Case Summary (G.R. No. 238477)
Overview of the Legal Issues
The consolidated cases collectively address the legality of the closure, receivership, and liquidation of Banco Filipino ordered by the Monetary Board on January 25, 1985. Central questions include:
- Whether the liquidator appointed by the Central Bank had authority to prosecute or defend suits and foreclose mortgages pending resolution of the validity of receivership.
- Whether the Central Bank could be held liable to fulfill financial obligations of the closed bank.
- Whether the closure and receivership order itself was valid and compliant with procedural and substantive requirements under Section 29 of the Central Bank Act.
Background Facts on Closure and Receivership
Banco Filipino was a large savings and mortgage bank with numerous branches and over three million depositors. The bank experienced financial difficulties culminating in the Monetary Board’s resolution to forbid its continued business, place it under receivership, and later liquidate it. Carlota P. Valenzuela, Deputy Governor of the Central Bank, was appointed as receiver and then as liquidator. The Central Bank granted emergency financial assistance and conservatorship earlier in 1984. The bank contested the closure and liquidation resolutions before the courts, including this Supreme Court.
Proceedings and Parallel Legal Actions
Multiple entities, such as corporate debtors, sought to enjoin foreclosure actions initiated by the liquidator’s counsel, while the bank challenged the authority of the liquidator and the Central Bank. Other cases involved attempts to annul the Monetary Board’s resolution closing the bank and placing it under receivership and liquidation. The Supreme Court consolidated these matters for decision.
Statutory Framework under Section 29, RA No. 265
Section 29 mandates the procedure for bank closure upon findings of insolvency or probable loss to depositors or creditors by the Monetary Board. It requires:
- Examination by supervisory officers,
- Disclosure and written report on insolvency or probable loss,
- Monetary Board’s finding and order to cease business and appoint receiver,
- Monetary Board’s determination within 60 days whether to reorganize or liquidate the bank,
- Appointment of a liquidator with authority to manage assets and litigate on behalf of the bank,
- Finality of Monetary Board’s action barring proof of arbitrary or bad faith conduct.
Authority of the Receiver and Liquidator Pending Resolution
The Court held that despite the pendency of the main case challenging the closure’s validity, the liquidator retains full authority to administer the bank’s estate, including the filing and defense of suits and foreclosure of mortgages. Actions such as foreclosure, collection, and payment of creditors' claims are ordinary and necessary for estate management. The Central Bank’s designation of a comptroller does not curtail the liquidator’s operational powers.
Legality of Liquidation Proceedings and Actions for Foreclosure
The liquidator, through retained counsel, is legally empowered to initiate and defend litigations concerning the bank’s assets, including extra-judicial foreclosure sales. The Court dismissed petitions by borrowers seeking to enjoin foreclosure, confirming the liquidator’s authority under law and Monetary Board resolutions.
Invalidity of Closure and Receivership Order
The principal decision addressed whether the Monetary Board’s closure and receivership of Banco Filipino complied with the legal requirements of Section 29 of the Central Bank Act. The Court’s analysis concluded that:
- The examination underpinning the closure was incomplete and based on partial and unreliable findings,
- The basis of insolvency, particularly valuation reserves deducted from capital and assets, was not yet properly discussed or agreed upon with the bank,
- The monetary and factual determination of insolvency was premature, lacking substantial evidence,
- The grant of emergency loans and conservatorship prior to closure evidenced the bank was not insolvent but financially distressed,
- The Monetary Board’s closing order was therefore arbitrary, not supported by substantial evidence, and constituted grave abuse of discretion.
Due Process Considerations and Judicial Review
While prior administrative notice and hearing were not strictly required before closure under Section 29, the Court emphasized the need for administrative decisions to be grounded on substantial evidence and not arbitrary inference. The Court undertook a detailed review, including appointing hearing commissioners and considering conflicting expert reports, before concluding the closure was unjustified.
Directives and Remedies Ordered by the Court
- The Court annulled and set aside the Monetary Board’s January 25, 1985 order closing Banco Filipino.
- The Central Bank and Monetary Board were ordered to reorganize Banco Filipino and permit it to resume operations under Central Bank comptrollership.
- The reorganization must ensure banking operations c
Case Syllabus (G.R. No. 238477)
Background and Consolidated Cases
- The case concerns nine consolidated petitions involving the legality of the closure, receivership, and liquidation of Banco Filipino Savings and Mortgage Bank ("Banco Filipino") by the Monetary Board of the Central Bank of the Philippines ("Central Bank").
- Central issues include the authority of the liquidator appointed by the Central Bank to litigate and foreclose mortgages during pending resolution of the validity of receivership and liquidation.
- Other cases challenge the validity of the Monetary Board Resolution No. 75, dated January 25, 1985, ordering Banco Filipino's closure.
- Parties involved include Banco Filipino, Monetary Board, Central Bank officials, several corporations with loans secured by Banco Filipino, law firms representing various interests, and intervenors such as stockholders and depositor associations.
Facts of the Case
- Banco Filipino was authorized to operate in 1963 and had 89 branches with over 3 million depositors at the time of closure.
- Emergency advances and loans totaling approximately P3 billion were extended by the Central Bank to Banco Filipino in 1984.
- Examination reports by Central Bank officials (Teodoro and Tiaoqui) concluded insolvency or illiquidity as of July 31, 1984.
- On January 25, 1985, the Monetary Board issued Resolution No. 75 forbidding Banco Filipino to do business, placed it under receivership with Carlota P. Valenzuela appointed as receiver, and delegated powers to her and deputies to manage the bank’s assets and litigations.
- Subsequently, a liquidation order followed on March 22, 1985 with Valenzuela as liquidator.
- Multiple lawsuits and foreclosure actions were initiated by the liquidator or through counsel on behalf of Banco Filipino; mortgage foreclosures involved petitioners such as Top Management Programs Corporation, Pilar Development Corporation, El Grande Development Corporation, and BF Homes.
Legal Issues Presented
- Whether the liquidator appointed by Central Bank has legal authority to prosecute and defend suits, including mortgage foreclosures, while the legal validity of the receivership and liquidation remains pending before the Court.
- Whether the Central Bank can be held liable or sued to fulfill financial commitments of Banco Filipino post-closure.
- Whether the closure and receivership order of Banco Filipino by the Monetary Board pursuant to Section 29 of Republic Act No. 265 (The Central Bank Act, as amended) was lawful and valid.
- Whether the Monetary Board observed the procedural and substantive requirements mandated by law before closing the bank.
- Whether there was grave abuse of discretion, bad faith, or arbitrary action in the closure.
Statutory Framework and Legal Standards
- Section 29 of Republic Act No. 265 as amended provides the process for the Central Bank to close a bank found to be insolvent or whose continuance would risk loss to depositors/creditors.
- Key procedural requisites include: proper examination by Central Bank examiners; clear disclosure of insolvency or probable loss; written reporting by the department head to the Monetary Board; and a finding by the Monetary Board that the bank is indeed insolvent or unsafe.
- The receiver/liquidator appointed has the authority to take custody of assets, collect and administer assets, litigate and defend suits, and foreclose mortgages on the bank’s behalf.
- Administrative actions under Section 29 are final and executory but may be set aside by courts only if shown to be plainly arbitrary and made in bad faith.
- Substantial evidence is required to support administrative findings; mere scintilla or incomplete evidence does n