Cases for New Central Bank Act Flashcards
First Philippine International Bank has been under conservatorship since 1984. It is the owner of 6 parcels of land (101 ha). The Bank had an agreement with Demetria (respondent) to purchase the parcels of land. The said agreement was made by Demetria with the Bank’s manager, Rivera. Thereafter, they had a series of letters consisting of offers, counter-offers and acceptance of the counter-offer by Demetria. However, there was a change in conservator (bank has been placed under conservatorship since 1964, negotiation for purchase was 1987) so that Demetria was advised by Rivera that the proposal to purchase the lot was still under study. Demetria demanded that the bank complied with the perfected contract of sale and tendered payment to Rivera which the defendants refused to accept. A second tender of payment in the name of Encarnacion, the new conservator was also made.
The conservator, Encarnacion, sought the repudiation of the agreement as it alleged that Rivera was not authorized to enter into such an agreement. Hence there was no valid contract of sale. Subsequently, Demetria sued the Bank. The RTC ruled in favor of Demetria. The Bank filed an appeal with the CA.
Meanwhile, Henry Co, who holds 80% shares of stocks with the said Bank, filed a motion for intervention with the trial court which was denied since the trial has been concluded already and the case is now pending appeal. Subsequently, Henry Co, filed a separate civil case against Ejercito as successor-in-interest (assignee) of Demetria seeking to have the purported contract of sale be declared unenforceable against the Bank. Ejercito argued that the second case constitutes forum shopping since it was barred by litis pendentia by virtue of the case then pending in the Court of Appeals. But petitioners explain that there is no forum-shopping because in the “First Case” from which this proceeding arose, the Bank was impleaded as a defendant, whereas in the “Second Case” it was the plaintiff.
The Bank also argued the following: (1) that the contract of sale was not yet perfected since it lacks consent since the Bank did not make a counter-offer; (2) that the contract is unenforceable since there is no note, memorandum or writing subscribed by the Bank to evidence such contract; (3) that the conservator has the power to revoke or overrule actions of the management or the board of directors of a bank under Section 28-A of Republic Act No. 265 hence the conservator can revoke the said contract between the Bank and Demetria; and (4) that respondent Court’ Decision as “fraught with findings and conclusions which were not only contrary to the evidence on record but have no bases at all” hence questions of fact must be reviewed by SC.
WON the conservator may revoke a perfected and enforceable contract.
Respondent Manila Bank owned land along Gil Puyat Avenue, Makati City, and began constructing a building before 1984, but financial difficulties left it unfinished. In 1987, the Central Bank (now BSP) ordered the bank’s closure and placed it under receivership, later ordering its liquidation in 1988. Legal proceedings delayed the liquidation.
Meanwhile, acting bank president Vicente G. Puyat sought investors to complete the building. The Laureano group proposed a 10-year lease, advancing construction costs in exchange for an “exclusive option to purchase” the property. Due to pending litigation, the land was leased to Manila Equities Corporation (MEQCO), a Manila Bank subsidiary, which then subleased it to Abacus Real Estate Development Center, Inc. (formed by the Laureano group).
The Laureano group later assigned its rights, including the purchase option, to Benjamin Bitanga. Abacus then attempted to exercise the option, but Manila Bank refused. Abacus sued for specific performance and damages. The RTC ruled in its favor, ordering Manila Bank to sell the property for ₱150 million and pay ₱2 billion in attorney’s fees. Manila Bank’s appeal to the CA was granted, reversing the RTC’s decision. Abacus’ motion for reconsideration was denied, leading to a petition for review before the SC.
Whether or not the option to purchase the lot and building in question granted to it by the late Vicente G. Puyat, then acting president of Manila Bank, was binding upon the latter despite having placed under the receivership at the time of its granting?
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. Since the bank officers were no longer authorized to transact business in connection with the bank’s assets and property, the exclusive option to purchase granted by the President of the bank is unenforceable against the bank.
Bonifacio Regalado and NAWASA entered a in a contract of sale with instalments for various materials which the latter agreed to supply to the former. In relation to a contract of sale between NAWASA, as vendor and Bonifacio Regalado, as vendee, the amount corresponding to the first payment by Regalado was placed on a time deposit with the Overseas Bank by the NAWASA Treasurer for a period of 6 months. A second payment having been made by Regalado, another time deposit was made by the NAWASA Treasurer with the Overseas Bank, this time in the amount respresenting the balance of the purchase price due from Regalado. The period of this second deposit was fixed 1 year. Subsequently, NAWASA’s Acting General Manager wrote to the Overseas Bank advising that (1) as regards the first time deposit which had already matured, NAWASA wished to withdraw it immediately, and (2) with respect to the second time deposit of, it intended to withdraw it 60 days thereafter as authorized by the parties’ agreement set forth in the certificate of the deposit. Despite several letter request, nothing was heard from the Overseas Bank. It did however pay to NAWASA interest on its time deposits.
After maturity of the second time deposit and Overseas Bank not responding to the letter request of NAWASA for the remittance of the time deposits, NAWASA then wrote to the Central Bank Governor about the matter. Apparently, even the Central Bank was ignored by Overseas Bank. One last letter was written by NAWASA to the Overseas Bank, reiterating its demand for the return of its money. Again the letter went unheeded. NAWASA thus brought suit to recover its deposits and damages. CFI Manila rendered judgment in favor of NAWASA and ordered the bank to pay. CA affirmed the trial court’s ruling. Hence this petition.
Whether or not Overseas Bank is liable to pay.
The bank shall be forbidden to do business. As such, it is not liable to pay interest on deposits. It is however liable for obligations that accrued before the order forbidding it to do business.
Spouses Poon leased their commercial building in Naga City to Prime Savings Bank (PSB) in 2006 for 10 years, with a fixed monthly rent of ₱60,000 and an advance rental payment of ₱6,000,000 for the first 100 months. The lease contract included a clause allowing the lessor to terminate the lease and forfeit advance rentals if the lessee vacated the premises.
In 2009, BSP placed PSB under PDIC receivership and later ordered its liquidation. In May 2000, PSB vacated the premises. PDIC demanded a refund of the unused advance rent (₱3,480,000), arguing that PSB’s closure was force majeure, rendering the forfeiture clause inoperative. Petitioners refused, citing the contract terms.
PSB sued for partial rescission and refund. The RTC ruled the forfeiture clause was valid but penal in nature, ordering the return of half the unused rent (₱1,740,000) since the lease termination was involuntary. The CA affirmed.
The period during which the bank cannot do business due to insolvency is not fortuitous event, unless it is shown that the government’s action to place a bank under receivership or liquidation proceedings is tainted with arbitrariness, or that the regulatory body has acted without jurisdiction.
Small Business Guarantee and Finance Corporation [SB Corp.] is a government financial institution which is mandated by law to provide easy access credit to qualified micro, small and medium enterprises (MSMEs) through direct lending or through its conduit participating financial institutions for re-lending. One of its clients was Golden 7 Bank [G7 Bank], a banking corporation duly organized and existing under Philippine laws. An “Omnibus Credit Line Agreement” was executed, whereby G7 Bank was granted credit line P90,000,000.00 for re-lending to qualified MSMEs as subborrowers. In line with that, the Board of Directors of G7 Bank authorized any two of its officers, namely Fidel L. Cu, Allan S. Cu [Cu], Lucia C. Pascual and Norma B. Cueto, as signatories to loan documents, including post-dated checks. Subsequently, Cu and his co-signatory Lucia Pascual then issued more than a hundred post-dated checks as payment to the various drawdowns made on the credit line. Subsequently, The Central Bank placed G7 Bank under receivership by the Philippine Deposit Insurance Corporation (PDIC). Consequently, PDIC closed all of G7 Bank’s deposit accounts with other banks, including its checking account with the Land Bank of the Philippines (LBP) against which the disputed checks were issued. Upon maturity of the subject post-dated checks, SB Corp. deposited the same to its account with the LandBank but all of them were dishonoured for reason of “Account Closed”. Subsequently, SB Corp. sent demand letters to Cu and Pascual demanding payment of the amounts represented in the dishonored checks. Despite receipt of the demand letters, Cu and Pascual failed to make good the dishonored checks, prompting SB Corp. to file a Complaint-Affidavit for Violation of BP 22. After finding that probable cause exists to indict Cu and Pascual for Violation of B.P. 22, on five counts, corresponding information were filed in court. and the MeTC issued an Order setting the arraignment of the accused Cu and Pascual. On trial, the petitioners contends that he checks were intended to cover the instalment payments of the credit line drawdowns obtained from SB Corp. However, the funding of the checks could not be validly done because G7 Bank was placed under receivership; and that notice of dishonor was not received by them. The MeTC dismissed the B.P. 22 cases and ruled because of the receivership, G7 Bank cannot by itself keep sufficient funds in its account to cover the full amount of the subject checks at their maturity dates. The RTC rendered a decision affirming in toto. However, the same was reversed by the CA.
ISSUE: Whether or not the petitioners, Allan Cu and Lucia Pascual are liable for the violation of BP 22 as officers of G7 Bank.
A criminal case for violation of BP 22 against a bank placed under receivership by the Monetary Board may be dismissed for the demandability of the obligation to be performed has been suspended. The filing of a petition for assistance in liquidation by PDIC as receiver as a result of the Monetary Board’s order for closure made it legally impossible for the officer who signed the check to comply with his obligation with the payee.
Petitioner Vivas and his principals acquired the controlling interest in Rural Bank Faire, a bank whose corporate life has already expired. BSP authorized extending the banks’ corporate life and was later renamed to EuroCredit Community Bank (ECBI). Through a series of examinations conducted by the BSP, the findings bore that ECBI was illiquid, insolvent, and was performing transactions which are considered unsafe and unsound banking practices. Consequently ECBI was placed under receivership. Petitioner 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.
Issue: Whether Monetary Board (MB) committed grave abuse of discretion in forbidding ECBI from doing business and placed it under receivership.
No.
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.
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.
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. This 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. 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.
Petitioner Rural Bank of San Miguel, Inc. (RBSM) was a domestic corporation engaged in banking. On January 21, 2000, respondent Monetary Board (MB), the governing board of Bangko Sentral ng Pilipinas (BSP), issued Resolution No. 105 prohibiting RBSM from doing business in the Philippines, placing it under receivership and designating Philippine Deposit Insurance Corporation (PDIC) as receiver on the basis of its inability to pay its liabilities as they become due in the ordinary course of business and continuance in business without involving probable losses to its depositors and creditors.
On January 4, 2000, RBSM declared a bank holiday. RBSM and all of its 15 branches were closed from doing business. Alarmed and disturbed by the unilateral declaration of bank holiday, BSP wanted to examine the books and records of RBSM but encountered problems. RBSM’s designated comptroller submitted to the Department of Rural Banks, BSP, a Comptrollership Report on her findings on the financial condition and operations of the bank. Based on these reports, the director of the Department of Rural Banks Supervision and Examination Sector made a report to the Monetary Bank (MB). The MB after evaluating and deliberating on the findings and recommendation, issued Resolution No. 105. Thereafter, PDIC implemented the closure order and took over the management of RBSM’s assets and affairs.
On January 31, 2000, petitioners filed a petition for certiorari and prohibition in the Regional Trial Court to nullify and set aside Resolution No. 105.7 However, on February 7, 2000, petitioners filed a notice of withdrawal in the RTC and filed a special civil action for certiorari and prohibition in the CA.
In their petition before the CA, petitioners claimed that respondents MB and BSP committed grave abuse of discretion in issuing Resolution No. 105. The petition was dismissed by the CA on the basis that the decision of the MB was based on the findings and recommendations of the Department of Rural Banks Supervision and Examination Sector, the comptroller reports and the declaration of a bank holiday. Such could be considered as substantial evidence. Pertinently, on June 9, 2000, on the basis of reports prepared by PDIC, MB passed Resolution No. 966 directing PDIC to proceed with the liquidation of RBSM under Section 30 of RA 7653.
Hence this petition.
Issue: Whether or not Section 30 of RA 7653 (also known as the New Central Bank Act) and applicable jurisprudence require a current and complete examination of the bank before it can be closed and placed under receivership.
Held: No. Section 30 of RA 7653 does not require a current and complete examination of the bank before it can be closed and placed under receivership. Section 30 of RA 7653 provides:
SECTION 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 [BSP] to meet its liabilities; or
(c) cannot continue in business without involving probable losses to its depositors or 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.
It is well-settled that the closure of a bank may be considered as an exercise of police power. The action of the MB on this matter is final and executory. Such exercise may nonetheless be subject to judicial inquiry and can be set aside if found to be in excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of jurisdiction.
The absence of an examination before the closure of RBSM did not mean that there was no basis for the closure order. But it is clear under RA 7653 that the basis need not arise from an examination as required in the old law. The court rules that the MB had sufficient basis to arrive at a sound conclusion that there were grounds that would justify RBSM’s closure. Therefore, MB and BSP complied with all the requirements of RA 7653. By relying on a report before placing a bank under receivership, the MB and BSP did not only follow the letter of the law, they were also faithful to its spirit, which was to act expeditiously. Accordingly, the issuance of Resolution No. 105 was untainted with arbitrariness.
Banco Filipino Savings and Mortgage Bank (Banco Filipino) was ordered closed by the Bangko Sentral ng Pilipinas (BSP) and placed under receivership of the Philippine Deposit Insurance Corporation (PDIC). Banco Filipino filed several complaints, including a claim for damages amounting to P18.8 billion. The bank was later allowed to resume business after a Supreme Court decision in 1991 declared the closure void.
Financial Crisis and Negotiations
In 2002, Banco Filipino faced heavy withdrawals and sought financial assistance from BSP. After multiple negotiations and revisions of its business plan, BSP approved a P25 billion financial assistance package in 2009, subject to conditions, including the withdrawal of all pending cases against BSP and the Monetary Board.
Legal Proceedings
Banco Filipino rejected the condition to withdraw its cases, leading to a legal dispute. It filed a Petition for Certiorari and Mandamus in the Regional Trial Court (RTC) of Makati, alleging BSP and the Monetary Board acted arbitrarily. The RTC issued a temporary restraining order, but BSP and the Monetary Board challenged the RTC’s jurisdiction, filing a Petition for Certiorari with the Court of Appeals (CA). The CA dismissed the case, ruling the RTC lacked jurisdiction over the matter.
Issue:
whether or not petitioner Banco Filipino, as a closed bank under receivership, could file this Petition for Review without joining its statutory receiver, the Philippine Deposit Insurance Corporation, as a party to the case.
No. A closed bank under receivership can only sue or be sued through its receiver, the Philippine Deposit Insurance Corporation.
Under Republic Act No. 7653,[97] when the Monetary Board finds a bank insolvent, it 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
