Title
Banco Filipino Savings and Mortgage Bank vs. Monetary Board
Case
G.R. No. 70054
Decision Date
Dec 11, 1991
Banco Filipino's closure by the Central Bank was ruled arbitrary; the bank was not insolvent. Liquidator's actions annulled; CB ordered to reorganize and reopen the bank.

Case Summary (G.R. No. 70054)

Petitioners, Respondents and Consolidated Cases

Petitioners: Banco Filipino (principal petition) and several corporate debtors/borrowers (Top Management Programs Corp., Pilar Development Corp., El Grande Development Corp., Metropolis Development Corp., BF Homes, El Grande Development Corp., Pilar Development as separate matters). Respondents: Monetary Board, Central Bank (CB), the designated receivers/liquidator, and various trial and appellate courts. Consolidated G.R. numbers include multiple related petitions and motions (notably G.R. No. 70054 as the main case) raising overlapping issues of receivership, liquidation, foreclosure and jurisdiction.

Procedural Posture and Core Facts (summary)

  • The Monetary Board issued a resolution ordering Banco Filipino forbidden to do business and placed it under receivership (with Valenzuela designated receiver) and later, within the statutory 60-day period, ordered liquidation and designated Valenzuela as liquidator. The Board relied on reports from Central Bank examiners and conservators (Teodoro and Tiaoqui reports) concluding insolvency or that continuance would involve probable loss to depositors/creditors.
  • Banco Filipino challenged the closure and liquidation by filing actions in the trial court and a petition for certiorari and mandamus (Rule 65) before the Supreme Court; this led to referral hearings and appointment of hearing commissioners.
  • While that main challenge (G.R. No. 70054) was pending, the liquidator (through retained counsel) pursued collection suits and extrajudicial mortgage foreclosures against several borrowers (Top Management, Pilar, El Grande, etc.). These debtors sought injunctive/prohibitory relief in the Court of Appeals and filed petitions in the Supreme Court contesting the liquidator’s authority and seeking to enjoin foreclosure.
  • The Supreme Court consolidated and considered the related petitions, motions for reconsideration, and the reports of the hearing commissioners (Judge Cosico and Justice Consuelo Santiago).

Issues Presented to the Court

  1. Whether the CB-designated receiver/liquidator has authority, while judicial review of closure/liquidation is pending, to prosecute and defend suits and to foreclose mortgages in the name of the bank.
  2. Whether the Monetary Board’s closure (forbidding Banco Filipino to do business) and its placement under receivership and liquidation were lawful under Section 29 of R.A. No. 265—i.e., whether the statutory and procedural requisites (a proper, completed examination showing insolvency or probable loss to depositors/creditors; written report to the Monetary Board; and a Board finding) were satisfied and whether the Board’s action was arbitrary, in bad faith, or a grave abuse of discretion.

Governing Statute and Constitutional Framework

The Court applied Section 29 of R.A. No. 265 (Central Bank Act) as the primary legal standard governing suspension, receivership and liquidation of banks. Because the decision date is after 1990, the Court’s analysis is framed against constitutional standards of administrative due process and judicial review under the prevailing constitutional framework (the 1987 Constitution), including protections against arbitrary administrative action and the requirement that administrative decisions have substantial evidentiary support.

Holding on Authority of Receiver/Liquidator to Litigate and Foreclose

The Court held that, under Section 29, the person designated as receiver and later the liquidator are vested with authority to take charge of the bank’s assets and liabilities and to “represent the bank personally or through counsel as he may retain in all actions or proceedings for or against the institution,” including instituting collection suits and foreclosing mortgages. The pendency of judicial review of the closure/liquidation does not, by itself, deprive the receiver or liquidator of those statutory powers. The Supreme Court therefore denied petitions and motions that sought to prevent the liquidator (or counsel retained by the liquidator) from prosecuting or defending suits or from pursuing extrajudicial mortgage foreclosures while the main legality-of-closure question remained pending.

Analysis and Holding on Legality of Closure / Receivership (G.R. No. 70054, 78767, 78894)

The Court examined whether Section 29’s mandatory prerequisites were observed: (1) a proper examination by the supervising department or its examiners; (2) a disclosure in that examination that the bank’s condition was one of insolvency or that continuance would involve probable loss to depositors/creditors; (3) written communication of facts to the Monetary Board by the department head; and (4) the Monetary Board’s finding that the statements are true. The Court concluded that the Monetary Board’s closure and placement of Banco Filipino under receivership (and the subsequent liquidation order) were null and void because the examination and findings were insufficient and procedurally defective:

  • The Tiaoqui report, which recommended immediate action, was based on a partial and incomplete examination as of July 31, 1984. Central Bank examiners had supplied only a partial list of exceptions and findings; the examination had not been officially terminated when the Board acted; recommended valuation reserves had not been discussed and finalized with the bank, contrary to standard examination procedure.
  • The decision to close the bank occurred only four days after a January 21, 1985 conference on interim examination findings—an insufficient interval for the bank to submit meaningful replies or for examiners to complete classification and valuation work as contemplated in the Central Bank’s own Manual of Examination Procedures.
  • The recommended valuation reserves—large deductions that converted book assets into a net deficiency—were tentative, required further discussion, and could not lawfully be unilaterally deducted to establish insolvency without the examination being complete and the valuation reserves reasonably established.
  • On recalculation without those unfinalized valuation-reserve deductions, Banco Filipino’s assets exceeded its liabilities as of the relevant dates (July 31, 1984 and January 25, 1985), undermining any reliable showing of insolvency. The Valenzuela/Aurellano/Tiaoqui consolidated statement of condition as of January 25, 1985, and the deputy receiver’s figures similarly showed assets exceeding liabilities.
  • The Court emphasized that “insolvency” under Section 29 means that the realizable (fair cash) value of a bank’s assets is insufficient to meet its liabilities; reliance on interim book figures and unagreed valuation reserves did not meet that test. For these reasons the Court found the Board’s action to have been arbitrary and in grave abuse of discretion, in violation of the requirements of Section 29 and of administrative due process as required under constitutional standards. The Court therefore annulled and set aside the Monetary Board/CB resolution ordering closure and receivership/liquidation.

Analysis of Valuation Reserves, Solvency Test, and Central Bank Conduct

The Court carefully distinguished net worth or unimpaired capital (after accounting for valuation reserves) from the statutory insolvency measure (realizable assets versus liabilities). It stressed that valuation reserves recommended by examiners must be justified, discussed with the bank, and reflect realistic realizable values; they cannot be treated as definitive deductions to create a finding of insolvency when the examination itself was incomplete and the reserves unfinalized. The Court also noted the Central Bank’s prior grant of substantial emergency and other advances (including a P3-billion credit line) and the placement of the bank under conservatorship earlier in 1984 as indicating that the bank’s condition was being managed, that the Central Bank had considered viability alternatives, and that alternatives to permanent closure and liquidation were available.

Orders, Relief and Final Dispo

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