plaintiffs met with defendant Rivera (manager of the Property
Management Department of the defendant bank) through BYME’s legal counsel, named Fajardo.
Following Rivera’s advice, Janolo made a formal purchase offer to the bank. This offer stated that
he is willing to pay P3,5000,000.00 in cash for the 6 parcels of land spanning 101 hectares, more
or less. Rivera, on behalf of the bank, made a formal reply which contained the counter-offer in
the amount of P5,500,00.00.00. In response to this, Janolo amended his previous offer and
proposed to buy the said properties for P4,250,000.00 in cash. There was no reply to this offer.

What took place a few days after was a meeting between the plaintiffs and Luis Co, who
was the Senior Vice-President of the defendant bank. Rivera and Fajardo attended the meeting as
well. Two days later, Janolo sent a letter to the bank, through Rivera, stating that the former
accepted the latter’s counter-offer in the amount of P5,500,000.00.

A few days after, defendant Rivera wrote Demetria a letter informing him that the proposal
to buy the properties of the bank is under study by the newly created committee, which is for
submission to the newly designated Acting Conservator of the bank. 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. It
was even revealed that later on, Rivera advertised the same lot to others for sale. The letter of
demand for the consummation and execution of the sale was merely referred to the Acting
Conservator Encarnacion for “proper disposition”. Since no response was received, the plaintiffs
sent their second tender of payment to the Conservator. For four months, again, no response was
received by the plaintiffs. This prompted them to make their final demand for compliance by the
bank with its obligations under the considered perfected contract of sale. The coming events
showed that the Conservator repudiated the authority of Rivera and claimed that the dealings
entered into by the latter are unauthorized or illegal—this being the same justification for their
refusal of the tenders of payment and non-compliance with the obligations under the alleged
perfected contract of sale.
VI. STATEMENT OF THE CASE:

The plaintiffs filed a suit for Specific Performance with Damages against the bank, Rivera,
and Encarnacion. The basis of the suit was the claim that the transaction had with the bank already
resulted in a perfected contract of sale. The defendants, conversely, took the position that there
was no such perfected sale because Rivera is not authorized to sell the property, and that there was
no meeting of the minds as to the price. Henry L. Co (the brother of Luis Co), through counsel,
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. This was denied
by the RTC on the ground that it was filed after the trial had already been concluded. The
subsequent Motion for Reconsideration was also denied. The CA merely affirmed the judgment
with modification. There was no longer an appeal of the 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 latter’s rights in the matter in litigation to said private
respondent.

VII. ISSUE:

WON the bank conservator have the unilateral power to repudiate the authority of the bank officers
and/or to revoke the said contract?

VIII. RULING:

NO. 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.

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. Consequently, 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. 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.

Be that as it may, 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), 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.

IX. DISPOSITIVE PORTION:

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.

X. PREPARED BY: Gabriel D. Adora

I. SHORT TITLE: PRODUCERS BANK v. NLRC

II. FULL TITLE: PRODUCERS BANK OF THE PHILIPPINES, (now First Philippine
International Bank), Petitioner, v. NATIONAL LABOR RELATIONS COMMISSION and
PRODUCERS BANK EMPLOYEES ASSOCIATION, Respondents.

III. PONENTE: GONZAGA-REYES, J.

IV. TOPIC: New Central Bank Act

V. STATEMENT OF FACTS:

The present petition originated from a complaint filed by private respondent with the
National Labor Relations Commission (NLRC), charging petitioner with diminution of benefits,
non-compliance with Wage Order No. 6 and non-payment of holiday pay. In addition, private
respondent prayed for damages.

Producers Bank of the Philippines, a banking institution, has been providing several
benefits to its employees since 1971 when it started its operation. Among the benefits it had been
regularly giving is a mid-year bonus equivalent to an employee's one-month basic pay and a
Christmas bonus equivalent to an employee's one whole month salary (basic pay plus allowance).
When P.D. 851, the law granting a 13th month pay, took effect, the basic pay previously being
given as part of the Christmas bonus was applied in compliance with the said law, the allowances
remained as Christmas bonus. From 1981 up to 1983, the bank continued giving one month basic
pay as mid-year bonus, one month basic pay as 13th month pay, but the Christmas bonus was no
longer based on the allowance but on the basic pay of the employees which is higher.

In the early part of 1984, the bank was placed under conservatorship but it still provided
the traditional mid-year bonus. By virtue of an alleged Monetary Board Resolution No. 1566, bank
only gave a one-half (1/2) month basic pay as compliance of the 13th month pay and none for the
Christmas bonus. This was done by virtue of the conservatorship. Although private respondent
concedes that the grant of a bonus is discretionary on the part of the employer, it argues that, by
reason of its long and regular concession, it may become part of the employee's regular
compensation. With that, the same can no longer be unilaterally withdrawn by petitioner without
violating Article 100 of Presidential Decree No. 4429 which prohibits the diminution or
elimination of benefits already being enjoyed by the employees.

On the other hand, petitioner asserts that it cannot be compelled to pay the alleged bonus
differentials due to its depressed financial condition, as evidenced by the fact that in 1984 it was
placed under conservatorship by the Monetary Board. A bonus is not a demandable and
enforceable obligation, except when it is made part of the wage, salary or compensation of the
employee. However, an employer cannot be forced to distribute bonuses which it can no longer
afford to pay. To hold otherwise would be to penalize the employer for his past generosity.

VI. STATEMENT OF THE CASE:

 The Labor Arbiter (LA) found private respondent's claims to be unmeritorious and
dismissed its complaint. In a complete reversal, however, the NLRC granted all of private
respondent's claims, except for damages. Petition filed a Motion for Partial Reconsideration, which
was denied by the NLRC in a Resolution issued on 18 June 1991. Hence, recourse to this Court.

VII. ISSUE:

WON the reduction in the mid-year and Christmas bonuses by the conservator was justified.

VIII. RULING:

YES. Under Section 28-A, the Monetary Board may place a bank under the control of a
conservator when it finds that the bank is continuously unable or unwilling to maintain a condition
of solvency or liquidity. In Central Bank of the Philippines v. Court of Appeals, the Court declared
that the order placing petitioner herein under conservatorship had long become final and its validity
could no longer be litigated upon. Petitioner was not only experiencing a decline in its profits, but
was reeling from tremendous losses triggered by a bank-run which began in 1983. In such a
depressed financial condition, petitioner cannot be legally compelled to continue paying the same
amount of bonuses to its employees. Thus, the conservator was justified in reducing the mid-year
and Christmas bonuses of petitioner’s employees. To hold otherwise would be to defeat the reason
for the conservatorship which is to preserve the assets and restore the viability of the financially
precarious bank. Ultimately, it is to the employees’ advantage that the conservatorship achieve its
purposes for the alternative would be petitioner’s closure whereby employees would lose not only
their benefits, but their jobs as well.

IX. DISPOSITIVE PORTION:

WHEREFORE, for the reasons above stated, the 30 April 1991 Decision of public respondent in
NLRC-NCR Case No. 02-00753-88, entitled "Producers Bank Employees Association v.
Producers Bank of the Philippines," and its 18 June 1991 - Resolution issued in the same case are
hereby SET ASIDE, with the exception of public respondent's ruling on damages.

SO ORDERED.

X. PREPARED BY: Gabriel D. Adora

I. SHORT TITLE: CENTRAL BANK v. CA

II. FULL TITLE: THE CENTRAL BANK OF THE PHILIPPINES and RAMON V.
TIAOQUI, Petitioners, vs. COURT OF APPEALS and TRIUMPH SAVINGS BANK (TSB),
Respondents.

III. PONENTE: BELLOSILLO, J.

IV. TOPIC: New Central Bank Act

V. STATEMENT OF FACTS:

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

VI. STATEMENT OF THE CASE:

TSB filed a complaint with the Regional Trial Court (RTC) against the CB and Tiaoqui to
annul MB Resolution 596, with prayer for injunction, challenging in the process the
constitutionality of Sec. 29, R.A. 269 otherwise known as "The Central Bank Act," as amended,
insofar as it authorizes the Central Bank to take over a banking institution even if it is not charged
with violation of any law or regulation, much less found guilty thereof. Since the RTC temporarily
restrained the petitioners from implementing the said resolution until further orders, a motion for
the quashal of the restraining order was filed on the ground of non-compliance with Sec. 29 in the
sense that TSB failed to show convincing proof of arbitrariness and bad faith on the part of
petitioners, and that TSB failed to post the requisite bond in favor of Central Bank. Acting on the
motion to quash the restraining order, the RTC granted the relief sought and denied the application
of TSB for injunction. Thereafter, TSB filed with the Supreme Court (SC) a petition for certiorari
under Rule 65 to enjoin the continued implementation of the said resolution. This certiorari
petition was later dismissed for being moot and academic, as will be seen in the developments
below.

Meanwhile, the CB and Tiaoqui filed a Motion to Dismiss the Complaint before the RTC
for failure to state a cause of action—that it did not allege ultimate facts showing that the action
was plainly arbitrary and made in bad faith. These were the only grounds for the annulment of
Monetary Board resolutions placing a bank under conservatorship, and that TSB was without legal
capacity to sue except through its receiver. The TSB then filed an urgent motion in the RTC to
direct receiver Ramon V. Tiaoqui to restore TSB to its private management. The RTC in another
order denied the CB and Tiaoqui’s motion to dismiss and ordered Tiaoqui to restore the
management of TSB to its private management, subject to CB comptrollership.
 Instead of proceeding to trial, petitioners elevated the twin orders of the RTC to the Court
of Appeals on a petition for certiorari and prohibition under Rule 65. The CA merely upheld the
orders of the RTC. Finally, the CB and Tiaoqui, filed this petition under Rule 45 of the Rules of
Court praying that the decision of the Court of Appeals be set aside.

VII. ISSUE:

WON a Monetary Board resolution placing a private bank under receivership should be annulled
on the ground of lack of prior notice and hearing.

VIII. RULING:

NO. Under Sec. 29 of R.A. 265, the Central Bank, through the Monetary Board, is vested
with exclusive authority to assess, evaluate and determine the condition of any bank, and finding
such condition to be one of insolvency, or that its continuance in business would involve probable
loss to its depositors or creditors, forbid the bank or non-bank financial institution to do business
in the Philippines; and shall designate an official of the CB or other competent person as receiver
to immediately take charge of its assets and liabilities. The fourth paragraph of the provision, which
was then in effect at the time the action was commenced, allows the filing of a case to set aside
the actions of the Monetary Board which are tainted with arbitrariness and bad faith.

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

Admittedly, the mere filing of a case for receivership by the Central Bank can trigger a
bank run. The procedure prescribed in Sec. 29 is truly designed to protect the interest of all
concerned, and the summary closure pales in comparison to the protection afforded public interest.
At any rate, the bank is given full opportunity to prove arbitrariness and bad faith in placing the
bank under receivership, in which event, the resolution may be properly nullified and the
receivership lifted as the trial court may determine. Respondent TSB did in fact avail of this
remedy by filing a complaint with the RTC on the 8th day following the takeover by the receiver
of the bank’s assets.

Lastly, the absence of prior notice and hearing is a valid exercise of the state’s police power.
With that said, an MB resolution placing a bank under receivership, or conservatorship for that
matter, may only be annulled after a determination has been made by the trial court that its issuance
was tainted with arbitrariness and bad faith. Until such determination is made, the status quo shall
be maintained, i.e., the bank shall continue to be under receivership.

IX. DISPOSITIVE PORTION:

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

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

SO ORDERED.

X. PREPARED BY: Gabriel D. Adora

I. SHORT TITLE: CENTRAL BANK v. DELA CRUZ

II. FULL TITLE: CENTRAL BANK OF THE PHILIPPINES, MEMBERS OF THE

MONETARY BOARD, CONSOLACION V. ODRA, MARIO VICENTE, DRBSLA, RAMIL
PARAISO, DANTE L. REYES, DISIMULACION KING and NORA G. SARMIENTO,
Petitioners, v. THE HONORABLE RAFAEL DE LA CRUZ and the RURAL BANK OF
LIBMANAN, INC., Respondents.

III. PONENTE: GRIÑO-AQUINO, J.

IV. TOPIC: New Central Bank Act

V. STATEMENT OF FACTS:

In 1979, the Department of Rural Banks and Savings and Loan Associations (DRBSLA)
of the Central Bank of the Philippines (CB) conducted examinations of the books and affairs of
Rural Bank of Libmanan Bank DRBSLA director named Consolacion Odra (Odra), and found
serious irregularities in its lending and deposit operations, including false entries and false
statements in the bank’s records to give it the appearance of solidity and soundness which it did
not possess. As a result of its questionable transactions, the bank became insolvent.

In her Memorandum to the Monetary Board, Odra recommended, among other things, that:
first, Libmanan Bank be prohibited from doing business; second, that it be placed under
receivership in accordance with Sec. 29 of R.A. 265 as amended; and third, that the Director of
DRBSLA be designated as receiver. Finding the report to be true, the Monetary Board placed
Libmanan Bank under statutory receivership and designating Odra, as Receiver. Libmanan Bank
was informed of the Monetary Board Resolution, and advised to submit to the Monetary Board an
acceptable reorganization and rehabilitation program. Meanwhile, Director Odra, as receiver, took
possession and control of the assets and records of the rural bank. As Libmanan Bank failed to
submit the required acceptable reorganization and rehabilitation plan, the Monetary Board issued
a resolution ordering its liquidation.

VI. STATEMENT OF THE CASE:

On August 3, 1981, the Solicitor General, filed in the then Court of First Instance (CFI) a
petition for Assistance in the Liquidation of Libmanan Bank. Libmanan Bank opposed the Central
Bank’s petition. Then, Libmanan Bank filed a separate complaint for prohibition, mandamus, and
injunction praying the Court to enjoin and dismiss the liquidation proceeding on the ground that
the Central Bank gravely abused its discretion in ordering the liquidation of said rural bank.

The CB subsequently filed a motion for extension of time to file its responsive pleading,
which later filed a second motion for extension. The CFI judge questioned the order which
restrained the CB from liquidating the rural bank. As modification, the judge required the parties
to refrain from any act or acts which will tend to disturb the state in which the parties were found
before the complaint was filed.
 Libmanan Bank filed an ex parte motion to declare the CB in default. The Solicitor General
filed a third motion for extension. The same also filed a Motion to Dismiss questioning the judge’s
jurisdiction over the special civil action and that the petition was defective in form because it was
not properly verified. This motion was denied and the judge gave the CB 10 days to file its answer.
The CB filed in the Supreme Court a Motion for Extension to file a petition for certiorari,
prohibition and mandamus, and a separate manifestation in the lower court notifying the CFI judge
of the CB’s intention to elevate the case to this Court and requesting the same to desist from taking
any further action in this case.

Thereafter, the CFI held and declared the CB, Et Al., in default for failure to file a
responsive pleading. The judge pointed out that the projected move to bring the court’s denial of
the motion to dismiss to the Supreme Court on certiorari did not stop the period given to the
respondents to answer. Respondent Judge then granted Libmanan Bank’s ex parte motion dated
March 29, 1982 for authority to withdraw money from its bank deposits. Hence, the present
recourse.

VII. ISSUE:

1. WON respondent Judge acted with grave abuse of discretion or without or in excess of his
jurisdiction in issuing the restraining order.
2. WON respondent Judge acted with grave abuse of discretion or without or in excess of his
jurisdiction in authorizing Libmanan Bank to withdraw money from its deposits.

VIII. RULING:

1. YES. It is noteworthy that the actions of the Monetary Board in proceedings on insolvency are
explicitly declared by law to be "final and executory." They may not be set aside, or restrained,
or enjoined by the courts, except upon "convincing proof that the action is plainly arbitrary and
made in bad faith.” Respondent Judge acted in plain disregard of the fourth paragraph of Sec.
29 of the Central Bank Act, when he restrained the petitioners from closing and liquidating the
Rural Bank of Libmanan, prevented them from performing their functions, and ordered them
to return the management and control of the rural bank to its board of directors without
receiving convincing proof that the action of the CB was plainly arbitrary and made in bad
faith.

2. Respondent Judge abused his discretion in authorizing the Libmanan Bank to withdraw funds
from its deposits in other banks. The Rural Bank had become insolvent as a result of
mismanagement, frauds, irregularities and violations of banking laws, rules, and regulations
by its officers. Its remaining assets should therefore be conserved to pay its creditors. Allowing
the Rural Bank to withdraw its deposits in other banks would result in the further diminution
and dissipation of its assets to the prejudice of its depositors and creditors, and to the unlawful
advantage of the very officers who brought about the bank’s insolvency.

IX. DISPOSITIVE PORTION:

WHEREFORE, the petition for certiorari is GRANTED. The questioned orders dated January 15,
1982, January 29, 1982, March 1, 1982, March 31, 1982 and April 20, 1982 (Annexes A, B, C, D
& E, respectively) of respondent Judge Rafael De la Cruz of the then Court of First Instance of
Camarines Sur, Branch III, in Civil Case No. 1309 are REVERSED AND SET ASIDE. The
temporary restraining order issued by this Court on July 19, 1982 is hereby made permanent.
Respondent Court is ordered to dismiss Civil Case No. 1309. This order is immediately executory.
Costs against respondent Rural Bank of Libmanan.

SO ORDERED.

X. PREPARED BY: Gabriel D. Adora