cases ncba

8/10/2019 Cases Ncba

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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.

PURISIMA,J.:

This is a petition for review on certiorariunder Rule 45 of the Rules of Court seeking a reversal of the

Decision, 1dated 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 business.

3. Unwarranted declaration and payment of dividends.

4. 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 forthwith made by the Board. 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 o f 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;

xxx xxx xxx

5. To include the names of Mr. C atalino 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 un remitted

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 o f 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 warrantedby the evidence;

8. To require the board of directors o f PESALA to improve the operations of the Association; correct all

violations noted, and adopt internal control measures to prevent the recur rence of similar incidents as

shown in Annex E of the subject memorandum of the Director, SES Department IV; 3

xxx xxx xxx

On January 23, 1989, petitioners filed a Petition for Injunction with Prayer for the Immediate Issuance of a

Temporary Restraining Order 4docketed 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

order 5enjoining the defendant, the Monetary Board of the Central Bank, (now Banko Sentral ng Pilipinas)from including the names of petitioners in the watchlist.

On February 10, 1989, the same trial Court issued a writ of preliminary injunction, 6conditioned 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 Reconsideration7of the said Order, but the same was denied.

On September 11, 1999, the trial court handed down its Decision, 8disposing thus:

WHEREFORE, judgment is hereby rendered declaring Monetary Board Resolution No. 805 as void and in

existent. 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

Decision9

of reversal on September 14, 1 990, the decretal portion of which is to the following effect:

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" 10stating that several complaints were lodged against the petitioners before the Office

of the City Prosecutor of Pasay City pu rsuant 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 Temporary

Restraining Order and/or Writ of Preliminary Injunction issue "restraining and enjoining the Secretary of


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Justice and the City Prosecutor of Pasay C ity from proceeding and taking further actions, and more specially

from filing Information's 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 . . ." However, in the

Resolution 11dated 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 BOARDRESOLUTION NO. 805.

II

WHETHER OR NOT THE RESPONDENT BOARD IS LE GALLY BOUND TO OBSERVE THE ESSENTIAL

REQUIREMENTS OF DUE PROCESS OF A VALID CHARGE, NOTICE AND OPPORTUNITY TO BE HE ARD INSOFAR

AS THE PETITIONERS SUBJECT CASE IS CONCERNED.

III

WHETHER OR NOT MONETARY BOARD RESOLUTION NO. 8 05 IS NULL AND VOID FOR BEING VIOLATIVE OF

PETITIONERS' RIGHTS TO DUE PROCESS.

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

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 ch arges 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 . . . 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;

2. Petitioner Renato Lim's letter of July 28, 19 88 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; and

3. PESALA's Board of Director's letter, dated July 29, 1988, to 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 13What is offensive to due process is the denial of the opportunity to be heard. 14Petitioner having

availed of their opportunity to present their position to the Monetary Board by their letters-explanation,

they were not denied due process.

15

Petitioners citeAng Tibay v. CIR16and 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;

6. The tribunal or body or any of its judges must act on its or his own independent consideration of the law

and facts of the controversy and no t simply accept the view of a subordinate in arriving at a decision;

7. The board or body should, in all controversial question, renders its decision in such 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 petitioner 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.17

) Secondly, the

Monetary Board considered the evidence presented. Thirdly, fourthly, and fifthly, Monetary Board

Resolution No. 805 was adopted on the basis of sa id findings unearthed during the 16th regular

examination of PESALA's records and 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 inAdamson and Adamson, Inc. v.Amores. 18

While administrative tribunals exercising quasi-judicial functions are free from the rigidity of certainprocedural requirements they are bound by law and practice to observe th e fundamental and essential

requirements of due process in justiciable cases presented before them. However, the standard of due

process that must be met in administrative tribunals allows a certain latitude as long as t he 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 177 9") delineating the powers of the Monetary

Board over savings and loan associations, require observance of due process in the exercise of its powers:

xxx xxx xxx

(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


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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. . .

(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. . .

xxx xxx xxx

(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;

xxx xxx xxx (emphasis supplied)

Anent the third issue, petitioners theorize that Monetary Board Resolution No. 8 05 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:

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 theinvestigations conducted which prompted the issuance of Monetary Board Resolution No. 805?

. . . 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)

specifically its failure to afford petitioners the opportunity to be heard. In s hort, 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 futureengagements 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, 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 c riminal 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 country 19and 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, from part of.20

The special law governing savings and loan associations 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 yearly examinations of the books and records of savings and loans 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.

xxx xxx xxx

(c) To conduct atleast 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 official to give their side of the case. Whenever an inspection,

examination or investigation is conducted under this grant 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 container 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 directors, officer oremployee of any association under the supervision of the Monetary Board;

xxx xxx xxx

(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 savings and loan association or its board or directors or officers are conducting and managing

its affairs in a manner contrary to laws, orders, instruction, rules and regulations promulgated by the

Monetary Board or in a manner substantially prejudicial to the interest of t he government, depositors or

creditors, 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 forthe violation or acts contrary to the interest of the government, depositors or creditors;

xxx xxx xxx

(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;

xxx xxx xxx

(I) 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 non-stock their directors and/or officers

administrative sanctions under Sections 34-A or 34-B of Republic Act Two Hundred sixty-five, as amended.


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From the foregoing, it is gleanable that the Central Bank, thr ough the Monetary Board, is empowered to

conduct investigations and examine the records of savings and loan associations. If any irregularity is

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, 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 thing 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, 1996 of the AFFIRMED.No pronouncement as to costs.

SO ORDERED.

Romero, Vitug, Panganiban and Gonzaga-Reyes, JJ., concur.

Footnotes

1 Penned by Associate Justice Jose A..R. Melo and concurred by Associate Justices Antonio M. and Nicolas

P. Lapena. Jr.

2 SeeRollo, p. 248.

3 Rollo, pp. 39-40.

4 Annex "B", Petition for Review, Rollo, pp. 33-38.

5 Annex "C", Petition for Review, Rollo, p. 41.

6 Annex "G", Petition for Review, Rollo, p. 65.

7 Annex "H", Petition for Review, Rollo, pp. 63-72.

8 Annex "L", Petition for Review, Rollo, pp. 122-124.

9 Annex "A", Petition for Review, Rollo, pp. 28-32.

10 Rollo, pp. 334-360.

11 Rollo, pp. 405-406.

12 Rollo, p. 124.

13 Salonga v. Court of Appeals, 269 SCRA 534.

14 Garments and Textile Export Board v. Court of Appeals, etal., 268 SCRA 258.

15 See Naguiat v. National Labor Relations Commission, 269 SCRA 564.

16 69 Phil. 635.

17 Pono v. National Labor Relations Commission, 275 SCRA 611.

18 152 SCRA 237, 250.

19 Sec. 2, Republic Act 265:

Responsibilities and objectives It shall be the responsibility of the Central Bank of the Philippines to

administer the monetary and banking system of the Republic. It shall be the duty of the Central bank to use

the powers granted to it under this Act to achieve the following objectives:

(a) To maintain monetary stability in the Philippines;

(b) To preserve the international value of the peso and the convertibility of the peso into other freely

convertible currencies; and

(c) To promote a rising level of production, employment and real income in the Philippines.

Sec. 5, Republic Act 265:

Composition of the Monetary Board The powers and functions of the C entral Bank shall be exercised by

a Monetary Board, which shall be composed of seven members as follows:

xxx xxx xxx

20 Sec. 25, Republic Act 265:

Creation of the Department. In order to assure the observance of this Act and of other pertinent laws,

and of the rules and regulations of the Monetary Board, the Central Bank shall have a Department of

Supervision and Examination which shall be charged with the supervision and periodic examination of all

banking institutions operating in the Philippines, including all government credit institutions. The

Department of Supervision and Examination shall discharge its responsibilities in accordance with the

instructions of the Monetary Board. The Chief of the department shall be known as the Superintendent of

Banks.

The Superintendent of Bank is and the examiners of the Department of Supervision and Examination are

hereby authorized to administer oaths to any director, officer, or employee of any institution under the

supervision of the department and to compel the presentation of a ll books, documents, papers or records

necessary in his or their judgment to ascertain the facts relative to the true condition of any institution.


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G.R. No. 76118 March 30, 1993

THE CENTRAL BANK OF THE PHILIPPINES and RAMON V. TIAOQUI, petitioners,

vs.

COURT OF APPEALS and TRIUMPH SAVINGS BANK, respondents.

Sycip, Salazar, Hernandez & Gatmaitan for petitioners.

Quisumbing, Torres & Evangelista for Triumph Savings Bank.

BELLOSILLO,J.:

May a Monetary Board resolution placing a private bank under receivership be annulled on the ground of

lack of prior notice and hearing?

This petition seeks review of the decision of the Court of Appeals in CA G.R. S.P. No. 07867 entitled "The

Central Bank of the Philippines and Ramon V. Tiaoqui vs. Hon. Jose C. de Guzman and Triumph Savings

Bank," promulgated 26 September 1986, which affirmed the twin orders of the Regional Trial Court of

Quezon City issued 11 November 1985 1denying herein petitioners' motion to dismiss Civil Case No. Q-

45139, and directing petitioner Ramon V. Tiaoqui to restore the private management of Triumph Savings

Bank (TSB) to its elected board of directors and officers, subject to Central Bank comptrollership.2

The antecedent 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," 3the Monetary Board

(MB) issued on 31 May 1985 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 on 3 June 1985. 4

On 11 June 1985, TSB filed a complaint with the Regional Trial Court of Quezon City, docketed as Civil Case

No. Q-45139, against Central Bank and Ramon V. T iaoqui to annul MB Resolution No. 596, with prayer for

injunction, challenging in the process the constitutionality of Sec. 29 of 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.5

On 1 July 1985, the trial court temporarily restrained petitioners from implementing MB Resolution No. 596

"until further orders", thus prompting them to move for the quashal of the restraining order (TRO) on theground that it did not comply with said Sec. 29, i.e., 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 C entral

Bank.

On 19 July 1985, acting on the motion to quash the restraining order, the trial court granted the relief

sought and denied the application of TSB for injunction. Thereafter, Triumph Savings Bank filed with Us a

petition for certiorariunder Rule 65 of the Rules of Court6dated 25 July 1985 seeking to enjoin the

continued implementation of the questioned MB resolution.

Meanwhile, on 9 August 1985; Central Bank and Ramon Tiaoqui filed a motion to dismiss the complaint

before the RTC for failure to state a cause of action, i.e., it did not allege ultimate facts showing

that theaction was plainly arbitrary and made in bad faith, which are 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 rec eiver.7

On 9 September 1985, TSB filed an urgent motion in the RTC to direct receiver Ramon V. Tiaoqui to restore

TSB to its private management. On 11 November 1985, the RTC in separate orders denied petitioners'

motion to dismiss and ordered receiver Tiaoqui to restore the management of TSB to its elected board of

directors and officers, subject to CB c omptrollership.

Since the orders of the trial court rendered moot the petition for certiorarithen pending before this Court,

Central Bank and Tiaoqui moved on 2 December 1985 for the dismissal of G.R. No. 71465 which We granted

on 18 December 1985.8

Instead of proceeding to trial, petitioners elevated the twin orders of the RTC to the Court of Appeals on a

petition for certiorariand prohibition under Rule 65. 9On 26 September 1986, the appellate court, upheldthe orders of the trial court thus

Petitioners' motion to dismiss was premised on two grounds, namely, that the complaint failed to state a

cause of action and that the Triumph Savings Bank was without capacity to sue except through its

appointed receiver.

Concerning the first ground, petitioners themselves admit that the Monetary Board resolution placing the

Triumph Savings Bank under the receivership of the officials of the Central Bank was done without prior

hearing, that is, without first hearing the side of the bank. They further admit that said resolution can be

the subject of judicial review and may be set aside should it be found that the same was issued with

arbitrariness and in bad faith.

The charge of lack of due process in the complaint may be taken as constitutive of allegations of

arbitrariness and bad faith. This is not of course to be taken as meaning that there must be previoushearing before the Monetary Board may exercise its powers under Section 29 of its Charter. Rather, judicial

review of such action not being foreclosed, it would be best should private respondent be given the chance

to show and prove arbitrariness and bad faith in the issuance of the questioned resolution, especially so in

the light of the statement of private respondent that neither the bank itself nor its officials were even

informed of any charge of violating banking laws.

In regard to lack of capacity to sue on the part of Triumph Savings Bank, we view such argument as being

specious, for if we get the drift of petitioners' argument, they mean to convey the impression that only the

CB appointed receiver himself may question the CB resolution appointing him as such. This may be asking

for the impossible, for it cannot be expected that the master, the CB, will allow the receiver it has

appointed to question that very appointment. Should the argument of petitioners be given circulation, then

judicial review of actions of the CB would be effectively checked and foreclosed to the very bank officials

who may feel, as in the case at bar, that the CB act ion ousting them from the bank deserves to be set aside.

xxx xxx xxx

On the questioned restoration order, this Court must say that it finds nothing whimsical, despotic,

capricious, or arbitrary in its issuance, said action only being in line and congruent to the action of the

Supreme Court in the Banco Filipino Case (G.R. No. 70054) where management of the bank was restored to

its duly elected directors and officers, but subject to the Central Bank comptrollership.10

On 15 October 1986, Central Bank and its appointed receiver, Ramon V. Tiaoqui, filed this petition under

Rule 45 of the Rules of Court praying that the decision of the Court of Appeals in CA-G.R. SP No. 07867 be

set aside, and that the civil case pending before the RTC of Quezon City, Civil Case No.

Q-45139, be dismissed. Petitioners allege that the Court of Appeals erred


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(1) in affirming that an insolvent bank that had been summarily closed by the Monetary Board should be

restored to its private management supposedly because such summary closure was "arbitrary and in bad

faith" and a denial of "due process";

(2) in holding that the "charge of lack of due process" for "want of prior hearing" in a complaint to annul a

Monetary Board receivership resolution under Sec. 29 of R.A. 265 "may be taken as . . allegations of

arbitrariness and bad faith"; and

(3) in holding that the owners and former officers of an insolvent bank may still act or sue in the name and

corporate capacity of such bank, even after it had been ordered closed and placed under receivership. 11

The respondents, on the other hand, allege inter aliathat in the Banco Filipino case,12We held that CB

violated the rule on administrative due process laid down inAng Tibay vs. CIR (69 Phil. 635) and Eastern

Telecom Corp. vs. Dans, Jr. (137 SCRA 628) which requires that prior no tice and hearing be afforded to all

parties in administrative proceedings. Since MB Resolution No. 596 was adopted without TSB being

previously notified and heard, according to respondents, the same is void for want of due process;

consequently, the bank's management should be restored to its board of directors and officers.13

Petitioners claim that it is the essence of Sec. 2 9 of R.A. 265 that prior notice and hearing in cases involving

bank closures should not be required since in all probability a hearing would not only cause unnecessary

delay but also provide bank "insiders" and stockholders the opportunity to further dissipate the bank's

resources, create liabilities for the bank up to the insured amount of P40,000.00, and even destroy

evidence of fraud or irregularity in the bank's operations to the prejudice of its depositors and

creditors. 14Petitioners further argue that the legislative intent of Sec. 29 is to repose in the Monetary

Board exclusive power to determine the existence of statutory grounds for th e closure and liquidation of

banks, having the required expertise and specialized competence to do so.

The first issue raised before Us is whether absence of prior notice and hearing may be considered acts of

arbitrariness and bad faith sufficient to annul a Monetary Board resolution enjoining a bank from doing

business and placing it under receivership. Otherwise stated, is absence of prior notice and h earing

constitutive of acts of arbitrariness and bad faith?

Under Sec. 29 of R.A. 265,15

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 b usiness 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,16

which was then in effect at the time the action was commenced, allowsthe filing of a case to set aside the actions of the Monetary Board which ar e tainted with arbitrariness and

bad faith.

Contrary to the notion of private respondent, 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 c ase 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.

In the early case of Rural Bank of Lu cena, Inc. v. Arca [1965], 17We held that a previous hearing is nowhere

required in Sec. 29 nor does the cons titutional requirement of due process demand that the correctness of

the Monetary Board's resolution to stop operation and proceed to liquidation be first adjudged before

making the resolution effective. It is enough that a subsequent judicial review be provided.

Even in Banco Filipino, 18We reiterated that Sec. 29 of R.A. 265 does not require a previous hearing before

the Monetary Board can implement its resolution closing a bank, since its action is subject to judicial

scrutiny as provided by law.

It may be emphasized that Sec. 29 does not altogether divest a bank or a non-bank financial institution

placed under receivership of the opportunity to be heard and present evidence on arbitrariness and bad

faith because within ten (10) days from the date the receiver takes charge of the assets of the bank, resort

to judicial review may be had by filing an appropriate pleading with the court. Respondent TSB did in fact

avail of this remedy by filing a complaint with the RTC of Quezon C ity on the 8th day following the takeover

by the receiver of the bank's assets on 3 June 1985.

This "close now and hear later" scheme is grounded on practical and legal considerations to prevent

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.

In Rural Bank of Buhi, Inc.v. Court of Appeals,19We stated that

. . . due process does not nec essarily require a prior hearing; a hearing or an opportunity to be heard may

be subsequentto the closure. One can just imagine the dire consequences of a prior hearing: bank runs

would be the order of the day, resulting in panic and hysteria. In the process, fortunes may be wiped out

and disillusionment will run the gamut of the entire banking community.

We stressed in Central Bank of the Philippines v. Court of Appeals20that

. . . the banking business is properly subject to reasonable regulation under the police power of the statebecause of its nature and relation to the fiscal affairs of the people and the revenues of the state (9 CJS 32).

Banks are affected with public interest because they receive funds from the general public in the form of

deposits. Due to the nature of their t ransactions and functions, a fiduciary relationship is created between

the banking institutions and their depositors. Therefore, banks are under the obligation to treat with

meticulous care and utmost fidelity the accounts of those who have reposed their trust and confidence in

them (Simex International [Manila], Inc., v. Court of Appeals, 183 SCRA 360 [1990]).

It is then the Government's responsibility to see to it that the financial interests of those who deal with the

banks and banking institutions, as depositors or otherwise, are protected. In this country, that task is

delegated to the Central Bank which, pursuant to its Charter (R.A. 265, as amended), is authorized to

administer the monetary, banking and credit system of the Philippines. Under both the 1973 and 1987

Constitutions, the Central Bank is tasked with providing policy direction in the areas o f money, banking and

credit; corollarily, it shall have supervision over the operations of banks (Sec. 14, Art. XV, 1973 Constitution,

and Sec. 20, Art. XII, 1987 Constitution). Under its charter, the CB is further authorized to take the

necessary steps against any banking institution if its continued operation would cause prejudice to its

depositors, creditors and the general public as well. This power has been expressly recognized by this Court.

In Philippine Veterans Bank Employees Union-NUBE v. Philippine Veterans Banks (189 SCRA 14 [1990], this

Court held that:

. . . [u]nless 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 government cannot simply cross its

arms while the assets of a bank are being depleted through mismanagement or irregularities. It is the duty

of the Central Bank in such an event to step in and salvage the remaining resources of the bank so that they

may not continue to be dissipated or plundered by th ose entrusted with their management.


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7

Section 29 of R.A. 265 should be viewed in this light; otherwise, We would be subscribing to a situation

where the procedural rights invoked by private respondent would take precedence over the substantive

interests of depositors, creditors and stockholders over the assets o f the bank.

Admittedly, the mere filing of a case for receivership by the Central Bank c an trigger a bank run and drain

its assets in days or even hours leading to insolvency even if the bank be actually solvent. The procedure

prescribed in Sec. 29 is truly designed to protect the interest of all concerned, i.e., the depositors, creditors

and stockholders, the bank itself, and the general public, and the summary closure pales in comparison to

the protection afforded public interest. At any rate, the bank is given full opportunity to

prove arbitrarinessand 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.

The heavy reliance of respondents on the Banco Filipino case is misplaced in view of factual circumstances

therein which are not attendant in the present case. We ruled in Banco Filipino that the closure of the bank

was arbitrary and attendant with grave abuse of discretion, not b ecause of the absence of prior notice and

hearing, but that the Monetary Board had no sufficient basis to arrive at a sound conclusion of insolvency

to justify the closure. In other words, the arbitrariness, bad faith and abuse of discretion were determined

only after the bank was placed under conservatorship and evidence thereon was received by the trial court.

As this Court found in that case, the Valenzuela, Aurellano and Tiaoqui Reports contained unfounded

assumptions and deductions which did not reflect the true f inancial condition of the bank. For instance, the

subtraction of an uncertain amount as valuation reserve from the assets of the bank would merely result in

its net worth or the unimpaired capital and surplus; it did not reflect the total financial condition of Banco

Filipino.

Furthermore, the same reports showed that the tota l assets of Banco Filipino far exceeded its total

liabilities. Consequently, on the basis thereof, the Monetary Board had no valid reason to liquidate the

bank; perhaps it could have merely ordered its reorganization or rehabilitation, if need be. Clearly, there

was in that case a manifest arbitrariness, abuse of discretion and bad faith in the closure of Banco

Filipino by the Monetary Board. But, this is not the case before Us. For here, what is being raised as

arbitrary by private respondent is the denial of prior notice and hearing by the Monetary Board, a matter

long settled in this jurisdiction, and not the arbitrariness which the con clusions of the Supervision and

Examination Sector (SES), Department II, of the Central Bank were reached.

Once again We refer to Rural Bank of Buhi, Inc.v. Court of Appeals,21and reiterate Our pronouncement

therein that

. . . the law is explicit as to the conditions prerequisite to the action of the Monetary Board to forbid the

institution to do business in the Philippines and to appoint a receiver to immediately take charge of thebank's assets and liabilities. They are: (a) an examination made by the examining department of the Central

Bank; (b) report by said department to the Monetary Board; and (c) prima facieshowing that its

continuance in business would involve probable loss to its depositors or creditors.

In sum, appeal to procedural due process cannot just outweigh the evil sought to be prevented; hence, We

rule that Sec. 29 of R.A. 265 is a sound legislation promulgated in accordance with the Constitution in the

exercise of police power of the state. Consequently, the absence o f notice and hearing is not a valid ground

to annul a Monetary Board resolution placing a bank under receivership. The absence of prior notice and

hearing cannot be deemed acts of arbitrariness and bad faith. Thus, 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.

As regards the second ground, to rule that only the receiver may bring suit in behalf of the bank is, to echo

the respondent appellate court, "asking for the impossible, for it cannot be expected that the master, the

CB, will allow the receiver it has appointed to question that very appointment." Consequently, only

stockholders of a bank could file an action for annulment of a Monetary Board resolution placing the bank

under receivership and prohibiting it from continuing operations.22In Central Bank v. Court of

Appeals, 23We explained the purpose of the law

. . . in requiring that only the stockholders of record representing the majority of the capital stock may bring

the action to set aside a resolution to place a bank under conservatorship is to ensure that it be not

frustrated or defeated by the incumbent Board of Directors or officers who may immediately resort to

court action to prevent its implementation or enforcement. It is presumed that such a resolution is directed

principally against acts of said Directors and officers which place the bank in a state of continuing inability

to maintain a condition of liquidity adequate to protect the interest of depositors and creditors. Indirectly,

it is likewise intended to protect and safeguard the rights and interests of the stockholders. Common sense

and public policy dictate then that the authority to decide on whether to contest the resolution should be

lodged with the stockholders owning a majority of the shares for they are expected to be more objective in

determining whether the resolution is plainly arbitrary and issued in bad faith.

It is observed that the complaint in this case was filed on 11 June 1985 or t wo (2) years prior to 25 July 1987

when E.O. 289 was issued, to be effective sixty (60) days after its approval (Sec. 5). The implication is that

before E.O

. 289, any party in interest could institute court proceedings to question a Monetary Board resolution

placing a bank under receivership. Consequently, since the instant complaint was filed by partiesrepresenting themselves to be officers of respondent Bank (Officer-in-Charge and Vice President), the case

before the trial court should now take its natural course. However, after the effectivity of E.O. 289, the

procedure stated therein should be followed and observed.

PREMISES considered, the Decision of the Court of Appeals in CA-G.R. SP No. 07867 isAFFIRMED, 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.

Narvasa, C.J., Cruz, Padilla, Bidin, Grio-Aquino, Regalado, Davide, Jr., Romero, Nocon, Campos, Jr. and

Quiason, JJ., concur.

Feliciano and Melo, JJ., took no part.

# Footnotes

1 Penned by Judge Jose C. de Guzman, RTC , Br. 93, Quezon City.

2 Rollo, pp. 29-34.


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3 Id., p. 5; see alsoMinutes of Meeting of the Monetary Board of 31 May 1985, Annex "D", Petition, CA-G.R.

SP No. 07867.

4 Id., p. 93.

5 Id., p. 30.

6 Triumph Sayings Bank vs. Hon. Jose de Guzman, G.R. No. 71465.

7 Rollo, pp. 30-31.

8 Brief for Petitioners, p. 4; Rollo, p. 70.

9 Central Bank of the Philippines vs. Hon. Jose de Guzman, CA G.R. SP No. 07867, penned by Melo, J.,

concurred in by De Pano, Jr., and Chua, JJ.; Rollopp. 29-34.

10 Rollo, pp. 31-32, 34.

11 Id., p. 7-8.

12 Banco Filipino Savings and Mortgage Bank vs. Monetary Board, Central Bank, G.R. No. 700 54, and

companion cases, G.R. Nos. 68878, 77255-58, 78766, 78767, 78894, 81303, 81304 and 90473, 11 December

1991; 204 SCRA 767.

13 Rollo, pp. 54-56.

14 Rollo, p. 70.

15 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 th e 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 w riting, to inform the

Monetary Board of the facts. The Board may, upon finding the statements of the department head t o be

true, forbid the institution to do business in the Philippines and shall 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, and represent the bank or through counsel as he may retain in all

actions or proceedings for or against the institution, exercising all powers necessary for this purposes

including, but not limited to, bringing suits and foreclosing mortgages in the name of the bank or non-bankfinancial intermediary performing quasi-banking functions.

16 The provisions of any law to the contrary notwithstanding, the actions of the Monetary Board under this

Section, Section 28-A, and the second paragraph of Section 34 of this Act shall be final and executory, and

can be set aside by the cour t only if there is convincing proof that the action is plainly arbitrary and made in

bad faith; Provided, That the same is raised in appropriate pleading filed before the proper court within a

period of ten (10) days from the date the conservator or receiver takes charge of the assets and liabilities of

the bank or non-bank financial intermediary performing quasi-judicial functions or, in case of liquidation,

within ten (10) days from receipt of notice by the said bank or

on-bank financial intermediary of the order of its liquidation. 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 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 provisions

of this Section shall govern, the issuance and dissolution of the restraining order or injunction

contemplated in this Section.

17 G.R. No. L-21146, 29 September 1965, 15 SCRA 67, 72 and 74, citingSec. 29, R.A. 265; 12 Am Jur. 305,

Sec. 611; Bourjois vs. Chapman, 301 U.S. 183, 81 Law Ed. 1027, 1032; American Surety Co. vs. Baldwin, 77

Law Ed. 231, 86 ALR 307; Wilson vs. Standefer, 46 Law Ed. 6 12.

18 Banco Filipino Savings and Mortgage Bank v. Monetary Board, Central Bank, and companion

cases, supra, p. 798, citingRural Bank of Bato vs. IAC, G.R. No. 65642, 15 October 1984, Rural Bank vs. Court

of Appeals, G.R. 61689, 20 June 1988, 162 SCRA 288.

19 G.R. No. 61689, 20 June 1988, 162 SCRA 288, 302.

20 G.R. Nos. 88353 and 92943, 8 May 1992, 208 SCRA 652, 684, 685.

21 G.R. No. 61689, 20 June 1988, 162 SCRA 288, 302.

22 As amended by E.O. 289, then par. 4, now par. 5, reads: ". . . [T]he actions of the Monetary Board under

this Section . . . shall be final and executory, and can be set aside by a court only if there is convincing 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 the capital stockof

the institution before the proper court within a period of ten (10) days from the date the receiver takes

charge of the assets and liabilities of the bank . . . .

23 Op. cit.


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G.R. No. 115849 January 24, 1996

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.

D E C I S I O N

PANGANIBAN,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 C ourt in the instant Petition for review

oncertiorariunder Rule 45 of the Rules of Court, to set aside the Decision promulgated January 14, 1994 of

the respondent Court of Appeals1in 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's2decision 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 thedefendants as follows:

1. Declaring the existence of a perfected contract t o 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 t o T-106937, inclusive, of the Land Records o f 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 P 100,000.00 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, 199 5. 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 undersignedponentefor the writing of this Decision.

The Parties

Petitioner 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 thiscase, 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 Facts

The facts of this case are summarized in the respondent Court's Decision3as 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 10 1 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 BYMEInvestment 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, 1987
http://www.lawphil.net/judjuris/juri1996/jan1996/gr_115849_1996.html#fnt1http://www.lawphil.net/judjuris/juri1996/jan1996/gr_115849_1996.html#fnt1http://www.lawphil.net/judjuris/juri1996/jan1996/gr_115849_1996.html#fnt1http://www.lawphil.net/judjuris/juri1996/jan1996/gr_115849_1996.html#fnt2http://www.lawphil.net/judjuris/juri1996/jan1996/gr_115849_1996.html#fnt2http://www.lawphil.net/judjuris/juri1996/jan1996/gr_115849_1996.html#fnt2http://www.lawphil.net/judjuris/juri1996/jan1996/gr_115849_1996.html#fnt3http://www.lawphil.net/judjuris/juri1996/jan1996/gr_115849_1996.html#fnt3http://www.lawphil.net/judjuris/juri1996/jan1996/gr_115849_1996.html#fnt3http://www.lawphil.net/judjuris/juri1996/jan1996/gr_115849_1996.html#fnt3http://www.lawphil.net/judjuris/juri1996/jan1996/gr_115849_1996.html#fnt2http://www.lawphil.net/judjuris/juri1996/jan1996/gr_115849_1996.html#fnt1


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The Producers Bank of the Philippines

Makati, Metro Manila

Attn. Mr. Mercurio Q. Rivera

Manager, 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. AREA

T-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, 1987

JP M-P GUTIERREZ ENTERPRISES

142 Charisma St., Doa Andres II

Rosario, Pasig, Metro Manila

Attention:JOSE O. JANOLO

Dear 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, 1987

Producers Bank

Paseo de Roxas


Attention: Mr. Mercurio Rivera

Gentlemen:

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 Philippines

Paseo de Roxas, Makati

Metro Manila

Attention: Mr. Mercurio Rivera

Re: 101 Hectares of Land

in Sta. Rosa, Laguna

Gentlemen:

Pursuant to our discussion last 28 September 1987, we are pleased to inform you that we are acc epting

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 Demetria

Dear 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


11/41

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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 f or 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 Rivera

Manager, Producers Bank

Paseo de Roxas, Makati

Metro Manila

Dear 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 PHILIPPINES

Paseo de Roxas,


Attn.: Atty. NIDA ENCARNACION

Central 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, 19 88, 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 p roperty, and that there was no

meeting of the minds as to the price.

On March 14, 1991, Henry L. Co (the brother of Lu is 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 th e 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 Cour t of Appeals which

subsequently affirmed with modification the said judgment. Henry Co did not appeal the denial of hismotion 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"4In 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 motionon the ground, among others, that plaintiff's act of forum shopping justifies the dismissal of both cases,

with prejudice."5Private respondent, in his memorandum, averred that this motion is still pending in the

Makati RTC.

In their Petition6and 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.
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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 th e evidence on record.

On the other hand, petitioners prayed for dismissal of the instant suit on the ground8that:

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 Issues

From the foregoing positions of the parties, the issues in th is 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 derivativesuit 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 t he two cases are so interwined that

a judgement or resolution in either case will constitute res judicatain the other."10

On the other hand, petitioners explain11that 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

wasplaintiff;

2) "The derivative suit is not properly a suit for and in behalf of the corporation under the circumstances";

3) Although the CE RTIFICATION/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 VE RIFICATION/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 th e defendant, to avoid

overcrowded dockets, or to select a more friendly venue. To combat these less than honorable excuses, the

principle offorum non convenienswas 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 Dictionary13says 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 f ound, 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 criminaleach remedy being available independently of the others although

he cannot recover more than once.
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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 o f this latter recourse renders the

petitioners amenable to disciplinary action and both their actions, in this C ourt as well as in the Court a

quo, dismissible.

In the instant case before us, th ere is also identity of parties, or at least, of interests represented. Although

the plaintiffs in the Second Case (Henry L. C o. et al.) are not name parties in the F irst Case, they represent

the same interest and entity, namely, petitioner Bank, because:

Firstly, they are not suing in their personal c apacities, for they have no direct personal interest in the matterin controversy. They are not principally or even subsidiarily liable; much less are they direct parties in the

assailed contract of sale; and

Secondly, 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, quitestrangely, 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 o r 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 o r 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 cases26where 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 ac tion 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 casesetting forth

therein, as causes of action, specific denials,

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