Banco Filipino Savings and Mortgage Bank vs.

The Monetary Board

G.R. No. 70054 December 11, 1991

Facts
Banco Filipino Savings and Mortgage Bank commenced operations on July 9,
1964. It has 89 operating branches with more than 3 million depositors. It has
an approved emergency advance of P119.7 million.
The Monetary Board placed Banco Filipino Savings and Mortgage Bank under
conservatorship of Basilio Estanislao. He was later replaced by Gilberto
Teodoro as conservator on August 10, 1984. Gilberto Teodoro submitted a
report dated January 8, 1985 to respondent The Monetary Board on the
conservatorship of the bank.
Subsequently, another report dated January 23, 1985 was submitted to the
Monetary Board by Ramon Tiaoqui regarding the major findings of
examination on the financial condition of Banco Filipino Savings and Mortgage
Bank as of July 31, 1984, finding the bank one of insolvency and illiquidity
and provides sufficient justification for forbidding the bank from engaging in
banking.
The Monetary Board ordered the closure of Banco Filipino and designated
Mrs. Carlota P. Valenzuela as Receiver.
Banco Filipino filed a complaint with the RTC to set aside the action of the
Monetary Board placing the bank under receivership and filed with the SC the
petition for certiorari and mandamus.
Carlota Valenzuela, as Receiver and Arnulfo Aurellano and Ramon Tiaoqui as
Deputy Receivers of Banco Filipino submitted their report on the receivership
of the bank to the Monetary Board, finding that the condition of the banking
institution continues to be one of insolvency, i.e., its realizable assets are
insufficient to meet all its liabilities and that the bank cannot resume
business with safety to its depositors, other creditors and the general public,
and recommends the liquidation of the bank.
Banco Filipino filed a motion before the SC praying that a restraining order or
a writ of preliminary injunction be issued to enjoin respondents from causing
the dismantling of Banco Filipino signs in its main office and 89 branches. The
SC ordered the issuance of the temporary restraining order.
The SC directed the Monetary Board and Central Bank hold hearings at which
the Banco Filipino should be heard.

Issue
Whether or not the Central Bank and the Monetary Board acted arbitrarily and in
bad faith in finding and thereafter concluding that Banco Filipino Savings and
Mortgage Bank is insolvent, and in ordering its closure

Ruling
The SC granted the petitions, annulled and set aside the order of the Central Bank
and the Monetary Board. The Central Bank and the Monetary Board are ordered to
reorganize Banco Filipino Savings and Mortgage Bank and allow the latter to resume
business in the Philippines under the comptrollership of both the Central Bank and
the Monetary Board.
The closure and receivership of Banco Filipino Savings and Mortgage Bank, which
was ordered by the Monetary Board on is null and void.

The Monetary Board may order the cessation of operations of a bank in the
Philippine and place it under receivership upon a finding of insolvency or when its
continuance in business would involve probable loss its depositors or creditors. If
the Monetary Board shall determine and confirm within 60 days that the bank is
insolvent or can no longer resume business with safety to its depositors, creditors
and the general public, it shall, if public interest will be served, order its liquidation.

Under Section 29 of the Central Bank Act, the following are the mandatory
requirements to be complied with before a bank found to be insolvent is ordered
closed and forbidden to do business in the Philippines: (1)an examination shall be
conducted by the head of the appropriate supervising or examining department or
his examiners or agents into the condition of the bank; (2) it shall be disclosed in
the examination that the condition of the bank is one of insolvency, or that its
continuance in business would involve probable loss to its depositors or creditors;
(3) the department head concerned shall inform the Monetary Board in writing, of
the facts; and (4) the Monetary Board shall find the statements of the department
head to be true.

Clearly, Tiaoqui based his report on an incomplete examination of the bank and
outrightly concluded that the latter's financial status was one of insolvency or
illiquidity. He arrived at the conclusion: that as of July 31, 1984, total capital
accounts consisting of paid-in capital and other capital accounts such as surplus,
surplus reserves and undivided profits aggregated 351.8 million; that capital
adjustments, however, wiped out the capital accounts and placed the bank with a
capital deficiency amounting to 334.956 million; that the biggest adjustment which
contributed to the deficit is the provision for estimated losses on accounts classified
as doubtful and loss which was computed at 600.4 million pursuant to the
examination. The valuation which was set up or deducted against the capital
accounts of the bank in arriving at the latter's financial condition. Tiaoqui admits the
insufficiency and unreliability of the findings of the examiner as to the setting up of
recommended valuation reserves from the assets of the bank.

The examination contemplated in Sec. 29 of the CB Act as a mandatory requirement

was not completely and fully complied with. Despite the existence of the partial list
of findings in the examination of the bank, there were still highly significant items to
be weighed and determined such as the matter of valuation reserves, before these
can be considered in the financial condition of the bank. It would be a drastic move
to conclude prematurely that a bank is insolvent if the basis for such conclusion is
lacking and insufficient, especially if doubt exists as to whether such bases or
findings faithfully represent the real financial status of the bank.

In arriving at the computation of realizable assets of Banco Filipino, respondents

used its books which undoubtedly are not reflective of the actual cash or fair market
value of its assets which is not the proper procedure contemplated in Sec. 29 of the
Central Bank Act. The receivership of Banco Filipino, indicates that total liabilities of
4,540.84 million does not exceed the total assets of 4,981.53 million. Likewise,
the consolidated statement of condition of the bank prepared by the Central Bank
Authorized Deputy Receiver Artemio Cruz shows that total assets amounting to
4,981,522,996.22 even exceeds total liabilities amounting to 4,540,836,834.15.
Based on the foregoing, there was no valid reason for the Valenzuela, Aurellano and
Tiaoqui report to finally recommend the liquidation of Banco Filipino instead of its
rehabilitation.