Busuego vs.

CA [304 SCRA 473

Power of Monetory Board
Facts: The 16th regular examination of the books and records of PAL Employees Savings and Loan Association
(PESALA) was conducted by a team of CB Examiners.Several irregularities were found to have been committed
by the PESALA officers. Hence, CB sent a letter to petitioners for them to be present at a meeting specifically
for thepurpose of investigating said anomalies. Petitioners did not respond. Hence, the Monetary Board adopted
a resolution including the names of the officers of PESALA in thewatchlist to prevent them from holding
responsible positions in any institution under CB supervision.Petitioners filed a petition for injunction against the
MB in order to prevent their names from being added in the said watchlist. RTC issued the TRO. The MB
appealed to the CA which reversed RTC. Hence, this petition for certiorari with the SC.Petitioners contend that
the MB resolution was null and void for being violative of their right to due process by imposing administrative
sanctions where the MB is not vested withauthority to disqualify persons from occupying positions in
institutions under the supervision of CB.
Issue: Whether or not the MB resolution was null and void.
Held: NO. The CB, through the MB, is the government agency charged with the responsibility of administering
the monetary, banking and credit system of the country and isgranted the power of supervision and examination
over banks and non-bank financial institutions performing quasi-banking functions of which savings and loan
associations,such as PESALA, form part of.The special law governing savings and loan associations is R.A.
3779, the Savings and Loan Association Act. Said law authorizes the MB to conduct regular yearlyexaminations
of the books and records of savings and loan associations, to suspend a savings and loan association for violation
of law, to decide any controversy over theobligations and duties of directors and officers, and to take remedial
measures. Hence, the CB, through the MB, is empowered to conduct investigations and examine therecords of
savings and loan associations. If any irregularity is discovered in the process, the MB may impose appropriate
sanctions, such as suspending the offender fromholding office or from being employed with the CB, or placing
the names of the offenders in a watchlist
Central Bank vs. Court of Appeals
HELD:
If it were to lift the conservatorship because it was arbitrarily imposed, then the case should have been
dismissed on the grounds of prescription and lack of personality to bring the action. Per the fifth
paragraph of Section 29 of the Central Bank Act, as amended by Executive Order No. 289, the actions
of the MB may be assailed in an appropriate pleading filed by the stockholders of record representing
the majority of the capital stock within ten (10) days from receipt of notice by the said majority
stockholders of the order placing the bank under conservatorship. The pertinent portion of said
paragraph reads as follows:
The provisions of any law to the contrary notwithstanding, the actions of the Monetary
Board under this Section, Section 28-A, and the second paragraph of section 34 of this
Act shall be final and executory, and can be set aside by a court only if there is
convincing proof, after hearing, that the action is plainly arbitrary and made in bad faith:
Provided, That the same is raised in an appropriate pleading filed by the stockholders of
record representing the majority of the capital stock within ten (10) days from the date
the receiver takes charge of the assets and liabilities of the bank or non-bank financial

intermediary performing quasi-banking functions or, in case of conservatorship or

liquidation, within ten (10) days from receipt of notice by the said majority stockholders
of said bank or non-bank financial intermediary of the order of its placement under
conservatorship or liquidation. . . .
The following requisites, therefore, must be present before the order of conservatorship may be set
aside by a court:
1. The appropriate pleading must be filed by the stockholders of record representing the
majority of the capital stock of the bank in the proper court;
2. Said pleading must be filed within ten (10) days from receipt of notice by said
majority stockholders of the order placing the bank under conservatorship; and
3. There must be convincing proof, after hearing, that the action is plainly arbitrary and
made in bad faith. 42
In the instant case, PBP was placed under conservatorship on 20 January 1984. The original
complaint in Civil Case No. 17692 was filed only on 27 August 1987, or three (3) years, seven (7)
months and seven (7) days later, long after the expiration of the 10-day period deferred to above. It is
also beyond question that the complaint and the amended complaint were not initiated by the
stockholders of record representing the majority of the capital stock. Accordingly, the order placing
PBP under conservatorship had long become final and its validity could no longer be litigated upon
before the trial court. Applying the original provision of the aforesaid Section 29 of the Central Bank
Act, this Court, in Rural Bank of Lucena, Inc. vs. Arca, et al., 43 ruled that:
Nor can the proceedings before Judge Arca be deemed a judicial review of the 1962
resolution No. 122 of the Monetary Board, if only because by law (Section 29, R.A. 265)
such review must be asked within 10 days from notice of the resolution of the Board.
Between the adoption of Resolution No. 122 and the challenged order of Judge Arca,
more than one year had elapsed. Hence, the validity of the Monetary Board's resolution
can no longer be litigated before Judge Arca, whose role under the fourth paragraph of
section 29 is confined to assisting and supervising the liquidation of the Lucena bank.
This rule is still good law notwithstanding the amendment to Section 29 which expands its scope by
including the action of the MB under Section 28-A of the Act on the appointment of a conservator.
It was precisely an awareness of the futility of any action to set aside the conservatorship which
prompted PBP to limit its action to a claim for damages and a prayer for an injunction against the
implementation of MB Resolution Nos. 649 and 751. However, to make it appear that it had a
meritorious case and a valid grievance against the Central Bank, it wandered long into the past and
narrated a sad story of persecution, oppression and injustice since the inception of the
conservatorship obviously to gain the sympathy of the court, which it eventually obtained.
The next crucial question that suggests itself for resolution is whether an action for damages arising
from the MB's act of placing the PBP under conservatorship and the acts of the conservator, and to
enjoin the MB from implementing resolutions related or incident to, or in connection with the
conservatorship, may be brought only for and in behalf of the PBP by the stockholders on record
representing the majority of the capital stock thereof or simply upon authority of its Board of Directors,

or by its Chairman. We hereby rule that as to the first kind of damages, the same may be claimed only
if the MB's action is plainly arbitrary and made in bad faith, and that the action therefor is inseparable
from an action to set aside the conservatorship. In other words, the same must be filed within ten (10)
days from receipt of notice of the order placing the bank under conservatorship. Otherwise, the
provision of the fifth paragraph of Section 29 of the Central. Bank Act could be rendered meaningless
and illusory by the bank's filing, beyond the prescribed ten-day period, of an action ostensibly claiming
damages but in reality questioning the conservatorship. As to actions for the second kind of damages
and for injunction to restrain the enforcement of the CB's implementing resolutions, said fifth
paragraph of Section 29 of the Central Bank Act, as amended, equally applies because the questioned
acts are but incidental to the conservatorship. The purpose of the law in requiring that only the
stockholders of record representing the majority of the capital stock may bring the action to set aside a
resolution to place a bank under conservatorship is to ensure that it be not frustrated or defeated by
the incumbent Board of Directors or officers who may immediately resort to court action to prevent its
implementation or enforcement. It is presumed that such a resolution is directed principally against
acts of said Directors and officers which place the bank in a state of continuing inability to maintain a
condition of liquidity adequate to protect the interest of depositors and creditors. Indirectly, it is likewise
intended to protect and safeguard the rights and interests of the stockholders. Common sense and
public policy dictate then that the authority to decide on whether to contest the resolution should be
lodged with the stockholders owning a majority of the shares for they are expected to be more
objective in determining whether the resolution is plainly arbitrary and issued in bad faith.
The original complaint in Civil Case No. 17692 was not initiated by the majority of the stockholders,
hence it should have been dismissed. However, confronted with this fatal flaw, counsel for PBP,
through shrewd maneuvering, attempted to save the day by impleading as co-plaintiff a corporation,
the PPI, which was not under conservatorship. Unfortunately, the maneuver was crudely and
imperfectly executed. Except for the inclusion of its name, nothing new was actually added to the
original complaint in terms of causes of action and reliefs for PPI. The amendment then was an
exercise in futility. We cannot, however, subscribe to the petitioner's view that: (a) once a bank is
placed under conservatorship, no action may be filed on behalf of the bank without prior approval of
the conservator, and (b) since in this case such approval was not secured prior to the filing of Civil
Case No. 17692, the latter must also be dismissed on that ground. No such approval is necessary
where the action was instituted by the majority of the bank's stockholders. To contend otherwise would
be to defeat the rights of such stockholders under the fifth paragraph of Section 29 of the Central Bank
Act. It must be stressed here that a bank retains its juridical personality even if placed under
conservatorship; 44 it is neither replaced nor substituted by the conservator who, per Section 28-A of
the Central Bank Act, as amended by P.D. No. 1932, shall only:
. . . take charge of the assets, liabilities, and the management of that institution, collect
all monies and debts due said institution and exercise all powers necessary to preserve
the assets of the institution, reorganize the management thereof, and restore its
viability. He shall have the power to overrule, or revoke the actions of the previous
management and board of directors . . ., any provision of law to the contrary
notwithstanding, and such other powers as the Monetary Board shall deem necessary.

First Bank vs. CA

FACTS:
Civil Law Contract of Sale Parties to a Sales Contract

Producers Bank (now called First Philippine International Bank), which has been under
conservatorship since 1984, is the owner of 6 parcels of land. The Bank had an agreement with
Demetrio Demetria and Jose Janolo for the two to purchase the parcels of land for a purchase price of
P5.5 million pesos. The said agreement was made by Demetria and Janolo with the Banks manager,
Mercurio Rivera. Later however, the Bank, through its conservator, Leonida Encarnacion, sought the
repudiation of the agreement as it alleged that Rivera was not authorized to enter into such an
agreement, hence there was no valid contract of sale. Subsequently, Demetria and Janolo sued
Producers Bank. The regional trial court ruled in favor of Demetria et al. The Bank filed an appeal with
the Court of Appeals.
Meanwhile, Henry Co, who holds 80% shares of stocks with the said Bank, filed a motion for
intervention with the trial court. The trial court denied the motion since the trial has been concluded
already and the case is now pending appeal. Subsequently, Co, assisted by ACCRA law office, filed a
separate civil case against Demetria and Janolo seeking to have the purported contract of sale be
declared unenforceable against the Bank. Demetria et al argued that the second case constitutes forum
shopping.
ISSUE: Did the bank conservator have the unilateral power to repudiate the authority of the bank
officers and/or to revoke the said contract?
HELD: It is not disputed that the petitioner Bank was under a conservator placed by the Central Bank
of the Philippines during the time that the negotiation and perfection of the contract of sale took place.
Petitioners energetically contended that the conservator has the power to revoke or overrule actions of
the management or the board of directors of a bank, under Section 28-A of Republic Act No. 265
(otherwise known as the Central Bank Act) as follows:

Whenever, on the basis of a report submitted by the appropriate supervising or examining

department, the Monetary Board finds that a bank or a non-bank financial intermediary
performing quasi-banking functions is in a state of continuing inability or unwillingness to
maintain a state of liquidity deemed adequate to protect the interest of depositors and creditors,
the Monetary Board may appoint a conservator to take charge of the assets, liabilities, and the
management of that institution, collect all monies and debts due said institution and exercise all
powers necessary to preserve the assets of the institution, reorganize the management thereof,
and restore its viability. He shall have the power to overrule or revoke the actions of the
previous management and board of directors of the bank or non-bank financial intermediary
performing quasi-banking functions, any provision of law to the contrary notwithstanding, and
such other powers as the Monetary Board shall deem necessary.
In the first place, this issue of the Conservator's alleged authority to revoke or repudiate the perfected
contract of sale was raised for the first time in this Petition as this was not litigated in the trial court

or Court of Appeals. As already stated earlier, issues not raised and/or ventilated in the trial court, let
alone in the Court of Appeals, "cannot be raised for the first time on appeal as it would be offensive to
the basic rules of fair play, justice and due process."43
In the second place, there is absolutely no evidence that the Conservator, at the time the contract was
perfected, actually repudiated or overruled said contract of sale. The Bank's acting conservator at the
time, Rodolfo Romey, never objected to the sale of the property to Demetria and Janolo. What
petitioners are really referring to is the letter of Conservator Encarnacion, who took over from Romey
after the sale was perfected on September 30, 1987 (Annex V, petition) which unilaterally repudiated
not the contract but the authority of Rivera to make a binding offer and which unarguably
came months after the perfection of the contract.
In the third place, while admittedly, the Central Bank law gives vast and far-reaching powers to the
conservator of a bank, it must be pointed out that such powers must be related to the "(preservation of)
the assets of the bank, (the reorganization of) the management thereof and (the restoration of) its
viability." Such powers, enormous and extensive as they are, cannot extend to the post-facto
repudiation of perfected transactions, otherwise they would infringe against the non-impairment clause
of the Constitution 44. If the legislature itself cannot revoke an existing valid contract, how can it
delegate such non-existent powers to the conservator under Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives the conservator power to revoke contracts that are,
under existing law, deemed to be defective i.e., void, voidable, unenforceable or rescissible. Hence,
the conservator merely takes the place of a bank's board of directors. What the said board cannot do
such as repudiating a contract validly entered into under the doctrine of implied authority the
conservator cannot do either. Ineluctably, his power is not unilateral and he cannot simply repudiate
valid obligations of the Bank. His authority would be only to bring court actions to assail such contracts
as he has already done so in the instant case. A contrary understanding of the law would simply not
be permitted by the Constitution. Neither by common sense. To rule otherwise would be to enable a
failing bank to become solvent, at the expense of third parties, by simply getting the conservator to
unilaterally revoke all previous dealings which had one way or another or come to be considered
unfavorable to the Bank, yielding nothing to perfected contractual rights nor vested interests of the
third parties who had dealt with the Bank.