[G.R. No. 161276.

January 31, 2005]

BORLONGAN vs. REYES
THIRD DIVISION

Gentlemen:

Quoted hereunder, for your information, is a resolution of this Court dated JAN 31 2005.

G.R. No. 161276 (Teodoro C. Borlongan vs. Alberto V. Reyes, Ma. Dolores B. Yuviengco, Candon
B. Guerrero and Tomas S. Aure, Jr.)

At bar is this petition for review on certiorari filed by petitioner Teodoro C. Borlongan, assailing
the decision dated 18 September 2003[1] of the Court of Appeals in CA-G.R. SP No. 72234,
reversing and setting aside the Orders dated 2 July 2002 and 30 July 2002 of the Ombudsman in
OMB-ADM-0-00-0867 which respectively declared herein respondents guilty of simple neglect of
duty, and denied both parties' separate motions for reconsideration.

In a complaint-affidavit filed with Office of the Ombudsman and thereat docketed as OMB-ADM-
0-00-0867, petitioner Teodoro C. Borlongan, former president and chief executive officer of Union
Bank, Inc. (UBI), administratively charged herein respondent officials of the Bangko Sentral ng
Pilipinas (BSP), for allegedly falsifying statement of facts in the BSP Supervision and
Examination Sector (SES) reports and tendering incorrect and inaccurate reports and opinions
to conjure false grounds for the closure of UBI and Urbancorp Development Bank and placing
them under receivership, to the detriment of their shareholders, officers and employees.

In an Order dated 2 July 2002,[2]cralaw the Ombudsman found respondents guilty of simple
neglect of duty and imposed upon them the penalty of one (1) month and one (1) day suspension
without pay. In a subsequent Order dated 30 July 2002,[3]cralawthe Ombudsman denied both
parties' motions for reconsideration.

Therefrom, both parties interposed separate appellate recourses to the Court of Appeals.

Respondents were the first to appeal via a petition for review, which was docketed in the Court
of Appeals as CA-G.R. SP No. 72234 and raffled off to its 17th Division.

For his part, petitioner, also thru a petition for review, questioned before the Court of Appeals
the Ombudsman's absolution of the BSP Governor and its General Counsel from his affidavit-
complaint, and sought the imposition of a graver penalty against the herein respondents.
Docketed as CA-G.R. SP No. 72270, petitioner's appeal landed to the 5th Division of the
appellate court.

Initially, petitioner filed a motion to consolidate the two (2) cases. Later, however, he not only
withdrew said motion but even vigorously opposed the consolidation.

Unconsolidated, the two (2) cases proceeded separately. And, as it turned out, the two (2)
divisions of the Court of Appeals rendered conflicting decisions.

Thus, in a decision dated 13 August 2003,[4] the 5th Division modified the questioned
orders of the Ombudsman by finding the herein respondents, including the BSP Governor, guilty
of gross neglect of duty and imposing on each of them the penalty of one (1) year suspension
without pay.

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On the other hand, the 17th Division, in a decision dated 18 September
2003,[5]cralawreversed and set aside the same assailed orders of the Ombudsman and dismissed
the administrative complaints against the herein respondents.

Petitioner filed a motion for reconsideration, imploring the 17th Division to set aside
its September 18,2003 decision for being inconsistent with the August 13, 2003 decision of the
5th Division in CA-G.R. SP No. 72270.

In a Resolution dated 17 December 2003,[6]cralaw the 17th Division denied petitioner's motion for
reconsideration, and, in the process, castigated petitioner for his refusal to have the two (2) cases
consolidated:

Without a consolidation, there is no rule of law or jurisprudence that prevents us, the 17th Division,
from deciding SP 72234 according to our own independent judgment, any more than the
5th Division can be prevented from ruling upon SP 72270 according to their own independent
judgment.

The records show that respondent had, indeed, filed with us a motion to consolidate SP 72270
with our SP 72234. But for reasons only known to him, he withdrew the motion for consolidation.
He even said that the 5th Division had eventually denied the consolidation of the case with us,
again for reasons we do not know.

Under these circumstances, without a consolidation, both divisions will have to decide their own
cases, and any resulting conflict in the decisions on similar issues of fact and law will have to be
resolved ultimately by the Supreme Court as the supreme arbiter of all justiciable controversies
in this jurisdiction.

But for the respondent to make it appear as if we are to blame for the conflict between the two
divisions of the Court, after the respondent refused to consolidate the cases before us, is absurd
and comical. Absurd, because he is saying in so many words that we should not exercise an
independent judgment in our case anymore after the 5th Division happened to decide its case
ahead of us and comical, because he has reduced the adjudicative process into a race between
the cases. If we had only known that this was the kind of ballgame he wanted us to observe, we
would have considered our case submitted for decision a long time ago, immediately after he
filed his comment, and bar the parties from filling replies, memoranda and other pleadings as a
waste of our time. This is how things would turn out if we pursued his line of thinking ad
absurdum.

To repeat, the respondent refused to have his case in the 5th Division consolidated before us. If
he is to fault anyone now for the consequence of this non-consolidation, he should point all his
fingers to himself.

Later, or on June 14, 2004, the former 5th Division of the Court of Appeals, this time acting as
a Special Division of Five in connection with the motions for reconsideration therein pending,
came out with an Amended Decision,[7]cralawamending the earlier decision of 12 August 2003
in CA-G.R. SP No. 72270 by dismissing the administrative complaint against all the respondents
therein. Petitioner elevated the same Amended Decision to this Court via a petition for review on
certiorari in G.R. No. 163765.

In a Resolution promulgated on July 26, 2004,[8]cralaw the Court, thru its Third Division, denied
the petition in G.R. No. 163765 "for failure of the petitioner to show that a reversible error had
been committed by the appellate court". In a subsequent Resolution promulgated on October 1,
2004, the Court denied petitioner's motion for reconsideration with finality "as no substantial
arguments were raised to warrant a reconsideration thereof".
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Meanwhile, on February 13, 2004, petitioner filed the instant petition for review on certiorari, this
time assailing the 18 September 2003 decision of the 17th Decision of the Court of Appeals in CA-
G.R. SP No. 72234.

Perusal of the present petition reveals that it raises substantially the same issues already passed
upon by the two (2) Divisions of the Court of Appeals and by this Court, no less, in G.R. No.
163765.

Chanting the same tone, the recourse is unavailing.

In Philippine Retirement Authority vs. Rupa,[9]cralaw we laid down the standard definition of
simple neglect of duty, as a disregard of a duty resulting from carelessness or indifference.

Here, we find that neither gross nor simple neglect of duty characterized the acts of the
respondents. The subject SES reports prepared by respondents and submitted to the Monetary
Board were anything but haphazardly or negligently made. As it were, the reports were a
compendium of long years of monitoring by the BSP of a problem bank, and assembled over a
period of 15 hours after the respondents were instructed to do so. The data contained therein
had been patiently collected and analyzed.

Record reveals that UBI was being monitored by BSP officials for years. Respondent Dolores
Yuvienco had supervised the bank directly since 1999 as Director of DCB II

UBI had since given up its status as an expanded commercial bank and reverted to an ordinary
commercial bank because it could not meet the P3.5 billion minimum capital requirement for a
universal bank. For two (2) months prior to its closure, Urban Bank had been besieged by liquidity
problems, and its declaration of a bank holiday on April 25 only confirmed its decreasing ability
to meet obligations on time.

Section 30(a) of RA 7653, otherwise known as the New Central Bank Act, is relevant. Under that
law, the Monetary Board may execute measures such those taken in this case, summarily and
without need of prior hearing:

Sec. 30. Proceedings in Receivership and Liquidation. -Whenever, upon report of the head of the
supervising and examining department, the Monetary Board finds that the Bank or quasi-bank:

(a) is unable to pay its liabilities as they become due in the ordinary course of
business: Provided, that this shall not include inability to pay caused by extraordinary demands
induced by financial panic in the banking community;

(b) has insufficient realizable asset, as determined by the Bangko Sentral to meet its liabilities;
or

(c) cannot continue in business without involving probable losses to its creditors; or

(d) has willfully violated a cease and desist order under Section 37 that has become final,
involving acts or transactions which amount to fraud or a dissipation of the assets of the
institution; in which cases, the Monetary Board may summarily and without need for
prior hearing forbid the institution from doing business in the Philippines and
designate the Philippine Deposit Insurance Corporation as receiver of the Banking
institution. xxx. (Emphasis supplied)

Pertinent, too, is Section 53 of Republic Act No. 8791,[10]cralaw since it underscores the summary
character of the MB's initiative of placing a bank under receivership. It provides that in case a
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bank or quasi-bank notifies the BSP or publicly announces a bank holiday, or in any manner
suspends the payment of its deposit liabilities continuously for more than 30 days, the MB may
summarily and without need of prior hearing close such banking institution and place it under
receivership of the PDIC.

This authority is beyond review by the courts except on a petition for certiorari. Here, it is worth
to note even the Ombudsman found significant evidence to rationalize the decision of the
Monetary Board to place UBI under receivership.

Likewise, we agree with the appellate court's 17th Division in its ratiocination that it is illogical to
hold the respondents administratively liable for the preparation of reports that are, in their nature,
merely recommendatory and have to be acted upon by superior officials. The reports were not
the final action that creates right and duties and affects the interest and fortunes of third parties.
Courts do not interfere with any administrative measure prior to its completion or finality, and
when they do, what is actionable is not the recommendation but the decision of the official with
the competence under the law to issue it.[11]cralaw

The subject reports are only between the Monetary Board and the BSP officials who prepared
and endorsed them and may be rejected, modified or accepted by the Monetary Board. As far as
this case is concerned, the legal obligations of diligence and good faith that BSP officials owe to
the public under Section 16 of the New Central Act start with the official acts of the Monetary
Board which, rightly or wrong, are the cause of loss or injury to third parties, not any preparatory
report or recommendation.

As earlier noted, UBI's own top management, specifically Bartolome III, its chairman of the Board,
and the petitioner himself, its president, continually provided the BSP the picture of the worsening
situation of UBI in the four (4) weeks from March 20, 2000 to April 25, 2000, leading to UBI's
unilateral declaration of a bank holiday on April 25, 2000.[12]cralaw Their constant reporting
showed that UBI was "unable to pay its liabilities as they become due in the ordinary course of
business; (or that it) has insufficient realizable assets, as determined by the Bangko Sentral, to
meet its liabilities."[13]cralaw While other factors might have weighed in the analysis of UBI's
financial liquidity and in the preparation of the inevitable Supervisor and Examination Sector (SES)
reports, the MB considered the constant reports of UBI's own top management as the best proof
of its dire liquidity status.

Petitioner would have this Court review and reverse factual findings of the Court of Appeals. This,
of course, the Court cannot and will not do. Review of factual findings of the appellate court is
not a function ordinarily undertaken by this Court, the rule admitting only a few exceptions
recognized in decisional law. The principle is consistent with Rule 45 of the Rules of Court which
categorically provides that a petition for review on certiorari must raise "only questions of law
which must be distinctly set forth" in the petition. Even then, the review sought will be denied if
the questions raised are "too unsubstantial to require consideration" or if the Court is not
convinced of the existence of "special and important reasons" to warrant review, of which none
exists in this case.

All told, we find that no reversible error was committed by the 17th Division of Court of Appeals
when it reversed and set aside the July 2, 2002 and July 30, 2002 Orders of the Ombudsman in
OMB-ADM-0-00-0867.

WHEREFORE, the instant petition is hereby DENIED DUE COURSE.

SO ORDERED.

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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.

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 19851 denying 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,"3 the 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. Tiaoqui 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 the ground 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 Central 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 certiorari under Rule 65 of the Rules of Court6 dated 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 the action 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 receiver.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 comptrollership.
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5
Since the orders of the trial court rendered moot the petition for certiorari then 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 certiorari and prohibition under Rule 65.9 On 26 September 1986, the
appellate court, upheld the 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 previous hearing 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 action 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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6
 (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 alia that in the Banco Filipino case,12 We held
that CB violated the rule on administrative due process laid down in Ang Tibay vs. CIR (69 Phil.
635) and Eastern Telecom Corp. vs. Dans, Jr. (137 SCRA 628) which requires that prior notice
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. 29 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. 14 Petitioners 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 the 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 hearing 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 business would involve probable loss
to its depositors or creditors, forbid the bank or non-bank financial institution to do business in
the Philippines; and shall designate an official of the CB or other competent person as receiver to
immediately take charge of its assets and liabilities. The fourth paragraph,16 which was then in
effect at the time the action was commenced, allows the filing of a case to set aside the actions
of the Monetary Board which are tainted with arbitrariness and bad faith.

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 case within ten (10) days
after the receiver takes charge of the assets of the bank, it is unmistakable that the assailed
actions should precede the filing of the case. Plainly, the legislature could not have intended to
authorize "no prior notice and hearing" in the closure of the bank and at the same time allow a
suit to annul it on the basis of absence thereof.

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In the early case of Rural Bank of Lucena, Inc. v. Arca [1965],17 We held that a previous hearing
is nowhere required in Sec. 29 nor does the constitutional 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, 18 We 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 City 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,19 We stated that —

. . . due process does not necessarily require a prior hearing; a hearing or an

opportunity to be heard may be subsequent to 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 Appeals20 that —

. . . the banking business is properly subject to reasonable regulation under the

police power of the state because 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 transactions 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 of 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
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 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 those entrusted with their management.

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 of the bank.

Admittedly, the mere filing of a case for receivership by the Central Bank can 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 arbitrariness and bad faith in placing the bank
under receivership, in which event, the resolution may be properly nullified and the receivership
lifted as the trial court may determine.

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 because
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 financial 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 total 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 conclusions 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,21 and reiterate Our
pronouncement therein that —

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 . . . 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 the bank'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 facie showing
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 of 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.22 In Central Bank v. Court of Appeals, 23 We 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 two (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 parties representing 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 is AFFIRMED,
except insofar as it upholds the Order of the trial court of 11 November 1985 directing petitioner
RAMON V. TIAOQUI to restore the management of TRIUMPH SAVINGS BANK to its elected Board
of Directors and Officers, which is hereby SET ASIDE.
Let this case be remanded to the Regional Trial Court of Quezon City for further proceedings to
determine whether the issuance of Resolution No. 596 of the Monetary Board was tainted with
arbitrariness and bad faith and to decide the case accordingly.
SO ORDERED.

New Central Bank Act Cases

10
 G.R. No. 191424 August 7, 2013
ALFEO D. VIVAS, ON HIS BEHALF AND ON BEHALF OF THE SHAREHOLDERS OF
EUROCREDIT COMMUNITY BANK, PETITIONER,
vs.
THE MONETARY BOARD OF THE BANGKO SENTRAL NG PILIPINAS AND THE
PHILIPPINE DEPOSIT INSURANCE CORPORATION, RESPONDENTS.

DECISION

MENDOZA, J.:

This is a petition for prohibition with prayer for the issuance of a status quo ante order or writ of
preliminary injunction ordering the respondents to desist from closing EuroCredit Community
Bank, Incorporated (ECBI) and from pursuing the receivership thereof. The petition likewise prays
that the management and operation of ECBI be restored to its Board of Directors (BOD) and its
officers.

The Facts

The Rural Bank of Faire, Incorporated (RBFI) was a duly registered rural banking institution with
principal office in Centro Sur, Sto. Niño, Cagayan. Record shows that the corporate life of RBFI
expired on May 31, 2005.1 Notwithstanding, petitioner Alfeo D. Vivas (Vivas) and his principals
acquired the controlling interest in RBFI sometime in January 2006. At the initiative of Vivas and
the new management team, an internal audit was conducted on RBFI and results thereof
highlighted the dismal operation of the rural bank. In view of those findings, certain measures
calculated to revitalize the bank were allegedly introduced.2 On December 8, 2006, the Bangko
Sentral ng Pilipinas (BSP) issued the Certificate of Authority extending the corporate life of RBFI
for another fifty (50) years. The BSP also approved the change of its corporate name to EuroCredit
Community Bank, Incorporated, as well as the increase in the number of the members of its BOD,
from five (5) to eleven (11).3

Pursuant to Section 28 of Republic Act (R.A.) No. 7653, otherwise known as The New Central
Bank Act, the Integrated Supervision Department II (ISD II) of the BSP conducted a general
examination on ECBI with the cut-off date of December 31, 2007. Shortly after the completion of
the general examination, an exit conference was held on March 27, 2008 at the BSP during which
the BSP officials and examiners apprised Vivas, the Chairman and President of ECBI, as well as
the other bank officers and members of its BOD, of the advance findings noted during the said
examination. The ECBI submitted its comments on BSP’s consolidated findings and risk asset
classification through a letter, dated April 8, 2008.4

Sometime in April 2008, the examiners from the Department of Loans and Credit of the BSP
arrived at the ECBI and cancelled the rediscounting line of the bank. Vivas appealed the
cancellation to BSP.5 Thereafter, the Monetary Board (MB) issued Resolution No. 1255, dated
September 25, 2008, placing ECBI under Prompt Corrective Action (PCA) framework because of
the following serious findings and supervisory concerns noted during the general examination: 1]
negative capital of ?14.674 million and capital adequacy ratio of negative 18.42%; 2] CAMEL
(Capital Asset Management Earnings Liquidity) composite rating of "2" with a Management
component rating of "1"; and 3] serious supervisory concerns particularly on activities deemed
unsafe or unsound.6 Vivas claimed that the BSP took the above courses of action due to the joint
influence exerted by a certain hostile shareholder and a former BSP examiner.7

Through its letter, dated September 30, 2008, the BSP furnished ECBI with a copy of the Report
of Examination (ROE) as of December 31, 2007. In addition, the BSP directed the bank’s BOD
and senior management to: 1] infuse fresh capital of ?22.643 million; 2] book the amount of
New Central Bank Act Cases
11
?28.563 million representing unbooked valuation reserves on classified loans and other risks
assets on or before October 31, 2008; and 3] take appropriate action necessary to address the
violations/exceptions noted in the examination.8

Vivas moved for a reconsideration of Resolution No. 1255 on the grounds of non-observance of
due process and arbitrariness. The ISD II, on several instances, had invited the BOD of ECBI to
discuss matters pertaining to the placement of the bank under PCA framework and other
supervisory concerns before making the appropriate recommendations to the MB. The proposed
meeting, however, did not materialize due to postponements sought by Vivas.9

In its letter, dated February 20, 2009, the BSP directed ECBI to explain why it transferred the
majority shares of RBFI without securing the prior approval of the MB in apparent violation of
Subsection X126.2 of the Manual of Regulation for Banks (MORB).10 Still in another letter,11 dated
March 31, 2009, the ISD II required ECBI to explain why it did not obtain the prior approval of
the BSP anent the establishment and operation of the bank’s sub-offices.

Also, the scheduled March 31, 2009 general examination of the books, records and general
condition of ECBI with the cut-off date of December 31, 2008, did not push through. According
to Vivas, ECBI asked for the deferment of the examination pending resolution of its appeal before
the MB. Vivas believed that he was being treated unfairly because the letter of authority to
examine allegedly contained a clause which pertained to the Anti-Money Laundering Law and the
Bank Secrecy Act.12

The MB, on the other hand, posited that ECBI unjustly refused to allow the BSP examiners from
examining and inspecting its books and records, in violation of Sections 25 and 34 of R.A. No.
7653. In its letter,13 dated May 8, 2009, the BSP informed ECBI that it was already due for another
annual examination and that the pendency of its appeal before the MB would not prevent the
BSP from conducting another one as mandated by Section 28 of R.A. No. 7653.

In view of ECBI’s refusal to comply with the required examination, the MB issued Resolution No.
726,14 dated May 14, 2009, imposing monetary penalty/fine on ECBI, and referred the matter to
the Office of the Special Investigation (OSI) for the filing of appropriate legal action. The BSP
also wrote a letter,15 dated May 26, 2009, advising ECBI to comply with MB Resolution No. 771,
which essentially required the bank to follow its directives. On May 28, 2009, the ISD II reiterated
its demand upon the ECBI BOD to allow the BSP examiners to conduct a general examination on
June 3, 2009.16

In its June 2, 2009 Letter-Reply,17 ECBI asked for another deferment of the examination due to
the pendency of certain unresolved issues subject of its appeal before the MB, and because Vivas
was then out of the country. The ISD II denied ECBI’s request and ordered the general
examination to proceed as previously scheduled.18

Thereafter, the MB issued Resolution No. 823,19 dated June 4, 2009, approving the issuance of a
cease and desist order against ECBI, which enjoined it from pursuing certain acts and transactions
that were considered unsafe or unsound banking practices, and from doing such other acts or
transactions constituting fraud or might result in the dissipation of its assets.

On June 10, 2009, the OSI filed with the Department of Justice (DOJ) a complaint for Estafa
Through Falsification of Commercial Documents against certain officials and employees of ECBI.
Meanwhile, the MB issued Resolution No. 1164,20 dated August 13, 2009, denying the appeal of
ECBI from Resolution No. 1255 which placed it under PCA framework. On November 18, 2009,
the general examination of the books and records of ECBI with the cut-off date of September 30,
2009, was commenced and ended in December 2009. Later, the BSP officials and examiners met
with the representatives of ECBI, including Vivas, and discussed their findings.21 On December 7,
New Central Bank Act Cases
12
2009, the ISD II reminded ECBI of the non-submission of its financial audit reports for the years
2007 and 2008 with a warning that failure to submit those reports and the written explanation
for such omission shall result in the imposition of a monetary penalty.22 In a letter, dated February
1, 2010, the ISD II informed ECBI of MB Resolution No. 1548 which denied its request for
reconsideration of Resolution No. 726.

On March 4, 2010, the MB issued Resolution No. 27623 placing ECBI under receivership in
accordance with the recommendation of the ISD II which reads:

On the basis of the examination findings as of 30 September 2009 as reported by the Integrated
Supervision Department (ISD) II, in its memorandum dated 17 February 2010, which findings
showed that the Eurocredit Community Bank, Inc. – a Rural Bank (Eurocredit Bank) (a) is unable
to pay its liabilities as they become due in the ordinary course of business; (b) has insufficient
realizable assets to meet liabilities; (c) cannot continue in business without involving probable
losses to its depositors and creditors; and (d) has willfully violated a cease and desist order of
the Monetary Board for acts or transactions which are considered unsafe and unsound banking
practices and other acts or transactions constituting fraud or dissipation of the assets of the
institution, and considering the failure of the Board of Directors/management of Eurocredit Bank
to restore the bank’s financial health and viability despite considerable time given to address the
bank’s financial problems, and that the bank had been accorded due process, the Board, in
accordance with Section 30 of Republic Act No. 7653 (The New Central Bank Act), approved the
recommendation of ISD II as follows:

To prohibit the Eurocredit Bank from doing business in the Philippines and to place its assets and
affairs under receivership; and

To designate the Philippine Deposit Insurance Corporation as Receiver of the bank.

Assailing MB Resolution No. 276, Vivas filed this petition for prohibition before this Court, ascribing
grave abuse of discretion to the MB for prohibiting ECBI from continuing its banking business and
for placing it under receivership. The petitioner presents the following

ARGUMENTS:

(a)

It is grave abuse of discretion amounting to loss of jurisdiction to apply the general law embodied
in Section 30 of the New Central Bank Act as opposed to the specific law embodied in Sections
11 and 14 of the Rural Banks Act of 1992.

(b)

Even if it assumed that Section 30 of the New Central Bank Act is applicable, it is still the gravest
abuse of discretion amounting to lack or excess of jurisdiction to execute the law with manifest
arbitrariness, abuse of discretion, and bad faith, violation of constitutional rights and to further
execute a mandate well in excess of its parameters.

(c)

The power delegated in favor of the Bangko Sentral ng Pilipinas to place rural banks under
receiverships is unconstitutional for being a diminution or invasion of the powers of the Supreme
Court, in violation of Section 2, Article VIII of the Philippine Constitution.24

New Central Bank Act Cases

13
Vivas submits that the respondents committed grave abuse of discretion when they erroneously
applied Section 30 of R.A. No. 7653, instead of Sections 11 and 14 of the Rural Bank Act of 1992
or R.A. No. 7353. He argues that despite the deficiencies, inadequacies and oversights in the
conduct of the affairs of ECBI, it has not committed any financial fraud and, hence, its placement
under receivership was unwarranted and improper. He posits that, instead, the BSP should have
taken over the management of ECBI and extended loans to the financially distrained bank
pursuant to Sections 11 and 14 of R.A. No. 7353 because the BSP’s power is limited only to
supervision and management take-over of banks.

He contends that the implementation of the questioned resolution was tainted with arbitrariness
and bad faith, stressing that ECBI was placed under receivership without due and prior hearing
in violation of his and the bank’s right to due process. He adds that respondent PDIC actually
closed ECBI even in the absence of any directive to this effect. Lastly, Vivas assails the
constitutionality of Section 30 of R.A. No. 7653 claiming that said provision vested upon the BSP
the unbridled power to close and place under receivership a hapless rural bank instead of aiding
its financial needs. He is of the view that such power goes way beyond its constitutional limitation
and has transformed the BSP to a sovereign in its own "kingdom of banks."25

The Court’s Ruling

The petition must fail.

Vivas Availed of the Wrong Remedy

To begin with, Vivas availed of the wrong remedy. The MB issued Resolution No. 276, dated
March 4, 2010, in the exercise of its power under R.A. No. 7653. Under Section 30 thereof, any
act of the MB placing a bank under conservatorship, receivership or liquidation may not be
restrained or set aside except on a petition for certiorari. Pertinent portions of R.A. 7653 read:

Section 30. –

x x x x.

The actions of the Monetary Board taken under this section or under Section 29 of this Act shall
be final and executory, and may not be restrained or set aside by the court except on petition for
certiorari on the ground that the action taken was in excess of jurisdiction or with such grave
abuse of discretion as to amount to lack or excess of jurisdiction. The petition for certiorari may
only be filed by the stockholders of record representing the majority of the capital stock within
ten (10) days from receipt by the board of directors of the institution of the order directing
receivership, liquidation or conservatorship.

x x x x. [Emphases supplied]

Prohibition is already unavailing

Granting that a petition for prohibition is allowed, it is already an ineffective remedy under the
circumstances obtaining. Prohibition or a "writ of prohibition" is that process by which a superior
court prevents inferior courts, tribunals, officers, or persons from usurping or exercising a
jurisdiction with which they have not been vested by law, and confines them to the exercise of
those powers legally conferred. Its office is to restrain subordinate courts, tribunals or persons
from exercising jurisdiction over matters not within its cognizance or exceeding its jurisdiction in
matters of which it has cognizance.26 In our jurisdiction, the rule on prohibition is enshrined in
Section 2, Rule 65 of the Rules on Civil Procedure, to wit:

New Central Bank Act Cases

14
Sec. 2. Petition for prohibition - When the proceedings of any tribunal, corporation, board, officer
or person, whether exercising judicial, quasi-judicial or ministerial functions, are without or in
excess of its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of
jurisdiction, and there is no appeal or any other plain, speedy, and adequate remedy in the
ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court,
alleging the facts with certainty and praying that the judgment be rendered commanding the
respondent to desist from further proceedings in the action or matter specified therein, or
otherwise granting such incidental reliefs as the law and justice require.

x x x x.

Indeed, prohibition is a preventive remedy seeking that a judgment be rendered which would
direct the defendant to desist from continuing with the commission of an act perceived to be
illegal.27 As a rule, the proper function of a writ of prohibition is to prevent the doing of an act
which is about to be done. It is not intended to provide a remedy for acts already accomplished.28

Though couched in imprecise terms, this petition for prohibition apparently seeks to prevent the
acts of closing of ECBI and placing it under receivership. Resolution No. 276, however, had
already been issued by the MB and the closure of ECBI and its placement under receivership by
the PDIC were already accomplished. Apparently, the remedy of prohibition is no longer
appropriate. Settled is the rule that prohibition does not lie to restrain an act that is already a fait
accompli.29

The Petition Should Have Been Filed in the CA

Even if treated as a petition for certiorari, the petition should have been filed with the CA. Section
4 of Rule 65 reads:

Section 4. When and where petition filed. — The petition shall be filed not later than sixty (60)
days from notice of the judgment, order or resolution. In case a motion for reconsideration or
new trial is timely filed, whether such motion is required or not, the sixty (60) day period shall be
counted from notice of the denial of said motion.

The petition shall be filed in the Supreme Court or, if it relates to the acts or omissions of a lower
court or of a corporation, board, officer or person, in the Regional Trial Court exercising
jurisdiction over the territorial area as defined by the Supreme Court. It may also be filed in the
Court of Appeals whether or not the same is in aid of its appellate jurisdiction, or in the
Sandiganbayan if it is in aid of its appellate jurisdiction. If it involves the acts or omissions of a
quasi-judicial agency, unless otherwise provided by law or these Rules, the petition shall be filed
in and cognizable only by the Court of Appeals. [Emphases supplied]

That the MB is a quasi-judicial agency was already settled and reiterated in the case of Bank of
Commerce v. Planters Development Bank And Bangko Sentral Ng Pilipinas.30

Doctrine of Hierarchy of Courts

Even in the absence of such provision, the petition is also dismissible because it simply ignored
the doctrine of hierarchy of courts. True, the Court, the CA and the RTC have original concurrent
jurisdiction to issue writs of certiorari, prohibition and mandamus. The concurrence of jurisdiction,
however, does not grant the party seeking any of the extraordinary writs the absolute freedom
to file a petition in any court of his choice. The petitioner has not advanced any special or
important reason which would allow a direct resort to this Court. Under the Rules of Court, a
party may directly appeal to this Court only on pure questions of law.31 In the case at bench,
there are certainly factual issues as Vivas is questioning the findings of the investigating team.
New Central Bank Act Cases
15
Strict observance of the policy of judicial hierarchy demands that where the issuance of the
extraordinary writs is also within the competence of the CA or the RTC, the special action for the
obtainment of such writ must be presented to either court. As a rule, the Court will not entertain
direct resort to it unless the redress desired cannot be obtained in the appropriate lower courts;
or where exceptional and compelling circumstances, such as cases of national interest and with
serious implications, justify the availment of the extraordinary remedy of writ of certiorari,
prohibition, or mandamus calling for the exercise of its primary jurisdiction.32 The judicial policy
must be observed to prevent an imposition on the precious time and attention of the Court.

The MB Committed No Grave Abuse of Discretion

In any event, no grave abuse of discretion can be attributed to the MB for the issuance of the
assailed Resolution No. 276.

Vivas insists that the circumstances of the case warrant the application of Section 11 of R.A. No.
7353, which provides:

Sec. 11. The power to supervise the operation of any rural bank by the Monetary Board as herein
indicated shall consist in placing limits to the maximum credit allowed to any individual borrower;
in prescribing the interest rate, in determining the loan period and loan procedures, in indicating
the manner in which technical assistance shall be extended to rural banks, in imposing a uniform
accounting system and manner of keeping the accounts and records of rural banks; in instituting
periodic surveys of loan and lending procedures, audits, test-check of cash and other transactions
of the rural banks; in conducting training courses for personnel of rural banks; and, in general,
in supervising the business operations of the rural banks.

The Central Bank shall have the power to enforce the laws, orders, instructions, rules and
regulations promulgated by the Monetary Board, applicable to rural banks; to require rural banks,
their directors, officers and agents to conduct and manage the affairs of the rural banks in a
lawful and orderly manner; and, upon proof that the rural bank or its Board of Directors, or
officers are conducting and managing the affairs of the bank in a manner contrary to laws, orders,
instructions, rules and regulations promulgated by the Monetary Board or in a manner
substantially prejudicial to the interest of the Government, depositors or creditors, to take over
the management of such bank when specifically authorized to do so by the Monetary Board after
due hearing process until a new board of directors and officers are elected and qualified without
prejudice to the prosecution of the persons responsible for such violations under the provisions
of Sections 32, 33 and 34 of Republic Act No. 265, as amended.

x x x x.

The thrust of Vivas’ argument is that ECBI did not commit any financial fraud and, hence, its
placement under receivership was unwarranted and improper. He asserts that, instead, the BSP
should have taken over the management of ECBI and extended loans to the financially distrained
bank pursuant to Sections 11 and 14 of R.A. No. 7353 because the BSP’s power is limited only to
supervision and management take-over of banks, and not receivership.

Vivas argues that implementation of the questioned resolution was tainted with arbitrariness and
bad faith, stressing that ECBI was placed under receivership without due and prior hearing,
invoking Section 11 of R.A. No. 7353 which states that the BSP may take over the management
of a rural bank after due hearing.33 He adds that because R.A. No. 7353 is a special law, the same
should prevail over R.A. No. 7653 which is a general law.

The Court has taken this into account, but it appears from all over the records that ECBI was
given every opportunity to be heard and improve on its financial standing. The records disclose
New Central Bank Act Cases
16
that BSP officials and examiners met with the representatives of ECBI, including Vivas, and
discussed their findings.34 There were also reminders that ECBI submit its financial audit reports
for the years 2007 and 2008 with a warning that failure to submit them and a written explanation
of such omission shall result in the imposition of a monetary penalty.35 More importantly, ECBI
was heard on its motion for reconsideration. For failure of ECBI to comply, the MB came out with
Resolution No. 1548 denying its request for reconsideration of Resolution No. 726. Having been
heard on its motion for reconsideration, ECBI cannot claim that it was deprived of its right under
the Rural Bank Act.

Close Now, Hear Later

At any rate, if circumstances warrant it, the MB may forbid a bank from doing business and place
it under receivership without prior notice and hearing. Section 30 of R.A. No. 7653 provides, viz:

Sec. 30. Proceedings in Receivership and Liquidation. – Whenever, upon report of the head of
the supervising or examining department, the Monetary Board finds that a bank or quasi-bank:

(a) is unable to pay its liabilities as they become due in the ordinary course of business:
Provided, That this shall not include inability to pay caused by extraordinary demands
induced by financial panic in the banking community;

(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its
liabilities; or

(c) cannot continue in business without involving probable losses to its depositors or
creditors; or

(d) has wilfully violated a cease and desist order under Section 37 that has become final,
involving acts or transactions which amount to fraud or a dissipation of the assets of the
institution; in which cases, the Monetary Board may summarily and without need for prior
hearing forbid the institution from doing business in the Philippines and designate the
Philippine Deposit Insurance Corporation as receiver of the banking institution. [Emphases
supplied.]

x x x x.

Accordingly, there is no conflict which would call for the application of the doctrine that a special
law should prevail over a general law. It must be emphasized that R.A .No. 7653 is a later law
and under said act, the power of the MB over banks, including rural banks, was increased and
expanded. The Court, in several cases, upheld the power of the MB to take over banks without
need for prior hearing. It is not necessary inasmuch as the law entrusts to the MB the appreciation
and determination of whether any or all of the statutory grounds for the closure and receivership
of the erring bank are present. The MB, under R.A. No. 7653, has been invested with more power
of closure and placement of a bank under receivership for insolvency or illiquidity, or because the
bank’s continuance in business would probably result in the loss to depositors or creditors. In the
case of Bangko Sentral Ng Pilipinas Monetary Board v. Hon. Antonio-Valenzuela,36 the Court
reiterated the doctrine of "close now, hear later," stating that it was justified as a measure for
the protection of the public interest. Thus:

The "close now, hear later" doctrine has already been justified as a measure for the protection of
the public interest. Swift action is called for on the part of the BSP when it finds that a bank is in
dire straits. Unless adequate and determined efforts are taken by the government against
distressed and mismanaged banks, public faith in the banking system is certain to deteriorate to
the prejudice of the national economy itself, not to mention the losses suffered by the bank
New Central Bank Act Cases
17
depositors, creditors, and stockholders, who all deserve the protection of the
government.37 [Emphasis supplied]

In Rural Bank of Buhi, Inc. v. Court of Appeals,38 the Court also wrote that

x x x due process does not necessarily require a prior hearing; a hearing or an opportunity to be
heard may be subsequent to 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.39

The doctrine is founded on practical and legal considerations to obviate unwarranted dissipation
of the bank’s assets and as a valid exercise of police power to protect the depositors, creditors,
stockholders, and the general public.40 Swift, adequate and determined actions must be taken
against financially distressed and mismanaged banks by government agencies lest the public faith
in the banking system deteriorate to the prejudice of the national economy.

Accordingly, the MB can immediately implement its resolution prohibiting a banking institution to
do business in the Philippines and, thereafter, appoint the PDIC as receiver. The procedure for
the involuntary closure of a bank is summary and expeditious in nature. Such action of the MB
shall be final and executory, but may be later subjected to a judicial scrutiny via a petition for
certiorari to be filed by the stockholders of record of the bank representing a majority of the
capital stock. Obviously, this procedure is designed to protect the interest of all concerned, that
is, the depositors, creditors and stockholders, the bank itself and the general public. The
protection afforded public interest warrants the exercise of a summary closure.

In the case at bench, the ISD II submitted its memorandum, dated February 17, 2010, containing
the findings noted during the general examination conducted on ECBI with the cut-off date of
September 30, 2009. The memorandum underscored the inability of ECBI to pay its liabilities as
they would fall due in the usual course of its business, its liabilities being in excess of the assets
held. Also, it was noted that ECBI’s continued banking operation would most probably result in
the incurrence of additional losses to the prejudice of its depositors and creditors. On top of these,
it was found that ECBI had willfully violated the cease-and-desist order of the MB issued in its
June 24, 2009 Resolution, and had disregarded the BSP rules and directives. For said reasons,
the MB was forced to issue the assailed Resolution No. 276 placing ECBI under receivership. In
addition, the MB stressed that it accorded ECBI ample time and opportunity to address its
monetary problem and to restore and improve its financial health and viability but it failed to do
so.

In light of the circumstances obtaining in this case, the application of the corrective measures
enunciated in Section 30 of R.A. No. 7653 was proper and justified. Management take-over under
Section 11 of R.A. No. 7353 was no longer feasible considering the financial quagmire that
engulfed ECBI showing serious conditions of insolvency and illiquidity. Besides, placing ECBI
under receivership would effectively put a stop to the further draining of its assets.

No Undue Delegation of Legislative Power

Lastly, the petitioner challenges the constitutionality of Section 30 of R.A. No. 7653, as the
legislature granted the MB a broad and unrestrained power to close and place a financially
troubled bank under receivership. He claims that the said provision was an undue delegation of
legislative power. The contention deserves scant consideration.

Preliminarily, Vivas’ attempt to assail the constitutionality of Section 30 of R.A. No. 7653
constitutes collateral attack on the said provision of law. Nothing is more settled than the rule
New Central Bank Act Cases
18
that the constitutionality of a statute cannot be collaterally attacked as constitutionality issues
must be pleaded directly and not collaterally.41 A collateral attack on a presumably valid law is
not permissible. Unless a law or rule is annulled in a direct proceeding, the legal presumption of
its validity stands.42

Be that as it may, there is no violation of the non-delegation of legislative power.1âwphi1 The

rationale for the constitutional proscription is that "legislative discretion as to the substantive
contents of the law cannot be delegated. What can be delegated is the discretion to determine
how the law may be enforced, not what the law shall be. The ascertainment of the latter subject
is a prerogative of the legislature. This prerogative cannot be abdicated or surrendered by the
legislature to the delegate."43

"There are two accepted tests to determine whether or not there is a valid delegation of legislative
power, viz, the completeness test and the sufficient standard test. Under the first test, the law
must be complete in all its terms and conditions when it leaves the legislature such that when it
reaches the delegate the only thing he will have to do is enforce it. Under the sufficient standard
test, there must be adequate guidelines or stations in the law to map out the boundaries of the
delegate's authority and prevent the delegation from running riot. Both tests are intended to
prevent a total transference of legislative authority to the delegate, who is not allowed to step
into the shoes of the legislature and exercise a power essentially legislative."44

In this case, under the two tests, there was no undue delegation of legislative authority in the
issuance of R.A. No. 7653. To address the growing concerns in the banking industry, the
legislature has sufficiently empowered the MB to effectively monitor and supervise banks and
financial institutions and, if circumstances warrant, to forbid them to do business, to take over
their management or to place them under receivership. The legislature has clearly spelled out the
reasonable parameters of the power entrusted to the MB and assigned to it only the manner of
enforcing said power. In other words, the MB was given a wide discretion and latitude only as to
how the law should be implemented in order to attain its objective of protecting the interest of
the public, the banking industry and the economy.

WHEREFORE, the petition for prohibition is DENIED.

SO ORDERED.

New Central Bank Act Cases

19
 G.R. No. 73884 September 24, 1987
SPOUSES ROMEO LIPANA and MILAGROS LIPANA, petitioners,
vs.
DEVELOPMENT BANK OF RIZAL, respondent.

PARAS, J.:

This is a petition for review on certiorari of the August 30, 1985 Order of the Regional Trial Court
of Pasig denying petitioners' Motion to Lift Stay of Execution in Civil Case No. 50802.

During the period from 1982 to January, 1984, herein petitioners opened and maintained both
time and savings deposits with the herein respondent Development Bank of Rizal all in the
aggregate amount of P939,737.32. When some of the Time Deposit Certificates matured,
petitioners were not able to cash them but instead were issued a manager's check which was
dishonored upon presentment. Demands for the payment of both time and savings deposits
having failed, on March 14, 1984, petitioners filed with the Regional Trial Court of Pasig a
Complaint With Prayer For Issuance of a Writ of Preliminary Attachment for collection of a sum
of money with damages, docketed therein as Civil Case No. 50802 (Record, pp. 3-11).

Respondent Judge, in an Order dated March 19, 1984 (Ibid., p. 19-21), ordered the issuance of
a writ of attachment, and pursuant thereto, a writ of attachment dated March 20, 1984 was
issued in favor of the petitioners (Ibid., p. 33).

On June 27, 1984, respondent bank filed its Answer (Ibid., p. 58-61).

On July 23, 1984, petitioners filed a Motion For Judgment on the Pleadings (Ibid., pp. 68-73),
opposed by respondent bank (Ibid., pp. 74-76), but respondent judge, in a Decision dated
November 13, 1984, rendered judgment in favor of petitioners. The dispositive portion of the said
Decision, reads:

IN VIEW OF ALL THE FOREGOING, the Court renders judgment in favor of the
plaintiffs, ordering the defendant to pay the total sum of P939,737.32 plus
stipulated interest; the sum equivalent to 15% of the amount due as attorney's
fees; and costs of suit.

The counterclaim is dismissed, for lack of merit.

Meanwhile, on August 10, 1984, the Monetary Board, in its Resolution No. 1009, finding that the
condition of respondent bank was one of insolvency and that its continuance in business would
result in probable loss to its depositors and creditors, decided to place it under receivership (Rollo,
p. 84).

On December 7, 1984, petitioners filed a Motion for Execution Pending Appeal (Rcd., pp. 91-93),
which was opposed by respondent bank (Ibid., p. 94-96). On December 27, 1984, petitioners
filed their Reply to the opposition (Ibid., pp. 98-101), to which respondent bank filed its Rejoinder
on January 1, 1985 (Ibid., pp. 102-105).

In an order dated January 29, 1985, respondent judge ordered the issuance of a writ of execution
(Ibid., p. 106).

On February 11, 1985, respondent bank filed a Motion for Reconsideration of order dated January
29, 1985 and to Stay Writ of Execution (Ibid., pp. 109-110), opposed by petitioners (Ibid., p.
111) but in an Order dated March 6, 1985, respondent judge stayed the execution (Ibid., p. 113).
New Central Bank Act Cases
20
On August 7, 1985, petitioners filed a Motion to Lift Stay of Execution (Ibid., pp. 119-122),
opposed by respondent bank (Ibid., pp. 123-127), and in an Order dated August 30, 1985,
respondent judge denied the said motion (Ibid., p. 130). Hence, the instant petition (Rollo, pp.
8-17).

The Second Division of the Court, in a resolution dated May 5, 1986, resolved to require the
respondent to comment (Ibid., p. 52). In compliance therewith, respondent bank filed its
Comment on June 9, 1986 (Ibid., pp. 53-58).

The petition was given due course in a resolution dated August 11, 1986, and the parties were
required to file their respective memoranda (Ibid., p. 61). In compliance therewith, petitioners
filed their Memorandum on September 19, 1986 (Ibid., p. 63-75), while respondent bank filed its
Memorandum on September 25, 1986 (Ibid., pp. 76-83), and the case was considered submitted
for deliberation in the Resolution dated October 8, 1986 (Ibid., p. 88)

Petitioners raised the following issues:

1. Respondent judge cannot legally stay execution of judgement that has already
become final and executory;

2. The placing under receivership by the Central Bank of the respondent bank,
long after the complaint was filed removed it from the application of the doctrine
in Re: Central Bank vs. Morfe (63 SCRA 113);

3. The filing of the complaint for a sum of money With damages against
respondent bank and the subsequent attachment of its property in Pasig, Metro
Manila long before the receivership took place render inapplicable the doctrine laid
down by this Honorable Supreme Court in the said Morfe case;

4. The indefinite stay of execution without a ruling as to how long it will last,
amounts to deprivation of petitioners of their property without due process of law.

The instant petition is without merit.

I.

The main issue in this case is whether or not respondent judge could legally stay execution of
judgment that has already become final and executory.

The answer is in the affirmative.

The rule that once a decision becomes final and executory, it is the ministerial duty of the court
to order its execution, admits of certain exceptions as in cases of special and exceptional nature
where it becomes imperative in the higher interest of justice to direct the suspension of its
execution (Vecine vs. Geronimo, 59 O.G. 579); whenever it is necessary to accomplish the aims
of justice (Pascual vs. Tan, 85 Phil. 164); or when certain facts and circumstances transpired after
the judgment became final which could render the execution of the judgment unjust (Cabrias vs.
Adil, 135 SCRA 354).

In the instant case, the stay of the execution of judgment is warranted by the fact that respondent
bank was placed under receivership. To execute the judgment would unduly deplete the assets
of respondent bank to the obvious prejudice of other depositors and creditors, since, as aptly
stated in Central Bank of the Philippines vs. Morfe (63 SCRA 114), after the Monetary Board has
declared that a bank is insolvent and has ordered it to cease operations, the Board becomes the
New Central Bank Act Cases
21
trustee of its assets for the equal benefit of all the creditors, including depositors. The assets of
the insolvent banking institution are held in trust for the equal benefit of all creditors, and after
its insolvency, one cannot obtain an advantage or a preference over another by an attachment,
execution or otherwise.

Moreover, it will be noted that respondent bank was placed under receivership on August 10,
1984, and the Decision of respondent judge is dated November 13, 1984. Accordingly, in line with
the ruling in the aforesaid Morfe case, which reads:

The circumstance that the Fidelity Savings Bank, having stopped operations since
February 19, 1969, was forbidden to do business (and that ban would include the
payment of time deposits) implies that suits for the payment of such deposits were
prohibited. What was directly prohibited should not be encompassed indirectly. ...

petitioners 'complaint should have been dismissed.

II.

It is the contention of petitioners, however, that the placing under receivership of respondent
bank long after the filing of the complaint removed it from the doctrine in the said Morfe case.

This contention is untenable. The time of the filing of the complaint is immaterial. It is the
execution that win obviously prejudice the other depositors and creditors. Moreover, as stated in
the said Morfe case, the effect of the judgment is only to fix the amount of the debt, and not give
priority over other depositors and creditors.

III.

Anent the contention of petitioners that the attachment of one of the properties of respondent
bank was erased by virtue of the delayed receivership is to expand the power of the Central Bank,
Suffice it to say that in the case of Central Bank of the Philippines, et al. vs. Court of Appeals, et
al. (Resolution of this Court dated September 17, 1984 in G.R. No. 33302), wherein the original
plaintiff Algue Inc. was able to obtain a writ of preliminary attachment against the original
defendant Island Savings Bank, this Court refused to recognize any preference resulting from
such attachment and ruled that after a declaration of insolvency, the remedy of the depositors is
to intervene in the liquidation proceedings.

IV.

It is also contended by the petitioners that the indefinite stay of execution without ruling as to
how long it will last, amounts to a deprivation of their property without due process of law.

Said contention, likewise, is devoid of merit. Apart from the fact that the stay of execution is not
only in accordance with law but is also supported by jurisprudence, such staying of execution is
not without a time limit. In fact, the Monetary Board, in its resolution No. 4-33 approved the
liquidation of respondent bank on April 26, 1985 and ordered, among others, the filing of a
petition in the Regional Trial Court praying for assistance of said court in the liquidation of the
bank. (Rollo, p. 81). The staying of the writ of execution will be lifted after approval by the
liquidation court of the project of distribution, and the liquidator or his deputy will authorize
payments to all claimants concerned in accordance with the approved project of distribution.

PREMISES CONSIDERED, the instant petition is hereby DISMISSED.

SO ORDERED.
New Central Bank Act Cases
22
 G.R. No. 114870 May 26, 1995
MIGUELA R. VILLANUEVA, RICHARD R. VILLANUEVA, and MERCEDITA VILLANUEVA-
TIRADOS, petitioners,
vs.
COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES, ILDEFONSO C. ONG, and
PHILIPPINE VETERANS BANK, respondents.

DAVIDE, JR., J.:

Do petitioners have a better right than private respondent Ildefonso Ong to purchase from the
Philippine Veterans Bank (PVB) the two parcels of land described as Lot No. 210-D-1 and Lot No.
210-D-2 situated at Muntinglupa, Metro Manila, containing an area of 529 and 300 square meters,
respectively? This is the principal legal issue raised in this petition.

In its decision of 27 January 1994 in CA-G.R. CV No. 35890,1 the Court of Appeals held for Ong,
while the trial court, Branch 39 of the Regional Trial Court (RTC) of Manila, ruled for the petitioners
in its joint decision of 31 October 1991 in Civil Case No. 87-425502 and Sp. Proc. No. 85-32311.3

The operative antecedent facts are set forth in the challenged decision as follows:

The disputed lots were originally owned by the spouses Celestino Villanueva and
Miguela Villanueva, acquired by the latter during her husband's sojourn in the
United States since 1968. Sometime in 1975, Miguela Villanueva sought the help
of one Jose Viudez, the then Officer-in-Charge of the PVB branch in Makati if she
could obtain a loan from said bank. Jose Viudez told Miguela Villanueva to
surrender the titles of said lots as collaterals. And to further facilitate a bigger loan,
Viudez, in connivance with one Andres Sebastian, swayed Miguela Villanueva to
execute a deed of sale covering the two (2) disputed lots, which she did but
without the signature of her husband Celestino. Miguela Villanueva, however,
never got the loan she was expecting. Subsequent attempts to contact Jose Viudez
proved futile, until Miguela Villanueva thereafter found out that new titles over the
two (2) lots were already issued in the name of the PVB. It appeared upon inquiry
from the Registry of Deeds that the original titles of these lots were canceled and
new ones were issued to Jose Viudez, which in turn were again canceled and new
titles issued in favor of Andres Sebastian, until finally new titles were issued in the
name of PNB [should be PVB] after the lots were foreclosed for failure to pay the
loan granted in the name of Andres Sebastian.

Miguela Villanueva sought to repurchase the lots from the PVB after being
informed that the lots were about to be sold at auction. The PVB told her that she
can redeem the lots for the price of P110,416.00. Negotiations for the repurchase
of the lots nevertheless were stalled by the filing of liquidation proceedings against
the PVB on August of 1985.

Plaintiff-appellant [Ong] on the other hand expounds on his claim over the
disputed lots in this manner:

In October 1984, plaintiff-appellant offered to purchase two pieces

of Land that had been acquired by PVB through foreclosure. To
back-up plaintiff-appellant's offer he deposited the sum of
P10,000.00.

New Central Bank Act Cases

23
 In 23 November 1984, while appellant was still abroad, PVB
approved his subject offer under Board Resolution No. 10901-84.
Among the conditions imposed by PVB is that: "The purchase price
shall be P110,000.00 (Less deposit of P10,000.00) payable in cash
within fifteen (15) days from receipt of approval of the offer."

In mid-April 1985, appellant returned to the country. He

immediately verified the status of his offer with the PVB, now under
the control of CB, where he was informed that the same had already
been approved. On 16 April 1985, appellant formally informed CB
of his desire to pay the subject balance provided the bank should
execute in his favor the corresponding deed of conveyance. The
letter was not answered.

Plaintiff-appellant sent follow-up Letters that went unheeded, the

last of which was on 21 May 1987. On 26 May 1987, appellant's
payment for the balance of the subject properties were accepted
by CB under Official Receipt #0816.

On 17 September 1987, plaintiff-appellant through his counsel, sent

a letter to CB demanding for the latter to execute the corresponding
deed of conveyance in favor of appellant. CB did not bother to
answer the same. Hence, the instant case.

While appellant's action for specific performance against CB was

pending, Miguela Villanueva and her children filed their claims with
the Liquidation court. (Appellant's Brief, pp. 3-4).4

From the pleadings, the following additional or amplificatory facts are established:

The efforts of Miguela Villanueva to reacquire the property began on 8 June 1983 when she
offered to purchase the lots for P60,000.00 with a 20%
downpayment and the balance payable in five years on a quarterly amortization basis. 5

Her offer not having been accepted,6 Miguela Villanueva increased her bid to P70,000.00. It was
only at this time that she disclosed to the bank her private transactions with Jose Viudez.7

After this and her subsequent offers were rejected,8 Miguela sent her sealed bid of P110,417.00
pursuant to the written advice of the vice president of the PVB.9

The PVB was placed under receivership pursuant to Monetary Board (MB) Resolution No. 334
dated 3 April 1985 and later, under liquidation pursuant to MB Resolution No. 612 dated 7 June
1985. Afterwards, a petition for liquidation was filed with the RTC of Manila, which was docketed
as Sp. Proc. No. 85-32311 and assigned to Branch 39 of the said court.

On 26 May 1987, Ong tendered the sum of P100,000.00 representing the balance of the purchase
price of the litigated lots. 10 An employee of the PVB received the amount conditioned upon
approval by the Central Bank
liquidator. 11 Ong's demand for a deed of conveyance having gone unheeded, he filed on 23
October 1987 with the RTC of Manila an action for specific performance against the Central
Bank.12 It was raffled to Branch 47 thereof. Upon learning that the PVB had been placed under
liquidation, the presiding judge of Branch 47 ordered the transfer of the case to Branch 39, the
liquidation court.13

New Central Bank Act Cases

24
On 15 June 1989, then Presiding Judge Enrique B. Inting issued an order allowing the purchase
of the two lots at the price of P150,000.00. 14 The Central Bank liquidator of the PVB moved for
the reconsideration of the order asserting that it is contrary to law as the disposal of the lots
should be made through public auction. 15

On 26 July 1989, Miguela Villanueva filed her claim with the liquidation court. She averred, among
others, that she is the lawful and registered owner of the subject lots which were mortgaged in
favor of the PVB thru the falsification committed by Jose Viudez, the manager of the PVB Makati
Branch, in collusion with Andres Sebastian; that upon discovering this fraudulent transaction, she
offered to purchase the property from the bank; and that she reported the matter to the PC/INP
Criminal Investigation Service Command, Camp Crame, and after investigation, the CIS officer
recommended the filing of a complaint for estafa through falsification of public documents against
Jose Viudez and Andres Sebastian. She then asked that the lots be excluded from the assets of
the PVB and be conveyed back to her. 16 Later, in view of the death of her husband, she amended
her claim to include her children, herein petitioners Mercedita Villanueva-Tirados and Richard
Villanueva. 17

On 31 October 1991, the trial court rendered judgment 18 holding that while the board resolution
approving Ong's offer may have created in his favor a vested right which may be enforced against
the PVB at the time or against the liquidator after the bank was placed under liquidation
proceedings, the said right was no longer enforceable, as he failed to exercise it within the
prescribed 15-day period. As to Miguela's claim, the court ruled that the principle of estoppel bars
her from questioning the transaction with Viudez and the subsequent transactions because she
was a co-participant thereto, though only with respect to her undivided one-half (1/2) conjugal
share in the disputed lots and her one-third (1/3) hereditary share in the estate of her husband.

Nevertheless, the trial court allowed her to purchase the lots if only to restore their status as
conjugal properties. It further held that by reason of estoppel, the transactions having been
perpetrated by a responsible officer of the PVB, and for reasons of equity, the PVB should not be
allowed to charge interest on the price of the lots; hence, the purchase price should be the PVB's
claim as of 29 August 1984 when it considered the sealed bids, i.e., P110,416.20, which should
be borne by Miguela Villanueva alone.

The dispositive portion of the decision of the trial court reads as follows:

WHEREFORE, judgment is hereby rendered as follows:

1. Setting aside the order of this court issued on

June 15, 1989 under the caption Civil Case No. 87-
42550 entitled "Ildefonso Ong vs. Central Bank of
the Phils., et al.;

2. Dismissing the claim of Ildefonso Ong over the

two parcels of land originally covered by TCT No.
438073 and 366364 in the names of Miguela
Villanueva and Celestino Villanueva, respectively
which are now covered by TCT No. 115631 and
115632 in the name of the PVB;

3. Declaring the Deed of Absolute Sale bearing the

signature of Miguela Villanueva and the falsified
signature of Celestino [sic] Viudez under date May
6, 1975 and all transactions and related documents

New Central Bank Act Cases

25
 executed thereafter referring to the two lots covered
by the above stated titles as null and void;

4. Ordering the Register of Deeds of Makati which

has jurisdiction over the two parcels of land in
question to re-instate in his land records, TCT No.
438073 in the name of Miguela Villanueva and TCT
No. 366364 in the name of Celestino Villanueva who
were the registered owners thereof, and to cancel
all subsequent titles emanating therefrom; and

5. Ordering the Liquidator to reconvey the two lots

described in TCT No. 115631 and 115632 and
executing the corresponding deed of conveyance of
the said lots upon the payment of One Hundred Ten
Thousand Four Hundred Sixteen and 20/100
(P110,416.20) Pesos without interest and less the
amount deposited by the claimant, Miguela
Villanueva in connection with the bidding where she
had participated and conducted by the PVB on
August 29, 1984.

Cost against Ildefonso Ong and the PVB.

SO ORDERED. 19

Only Ong appealed the decision to the Court of Appeals. The appeal was docketed as CA-G.R. CV
No. 35890. In its decision of 27 January 1994, the Court of Appeals reversed the decision of the
trial court and ruled as follows:

WHEREFORE, premises considered, the assailed decision is hereby REVERSED and

SET ASIDE, and a new one entered ordering the disputed-lots be awarded in favor
of plaintiff-appellant Ildefonso Ong upon defendant-appellee Central Bank's
execution of the corresponding deed of sale in his favor. 20

In support thereof, the Court of Appeals declared that Ong's failure to pay the balance within the
prescribed period was excusable because the PVB neither notified him of the approval of his bid
nor answered his letters manifesting his readiness to pay the balance, for which reason he could
not have known when to reckon the 15-day period prescribed under its resolution. It went further
to suggest that the Central Bank was in estoppel because it accepted Ong's late-payment of the
balance. As to the petitioners' claim, the Court of Appeals stated:

The conclusion reached by the lower court favorable to Miguela Villanueva is, as
aptly pointed out by plaintiff-appellant, indeed confusing. While the lower court's
decision declared Miguela Villanueva as estopped from recovering her
proportionate share and interest in the two (2) disputed lots for being a "co-
participant" in the fraudulent scheme perpetrated by Jose Viudez and Andres
Sebastian — a factual finding which We conform to and which Miguela Villanueva
does not controvert in this appeal by not filing her appellee's brief, yet it ordered
the reconveyance of the disputed lots to Miguela Villanueva as the victorious party
upon her payment of P110,416.20. Would not estoppel defeat the claim of the
party estopped? If so, which in fact must be so, would it not then be absurd or
even defiant for the lower court to finally entitle Miguela Villanueva to the disputed
lots after having been precluded from assailing their subsequent conveyance in
New Central Bank Act Cases
26
 favor of Jose Viudez by reason of her own negligence and/or complicity therein?
The intended punitive effect of estoppel would merely be a dud if this Court leaves
the lower court's conclusion unrectified. 21

Their motion for reconsideration 22

having been denied, 23
the petitioners filed this petition for
review on certiorari. 24

Subsequently, the respondent Central Bank apprised this Court that the PVB was no longer under
receivership or liquidation and that the PVB has been back in operation since 3 August 1992. It
then prayed that it be dropped from this case or at least be substituted by the PVB, which is the
real party in interest. 25

In its Manifestation and Entry of Appearance, the PVB declared that it submits to the jurisdiction
of this Court and that it has no objection to its inclusion as a party respondent in this case in lieu of
the Central Bank. 26 The petitioners did not object to the substitution. 27

Later, in its Comment dated 10 October 1994, the PVB stated that it "submits to and shall abide
by whatever judgment this Honorable Supreme Tribunal may announce as to whom said lands
may be awarded without any touch of preference in favor of one or the other party litigant in the
instant
case." 28

In support of their contention that the Court of Appeals gravely erred in holding that Ong is better
entitled to purchase the disputed lots, the petitioners maintain that Ong is a disqualified bidder,
his bid of P110,000.00 being lower than the starting price of P110,417.00 and his deposit of
P10,000.00 being less than the required 10% of the bid price; that Ong failed to pay the balance
of the price within the 15-day period from notice of the approval of his bid; and that his offer of
payment is ineffective since it was conditioned on PVB's execution of the deed of absolute sale in
his favor.

On the other hand, Ong submits that his offer, though lower than Miguela ViIlanueva's bid by
P417.00, is much better, as the same is payable in cash, while Villanueva's bid is payable in
installment; that his payment could not be said to have been made after the expiration of the 15-
day period because this period has not even started to run, there being no notice yet of the
approval of his offer; and that he has a legal right to compel the PVB or its liquidator to execute
the corresponding deed of conveyance.

There is no doubt that the approval of Ong's offer constitutes an acceptance, the effect of which
is to perfect the contract of sale upon notice thereof to Ong. 29 The peculiar circumstances in this
case, however, pose a legal obstacle to his claim of a better right and deny support to the
conclusion of the Court of Appeals.

Ong did not receive any notice of the approval of his offer. It was only sometime in mid-April
1985 when he returned from the United States and inquired about the status of his bid that he
came to know of the approval.

It must be recalled that the PVB was placed under receivership pursuant to the MB Resolution of
3 April 1985 after a finding that it was insolvent, illiquid, and could not operate profitably, and
that its continuance in business would involve probable loss to its depositors and creditors. The
PVB was then prohibited from doing business in the Philippines, and the receiver appointed was
directed to "immediately take charge of its assets and liabilities, as expeditiously as possible
collect and gather all the assets and administer the same for the benefit of its creditors, exercising
all the powers necessary for these purposes."

New Central Bank Act Cases

27
Under Article 1323 of the Civil Code, an offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before acceptance is conveyed. The reason for
this is that:

[T]he contract is not perfected except by the concurrence of two wills which exist
and continue until the moment that they occur. The contract is not yet perfected
at any time before acceptance is conveyed; hence, the disappearance of either
party or his loss of capacity before perfection prevents the contractual tie from
being formed. 30

It has been said that where upon the insolvency of a bank a receiver therefor is appointed, the
assets of the bank pass beyond its control into the possession and control of the receiver whose
duty it is to administer the assets for the benefit of the creditors of the bank.31 Thus, the
appointment of a receiver operates to suspend the authority of the bank and of its directors and
officers over its property and effects, such authority being reposed in the receiver, and in this
respect, the receivership is equivalent to an injunction to restrain the bank officers from
intermeddling with the property of the bank in any way. 32

Section 29 of the Central Bank Act, as amended, provides thus:

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 the condition of the
same is one of insolvency, or that its continuance in business would involve
probable loss to its depositors or creditors, shall be the duty of the department
head concerned forthwith, in writing, to inform the Monetary Board of the facts.
The Board may, upon finding the statements of the department head to be true,
forbid the institution to do business in the Philippines and 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 . . . exercising all the powers necessary for these purposes. . . .

xxx xxx xxx

The assets of an institution under receivership or liquidation shall be deemed

in custodia legis in the hands of the receiver or liquidator and shall, from the
moment of such receivership or liquidation, be exemp from any order of
garnishment, levy, attachment, or execution.

In a nutshell, the insolvency of a bank and the consequent appointment of a receiver restrict the
bank's capacity to act, especially in relation to its property, Applying Article 1323 of the Civil Code,
Ong's offer to purchase the subject lots became ineffective because the PVB became insolvent
before the bank's acceptance of the offer came to his knowledge. Hence, the purported contract
of sale between them did not reach the stage of perfection. Corollarily, he cannot invoke the
resolution of the bank approving his bid as basis for his alleged right to buy the disputed
properties.

Nor may the acceptance by an employee of the PVB of Ong's payment of P100,000.00 benefit
him since the receipt of the payment was made subject to the approval by the Central Bank
liquidator of the PVB thus:

New Central Bank Act Cases

28
 Payment for the purchase price of the former property of Andres Sebastian per
approved BR No. 10902-84 dated 11/13/84, subject to the approval of CB
liquidator. 33

This payment was disapproved on the ground that the subject property was already
in custodia legis, and hence, disposable only by public auction and subject to the approval
of the liquidation court. 34

The Court of Appeals therefore erred when it held that Ong had a better right than the petitioners
to the purchase of the disputed lots.

Considering then that only Ong appealed the decision of the trial court, the PVB and the Central
Bank, as well as the petitioners, are deemed to have fully and unqualifiedly accepted the
judgment, which thus became final as to them for their failure to appeal.

WHEREFORE, the instant petition is GRANTED and the challenged decision of the Court of Appeals
of 27 January 1994 in CA-G.R. CV No. 35890 is hereby SET ASIDE. The decision of Branch 39 of
the Regional Trial Court of Manila of 31 October 1991 in Civil Case No. 87-42550 and Sp. Proc.
No. 85-32311 is hereby REINSTATED.

Respondent Philippine Veterans Bank is further directed to return to private respondent Ildefonso
C. Ong the amount of P100,000.00.

No pronouncement as to costs.

SO ORDERED.

New Central Bank Act Cases

29
 G.R. No. 135706 October 1, 2004
SPS. CESAR A. LARROBIS, JR. and VIRGINIA S. LARROBIS, petitioners,
vs.
PHILIPPINE VETERANS BANK, respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before us is a petition for review of the decision of the Regional Trial Court (RTC), Cebu City,
Branch 24, dated April 17, 1998,1 and the order denying petitioner’s motion for reconsideration
dated August 25, 1998, raising pure questions of law.2

The following facts are uncontroverted:

On March 3, 1980, petitioner spouses contracted a monetary loan with respondent

Philippine Veterans Bank in the amount of ₱135,000.00, evidenced by a promissory note,
due and demandable on February 27, 1981, and secured by a Real Estate Mortgage
executed on their lot together with the improvements thereon.

On March 23, 1985, the respondent bank went bankrupt and was placed under
receivership/liquidation by the Central Bank from April 25, 1985 until August 1992.3

On August 23, 1985, the bank, through Francisco Go, sent the spouses a demand letter for
"accounts receivable in the total amount of ₱6,345.00 as of August 15, 1984,"4 which pertains to
the insurance premiums advanced by respondent bank over the mortgaged property of
petitioners.5

On August 23, 1995, more than fourteen years from the time the loan became due and
demandable, respondent bank filed a petition for extrajudicial foreclosure of mortgage of
petitioners’ property.6 On October 18, 1995, the property was sold in a public auction by Sheriff
Arthur Cabigon with Philippine Veterans Bank as the lone bidder.

On April 26, 1996, petitioners filed a complaint with the RTC, Cebu City, to declare the extra-
judicial foreclosure and the subsequent sale thereof to respondent bank null and void.7

In the pre-trial conference, the parties agreed to limit the issue to whether or not the period
within which the bank was placed under receivership and liquidation was a fortuitous event which
suspended the running of the ten-year prescriptive period in bringing actions.8

On April 17, 1998, the RTC rendered its decision, the fallo of which reads:

WHEREFORE, premises considered judgment is hereby rendered dismissing the complaint

for lack of merit. Likewise the compulsory counterclaim of defendant is dismissed for being
unmeritorious.9

It reasoned that:

…defendant bank was placed under receivership by the Central Bank from April 1985 until
1992. The defendant bank was given authority by the Central Bank to operate as a private
commercial bank and became fully operational only on August 3, 1992. From April 1985
until July 1992, defendant bank was restrained from doing its business. Doing business
as construed by Justice Laurel in 222 SCRA 131 refers to:

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 "….a continuity of commercial dealings and arrangements and contemplates to
that extent, the performance of acts or words or the exercise of some of the
functions normally incident to and in progressive prosecution of the purpose and
object of its organization."

The defendant bank’s right to foreclose the mortgaged property prescribes in ten (10)
years but such period was interrupted when it was placed under receivership. Article 1154
of the New Civil Code to this effect provides:

"The period during which the obligee was prevented by a fortuitous event from
enforcing his right is not reckoned against him."

In the case of Provident Savings Bank vs. Court of Appeals, 222 SCRA 131, the Supreme
Court said.

"Having arrived at the conclusion that a foreclosure is part of a bank’s activity which could
not have been pursued by the receiver then because of the circumstances discussed in
the Central Bank case, we are thus convinced that the prescriptive period was legally
interrupted by fuerza mayor in 1972 on account of the prohibition imposed by the
Monetary Board against petitioner from transacting business, until the directive of the
Board was nullified in 1981. Indeed, the period during which the obligee was prevented
by a caso fortuito from enforcing his right is not reckoned against him. (Art. 1154, NCC)
When prescription is interrupted, all the benefits acquired so far from the possession cease
and when prescription starts anew, it will be entirely a new one. This concept should not
be equated with suspension where the past period is included in the computation being
added to the period after the prescription is presumed (4 Tolentino, Commentaries and
Jurisprudence on the Civil Code of the Philippines 1991 ed. pp. 18-19), consequently,
when the closure of the petitioner was set aside in 1981, the period of ten years within
which to foreclose under Art. 1142 of the N.C.C. began to run and, therefore, the action
filed on August 21, 1986 to compel petitioner to release the mortgage carried with it the
mistaken notion that petitioner’s own suit for foreclosure has prescribed."

Even assuming that the liquidation of defendant bank did not affect its right to foreclose
the plaintiffs’ mortgaged property, the questioned extrajudicial foreclosure was well within
the ten (10) year prescriptive period. It is noteworthy to mention at this point in time,
that defendant bank through authorized Deputy Francisco Go made the first extrajudicial
demand to the plaintiffs on August 1985. Then on March 24, 1995 defendant bank through
its officer-in-charge Llanto made the second extrajudicial demand. And we all know that
a written extrajudicial demand wipes out the period that has already elapsed and starts
anew the prescriptive period. (Ledesma vs. C.A., 224 SCRA 175.)10

Petitioners filed a motion for reconsideration which the RTC denied on August 25, 1998.11 Thus,
the present petition for review where petitioners claim that the RTC erred:

…IN RULING THAT THE PERIOD WITHIN WHICH RESPONDENT BANK WAS PUT UNDER
RECEIVERSHIP AND LIQUIDATION WAS A FORTUITOUS EVENT THAT INTERRUPTED THE
RUNNING OF THE PRESCRIPTIVE PERIOD.

II

…IN RULING THAT THE WRITTEN EXTRA-JUDICIAL DEMAND MADE BY RESPONDENT ON

PETITIONERS WIPED OUT THE PERIOD THAT HAD ALREADY ELAPSED.
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 III

…IN DENYING PETITIONERS’ MOTION FOR RECONSIDERATION OF ITS HEREIN

ASSAILED DECISION.12

Petitioners argue that: since the extra-judicial foreclosure of the real estate mortgage was
effected by the bank on October 18, 1995, which was fourteen years from the date the obligation
became due on February 27, 1981, said foreclosure and the subsequent sale at public auction
should be set aside and declared null and void ab initio since they are already barred by
prescription; the court a quo erred in sustaining the respondent’s theory that its having been
placed under receivership by the Central Bank between April 1985 and August 1992 was a
fortuitous event that interrupted the running of the prescriptive period;13 the court a
quo’s reliance on the case of Provident Savings Bank vs. Court of Appeals14 is misplaced since
they have different sets of facts; in the present case, a liquidator was duly appointed for
respondent bank and there was no judgment or court order that would legally or physically hinder
or prohibit it from foreclosing petitioners’ property; despite the absence of such legal or physical
hindrance, respondent bank’s receiver or liquidator failed to foreclose petitioners’ property and
therefore such inaction should bind respondent bank;15 foreclosure of mortgages is part of the
receiver’s/liquidator’s duty of administering the bank’s assets for the benefit of its depositors and
creditors, thus, the ten-year prescriptive period which started on February 27, 1981, was not
interrupted by the time during which the respondent bank was placed under receivership; and
the Monetary Board’s prohibition from doing business should not be construed as barring any and
all business dealings and transactions by the bank, otherwise, the specific mandate to foreclose
mortgages under Sec. 29 of R.A. No. 265 as amended by Executive Order No. 65 would be
rendered nugatory.16 Said provision reads:

Section 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 the 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 writing, to inform the
Monetary Board of the facts. The Board may, upon finding the statements of the
department head to be true, forbid the institution to do business in the Philippines and
designate the official of the Central Bank or a person of recognized competence in banking
or finance, as receiver to immediately take charge 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 personally or through counsel as he may retain in all
actions or proceedings for or against the institution, exercising all the powers necessary
for these purposes including, but not limited to, bringing and foreclosing mortgages in the
name of the bank.

Petitioners further contend that: the demand letter, dated March 24, 1995, was sent after the
ten-year prescriptive period, thus it cannot be deemed to have revived a period that has already
elapsed; it is also not one of the instances enumerated by Art. 1115 of the Civil Code when
prescription is interrupted;17 and the August 23, 1985 letter by Francisco Go demanding
₱6,345.00, refers to the insurance premium on the house of petitioners, advanced by respondent
bank, thus such demand letter referred to another obligation and could not have the effect of
interrupting the running of the prescriptive period in favor of herein petitioners insofar as
foreclosure of the mortgage is concerned.18

Petitioners then prayed that respondent bank be ordered to pay them ₱100,000.00 as moral
damages, ₱50,000.00 as exemplary damages and ₱100,000.00 as attorney’s fees.19

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32
Respondent for its part asserts that: the period within which it was placed under receivership and
liquidation was a fortuitous event that interrupted the running of the prescriptive period for the
foreclosure of petitioners’ mortgaged property; within such period, it was specifically restrained
and immobilized from doing business which includes foreclosure proceedings; the extra-judicial
demand it made on March 24, 1995 wiped out the period that has already lapsed and started
anew the prescriptive period; respondent through its authorized deputy Francisco Go made the
first extra-judicial demand on the petitioners on August 23, 1985; while it is true that the first
demand letter of August 1985 pertained to the insurance premium advanced by it over the
mortgaged property of petitioners, the same however formed part of the latter’s total loan
obligation with respondent under the mortgage instrument and therefore constitutes a valid extra-
judicial demand made within the prescriptive period.20

In their Reply, petitioners reiterate their earlier arguments and add that it was respondent that
insured the mortgaged property thus it should not pass the obligation to petitioners through the
letter dated August 1985.21

To resolve this petition, two questions need to be answered: (1) Whether or not the period within
which the respondent bank was placed under receivership and liquidation proceedings may be
considered a fortuitous event which interrupted the running of the prescriptive period in bringing
actions; and (2) Whether or not the demand letter sent by respondent bank’s representative on
August 23, 1985 is sufficient to interrupt the running of the prescriptive period.

Anent the first issue, we answer in the negative.

One characteristic of a fortuitous event, in a legal sense and consequently in relations to contract,
is that its occurrence must be such as to render it impossible for a party to fulfill his obligation in
a normal manner.22

Respondent’s claims that because of a fortuitous event, it was not able to exercise its right to
foreclose the mortgage on petitioners’ property; and that since it was banned from pursuing its
business and was placed under receivership from April 25, 1985 until August 1992, it could not
foreclose the mortgage on petitioners’ property within such period since foreclosure is embraced
in the phrase "doing business," are without merit.

While it is true that foreclosure falls within the broad definition of "doing business," that is:

…a continuity of commercial dealings and arrangements and contemplates to that extent,

the performance of acts or words or the exercise of some of the functions normally
incident to and in progressive prosecution of the purpose and object of its organization.23

it should not be considered included, however, in the acts prohibited whenever banks are
"prohibited from doing business" during receivership and liquidation proceedings.

This we made clear in Banco Filipino Savings & Mortgage Bank vs. Monetary Board, Central Bank
of the Philippines24 where we explained that:

Section 29 of the Republic Act No. 265, as amended known as the Central Bank Act,
provides that when a bank is forbidden to do business in the Philippines and placed under
receivership, the person designated as receiver shall immediately take charge of the
bank’s assets and liabilities, as expeditiously as possible, collect and gather all the assets
and administer the same for the benefit of its creditors, and represent the bank personally
or through counsel as he may retain in all actions or proceedings for or against the
institution, exercising all the powers necessary for these purposes including, but not
limited to, bringing and foreclosing mortgages in the name of the bank.25
New Central Bank Act Cases
33
This is consistent with the purpose of receivership proceedings, i.e., to receive collectibles and
preserve the assets of the bank in substitution of its former management, and prevent the
dissipation of its assets to the detriment of the creditors of the bank.26

When a bank is declared insolvent and placed under receivership, the Central Bank, through the
Monetary Board, determines whether to proceed with the liquidation or reorganization of the
financially distressed bank. A receiver, who concurrently represents the bank, then takes control
and possession of its assets for the benefit of the bank’s creditors. A liquidator meanwhile
assumes the role of the receiver upon the determination by the Monetary Board that the bank
can no longer resume business. His task is to dispose of all the assets of the bank and effect
partial payments of the bank’s obligations in accordance with legal priority. In both receivership
and liquidation proceedings, the bank retains its juridical personality notwithstanding the closure
of its business and may even be sued as its corporate existence is assumed by the receiver or
liquidator. The receiver or liquidator meanwhile acts not only for the benefit of the bank, but for
its creditors as well.27

In Provident Savings Bank vs. Court of Appeals,28 we further stated that:

When a bank is prohibited from continuing to do business by the Central Bank and a
receiver is appointed for such bank, that bank would not be able to do new business, i.e.,
to grant new loans or to accept new deposits. However, the receiver of the bank is in
fact obliged to collect debts owing to the bank, which debts form part of the
assets of the bank. The receiver must assemble the assets and pay the
obligation of the bank under receivership, and take steps to prevent dissipation
of such assets. Accordingly, the receiver of the bank is obliged to collect pre-
existing debts due to the bank, and in connection therewith, to foreclose
mortgages securing such debts.29 (Emphasis supplied.)

It is true that we also held in said case that the period during which the bank was placed under
receivership was deemed fuerza mayor which validly interrupted the prescriptive period.30 This is
being invoked by the respondent and was used as basis by the trial court in its decision. Contrary
to the position of the respondent and court a quo however, such ruling does not find application
in the case at bar.

A close scrutiny of the Provident case, shows that the Court arrived at said conclusion, which is
an exception to the general rule, due to the peculiar circumstances of Provident Savings Bank at
the time. In said case, we stated that:

Having arrived at the conclusion that a foreclosure is part of a bank’s business

activity which could not have been pursued by the receiver then because of the
circumstances discussed in the Central Bank case, we are thus convinced that the
prescriptive period was legally interrupted by fuerza mayor in 1972 on account of the
prohibition imposed by the Monetary Board against petitioner from transacting business,
until the directive of the Board was nullified in 1981.31 (Emphasis supplied.)

Further examination of the Central Bank case reveals that the circumstances of Provident Savings
Bank at the time were peculiar because after the Monetary Board issued MB Resolution No. 1766
on September 15, 1972, prohibiting it from doing business in the Philippines, the bank’s majority
stockholders immediately went to the Court of First Instance of Manila, which prompted the trial
court to issue its judgment dated February 20, 1974, declaring null and void the resolution and
ordering the Central Bank to desist from liquidating Provident. The decision was appealed to and
affirmed by this Court in 1981. Thus, the Superintendent of Banks, which was instructed to take
charge of the assets of the bank in the name of the Monetary Board, had no power to act as a
receiver of the bank and carry out the obligations specified in Sec. 29 of the Central Bank Act.32
New Central Bank Act Cases
34
In this case, it is not disputed that Philippine Veterans Bank was placed under receivership by the
Monetary Board of the Central Bank by virtue of Resolution No. 364 on April 25, 1985, pursuant
to Section 29 of the Central Bank Act on insolvency of banks.33

Unlike Provident Savings Bank, there was no legal prohibition imposed upon herein respondent
to deter its receiver and liquidator from performing their obligations under the law. Thus, the
ruling laid down in the Provident case cannot apply in the case at bar.

There is also no truth to respondent’s claim that it could not continue doing business from the
period of April 1985 to August 1992, the time it was under receivership. As correctly pointed out
by petitioner, respondent was even able to send petitioners a demand letter, through Francisco
Go, on August 23, 1985 for "accounts receivable in the total amount of ₱6,345.00 as of August
15, 1984" for the insurance premiums advanced by respondent bank over the mortgaged property
of petitioners. How it could send a demand letter on unpaid insurance premiums and not foreclose
the mortgage during the time it was "prohibited from doing business" was not adequately
explained by respondent.

Settled is the principle that a bank is bound by the acts, or failure to act of its receiver.34 As we
held in Philippine Veterans Bank vs. NLRC,35 a labor case which also involved respondent bank,

… all the acts of the receiver and liquidator pertain to petitioner, both having assumed
petitioner’s corporate existence. Petitioner cannot disclaim liability by arguing that the
non-payment of MOLINA’s just wages was committed by the liquidators during the
liquidation period.36

However, the bank may go after the receiver who is liable to it for any culpable or negligent
failure to collect the assets of such bank and to safeguard its assets.37

Having reached the conclusion that the period within which respondent bank was placed under
receivership and liquidation proceedings does not constitute a fortuitous event which interrupted
the prescriptive period in bringing actions, we now turn to the second issue on whether or not
the extra-judicial demand made by respondent bank, through Francisco Go, on August 23, 1985
for the amount of ₱6,345.00, which pertained to the insurance premiums advanced by the bank
over the mortgaged property, constitutes a valid extra-judicial demand which interrupted the
running of the prescriptive period. Again, we answer this question in the negative.

Prescription of actions is interrupted when they are filed before the court, when there is a written
extra-judicial demand by the creditors, and when there is any written acknowledgment of the
debt by the debtor.38

Respondent’s claim that while its first demand letter dated August 23, 1985 pertained to the
insurance premium it advanced over the mortgaged property of petitioners, the same formed
part of the latter’s total loan obligation with respondent under the mortgage instrument, and
therefore, constitutes a valid extra-judicial demand which interrupted the running of the
prescriptive period, is not plausible.

The real estate mortgage signed by the petitioners expressly states that:

This mortgage is constituted by the Mortgagor to secure the payment of the loan and/or
credit accommodation granted to the spouses Cesar A. Larrobis, Jr. and Virginia S. Larrobis
in the amount of ONE HUNDRED THIRTY FIVE THOUSAND (₱135,000.00) PESOS ONLY
Philippine Currency in favor of the herein Mortgagee.39

The promissory note, executed by the petitioners, also states that:

New Central Bank Act Cases
35
 …FOR VALUE RECEIVED, I/WE, JOINTLY AND SEVERALLY, PROMISE TO PAY THE
PHILIPPINE VETERANS BANK, OR ORDER, AT ITS OFFICE AT CEBU CITY THE SUM OF
ONE HUNDRED THIRTY FIVE THOUSAND PESOS (P135,000.00), PHILIPPINE CURRENCY
WITH INTEREST AT THE RATE OF FOURTEEN PER CENT (14%) PER ANNUM FROM THIS
DATE UNTIL FULLY PAID.40

Considering that the mortgage contract and the promissory note refer only to the loan of
petitioners in the amount of ₱135,000.00, we have no reason to hold that the insurance
premiums, in the amount of ₱6,345.00, which was the subject of the August 1985 demand letter,
should be considered as pertaining to the entire obligation of petitioners.

In Quirino Gonzales Logging Concessionaire vs. Court of Appeals,41 we held that the notices of
foreclosure sent by the mortgagee to the mortgagor cannot be considered tantamount to written
extrajudicial demands, which may validly interrupt the running of the prescriptive period, where
it does not appear from the records that the notes are covered by the mortgage contract.42

In this case, it is clear that the advanced payment of the insurance premiums is not part of the
mortgage contract and the promissory note signed by petitioners. They pertain only to the amount
of ₱135,000.00 which is the principal loan of petitioners plus interest. The arguments of
respondent bank on this point must therefore fail.

As to petitioners’ claim for damages, however, we find no sufficient basis to award the same. For
moral damages to be awarded, the claimant must satisfactorily prove the existence of the factual
basis of the damage and its causal relation to defendant’s acts.43 Exemplary damages meanwhile,
which are imposed as a deterrent against or as a negative incentive to curb socially deleterious
actions, may be awarded only after the claimant has proven that he is entitled to moral, temperate
or compensatory damages.44 Finally, as to attorney’s fees, it is demanded that there be factual,
legal and equitable justification for its award.45 Since the bases for these claims were not
adequately proven by the petitioners, we find no reason to grant the same.

WHEREFORE, the decision of the Regional Trial Court, Cebu City, Branch 24, dated April 17,
1998, and the order denying petitioners’ motion for reconsideration dated August 25, 1998 are
hereby REVERSED and SET ASIDE. The extra-judicial foreclosure of the real estate mortgage
on October 18, 1995, is hereby declared null and void and respondent is ordered to return to
petitioners their owner’s duplicate certificate of title.

Costs against respondent.

SO ORDERED.

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36