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Central Bank vs. De la Cruz

*
G.R. No. 59957. November 12, 1990.

CENTRAL BANK OF THE PHILIPPINES, MEMBERS OF

THE MONETARY BOARD, CONSOLACION V. ODRA,
MARIO VICENTE, DRBSLA, RAMIL PARAISO, DANTE
L. REYES, DISIMULACION KING and NORA G.
SARMIENTO, petitioners, vs. THE HONORABLE
RAFAEL DE LA CRUZ and the RURAL BANK OF
LIBMANAN, INC., respondents.

Corporation Law; Banks and Banking; Actions of the

Monetary Board in proceedings on insolvency are explicitly
declared by law to be final and executory.—It is noteworthy that
the actions of the Monetary

_______________

* FIRST DIVISION.

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Central Bank vs. De la Cruz

Board in proceedings on insolvency are explicitly declared by law

to be “final and executory.” They may not be set aside, or
restrained, or enjoined by the courts, except upon “convincing
proof that the action is plainly arbitrary and made in bad faith.”
Same; Same; Same; Respondent Judge acted in plain
disregard of the fourth paragraph of Section 29 of the Central
Bank Act.—Respondent Judge acted in plain disregard of the
fourth paragraph of Section 29 of the Central Bank Act, when he
restrained the petitioners from closing and liquidating the Rural
Bank of Libmanan, prevented them from performing their
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functions, and ordered them to return the management and

control of the rural bank to its board of directors (p. 51, Rollo)
without receiving convincing proof that the action of the CB was
plainly arbitrary and made in bad faith.
Remedial Law; Injunction; For issuing a restraining order
against the Central Bank, respondent Judge committed a grave
abuse of discretion tantamount to excess or lack of jurisdiction.—
By issuing his own standards, instead of the standards set forth
in Section 29 of the law, as basis for issuing a restraining order
against the CB, respondent Judge committed a grave abuse of
discretion tantamount to excess, or lack of jurisdiction.
Same; Same; Same; It is a basic procedural postulate that a
preliminary injunction should never be used to transfer the
possession or control of a thing to a party who did not have such
possession or control at the inception of the case.—Respondent
Judge acted with grave abuse of discretion in issuing the
contested order dated January 15, 1982 enjoining the CB
liquidator from closing the rural bank and requiring it to restore
the management and control of the bank to its board of directors.
It is a basic procedural postulate that a preliminary injunction
should never be used to transfer the possession or control of a
thing to a party who did not have such possession or control at the
inception of the case (Lasala vs. Fernandez, 5 SCRA 79; Emilia vs.
Bado, 28 SCRA 183). Its proper function is simply to maintain the
status quo at the commencement of the action. The status quo at
the time of filing Civil Case No. 1309 was that Libmanan Bank
was under the control of the DRBSLA Director, with Consolacion
V. Odra, as liquidator appointed by the Central Bank.
Same; Counterclaim; A bank’s claim that the resolution of the
Monetary Board under Section 29 is plainly arbitrary and done in
bad faith should be asserted as an affirmative defense or
counterclaim in the proceedings for assistance in liquidation.—
Respondent Judge erred

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Central Bank vs. De la Cruz

in denying the Central Bank’s motion to dismiss the complaint for

prohibition and mandamus (Civil Case No. 1309) filed by
Libmanan Bank (Annex C, p. 71, Rollo). This Court in the case of
Rural Bank of Buhi, Inc. vs. Court of Appeals (162 SCRA 288) and
Salud vs. Central Bank of the Phils. (142 SCRA 590), ruled that a
bank’s claim that the resolution of the Monetary Board under
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Section 29 is plainly arbitrary and done in bad faith should be

asserted as an affirmative defense or counter-claim in the
proceedings for assistance in liquidation. It may be filed as a
separate action if no petition for assistance in liquidation has
been instituted yet.

PETITION for certiorari, prohibition and mandamus to

review the orders of the then Court of First Instance of
Camarines Sur, Br. 3.

The facts are stated in the opinion of the Court.

     Carpio & Carpio Law Office for private respondents.

GRIÑO-AQUINO, J.:

This petition for certiorari, prohibition and mandamus was

filed by the Central Bank of the Philippines, the members
of the Monetary Board, Consolacion V. Odra, Mario
Vicente, Ramil Paraiso, Dante L. Reyes, Disimulacion King
and Nora G. Sarmiento, through the Solicitor General,
praying this Court:

1. to annul the orders dated January 15, 1982,

January 29, 1982, March 1, 1982, March 31, 1982
and April 20, 1982 (Annexes A, B, C, D and E) of
the then Court of First Instance of Camarines Sur,
Branch III;
2. to restrain respondent Judge Rafael De la Cruz, his
agents, and representatives, from enforcing the
aforesaid orders and from continuing to assume
jurisdiction over Civil Case No. 1309, a proceeding
for prohibition, mandamus, and injunction filed by
herein private respondent Rural Bank of
Libmanan, Inc., to stop its liquidation by the
petitioners (defendants in the lower court) and to
compel respondent Judge to dismiss Civil Case No.
1309 (pp. 24-26, Rollo); and
3. to restore to petitioner Consolacion V. Odra, as the
duly appointed liquidator of the Central Bank, the
control of the respondent Rural Bank of Libmanan
(p. 27, Rollo).

The Rural Bank of Libmanan (hereinafter referred to as

Libmanan Bank) started operations in 1965 under and by
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virtue of Republic Act No. 720, otherwise known as the

Rural Banks’ Act (p. 331, Rollo). Originally owned and
managed by the Albas’ family, Libmanan Bank was later
sold to Manuel M. Villar and respondent Alex G. Durante,
who commenced banking operations in January 1979 (p.
331, Rollo).
In 1979, the Department of Rural Banks and Savings
and Loan Associations (DRBSLA) of the Central Bank of
the Philippines (or CB) conducted examinations of the
books and affairs of Libmanan Bank (pp. 28-32, Rollo).
DRBSLA director, Consolacion V. Odra, found serious
irregularities in its lending and deposit operations,
including false entries and false statements in the bank’s
records to give it the appearance of solidity and soundness
which it did not possess (p. 28, Rollo). As a result of its
questionable transactions, the bank became insolvent.
In her Memorandum dated May 2, 1980 to the Monetary
Board, Director Odra recommended, among other things,
that: (1) Libmanan Bank be prohibited from doing
business; (2) that it be placed under receivership in
accordance with Section 29 of Republic Act No. 265, as
amended; and (3) that the Director of DRBSLA be
designated as receiver (p. 36, Rollo).
Finding the report to be true, the Monetary Board, on
May 23, 1980, adopted Resolution No. 929 placing
Libmanan Bank under statutory receivership and
designating Director Consolacion V. Odra, as Receiver,
pursuant to Section 29, of Republic Act No. 265, as
amended (p. 39, Rollo).
Libmanan Bank was informed of the Monetary Board
Resolution No. 929, and advised to submit to the Monetary
Board an acceptable reorganization and rehabilitation
program (p. 39, Rollo). Meanwhile, Director Odra, as
receiver, took possession and control of the assets and
records of the rural bank (p. 39, Rollo).
As Libmanan Bank failed to submit the required
acceptable reorganization and rehabilitation plan, the
Monetary Board issued on October 3, 1980 Resolution No.
1852 ordering its liquidation (p. 39, Rollo).
On August 3, 1981, the Solicitor General, in accordance
with Republic Act No. 265, Section 29, filed in the then
Court of First Instance of Camarines Sur, Branch III,
presided over by respondent Judge Rafael De la Cruz, a
petition for Assistance in the Liquidation of Libmanan
Bank. The petition was docketed
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as SP-111 (pp. 39-40, Rollo). Libmanan Bank, through its

resident-Manager and the members of its Board of
Directors opposed the Central Bank’s petition.
On September 23, 1981, Libmanan Bank filed in the
same Court of First Instance of Camarines Sur, Branch III,
a separate complaint for prohibition, mandamus and
injunction (Civil Case No. 1309), against the Central Bank,
et al. (herein petitioners), praying the Court to enjoin and
dismiss the liquidation proceeding (Sp. Proc. No. 111) on
the ground that the Central Bank gravely abused its
discretion in ordering the liquidation of said rural Bank.
On December 24, 1981, the Central Bank, through its
house counsel, filed a motion for extension of time to file its
responsive pleading in Civil Case No. 1309 (Annex G, p. 42,
Rollo). On January 12, 1982, the Solicitor General entered
his appearance in the case as counsel for the Central Bank,
and asked for a second extension of time to file a responsive
pleading (Annex I, p. 42, Rollo).
On January 15, 1982, respondent Judge issued the
questioned order in Civil Case No. 1309, restraining the
respondent Central Bank from “closing the petitioner
(rural) bank and from performing its customary banking
business; to restore the control and management of the
bank to its Board of Directors; and to desist from
liquidating its assets until ordered otherwise by this Court”
(p. 42, Rollo). On January 29, 1982, respondent Judge
modified this order by requiring the parties in Civil Case
No. 1309 to “refrain from any act or acts which will tend to
disturb the state in which the parties were found before the
complaint was filed” (p. 25, Rollo).
On January 25, 1982, Libmanan Bank filed an ex parte
motion to declare the CB in default (Annex J, p. 42, Rollo).
On February 11, 1982, the Solicitor General filed a third
motion for extension (up to March 1, 1982) of the period to
file a responsive pleading in Civil Case No. 1309 (Annex K,
p. 43, Rollo).
On February 15, 1982, he filed a Motion to Dismiss Civil
Case No. 1309 on the ground that respondent Judge had no
jurisdiction over a special civil action for prohibition,
mandamus and injunction against the Central Bank and
that the petition was defective in form because it was not
properly verified (Annex L,
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Central Bank vs. De la Cruz

p. 43, Rollo). On March 1, 1982, Judge De la Cruz denied

the motion to dismiss and gave the Central Bank ten (10)
days to file its answer (Annex C, p. 44, Rollo).
On March 19, 1982, the Central Bank filed in the
Supreme Court a Motion for Extension to file a petition for
certiorari, prohibition and mandamus, and a separate
manifestation in the lower court notifying Judge De la Cruz
of the CB’s intention to elevate the case to this Court and
requesting Judge De la Cruz to desist from taking any
further action in Civil Case No. 1309.
On March 31, 1982, Judge De la Cruz declared the CB,
et al., in default for failure to file a responsive pleading to
the petition in Civil Case No. 1309. He pointed out that
“the projected move to bring the court’s denial of the
motion to dismiss to the Supreme Court on certiorari did
not stop the period given to the respondents to answer”
(Annex D, p. 72, Rollo).
On April 20, 1982, respondent Judge granted Libmanan
Bank’s ex parte motion dated March 29, 1982 for authority
to withdraw money from its bank deposits (Annex E, p. 45,
Rollo).
Hence, the present recourse.
The main issue raised by the petition is whether or not
respondent Judge acted with grave abuse of discretion or
without or in excess of his jurisdiction in issuing the
questioned orders, namely:

Annex A—order of January 15, 1982 restraining the Central Bank

from closing the rural bank and ordering return of management
and control to the Board of Directors.
Annex B—order of January 29, 1982 restraining the Central
Bank from disturbing status quo before the complaint was filed.
Annex C—order of March 1, 1982 denying Central Bank’s
motion to dismiss.
Annex D—order of March 31, 1982 declaring Central Bank in
default.
Annex E—order of April 20, 1982 authorizing Libmanan Bank
to withdraw money from its bank deposits.

The answer is yes.

The authority for the receivership of Libmanan Bank is
found in Section 29 of the Central Bank Act (P.D. 1827),
which pro-
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vides:

“SECTION 29.—Proceedings upon insolvency—Whenever, upon

examination by the head of the appropriate supervising or
examining department or his examiners or agents into the
condition of any bank or non-bank financial intermediary
performing quasi-banking functions, 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
or a person of recognized competence in banking or finance 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
bank or non-bank financial intermediary performing quasi-
banking functions.
“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 bank or non-bank financial intermediary
performing quasi-banking functions 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 proceeding
which have been taken and praying the assistance of the court in
the liquidation of such institution. The court shall have
jurisdiction in the same proceedings to adjudicate disputed claims
against the bank or non-bank financial intermediary performing

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quasi-banking functions and enforce individual liabilities of the

stockholders and do all that is necessary to preserve the assets

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Central Bank vs. De la Cruz

of such institution and to implement the liquidation plan

approved by the Monetary Board. The Monetary Board shall
designate an official of the Central Bank, or a person of recognized
competence in banking or finance, 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 bank or non-bank
financial intermediary performing quasi-banking functions 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
institution and he may, in the name of the bank or non-bank
financial intermediary performing quasi-banking functions,
institute such actions as may be necessary in the appropriate
court to collect and recover accounts and assets of such
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 the action 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 injunctions 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 pay the damages which the petitioner or plaintiff may
suffer by the refusal or 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 bank or non-bank financial intermediary performing

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quasi-banking functions 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 or non-bank financial intermediary performing
quasi-banking functions caused by extraordinary demands
induced by financial panic commonly evidenced by a run on the
bank or non-bank financial intermediary performing quasi-
banking functions in the banking community.

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Central Bank vs. De la Cruz

“The appointment of a conservator under Section 28-A of this

Act or the appointment of a receiver under this Section shall be
vested exclusively with the Monetary Board, the provision of any
law, general or special, to the contrary notwithstanding.” (Italics
supplied.)

It is noteworthy that the actions of the Monetary Board in

proceedings on insolvency are explicitly declared by law to
be “final and executory.” They may not be set aside, or
restrained, or enjoined by the courts, except upon
“convincing proof that the action is plainly arbitrary and
made in bad faith” (Salud vs. Central Bank of the
Philippines, 143 SCRA 590).
Respondent Judge acted in plain disregard of the fourth
paragraph of Section 29 of the Central Bank Act, when he
restrained the petitioners from closing and liquidating the
Rural Bank of Libmanan, prevented them from performing
their functions, and ordered them to return the
management and control of the rural bank to its board of
directors (p. 51, Rollo) without receiving convincing proof
that the action of the CB was plainly arbitrary and made in
bad faith. As stated therein, the basis of the questioned
order dated January 15, 1982, were:

1. that he did not receive any of petitioners’ formal

motions for extension of time to file their responsive
pleading;
2. that he had read the petition filed in Civil Case No.
1309; and
3. that there were good reasons shown in said petition
(p. 52, Rollo).

By using his own standards, instead of the standards set

forth in Section 29 of the law, as basis for issuing a
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restraining order against the CB, respondent Judge

committed a grave abuse of discretion tantamount to
excess, or lack of jurisdiction. We held in Rural Bank of
Buhi, Inc. vs. Court of Appeals (162 SCRA 288, 291):

“Evidently, the trial court acted merely on an incident and has

acted merely on an incident and has not as yet inquired, as
mandated by Section 29 of the Central Bank Act, into the merits
of the claim that the Monetary Board’s action is plainly arbitrary
and made in bad faith. It has not appreciated certain facts which
would render the remedy of liquidation proper and rehabilitation
improper, involving as it does an examination of the probative
value of the evidence presented by the parties properly belonging
to the trial court and not

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Central Bank vs. De la Cruz

properly cognizable on appeal.”

Respondent Judge acted with grave abuse of discretion in

issuing the contested order dated January 15, 1982
enjoining the CB liquidator from closing the rural bank and
requiring it to restore the management and control of the
bank to its board of directors. It is a basic procedural
postulate that a preliminary injunction should never be
used to transfer the possession or control of a thing to a
party who did not have such possession or control at the
inception of the case (Lasala vs. Fernandez, 5 SCRA 79;
Emilia vs. Bado, 28 SCRA 183). Its proper function is
simply to maintain the status quo at the commencement of
the action. The status quo at the time of filing Civil Case
No. 1309 was that Libmanan Bank was under the control
of the DRBSLA Director, with Consolacion V. Odra, as
liquidator appointed by the Central Bank.
Respondent Judge erred in denying the Central Bank’s
motion to dismiss the complaint for prohibition and
mandamus (Civil Case No. 1309) filed by Libmanan Bank
(Annex C, p. 71, Rollo). This Court in the case of Rural
Bank of Buhi, Inc. vs. Court of Appeals (162 SCRA 288) and
Salud vs. Central Bank of the Phils. 142 SCRA 590), ruled
that a bank’s claim that the resolution of the Monetary
Board under Section 29 is plainly arbitrary and done in bad
faith should be asserted as an affirmative defense or
counter-claim in the proceedings for assistance in
liquidation. It may be filed as a separate action if no

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petition for assistance in liquidation has been instituted

yet.

“x x x a banking institution’s claim that a resolution of the

Monetary Board under Section 29 of the Central Bank Act should
be set aside as plainly arbitrary and made in bad faith, may be
asserted as an affirmative defense (Sections 1 and 4[b], Rule 6,
Rules of Court) or a counterclaim (Section 6, Rule 6; Section 2,
Rule 72 of the Rules of Court) in the proceedings for assistance in
liquidation or as a cause of action in a separate and distinct
action where the latter was filed ahead of the petition for
assistance in liquidation (Central Bank vs. Court of Appeals, 106
SCRA 143).

Since the Central Bank’s petition for assistance in

liquidation had been filed on August 3, 1981 (Civil Case
No. SP-111, Court of First Instance of Camarines Sur,
Branch III), the Libmanan
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356 SUPREME COURT REPORTS ANNOTATED

Central Bank vs. De la Cruz

Bank’s filing on September 23, 1981 of a complaint for

prohibition and mandamus attacking the Central Bank’s
resolution appointing a receiver and liquidator for the bank
should have been asserted as a counterclaim in SP-111 (p.
39-40, Rollo), instead of as a separate special civil action for
prohibition against the Central Bank. The separate action
should have been either dismissed or consolidated with SP-
111 for the law abhors multiplicity of suits. Failure of
Libmanan Bank to assert in SP-111 the defense that the
Monetary Board’s receivership and liquidation resolution
was “arbitrary and made in bad faith,” constitutes a waiver
of that defense conformably with the rule of “Waiver of
Defense,” i.e., that “defenses and objections not pleaded
either in a motion to dismiss or in the answer are
(generally) deemed waived,” or the “Omnibus Motion Rule,”
providing that “a motion attacking a pleading or a
proceeding shall include all objections then available, and
all objections not so included shall be deemed waived”
(Salud vs. Central Bank of the Phils., 143 SCRA 590).
Respondent Judge abused his discretion in authorizing
the Libmanan Bank to withdraw funds from its deposits in
other banks (Annex E, p. 26, Rollo). The Rural Bank had
become insolvent as a result of mismanagement, frauds,
irregularities and violations of banking laws, rules, and

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regulations by its officers (p. 62, Rollo). Its remaining

assets should therefore be conserved to pay its creditors.
Allowing the Rural Bank to withdraw its deposits in other
banks would result in the further diminution and
dissipation of its assets to the prejudice of its depositors
and creditors, and to the unlawful advantage of the very
officers who brought about the bank’s insolvency.
WHEREFORE, the petition for certiorari is GRANTED.
The questioned orders dated January 15, 1982, January 29,
1982, March 1, 1982, March 31, 1982 and April 20, 1982
(Annexes A, B, C, D & E, respectively) of respondent Judge
Rafael De la Cruz of the then Court of First Instance of
Camarines Sur, Branch III, in Civil Case No. 1309 are
REVERSED AND SET ASIDE. The temporary restraining
order issued by this Court on July 19, 1982 is hereby made
permanent. Respondent Court is ordered to dismiss Civil
Case No. 1309. This order is immediately executory. Costs
against respondent Rural Bank of Libmanan.
357

VOL. 191, NOVEMBER 12, 1990 357

Calapatia, Jr. vs. Hacienda Benito, Inc.

SO ORDERED.

          Narvasa (Chairman), Cruz, Gancayco and

Medialdea, JJ., concur.

Petition granted. Orders reversed and set aside.

Note.—Injunction will not lie to take property out of the

control of the party in possession. (Ortigas and Company
Limited Partnership vs. Ruiz, 148 SCRA 326.)

——o0o——

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