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Republic of the Philippines
SUPREME COURT
Manila

EN BANC

 

G.R. No. L-29352 October 4, 1971

EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DE LA RAMA, HORACIO DE LA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO RAMOS, VICTORIA RAMOS TANJUATCO, and TEOFILO TANJUATCO, petitioners,
vs.
CENTRAL BANK OF THE PHILIPPINES, respondent.

Francisco Carreon, Feliciano C. Tumale and Araneta, Mendoza & Papa for petitioners.

Office of the Solicitor General Felix Q. Antonio and F. E. Evangelista, Clara Cruz-Espritu & Iñigo B. Regalado, Jr. for respondent Bank.

REYES, J.B.L., J.:

This is a petition for Certiorari, Prohibition and Mandamus with prayer for the issuance of a writ of preliminary injunction to restrain respondent Central Bank of the Philippines (hereinafter designated as the CB) from enforcing and implementing the Monetary Board Resolution No. 1263, adopted on 30 July 1968, excluding the Overseas Bank of Manila (hereinafter termed the OBM) from clearing with the Central Bank, that was ordered implemented on 31 July 1968 (Annex "11"), and Resolution No. 1290, adopted on 1 August 1968, granting authority to the OBM Board of Directors to suspend operations thereof, which was implemented on 2 August 1968 (Annex "13").

The herein petition is based on the following grounds:

(a) That the aforesaid resolutions were not legally issued and were promulgated by respondent CB through the Monetary Board in excess of jurisdiction and with grave abuse of discretion;

(b) That the said resolutions are prejudicial to the national interest and against public policy, as they would erode confidence in the banking system and undermine the integrity and stability thereof, contrary to the purpose and spirit of the Central Bank Act;

(c) That said resolutions have caused and will cause further irreparable losses, damages and injuries to the depositors, creditors and stockholders of the OBM;

(d) That said resolutions were promulgated without due process of law, would constitute deprivation of property likewise without due process of law, and will amount to impairment of the obligations of contract; and

(e) That there is no appeal nor any plain, speedy and adequate remedy in the ordinary course of law.

From the pleadings and annexes, the following appears:

The OBM is a commercial banking corporation duly organized and existing under the laws of the Philippines with principal office at Rosario Street, Manila. Petitioners are the majority and controlling stockholders thereof. The OBM was opened for business on 6 January 1964 with authorized capital of P30 million, P10 million subscribed and P8 million thereof paid, but had been suspended by respondent from clearing with the CB and from lending operations for various violations of the banking laws and implementing regulations. Petitioners charged that the OBM became financially distressed because of this suspension and the deprivation by the CB of all the usual credit facilities and accommodations accorded to the other banks. The alleged exactions of onerous fines and penalties by respondent was likewise blamed for the aggravated situation. For its deficiencies it was made subject to penalties of 12% interest on overdrawings and 36% per annum on reserve deficiencies, which by 1968 amounted to several millions.

By April, 1967, the financial situation of the OBM had caused mounting concern in the CB. Petitioner Ramos and the OBM management finally met with respondent CB on the necessity and urgency of rehabilitating the OBM through the extension of necessary financial assistance.

The upshot of these conferences appears from the correspondence exchanged between the CB and the OBM.

On 2 May 1967, the Governor of the Central Bank, Andres Castillo, upon instructions of the Monetary Board, wrote a letter (Petition, Annex "B") stating:

This is with reference to the conference had between Mr. Emerito Ramos, Sr., Chairman of your Board, and the undersigned, the Deputy Governor, the Acting Superintendent of Banks, and the Officer-in-Charge, Accounting Department of this Bank, last Friday evening on the present very precarious condition of the Overseas. In the conference, we described to Mr. Ramos at length the circumstances which led to the present precarious conditions of the bank. We stressed the imminent danger of the bank's being thrown out of clearing, in accordance with existing Central Bank regulations, on account of its continuous adverse clearing balances, and of the immediate necessity of putting up additional capital in the amount of at least P3 million, which Mr. Ramos promised to put up when he last appeared before the Monetary Board.

I informed Mr. Ramos that if his bank is thrown out of clearing, the Central Bank will proceed in accordance with the existing policy under which he and other stockholders representing a majority will have to sign a trusteeship agreement with the Philippine National Bank pursuant to which the Overseas Bank will be managed by the Philippine National Bank. If the PNB takes over management in such eventuality, the Central Bank could also announce that it is ready to support the Philippine National Bank in order to allay the fears of depositors and creditors.

In view of the OBM stockholders' reluctance to execute the Voting Trust suggested, the Monetary Board adopted Resolution No. 2015 dated 16 October 1967, having the following terms (Petition, Annex "F"):

(1) To require Mr. Emerito M. Ramos, Sr., the principal stockholder of the Overseas Bank of Manila, to submit a listing of his properties and to mortgage or assign the same to the Central Bank to cover the overdraft balance therewith of the Overseas Bank of Manila;

(2) To require the stockholders of the Overseas Bank of Manila to subscribe to an appropriate voting trust agreement so that the Central Bank may be able to effect a complete reorganization and/or transfer the management of the bank to a nominee of the Monetary Board;

Further conference ensued, and on 30 October 1967 Governor Castillo of the CB wrote again (Petition, Annex "G" ):

I wish to refer to the conference had between your goodself and the members of the Monetary Board at Malacañang of 16 October 1967, relative to the financial condition and state of affairs of the Overseas Bank of Manila, of which the substantial majority of stock is owned by you and your family and corporations controlled by you.

Among other things, the Monetary Board, having in mind the overdrawing in your deposit account with the Central Bank which, on that date, stood at P22.3 million, together with the balance of your past due emergency loan with the Central Bank amounting to P10.3 million exclusive of accumulated interest, decided that, as a measure to stave off liquidation, a voting trust agreement should be executed by you and your family and the corporations controlled by you in favor of the Superintendent of Banks, in an instrument similar to the one executed by stockholders of the Republic Bank in favor of the Philippine National Bank. On 23 October 1967, the Legal Counsel of this Bank submitted to you a draft of such "Voting Trust Agreement" desired by the Monetary Board. However, on 25 October 1967, you handed the legal Counsel your own draft of a "Trust Agreement" which, in essence, is not a voting trust agreement as desired by the Monetary Board and reiterated in its Resolution No. 2020 dated 20 October 1967 and confirmed on 24 October 1967.

This was followed up by another letter of 8 November 1967 (Petition, Annex "H"):

In line with the conference this morning between your goodself and the undersigned, the Deputy Governor, the Acting Superintendent of Banks, and the Central Bank Legal Counsel, and your manifestation of readiness to abide by the decisions of the Monetary Board on all matters involving the Overseas Bank of Manila, it is requested that the voting trust agreement prepared by the Legal Counsel of this Bank be now signed by you and other members of your family and by the proper officials of the corporations which are stockholders of the bank and which are controlled by you and your family.

It is also requested that the execution of the mortgages on the properties you offered as security for the obligations of the Overseas Bank of Manila to the Central Bank be finalized, and the shares of stock belonging to you and your family in your corporations and enterprises be endorsed in favor of the Central Bank and delivered to us as soon as possible.

Finally, on 20 November 1967, the petitioners herein executed the Voting Trust Agreement prepared by attorneys of the CB (Petition, Annex "A") with petitioners as Cestuis Que Trust1 and respondent CB's Superintendent of Banks as the Trustee. The Trustee entered into the agreement pursuant to the authority given by respondent's Monetary Board under M. B. Resolution No. 2017, dated 17 October 1967. The salient features of the said Voting Trust Agreement are the following:

(a) Objectives. The objectives are stated in the "Whereas Clauses", the pertinent portions of which read: "... the abovenamed stockholders of the Overseas Bank of Manila believe that it is for and/or the interest and benefit of the bank depositors, creditors and stockholders that this trust agreement should be entered into by them for the rehabilitation, normalization and stabilization of the Overseas Bank of Manila;" and "... TRUSTEE has likewise signified his willingness to accept such trust in pursuance of the objectives above-mentioned;" (Emphasis supplied)

(b) Term. The life of the trust shall be for three (3) years from 20 November 1967, but the Trustee at its option, may relinquish the trust upon approval of the Monetary Board. It is provided further that if, at the expiration of the three-year period the purposes for which the trust has been constituted have not as yet been fully achieved, the trust agreement shall be considered automatically extended for such period to be determined by the Monetary Board, similarly terminable within such further period at the discretion of the Monetary Board;

(c) Powers and authority. The trustee is given all and full authority, subject to the limitations set forth in the law and other conditions in the contract to: (1) direct the management of the affairs and accounts and properties of the OBM; (2) vote its directors and choose the officers and employees; (3) improve, modify, reorganize its operation policies, standards, systems, methods, structure, organization, personnel, staffing pattern, etc.; (4) hold and vote on the shares of stocks transferred to him as trustee; (5) safeguard the interests of depositors, creditors and stockholders; and (6) in general, to exercise all such powers and discharge all such functions as inherently pertain to the cestui que trust as owners, and/or for the sound management of a banking institution;

(d) Consideration. The cestui que trust hound themselves, among others, to pay the trustee during the life of the trust an annual honorarium subject to certain conditions.

Petitioners likewise conveyed by way of mortgage to the CB all their private properties and holdings to secure the obligations of the OBM to the CB, but there is no agreement as to the value of these properties, petitioners contending that they are worth over 141 million, but the CB appraised them at around 67 million (Petition, Annexes "B" and "C").

But as early as 25 September 1967, Mr. Martin Oliva, who had become president of OBM only since 13 March 1967, had written to the Superintendent of Banks that transactions worth around P48 million, of which over P43 million were time deposits, at usurious rates of interest, had not been incorporated in the Bank's books nor reported to the Board of Directors. It was explained2 that the OBM management had resorted to these unrecorded transactions because the suspension of its lending activities after 14 months of operation reduced OBM to virtual inactivity, and it had to agree to pay high premiums or interests on such deposits because this high costs is comparatively cheaper than the Central Bank's interests on overdrawings at the rate of 12% per annum and a penalty of 36% per annum on reserve deficiencies.

Oliva's letter prompted a further investigation of OBM records by the CB examiners that revealed allegedly unrecorded deposits and transactions (which is disputed by Petitioners) amounting to 48,007,211 as of 13 September 1967 (reduced to P35 million when petition was filed); diversion of deposits to accounts controlled by certain OBM officials (so-called COFICO and EMRACO accounts) and loans to the Ramos family and firms controlled by them.3 Petitioners contend that these transactions were recorded in subsidiary ledger accounts that were linked to the general ledger accounts of the Bank under the so-called EMRACO and COFICO accounts, and finally incorporated in OBM's regular books in September, 1967 upon instructions of President Martin Oliva.4 And as to the loans to the Ramos family and firms, the same had been written off when around 31 July 1967 the Ramoses conveyed to the OBM properties worth P54.096 million.

On 27 October 1967, the Superintendent of Banks reported that the condition of the OBM was one of insolvency, calling for application of Section 29 of the Central Bank Act and liquidation of OBM. However, with the listing of Ramos properties worth 100 million, it was added, a new possibility emerged to recapitalize the OBM in 100 million.5

2. However, with the letter dated October 26, 1967 of Mr. Martin R. Oliva, President of the Overseas Bank of Manila, giving a list of the Ramos properties worth P100 million (?), a radically different possibility has emerged.

If the valuation of the P100 million (net of encumbrances to the parties other than the CB and TOBM) to the properties is true, or substantially true, then the new "possibility" may be briefly stated thus:

A Recapitalization of the Overseas Bank of Manila on the amount of P100 million will save the bank, because — as a general proposition, subject of course to corroborative quantification — such a magnitude of capital can make good the bad loans as well as the funds that cannot be legitimately accounted for, and can absorb the losses in bad debts, can provide it with funds for viable operations, and thus ultimately give adequate protection to depositors and creditors.

In the same memorandum report, considering the need for liquid funds, the Superintendent of Banks suggested the following alternatives:

(1) The OBM be required to acquire the properties in payment for frozen or bad loans or for unaccountable funds, and then mortgage the properties to CB for emergency advances, or

(2) The owners be required to mortgage the properties to the CB directly, and for CB to extend loans to OBM depending on the needs.

Three days later, 30 October 1967, the Central Bank governor wrote to the petitioner, Emerito Ramos, reiterating the need for the OBM stockholders to execute a voting trust agreement "to stave of liquidation", which letter was followed by another of 8 November 1967, requiring the execution of the Voting Trust Agreement by the OBM stockholders and of the mortgage of their properties to secure OBM obligations to the Central Bank and the endorsement of the shares of stock held by them in their corporations and enterprises (Petition, Annexes "G" and "H", quoted previously). Petitioners duly complied (Annexes "A", "C" and "S") in November, 1967.

On 5 December 1967, new directors and officers drafted from the CB itself, the PNB and DBP were elected and installed and they took over the management and control of the Overseas bank.

On 14 June 1968, the CB announced that only P10 million were available as emergency loan to OBM and requested the management of the latter (appointed under the Voting Trust Agreement to replace the old Board elected by the stockholders) to project how it could help bail out OBM.

OBM president, Mr. Orosa, submitted a "Projected Cash Flow Statement"6, concluding —

It is pointed out here that with the P10 million loan from the CB, the extremely distressed financial condition of TOBM will continue to prevail. At best, the P10 million loan will enable TOBM to resume limited lending operations on a highly selected basis and diminish its estimated loss by some P492.5 thousand assuming that the loans to be extended have a high turnover rate and a 100% repayment ratio. Thus, with the P10 million CB loan, the annual loss has been estimated to be P8.9 million. To be able to breakdown in operations, therefore, TOBM needs loanable funds estimated at P196 million, placing the cost of such funds at 1½ %.

In a memorandum submitted to Governor Calalang 12 days later, 22 July, Mr. Orosa unburdened himself and deployed CB for hemming and hawing. This caused, he said the loss of "psychological advantage" initially gained by PNB's take over of the OBM management. He reminded the CB Governor about the OBM management's request on 6 January 1968 for a P20 million loan to enable OBM to get on its feet. "At that time", he said, "the aid we are recommending, properly used, would have staved off panic and restored some confidence."

Eight months of indecision has made depositors lose faith and as a result, we are faced with more court suits and withdrawals than ever before and more obligations have matured.7

The next day, 23 July 1968, the Superintendent of Banks recommended to the Monetary Board that OBM be liquidated under Section 29, Republic Act 265, if its "capital structure cannot be strengthened to meet the requirements of Section 22 of RA 337",8 and if "massive financing cannot be given to enable the bank to expand its risk assets." He concluded that:

... The bank's continuance in business under its present extremely precarious financial condition, without the necessary capital injection and financial aid, will involve not merely probable, but certain further losses to its depositors and other creditors and may have further adverse effects on the banking system.

Thereafter, on 13 August 1968, as heretofore stated, the CB Monetary Board adopted Resolution No. 1333, ordering the Superintendent of Banks to proceed to the liquidation of the OBM, under Section 29 of the Central Bank Act. As already noted, implementation of this resolution was restrained by this Court.

Petitioners aver that no adequate financial assistance was granted to the OBM after the execution of the Voting Trust Agreement. They further ]claim that the said agreement is not only bilateral, imposing reciprocal obligations for valuable consideration, but was also entered into by respondent CB in the performance of its duties under the law; and that under said agreement the obligation of the CB was to act and work for the "rehabilitation, normalization and stabilization" of the OBM, through the extension of adequate and necessary financial assistance to stave off liquidation, is legally demandable, as well as a duty specifically enjoined and imposed by law. And that in violation of its obligations, the CB, "after eight months of delay", adopted the questioned resolutions, without notice to or hearing the petitioners.

By resolution of this Court, the respondents were required to answer the petition and set for hearing the petition for a writ of injunction. However, on 13 August 1968, the CB adopted Resolution No. 1333 (Annex "12", Answer) forbidding the OBM from doing business and instructing the Superintendent of Banks to take charge of the Bank's assets and to take action under Section 29 of the Central Bank Act (Republic Act 265), which amounted to a directive for the liquidation of the OBM. Implementation of the resolution was, upon petitioners' motion, restrained by the Court on 14 August 1968.

Justifying Resolutions 1263 and 1290, CB in its answer cited specific instances of OBM's "unusual and irregular transactions" discovered by examiners or "revealed by OBM officials themselves". By way of affirmative defenses, CB averred that:

1. The CB is not a party to the Voting Trust agreement, and therefore cannot be compelled to implement it.

2. Assuming that CB is obliged to rehabilitate OBM, it cannot give more loans to the latter than that already given to it as of 30 July 1968, without violating Section 90 of the Central Bank Act since neither OBM nor its stockholders could put up additional capital and additional collaterals to secure CB's future advances.

3. It would be illegal and contrary to public interest to construe the voting trust agreement as imposing upon CB the duty to rescue OBM at all cost.

4. No bank has an absolute right to take part in inter-bank clearing, because Section 100, Republic Act 265, requires a bank as a condition to such participation to keep deposit reserves, which the OBM does not have — in fact it had overdrawn its reserve account with the CB beyond the maximum fixed by law.

Several petitions for intervention were denied by the Court.

The issues involved appear to be:

(a) Whether or not this Supreme Court has jurisdiction to restrain the implementation of CB Resolution No. 1333;

(b) Whether or not the CB had agreed to rehabilitate, normalize and stabilize OBM;

(c) Whether or not CB Resolutions Nos. 1263, 1290 and 1333 were adopted in abuse of discretion.

On the first issue of jurisdiction, the respondent Central Bank defines its position in its Rejoinder Memorandum, pages 3-5, as follows:

"We respectfully maintain,"..., that even as this Honorable Court had ample jurisdiction over the said petition, any action based on the approval and implementation of the third resolution, Res. 1333 on 13 August 1968 comes already within the exclusive original jurisdiction of the Court of First Instance, in accordance with the provisions itself of Section 29 of the Central Bank Act, Rep. Act 265, under which said resolution was promulgated.

xxx xxx xxx

The point ... is that the situation has changed entirely because of the approval of Res. 1333 on August 13, 1968, after the main petition had already been filed and given due course. This resolution has made the two previous questioned resolutions academic and the main petition pointless.

The CB stand is that to assail Resolution 1333 of the Monetary Board ordering the liquidation of the Overseas Bank, an action must be filed in the Court of First Instance of Manila by the Bank itself, and not by petitioning stockholders, allegedly in view of the provisions of Section 29, Republic Act No. 265, paragraph 3, reading:

At any time within ten days after the Monetary Board has taken charge of the assets of any banking institution, such institution may apply to the Court of First Instance for an order requiring the Monetary Board to show cause why it should not be enjoined from continuing such charge of its assets, and the court may direct the Board to refrain from further proceedings and to surrender charge of its assets.

This argument must be rejected, for it overlooks the fact that before the Central Bank adopted said Resolution No. 1333 on 13 August 1968 this Court had already taken cognizance of the petition herein, assailing Resolutions Nos. 1263 and 1290 of the Monetary Board as "patent acts of liquidation," violative of its alleged commitment to rehabilitate the overseas Bank; and the Court, in fact, already had required the Central Bank to answer the petition on 12 August 1962, prior to the adoption of Resolution No. 1333. The latter resolution is clearly an act in pursuance of the policy outlined in the previous resolutions (1263 and 1290) enjoined by this Court. Hence, if jurisdiction was already acquired ito delve into the validity of Resolutions 1263 and 1290 (and this the Central Bank admits), there is no cogent reason why, after such jurisdiction had been acquired, the Court should be deprived thereof by the subsequent adoption of Resolution 1333, particularly because the latter, in relation to the antecedent facts, appears to be no more than a deliberate effort to evade the jurisdiction of this Court, and have the case thrown back to the Court of First Instance.

In People vs. Pegarum, this Court quoted with approval the rule that:

... the jurisdiction of a court depends upon the state of facts existing at the time it is invoked, and if the jurisdiction once attaches to the person and subject matter of the litigation, the subsequent happening of events, although they are of such a character as would have prevented jurisdiction from attaching in the first instance, will not operate to oust jurisdiction already attached.

This rule coincides with well-established principles of American law9 to the same effect.

The basic guidelines in the exercise of this Court's original jurisdiction to issue prerogative writs were expressed in Dimayuga vs. Fernandez, 43 Phil. 306-307, thus:

... It is true, as respondents contend, that as a general rule, a court of equity will not restrain the authorities of either a state or municipality from the enforcement of a criminal law, and among the earlier decisions, there was no exception to that rule. By the modern authorities, an exception is sometimes made, and the writ is granted, where it is necessary for the orderly administration of justice, or to prevent the use of the strong arm of the law in an oppressive or vindictive manner, or a multiplicity of actions.

In legal effect, that was the decision of this court in Kwong Sing vs. City of Manila. (41 Phil. 103)

The writ of prohibition is somewhat sui generis, and is more or less in the sound legal discretion of the court and is intended to prevent the unlawful and oppressive exercise of legal authority, and to bring about the orderly administration of justice.

Nor would it serve the interest of justice to dismiss the case at this stage and let a new petition be filed in another court. In Bay View vs. Manila Hotel Worker's Union (L-21803, 17 December 1966), this Court, through Mr. Justice Conrado V. Sanchez, pointed out the evils attending split jurisdictions, saying:

To draw a tenuous jurisdictional line is to undermine stability in ... litigations. A piece meal resort to one Court and another gives rise to multiplicity of suits. ... The time to be lost, effort wasted, anxiety augmented, additional expense incurred — these are considerations which weigh heavily against split jurisdiction. Indeed it is more in keeping with orderly administration of justice that all the causes of action here be cognizable and heard by only one court... (Cas. cit., 18 SCRA 953).

On Previous occasions, this Court has overruled the defense of jurisdiction in the interest of public welfare and for the advanced agreement of public policy, where, as in this case, an extraordinary situation existed. 10 There is no denying that creditors, depositors and the banking community are all interested in a quick determination whether the Overseas Bank may, under the circumstances, be closed or allowed to continue operating at the exclusive discretion of respondent Central Bank.

The plea that the Overseas Bank is not a party to the case at bar need not give concern. The petitioners are the controlling stockholders of that Bank, and are qualified to represent its interests, so that a judgment may be enforced for or against it, although it is not impleaded by name in the suits (V. Albert vs. Court of First Instance, L-26361, 29 May 1968, 23 SCRA 948, 964). This is particularly true considering that the present management of the OBM (Overseas Bank of Manila) is at present composed of respondent's nominees, pursuant to the Trust Agreement, and they can hardly be expected to resist the plans and actions of respondent Central Bank (CB).

On the second issue, whether or not the respondent CB agreed to rehabilitate the OBM, Of which petitioner are the majority stockholders, it is believed that a review of the letters from the CB to the petitioners (hereinbefore quoted), considered together with the terms of the Voting Trust Agreement, leaves no doubt that the CB did agree and commit itself to the continued operation of, and rehabilitation of, the OBM. As early as 2 May 1967, the respondent CB, through its Monetary Board, caused then Governor Castillo to advise petitioners that —

he and other stockholders representing a majority will have to sign a trusteeship agreement with the Philippine National Bank pursuant to which the Overseas Bank will be managed by the Philippine National Bank. If the PNB takes over management in such eventuality, the Central Bank could also announce that it is ready to support the Philippine National Bank in order to allay the fears of depositors and creditors. (Pet., Annex "B") (Emphasis supplied)

CB Resolution No. 2015 of 16 October 1967 (Petition, Annex "F"), in addition to requiring a mortgage or assignment of petitioners' personal properties to CB, confirmed the quoted memorandum by requiring the stockholders of OBM to subscribe to an appropriate trust agreement, with the only difference that instead of the Philippine National Bank, the trust would be executed in favor of the CB as trustee to enable it to reorganize and transfer management to a nominee of the Monetary Board." Two weeks later, on 30 October 1967, after a conference at Malacañang, the CB governor once more wrote to Ramos that the Monetary Board —

decided that, as a measure to stave off liquidation, a voting trust agreement should be executed by you and your family and the corporations controlled by you in favor of the Superintendent of Banks, in an instrument similar to the one executed by stockholders of the Republic Bank in favor of the Philippine National Bank (Petition, Annex "G") (Emphasis supplied)

The reference to the case of the Republic Bank clarifies the purpose and scope of the demand for a voting trust agreement "as a measure to stave off liquidation"; for it is well-known, and it is not denied, that when the Republic Bank previously became distressed, the CB had advanced funds, to rehabilitate it and allow it to resume operating.

Accordingly, the voting trust agreement that was finally executed (Annex "A"), and which was admittedly prepared by the Legal Counsel of the Central Bank, recited in its preamble as an objective of the voting trust agreement, that:

... the above named stockholders of the Overseas Bank of Manila believe that it is for and/or interest and benefit of the bank depositors, creditors, and stockholders, that this trust agreement should be entered into by them for the rehabilitation, normalization and stabilization of the Overseas Bank of Manila.

and that the Superintendent of Banks as

... Trustee has likewise signified his willingness to accept such trust in pursuance of the objectives above mentioned. ... (Emphasis supplied)

While the trust agreement on its face creates obligations only for the Superintendent of Banks as trustee, his commitments were undeniably those of the Central Bank itself, since it was the latter that had from the very beginning insisted upon such voting trust being executed. For the Superintendent of Banks was an officer of the CB, the chief of its Department of Supervision and Examination of all banking institutions operating in the country, subject to the instructions of the Monetary Board at all times, pursuant to Section 25 of the CB charter, Republic Act No. 265; and it is not credible that he should have understand that he was entering into the trust agreement in his personal capacity.

Bearing in mind that the communications, Annexes "B" and "G," as well as the voting trust agreement, Annex "A," had been prepared by the CB, and the well-known rule that ambiguities therein are to be construed against the party that caused them, 11 the record becomes clear that, in consideration of the execution of the voting trust agreement by the petitioner stockholders of OBM, and of the mortgage or assignment of their personal properties to the CB (Res. No. 2015, 16 October 1967, Annex "F," Petition), the CB had agreed to announce its readiness to support the new management "in order to allay the fears of depositors and creditors." (Annex "B"), and to stave off liquidation" by providing adequate funds for "the rehabilitation, normalization and stabilization" of the OBM, in a manner similar to what the CB had previously done with the Republic Bank (Portion, Annex "G," ante). While no express terms in the documents refer to the provision of funds by CB for the purpose, the same is necessarily implied, for in no other way could it rehabilitate, normalize and stabilize a distressed bank.

Even in the absence of contract, the record plainly shows that the CB made express representations to petitioners herein that it would support the OBM, and avoid its liquidation if the petitioners would execute (a) the Voting Trust Agreement turning over the management of OBM to the CB or its nominees, and (b) mortgage or assign their properties to the Central Bank to cover the overdraft balance of OBM. The petitioners having complied with these conditions and parted with value to the profit of the CB (which thus acquired additional security for its own advances), the CB may not now renege on its representations and liquidate the OBM, to the detriment of its stockholders, depositors and other creditors, under the rule of promissory estoppel (19 Am. Jur., pages 657-658; 28 Am. Jur. 2d, 656-657; Ed. Note, 115 ALR, 157).

The broad general rule to the effect that a promise to do or not to do something in the future does not work an estoppel must be qualified, since there are numerous cases in which an estoppel has been predicated on promises or assurances as to future conduct. The doctrine of "promissory estoppel" is by no means new, although the name has been adopted only in comparatively recent years. According to that doctrine, an estoppel may arise from the making of a promise, even though without consideration, if it was intended that the promise should be relied upon and in fact it was relied upon, and if a refusal to enforce it would be virtually to sanction the perpetration of fraud or would result in other injustice. In this respect, the reliance by the promisee is generally evidenced by action or forbearance on his part, and the idea has been expressed that such action or forbearance would reasonably have been expected by the promissor. Mere omission by the promisee to do whatever the promisor promised to do has been held insufficient "forbearance" to give rise to a promissory estoppel. (19 Am. Jur., loc. cit.)

Disingenuously, the CB pleaded that the Voting Trust agreement was binding only upon the trustee, the Superintendent of Banks. But as already pointed out this proposition is unacceptable since the trust could have no private interest in the matters. Not only that, but CB subsequently caused its own team of nominees to take over the direction and management of the OBM, through the voting of the shares conveyed to the trustee. Even more, in August, 1970, the CB gave notice that it would not extend or renew the voting trust, and attempted to turn back the shares covered by it to the petitioners, thereby recognizing the obligations under the agreement as its own, and repudiating its original disclaimer thereof.

How did the CB subsequently treat its commitments?

After execution of the Voting Trust Agreement, on 20 November 1967, the CB elected and installed new directors and officers drafted from the Central Bank itself, the Philippine National Bank and the Development Bank of the Philippines. The new team assumed the management and control of the OBM and elected Augusto E. Orosa as bank president. On 6 January 1968, the new management requested for a thirty million peso loan to enable the OBM to get on its feet. How this request for aid was treated appears in a memorandum to the new CB governor, dated 22 July 1968 (Petitioner's Reply Memorandum, Annex "X," Record, pages 526-527). Mr. Orosa stated:

MEMORANDUM TO:

Governor Alfonso Calalang

SUBJECT: POSITION PAPER OF THE OVERSEAS BANK
OF MANILA

BACKGROUND

A selected PNB team formally took over the management of the Overseas Bank of Manila on December 7, 1967.

On January 16, 1968 we completed a report on the financial standing of the Bank, the original of which is in your possession. In that report, we recommended that the balance of the unpaid capital stock of P11 million be fully paid and P20 million be advanced by the Central Bank to enable the Bank to resume normal operations. At that time, we gathered from the books of account that the Bank faced obligations to be immediately met amounting to about P30 million as against liquid assets of more than P12 million or an immediate cash requirement of about P17 million. Nevertheless, and this is a very important point, our feeling was that at that time the aid we are recommending, properly used, would have staved off panic and restored some confidence.

The entrance of the PNB team actually was a great initial psychological advantage; we have used that advantage to full extent: the advantage has faded.

PRESENT POSITION

Eight months of indecision has made depositors lose faith and as a result, we are faced with more court suits and withdrawals than ever before and more obligations have matured.

We are made to understand that an advance of P19 million has been approved for the Bank and that an initial release of P10 million is under study. Last July 10, 1968, we wrote the Superintendent of Banks complying with his request to render a projection of what we can do with P10 million.

There is a great leeway with what we can do with P10 million depending on the conditions which will accompany its grant. Even under the most liberal conditions that we can imagine, P10 million will not save the Bank. We are, however, not aware whether this proposed P10 million will be the start of a series of advances nor as to how much ultimately the Central Bank will be willing to finance the rehabilitation.

We are faced with both internal and external problems that are daily increasing in difficulty. If we are requested to make a projection which we believe is a reasonable request, the present management should be made privy to the following:

(1) What is the real policy of the Central Bank regarding the future of TOBM;

(2) What is the policy of the Central Bank regarding present rates of interest and penalties on prevailing deficiencies;

(3) What is the rate of interest to be charged on the fresh advances;

(4) What are the conditions to be meted out regarding leeway and operations of TOBM;

(5) Any other strings that may be attached.

(6) What is the policy of Central Banking regarding unrecorded time deposits.

All these points will greatly affect any projection.

REQUEST:

That the PNB management team be withdrawn from TOBM.

It is obvious from this memorandum that far from heeding the request of its own team for an advance of P30 million (or P17 million in cash) to enable the OBM to resume normal operations, the Central Bank did nothing to support the OBM between 6 January to 14 June, for almost six months, and kept even its own management team largely in the dark as to what to expect. 0n 14 June, CB advised that only P10 million were to be made available (i.e., one third of the requirements estimated necessary by its own representatives). This amount was naturally considered insufficient to normalize, much less rehabilitate, the OBM. And yet all this while, the CB was holding petitioners' mortgages on their private properties worth at least P67 million in 1967 by the CB's own appraisal. Petitioners claimed they were worth P100 million which can not be very far from the truth, considering the continual rise in real estate values.

Not content with procrastinating for 6 months, without taking positive steps to normalize OBM as it had agreed to do, nor even announcing its support of its own management team or disclosing its policy regarding the future of OBM, (the CB finally adopted the resolutions now attacked by herein petitioner stockholders. On 30 July 1968, it excluded the OBM from clearing with the CB (Resol. No. 1263) the contingency that the Voting Trust and the mortgage of the petitioners' private properties were to guard against. On 1 August 1968, CB authorized (and virtually directed) its nominee Board of Directors to suspend operations (Resol. No. 1290); and thirteen days thereafter (13 August 1968), the CB directed its Superintendent of Banks to proceed to liquidate OBM (Resol. No. 1333) under Section 29 of Republic Act No. 265 (Central Bank Charter), providing that —

SEC. 29. Proceedings upon insolvency. — Whenever, upon examination by the Superintendent or his examiners or agents into the condition of any banking institution, 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 Superintendent forthwith, in writing, to inform the Monetary Board of the facts, and the Board, upon finding the statements of the Superintendent to be true, shall forthwith forbid the institution to do business in the Philippines and shall take charge of its assets and proceeds according to law.

If the Monetary Board shall determine that the banking institution cannot resume business with safety to its creditors, it shall, by the Solicitor General, file a petition in the Court of First Instance reciting the proceedings which have been taken and praying the assistance and supervision of the court in the liquidation of the affairs of the same. The Superintendent shall thereafter, upon order of the Monetary Board and under the supervision of the court and with all convenient speed, convert the assets of the banking institution to money.

We are constrained to agree with petitioners that the conduct of the CB from and after January, 1968, reveals a calculated attempt to evade rehabilitating OBM despite its promises. What is more aggravating is that by the ordered liquidation, depositors and other creditors would have to share in the assets of the OBM, while the CB's own credits for advances were secured by the new mortgages it had obtained from the petitioners, thereby gaining for it what amounts to an illegal preference. To cap it all, the CB disregarded its representations and promises to rehabilitate and normalize the financial condition of OBM, as it had previously done with the Republic Bank, without even offering to discharge the mortgages, given by petitioners in consideration for its promises, or notifying petitioners that it desired to rescind its contract, or bringing action in court for the purpose. And all the while CB knew that the situation of the OBM was deteriorating daily, with penalties at 3% per month continually accumulating, while its creditors, depositors and stockholders awaited the promised aid that never came, and which apparently CB never intended to give.

The deception practiced by the Central Bank, not only on petitioners but on its own management team, was in violation of Articles 1159 and 1315 of the Civil Code of the Philippines:

ART. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.

ART. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. (Emphasis supplied)

The Supreme Court expounded the import of these legal provisions in Abelarde vs. Lopez, 74 Phil. 344, 348, stating:

Cleverness should never take the place of the loyal, upright and straightforward observance of plighted undertakings.

The CB excuses itself by pleading that the OBM officers had resorted to non-recording of time deposits in the Bank's books and diverting such deposits to accounting controlled by certain bank officials, and other irregularities. It is well to note, however, that these "unrecorded" deposits were revealed to the CB as early as 25 September 1967 by the then President of the OBM, Mr. Martin Oliva, who had no hand in such irregularities and who informed the Superintendent of Banks that time deposits worth P43,188,009.29 had not been carried in the books and had not been reported to the OBM directors. 12 In fact, on 29 September 1967, the CB had already ordered its examiners to investigate the Bank's records and determine the parties responsible. 13 Notwithstanding knowledge of these irregularities, the CB did not withdraw its promised support, and insisted on the execution of the Voting Trust Agreement on 20 November 1967. Such attitude imports that, in its opinion, the irregularities disclosed were not to be blamed on the OBM itself or its depositors and creditors, but on the officials responsible; and further, that the OBM could still be saved by adequate aid and management reform, which was required by CB's duty to maintain the stability of the banking system and the preservation of public confidence in it.

Respondent CB likewise urges in its defense that the rehabilitation of the OBM has become impossible, and points out to the reports of the Superintendent of Banks and of Mr. Augusto Orosa (the President of OBM elected by the CB nominees under the Voting Trust) that the Bank's loanable funds had to be expanded to P136 million to break even. 14 It is to be borne in mind, however, that these reports were made in July, 1968, after six months of inaction on the part of the CB, without positive action on its part to comply with its previous commitments. Furthermore, while the stabilization of the OBM required injections of capital, it would be erroneous to assume that such capital would have to reach P130 million, or that it would have to be advanced all at once. For had the CB furnished the original aid of 30 million asked by the Orosa team early in January, 1968, and the OBM allowed to resume operations with CB support, the restored confidence would have stimulated new deposits, which, as is well-known, become in turn a source of loanable funds. It thus becomes apparent that most of the difficulties invoked now by the CB are of its own making, and are not a lawful excuse for its refusal to comply with its commitments. Finally, in the computations by the CB examiners, there are included a total of P16.994 million for estimated losses, interests and penalties 15 that did not represent amounts to be disbursed. More concretely, even in July, 1968, after six months of CB dilly-dallying, the actual amount needed to be loaned to the OBM for capital requirements "to support the necessary expansion in risk assets of P126.334 million in order to break even in its operations" was estimated by the Superintendent of Banks at no more than P40.730
million. 16 This amount tallies with Mr. A. Orosa's estimate that an advance of P30 million in January, 1968 would have saved OBM. 17 There is no showing that these amounts were beyond the capacity of CB to make, 18 nor is it proved that they exceeded the amounts supplied for the rehabilitation of the Republic Bank (the CB, for reasons of its own, refused to disclose the latter amounts despite requests from the court). Certainly, the ten million increase in advance capital requirements between January and July of 1968 can not be blamed on the petitioners herein, and was not of their own making.

The respondent CB cites American cases to the effect that the courts can not interfere with CB's discretion in determining whether or not a distressed bank should be supported or liquidated. In none of the cases cited, however, does it appear that the CB engaged to support the distressed bank in exchange for control of its management and additional mortgages in its favor, and, therefore, the authorities cited are not in point. Discretion has its limits and has never been held to include arbitrariness, discrimination or bad faith.

We conclude that having induced the petitioners to part with additional security in reliance upon its (CB's) promises and commitments to avert liquidation and to support, normalize and rehabilitate the OBM, the respondent CB is duty bound to comply in good faith with such promises. Consequently, being contrary thereto, CB Resolutions Nos. 1263, 1290 and 1333 should be annulled and set aside for having been adopted in abuse of discretion, equivalent to excess of jurisdiction. And never having attempted to comply, nor even to begin compliance, with its commitments and promises, the respondent CB is precluded to invoke the expiration of the period specified for the duration of its obligations under the Voting Trust Agreement. Such period should, in justice and equity, be deemed to start running from and after the CB begins due performance of its commitments, promises and representations in good faith.

WHEREFORE, the writs prayed for in the petition are hereby granted, and respondent Central Bank's resolutions Nos. 1263, 1290 and 1333 (that prohibit the Overseas Bank of Manila to participate in clearing, direct the suspension of its operations, and ordering liquidation of said bank) are hereby annulled and set aside; and said respondent Central Bank of the Philippines is directed to comply with it obligations under the Voting Trust Agreement, and to desist from taking action in violation thereof. Costs against respondent Central Bank of the Philippines.

Dizon, Teehankee, and Villamor, JJ., concur.

Concepcion, Barredo and Makasiar, C.J., took no part.

Zaldivar, J., concurs in the result.

 

 

 

Separate Opinions

 

 

FERNANDO, J., concurring:

In the result primarily on the ground that respondent's arbitrary and improvident exercise of its asserted power in the premises is violative of due process.

MAKALINTAL, J., dissenting:

I fail to see, either from the record of this case or from the opinion of the majority, just how and where respondent Central Bank acted without or in excess of jurisdiction or with grave abuse of discretion so as to justify the writs of certiorari and prohibition granted by this Court; and just how and where said respondent neglected to perform a duty specifically enjoined by law so as to justify the writ of mandamus. To my mind the acts complained of in the petition, namely, Resolutions Nos. 1263 and 1290, passed by the Monetary Board on July 31 and August 1, 1968, respectively, were, if anything, a judicious exercise of discretion for the purpose of carrying out the policies laid down by the Central Bank Act with respect to supervision over the operation of private banking institutions and this Court, by issuing the writs prayed for, has substituted its own judgment for that of the Monetary Board in a matter that is peculliarly within the competence of the latter.

The thrust of the decision, as far as I can make out, is that the Voting Trust Agreement of November 20, 1967 created contractual obligations, with which "respondent Central Bank of the Philippines is directed to comply ." The directive does not specify what those obligations are. The principal stipulation in the agreement is simply what its title indicates: petitioners here, referred to as the Cestuis Que Trust, assign to the Trustee "for such purpose" the voting rights to all their shares of stock in the Overseas Bank of Manila, subject to certain conditions thereafter stated. The purpose envisaged is expressed in the first of the two "WHEREAS" clauses of the agreement, to wit: "the abovenamed stockholders (petitioners here) believe that it is for and/or in the interest and benefit of the bank's depositors, creditors and stockholders that this trust agreement should be entered into by them for the rehabilitation, normalization and stabilization of the Overseas Bank of Manila."

It seems, from a reading of the decision of this Court, that the purpose for which the Voting Trust Agreement was entered into — more accurately, the goal sought to be achieved is mistaken for the obligation thereunder, and that such obligation devolves not upon the Trustee, the Superintendent of Banks, but upon the Central Bank itself, which is not a party to the agreement. Be that as it may, the agreement contains an optional rescission clause, which is only logical, since the feasibility of rehabilitating, normalizing and stabilizing the Overseas Bank, which was then in extremely distressed circumstances, would depend upon many factors which could not be predicted with mathematical certitude, but only upon a reasonably considered projection of future probabilities. Thus while the life of the agreement would be for three years from the date of its execution, it was provided expressly "that the Trustee may, at its option, relinquish the trust, upon approval of the Monetary Board."

Resolution No. 1263, adopted July 31, 1968, excluded the Overseas Bank, then under trusteeship, from clearing with the Central Bank, effective immediately. Resolution No. 1290, adopted the next day, granted authority to the Board of Directors of the Overseas Bank to suspend operations pending final action by the Monetary Board. Such final action was evidently meant to be in connection with the recommendation submitted by the Superintendent of Banks to the Monetary Board on June 23, 1968, which reads in part as follows:

After considering (1) the Examiners' provisions for estimated losses on the recorded loans and receivables of P13.766 million (exclusive of estimated losses of P13.243 million on "unrecorded" loans and receivables), plus 2(a) the accrued interest on the emergency loans by, and overdrawings with, the Central Bank, and 2(b) penalties payable on deposit reserve deficiencies aggregating P3.228 million, or a total of P16.994 million, all of these not yet taken up in the books, the bank's capital accounts per books of P14.356 million as of June 30, 1968, would be wiped out resulting in an estimated deficiency to creditors of P2.638 million. Since the minimum capital required under Section 22 of Republic Act No. 337 as of June 30, 1968 is P19.142 million, the amount of fresh capital needed to be put up to comply with the minimum capital requirement as of June 30, 1968 would be P21.780 million. In addition, P18.950 million of new capital must be put up by the Bank to support the necessary expansion in risk assets of P126.334 million in order to break even in its operations. Therefore, the total fresh capital which the Bank must put to meet the requirements of Section 22 of R.A. No. 337, after considering the estimated losses on loans and other expenses not yet taken up in the books, as well as the necessary expansion in risk assets so as to break even in its operations, would be P40.730 million.

xxx xxx xxx

If the capital structure cannot be strengthened to meet the requirements of Section 22 of R.A. No. 337, and massive financing cannot be given to enable the Bank to expand its risk assets to the level at which it can break even in operations, then there seems to be no other alternative except to liquidate the Bank under Section 29 of R.A. No. 265. The Bank's continuance in business under its present extremely precarious financial condition, without the necessary capital injection and financial aid, will involve not merely probable, but certain, further losses to its depositors and other creditors and may have further adverse effects on the banking system.

In the situation depicted by the Superintendent of Banks, which in his opinion presented no other alternative except to liquidate the Overseas Bank pursuant to Section 29 of Republic Act No. 265 (Charter of the Central Bank), the adoption of Resolutions Nos. 1263 and 1290 was not, in my opinion, a violation of the Voting Trust Agreement, much less an abuse of discretion on the part of the Monetary Board.

In a sense the issue with respect to the aforesaid resolutions has become moot and academic in view of the fact that on August 13, 1968, after the instant petition was filed, the Monetary Board adopted Resolution No. 1333, wherein it decided as follows:

(1) To forbid the Overseas Bank of Manila to do business in the Philippines;

(2) To instruct the Superintendent of Banks to take charge, in the name of the Monetary Board of the bank's assets;

(3) To instruct the Superintendent of Banks to take such further action as may be necessary pursuant to Section 29 of Republic Act No. 265; and

(4) To refer the said memorandum report of the Superintendent of Banks as well as previous pertinent reports of the examiners of the Department of Supervision and Examination, particularly those pertaining to unrecorded certificates of time deposits bearing the signatures of former officers of the bank, to the Central Bank Legal Counsel for appropriate legal action.

The adoption of Resolution No. 1333, it seems to me, should remove the present controversy from this Court — if it was properly here at all in the first place, which I doubt — and address it to the Court of First Instance pursuant to Section 29 of the Central Bank Charter, which provides:

SEC. 29. Proceeding upon insolvency. — Whenever, upon examination by the Superintendent or his examiners or agents into the condition of any banking institution, 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 Superintendent forthwith, in writing, to inform the Monetary Board of the facts, and the Board, upon finding the statements of the Superintendent to be true, shall forthwith forbid the institution to do business in the Philippines and shall take charge of its assets and proceeds according to law.

The Monetary Board shall thereupon determine within thirty days whether the institution may be reorganized or otherwise placed in such a condition so that it may be permitted to resume business with safety to its creditors and shall prescribe the conditions under which such resumption of business shall take place. In such case the expenses and fees in the administration of the institution shall be determined by the Board and shall be paid to the Central Bank out of the assets of such banking institution.

At any time within ten days after the Monetary Board has taken charge of the assets of any banking institution, such institution may apply to the Court of First Instance for an order requiring the Monetary Board to show cause why it should not be enjoined from continuing such charge of its assets, and the court may direct the Board to refrain from further proceedings and to surrender charge of its assets.

If the Monetary Board shall determine that the banking institution cannot resume business with safety to its creditors, it shall, by the Solicitor General, file a petition in the Court of First Instance reciting the proceedings which have been taken and praying the assistance and supervision of the court in the liquidation of the affairs of the same. The Superintendent shall thereafter, upon order of the Monetary Board and under the supervision of the court and with all convenient speed, convert the assets of the banking institution to money.

My misgiving as to the propriety of the remedy sought by petitioners is that it is essentially for the enforcement of an alleged contract, presented in the guise of a petition for certiorari, prohibition and mandamus. This is borne out by the decision of this Court, which directs the Central Bank "to comply with its obligations under the Voting Trust Agreement, and to desist from taking any action in violation thereof." It is to be noted that noted that no "act which the law specifically enjoins as a duty resulting from an office, trust, or station" is ordered to be performed. Compliance with contractual obligations is beyond the purview of mandamus, and original jurisdiction over an action for that purpose pertains to the Courts of First Instance. Such an action is a plain, speedy and adequate remedy in the ordinary course of law which, being available to petitioners, should bar the present recourse to the extraordinary writ of mandamus, especially because certain vital facts are controverted by the parties, such as the outstanding liabilities which can not be paid by the Overseas Bank, the value of the properties mortgaged to the Central Bank by petitioners, the extent of the loans secured by the mortgage, and the amount of money which the Central Bank is supposed to advance in order to comply with its supposed undertaking to rehabilitate, normalize and stabilize Overseas Bank. Curiously enough, as already noted, the decision of this Court merely directs compliance with the Voting Trust Agreement without specifying — if indeed what is implied is the rehabilitation of the Overseas Bank — just what should be done to achieve that goal, or just how many millions of pesos the Central Bank must continue to pump into the Overseas Bank in order to put it in its feet again. It is no idle speculation to say that the writs granted by this Court may raise more questions than they answer.

With particular reference to the mortgages executed by petitioners, they say the same were a consideration of the Voting Trust Agreement. Respondent Central Bank denies this and maintains that the mortgages were constituted as security for "the huge amounts of emergency loans and overdrawings advanced in the clearing house to the OBM by the Central Bank." The Voting Trust Agreement itself is silent on the point. My own reading of the record convinces me of the correctness of the position of the Central Bank. In any case, considering the existence of a substantial disagreement on this point, not only between the parties but also among the members of this Court, the issue could best be resolved in an ordinary action, either for specific performance as hereinbefore indicated or for rescission of the mortgages and the reconveyance of the mortgaged properties to petitioners. For the resolution of this issue I believe that this Court is not the proper forum in the first instance, nor the present petition the proper vehicle.

Going back to Section 29 of Republic Act No. 265, it may be noted that what the Central Bank did, including its suggestion that a Voting Trust Agreement be executed, was in accordance with its powers and duties under the said section. Whenever a banking institution is in a state of insolvency the Monetary Board shall determine whether it "may be reorganized or otherwise placed in such a condition so that it may be permitted to resume business with safety." A Voting Trust, such as that which was entered into in the case of the Overseas Bank, is certainly one of the measures which may be adopted for that purpose. The rehabilitation of the distressed institution is the primary goal of the authority given to the Monetary Board, and there is nothing so sacrosanct in a voting trust agreement, or in the use of the word "rehabilitate" therein, that once it is executed the Central Bank is thereby bound to see the rehabilitation" through as an ordinary contractual commitment, no matter how costly and impractical it may prove. For Section 29 also provides that "if the Monetary Board shall determine that the banking institution cannot resume business with safety to its creditors, it shall, by the Solicitor General, file a petition in the Court of First Instance reciting the proceedings which have been taken and praying the assistance and supervision of the Court in the liquidation of the affairs of the same." This was precisely the step contemplated by the Monetary Board when it passed Resolution No. 1333 on August 1968, and any questions concerning its validity, in my opinion, should be raised in a proper case as authorized in the said provision.

In view of the foregoing considerations, I vote to deny the writs prayed for and to dismiss the instant petition.

CASTRO, J., concurring:

Like Mr. Justice Querube C. Makalintal, in whose dissent I concur fully, I am in sharp disagreement with the conclusions reached by the majority of the Court.

Before I state my reasons, which will be extensively discuss in seriatim farther below, it is well that we get a general picture of (a) the overdrawings incurred by the Overseas Bank of Manila in its clearing account with the Central Bank up to August 13, 1968 when the liquidation of the Overseas Bank was ordered by the Central Bank, and (b) the fraudulent transactions perpetrated in the operations and management of the Overseas Bank. These are summarized by the Superintendent of Banks, as follows:

1. Advances granted to TOBM by way of overdrawings in 1967 thru 1968

The Overseas Bank of Manila had been chronically overdrawn in its current account since 1967 thru 1968. However, these overdrawings were made good before clearing time by means of cash deposit, call money or sale of dollar drafts. It was sometime in September, 1967 that it failed to cover the overdrawings. [The overdraft which amounted to P16,116,890.06 as of September 29, 1967 increased to P51,925,381.90 as of August 13, 1968.]

On September 29, 1967, the Monetary Board in its Resolution No. 1890 enjoined TOBM not to allow overdrawings amounting to P16.4 million to deteriorate any further.

On October 16, 1967, the Monetary Board in its Resolution No. 2015, among others, required Mr. Ramos, Sr. to submit a listing of his properties and to mortgage or assign the same to cover the overdraft balance therewith of TOBM and not to exclude TOBM from clearing. On October 16, 1967, date the listing of the alleged P100 million collateral was submitted, TOBM's overdrawings of its clearing account with CB totalled P22.333 million.

On November 20, 1967, date the Voting Trust Agreement was executed between the Superintendent of Banks and Emerito M. Ramos, Sr. et al., the bank's overdrawings amounted to P33,624,743.68. During this period [from November 20, 1967 to July 26, 1968] it will be noted that the collateral position of the Central Bank on loans granted to TOBM by way of overdrawings, showed consistent net collateral deficiency, taking into consideration, appraised value of collateral documents and even at the higher of PNB or DBP appraised values. When finally the registration of the mortgages was almost complete, on July 23, 1968, the Monetary Board decided to consider a liberal loan value of 90% on the average of PNB and DBP market values.

2. Monetary Board decisions showing real intention in requiring collateral from M. E. M. Ramos, Sr. et al.

From the various Monetary Board decisions and reports, there was no doubt that the requirement for Mr. Emerito M. Ramos, Sr. et al. to put up the collateral was for the purpose of securing the unsecured obligation of TOBM with the Central Bank, by way of overdrawings in the clearing account. Records show that Central Bank made this known to TOBM and Mr. Ramos, Sr. all along from the very beginning.

a) No. 1735 dated September 8, 1967 — To require TOBM to mortgage the Padre Faura property to the Central Bank to secure the unsecured advances given thereto especially by way of overdrawings. (Transmitted to TOBM per DSE letter dated September 14, 1967.)

b) No. 1890 dated September 29, 1967 — After noting the report on the disclosure of transactions at TOBM which had neither been incorporated in the books of said bank nor reported to its board of directors, the Monetary Board enjoined TOBM not to allow the overdrawings of its clearing account with CB amounting then to P16.4 million, to deteriorate any further; and required the TOBM to immediately mortgage to CB all other available properties of Mr. E. M. Ramos and family in order to secure the unsecured advances given to said bank especially by way of overdrawings.

(Transmitted to TOBM per DSE letter dated October 1967.)

c) No. 1918 dated October 3, 1967 — Monetary Board instructed management to exert every effort to obtain collateral to secure the unsecured liabilities of TOBM to CB.

d) No. 1975 dated October 10, 1967 — Monetary Board instructed management to continue with its efforts to obtain additional collateral to secure the unsecured liabilities and for the protection of other creditors/depositors thereof.

e) No. 2014 dated October 14, 1967 — To effect the registration of the second mortgage on Xavierville Estate.

f) No. 2015 dated October 16, 1967 — To require Mr. Emerito M. Ramos, Sr., to submit a listing of his property and to mortgage and assign the same to the Central Bank to cover the overdraft balance of TOBM. (Transmitted to TOBM per DSE letter dated October 19, 1967.)

g) No. 2017 dated October 17, 1967 — Instruction to the Central Bank Legal Counsel to proceed immediately with the registration of the second mortgage on the Xavierville Estate in favor of the Central Bank; and thereafter, to obtain the consent of the majority of the stockholders of the Xavierville Estate, Inc. to a second mortgage in appropriate resolution approved at a regularly called stockholders' meeting; and to assign one or more lawyers for the particular purpose of (a) seeing to it that the Central Bank obtain a lien on as many properties (real or personal), including shares of stock (the corresponding certificate of which be delivered to the Central Bank) and other assets in the name of Mr. Emerito M. Ramos, Sr. and members of his family, as can be obtained, amounting to at least P100 million as represented by Mr. Ramos; and (b) drawing up and registering with the Register of Deeds of the necessary documents establishing the liens of the Central Bank on such properties.

To the Acting Superintendent of Banks — To obtain information on as many more properties as possible (including shares of stocks) in the name of Mr. Ramos and members of his family as are not included in a list submitted by Mr. Ramos on October 16, 1967, so that the Central Bank can obtain a lien thereon.

h) No. 2132 dated November 3, 1967 — Monetary Board instructed management to write a letter to TOBM to reiterate CB's demand for additional collateral to secure the unsecured liabilities of the TOBM to CB and for the protection of the other creditors and depositors. (Letter of Governor dated November 6, 1967 sent.)

i) Memorandum to Monetary Board of Acting Superintendent of Banks on the matters taken up in the conference held with Mr. E. M. Ramos, Sr. and Mr. M. Oliva on October 23, 1967 disclosed that the Governor impressed upon Mr. Ramos the imperativeness of his putting up of adequate collaterals to fully secure present CB advances and before the CB can even consider the extension of additional advances to TOBM.

One specific resolution to this effect was M. B. Resolution No. 2210 dated November 17, 1967 wherein the Board instructed management to acknowledge the letter dated November 17, 1967 of the Auditor of the Central Bank inviting attention to the increasing trend in the overdraft of TOBM with the CB amounting to P32,210,242.21 as of November 16, 1967; to advise the Auditor General and the CB Auditor that documentation is now being undertaken of the mortgages covering the properties (allegedly worth P100 million) offered by Mr. Emerito M. Ramos, Sr. to secure the unsecured liabilities of TOBM to the CB; and to transmit copies of the aforesaid 1st Indorsement of the Auditor General and the letter of the CB Auditor to the Board of Directors of TOBM and to require the said bank to explain why it should not be excluded from CB clearing.

3. Fraudulent transactions

a) Extent of the fraudulent transactions made known to the Central Bank

In a letter dated September 25, 1967, Mr. Martin R. Oliva, then TOBM President, made a disclosure to the Acting Superintendent of Banks, certain transactions amounting to P48 million which have not been incorporated in the books of TOBM and not reported to its Board of Directors.

In addition to these transactions, a number of regular accounts were manipulated by top officers of TOBM whereby bank funds amounting to about P38 million (net) were channeled to various interests. These manipulated accounts were reinstated in the books of the bank through a series of adjustments and accounting entries passed upon by the bank in September 1967.

The consolidated trial balance of these two sets of transactions as prepared by TOBM Acting Assistant Accountant follows:

Consolidated Trial Balance
As of September 22, 1967
___________________

	Debits	Credits
Accounts Receivable	P25,235,721.34
Bills Discounted	419,989.27
Time Loans	4,764,968.59
Special Overdrafts	12,502,521.38
Expenses	4,492,498.47
Suspense Account in Liquidation	38,858,797.87
Time Deposits		P44,110,563.45
Accounts Payable		1,086,566.03
Cashier's Checks		2,020,000.00
Acceptances Payable		1,100,000.00
Earnings		644,587.00
Overdrawings C/A #1198		2,933,646.78
Demand Deposits		12,107,517.78
Savings Deposits		10,005,080.54
Bills Payable		1,500,000.00
Due to Branches		3,584,004.28
Domestic Bills Purchased (Payable)		6,177,451.44
Accrued Interest Receivable		1,005,079.62
	____________	___________
	P86,274,496.92	86,274,496.92

The loans and other receivable accounts shown in the above trial balance were without any loan papers and collaterals, thus their collections would be extremely difficult and hopeless to pursue. On the other hand, the liabilities, including the `unrecorded' time deposits which were ruled as liabilities of the bank, in an opinion rendered by the Secretary of Justice, were properly documented and therefore actual liabilities of the bank.

The bulk of the loans and other receivable accounts were in the name of Ramoses and their various business interests. The Suspense Account in Liquidation amounting to P38.8 million, however, could not be accounted for, but verification of the fraudulent transactions, based on available documents/records tends to show that said account represents funds channeled to the benefit of the Ramoses and their business interests. However, there was no acknowledgment on their part to this effect.

b) Extent of verification

Verification of the above transactions has been temporarily suspended in view of lack of bank examiners. However, even with the resumption of verification, a complete reconstruction and documentation thereof are highly improbable because so many bank records are missing in the bank's files. Besides, it will take a considerable length of time, considering that the manipulations, involved thousands of transactions and verification requires the tracing of every single transaction to a number of records. Moreover, verification is made doubly difficult by the fact that so many entries in the deposit/withdrawal sheets were fictitious, alongside with the genuine ones, and the examiners had to follow the trial and error method in tracing the entries. One type of manipulation alone was done daily, with so many deposit accounts involved on a single day and this covered a period of two (2) years more or less.

c) Modus operandi for the fraudulent transactions

The "modus operandi" or mode of operation employed the opening of current or checking accounts with the bank, the signatories of which were Emerito B. Ramos, Jr. and a few selected officers.

1) Current Account No. 1198 — EMRACO with the following authorized signatures:

(a) Emerito B. Ramos, Jr. — Executive Vice President & Treasurer

(b) Rodrigo Recto — Assistant Vice President & Cashier

(c) Rodolfo R. Sunico — Vice President & Chief Accountant

(d) Manuel Moje — with the Office of the Executive Vice President

2) Current Account No. 1198-A — General Fund with no known authorized signatures.

3) Current Account No. 1920 — COFICO SPECIAL ACCOUNT NO. 2 with the following authorized signatures:

(a) Emerito B. Ramos, Jr. — Executive Vice President & Treasurer

(b) Rodolfo R. Sunico — Vice President & Chief Accountant

These fraudulent and highly devious operations involving a staggering amount of P86 million were perpetrated under two general schemes:

1) Moneys of depositors received by the bank as time deposits or in exchange for banker's acceptances and cashier's checks were not recorded in the books of the bank as money owned or liability of the bank to the depositors/creditors. Instead, the money received were recorded as deposits to Current Account No. 1920. As mentioned above, these transactions, known as "unrecorded transactions", involved P48 million.

2) The second scheme involving about P38 million as of September 30, 1967 is subdivided into three operations, namely:

(a) "Segregated accounts" — Ledger cards showing the balances of the deposits of either current, time or savings account depositors, usually with large balances, were removed from the respective files of depositors. Withdrawals were effected on these ledger cards without the knowledge or consent of the depositors. The aggregate amount illegally withdrawn was then shown as deposits to Current Account No. 1920, 1198, or 1198-A.

(b) "Diverted accounts" — Funds properly belonging to the bank were credited or shown as deposits to Current Account No. 1198 or 1198-A. Examples: (1) Payments made by La Suerte Cigar and Cigarette Co. of P6.25 million on its loan with the bank was recorded as deposit to Current Account No. 1198, instead of crediting the account of the debtor. The amount paid properly belong to the bank. (2) Call loans obtained from other banks were also credited to the current accounts controlled by the officers of TOBM. (3) Remittances from other banks for the account of a TOBM branch were likewise not shown in the books as such but instead credited to the current accounts owned/controlled by the officers.

(c) "Fictitious/simulated entries" — Books were made to show that funds were transferred from branches to Head Office (no actual fund transfer) and credited to current accounts owned/controlled by officers of TOBM. Checks were drawn by Ramos corporations against their unfunded current accounts. These checks were held up as asset accounts of TOBM and credited again to the current accounts owned/controlled by officers of TOBM.

As fast as funds were received under either the "unrecorded transactions" or "segregated/diverted" schemes, loans were surreptitiously granted to the various firms/corporations, owned or controlled by Mr. Emerito M. Ramos, Sr., and members of his family, numbering twenty-seven (27), twelve (12) of which were established from 1964 to 1967, and also to other borrowers.

As a means of control and accounting of this clandestine financing operations, Messrs. Emerito B. Ramos, Jr. and Rodolfo R. Sunico, ably assisted by trusted employees, designed and maintained a separate book of accounts accessible only to them and to nobody else.

Since the nucleus of the anomalous transactions was linked to the deposit accounts, Mr. Emerito B. Ramos, Jr. and his men availed fully of the protective mantle of the provisions of R.A. No. 1405 which prohibits the disclosure of any information on deposit accounts even to bank examiners, and thus the perpetrators were able to amass an enormous amount of P86.129 million as of September 30, 1967 which they appropriated for their various firms/corporations and partially to other borrowers, in wanton disregard of banking laws, rules, regulations and orders legally issued by the Central Bank, never before recorded in the annals of banking in the Philippines.

In addition to the above, Emerito B. Ramos, Jr., Executive Vice President and Treasurer, during the time that he was on an indefinite leave of absence from May 1967, and therefore no longer authorized to sign for the bank, still received funds and issued TOBM certificates of time deposit and banker's acceptances in the aggregate amount of P2.02 million. Naturally, these amounts were not recorded in the regular books of the bank nor in the separate set of books, and the proceeds thereof were pocketed by Mr. Ramos, Jr.

4. Loans to the Ramoses

As of July 31, 1967 (date of latest regular examination of TOBM), the total outstanding loans and advances to the Ramos/family/enterprises aggregated P29.086 million, representing 41.18% of the total loan portfolio (recorded or regular loans) of P70.633 million.

On September 25, 1967, Mr. Martin R. Oliva, then TOBM President, disclosed the so-called unrecorded transactions. He first reported that as per tentative trial balance as of September 13, 1967, the total unrecorded transactions totalled P48.007 million. However, as of September 30, 1967, after certain adjustments/entries have been passed, the total amount of unrecorded/diverted/segregated accounts totalled P86.129 million. From discussions of manipulation above, these funds were channeled to current accounts controlled by the E. M. Ramoses and were withdrawn or spent according to their pleasure.

Certain properties of the Ramoses were offered to the bank on a "dacion en pago" arrangement in the total amount of P30.6 million and were applied to the outstanding loans and obligations (both recorded and unrecorded loans) of the Ramoses. However, even with the application of the proceeds of these properties offered to TOBM, the outstanding loans of the Ramoses/family/enterprises still stood at an enormous amount of P72.150 million (both recorded and unrecorded) or 58.90% of the total loans of P122.502 million (both recorded and unrecorded) as of June 30, 1968 summarized below:

Outstanding Loans and Advances (Recorded & Unrecorded)

(As of June 30, 1968)
(In Millions)

	Recorded	Unrecorded	Total
	% to	% to	% to
SUMMARY:	Amount Total	Amount Total	Amount Total
Total loans and advances
and other amounts to be
accounted for by E. M.
Ramos, Sr./family/enterprises	P19.100 37.95%	P53.050 73.50%	P72.150 58.90%
Loans and advances to
parties other than the Ramos
family/enterprises	31.230 62.05%	19.122* 26.50%	550.352 41.10%
Total Outstanding Loans
& Advances	P50.330 100.00%	P72.172 100.00%	P122.502 100.00%

* While these were shown as having been lent to third parties, promissory notes were not presented to indicate indebtedness of third parties. Considering that these amounts were derived from funds channeled to the current accounts of the Ramoses and were granted by them to third parties, these amounts could very well be amounts that will also have to be accounted for by E.M. Ramos, et al.

My fundamental purpose in quoting in full the above narration is to project the importance of certain facets of this case which were accorded only scant attention or consideration in the majority opinion, and with reference to which I entertain a perspective different from that of the majority.

On the basis thereof and of other facts which I will advert to in the course of my discussion, I now proceed to explain the reasons for my dissent, as well as refute certain arguments advanced and specific conclusions reached in the main opinion.

Briefly stated, my reasons are as follows:

1. The Central Bank (hereinafter referred to as the CB) is without power, under the law, to enter into the voting trust agreement in question, as this agreement is construed by the majority.

2. Even assuming that the CB is legally a party thereto, (a) the said agreement expressly gave the Monetary Board authority to terminate the same at any time; (b) no express and definite commitment was therein made that the CB will extend further extraordinary financial assistance to the Overseas Bank of Manila (hereinafter referred to as the OBM); (c) contrary to the assertion that the CB has reneged on its "promise" under the said agreement, the CB has taken the necessary steps, consistent with law, to rehabilitate the OBM; and (d) the CB cannot be expected, legally and morally, to continue supporting the OBM at any and all cost.

The basic assumptions of the majority opinion, vis-a-vis the CB's being a privy to the voting trust agreement, are as follows:

(a) The CB rather than the Superintendent of Banks is the real party thereto because the latter is a mere officer of the CB acting under its orders.

(b) The CB had executed certain acts which indicate that it is the real party to the said agreement. Thus, it is said that the CB, from the very start, had insisted upon the execution of the said agreement; had caused the nomination of the team that took over the management of the OBM; had given notice that the agreement in question will no longer be renewed or extended, which, consequently, led to the promulgation of Resolution No. 1333 on August 13, 1968 ordering the Superintendent of Banks to proceed to liquidate the OBM under section 29 of the Central Bank Act.

(c) By "promising" to work for the rehabilitation, normalization and stabilization of the OBM to stave off its liquidation, the CB, in effect, impliedly obligated itself to finance the funding requirements of the OBM until these objectives are attained within the term stated in the voting trust agreement.

In my view, even if it were assumed that the intention of the CB authorities relative to the said voting trust agreement was to make the CB a party thereto, its validity and binding effect upon the CB are not legally possible since under the said agreement the CB would not only be acquiring the legal title, including voting rights, over the shares of stock of the petitioners in the OBM, but it would also be actually directing the management and operation of the bank-powers and prerogatives the acquisition of which by the CB is expressly prohibited by law. Section 133 of the Central Bank Act states:

Sec. 133. Prohibitions. — The Central Bank shall not acquire shares of any kind or accept them as collateral, and shall not participate in the ownership or management of any enterprise, either directly or indirectly.

Section 27 of the Central Bank Act explicitly prohibits the Superintendent of Banks from exercising the powers granted under the said voting trust agreement. Thus:

Sec. 27. Prohibition. — The Superintendent and all employees of the Department of Supervision and Examination are hereby prohibited from:

(a) Being an officer, director, employee or stockholder, directly or indirectly, of any institution subject to supervision or examination by the department.

Obviously, by virtue of the clear and unmistakable constraints described in the foregoing provisions of the CB Charter, the alleged intent of the CB authorities to be bound by the terms of the said voting trust agreement cannot but be interpreted as having been pursued under a clear misapprehension if not direct disregard, of the law. On this point, it appears to me to be well settled in our jurisdiction that the Government (and the CB is an instrumentality of the Government) is never estopped by the mistake or error of its agents. And since estoppel cannot give validity to an act that is prohibited by law or contrary to public policy, the CB cannot consequently be bound by any action — diametrically contrary to what the law prohibits (such as those found in sections 27 and 133 of the CB Charter) — which may be executed on its behalf by its agents, such as the Monetary Board. (See Eugenie vs. Perdido, L-7083, May 19, 1955; Benguet Consolidated Mining Co. vs. Pineda, L-7231, March 28, 1956; Bachrach Motor Co. vs. Unson, 50 Phil. 981; San Diego vs. Municipality of Naujan, Oriental Mindoro, L-9920, February 29, 1960; also 10 Am. Jur. 802).

Because the voting trust agreement ascribes to the Monetary Board certain duties and grants it certain powers, the majority opinion used this as one of the reasons to support the conclusion that the CB is a real contractual party to the agreement. I view the matter differently. As I see it, the agreement is between the OBM and the Superintendent of Banks only. Nowhere within the four corners thereof do I find any statement that, the CB is a contractual party thereto. The majority opinion loses sight of the fact that in the matter of the regulation of the banking and monetary systems of this country, the CB, as the "bank of banks," is given-all-embracing powers of supervision and superintendence. In the situation that the OBM has found itself, it was incumbent upon the CB to exercise these powers. If the agreement contains express reference to the Monetary Board it is because the OBM and the Superintendent of Banks, by themselves alone, without any assist from the CB, would be completely incapable of rehabilitating, normalizing and stabilizing the OBM. The agreement is much more than an ordinary contract between two private parties; it is a covenant unavoidably impressed with public policy: the stability of the banking and monetary systems. It must therefore be regarded, properly speaking, as one in which the provisions of the CB Charter and other pertinent laws are deemed perforce incorporated. As a matter of fact, even if there were no mention at all of the Monetary Board in the agreement, still the execution thereof would, by compulsion of the provisions of the Central Bank Charter, require direct supervision and superintendence by the CB.

Whether the Monetary Board, in requiring the execution of the trust agreement, had in mind section 29 of the Central Bank Act or any of the general corporate powers vested in it by section 4 of the same Act, or what it honestly felt was its duty under the law "to maintain monetary stability in the Philippines" (section 2, CBA), and, in the discharge thereof, to make available its credit facilities "to regulate the volume, costs, availability and character of bank credit and to provide the banking system with liquid funds in times of need" (section 86, CBA), and "ensure that the supply, availability and cost of money are in accord with the needs of the Philippine economy and that bank credit is not granted for speculative purposes prejudicial to the national interests (Section 108, CBA), still the inescapable conclusion remains, by virtue of the statute's prescribing the principles that should guide, and the objectives that should be pursued by, the CB, that the Monetary Board required the execution of the voting trust agreement not for the purpose of binding the CB as a contracting party, but solely to fulfill its statutory obligation to superintend the banking system and forestall the occurrence of conditions that effectively lead to financial panic or that threaten monetary and banking stability.

The law as well as the situation in extremis of the OBM by 1967, therefore, called for the monetary authorities to act, and act they did, by conscientiously attempting to eliminate the reported (at least, what they believed to be) causes of the bank's deterioration, by requiring the management of the bank to be passed onto new and trusted hands. But the said action, as I have stated earlier, was exercised for no other reason than to comply with the CB's statutory duty to manage and administer the banking and monetary systems of the country.

I now proceed to discuss my second fundamental reason for this dissent. Assuming that the CB is legally a contracting party to the voting trust agreement, (a) the said agreement expressly gave the Monetary Board authority to terminate the same at any time; (b) no express and definite commitment was therein made that the CB would extend further extraordinary financial assistance to the OBM; (c) contrary to the assertion that the CB has taken the necessary steps, consistent with law, to rehabilitate the OBM; and (d) the CB cannot be expected, legally and morally, to continue supporting the OBM at any and all cost. Although I have divided this reason into foul parts, I will discuss all of these parts together as they are inextricably intertwined.

By its very terms, the agreement could be terminated at any time at the option of the Monetary Board.

The stipulated life span of the said agreement is stated in the following words:

1. That the life of this trust agreement shall be for a period of three years commencing from the date of the execution of this contract, provided, however, that the TRUSTEE may, at its option, relinquish the trust, upon approval of the Monetary Board, and provided, further that if, at the expiration of the three-year period, the purposes for which this trust agreement has been constituted have not, as yet, been fully achieved, this trust agreement shall then be considered automatically extended for such further period to be determined by the Monetary Board, similarly terminable within such further period also at the discretion of the Monetary Board. It is further agreed that if the condition of the Overseas Bank of Manila so warrant, the CESTUIS QUE TRUST may request the Monetary Board for the earlier termination of this agreement.

Without having to turn the mentioned stipulation inside out, it is unmistakably clear that under the unambiguous specific language used, the CB was not absolutely bound thereunder to any specific period during which it must restore the OBM to its feet. For, while the opening portion of the said stipulation states that the trust agreement shall be for a 3-year period, this term is, however, explicitly made subject to the condition that the "TRUSTEE may, at its option, relinquish the trust." If, as the majority opinion says, the resolutions in question contradict the "promise" of the CB that it will rehabilitate, restore and stabilize (to stave off the liquidation of) the OBM, then I can see no other conclusion but that the CB had thereby relinquished the said trust. The said trust agreement having been thus rescinded, I cannot see how the CB, in adopting the said resolutions, can be accused of having acted in "abuse of discretion equivalent to excess of jurisdiction.".

Undue emphasis and reliance are placed by the majority opinion upon the argument that under the voting trust agreement in question the CB was obligated "to act and work for the "rehabilitation, normalization and stabilization" of the Overseas Bank of Manila, through the extension of adequate and necessary financial instance to stave off liquidation" — an argument which, in my view, entirely fails to consider that there are contractual and statutory, if not administrative as well as market, constraints to what the CB can do in the matter of assisting banks in extremis.

A reading of the scope of the powers and authority granted to the CB under the voting trust agreement provides the first step in an analysis of the contractual and legal constraints under which the OB must operate. The relevant stipulation of the said agreement recites:

3. During the life of this trust agreement the trustee shall have all and full authority, subject only to the limitations set by law and other conditions set forth therein: to direct the management of the affairs and accounts and properties of the Overseas Bank of Manila; to vote its directors and to choose the officers and employees giving due consideration to the suggestions of the cestui que trust for the employment and retention of qualified, competent and reputable persons who enjoy their confidence; to improve, modify, reorganize its operation, policies, standards, systems, methods, structure, organization, personnel, staffing, pattern, etc.; to hold and vote on the shares of stocks transferred to him as trustee; to safeguard the interests of depositors, creditors and stockholders; and in general to exercise all such powers and discharge all such functions as inherently pertain to the cestui que trust as owners, and/or for the sound management of a banking institution.

The aforementioned stipulation sets forth with definiteness and specificity the scope and reach of the alleges obligation f the CB to work for the "rehabilitation, normalization and stabilization of the Overseas Bank of Manila" under the voting trust agreement. By virtue of the said stipulation, the trustee's only duty and authority is to manage the affairs of the OBM in a manner beneficial to the bank, its equity owners, depositors and creditors. Nowhere does it appear in the said stipulation nor in any portion of the said voting trust agreement (which them majority opinion considers as the law between the parties) that the CB must pump money into the coffers of the OBM for its "rehabilitation, normalization and stabilization." Indeed, considering the precarious position of the OBM, the subsequent takeover by the CB (through its nominees) of its operations constitutes full compliance with its duty under the said agreement. For, it must be noted that the take-over of the OBM's operations was induced by the CB's considered belief, through reports submitted by its examiners, that the principal stockholders of the bank were misusing and fraudulently diverting for personal purposes the funds and assets of the bank to the detriment of its other stockholders and its creditors and depositors — a belief which is not unfounded. The majority opinion itself states that the OBM (a) had overdrawn its clearing account with the CB beyond permissible limits, (b) had chronic reserve deficiency, and (c) had deficiency in the required liquidity floor against government deposits as early as 1965, all of which, by 1967, caused such a mounting concern at the CB that the latter

ordered the closing of all deposit accounts of Mr. Emerito Ramos and members of his family within the third degree, and firms and corporations in which they had interest; for the stockholders to put in an addition of P6.8 million, to remove Ramos and other key officials of the bank found to be responsible for irregular or anomalous transactions from their positions, to install an internal comptroller appointed by the Central Bank, and to place collection efforts of the bank under a special team headed by the Central Bank Legal Council.

Undoubtedly, the take-over by a new management of the operations of the OBM to stop the bank's assets and funds from further being fraudulently dissipated could bring about relative normalcy and stability and remove the immediate threat of closure. But no trustee can be expected to surmount what is humanly insurmountable. The CB is not expected, nor cannot it be obliged, to divert its own funds for the purpose of saving a solitary bank whose in extremis condition was, in the first place, caused by the malfeasance, and non-feasance of its principal stockholders and officers. The CB was established to discharge certain constituent functions. Its powers are necessarily circumscribed by law. The fact that it achieves a surplus fund in its operations does not mean that it can devote such surplus fund to any use not specifically and clearly described by law. Section 41 of the Central Bank Act, in fact, specifies the uses to which its net profits may be devoted. The "rehabilitation, normalization and stabilization" of a private commercial bank are not among these.

And even if it be construed that the management function which the CB had supposedly assumed includes the giving of extraordinary financial assistance, I seriously dispute the observation of the majority that the CB did not conscientiously and in good faith exert every effort to rehabilitate, normalize and stabilize the OBM.

The pertinent facts, narrated in chronological perspective below, conclusively rebut this observation of the majority.

1. During the five years of the existence of the OBM, the CB granted it a total of P76.11 million in the form of emergency loans (P24,185,193.74) and overdrawings in its clearing account (P51,925,381.90). (For purposes of clarity, a banking institution, by law and as ruled by the Monetary Board, is required to hold reserves against its deposit liabilities partly in the form of deposits with the CB. If this deposit account is overdrawn, which results from the clearing of checks, the bank incurs an overdraft. An overdraft in the clearing account of a bank is regarded as a loan in the books of the CB.)

2. The OBM, since early 1967, had been chronically overdrawn in its clearing account with the CB, but somehow, was able to make sufficient deposits to cover the daily overdrawings before the start of the clearing every day. It was sometime in September 1967 that it failed to cover the overdrawings. On September 25, 1967, Martin Oliva, then OBM President, informed the CB of transactions which were not recorded in the books of the OBM in the amount of 48.007 million. There were other manipulations made in the books which caused funds derived from depositors and clients of the bank to be credited to current accounts of certain OBM officers for their personal use and/or for the benefit of corporations and other interests of the Ramos family. The disclosed amount of P48.007 million was later determined to reach P86.129 million as of September 30, 1967.

3. Alarmed by this development and by the sudden increase in the overdrawings, the Monetary Board issued a series of directives requiring, among other things, the bank and Emerito M. Ramos, Sr., et al., the majority stockholders of the bank, to put up collateral to secure the unsecured obligations of the OBM with the CB, especially the overdrawings. The CB account was apparently being used to fund the operations of the OBM and the withdrawals of the depositors, since the funds originally deposited and collected to the extent of the manipulations were not invested for the benefit of the bank but were instead withdrawn for the use and benefit of the Ramos corporations.

(a) Resolution No. 1735 dated September 8, 1967 required the OBM to mortgage its Padre Faura property to the CB to secure the unsecured advances given, especially by way of overdrawings.

(b) Resolution No. 1890 dated September 29, 1967 required the Xavierville Estate, Inc. to mortgage to the CB its Xavierville property situated in Quezon City to partly secure whatever liabilities the OBM had with the CB, and required the OBM to immediately mortgage to the CB all other available properties of the Ramoses (Emerito M. Ramos and family) in order to secure the unsecured advances given to the OBM especially by way of overdrawings, and place the advances so secured in a separate account.

(c) Resolution No. 1918 dated October 3, 1967 instructed the CB management to exert every effort to obtain collateral to secure the unsecured liabilities of the OBM to the CB.

(d) Resolution No. 1975 dated October 10, 1967 instructed the CB management to continue with its efforts to obtain additional collateral to secure the unsecured liabilities of the OBM to the CB and for the protection of other creditors/depositors thereof.

(e) Resolution No. 2014 dated October 14, 1967 instructed the CB management to effect the registration of the second mortgage on the Xavierville Estate.

(f) Resolution No. 2015 dated October 16, 1967 required Emerito M. Ramos, Sr., to submit a listing of his property and to mortgage and assign the same to the CB to cover the overdraft balance of the OBM.

(g) Resolution No. 2017 dated October 17, 1967 instructed the CB Legal Counsel to proceed immediately with the registration of the second mortgage on the Xavierville Estate in favor of the CB, and thereafter to obtain the consent of the majority of the stockholders of the Xavierville Estate, Inc. to a second mortgage in an appropriate resolution approved at a regularly called stockholders' meeting; to assign one or more lawyers for the particular purposes of (1) seeing to it that the CB obtained a lien on as many properties (real or personal), including shares of stock (the corresponding certificate of which should be delivered to the CB) and other assets in the same of Emerito M. Ramos, Sr. and members of his family, as could be obtained, amounting to at least P100 million as represented by Emerito Ramos, and (2) drawing up and registering with the Register of Deeds the necessary documents establishing the liens of the CB on such properties. This resolution also instructed the Acting Superintendent of Banks to obtain information on as many more properties as possible (including shares of stocks) in the names of Emerito Ramos and members of his family as were not included in the list submitted by Emerito Ramos on October 16, 1967, so that the CB could obtain a lien thereon.

(h) Resolution No. 2132 dated November 3, 1967 reiterated the CB's demand for additional collateral to secure the unsecured liabilities of the OBM to the CB and for the protection of the other creditors and/or depositors thereof.

(i) Resolution No. 2185 dated November 7, 1967 noted a letter dated November 6, 1967 of the CB Governor to the OBM, which stated among other things, as follows: "As previously requested and agreed to by your principal stockholder, Mr. Emerito Ramos, Sr., immediately have Mr. Emerito M. Ramos, Sr., his associates or controlled corporations execute the necessary documentation to mortgage real properties to the Central Bank to secure the unsecured liabilities of The Overseas Bank of Manila to the Central Bank, and for the protection of the other creditors and/or depositors thereof. In this connection, it is reiterated that Mr. Ramos deliver to the Central Bank the endorsed certificates of stock of corporations in which he or his family has equity."

(j) Resolution No. 2210 dated November 17, 1967 instructed the CB management to acknowledge the letter dated November 17, 1967 of the Auditor of the CB, inviting attention to the increasing trend in the overdraft of the OBM with the CB amounting to P32,210,242.21 as of November 16, 1967; to advise the Auditor General and the CB Auditor that documentation was then being undertaken of the mortgages covering the properties (allegedly worth P100 million) offered by Emerito M. Ramos, Sr. to secure the unsecured liabilities of the OBM to the CB; to transmit copies of the aforesaid 1st Indorsement of the Auditor General and the letter of the CB Auditor to the Board of Directors of the OBM and to require the OBM to explain why it should not be excluded from CB clearing.

As can be deduced from the foregoing resolutions, bad faith cannot be imputed to the CB when the voting trust agreement was executed on November 20, 1967, since all along Emerito M. Ramos, Sr. knew, as he was indeed from the very beginning, that the properties he had offered, allegedly worth P100 million, were to secure all the unsecured liabilities of the OBM with the CB.

4. In a conference held with E. M. Ramos, Sr. and M. Oliva on October 23, 1967, the CB Governor impressed upon Ramos the imperativeness of his putting up adequate collateral to fully secure the CB advances before the CB could even consider the extension of additional advances to the OBM. Moreover, the intentions of the CB in the execution of the voting trust agreement may be found in Resolution No. 2015 dated October 16, 1967 wherein the Monetary Board decided, among other things.

To require the stockholders of The Overseas Bank of Manila to subscribe to an appropriate voting trust agreement so that the Central Bank may be able to effect a complete reorganization and/or transfer management of the bank to a nominee of the Monetary Board.

In point of fact, the voting trust agreement was broached to the OBM or the Ramoses for the first time, not on October 16, 1967, but on December 23, 1966, when the Monetary Board, per its Resolution No. 2072, expressed the sense that if the OBM failed to elect a permanent President by January 31, 1967, acceptable to the Monetary Board, the bank should transfer the management of its affairs to the PNB under an appropriate voting trust agreement.

5. The CB was alarmed by the uncontrolled increase of the overdrawings in the OBM's clearing account, which continued to deteriorate despite admonitions from' the CB. The CB sought a change in the management of the OBM because the anomalies and fraudulent transactions in the OBM were being perpetrated by son of E. M. Ramos, Sr., and funds derived from the manipulation of accounts were being channeled to the corporations and interests of the Ramos family. These are borne out by the following:

(a) Resolution No. 1890 dated September 29, 1967 enjoined the OBM not to allow the state of the overdrawings in its clearing account with the CB, amounting to P16.4 million as of September 29, 1967, to deteriorate any further.

(b) Resolution No. 2014 dated October 14, 1967 ordered

(1) the return to clearing of OBM's Manager's and Cashiers' checks debited to clearing on Friday, October 13, 1967;

(2) the listing and taking possession of outstanding Manager's, Cashiers and Treasurer's checks to be presented in the afternoon clearing on Monday, October 16, 1967; and .

(3) the OBM to refrain from issuing Manager's and Cashier's checks.

(c) Resolution No. 2015 dated October 16, 1967 suspended, in the meantime, the implementation of the instructions embodied in Resolution No. 2014 dated October 14, 1967 for the return of the bank's Manager's, Cashier's, and Treasurer's checks received thru the clearing to the banks which honored them, and the exclusion of the OBM from clearing, pending implementation of the requirements under paragraphs (1) re: submission of list of properties and (2) re: voting trust agreement, provided that the overdraft balance of the OBM as a result of clearing operations did not significantly increase above the level thereof of P21.2 million as of October 13, 1967.

(d) Resolution No. 2017 dated October 17, 1967 instructed the Acting Superintendent of Banks to see to it that the accounts with the OBM of the enterprises owned by Ramos and members of his family were either closed or frozen in order to prevent the further deterioration of the OBM's clearing balance with the CB, and to see to it that the OBM did not issue Manager's and Cashier's checks.

(e) Resolution No. 2132 dated November 3, 1967 instructed the CB management to immediately write a letter to the OBM demanding payment, within five (5) days from receipt of such demand, of whatever amount was necessary so as to reduce the OBM's overdraft balance with the CB to the level thereof of P21.2 million as of October 13, 1967, and the OBM not to permit drawings by its clients on their overdraft accounts until after completion of the review of such accounts by CB examiners, and to immediately advise the clients concerned accordingly.

(f) Resolution No. 2188 dated November 7, 1967 stated, in connection with the report of the Acting Superintendent of Banks dated October 27, 1967 on the financial condition of the OBM as of August 31, 1967, that the general principle/policy to be carried out/applied on the OBM was to prevent the further increase of its overdrawings with the CB. Toward this end, the Board:

(1) Expressed the sense that the unrecorded transactions of the OBM should not be recognized by the OBM pending study and verification thereof; and

(2) Directed the CB management to require the OBM:

(a) Not to convert deposits from one type to another:

(b) To return all incoming checks and items from clearing which were drawn against accounts in the unrecorded transactions, against demand deposits which were converted from time or savings deposits, and, as already instructed, against overdraft lines and against accounts with insufficient balances; and

(c) To take all precautions, measures and steps necessary to prevent further deterioration of the overdrawn clearing balance with the CB which as of November 7, 1967 amounted to P28.437 million.

(g) Emerito M. Ramos, Sr. procrastinated in the final execution of the voting trust agreement. In the meantime, the overdrawings increased from P21.2 million on October 13, 1967 to P33.62 million on November 20, 1967.

Finally, on November 17, 1967, the Monetary Board, in its Resolution No. 2190, instructed the CB management:

(1) To require the stockholders of the OBM representing a substantial majority of the stock thereof to sign, not later than Monday morning, November 20, 1967, a voting trust agreement in favor of the Superintendent of Banks, called for under Resolution No. 2020 dated October 20, 1967;

(2) To deny to the OBM access to CB clearing beginning Monday afternoon, November 20, 1967, should such voting trust agreement not be signed by that time; and

(3) To return all incoming checks and items from clearing which were drawn against accounts in the unrecorded or falsely recorded transactions in the OBM.

(h) Resolution No. 2252 dated November 23, 1967 instructed the CB management to take immediate action so that increases in overdrawings in the CB would be reflected in corresponding decrease in "recorded" deposit liabilities, impressing upon all those concerned that the unrecorded or falsely recorded transactions in the OBM were not to be recognized or honored, although evidence purporting to establish the legitimacy of such supposed transactions could be received by the CB. All transactions were to be passed upon by the Comptroller designated by the CB.

6. On November 20, 1967, the voting trust agreement between Emerito M. Ramos, Sr., et al., as trustor, and the Superintendent of Banks, as trustee, was executed.

7. It took a considerable length of time, or up to July 23,.1968, before all the properties deemed acceptable as collateral by the Monetary Board were mortgaged/assigned in favor of the CB. Contrary to the belief that the CB withheld funds from the OBM, the advances by way of overdrawings on any one date were always more than the appraised value of collateral mortgaged/assigned on the same day. The CB later liberally changed this basis of valuation, to be able to extend more advances by way of overdrawings to the OBM.

8. As of July 2, 1968, the balance of the overdrawings in the OBM's clearing account amounted to P51,661,774.90, whereas the loan value of the collaterals put up by Emerito M. Ramos, Sr., et al., computed liberally at 90% of the average PNB and DBP market values, amounted to P51,127,290, with a resulting collateral deficiency of P534,484.90. Having been apprised that no further acceptable collateral of appreciable value had been offered by the controlling stockholders and no additional fresh capital funds of the magnitude necessary to bail out the very distressed condition of the OBM was expected from the controlling stockholders, the Monetary Board was constrained to take drastic action and on July 30, 1968, under its Resolution No. 1263, decided to exclude the OBM from clearing with the CB, effective immediately. Two days Later, the Monetary Board, under its Resolution No. 1290 dated August 1, 1968, further decided to authorize the Board of Directors of the OBM to suspend the operations of the OBM.

9. At the time of the execution of the voting agreement on November 20, 1967, the overdrawings in the OBM's clearing account amounted to P33,624,743.68; as of August 13, 1968, they amounted to P51,925,381.90, or an increase of P18,300,638.22.

All the above demonstrates that the CB extended P18.3 million additional financial assistance to the OBM from November 21, 1967 to August 13, 1968, or during the period of almost nine (9) months following the date of the execution of the voting trust agreement.

The crucial portion of the decision relative to the alleged obligation of the CB to "rehabilitate, normalize and stabilize" the OBM is found on p. 16 thereof, the pertinent portion of which reads as follows:

... the record becomes clear that, in consideration of the execution of the voting trust agreement by the petitioner stockholders of OBM, and of the mortgage or assignment of their personal properties to the CB (Res. No. 2015, 16 October 1967, Annex "F", Petition), the CB had agreed to announce its readiness to support the new management "in order to allay the fears of depositors and creditors" (Annex "B"), and to "stave off liquidation" by providing adequate funds for "the rehabilitation, normalization and stabilization" of the OBM, in a manner similar to what the CB had previously done with the Republic Bank (Petition, Annex "G", ante).

While no express terms in the documents refer to the provision of funds by CB for the purpose, the same is necessarily implied, for in no other way could it rehabilitate, normalize and stabilize a distressed bank. (Emphasis supplied)

As I have already stressed, the CB did not commit itself to rehabilitate, normalize and stabilize the OBM. But even assuming that there was in fact such a commitment, it is obvious to me that the same cannot be unqualified. The limits thereof must be ascertained in the light of existing statutes, more particularly, the pertinent provisions of the Civil Code of the Philippines, in relation to the pertinent provisions of the Central Bank Charter.

In this connection, Article 1306 Of the Civil Code provides as follows:

ART. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. (Emphasis supplied)

Thus, assuming that the CB is legally committed under the voting trust agreement to rehabilitated the OBM, any action of the CB in respect thereto must have to be particularly what it can perform within the periphery of the law.

The only way by which the CB can succeed in rehabilitating the OBM, under present conditions, is to extend financial assistance through loans of astronomical magnitude granted to the latter. In this respect, section 90 of the Central Bank Charter provides as follows:

SEC. 90. Emergency loans and advances. In periods of emergency or imminent financial panic which directly threaten monetary and banking stability, the Central Bank may grant banking institutions extraordinary advances secured by any assets which are defined as acceptable security by a concurrent vote of at least five members of the Monetary Board. While such advances are outstanding, the debtor institution may not expand the total volume of its loans or investments without prior authorization of the Monetary Board. (Emphasis supplied)

It would be in palpable violation of the provisions of section 90 if the CB were to grant the OBM further loans and advances, considering that neither the OBM nor its stockholders can put in the required additional capital nor submit collaterals acceptable to at least five (5) members of the Monetary Board. Nowhere in the voting trust agreement is it provided that the CB bound itself to bring about the rehabilitation, normalization and stabilization of the OBM at all cost.

The decision of this Court further states that the CB should rehabilitate the OBM in a manner similar to what the CB had previously done with the Republic Bank. The rationale of this statement, found on p. 15 of the decision, reads:

CB Resolution No. 2015 of 16 October 1967 (Petition, Annex `F'), in addition to requiring a mortgage or assignment of petitioner's personal properties to CB, confirmed the quoted memorandum by requiring the stockholders of OBM to subscribe to an appropriate trust agreement, with the only difference that instead of the Philippine National Bank, the trust would be executed in favor of the CB as trustee "to enable it to reorganize and transfer management to a nominee of the Monetary Board." Two weeks later, on 30 October 1967, after a conference at Malacañang, the CB governor once more wrote to Ramos that the Monetary Board —

decided that, as a measure to stave off liquidation, a voting trust agreement should be executed by you and your family and the corporations controlled by you in favor of the Superintendent of Banks, in an instrument similar to the one executed by stockholders of the Republic Bank in favor of the Philippine National Bank.

The reference to the case of the Republic Bank clarifies the purpose and scope of the demand for a voting trust agreement "as a measure to stave off liquidation"; for it is well-known, and it is not denied, that when the Republic Bank previously became distressed, the CB had advanced funds to rehabilitate it and allow it to resume operating.

The above statements are without support in the record of this case. First: It will be clearly seen that reference was made to the Republic Bank merely for the purpose of describing the "instrument" to be executed by the OBM stockholders (which must be "similar to the one executed by the stockholders of the Republic Bank.") On the basis of such reference, one cannot logically and immediately reach the conclusion that because the instrument (form) may be similar, the obligations (substance) would necessarily be similar, such that if the CB had indeed advanced funds to the Republic Bank, it is likewise obligated to advance funds to the OBM. Second: The statement that "when the Republic Bank previously become distressed, the CB had advanced funds to rehabilitate it and allow it to resume operating," appears to me to be gratuitous. There is nothing in the pleadings which shows as a fact that the CB had advanced funds to the Republic Bank, nor, if it did so, how much and for what specific purposes or ends.

I have earlier stated that the mortgages or assignments of properties to the CB by the OBM stockholders were not a consideration of their entering in to the voting trust agreement. However, the decision appears to imply that the said mortgages were executed by the OBM stockholders because they were "induced" by the CB and "misled" into believing that such conveyances would "stave off liquidation."

The pleadings of the respondent CB have uniformly maintained that the OBM stockholders were required to effect the mortgages in question precisely and solely because of the requirements of section 90 of the Central Bank Charter. The OBM had incurred, long before the execution of the voting trust agreement, overdrawings amounting to tens of millions of pesos; section 90 of the Central Bank Charter requires that these overdrawings be secured by collaterals acceptable to the Monetary Board. On November 20, 1967, the date the voting trust agreement was entered into, the OBM's overdrawings in its clearing account with the CB amounted to P33,624,743.68. Emerito Ramos had been promising the Monetary Board that fresh capital would be put into the bank, but these promises remained unfulfilled, notwithstanding repeated demands made on him by the CB, such that with the revelation of the unrecorded huge deposits in the OBM, it became obvious that Ramos could never fulfill his promises.

Logic cannot sustain the statement that the OBM stockholders were induced into mortgaging their properties for the purpose of staving off liquidation. There was a moral and legal obligation on the part of the OBM to execute such mortgage because of its huge overdrawings which were not secured by sufficient and acceptable collaterals. The CB could legally demand the execution of such mortgages without need of providing any enticement or inducement to the OBM stockholders. It is, therefore, grossly erroneous to state that the execution of such mortgages was the consideration of the voting trust agreement. .

The decision further states that the CB is now reneging on its commitments and on page 22 thereof, observes that the CB excuses itself by pleading that the OBM officers had resorted to non-recording of time deposits in the Bank's books and diverting such deposits to accounts controlled by certain bank officials, and other irregularities.

True it is that, in its pleadings, the CB dwelt lengthily on the irregularities and anomalies, committed by the OBM management. This was done, however, not for the purpose of "excusing" itself from rehabilitating the OBM, but to show the imperativeness of the execution of the voting trust agreement as engendered by the critical condition of the OBM.

I find it difficult to understand, therefore, why the majority of the Court would brush aside as being inconsequential the serious irregularities and anomalies committed by the OBM official's and stockholders, and instead "censure" the CB in deciding to liquidate the OBM.

The decision further observes that "the CB made express representations to petitioners herein that it would support the OBM, and avoid its liquidation if the petitioners would execute (a) the Voting Trust Agreement turning over the management of OBM to the CB or its nominees, and (b) mortgage or assign their properties to the Central Bank to cover the overdraft balance of OBM. The petitioners having complied with these conditions and parted with value to profit of the CB (which thus acquired additional security for its own advances), the CB may not now renege on its representations and liquidation the OBM, to the detriment of its stockholders, depositors and other creditors, under the rule of promissory estoppel."

As may be seen, however, the real situation is widely disparate. The CB required a change of management of the OBM by means of the voting agreement, because it had lost its confidence in the former one and it required the owners of the bank to collateralize all its obligations to the CB because that is what the law ordains. With the putting up of additional capital by the owners of the OBM and the financial assistance extended by the CB in the form of overdrawings in the OBM's clearing account, it was hoped that the OBM would be able to rehabilitate, normalize and stabilize itself. Unfortunately these expectations did not materialize partly because the owners of the OBM failed to produce the needed additional capital and the necessary collaterals for further loans from the CB. As already repeatedly stated, the conveyances of properties made by the petitioners were required by the CB in order to secure the huge amounts of loans and overdrawings which had been advanced to the OBM long before the voting trust agreement was executed.

Under these circumstances, how can it be asserted that the CB is now "estopped" from "reneging" on its promise to rehabilitate, normalize and stabilize the OBM?

The doctrine of "promissory estoppel" is discussed in Corpus Juris Secundum, which, in this connection, states,

Of course, a promise cannot be the basis of an estoppel if any other essential element is lacking ... Justifiable reliance and irreparable detriment to the promisee are requisite factors. (31 C.J.S. 291) .

Certainly the petitioners could not have justifiably relied upon any "promise" of the CB to rehabilitate the OBM, assuming that there was such promise, if in the fulfillment thereof the CB would have to extend further financial assistance in the form of loans, without the requisite corresponding collaterals from the OBM, or to contribute to the capital of the said bank. For these would be in flagrant violation of section 90 and 133 of the Central Bank Charter, which are mandatorily prescriptive, and would in effect compel the CB to dole out public funds in the hundreds of millions of pesos in cynical contravention of the law.

It is, therefore, incomprehensible to me how the doctrine of "promissory estoppel" can be made to apply.

Bad faith and abuse of discretion are imputed by the majority of the Court to the CB for ordering the liquidation of the OBM, in obedience to the mandate of section 29 Of the Central Bank Charter. To demonstrate that this charge is groundless, I quote excerpts (which are self-explanatory) from the memorandum dated July 23, 1968 of the Superintendent of Banks to the Monetary Board. Thus:

... The Bank cannot be rehabilitated unless its operational losses are stopped. As of June 30, 1968, the accumulated losses of the Bank per its books stood at P6.9 million exclusive of estimated losses on loans. In order to at least break even in its operations (that is, that there be no net profit or net loss), the Bank must be able to lend in such a magnitude as to be able to cover the large operational expenses, particularly interest on deposits and borrowings.

... However ... the Bank must put up additional capital in order to meet the requirements of Section 22 of Republic Act No. 337 and to support the necessary expansion in risk assets. Therefore, the fresh funds needed in order to break even in operations must consist not only of borrowed funds but also of additional capital contribution. On this basis, the Bank will need a total of P126.334 million of loanable funds, which must be composed of P40.730 million additional capital (P21.780 million needed for risk assets as of June 30, 1968 plus P18.950 million to support the expansion in risk assets of P126.334 million) and P85.604 million of borrowed funds ...

xxx xxx xxx

And even granting that the Bank can obtain the required loanable funds in order to break even in its operations, it cannot legally invest all the funds unless its capital structure is also increased to support the necessary expansion in risk assets. Section 22 of Republic Act No. 337 requires that the combined capital accounts of a commercial bank shall not be less than 15% of its total risk assets. As of June 30, 1968, the required minimum capital of the bank was P19.142 million while its combined capital accounts per books were only P14.356 million thus showing a capital deficiency of P4.786 million.

After considering (1) the Examiners' provision for estimated losses on the recorded loans and receivables of P13.766 million (exclusive of estimated losses of P13.243 million on `unrecorded' loans and receivables), plus 2(a) the accrued interest on the emergency loans by, and overdrawings with, the Central Bank, and 2(b) penalties payable on deposit reserve deficiencies aggregating P3.228 million, or a total of P16.994 million, all of these not yet taken up in the books, the bank's capital accounts per books of P14.356 million as of June 30, 1968, would be wiped out resulting in an estimated deficiency to creditors of P2.638 million. Since the minimum capital required under Section 22 of Republic Act No. 337 as of June 30, 1968 is P19.142 million, the amount of fresh capital needed to be put up to comply with the minimum capital requirement as of June 30, 1968 would be P21.780 million. In addition, P18.950 million of new capital must be put up by the Bank to support the necessary expansion in risk assets of P126.334 million in order to break even in its operations. Therefore, the total fresh capital which the Bank must put up to meet the requirements of Section 22 of RA No. 337, after considering the estimated losses on loans and other expenses not yet taken up in the books, as well as the necessary expansion in risk assets so as to break even in its operations, would be P40.730 million.

xxx xxx xxx

If the capital structure cannot be strengthened to meet the requirements of Section 22 of RA No. 337, and massive financing cannot be given to enable the Bank to expand its risk assets to the level at which it can break even in operations, then there seems to be no other alternative except to liquidate the Bank under Section 29 of RA No. 265.

Unlike the majority of the Court, I recognize the existence of numerous shifting imponderables always attendant to the superintendence of the banking and monetary systems, the solutions to or resolutions of which lie peculiarly within the expertise of the CB, but assuredly beyond the ken, beyond the competence, of any member of this Tribunal or of even the entire judicial collegium that is the Supreme Court. For my part, I refuse to be simplistic; I dare not substitute my own personal judgments or predilections or predilections for the judicious exercise by the CB of the specialized discretion vested in it by law.

It is thus that I cannot discern what act done or step taken by the CB in relation to the OBM, when tested against the postulates of the law and of public morality, can be condemned as deceptive or oppressive, or as amounting to bad faith or abuse of discretion.

Reference was made in our deliberations on the case at bar to an offer supposedly made by a number of depositors as a partial solution to alleviate the grave situation that now besets the OBM, which in general outline is to the effect that their deposits be converted into shares of stock of the OBM. But I am not told nor does the record anywhere disclose, the names of these venturesome depositors, or the amounts of their respective deposits, or the precise meaning and details of such offer. Verily, everything about this "proposition" is a disembodied blur.

I well understand the overriding concern of the majority of the Court for the plight of the innocent depositors and creditors of the OBM. I share that concern, I, too, want to see all of them retrieve the full face value of their deposits and credits. As it is, the prejudice that they have already suffered is nigh incalculable. The deposits were made and the credits were extended at a time when the foreign exchange rate was four pesos to one US dollar. When these shall be returned, if at all, the rate of exchange will probably have risen to more than the present floating rate of about six and one half pesos to one US dollar, and the purchasing power of the will have been considerably watered down. In the meantime, these depositors and creditors have been, and will continue to be, effectively prevented from investing their OBM money (which has not earned nor is now earning interest) in profitable ventures or stocks. If, on some future but highly uncertain day, fifty percent of such deposits and credits will be returned, the depositors and creditors of the OBM might well regarded what they will get as veritable manna from heaven.

At all events, I should think that if and when the OBM by the grace of the majority opinion, shall have resumed operations, even under the protective solicitude of the CB, the be-all and end-all concern of most of the OBM depositors and creditors will be to extricate from the OBM, soonest possible and not to the last centavo, all their deposits and credits. More likely than not, they will not thereafter — like many perceptive observers on the outside looking in — touch the OBM again, not even with the proverbial ten-foot pole.

Finally, I must articulate a query which, as far as I am able to perceive, the Central Bank has not explored in depth, but which the majority of the Court have apparently confidently answered in the affirmative: In the face of the well-known constraints of public policy and high public morality, is it the real amendment of the Central Bank Charter and other pertinent laws that the Central Bank must run to the total rescue of any and every private banking institution which is in extremis due to causes other than inept but bona fide management?

 

 

 

Separate Opinions

FERNANDO, J., concurring:

In the result primarily on the ground that respondent's arbitrary and improvident exercise of its asserted power in the premises is violative of due process.

MAKALINTAL, J., dissenting:

I fail to see, either from the record of this case or from the opinion of the majority, just how and where respondent Central Bank acted without or in excess of jurisdiction or with grave abuse of discretion so as to justify the writs of certiorari and prohibition granted by this Court; and just how and where said respondent neglected to perform a duty specifically enjoined by law so as to justify the writ of mandamus. To my mind the acts complained of in the petition, namely, Resolutions Nos. 1263 and 1290, passed by the Monetary Board on July 31 and August 1, 1968, respectively, were, if anything, a judicious exercise of discretion for the purpose of carrying out the policies laid down by the Central Bank Act with respect to supervision over the operation of private banking institutions and this Court, by issuing the writs prayed for, has substituted its own judgment for that of the Monetary Board in a matter that is peculliarly within the competence of the latter.

The thrust of the decision, as far as I can make out, is that the Voting Trust Agreement of November 20, 1967 created contractual obligations, with which "respondent Central Bank of the Philippines is directed to comply ." The directive does not specify what those obligations are. The principal stipulation in the agreement is simply what its title indicates: petitioners here, referred to as the Cestuis Que Trust, assign to the Trustee "for such purpose" the voting rights to all their shares of stock in the Overseas Bank of Manila, subject to certain conditions thereafter stated. The purpose envisaged is expressed in the first of the two "WHEREAS" clauses of the agreement, to wit: "the abovenamed stockholders (petitioners here) believe that it is for and/or in the interest and benefit of the bank's depositors, creditors and stockholders that this trust agreement should be entered into by them for the rehabilitation, normalization and stabilization of the Overseas Bank of Manila."

It seems, from a reading of the decision of this Court, that the purpose for which the Voting Trust Agreement was entered into — more accurately, the goal sought to be achieved is mistaken for the obligation thereunder, and that such obligation devolves not upon the Trustee, the Superintendent of Banks, but upon the Central Bank itself, which is not a party to the agreement. Be that as it may, the agreement contains an optional rescission clause, which is only logical, since the feasibility of rehabilitating, normalizing and stabilizing the Overseas Bank, which was then in extremely distressed circumstances, would depend upon many factors which could not be predicted with mathematical certitude, but only upon a reasonably considered projection of future probabilities. Thus while the life of the agreement would be for three years from the date of its execution, it was provided expressly "that the Trustee may, at its option, relinquish the trust, upon approval of the Monetary Board."

Resolution No. 1263, adopted July 31, 1968, excluded the Overseas Bank, then under trusteeship, from clearing with the Central Bank, effective immediately. Resolution No. 1290, adopted the next day, granted authority to the Board of Directors of the Overseas Bank to suspend operations pending final action by the Monetary Board. Such final action was evidently meant to be in connection with the recommendation submitted by the Superintendent of Banks to the Monetary Board on June 23, 1968, which reads in part as follows:

After considering (1) the Examiners' provisions for estimated losses on the recorded loans and receivables of P13.766 million (exclusive of estimated losses of P13.243 million on "unrecorded" loans and receivables), plus 2(a) the accrued interest on the emergency loans by, and overdrawings with, the Central Bank, and 2(b) penalties payable on deposit reserve deficiencies aggregating P3.228 million, or a total of P16.994 million, all of these not yet taken up in the books, the bank's capital accounts per books of P14.356 million as of June 30, 1968, would be wiped out resulting in an estimated deficiency to creditors of P2.638 million. Since the minimum capital required under Section 22 of Republic Act No. 337 as of June 30, 1968 is P19.142 million, the amount of fresh capital needed to be put up to comply with the minimum capital requirement as of June 30, 1968 would be P21.780 million. In addition, P18.950 million of new capital must be put up by the Bank to support the necessary expansion in risk assets of P126.334 million in order to break even in its operations. Therefore, the total fresh capital which the Bank must put to meet the requirements of Section 22 of R.A. No. 337, after considering the estimated losses on loans and other expenses not yet taken up in the books, as well as the necessary expansion in risk assets so as to break even in its operations, would be P40.730 million.

xxx xxx xxx

If the capital structure cannot be strengthened to meet the requirements of Section 22 of R.A. No. 337, and massive financing cannot be given to enable the Bank to expand its risk assets to the level at which it can break even in operations, then there seems to be no other alternative except to liquidate the Bank under Section 29 of R.A. No. 265. The Bank's continuance in business under its present extremely precarious financial condition, without the necessary capital injection and financial aid, will involve not merely probable, but certain, further losses to its depositors and other creditors and may have further adverse effects on the banking system.

In the situation depicted by the Superintendent of Banks, which in his opinion presented no other alternative except to liquidate the Overseas Bank pursuant to Section 29 of Republic Act No. 265 (Charter of the Central Bank), the adoption of Resolutions Nos. 1263 and 1290 was not, in my opinion, a violation of the Voting Trust Agreement, much less an abuse of discretion on the part of the Monetary Board.

In a sense the issue with respect to the aforesaid resolutions has become moot and academic in view of the fact that on August 13, 1968, after the instant petition was filed, the Monetary Board adopted Resolution No. 1333, wherein it decided as follows:

(1) To forbid the Overseas Bank of Manila to do business in the Philippines;

(2) To instruct the Superintendent of Banks to take charge, in the name of the Monetary Board of the bank's assets;

(3) To instruct the Superintendent of Banks to take such further action as may be necessary pursuant to Section 29 of Republic Act No. 265; and

(4) To refer the said memorandum report of the Superintendent of Banks as well as previous pertinent reports of the examiners of the Department of Supervision and Examination, particularly those pertaining to unrecorded certificates of time deposits bearing the signatures of former officers of the bank, to the Central Bank Legal Counsel for appropriate legal action.

The adoption of Resolution No. 1333, it seems to me, should remove the present controversy from this Court — if it was properly here at all in the first place, which I doubt — and address it to the Court of First Instance pursuant to Section 29 of the Central Bank Charter, which provides:

SEC. 29. Proceeding upon insolvency. — Whenever, upon examination by the Superintendent or his examiners or agents into the condition of any banking institution, 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 Superintendent forthwith, in writing, to inform the Monetary Board of the facts, and the Board, upon finding the statements of the Superintendent to be true, shall forthwith forbid the institution to do business in the Philippines and shall take charge of its assets and proceeds according to law.

The Monetary Board shall thereupon determine within thirty days whether the institution may be reorganized or otherwise placed in such a condition so that it may be permitted to resume business with safety to its creditors and shall prescribe the conditions under which such resumption of business shall take place. In such case the expenses and fees in the administration of the institution shall be determined by the Board and shall be paid to the Central Bank out of the assets of such banking institution.

At any time within ten days after the Monetary Board has taken charge of the assets of any banking institution, such institution may apply to the Court of First Instance for an order requiring the Monetary Board to show cause why it should not be enjoined from continuing such charge of its assets, and the court may direct the Board to refrain from further proceedings and to surrender charge of its assets.

If the Monetary Board shall determine that the banking institution cannot resume business with safety to its creditors, it shall, by the Solicitor General, file a petition in the Court of First Instance reciting the proceedings which have been taken and praying the assistance and supervision of the court in the liquidation of the affairs of the same. The Superintendent shall thereafter, upon order of the Monetary Board and under the supervision of the court and with all convenient speed, convert the assets of the banking institution to money.

My misgiving as to the propriety of the remedy sought by petitioners is that it is essentially for the enforcement of an alleged contract, presented in the guise of a petition for certiorari, prohibition and mandamus. This is borne out by the decision of this Court, which directs the Central Bank "to comply with its obligations under the Voting Trust Agreement, and to desist from taking any action in violation thereof." It is to be noted that noted that no "act which the law specifically enjoins as a duty resulting from an office, trust, or station" is ordered to be performed. Compliance with contractual obligations is beyond the purview of mandamus, and original jurisdiction over an action for that purpose pertains to the Courts of First Instance. Such an action is a plain, speedy and adequate remedy in the ordinary course of law which, being available to petitioners, should bar the present recourse to the extraordinary writ of mandamus, especially because certain vital facts are controverted by the parties, such as the outstanding liabilities which can not be paid by the Overseas Bank, the value of the properties mortgaged to the Central Bank by petitioners, the extent of the loans secured by the mortgage, and the amount of money which the Central Bank is supposed to advance in order to comply with its supposed undertaking to rehabilitate, normalize and stabilize Overseas Bank. Curiously enough, as already noted, the decision of this Court merely directs compliance with the Voting Trust Agreement without specifying — if indeed what is implied is the rehabilitation of the Overseas Bank — just what should be done to achieve that goal, or just how many millions of pesos the Central Bank must continue to pump into the Overseas Bank in order to put it in its feet again. It is no idle speculation to say that the writs granted by this Court may raise more questions than they answer.

With particular reference to the mortgages executed by petitioners, they say the same were a consideration of the Voting Trust Agreement. Respondent Central Bank denies this and maintains that the mortgages were constituted as security for "the huge amounts of emergency loans and overdrawings advanced in the clearing house to the OBM by the Central Bank." The Voting Trust Agreement itself is silent on the point. My own reading of the record convinces me of the correctness of the position of the Central Bank. In any case, considering the existence of a substantial disagreement on this point, not only between the parties but also among the members of this Court, the issue could best be resolved in an ordinary action, either for specific performance as hereinbefore indicated or for rescission of the mortgages and the reconveyance of the mortgaged properties to petitioners. For the resolution of this issue I believe that this Court is not the proper forum in the first instance, nor the present petition the proper vehicle.

Going back to Section 29 of Republic Act No. 265, it may be noted that what the Central Bank did, including its suggestion that a Voting Trust Agreement be executed, was in accordance with its powers and duties under the said section. Whenever a banking institution is in a state of insolvency the Monetary Board shall determine whether it "may be reorganized or otherwise placed in such a condition so that it may be permitted to resume business with safety." A Voting Trust, such as that which was entered into in the case of the Overseas Bank, is certainly one of the measures which may be adopted for that purpose. The rehabilitation of the distressed institution is the primary goal of the authority given to the Monetary Board, and there is nothing so sacrosanct in a voting trust agreement, or in the use of the word "rehabilitate" therein, that once it is executed the Central Bank is thereby bound to see the rehabilitation" through as an ordinary contractual commitment, no matter how costly and impractical it may prove. For Section 29 also provides that "if the Monetary Board shall determine that the banking institution cannot resume business with safety to its creditors, it shall, by the Solicitor General, file a petition in the Court of First Instance reciting the proceedings which have been taken and praying the assistance and supervision of the Court in the liquidation of the affairs of the same." This was precisely the step contemplated by the Monetary Board when it passed Resolution No. 1333 on August 1968, and any questions concerning its validity, in my opinion, should be raised in a proper case as authorized in the said provision.

In view of the foregoing considerations, I vote to deny the writs prayed for and to dismiss the instant petition.

CASTRO, J., concurring:

Like Mr. Justice Querube C. Makalintal, in whose dissent I concur fully, I am in sharp disagreement with the conclusions reached by the majority of the Court.

Before I state my reasons, which will be extensively discuss in seriatim farther below, it is well that we get a general picture of (a) the overdrawings incurred by the Overseas Bank of Manila in its clearing account with the Central Bank up to August 13, 1968 when the liquidation of the Overseas Bank was ordered by the Central Bank, and (b) the fraudulent transactions perpetrated in the operations and management of the Overseas Bank. These are summarized by the Superintendent of Banks, as follows:

1. Advances granted to TOBM by way of overdrawings in 1967 thru 1968

The Overseas Bank of Manila had been chronically overdrawn in its current account since 1967 thru 1968. However, these overdrawings were made good before clearing time by means of cash deposit, call money or sale of dollar drafts. It was sometime in September, 1967 that it failed to cover the overdrawings. [The overdraft which amounted to P16,116,890.06 as of September 29, 1967 increased to P51,925,381.90 as of August 13, 1968.]

On September 29, 1967, the Monetary Board in its Resolution No. 1890 enjoined TOBM not to allow overdrawings amounting to P16.4 million to deteriorate any further.

On October 16, 1967, the Monetary Board in its Resolution No. 2015, among others, required Mr. Ramos, Sr. to submit a listing of his properties and to mortgage or assign the same to cover the overdraft balance therewith of TOBM and not to exclude TOBM from clearing. On October 16, 1967, date the listing of the alleged P100 million collateral was submitted, TOBM's overdrawings of its clearing account with CB totalled P22.333 million.

On November 20, 1967, date the Voting Trust Agreement was executed between the Superintendent of Banks and Emerito M. Ramos, Sr. et al., the bank's overdrawings amounted to P33,624,743.68. During this period [from November 20, 1967 to July 26, 1968] it will be noted that the collateral position of the Central Bank on loans granted to TOBM by way of overdrawings, showed consistent net collateral deficiency, taking into consideration, appraised value of collateral documents and even at the higher of PNB or DBP appraised values. When finally the registration of the mortgages was almost complete, on July 23, 1968, the Monetary Board decided to consider a liberal loan value of 90% on the average of PNB and DBP market values.

2. Monetary Board decisions showing real intention in requiring collateral from M. E. M. Ramos, Sr. et al.

From the various Monetary Board decisions and reports, there was no doubt that the requirement for Mr. Emerito M. Ramos, Sr. et al. to put up the collateral was for the purpose of securing the unsecured obligation of TOBM with the Central Bank, by way of overdrawings in the clearing account. Records show that Central Bank made this known to TOBM and Mr. Ramos, Sr. all along from the very beginning.

a) No. 1735 dated September 8, 1967 — To require TOBM to mortgage the Padre Faura property to the Central Bank to secure the unsecured advances given thereto especially by way of overdrawings. (Transmitted to TOBM per DSE letter dated September 14, 1967.)

b) No. 1890 dated September 29, 1967 — After noting the report on the disclosure of transactions at TOBM which had neither been incorporated in the books of said bank nor reported to its board of directors, the Monetary Board enjoined TOBM not to allow the overdrawings of its clearing account with CB amounting then to P16.4 million, to deteriorate any further; and required the TOBM to immediately mortgage to CB all other available properties of Mr. E. M. Ramos and family in order to secure the unsecured advances given to said bank especially by way of overdrawings.

(Transmitted to TOBM per DSE letter dated October 1967.)

c) No. 1918 dated October 3, 1967 — Monetary Board instructed management to exert every effort to obtain collateral to secure the unsecured liabilities of TOBM to CB.

d) No. 1975 dated October 10, 1967 — Monetary Board instructed management to continue with its efforts to obtain additional collateral to secure the unsecured liabilities and for the protection of other creditors/depositors thereof.

e) No. 2014 dated October 14, 1967 — To effect the registration of the second mortgage on Xavierville Estate.

f) No. 2015 dated October 16, 1967 — To require Mr. Emerito M. Ramos, Sr., to submit a listing of his property and to mortgage and assign the same to the Central Bank to cover the overdraft balance of TOBM. (Transmitted to TOBM per DSE letter dated October 19, 1967.)

g) No. 2017 dated October 17, 1967 — Instruction to the Central Bank Legal Counsel to proceed immediately with the registration of the second mortgage on the Xavierville Estate in favor of the Central Bank; and thereafter, to obtain the consent of the majority of the stockholders of the Xavierville Estate, Inc. to a second mortgage in appropriate resolution approved at a regularly called stockholders' meeting; and to assign one or more lawyers for the particular purpose of (a) seeing to it that the Central Bank obtain a lien on as many properties (real or personal), including shares of stock (the corresponding certificate of which be delivered to the Central Bank) and other assets in the name of Mr. Emerito M. Ramos, Sr. and members of his family, as can be obtained, amounting to at least P100 million as represented by Mr. Ramos; and (b) drawing up and registering with the Register of Deeds of the necessary documents establishing the liens of the Central Bank on such properties.

To the Acting Superintendent of Banks — To obtain information on as many more properties as possible (including shares of stocks) in the name of Mr. Ramos and members of his family as are not included in a list submitted by Mr. Ramos on October 16, 1967, so that the Central Bank can obtain a lien thereon.

h) No. 2132 dated November 3, 1967 — Monetary Board instructed management to write a letter to TOBM to reiterate CB's demand for additional collateral to secure the unsecured liabilities of the TOBM to CB and for the protection of the other creditors and depositors. (Letter of Governor dated November 6, 1967 sent.)

i) Memorandum to Monetary Board of Acting Superintendent of Banks on the matters taken up in the conference held with Mr. E. M. Ramos, Sr. and Mr. M. Oliva on October 23, 1967 disclosed that the Governor impressed upon Mr. Ramos the imperativeness of his putting up of adequate collaterals to fully secure present CB advances and before the CB can even consider the extension of additional advances to TOBM.

One specific resolution to this effect was M. B. Resolution No. 2210 dated November 17, 1967 wherein the Board instructed management to acknowledge the letter dated November 17, 1967 of the Auditor of the Central Bank inviting attention to the increasing trend in the overdraft of TOBM with the CB amounting to P32,210,242.21 as of November 16, 1967; to advise the Auditor General and the CB Auditor that documentation is now being undertaken of the mortgages covering the properties (allegedly worth P100 million) offered by Mr. Emerito M. Ramos, Sr. to secure the unsecured liabilities of TOBM to the CB; and to transmit copies of the aforesaid 1st Indorsement of the Auditor General and the letter of the CB Auditor to the Board of Directors of TOBM and to require the said bank to explain why it should not be excluded from CB clearing.

3. Fraudulent transactions

a) Extent of the fraudulent transactions made known to the Central Bank

In a letter dated September 25, 1967, Mr. Martin R. Oliva, then TOBM President, made a disclosure to the Acting Superintendent of Banks, certain transactions amounting to P48 million which have not been incorporated in the books of TOBM and not reported to its Board of Directors.

In addition to these transactions, a number of regular accounts were manipulated by top officers of TOBM whereby bank funds amounting to about P38 million (net) were channeled to various interests. These manipulated accounts were reinstated in the books of the bank through a series of adjustments and accounting entries passed upon by the bank in September 1967.

The consolidated trial balance of these two sets of transactions as prepared by TOBM Acting Assistant Accountant follows:

Consolidated Trial Balance
As of September 22, 1967
___________________

	Debits	Credits
Accounts Receivable	P25,235,721.34
Bills Discounted	419,989.27
Time Loans	4,764,968.59
Special Overdrafts	12,502,521.38
Expenses	4,492,498.47
Suspense Account in Liquidation	38,858,797.87
Time Deposits		P44,110,563.45
Accounts Payable		1,086,566.03
Cashier's Checks		2,020,000.00
Acceptances Payable		1,100,000.00
Earnings		644,587.00
Overdrawings C/A #1198		2,933,646.78
Demand Deposits		12,107,517.78
Savings Deposits		10,005,080.54
Bills Payable		1,500,000.00
Due to Branches		3,584,004.28
Domestic Bills Purchased (Payable)		6,177,451.44
Accrued Interest Receivable		1,005,079.62
	____________	___________
	P86,274,496.92	86,274,496.92

The loans and other receivable accounts shown in the above trial balance were without any loan papers and collaterals, thus their collections would be extremely difficult and hopeless to pursue. On the other hand, the liabilities, including the `unrecorded' time deposits which were ruled as liabilities of the bank, in an opinion rendered by the Secretary of Justice, were properly documented and therefore actual liabilities of the bank.

The bulk of the loans and other receivable accounts were in the name of Ramoses and their various business interests. The Suspense Account in Liquidation amounting to P38.8 million, however, could not be accounted for, but verification of the fraudulent transactions, based on available documents/records tends to show that said account represents funds channeled to the benefit of the Ramoses and their business interests. However, there was no acknowledgment on their part to this effect.

b) Extent of verification

Verification of the above transactions has been temporarily suspended in view of lack of bank examiners. However, even with the resumption of verification, a complete reconstruction and documentation thereof are highly improbable because so many bank records are missing in the bank's files. Besides, it will take a considerable length of time, considering that the manipulations, involved thousands of transactions and verification requires the tracing of every single transaction to a number of records. Moreover, verification is made doubly difficult by the fact that so many entries in the deposit/withdrawal sheets were fictitious, alongside with the genuine ones, and the examiners had to follow the trial and error method in tracing the entries. One type of manipulation alone was done daily, with so many deposit accounts involved on a single day and this covered a period of two (2) years more or less.

c) Modus operandi for the fraudulent transactions

The "modus operandi" or mode of operation employed the opening of current or checking accounts with the bank, the signatories of which were Emerito B. Ramos, Jr. and a few selected officers.

1) Current Account No. 1198 — EMRACO with the following authorized signatures:

(a) Emerito B. Ramos, Jr. — Executive Vice President & Treasurer

(b) Rodrigo Recto — Assistant Vice President & Cashier

(c) Rodolfo R. Sunico — Vice President & Chief Accountant

(d) Manuel Moje — with the Office of the Executive Vice President

2) Current Account No. 1198-A — General Fund with no known authorized signatures.

3) Current Account No. 1920 — COFICO SPECIAL ACCOUNT NO. 2 with the following authorized signatures:

(a) Emerito B. Ramos, Jr. — Executive Vice President & Treasurer

(b) Rodolfo R. Sunico — Vice President & Chief Accountant

These fraudulent and highly devious operations involving a staggering amount of P86 million were perpetrated under two general schemes:

1) Moneys of depositors received by the bank as time deposits or in exchange for banker's acceptances and cashier's checks were not recorded in the books of the bank as money owned or liability of the bank to the depositors/creditors. Instead, the money received were recorded as deposits to Current Account No. 1920. As mentioned above, these transactions, known as "unrecorded transactions", involved P48 million.

2) The second scheme involving about P38 million as of September 30, 1967 is subdivided into three operations, namely:

(a) "Segregated accounts" — Ledger cards showing the balances of the deposits of either current, time or savings account depositors, usually with large balances, were removed from the respective files of depositors. Withdrawals were effected on these ledger cards without the knowledge or consent of the depositors. The aggregate amount illegally withdrawn was then shown as deposits to Current Account No. 1920, 1198, or 1198-A.

(b) "Diverted accounts" — Funds properly belonging to the bank were credited or shown as deposits to Current Account No. 1198 or 1198-A. Examples: (1) Payments made by La Suerte Cigar and Cigarette Co. of P6.25 million on its loan with the bank was recorded as deposit to Current Account No. 1198, instead of crediting the account of the debtor. The amount paid properly belong to the bank. (2) Call loans obtained from other banks were also credited to the current accounts controlled by the officers of TOBM. (3) Remittances from other banks for the account of a TOBM branch were likewise not shown in the books as such but instead credited to the current accounts owned/controlled by the officers.

(c) "Fictitious/simulated entries" — Books were made to show that funds were transferred from branches to Head Office (no actual fund transfer) and credited to current accounts owned/controlled by officers of TOBM. Checks were drawn by Ramos corporations against their unfunded current accounts. These checks were held up as asset accounts of TOBM and credited again to the current accounts owned/controlled by officers of TOBM.

As fast as funds were received under either the "unrecorded transactions" or "segregated/diverted" schemes, loans were surreptitiously granted to the various firms/corporations, owned or controlled by Mr. Emerito M. Ramos, Sr., and members of his family, numbering twenty-seven (27), twelve (12) of which were established from 1964 to 1967, and also to other borrowers.

As a means of control and accounting of this clandestine financing operations, Messrs. Emerito B. Ramos, Jr. and Rodolfo R. Sunico, ably assisted by trusted employees, designed and maintained a separate book of accounts accessible only to them and to nobody else.

Since the nucleus of the anomalous transactions was linked to the deposit accounts, Mr. Emerito B. Ramos, Jr. and his men availed fully of the protective mantle of the provisions of R.A. No. 1405 which prohibits the disclosure of any information on deposit accounts even to bank examiners, and thus the perpetrators were able to amass an enormous amount of P86.129 million as of September 30, 1967 which they appropriated for their various firms/corporations and partially to other borrowers, in wanton disregard of banking laws, rules, regulations and orders legally issued by the Central Bank, never before recorded in the annals of banking in the Philippines.

In addition to the above, Emerito B. Ramos, Jr., Executive Vice President and Treasurer, during the time that he was on an indefinite leave of absence from May 1967, and therefore no longer authorized to sign for the bank, still received funds and issued TOBM certificates of time deposit and banker's acceptances in the aggregate amount of P2.02 million. Naturally, these amounts were not recorded in the regular books of the bank nor in the separate set of books, and the proceeds thereof were pocketed by Mr. Ramos, Jr.

4. Loans to the Ramoses

As of July 31, 1967 (date of latest regular examination of TOBM), the total outstanding loans and advances to the Ramos/family/enterprises aggregated P29.086 million, representing 41.18% of the total loan portfolio (recorded or regular loans) of P70.633 million.

On September 25, 1967, Mr. Martin R. Oliva, then TOBM President, disclosed the so-called unrecorded transactions. He first reported that as per tentative trial balance as of September 13, 1967, the total unrecorded transactions totalled P48.007 million. However, as of September 30, 1967, after certain adjustments/entries have been passed, the total amount of unrecorded/diverted/segregated accounts totalled P86.129 million. From discussions of manipulation above, these funds were channeled to current accounts controlled by the E. M. Ramoses and were withdrawn or spent according to their pleasure.

Certain properties of the Ramoses were offered to the bank on a "dacion en pago" arrangement in the total amount of P30.6 million and were applied to the outstanding loans and obligations (both recorded and unrecorded loans) of the Ramoses. However, even with the application of the proceeds of these properties offered to TOBM, the outstanding loans of the Ramoses/family/enterprises still stood at an enormous amount of P72.150 million (both recorded and unrecorded) or 58.90% of the total loans of P122.502 million (both recorded and unrecorded) as of June 30, 1968 summarized below:

Outstanding Loans and Advances (Recorded & Unrecorded)

(As of June 30, 1968)
(In Millions)

	Recorded	Unrecorded	Total
	% to	% to	% to
SUMMARY:	Amount Total	Amount Total	Amount Total
Total loans and advances
and other amounts to be
accounted for by E. M.
Ramos, Sr./family/enterprises	P19.100 37.95%	P53.050 73.50%	P72.150 58.90%
Loans and advances to
parties other than the Ramos
family/enterprises	31.230 62.05%	19.122* 26.50%	550.352 41.10%
Total Outstanding Loans
& Advances	P50.330 100.00%	P72.172 100.00%	P122.502 100.00%

* While these were shown as having been lent to third parties, promissory notes were not presented to indicate indebtedness of third parties. Considering that these amounts were derived from funds channeled to the current accounts of the Ramoses and were granted by them to third parties, these amounts could very well be amounts that will also have to be accounted for by E.M. Ramos, et al.

My fundamental purpose in quoting in full the above narration is to project the importance of certain facets of this case which were accorded only scant attention or consideration in the majority opinion, and with reference to which I entertain a perspective different from that of the majority.

On the basis thereof and of other facts which I will advert to in the course of my discussion, I now proceed to explain the reasons for my dissent, as well as refute certain arguments advanced and specific conclusions reached in the main opinion.

Briefly stated, my reasons are as follows:

1. The Central Bank (hereinafter referred to as the CB) is without power, under the law, to enter into the voting trust agreement in question, as this agreement is construed by the majority.

2. Even assuming that the CB is legally a party thereto, (a) the said agreement expressly gave the Monetary Board authority to terminate the same at any time; (b) no express and definite commitment was therein made that the CB will extend further extraordinary financial assistance to the Overseas Bank of Manila (hereinafter referred to as the OBM); (c) contrary to the assertion that the CB has reneged on its "promise" under the said agreement, the CB has taken the necessary steps, consistent with law, to rehabilitate the OBM; and (d) the CB cannot be expected, legally and morally, to continue supporting the OBM at any and all cost.

The basic assumptions of the majority opinion, vis-a-vis the CB's being a privy to the voting trust agreement, are as follows:

(a) The CB rather than the Superintendent of Banks is the real party thereto because the latter is a mere officer of the CB acting under its orders.

(b) The CB had executed certain acts which indicate that it is the real party to the said agreement. Thus, it is said that the CB, from the very start, had insisted upon the execution of the said agreement; had caused the nomination of the team that took over the management of the OBM; had given notice that the agreement in question will no longer be renewed or extended, which, consequently, led to the promulgation of Resolution No. 1333 on August 13, 1968 ordering the Superintendent of Banks to proceed to liquidate the OBM under section 29 of the Central Bank Act.

(c) By "promising" to work for the rehabilitation, normalization and stabilization of the OBM to stave off its liquidation, the CB, in effect, impliedly obligated itself to finance the funding requirements of the OBM until these objectives are attained within the term stated in the voting trust agreement.

In my view, even if it were assumed that the intention of the CB authorities relative to the said voting trust agreement was to make the CB a party thereto, its validity and binding effect upon the CB are not legally possible since under the said agreement the CB would not only be acquiring the legal title, including voting rights, over the shares of stock of the petitioners in the OBM, but it would also be actually directing the management and operation of the bank-powers and prerogatives the acquisition of which by the CB is expressly prohibited by law. Section 133 of the Central Bank Act states:

Sec. 133. Prohibitions. — The Central Bank shall not acquire shares of any kind or accept them as collateral, and shall not participate in the ownership or management of any enterprise, either directly or indirectly.

Section 27 of the Central Bank Act explicitly prohibits the Superintendent of Banks from exercising the powers granted under the said voting trust agreement. Thus:

Sec. 27. Prohibition. — The Superintendent and all employees of the Department of Supervision and Examination are hereby prohibited from:

(a) Being an officer, director, employee or stockholder, directly or indirectly, of any institution subject to supervision or examination by the department.

Obviously, by virtue of the clear and unmistakable constraints described in the foregoing provisions of the CB Charter, the alleged intent of the CB authorities to be bound by the terms of the said voting trust agreement cannot but be interpreted as having been pursued under a clear misapprehension if not direct disregard, of the law. On this point, it appears to me to be well settled in our jurisdiction that the Government (and the CB is an instrumentality of the Government) is never estopped by the mistake or error of its agents. And since estoppel cannot give validity to an act that is prohibited by law or contrary to public policy, the CB cannot consequently be bound by any action — diametrically contrary to what the law prohibits (such as those found in sections 27 and 133 of the CB Charter) — which may be executed on its behalf by its agents, such as the Monetary Board. (See Eugenie vs. Perdido, L-7083, May 19, 1955; Benguet Consolidated Mining Co. vs. Pineda, L-7231, March 28, 1956; Bachrach Motor Co. vs. Unson, 50 Phil. 981; San Diego vs. Municipality of Naujan, Oriental Mindoro, L-9920, February 29, 1960; also 10 Am. Jur. 802).

Because the voting trust agreement ascribes to the Monetary Board certain duties and grants it certain powers, the majority opinion used this as one of the reasons to support the conclusion that the CB is a real contractual party to the agreement. I view the matter differently. As I see it, the agreement is between the OBM and the Superintendent of Banks only. Nowhere within the four corners thereof do I find any statement that, the CB is a contractual party thereto. The majority opinion loses sight of the fact that in the matter of the regulation of the banking and monetary systems of this country, the CB, as the "bank of banks," is given-all-embracing powers of supervision and superintendence. In the situation that the OBM has found itself, it was incumbent upon the CB to exercise these powers. If the agreement contains express reference to the Monetary Board it is because the OBM and the Superintendent of Banks, by themselves alone, without any assist from the CB, would be completely incapable of rehabilitating, normalizing and stabilizing the OBM. The agreement is much more than an ordinary contract between two private parties; it is a covenant unavoidably impressed with public policy: the stability of the banking and monetary systems. It must therefore be regarded, properly speaking, as one in which the provisions of the CB Charter and other pertinent laws are deemed perforce incorporated. As a matter of fact, even if there were no mention at all of the Monetary Board in the agreement, still the execution thereof would, by compulsion of the provisions of the Central Bank Charter, require direct supervision and superintendence by the CB.

Whether the Monetary Board, in requiring the execution of the trust agreement, had in mind section 29 of the Central Bank Act or any of the general corporate powers vested in it by section 4 of the same Act, or what it honestly felt was its duty under the law "to maintain monetary stability in the Philippines" (section 2, CBA), and, in the discharge thereof, to make available its credit facilities "to regulate the volume, costs, availability and character of bank credit and to provide the banking system with liquid funds in times of need" (section 86, CBA), and "ensure that the supply, availability and cost of money are in accord with the needs of the Philippine economy and that bank credit is not granted for speculative purposes prejudicial to the national interests (Section 108, CBA), still the inescapable conclusion remains, by virtue of the statute's prescribing the principles that should guide, and the objectives that should be pursued by, the CB, that the Monetary Board required the execution of the voting trust agreement not for the purpose of binding the CB as a contracting party, but solely to fulfill its statutory obligation to superintend the banking system and forestall the occurrence of conditions that effectively lead to financial panic or that threaten monetary and banking stability.

The law as well as the situation in extremis of the OBM by 1967, therefore, called for the monetary authorities to act, and act they did, by conscientiously attempting to eliminate the reported (at least, what they believed to be) causes of the bank's deterioration, by requiring the management of the bank to be passed onto new and trusted hands. But the said action, as I have stated earlier, was exercised for no other reason than to comply with the CB's statutory duty to manage and administer the banking and monetary systems of the country.

I now proceed to discuss my second fundamental reason for this dissent. Assuming that the CB is legally a contracting party to the voting trust agreement, (a) the said agreement expressly gave the Monetary Board authority to terminate the same at any time; (b) no express and definite commitment was therein made that the CB would extend further extraordinary financial assistance to the OBM; (c) contrary to the assertion that the CB has taken the necessary steps, consistent with law, to rehabilitate the OBM; and (d) the CB cannot be expected, legally and morally, to continue supporting the OBM at any and all cost. Although I have divided this reason into foul parts, I will discuss all of these parts together as they are inextricably intertwined.

By its very terms, the agreement could be terminated at any time at the option of the Monetary Board.

The stipulated life span of the said agreement is stated in the following words:

1. That the life of this trust agreement shall be for a period of three years commencing from the date of the execution of this contract, provided, however, that the TRUSTEE may, at its option, relinquish the trust, upon approval of the Monetary Board, and provided, further that if, at the expiration of the three-year period, the purposes for which this trust agreement has been constituted have not, as yet, been fully achieved, this trust agreement shall then be considered automatically extended for such further period to be determined by the Monetary Board, similarly terminable within such further period also at the discretion of the Monetary Board. It is further agreed that if the condition of the Overseas Bank of Manila so warrant, the CESTUIS QUE TRUST may request the Monetary Board for the earlier termination of this agreement.

Without having to turn the mentioned stipulation inside out, it is unmistakably clear that under the unambiguous specific language used, the CB was not absolutely bound thereunder to any specific period during which it must restore the OBM to its feet. For, while the opening portion of the said stipulation states that the trust agreement shall be for a 3-year period, this term is, however, explicitly made subject to the condition that the "TRUSTEE may, at its option, relinquish the trust." If, as the majority opinion says, the resolutions in question contradict the "promise" of the CB that it will rehabilitate, restore and stabilize (to stave off the liquidation of) the OBM, then I can see no other conclusion but that the CB had thereby relinquished the said trust. The said trust agreement having been thus rescinded, I cannot see how the CB, in adopting the said resolutions, can be accused of having acted in "abuse of discretion equivalent to excess of jurisdiction.".

Undue emphasis and reliance are placed by the majority opinion upon the argument that under the voting trust agreement in question the CB was obligated "to act and work for the "rehabilitation, normalization and stabilization" of the Overseas Bank of Manila, through the extension of adequate and necessary financial instance to stave off liquidation" — an argument which, in my view, entirely fails to consider that there are contractual and statutory, if not administrative as well as market, constraints to what the CB can do in the matter of assisting banks in extremis.

A reading of the scope of the powers and authority granted to the CB under the voting trust agreement provides the first step in an analysis of the contractual and legal constraints under which the OB must operate. The relevant stipulation of the said agreement recites:

3. During the life of this trust agreement the trustee shall have all and full authority, subject only to the limitations set by law and other conditions set forth therein: to direct the management of the affairs and accounts and properties of the Overseas Bank of Manila; to vote its directors and to choose the officers and employees giving due consideration to the suggestions of the cestui que trust for the employment and retention of qualified, competent and reputable persons who enjoy their confidence; to improve, modify, reorganize its operation, policies, standards, systems, methods, structure, organization, personnel, staffing, pattern, etc.; to hold and vote on the shares of stocks transferred to him as trustee; to safeguard the interests of depositors, creditors and stockholders; and in general to exercise all such powers and discharge all such functions as inherently pertain to the cestui que trust as owners, and/or for the sound management of a banking institution.

The aforementioned stipulation sets forth with definiteness and specificity the scope and reach of the alleges obligation f the CB to work for the "rehabilitation, normalization and stabilization of the Overseas Bank of Manila" under the voting trust agreement. By virtue of the said stipulation, the trustee's only duty and authority is to manage the affairs of the OBM in a manner beneficial to the bank, its equity owners, depositors and creditors. Nowhere does it appear in the said stipulation nor in any portion of the said voting trust agreement (which them majority opinion considers as the law between the parties) that the CB must pump money into the coffers of the OBM for its "rehabilitation, normalization and stabilization." Indeed, considering the precarious position of the OBM, the subsequent takeover by the CB (through its nominees) of its operations constitutes full compliance with its duty under the said agreement. For, it must be noted that the take-over of the OBM's operations was induced by the CB's considered belief, through reports submitted by its examiners, that the principal stockholders of the bank were misusing and fraudulently diverting for personal purposes the funds and assets of the bank to the detriment of its other stockholders and its creditors and depositors — a belief which is not unfounded. The majority opinion itself states that the OBM (a) had overdrawn its clearing account with the CB beyond permissible limits, (b) had chronic reserve deficiency, and (c) had deficiency in the required liquidity floor against government deposits as early as 1965, all of which, by 1967, caused such a mounting concern at the CB that the latter

ordered the closing of all deposit accounts of Mr. Emerito Ramos and members of his family within the third degree, and firms and corporations in which they had interest; for the stockholders to put in an addition of P6.8 million, to remove Ramos and other key officials of the bank found to be responsible for irregular or anomalous transactions from their positions, to install an internal comptroller appointed by the Central Bank, and to place collection efforts of the bank under a special team headed by the Central Bank Legal Council.

Undoubtedly, the take-over by a new management of the operations of the OBM to stop the bank's assets and funds from further being fraudulently dissipated could bring about relative normalcy and stability and remove the immediate threat of closure. But no trustee can be expected to surmount what is humanly insurmountable. The CB is not expected, nor cannot it be obliged, to divert its own funds for the purpose of saving a solitary bank whose in extremis condition was, in the first place, caused by the malfeasance, and non-feasance of its principal stockholders and officers. The CB was established to discharge certain constituent functions. Its powers are necessarily circumscribed by law. The fact that it achieves a surplus fund in its operations does not mean that it can devote such surplus fund to any use not specifically and clearly described by law. Section 41 of the Central Bank Act, in fact, specifies the uses to which its net profits may be devoted. The "rehabilitation, normalization and stabilization" of a private commercial bank are not among these.

And even if it be construed that the management function which the CB had supposedly assumed includes the giving of extraordinary financial assistance, I seriously dispute the observation of the majority that the CB did not conscientiously and in good faith exert every effort to rehabilitate, normalize and stabilize the OBM.

The pertinent facts, narrated in chronological perspective below, conclusively rebut this observation of the majority.

1. During the five years of the existence of the OBM, the CB granted it a total of P76.11 million in the form of emergency loans (P24,185,193.74) and overdrawings in its clearing account (P51,925,381.90). (For purposes of clarity, a banking institution, by law and as ruled by the Monetary Board, is required to hold reserves against its deposit liabilities partly in the form of deposits with the CB. If this deposit account is overdrawn, which results from the clearing of checks, the bank incurs an overdraft. An overdraft in the clearing account of a bank is regarded as a loan in the books of the CB.)

2. The OBM, since early 1967, had been chronically overdrawn in its clearing account with the CB, but somehow, was able to make sufficient deposits to cover the daily overdrawings before the start of the clearing every day. It was sometime in September 1967 that it failed to cover the overdrawings. On September 25, 1967, Martin Oliva, then OBM President, informed the CB of transactions which were not recorded in the books of the OBM in the amount of 48.007 million. There were other manipulations made in the books which caused funds derived from depositors and clients of the bank to be credited to current accounts of certain OBM officers for their personal use and/or for the benefit of corporations and other interests of the Ramos family. The disclosed amount of P48.007 million was later determined to reach P86.129 million as of September 30, 1967.

3. Alarmed by this development and by the sudden increase in the overdrawings, the Monetary Board issued a series of directives requiring, among other things, the bank and Emerito M. Ramos, Sr., et al., the majority stockholders of the bank, to put up collateral to secure the unsecured obligations of the OBM with the CB, especially the overdrawings. The CB account was apparently being used to fund the operations of the OBM and the withdrawals of the depositors, since the funds originally deposited and collected to the extent of the manipulations were not invested for the benefit of the bank but were instead withdrawn for the use and benefit of the Ramos corporations.

(a) Resolution No. 1735 dated September 8, 1967 required the OBM to mortgage its Padre Faura property to the CB to secure the unsecured advances given, especially by way of overdrawings.

(b) Resolution No. 1890 dated September 29, 1967 required the Xavierville Estate, Inc. to mortgage to the CB its Xavierville property situated in Quezon City to partly secure whatever liabilities the OBM had with the CB, and required the OBM to immediately mortgage to the CB all other available properties of the Ramoses (Emerito M. Ramos and family) in order to secure the unsecured advances given to the OBM especially by way of overdrawings, and place the advances so secured in a separate account.

(c) Resolution No. 1918 dated October 3, 1967 instructed the CB management to exert every effort to obtain collateral to secure the unsecured liabilities of the OBM to the CB.

(d) Resolution No. 1975 dated October 10, 1967 instructed the CB management to continue with its efforts to obtain additional collateral to secure the unsecured liabilities of the OBM to the CB and for the protection of other creditors/depositors thereof.

(e) Resolution No. 2014 dated October 14, 1967 instructed the CB management to effect the registration of the second mortgage on the Xavierville Estate.

(f) Resolution No. 2015 dated October 16, 1967 required Emerito M. Ramos, Sr., to submit a listing of his property and to mortgage and assign the same to the CB to cover the overdraft balance of the OBM.

(g) Resolution No. 2017 dated October 17, 1967 instructed the CB Legal Counsel to proceed immediately with the registration of the second mortgage on the Xavierville Estate in favor of the CB, and thereafter to obtain the consent of the majority of the stockholders of the Xavierville Estate, Inc. to a second mortgage in an appropriate resolution approved at a regularly called stockholders' meeting; to assign one or more lawyers for the particular purposes of (1) seeing to it that the CB obtained a lien on as many properties (real or personal), including shares of stock (the corresponding certificate of which should be delivered to the CB) and other assets in the same of Emerito M. Ramos, Sr. and members of his family, as could be obtained, amounting to at least P100 million as represented by Emerito Ramos, and (2) drawing up and registering with the Register of Deeds the necessary documents establishing the liens of the CB on such properties. This resolution also instructed the Acting Superintendent of Banks to obtain information on as many more properties as possible (including shares of stocks) in the names of Emerito Ramos and members of his family as were not included in the list submitted by Emerito Ramos on October 16, 1967, so that the CB could obtain a lien thereon.

(h) Resolution No. 2132 dated November 3, 1967 reiterated the CB's demand for additional collateral to secure the unsecured liabilities of the OBM to the CB and for the protection of the other creditors and/or depositors thereof.

(i) Resolution No. 2185 dated November 7, 1967 noted a letter dated November 6, 1967 of the CB Governor to the OBM, which stated among other things, as follows: "As previously requested and agreed to by your principal stockholder, Mr. Emerito Ramos, Sr., immediately have Mr. Emerito M. Ramos, Sr., his associates or controlled corporations execute the necessary documentation to mortgage real properties to the Central Bank to secure the unsecured liabilities of The Overseas Bank of Manila to the Central Bank, and for the protection of the other creditors and/or depositors thereof. In this connection, it is reiterated that Mr. Ramos deliver to the Central Bank the endorsed certificates of stock of corporations in which he or his family has equity."

(j) Resolution No. 2210 dated November 17, 1967 instructed the CB management to acknowledge the letter dated November 17, 1967 of the Auditor of the CB, inviting attention to the increasing trend in the overdraft of the OBM with the CB amounting to P32,210,242.21 as of November 16, 1967; to advise the Auditor General and the CB Auditor that documentation was then being undertaken of the mortgages covering the properties (allegedly worth P100 million) offered by Emerito M. Ramos, Sr. to secure the unsecured liabilities of the OBM to the CB; to transmit copies of the aforesaid 1st Indorsement of the Auditor General and the letter of the CB Auditor to the Board of Directors of the OBM and to require the OBM to explain why it should not be excluded from CB clearing.

As can be deduced from the foregoing resolutions, bad faith cannot be imputed to the CB when the voting trust agreement was executed on November 20, 1967, since all along Emerito M. Ramos, Sr. knew, as he was indeed from the very beginning, that the properties he had offered, allegedly worth P100 million, were to secure all the unsecured liabilities of the OBM with the CB.

4. In a conference held with E. M. Ramos, Sr. and M. Oliva on October 23, 1967, the CB Governor impressed upon Ramos the imperativeness of his putting up adequate collateral to fully secure the CB advances before the CB could even consider the extension of additional advances to the OBM. Moreover, the intentions of the CB in the execution of the voting trust agreement may be found in Resolution No. 2015 dated October 16, 1967 wherein the Monetary Board decided, among other things.

To require the stockholders of The Overseas Bank of Manila to subscribe to an appropriate voting trust agreement so that the Central Bank may be able to effect a complete reorganization and/or transfer management of the bank to a nominee of the Monetary Board.

In point of fact, the voting trust agreement was broached to the OBM or the Ramoses for the first time, not on October 16, 1967, but on December 23, 1966, when the Monetary Board, per its Resolution No. 2072, expressed the sense that if the OBM failed to elect a permanent President by January 31, 1967, acceptable to the Monetary Board, the bank should transfer the management of its affairs to the PNB under an appropriate voting trust agreement.

5. The CB was alarmed by the uncontrolled increase of the overdrawings in the OBM's clearing account, which continued to deteriorate despite admonitions from' the CB. The CB sought a change in the management of the OBM because the anomalies and fraudulent transactions in the OBM were being perpetrated by son of E. M. Ramos, Sr., and funds derived from the manipulation of accounts were being channeled to the corporations and interests of the Ramos family. These are borne out by the following:

(a) Resolution No. 1890 dated September 29, 1967 enjoined the OBM not to allow the state of the overdrawings in its clearing account with the CB, amounting to P16.4 million as of September 29, 1967, to deteriorate any further.

(b) Resolution No. 2014 dated October 14, 1967 ordered

(1) the return to clearing of OBM's Manager's and Cashiers' checks debited to clearing on Friday, October 13, 1967;

(2) the listing and taking possession of outstanding Manager's, Cashiers and Treasurer's checks to be presented in the afternoon clearing on Monday, October 16, 1967; and .

(3) the OBM to refrain from issuing Manager's and Cashier's checks.

(c) Resolution No. 2015 dated October 16, 1967 suspended, in the meantime, the implementation of the instructions embodied in Resolution No. 2014 dated October 14, 1967 for the return of the bank's Manager's, Cashier's, and Treasurer's checks received thru the clearing to the banks which honored them, and the exclusion of the OBM from clearing, pending implementation of the requirements under paragraphs (1) re: submission of list of properties and (2) re: voting trust agreement, provided that the overdraft balance of the OBM as a result of clearing operations did not significantly increase above the level thereof of P21.2 million as of October 13, 1967.

(d) Resolution No. 2017 dated October 17, 1967 instructed the Acting Superintendent of Banks to see to it that the accounts with the OBM of the enterprises owned by Ramos and members of his family were either closed or frozen in order to prevent the further deterioration of the OBM's clearing balance with the CB, and to see to it that the OBM did not issue Manager's and Cashier's checks.

(e) Resolution No. 2132 dated November 3, 1967 instructed the CB management to immediately write a letter to the OBM demanding payment, within five (5) days from receipt of such demand, of whatever amount was necessary so as to reduce the OBM's overdraft balance with the CB to the level thereof of P21.2 million as of October 13, 1967, and the OBM not to permit drawings by its clients on their overdraft accounts until after completion of the review of such accounts by CB examiners, and to immediately advise the clients concerned accordingly.

(f) Resolution No. 2188 dated November 7, 1967 stated, in connection with the report of the Acting Superintendent of Banks dated October 27, 1967 on the financial condition of the OBM as of August 31, 1967, that the general principle/policy to be carried out/applied on the OBM was to prevent the further increase of its overdrawings with the CB. Toward this end, the Board:

(1) Expressed the sense that the unrecorded transactions of the OBM should not be recognized by the OBM pending study and verification thereof; and

(2) Directed the CB management to require the OBM:

(a) Not to convert deposits from one type to another:

(b) To return all incoming checks and items from clearing which were drawn against accounts in the unrecorded transactions, against demand deposits which were converted from time or savings deposits, and, as already instructed, against overdraft lines and against accounts with insufficient balances; and

(c) To take all precautions, measures and steps necessary to prevent further deterioration of the overdrawn clearing balance with the CB which as of November 7, 1967 amounted to P28.437 million.

(g) Emerito M. Ramos, Sr. procrastinated in the final execution of the voting trust agreement. In the meantime, the overdrawings increased from P21.2 million on October 13, 1967 to P33.62 million on November 20, 1967.

Finally, on November 17, 1967, the Monetary Board, in its Resolution No. 2190, instructed the CB management:

(1) To require the stockholders of the OBM representing a substantial majority of the stock thereof to sign, not later than Monday morning, November 20, 1967, a voting trust agreement in favor of the Superintendent of Banks, called for under Resolution No. 2020 dated October 20, 1967;

(2) To deny to the OBM access to CB clearing beginning Monday afternoon, November 20, 1967, should such voting trust agreement not be signed by that time; and

(3) To return all incoming checks and items from clearing which were drawn against accounts in the unrecorded or falsely recorded transactions in the OBM.

(h) Resolution No. 2252 dated November 23, 1967 instructed the CB management to take immediate action so that increases in overdrawings in the CB would be reflected in corresponding decrease in "recorded" deposit liabilities, impressing upon all those concerned that the unrecorded or falsely recorded transactions in the OBM were not to be recognized or honored, although evidence purporting to establish the legitimacy of such supposed transactions could be received by the CB. All transactions were to be passed upon by the Comptroller designated by the CB.

6. On November 20, 1967, the voting trust agreement between Emerito M. Ramos, Sr., et al., as trustor, and the Superintendent of Banks, as trustee, was executed.

7. It took a considerable length of time, or up to July 23,.1968, before all the properties deemed acceptable as collateral by the Monetary Board were mortgaged/assigned in favor of the CB. Contrary to the belief that the CB withheld funds from the OBM, the advances by way of overdrawings on any one date were always more than the appraised value of collateral mortgaged/assigned on the same day. The CB later liberally changed this basis of valuation, to be able to extend more advances by way of overdrawings to the OBM.

8. As of July 2, 1968, the balance of the overdrawings in the OBM's clearing account amounted to P51,661,774.90, whereas the loan value of the collaterals put up by Emerito M. Ramos, Sr., et al., computed liberally at 90% of the average PNB and DBP market values, amounted to P51,127,290, with a resulting collateral deficiency of P534,484.90. Having been apprised that no further acceptable collateral of appreciable value had been offered by the controlling stockholders and no additional fresh capital funds of the magnitude necessary to bail out the very distressed condition of the OBM was expected from the controlling stockholders, the Monetary Board was constrained to take drastic action and on July 30, 1968, under its Resolution No. 1263, decided to exclude the OBM from clearing with the CB, effective immediately. Two days Later, the Monetary Board, under its Resolution No. 1290 dated August 1, 1968, further decided to authorize the Board of Directors of the OBM to suspend the operations of the OBM.

9. At the time of the execution of the voting agreement on November 20, 1967, the overdrawings in the OBM's clearing account amounted to P33,624,743.68; as of August 13, 1968, they amounted to P51,925,381.90, or an increase of P18,300,638.22.

All the above demonstrates that the CB extended P18.3 million additional financial assistance to the OBM from November 21, 1967 to August 13, 1968, or during the period of almost nine (9) months following the date of the execution of the voting trust agreement.

The crucial portion of the decision relative to the alleged obligation of the CB to "rehabilitate, normalize and stabilize" the OBM is found on p. 16 thereof, the pertinent portion of which reads as follows:

... the record becomes clear that, in consideration of the execution of the voting trust agreement by the petitioner stockholders of OBM, and of the mortgage or assignment of their personal properties to the CB (Res. No. 2015, 16 October 1967, Annex "F", Petition), the CB had agreed to announce its readiness to support the new management "in order to allay the fears of depositors and creditors" (Annex "B"), and to "stave off liquidation" by providing adequate funds for "the rehabilitation, normalization and stabilization" of the OBM, in a manner similar to what the CB had previously done with the Republic Bank (Petition, Annex "G", ante).

While no express terms in the documents refer to the provision of funds by CB for the purpose, the same is necessarily implied, for in no other way could it rehabilitate, normalize and stabilize a distressed bank. (Emphasis supplied)

As I have already stressed, the CB did not commit itself to rehabilitate, normalize and stabilize the OBM. But even assuming that there was in fact such a commitment, it is obvious to me that the same cannot be unqualified. The limits thereof must be ascertained in the light of existing statutes, more particularly, the pertinent provisions of the Civil Code of the Philippines, in relation to the pertinent provisions of the Central Bank Charter.

In this connection, Article 1306 Of the Civil Code provides as follows:

ART. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. (Emphasis supplied)

Thus, assuming that the CB is legally committed under the voting trust agreement to rehabilitated the OBM, any action of the CB in respect thereto must have to be particularly what it can perform within the periphery of the law.

The only way by which the CB can succeed in rehabilitating the OBM, under present conditions, is to extend financial assistance through loans of astronomical magnitude granted to the latter. In this respect, section 90 of the Central Bank Charter provides as follows:

SEC. 90. Emergency loans and advances. In periods of emergency or imminent financial panic which directly threaten monetary and banking stability, the Central Bank may grant banking institutions extraordinary advances secured by any assets which are defined as acceptable security by a concurrent vote of at least five members of the Monetary Board. While such advances are outstanding, the debtor institution may not expand the total volume of its loans or investments without prior authorization of the Monetary Board. (Emphasis supplied)

It would be in palpable violation of the provisions of section 90 if the CB were to grant the OBM further loans and advances, considering that neither the OBM nor its stockholders can put in the required additional capital nor submit collaterals acceptable to at least five (5) members of the Monetary Board. Nowhere in the voting trust agreement is it provided that the CB bound itself to bring about the rehabilitation, normalization and stabilization of the OBM at all cost.

The decision of this Court further states that the CB should rehabilitate the OBM in a manner similar to what the CB had previously done with the Republic Bank. The rationale of this statement, found on p. 15 of the decision, reads:

CB Resolution No. 2015 of 16 October 3331967 (Petition, Annex `F'), in addition to requiring a mortgage or assignment of petitioner's personal properties to CB, confirmed the quoted memorandum by requiring the stockholders of OBM to subscribe to an appropriate trust agreement, with the only difference that instead of the Philippine National Bank, the trust would be executed in favor of the CB as trustee "to enable it to reorganize and transfer management to a nominee of the Monetary Board." Two weeks later, on 30 October 1967, after a conference at Malacañang, the CB governor once more wrote to Ramos that the Monetary Board —

decided that, as a measure to stave off liquidation, a voting trust agreement should be executed by you and your family and the corporations controlled by you in favor of the Superintendent of Banks, in an instrument similar to the one executed by stockholders of the Republic Bank in favor of the Philippine National Bank.

The reference to the case of the Republic Bank clarifies the purpose and scope of the demand for a voting trust agreement "as a measure to stave off liquidation"; for it is well-known, and it is not denied, that when the Republic Bank previously became distressed, the CB had advanced funds to rehabilitate it and allow it to resume operating.

The above statements are without support in the record of this case. First: It will be clearly seen that reference was made to the Republic Bank merely for the purpose of describing the "instrument" to be executed by the OBM stockholders (which must be "similar to the one executed by the stockholders of the Republic Bank.") On the basis of such reference, one cannot logically and immediately reach the conclusion that because the instrument (form) may be similar, the obligations (substance) would necessarily be similar, such that if the CB had indeed advanced funds to the Republic Bank, it is likewise obligated to advance funds to the OBM. Second: The statement that "when the Republic Bank previously become distressed, the CB had advanced funds to rehabilitate it and allow it to resume operating," appears to me to be gratuitous. There is nothing in the pleadings which shows as a fact that the CB had advanced funds to the Republic Bank, nor, if it did so, how much and for what specific purposes or ends.

I have earlier stated that the mortgages or assignments of properties to the CB by the OBM stockholders were not a consideration of their entering in to the voting trust agreement. However, the decision appears to imply that the said mortgages were executed by the OBM stockholders because they were "induced" by the CB and "misled" into believing that such conveyances would "stave off liquidation."

The pleadings of the respondent CB have uniformly maintained that the OBM stockholders were required to effect the mortgages in question precisely and solely because of the requirements of section 90 of the Central Bank Charter. The OBM had incurred, long before the execution of the voting trust agreement, overdrawings amounting to tens of millions of pesos; section 90 of the Central Bank Charter requires that these overdrawings be secured by collaterals acceptable to the Monetary Board. On November 20, 1967, the date the voting trust agreement was entered into, the OBM's overdrawings in its clearing account with the CB amounted to P33,624,743.68. Emerito Ramos had been promising the Monetary Board that fresh capital would be put into the bank, but these promises remained unfulfilled, notwithstanding repeated demands made on him by the CB, such that with the revelation of the unrecorded huge deposits in the OBM, it became obvious that Ramos could never fulfill his promises.

Logic cannot sustain the statement that the OBM stockholders were induced into mortgaging their properties for the purpose of staving off liquidation. There was a moral and legal obligation on the part of the OBM to execute such mortgage because of its huge overdrawings which were not secured by sufficient and acceptable collaterals. The CB could legally demand the execution of such mortgages without need of providing any enticement or inducement to the OBM stockholders. It is, therefore, grossly erroneous to state that the execution of such mortgages was the consideration of the voting trust agreement. .

The decision further states that the CB is now reneging on its commitments and on page 22 thereof, observes that the CB excuses itself by pleading that the OBM officers had resorted to non-recording of time deposits in the Bank's books and diverting such deposits to accounts controlled by certain bank officials, and other irregularities.

True it is that, in its pleadings, the CB dwelt lengthily on the irregularities and anomalies, committed by the OBM management. This was done, however, not for the purpose of "excusing" itself from rehabilitating the OBM, but to show the imperativeness of the execution of the voting trust agreement as engendered by the critical condition of the OBM.

I find it difficult to understand, therefore, why the majority of the Court would brush aside as being inconsequential the serious irregularities and anomalies committed by the OBM official's and stockholders, and instead "censure" the CB in deciding to liquidate the OBM.

The decision further observes that "the CB made express representations to petitioners herein that it would support the OBM, and avoid its liquidation if the petitioners would execute (a) the Voting Trust Agreement turning over the management of OBM to the CB or its nominees, and (b) mortgage or assign their properties to the Central Bank to cover the overdraft balance of OBM. The petitioners having complied with these conditions and parted with value to profit of the CB (which thus acquired additional security for its own advances), the CB may not now renege on its representations and liquidation the OBM, to the detriment of its stockholders, depositors and other creditors, under the rule of promissory estoppel."

As may be seen, however, the real situation is widely disparate. The CB required a change of management of the OBM by means of the voting agreement, because it had lost its confidence in the former one and it required the owners of the bank to collateralize all its obligations to the CB because that is what the law ordains. With the putting up of additional capital by the owners of the OBM and the financial assistance extended by the CB in the form of overdrawings in the OBM's clearing account, it was hoped that the OBM would be able to rehabilitate, normalize and stabilize itself. Unfortunately these expectations did not materialize partly because the owners of the OBM failed to produce the needed additional capital and the necessary collaterals for further loans from the CB. As already repeatedly stated, the conveyances of properties made by the petitioners were required by the CB in order to secure the huge amounts of loans and overdrawings which had been advanced to the OBM long before the voting trust agreement was executed.

Under these circumstances, how can it be asserted that the CB is now "estopped" from "reneging" on its promise to rehabilitate, normalize and stabilize the OBM?

The doctrine of "promissory estoppel" is discussed in Corpus Juris Secundum, which, in this connection, states,

Of course, a promise cannot be the basis of an estoppel if any other essential element is lacking ... Justifiable reliance and irreparable detriment to the promisee are requisite factors. (31 C.J.S. 291) .

Certainly the petitioners could not have justifiably relied upon any "promise" of the CB to rehabilitate the OBM, assuming that there was such promise, if in the fulfillment thereof the CB would have to extend further financial assistance in the form of loans, without the requisite corresponding collaterals from the OBM, or to contribute to the capital of the said bank. For these would be in flagrant violation of section 90 and 133 of the Central Bank Charter, which are mandatorily prescriptive, and would in effect compel the CB to dole out public funds in the hundreds of millions of pesos in cynical contravention of the law.

It is, therefore, incomprehensible to me how the doctrine of "promissory estoppel" can be made to apply.

Bad faith and abuse of discretion are imputed by the majority of the Court to the CB for ordering the liquidation of the OBM, in obedience to the mandate of section 29 Of the Central Bank Charter. To demonstrate that this charge is groundless, I quote excerpts (which are self-explanatory) from the memorandum dated July 23, 1968 of the Superintendent of Banks to the Monetary Board. Thus:

... The Bank cannot be rehabilitated unless its operational losses are stopped. As of June 30, 1968, the accumulated losses of the Bank per its books stood at P6.9 million exclusive of estimated losses on loans. In order to at least break even in its operations (that is, that there be no net profit or net loss), the Bank must be able to lend in such a magnitude as to be able to cover the large operational expenses, particularly interest on deposits and borrowings.

... However ... the Bank must put up additional capital in order to meet the requirements of Section 22 of Republic Act No. 337 and to support the necessary expansion in risk assets. Therefore, the fresh funds needed in order to break even in operations must consist not only of borrowed funds but also of additional capital contribution. On this basis, the Bank will need a total of P126.334 million of loanable funds, which must be composed of P40.730 million additional capital (P21.780 million needed for risk assets as of June 30, 1968 plus P18.950 million to support the expansion in risk assets of P126.334 million) and P85.604 million of borrowed funds ...

xxx xxx xxx

And even granting that the Bank can obtain the required loanable funds in order to break even in its operations, it cannot legally invest all the funds unless its capital structure is also increased to support the necessary expansion in risk assets. Section 22 of Republic Act No. 337 requires that the combined capital accounts of a commercial bank shall not be less than 15% of its total risk assets. As of June 30, 1968, the required minimum capital of the bank was P19.142 million while its combined capital accounts per books were only P14.356 million thus showing a capital deficiency of P4.786 million.

After considering (1) the Examiners' provision for estimated losses on the recorded loans and receivables of P13.766 million (exclusive of estimated losses of P13.243 million on "unrecorded" loans and receivables), plus 2(a) the accrued interest on the emergency loans by, and overdrawings with, the Central Bank, and 2(b) penalties payable on deposit reserve deficiencies aggregating P3.228 million, or a total of P16.994 million, all of these not yet taken up in the books, the bank's capital accounts per books of P14.356 million as of June 30, 1968, would be wiped out resulting in an estimated deficiency to creditors of P2.638 million. Since the minimum capital required under Section 22 of Republic Act No. 337 as of June 30, 1968 is P19.142 million, the amount of fresh capital needed to be put up to comply with the minimum capital requirement as of June 30, 1968 would be P21.780 million. In addition, P18.950 million of new capital must be put up by the Bank to support the necessary expansion in risk assets of P126.334 million in order to break even in its operations. Therefore, the total fresh capital which the Bank must put up to meet the requirements of Section 22 of RA No. 337, after considering the estimated losses on loans and other expenses not yet taken up in the books, as well as the necessary expansion in risk assets so as to break even in its operations, would be P40.730 million.

xxx xxx xxx

If the capital structure cannot be strengthened to meet the requirements of Section 22 of RA No. 337, and massive financing cannot be given to enable the Bank to expand its risk assets to the level at which it can break even in operations, then there seems to be no other alternative except to liquidate the Bank under Section 29 of RA No. 265.

Unlike the majority of the Court, I recognize the existence of numerous shifting imponderables always attendant to the superintendence of the banking and monetary systems, the solutions to or resolutions of which lie peculiarly within the expertise of the CB, but assuredly beyond the ken, beyond the competence, of any member of this Tribunal or of even the entire judicial collegium that is the Supreme Court. For my part, I refuse to be simplistic; I dare not substitute my own personal judgments or predilections or predilections for the judicious exercise by the CB of the specialized discretion vested in it by law.

It is thus that I cannot discern what act done or step taken by the CB in relation to the OBM, when tested against the postulates of the law and of public morality, can be condemned as deceptive or oppressive, or as amounting to bad faith or abuse of discretion.

Reference was made in our deliberations on the case at bar to an offer supposedly made by a number of depositors as a partial solution to alleviate the grave situation that now besets the OBM, which in general outline is to the effect that their deposits be converted into shares of stock of the OBM. But I am not told nor does the record anywhere disclose, the names of these venturesome depositors, or the amounts of their respective deposits, or the precise meaning and details of such offer. Verily, everything about this "proposition" is a disembodied blur.

I well understand the overriding concern of the majority of the Court for the plight of the innocent depositors and creditors of the OBM. I share that concern, I, too, want to see all of them retrieve the full face value of their deposits and credits. As it is, the prejudice that they have already suffered is nigh incalculable. The deposits were made and the credits were extended at a time when the foreign exchange rate was four pesos to one US dollar. When these shall be returned, if at all, the rate of exchange will probably have risen to more than the present floating rate of about six and one half pesos to one US dollar, and the purchasing power of the will have been considerably watered down. In the meantime, these depositors and creditors have been, and will continue to be, effectively prevented from investing their OBM money (which has not earned nor is now earning interest) in profitable ventures or stocks. If, on some future but highly uncertain day, fifty percent of such deposits and credits will be returned, the depositors and creditors of the OBM might well regarded what they will get as veritable manna from heaven.

At all events, I should think that if and when the OBM by the grace of the majority opinion, shall have resumed operations, even under the protective solicitude of the CB, the be-all and end-all concern of most of the OBM depositors and creditors will be to extricate from the OBM, soonest possible and not to the last centavo, all their deposits and credits. More likely than not, they will not thereafter — like many perceptive observers on the outside looking in — touch the OBM again, not even with the proverbial ten-foot pole.

Finally, I must articulate a query which, as far as I am able to perceive, the Central Bank has not explored in depth, but which the majority of the Court have apparently confidently answered in the affirmative: In the face of the well-known constraints of public policy and high public morality, is it the real amendment of the Central Bank Charter and other pertinent laws that the Central Bank must run to the total rescue of any and every private banking institution which is in extremis due to causes other than inept but bona fide management?

Footnotes

1 This designation was legally erroneous, for the terms of the document clearly show that petitioners were the Trustors with the OBM creditors and depositors and stockholders as cestuis que trustent.

2 Annex "M", Petitioners' Reply Memorandum.

3 Annexes "21-A", "22-A", "22-C." "23."

4 Annexes "S", "T", "U", "O" and "P", Petition.

5 Annex "21", Answer.

6 Annex "10-A", Answer.

7 Annex "X", Reply Memorandum.

8 Which provides that "the combined capital accounts of each commercial bank shall not be less than an amount equal to fifteen percent (15%) of its total assets", i.e., risk assets or investments. The Bank superintendent estimated that OBM needed P21.7 million (to replenish OBM's capital account which was wiped out because of losses) to support risk assets as of 30 June 1968; plus P18.9 million to support expansion of risk assets in the amount of P126 million. In other words, it needed an additional P40 million fresh capital. Annex "10", Answer.

9 20 Am. Jur. 2d, Courts, Section 148; 21 C.J.S., Courts, Section 93.

10 Cf. Yu Cong Eng vs. Trinidad, 47 Phil. 385; People vs. Zulueta, 89 Phil. 752; Botelho Shipping Corp. vs. Leuterio, L-20420, 30 May 1963, 8 SCRA 121).

11 Civil Code, Article 1377; Halili vs. Lloret, 95 Phil. 78; Gonzales vs. La Previsora Filipina, 74 Phil. 165; Asturias Sugar Central vs. Pure Cane Molasses Co., 57 Phil. 519; Calanoc vs. Court of Appeals, 98 Phil. 79.

12 Reply Memo, Annex "L", page 483, Record; Annex "20", page 248.

13 Answer, Annex "5".

14 Annex "10" and "10-A".

15 Report of Superintendent of Banks Ignacio, 23 July 1968. Answer, Annex "10", page 4 (Record, page 150).

16 Ibid.

17 Annex "X", Reply Memo, previously quoted.

18 The CB's assets in 1968 were reported by it at P4,516,469,275.97 with surplus of P269,712,295.59 (20th Annual Report).

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