Manila
EN BANC
G.R. No. 70054 December 11, 1991
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner,
vs.
THE MONETARY BOARD, CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ, CARLOTA P. VALENZUELA, ARNULFO B. AURELLANO and RAMON V. TIAOQUI, respondents.
G.R. No. 68878 December 11, 1991
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and CELESTINA S. PAHIMUNTUNG, assisted by her husband, respondents.
G.R. No. 77255-58 December 11, 1991
TOP MANAGEMENT PROGRAMS CORPORATION AND PILAR DEVELOPMENT CORPORATION, petitioners,
vs.
THE COURT OF APPEALS, The Executive Judge of the Regional Trial Court of Cavite, Ex-Officio Sheriff REGALADO E. EUSEBIO, BANCO FILIPINO SAVINGS AND MORTGAGE BANK, CARLOTA P. VALENZUELA AND SYCIP, SALAZAR, HERNANDEZ AND GATMAITAN, respondents.
G.R. No. 78766 December 11, 1991
EL GRANDE CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, THE EXECUTIVE JUDGE of The Regional Trial Court and Ex-Officio Sheriff REGALADO E. EUSEBIO, BANCO FILIPINO SAVINGS AND MORTGAGE BANK, CARLOTA P. VALENZUELA AND SYCIP, SALAZAR, FELICIANO AND HERNANDEZ, respondents.
G.R. No. 78767 December 11, 1991
METROPOLIS DEVELOPMENT CORPORATION, petitioner,
vs.
COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ, JR., CARLOTA P. VALENZUELA, ARNULFO AURELLANO AND RAMON TIAOQUI, respondents.
G.R. No. 78894 December 11, 1991
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioner
vs.
COURT OF APPEALS, THE CENTRAL BANK OF THE PHILIPPINES, JOSE B. FERNANDEZ, JR., CARLOTA P. VALENZUELA, ARNULFO B. AURELLANO AND RAMON TIAOQUI, respondents.
G.R. No. 81303 December 11, 1991
PILAR DEVELOPMENT CORPORATION, petitioner
vs.
COURT OF APPEALS, HON. MANUEL M. COSICO, in his capacity as Presiding Judge of Branch 136 of the Regional Trial Court of Makati, CENTRAL BANK OF THE PHILIPPINES AND CARLOTA P. VALENZUELA, respondents.
G.R. No. 81304 December 11, 1991
BF HOMES DEVELOPMENT CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, CENTRAL BANK AND CARLOTA P. VALENZUELA, respondents.
G.R. No. 90473 December 11, 1991
EL GRANDE DEVELOPMENT CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, THE EXECUTIVE JUDGE of the Regional Trial Court of Cavite, CLERK OF COURT and Ex-Officio Sheriff ADORACION VICTA, BANCO FILIPINO SAVINGS AND MORTGAGE BANK, CARLOTA P. VALENZUELA AND SYCIP, SALAZAR, HERNANDEZ AND GATMAITAN, respondents.
Separate Opinion
MELENCIO-HERRERA, J., dissenting:
I join Mme. Justice Carolina G. Aquino in her dissent and vote to deny the prayer, in G.R. No. 70054, to annul Monetary Board Resolution No. 75 placing Banco Filipino (BF) under receivership.
Even assuming that the BF was not, as alleged, in a literal state of insolvency at the time of the passage of said Resolution, there was a finding in the Teodoro report that, based on that Bank's illiquidity, to have allowed it to continue in operation would have meant probable loss to depositors and creditors. That is also a ground for placing the bank under receivership, as a first step, pursuant to Section 29 of the Central Bank Act (Rep. Act No. 265, as amended). The closure of BF, therefore, can not be said to have been arbitrary or made in bad faith. There was sufficient justification, considering its inability to meet the heavy withdrawals by its depositors and to pay its liabilities as they fell due, to forbid the bank from further engaging in banking.
The matter of reopening, reorganization or rehabilitation of BF is not within the competence of this Court to ordain but is better addressed to the Monetary Board and the Central Bank considering the latter's enormous infusion of capital into BF to the tune of approximately P3.5 Billion in total accommodations, after a thorough assessment of whether or not BF is, indeed, possessed, as it stoutly contends, of sufficient assets and capabilities with which to repay such huge indebtedness, and can operate without loss to its many depositors and creditors.
Separate Opinion
GRIÑO-AQUINO, J., dissenting:
Although these nine (9) Banco Filipino (BF) cases have been consolidated under one ponencia, all of them except one, raise issues unrelated to the receivership and liquidation of said bank. In fact, two of these cases (G.R. No. 68878 and 81303) have already been decided by this Court and are only awaiting the resolution of the motions for reconsideration filed therein. Only G.R. No. 70054 "Banco Filipino Savings and Mortgage Bank (BF) vs. the Monetary Board (MB), Central Bank of the Philippines (CB), et al.," is an original action for mandamus and certiorari filed in this Court by former officials of BF to annul the Monetary Board Resolution No. 75 dated January 25, 1985 (ordering the closure of Banco Filipino [BF] and appointing Carlota Valenzuela as receiver of the bank) on the ground that the resolution was issued "without affording BF a hearing on the reports" on which the Monetary Board based its decision to close the bank, hence, without "administrative due process."1 The prayer of the petition reads:
"WHEREFORE, petitioner respectfully prays that a writ of mandamus be issued commanding respondents immediately to furnish it copies of the reports of examination of BF employed by respondent Monetary Board to support its Resolution of January 25, 1985 and thereafter to afford it a hearing prior to any resolution that may be issued under Section 29 of R.A. 265, meanwhile annulling said Resolution of January 25, 1985 by writ of certiorari as made without or in excess ofjurisdiction or with grave abuse of discretion.
"So as to expedite proceedings, petitioner prays that the assessment of the damages respondents should pay it be deferred and referred to commissioners.
"Petitioner prays for such other remedy as the Court may deem just and equitable in the premises.
"Quezon City for Manila, February 28, 1985. (p. 8, Rollo I-)
and the prayer of the Supplement to Petition reads:
"WHEREFORE, in addition to its prayer for mandamus and certiorari contained in its original petition, petitioner respectfully prays that Sections 28-A and 29 of the Central Bank charter (R.A. 265) including its amendatory Presidential Decrees Nos. 72, 1771, 1827 and 1937 be annulled as unconstitutional.
"Quezon City for Manila, March 4, 1985. (p. 11-G, Rollo I.)
The other eight (8) cases merely involve transactions of BF with third persons and certain "related" corporations which had defaulted on their loans and sought to prohibit the extrajudicial foreclosure of the mortgages on their properties by the receiver of BF. These eight (8) cases are:
1. G.R. No. 68878 "BF vs. Intermediate Appellate Court and Celestina Pahimutang" involves the repossession by BF of a house and lot which the buyer (Pahimutang) claimed to have completely paid for on the installment plan. The appellate court's judgment for the buyer was reversed by this Court. The buyer's motion for reconsideration is awaiting resolution by this Court;
2. G.R. Nos. 77255-58, "Top Management Programs Corporation and Pilar Development Corporation vs. Court of appeals, et al." (CA-G.R. SP No. 07892) and "Pilar Development Corporation vs. Executive Judge, RTC, Cavite" (CA-G.R. SP Nos. 0896264) is a consolidated petition for review of the Court of Appeals' joint decision dismissing the petitions for prohibition in which the petitioners seek to prevent the receiver/liquidator of BF from extrajudicially foreclosing the P4.8 million mortgage on Top Management's properties and the P18-67 million mortgage on Pilar Development properties. The Court of Appeals dismissed the petitions on October 30, 1986 on the ground that "the functions of the liquidator, as receiver under Section 29 (R.A. 265), include taking charge of the insolvent's assets and administering the same for the benefit of its creditors and of bringing suits and foreclosing mortgages in the name of the bank;"
3. G.R. No. 78766, "El Grande Corporation vs. Court of Appeals, et al.," is an appeal from the Court of Appeals' decision in CA-G.R. SP No. 08809 dismissing El Grande's petition for prohibition to prevent the foreclosure of BF's P8 million mortgage on El Grande's properties;
4. G.R. No. 78894, "Banco Filipino Savings and Mortgage Bank vs. Court of Appeals, et al." is an appeal of BFs old management (using the name of BF) from the decision of the Court of Appeals in CA-G.R. SP No. 07503 entitled, "Central Bank, et al. vs. Judge Zoilo Aguinaldo, et al" dismissing the complaint of "BF" to annul the receivership, for no suit may be brought or defended in the name of the bank except by its receiver;
5. G.R. No. 87867, "Metropolis Development Corporation vs. Court of Appeals" (formerly AC-G.R. No. 07503, "Central Bank, et al. vs. Honorable Zoilo Aguinaldo, et al.') is an appeal of the intervenor (Metropolis) from the same Court of Appeals' decision subject of G.R. No. 78894, which also dismissed Metropolis' complaint in intervention on the ground that a stockholder (Metropolis) may not bring suit in the name of BF while the latter is under receivership, without the authority of the receiver;
6. G.R. No. 81303, "Pilar Development Corporation vs. Court of Appeals, et al." is an appeal from the decision dated October 22, 1987 of the Court of Appeals in CA-G.R. SP No. 12368, "Pilar Development Corporation, et al. vs. Honorable Manuel Cosico, et al.," dismissing the petition for certiorari against Judge Manuel Cosico, Br. 136, RTC, Makati, who dismissed the complaint filed by Pilar Development Corporation against BF, for specific performance of certain developer contracts. An answer filed by Norberto Quisumbing and Associates, as BF's supposed counsel, virtually confessed judgment in favor of Pilar Development. On motion of the receiver, the answer was expunged and the complaint was dismissed. On a petition for certiorari in this Court, we held that: "As liquidator of BF by virtue of a valid appointment from the Central Bank, private respondent Carlota Valenzuela has the authority to direct the operation of the bank in substitution of the former management, which authority includes the retainer of counsel to represent it in bringing or resisting suits in connection with such liquidation and, in the case at bar, to take the proper steps to prevent collusion, to the prejudice of the legitimate creditors, between BF and the petitioners herein which appear to be owned and controlled by the same interest controlling BF" (p. 49, Rollo). The petitioners' motion for reconsideration of that decision is pending resolution.
7. G.R. No. 81304, "BF Homes Development Corporation vs. Court of Appeals, et al." is an appeal from the decision dated November 4, 1987 of the Court of Appeals in CA-G.R. CV No. 08565 affirming the trial court's order dismissing BF Homes' action to compel the Central Bank to restore the financing facilities of BF, because the plaintiff (BF Homes) has no cause of action against the CB.
8. G.R. No. 90473, "El Grande Development Corporation vs. Court of Appeals, et al.," is a petition to review the decision dated June 6, 1989 in CA-G.R. SP No. 08676 dismissing El Grande's petition for prohibition to stop foreclosure proceedings against it by the receiver of BF.
As previously stated, G.R. No. 70054 "BF vs. Monetary Board, et al.," is an original special civil action for certiorari and mandamus filed in this Court by the old management of BF, through their counsel, N.J. Quisumbing & Associates, using the name of the bank and praying for the annulment of MB Resolution No. 75 which ordered the closure of BF and placed it under receivership. It is a "forum-shopping" case because it was filed here on February 28, 1985 three weeks after they had filed on February 2, 1985 Civil Case No. 9675 "Banco Filipino vs. Monetary Board, et al." in the Regional Trial Court of Makati, Br. 143 (presided over by Judge Zoilo Aguinaldo) for the same purpose of securing a declaration of the nullity of MB Resolution No. 75 dated January 25, 1985.
On August 25, 1985, this Court ordered the transfer and consolidation of Civil Case No. 9676 (to annul the receivership) from Br. 143 to Br. 136 (Judge Manuel Cosico) of the Makati Regional Trial Court where Civil Case No. 8108 (to annul the conservatorship) and Civil Case No. 10183 (to annul the liquidation) of BF were and are still pending. All these three (3) cases were archived on June 30, 1988 by Judge Cosico pending the resolution of G.R. No. 70054 by this Court.
Because of my previous participation, as a former member of the Court of Appeals, in the disposition of AC-G.R. No. 02617 (now G.R. No. 68878) and AC-G.R. SP No. 07503 (now G.R. Nos. 78767 and 78894), I am taking no part in G.R. Nos. 68878, 78767 and 78894. It may be mentioned in this connection that neither in AC-G.R. SP No. 02617, nor in AC-G.R. SP No. 07503, did the Court of Appeals rule on the constitutionality of Sections 28-A and 29 of Republic Act 265 (Central Bank Act), as amended, and the validity of MB Resolution No. 75, for those issues were not raised in the Court of Appeals.
I concur with the ponencia insofar as it denies the motion for reconsideration in G.R. No. 81303, and dismisses the petitions for review in G.R. Nos. 77255-58, 78766, 81304, and 90473.
I respectfully dissent from the majority opinion in G.R. No. 70054 annulling and setting aside MB Resolution No. 75 and ordering the respondents, Central Bank of the Philippines and the Monetary Board —
to reorganize petitioner Banco Filipino Savings and Mortgage Bank, and allow the latter to resume business in the Philippines under the comptrollership of both the Central Bank and the Monetary Board and under such conditions as may be prescribed by the latter until such time that petitioner bank can continue in business with safety to its creditors, depositors and the general public.
for I believe that this Court has neither the authority nor the competence to determine whether or not, and under what conditions, BF should be reorganized and reopened. That decision should be made by the Central Bank and the Monetary Board, not by this Court.
All that we may determine in this case is whether the actions of the Central Bank and the Monetary Board in closing BF and placing it under receivership were "plainly arbitrary and made in bad faith.
Section 29 of Republic Act No. 265 provides:
"Section 29. Proceedings upon insolvency. — Whenever, upon examination by the head of the appropriate supervising and examining department 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 department head concerned forthwith, in writing, to inform the Monetary Board of the facts, and the Board may, upon finding the statements of the department head to be true, forbid the institution to do business in the Philippines and shall designate an official of the Central Bank as receiver to immediately take charge of its assets and liabilities, as expeditiously as possible collect and gather all the assets and administer the same for the benefit of its creditors, exercising all the powers necessary for these purposes including, but not limited to, bringing suits and foreclosing mortgages in the name of the banking institution.
"The Monetary Board shall thereupon determine within sixty 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 depositors and creditors and the general public and shall prescribe the conditions under which such resumption of business shall take place as well as the time for fulfillment of such conditions. In such case, the expenses and fees in the collection and administration of the assets 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.
"If the Monetary Board shall determine and confirm within the said period that the banking institution is insolvent or cannot resume business with safety to its depositors, creditors and the general public, it shall, if the public interest requires, order its liquidation, indicate the manner of its liquidation and approve a liquidation plan. The Central Bank 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 of the court in the liquidation of the banking institutions. The court shall have jurisdiction in the same proceedings to adjudicate disputed claims against the bank and enforce individual liabilities of the stockholders and do all that is necessary to preserve the assets of the banking institution and to implement the liquidation plan approved by the Monetary Board. The Monetary Board shall designate an official of the Central Bank as liquidator who shall take over the functions of the receiver previously appointed by the Monetary Board under this section. The liquidator shall, with all convenient speed, convert the assets of the banking institution to money or sell, assign or otherwise dispose of the same to creditors and other parties for the purpose of paying the debts of such bank and he may, in the name of the banking institution, institute such actions as may be necessary in the appropriate court to collect and recover accounts and assets of the banking institution.
"The provisions of any law to the contrary notwithstanding, the actions of the Monetary Board under this section and the second paragraph of Section 34 of this Act shall be final and executory, and can be set aside by the court only if there is convincing proof that theaction is plainly arbitrary and made in bad faith. No restraining order or injunction shall be issued by the court enjoining the Central Bank from implementing its actions under this section and the second paragraph of Section 34 of this Act, unless there is convincing proof that the action of the Monetary Board is plainly arbitrary and made in bad faith and the petitioner or plaintiff files with the clerk or judge of the court in which the action is pending a bond executed in favor of the Central Bank, in an amount to be fixed by the court. The restraining order or injunction shall be refused or, if granted, shall be dissolved upon filing by the Central Bank of a bond, which shall be in the form of cash or Central Bank cashier's check, in an amount twice the amount of the bond of the petitioner or plaintiff, conditioned that it will paythe which the petitioner or plaintiff may suffer by the refusalor the dissolution of the injunction. The provisions of Rule 58 of the new Rules of Court insofar as they are applicable and not inconsistent with the provisions of this section shall govern the issuance and dissolution of the restraining order or injunction contemplated in this section.
Insolvency, under this Act, shall be understood to mean the inability of a banking institution to pay its liabilities as they fall due in the usual and ordinary course of business, provided, however, that this shall not include the inability to pay of an otherwise non-insolvent bank caused by extra-ordinary demands induced by financial panic commonly evidenced by a run on the banks in the banking community."
The determinative factor in the closure, receivership, and liquidation of a bank is the finding, upon examination by the SES of the Central Bank, that its condition "is one of insolvency, or that its continuance in business would involve probable loss to its depositors and creditors." (Sec. 29, R.A. 265.) It should be pointed out that insolvency is not the only statutory ground for the closure of a bank. The other ground is when "its continuance in business would involve probable loss to its depositors and creditors.
Was BF insolvent i.e., unable to pay its liabilities as they fell due in the usual and ordinary course of business, on and for some time before January 25, 1985 when the Monetary Board issued Resolution No. 75 closing the bank and placing it under receivership? Would its continued operation involve probable loss to its depositors and creditors?
The answer to both questions is yes. Both the conservator Gilberts Teodoro and the head of the SES (Supervision and Examination Sector) Ramon V. Tiaoqui opined that BF's continuance in business would cause probable loss to depositors and creditors. Tiaoqui further categorically found that BF was insolvent. Why was this so?
The Teodoro and Tiaoqui reports as well as the report of the receivers, Carlota Valenzuela, Arnulfo B. Aurellano and Ramon V. Tiaoqui, showed that since the end of November 1983 BF had already been incurring "chronic reserve deficiencies' and experiencing severe liquidity problems. So much so, that it had become "a substantial borrower in the call loans market" and in June 1984 it obtained a P30 million emergency loan from the Central Bank. (p. 2, Receiver's Report.) Additional emergencyt loans (a total of P119.7 millions) were extended by the Central Bank to BF that month (MB Res. No. 839 dated June 29,1984). On July 12, 1984, BFs chairman, Anthony Aguirre, offered to "turn over the administration of the affairs of the bank" to the Central Bank (Aguirre's letter to Governor Jose Fernandez, Annex 7 of Manifestation dated May 3,1991). On July 23,1984, unable to meet heavy deposit withdrawals, BF's management motu proprio, without obtaining the conformity of the Central Bank, closed the bank and declared a bank holiday. On July 27, 1984, the CB, responding to BFs pleas for additional financial assistance, granted BF a P3 billion credit line (MB Res. No. 934 of July 27, 1984) to enable it to reopen and resume business on August 1, 1984. P2.3601 billions of the credit line were availed of by the end of 1984 exclusive of an overdraft of P932.4 millions (p. 2, Tiaoqui Report). Total accommodations granted to BF amounted to P3.4122 billions (p. 19, Cosico Report).
Presumably to assure that the financial assistance would be properly used, the MB appointed Basilio Estanislao as conservator of the bank. A conservatorship team of 78 examiners and accountants was assigned at the bank to keep track of its activities and ascertain its financial condition (p. 8, Tiaoqui Report).
Estanislao resigned after two weeks for health reasons. He was succeeded by Gilberto Teodoro as conservator in August, 1984 up to January 8, 1985.
Besides the conservatorship team, Teodoro hired financial consultants Messrs. Tirso G. Santillan, Jr. and Plorido P. Casuela to make an analysis of BF's financial condition. Teodoro also engaged the accounting firm of Sycip, Gorres, Velayo and Company to make an asset evaluation. The Philippine Appraisal Company (PAC) appraised BFs real estate properties, acquired assets, and collaterals held. On January 9, 1985, Teodoro submitted his Report. Three weeks later, on January 23, 1985, Tiaoqui also submitted his Report. Both reports showedthat, in violation of Section 37 of the General Banking Act (R.A.337):2
1. BF had been continually deficient in liquidity reserves (Teodoro Report). The bank had been experiencing a severe drop in liquidity levels. The ratio of liquid assets to deposits and borrowings plunged from about 20% at end-1983, to about 8.6% by end-May 1984, much below the statutory requirements of 24% for demand deposits/deposit substitutes and 14% for savings and time deposits. (p. 2, Tiaoqui Report.)
2. Deficiencies in average daily legal reserves rose from P63.0 million during the week of November 21-25, 1983 to a high of P435.9 million during the week of June 11-15, 1984 (pp. 2-3, Tiaoqui Report). Accumulated penalties on reserve deficiencies amounted to P37.4 million by July 31, and rose to P48 million by the end of 1984. (Tiaoqui Report.)
3. Deposit levels, which were at P3,845 million at end-May l984 (its last "normal" month), dropped to P935 million at the end of November 1984 or a loss of P2,910 million. This represented an average monthly loss of P485 million vs. an average monthly gain of P26 million during the first 5 months of 1984. (pp. 2-3, Tiaoqui Report.)
4. Deposits had declined at the rate of P20 million during the month of December 1984, but expenses of about P17 million per month were required to maintain the bank's operation. (p. 6, Teodoro Report.)
5. Based on the projected outlook, the Bank's average yield on assets of 16.3% p.a., was insufficient to meet the average cost of funds of 19.5% p.a. and operating expenses of 4.8% p.a. (p. 5 Teodoro Report.)
6. An imprudently large proportion of assets were locked into long-term applications. (Teodoro Report.)
7. BF overextended itself in lending to the real estate industry, committing as much as 52% of its peso deposits to its affiliates or "related accounts" to which it continued lending even when it was already suffering from liquidity stresses. (Teodoro Report.) This was done in violation of Section 38 of the General Banking Act (R.A. 337).3
8. During the period of marked decline in liquidity levels the loan portfolio grew by P417.3 million in the first five months of 1984 — and by another P105.l million in the next two months. (pp. 2-3, Tiaoqui Report.)
9. The loan portfolio stood at P3.679 billion at the end of July 1984, 56.2% of it channeled to companies whose stockholders, directors and officers were related to the officers, directors, and some stockholders of BF. (p. 8, Tiaoqui Report.) Here again BF violated the General Banking Act (R.A. 337).4
10. Some of the loans were used to acquire preferred stocks of BF. Between September 17, 1983 and February 10, 1984, P49.9 million of preferred non-convertible stocks were issued. About 85% or P42.4 million was paid out of the proceeds of loans to stockholders/ borrowers with relationship to the bank (Annex D). Around P18.8 million were issued in the name of an entity other than the purchaser of the stocks. (Tiaoqui Report.)
11. Loans amounting to some P69.3 million were granted simply to pay-off old loans including accrued interest, as an accommodation for the direct maturing loans of some firms and as a way of paying-off loans of other borrower firms which have their own credit lines with the bank. These helped to make otherwise delinquent loans appear "current" and deceptively "improved" the quality of the loan portfolio. (Tiaoqui Report.)
12. Examination of the collaterals for the loan accounts of 63 major borrowers and 32 other selected borrowers as of July 31, 1984, showed that:
(a) 2,658 TCT's which BF evaluated to be worth P1,487 million were appraised by PAC to be worth only P1,196 million, hence, deficient by P291 million.
(b) Other properties (collaterals) supposedly worth P711 million could not be evaluated by PAC because the details submitted by the bank were insufficient;
(c) While P674 million in loans were supposedly guaranteed by the Home Financing Corporation (HFIC), the latter confirmed only P427 million. P247 million in loans were not guaranteed by HFC. (Teodoro Report.)
(d) Per SGV's report, loans totalling P1.882 million including accrued interest, were secured by collateral worth only Pl.54 billion. Hence, BFs unsecured exposure amounted to P586.2 million. BF Homes, Inc., a related company which has filed with the SEC a petition for suspension of payments, owes P502 million to BF.
13. BF had been suffering heavy losses. —
a) For the eleven (11) months ended November 30, 1984, the estimated net loss was P372.6 Million;
b) For the twelve (12) months from November 1984, the projected net loss would be P390.7 Million and would continue unabated; (p. 2, Teodoro Report)
c) Around 71.7% of the total accommodations of P2.0677 billions to the related/linked entities were adversely classified. Close to 33.7% or P697.1 millions were clean loans or against PNs (promissory notes) of these entities. Of the latter, 52.6% were classified as loss." (P. 5, Tiaoqui Report.)
d) The bank's financial condition as of date of examination, after setting up the additional valuation reserves of P612.2 millions and accumulated net loss of P48.2 millions, indicates one of insolvency. Total liabilities of P5,282.1 million exceeds total assets of P4,947.2 million by 6.8%. Total capital account of P334.9 million) is deficient by P322.7 million against the minimum capital required of P657.6 million (Annex F). Capital to risk assets ratio is negative 10.38%.
e) Total loans and investment portfolio amounted to P3,914.3 millions (gross), of which P194.0 millions or 5.0% were past due and P1,657.1 millions or 42.3% were adversely classified (Substandard — P1,011.4 millions; Doubtful — P274.6 millions and Loss — P371.1 millions). Accounts adversely classified included unmatured loan of Pl,482.0 million to entities related with each other and to the bank, several of which showed distressed conditions. (p. 7, Tiaoqui Report.)
Teodoro's conclusion was that "the continuance of the bank in business would involve probable loss to its depositors and creditors." He recommended "that the Monetary Board take a more effective and responsible action to protect the depositors and creditors ... in the light of the bank's worsening condition." (p. 5, Teodoro Report.)
On January 23, 1985, Tiaoqui submitted his report to the Monetary Board, Like Teodoro, Tiaoqui believed that the principal cause of the bank's failure was that in violation of the General Banking Law and CB rules and regulations, BF's major stockholders, directors and officers, through their "related" companies: (i.e. companies owned or controlled by them of their relatives) had been "borrowing" huge chunks of the money of the depositors. His Conclusion and Recommendations were:
The Conservator, in his report to the Monetary Board dated January 8, 1985, has stated that the continuance of the bank in business would involve probable loss to its depositors and creditors. It has recommended that a more effective action be taken to protect depositors and creditors.
The examination findings as of July 31, 1984 as shown earlier, indicate one of insolvency and illiquidity and further confirms the above conclusion of the Conservator.
All the foregoing provides sufficient justification for forbidding the bank from further engaging in banking.
Foregoing considered, the following are recommended:
1. Forbid the Banco Filipino Savings & Mortgage Bank to do business in the Philippines effective the beginning of office on January, 1985, pursuant to Sec. 29 of R.A. No. 265, as amended;
2. Designate the Head of the Conservator Team at the bank, as Receiver of Banco Filipino Savings & Mortgage Bank, to immediately take charge of the assets and liabilities, as expeditiously as possible collect and gather all the assets and administer the same for the benefit of all the creditors, and exercise all the powers necessary for these purposes including but not limited to bringing suits and foreclosing mortgages in the name of the bank.
3. The Board of directors and the principal officers from Senior Vice President, as listed in the attached Annex "A" be included in the watchlist of the Supervision and Examination Sector until such time that they shall have cleared themselves.
4. Refer to the Central Banles Legal Department and Office of Special Investigation the report on the findings on Banco Filipino for investigation and possible prosecution of directors, officers and employees for activities which led to its insolvent position." (pp. 9-10, Tiaoqui Report.)
On January 25, 1985 or two days after the submission of Tiaoqui's Report, and three weeks after it received Teodoro's Report, the Monetary Board, then composed of:
| Chairman: | Jose B. Fernandez, Jr.
CB Governor |
Members:
1. Cesar E.A. Virata, Prime Minister & Concurrently Minister of Finance
2. Roberto V. Ongpin, Minister of Trade & Industry & Chairman of Board of Investment
3. Vicente B. Valdepeñas, Jr., Minister of Economic Planning & Director General of NEDA
4. Cesar A. Buenaventura, President of Filipinas Shell Petroleum Corp. (p. 37, Annual Report 1985)
issued Resolution No. 75 closing BF and placing it under receivership. The MB Resolution reads as follows:
After considering the report dated January 8, 1985 of the Conservator for Banco Filipino Savings and Mortgage Bank that the continuance in business of the bank would involve probable loss to its depositors and creditors, and after discussing and finding to be true the statements of the Special Assistant to the Governor and Head, Supervision and Examination Sector (SES) Department II, as recited in his memorandum dated January 23, 1985. that the Banco Filipino Savings and Mortgage Bank is insolvent and that its continuance in business would involve probable loss to its depositors and creditors, and in pursuance of Section 29 of R.A. No. 265, as amended, the Board decided:
1. To forbid Banco Filipino Savings and Mortgage Bank and all its branches to do business in the Philippines;
2. To designate Mrs. Carlota P. Valenzuela, Deputy Governor, as Receiver who is hereby directly vested with jurisdiction and authority to immediately take charge of the bank's assets and liabilities, and as expeditiously as possible collect and gather all the assets and administer the same for the benefit of its creditors, exercising all the- powers necessary for these purposes including, but not limited to, bringing suits and foreclosing mortgages in the name of the bank;
3. To designate Mr. Arnulfo B. Aurellano, Special Assistant to the Governor, and Mr. Ramon V. Tiaoqui, Special Assistant to the Governor and Head, Supervision and Examination Sector Department II. as Deputy Receivers who are likewise hereby directly vested with jurisdiction and authority to do all things necessary or proper to carry out the functions entrusted to them by the Receiver and otherwise to assist the Receiver in carrying out the functions vested in the Receiver by law or Monetary Board resolutions;
4. To direct and authorize Management to do all other things and carry out all other measures necessary or proper to implement this Resolution and to safeguard the interests of depositors/credition and the general public; and
5. In consequence of the foregoing, to terminate the conservatorship over Banco Filipino Savings and Mortgage Bank. (pp. 126-127, Rollo I.)
On March 19,1985, the receiver, Carlota Valenzuela, and the deputy receivers, Arnulfo B. Aurellano and Ramon V. Tiaoqui, submitted a report to the Monetary Board as required in Section 29, 2nd paragraph of R.A. 265 which provides that within sixty (60) days from date of the receivership, the Monetary Board shall determine whether the bank may be reorganized and permitted to resume business, or be liquidated. The receivers recommended that BF be placed under litigation. For, among other things, they found that:
1. BF had been suffering a capital deficiency of P336.5 million as of July 31, 1984 (pp. 2 and 4, Receivers' Report).
2. The bank's weekly reserve deficiencies averaged P146.67 million from November 25, 1983 up to March 16, 1984, rising to a peak of P338.09 million until July 27, 1984. Its reserve deficiencies against deposits and deposit substitutes began on the week ending June 15, 1984 up to December 7, 1984, with average daily reserve deficiencies of P2.98 million.
3. Estimated losses or "unhooked valuation reserves" for loans to entities with relationships to certain stockholder/directors and officers of the bank amounted to P600.5 million. Combined with other adjustments in the amount of P73.2 million, they will entirely wipe out the bank's entire capital account and leave a capital deficiency of P336.5 million. The bank was already insolvent on July 31, 1984. The capital deficiency increased to P908.4 million as of January 26, 1985 on account of unhooked penalties for deficiencies in legal reserves (P49.07 million), unhooked interest on overdrawings, emergency advance of P569.49 million from Central Bank, and additional valuation reserves of P124.5 million. (pp. 3-4, Receivers' Report.)
The Receivers further noted that —
After BF was closed as of January 25, 1985, there were no collections from loans granted to firms related to each other and to BF classified as "doubtful" or "loss," there were no substantial improvements on other loans classified "doubtful"or "loss;" there was no further increase in the value of assets owned/acquired supported by new appraisals and there was no infusion of additional capital such that the estimated realizable assets of BF remained at P3,909.23, (millions) while the total liabilities amounted to P5,159.44 (millions). Thus, BF remains insolvent with estimated deficiency to creditors of Pl,250.21 (millions).
Moreover, there were no efforts on the part of the stockholders of the bank to improve its financial condition and the possibility of rehabilitation has become more remote. (P. 8, Receivers' Report.)
In the light of the results of the examination of BF by the Teodoro and Tiaoqui teams, I do not find that the CB's Resolution No. 75 ordering BF to cease banking operations and placing it under receivership was "plainly arbitrary and made in bad faith." The receivership was justified because BF was insolvent and its continuance in business would cause loss to its depositors and creditors. Insolvency, as defined in Rep. Act 265, means 'the inability of a banking institution to pay its liabilities as they fall due in the usual and ordinary course of business. Since June 1984, BF had been unable to meet the heavy cash withdrawals of its depositors and pay its liabilities to its creditors, the biggest of them being the Central Bank, hence, the Monetary Board correctly found its condition to be one of insolvency.
All the discussion in the Santiago Report concerning the bank's assets and liabilities as determinants of BF's solvency or insolvency is irrelevant and inconsequential, for under Section 29 of Rep. Act. 265, a bank's insolvency is not determined by its excess of liabilities over assets, but by its "inability to pay its liabilities as they fall due in the ordinary course of business" and it was abundantly shown that BF was unable to pay its liabilities to depositors for over a six-month-period before it was placed under receivership.
Even if assets and liabilities were to be factored into a formula for determining whether or not BF was already insolvent on or before January 25, 1985, the result would be no different.ℒαwρhi৷ The bank's assets as of the end of 1984 amounted to P4.891 billions (not P6 billions) according to the Report signed and submitted to the CB by BF's own president, and its total liabilities were P4.478 billions (p. 58, Cosico Report). While Aguirre's Report showed BF ahead with a net worth of P412.961 millions, said report did not make any provision for estimated valuation reserves amounting to P600.5 millions, (50% of face value of doubtful loans and 100% of face value of loss accounts) which BF had granted to its related/linked companies. The estimated valuation reserves of P600.5 millions plus BF's admitted liabilities of P4.478 billions, put together, would wipe out BFs realizable assets of P4.891 billions and confirm its insolvent condition to the tune of P187.538 millions.
BF's and Judge (now CA Justice) Consuelo Y. Santiago's argument that valuation reserves should not be considered because the matter was not discussed by Tiaoqui with BF officials is not well taken for:
(1) The records of the defaulting debtors were in the possession of BF.
(2) The "adversely classified" loans were in fact included in the List of Exceptions and Findings (of irregularities and violations of laws and CB rules and regulations) prepared by the SES, a copy of which was furnished BF on December 1 7, 1984;
(3) A conference on the matter washeld on January 2l, 1985 with senior officials of BF headed by EVP F. Dizon,. (pp. 14-15, Cosico Report.) BF did not formally protest against the CBs estimate of valuation reserves. The CB could not wait forever for BF to respond for the CB had to act with reasonable promptness to protect the depositors and creditors of BF because the bank continued to operate.
(4) Subsequent events proved correct the SES classification of the loan accounts as "doubtful" or "loss' because as of January 25, 1985 none of the loans, except three, had been paid either partially or in full, even if they had already matured (p. 53, Cosico Report).
The recommended provision for valuation reserves of P600.5 millions for "doubtful" and "loss" accounts was a proper factor to consider in the capital adjustments of BF and was in accordance with accounting rules. For, if the uncollectible loan accounts would be entered in the assets column as "receivables," without a corresponding entry in the liabilities column for estimated losses or valuation reserves arising from their uncollectability, the result would be a gravely distorted picture of the financial condition of BF.
BF's strange argument that it was not insolvent for otherwise the CB would not have given it financial assistance does not merit serious consideration for precisely BF needed financial assistance because it was insolvent.
Tiaoqui's admission that the examination of BF had "not yet been officially terminated" when he submitted his report on January 23, 1985 did not make the action of the Monetary Board of closing the bank and appointing receivers for it, 'plainly arbitrary and in bad faith." For what had been examined by the SES was more than enough to warrant a finding that the bank was "insolvent and could not continue in business without probable loss to its depositors or creditors," and what had not been examined was negligible and would not have materially altered the result. In any event, the official termination of the examination with the submission by the Chief Examiner of his report to the Monetary Board in March 1985, did not contradict, but in fact confirmed, the findings in the Tiaoqui Report.
The responsibility of administering the Philippine monetary and banking systems is vested by law in the Central Bank whose duty it is to use the powers granted to it under the law to achieve the objective, among others, of maintaining monetary stability in the country (Sec. 2, Rep. Act 265). I do not think it would be proper and advisable for this Court to interfere with the CB's exercise of its prerogative and duty to discipline banks which have persistently engaged in illegal, unsafe, unsound and fraudulent banking practices causing tremendous losses and unimaginable anxiety and prejudice to depositors and creditors and generating widespread distrust and loss of confidence in the banking system. The damage to the banking system and to the depositing public is bigger when the bank, like Banco Filipino, is big. With 89 branches nationwide, 46 of them in Metro Manila alone, pumping the hard-earned savings of 3 million depositors into the bank, BF had no reason to go bankrupt if it were properly managed. The Central Bank had to infuse almost P3.5 billions into the bank in its endeavor to save it. But even this financial assistance was misused, for instead of satisfying the depositors' demands for the withdrawal of their money, BF channeled and diverted a substantial portion of the finds into the coffers of its related/linked companies. Up to this time, its officers, directors and major stockholders have neither repaid the Central Bank's P3.6 billion financial assistance, nor put up adequate collaterals therefor, nor submitted a credible plan for the rehabilitation of the bank. What authority has this Court to require the Central Bank to reopen and rehabilitate the bank, and in effect risk more of the Government's money in the moribund bank? I respectfully submit that decision is for the Central Bank, not for this Court, to make.
WHEREFORE, I vote to dismiss the petition for certiorari and mandamus in G.R. No. 70054 for lack of merit.
Romero, J., concurs.
Footnotes
1 P. 3, Petition.
2 Sec. 37. All savings and mortgage banks shall maintain on deposit with the Central Bank of the Philippines such reserves against their deposit liabilities as the Monetary Board shall determine in accordance with the pertinent provisions of the Central Bank Act.
3 Sec. 38. Whenever there is a call by depositors of a saving bank for repayment of their deposits and the call so made shall result in reducing its legal reserves below the amount required by the Monetary Board, such bank shall not make any new loans or investment 0 the funds of depositors or earnings of such funds until the call of the depositors has been satisfied and its legal reserves have been restored to the required minimum.
4 Sec- 83. No director or officer of any banking institution shall, either directly or indirectly, for himself or as the representative or agent of others, borrow any of the deposits of funds of such bank ... .
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