CENTRAL BANK OF THE PHILIPPINES, PETITIONER, VS. HONORABLE COURT OF APPEALS, ISIDRO E. FERNANDEZ, AND JESUS R. JAYME, RESPONDENTS.

REVIEW on certiorari of the judgment of the respondent
appellate court which affirmed the decision of the Court of First Instance of
Manila in Sp. Proc. No. 88415, entitled: 
“Isidro Fernandez, et al.,
petitioners, versus Central Bank of the Philippines, et al., respondents;” and Sp.
Proc. No. 89219, entitled:  “In
re:  Liquidation of Provident Savings Bank, Central Bank of the Philippines, petitioner,” setting
aside Resolution No. 1766 of the Monetary Board of the Philippines, dated
September 15, 1972, which forbade the Provident Savings Bank from doing
business in the Philippines.

It is not disputed that the Provident Savings Bank, hereinafter
referred to as PROVIDENT, for short, was incorporated after the Central Bank
had approved its establishment under Monetary Board Resolution No. 572, dated May 3, 1963.  Its Articles of Incorporation was registered
with the Securities and Exchange Commission on October 31, 1963. 
PROVIDENT was granted authority to operate by the Monetary Board on December
4, 1963 and started business on December 9, 1963 with principal office at Villalobos
St., Quiapo, Manila.  Within four (4) years of operation, PROVIDENT
had established six (6) extension offices within the greater Manila
area.

PROVIDENT has an authorized capital of P10 million, divided into
100,000 shares of common stock with a par value of P100.00 each.  At the time of its incorporation, 25% of the
stock was subscribed and paid for by its incorporators.  There were subsequent subscriptions received
so that by the end of 1967 the total paid up capital of the bank amounted to
P6.7 million out of the aggregate P7.5 million subscribed shares of stock.  The herein private respondents, Isidro E.
Fernandez and Jesus R. Jayme, are the majority and controlling stockholders
thereof, holding 41% and 22%, respectively, of the total subscribed capital
stock of the bank.

A major portion of PROVIDENT’s loanable funds was granted to
directors, officers and stockholders and their related interests and the bank
was cautioned to avoid con-entration of credits and to adopt a policy where
loans would be granted to a larger number of borrowers who had no financial
interest in the bank.^[1]

In September, 1968, a
number of savings banks, PROVIDENT among others, experienced a bank run which
was triggered off by adverse publicity in the newspapers, radio, and television
of investigations conducted by Congress that some banks were unable to pay
deposit withdrawals.  In view of the
unusually heavy withdrawals, PROVIDENT had no recourse but to request emergency
loans from the Central Bank to meet the demands of the depositors.  The Monetary Board, however, denied these
requests for emergency loans.  PROVIDENT,
therefore, had to borrow from other banks, foremost of which is the Banco
Filipino Mortgage and Savings Bank which granted PROVIDENT advances up to P8
million, on the security of real estate properties and a pledge of P4.074
million worth of shares of stock representing about 60% of the outstanding
shares of stock of PROVI­DENT owned by Fernandez and Jayme.  But, these loans were not enough to meet the
demands of the depositors.  As a result,
PRO­VIDENT was forced to temporarily close its doors to the public on September
12, 1968.

Subsequently, however,
the Central Bank extended emergency loans to PROVIDENT in order to stop the
bank run and to prevent the bank run from eroding the confidence of the public
in the banking system, thus enabling PROVIDENT to reopen on September
16, 1968.  The Hon. Alfonso Calalang, then Governor of
the Central Bank, together with other high officials of the Central Bank,
visited the premises of PROVIDENT soon after its reopening and assured the
public that PROVIDENT was sound and had the full backing of the Central Bank.

Then followed a series of
emergency releases.  But, the assistance
given to PROVIDENT was not sufficient to meet and service the unusually heavy
withdrawals of deposits.  Fernandez and
Jayme appealed to the Central Bank for continued assistance.  At one time, Fernandez and Jayme were
summoned to the Central Bank for a conference with the Governor and Deputy
Governor and were introduced to representatives of the Iglesia Ni Kristo (INK) which had a sizeable deposit of P5.5 million
with PROVIDENT and was having difficulty in withdrawing the same.  Central Bank Deputy Governor Amado Briñas
voiced the decision of the Central Bank that unless Fernandez and Jayme
relinquished and turned over the management and control of PROVIDENT to the Iglesia Ni Kristo, the Central Bank would not further support
and assist the distressed PROVIDENT.  Governor
Briñas, in turn, persuaded the representatives of the Iglesia Ni Kristo, headed by Rogelio Manalo, that the only way
they could withdraw their deposit was to take control and management of
PROVIDENT.  Left with no other
alternative, but to accede, and in order to protect their investment, Fernandez
and Jayme reluctantly executed a Memorandum Agreement with the Eagle
Broadcasting Corporation, a company identified with the Iglesia Ni Kristo, on December 6, 1968.  The
parties therein made the following commitments:

1.  That the
Iglesia Ni Kristo will
convert its time deposit with the Bank
in the amount of P5.5 million into voting preferred shares of stock;

2.  That the stockholders will cause the amendment of the Articles of
Incorporation to increase the capital stock by creating voting preferred shares
of stock at a par value of P70.00
per shares;

3.  That the Iglesia Ni Kristo shall
purchase from Fernandez and Jayme group 53,000 shares of stock within the
period of six
months;

4.  That the Fernandez and Jayme group shall
execute a voting trust agreement in favor of the Iglesia Ni Kristo group
to subsist only until the amendment to the Articles of Incorporation shall have been registered with the Securities and
Exchange Commission; and

5.  That
the Iglesia Ni Kristo group shall not foreclose mortgages securing
loans of various borrowers until after four years, provided that the schedule
of payments on loans of the Fernandez and Jayme group shall be complied with.^[2]

Immediately thereafter, a special meeting of the stockholders of
PROVIDENT was convened and the Articles of Incorporation of the bank was
amended to comply with the terms and stipulations contained in the Memorandum
Agreement.  A Voting Trust Agreement was,
likewise, executed in favor of the Eagle Broadcasting Corporation on certain
shares of stock owned by Reynaldo Panopio, a stockholder identified with the
Fernandez and Jayme group, after which Fernandez and Jayme withdrew from the
management of PROVIDENT in favor of the Iglesia Ni Kristo group effective December 1, 1968.

Following the transfer of management of PROVIDENT to the Iglesia
Ni Kristo, the Central Bank
forthwith released additional loans to PROVIDENT
at a much reduced rate of interest of 10% instead of the 12% interest
charged on previous loans.  PROVIDENT was
further allowed to resume its lending activities.  At the time of the trans­fer of the
management to the Iglesia Ni Kristo the net worth of PROVIDENT was P7.2 million.^[3]

The Eagle Broadcasting
Corporation, however, did not comply with its commitment to purchase 53,000
common shares of stock and to convert its deposits into equity.  Instead, the new management of PROVIDENT
caused the conversion of the deposits of Iglesia Ni Kristo into “bills payable” earning 12% interest, which were
subsequently withdrawn.^[4]
PROVIDENT, under the new management, also failed to comply with the Monetary
Board directives relative to the rehabilitation of the bank so that it restored
the interest rate of 12% on outstanding loans.^[5]
Various irregularities detrimental to PROVIDENT were also perpetrated by the
new management despite the presence of resident Central Bank examiners.^[6]
The Iglesia Ni Kristo likewise
facilitated or caused the assignment and mortgage of PROVIDENT’s various
assets, receivables, and in­terests in favor of the Eagle Broadcasting
Corporation.^[7]

In view of the deteriorating financial condition of PROVIDENT,
the Deputy Governor of the Central Bank separately met with the representatives
of the Iglesia Ni Kristo and the
majority stockholders of the bank to discuss with them the urgency of finding a
solution to PROVIDENT’s financial difficulties. 
Both parties were requested to submit their proposals pertaining to the
continued operation and management of the bank. 
In his letter dated October 15, 1971, Rogelio W. Manalo, President and
Chairman of the Board of Directors of PROVIDENT submitted a set of proposals
consisting of three (3) courses of action, namely:  conversion of the P4 million “bills
payable” of the Iglesia Ni
Kristo to equity; staggered payment to the Iglesia Ni Kristo of the balance of its deposits; and
pre-payment of borrowings of majority stockholders at the rate of P300,000.00
monthly.  But, these proposals were
rejected by the Monetary Board on January
7, 1972 (Res. No. 6).^[8]

On August 22, 1972,
Rogelio W. Manalo resigned as Chairman and President of PROVIDENT, giving rise
to large withdrawals from its big depositors which the bank could not readily
meet.  PROVIDENT had to seek assistance
from other banks, the Savings Bankers Association of the Philippines,
and other sources to prevent the
recurrence of another bank run.^[9]
But, the financial condition of PROVIDENT continued to worsen, so that on
September 15, 1972, the Monetary Board, after “considering further that
the principal stockholders and/or the Iglesia Ni Kristo/Eagle Broadcasting Corporation group have not come up with
concrete and substantial proposals towards the rehabilitation of the Provident
Savings Bank, which proposals were required of them in the conference held in
September of 1971; and in pursuance of Section 29 of Republic Act No. 265,
decided as follows:

“‘a)   To forbid the
Provident Savings Bank to do business in the Philippines;

b)   To instruct the Superintendent of Banks to
take charge, in the name of the Monetary Board, of the assets of the Provident Savings Bank;

c)   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

d)   To refer the subject memoranda of the
Superintendent of Banks and all pertinent reports of the examiners of the Department of Supervision and
Examination to the Central Bank Legal Counsel for appropriate legal
action(s).'”^[10]

Pursuant thereto, the Central Bank instructed its Legal Counsel
on September 25, 1972:

“1)  To request the Solicitor General to file,
pursuant to the last paragraph of Section 29 of Republic Act No. 265, 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 Provident Savings Bank; and

 2)  To
take such other action as may be appropriate and legal to safeguard the
interests of the Bank’s creditors.”^[11]

Consequently, on September 28, 1972, Fernandez and Jayme filed a
petition for certiorari, prohibition and mandamus and/or specific
performance, with preliminary injunction, against the Central Bank and Eagle
Broadcasting Corporation, with the Court of First Instance of Manila, docketed
therein as Sp. Proc. No. 88415, to annul and set aside the said Monetary Board
Resolution No. 1766, dated September 15, 1972 and to restrain the Central Bank
from liquidating PROVIDENT, and, instead, to order the Central Bank to comply with
its commitments to the petitioners and reorganize and rehabilitate PROVIDENT in
the manner it did to the Overseas Bank of Manila, as well as for damages and
costs.^[12]

The Central Bank answered that PROVIDENT was insolvent and its
condition warranted closure under Sec. 29 of Republic Act No. 265.

Eagle Broadcasting Corporation, upon the other hand, blames both
the Central Bank and Fernandez and Jayme for the failure of PROVIDENT.

On December 11, 1972, the Central Bank filed a Petition for Assistance and Supervision in Liquidation of the Provident Savings Bank with the Court of First Instance of
Manila, docketed therein as Sp. Proc. No. 89219, entitled:  “In re: 
Liquidation of the Provident Savings Bank; Central Bank of the Philippines,
petitioner.”^[13]

Upon motion, the two
cases were heard jointly,^[14] and on February 20, 1974, judgment was rendered, as follows:

WHEREFORE, the writs prayed for in the amended petition, except the
writ of mandamus, are hereby granted, and Resolution No. 1766 dated September
15, 1972 of the Monetary Board of respondent Central Bank – as well as any and
all resolutions issued in pursuance thereof, are hereby annulled and set aside;
and said respondent Central Bank is ordered to desist from liquidating PROVIDENT and is ordered to
specifically perform its obligation to reorganize and rehabilitate the
Provident Savings Bank, following the precedent set in the case of the reorganization or rehabilitation of the Republic
Bank and the course of action expected to be taken in the implementation of the
final decision of the Supreme Court in the case of RAMOS vs. CENTRAL BANK, 41
SCRA 565, with respect to the Overseas Bank of Manila, within two (2) years
from finality of this decision.

“Respondent Central Bank and Eagle Broadcasting Corporation
are hereby ordered to pay the petitioners, jointly and severally:

1.  The amount of P600,000.00 as actual damages;

2.  The amount of P50,000.00 as moral damages;

3.  The amount of P25,000.00 as exemplary damages;
and

4.  The amount of P50,000.00 as attorney’s fees
plus costs.”^[15]

The Central Bank and the Eagle
Broadcasting Corporation appealed,^[16]
and after appropriate proceedings, the herein respondent Court of Appeals
rendered the disputed decision on January
22, 1979, the dispositive portion of which reads, as follows:

“WHEREFORE, the decision appealed from is hereby affirmed, but
modified to exclude the award of damages and attorney’s fees.  Costs de
officio.^[17]

Hence, the present
recourse.

1.  The petitioner claims
that the respondent Court of Appeals erred in not applying Presidential Decree
No. 1007, dated September 22, 1976, which amended Section 29 of Republic Act
No. 265 during the pendency of the appeal and should have dismissed the
petition of Fernandez and Jayme in view of the findings of the said appellate
court that there is no clear proof of gross and evident bad faith on the part
of the petitioner and the Eagle Broadcasting Corporation.  In support of its contention, the petitioner
invokes the case of Lucas Ramirez vs. The Hon. Court of Appeals, et al.^[18]

Indeed, the appellate
court, in reviewing a judgment on appeal, should dispose of a question
according to the law prevailing at the time of such disposition and not
according to the law prevailing at the time of the rendition of the appealed
judgment.  Accordingly, Section 29
of Republic Act No. 265, as amended by Presidential Decree No. 1007,
should be applied.

Under this section, as
amended, the action of the Monetary Board in ordering the closure and
liquidation of an insolvent bank is final and executory and can be set aside
only if there is convincing proof that the action is plainly arbitrary and made
in bad faith.

The petition filed, however, should not
be dismissed for while there may not be
gross and evident bad faith on the part of the Central Bank and Eagle
Broadcasting Corporation to sustain the award of damages to Fernandez and Jayme, as ordered by
the trial court, the action of the Monetary Board in forbidding PROVIDENT from
doing business in the Philippines and ordering its liquidation is clearly
arbitrary and was made in bad faith.

The arbitrariness and bad faith of the petitioner is evident from
the fact that it pressured Fernandez and Jayme into relinquishing the management and control of PROVIDENT to the Iglesia Ni
Kristo (INK) which did not
have any intention of restoring the bank into its former sound financial
condition but whose interest was merely to recover its deposits from PROVIDENT,
and, therafter, allowing the Iglesia Ni Kristo to mismanage PROVIDENT until the bank’s financial deterioration
and subsequent closure.  As the trial
court said:

“Having decided in 1968 that PROVIDENT was salvageable
and could be permitted to continue in business with its support, provided there
is change in management and introduction of reforms, the CB should have been vigilant in its overseeing of the faithful
compliance by the parties of the terms of the Memorandum Agreement, as well as in supervising and controlling the operations of the bank under
the management of EAGLE.  The persuasive, nay,
compulsory, powers of the CB to accomplish these cannot be doubted.  The CB exercises such control
of private banks under its broad powers that it can decree life or death of any
bank by simply withholding from it the facilitates
that it normally accords banks.  It was
in the exercise of these powers by
the CB that the Fernandez/Jayme
group was constrained to give up the management and control of PROVIDENT in 1968 because the CB threatened to discontinue support of the bank
unless management is transferred to EAGLE.

“To recapitulate, the CB:

1.  Failed to exact compliance by EAGLE of its
obligations under the Memorandum Agreement.

2.  Failed to exercise the necessary supervision
over EAGLE’S management which could have checked EAGLE’s excuses or abuses.

3.  Failed to enforce other reforms necessary to
restore PROVIDENT to its former sound financial condition.

4.  Failed to extend the support and assistance
necessary to make reorganization and rehabilitation of PROVIDENT a reality.

“Illustrative of how PROVIDENT was being treated unfairly by
the CB, one needs take note only of the discrepancy in the interest rates on
emergency loans being exacted by the CB. 
Under the Fernandez/Jayme management of PROVIDENT, it was 12% per annum.  When management was transferred to
EAGLE, the medium chosen by the CB for purposes of reorganization, interest was
reduced to 10% per annum.  When the conditions at
PROVIDENT continued to deteriorate under EAGLE’s management, interest rates
were again raised to 12%.  And yet, the
CB proposed to extend to Banco
Filipino, a solid and non-distressed bank which was a creditor of PROVIDENT, an
emergency loan under Sec. 90 of the CB Act of up to P7,000,000.00 ‘if it so
desires at an interest rate to be determined by Management but in no case lower than 4 per cent p.a.’ (Par.
a-1, p. 3, Exh. ‘9 CBP’), which is the Memorandum
dated September 14, 1972
of Governor Gregorio Licaros to the Monetary
Board.”^[19]

The trial court further
said:

“The penalties paid by PROVIDENT in its deficiency plus the
12% interests in its emergency loan greatly contributed to the deterioration of
PROVIDENT’s net worth.  The CB is
supposed to help a distressed bank, but in the case of PROVIDENT, the CB imposed an interest of 12% on its emergency
loans.  In so doing, the CB, instead of
helping improve the situation of PROVIDENT, actually aggravated further its
financial position.  And what is most
amazing, while this is being done to a bank
in distress, the CB was willing to give loans to a well-off bank, the Banco
Filipino, loans at an interest of only 4%.”^[20]

Besides, the Central Bank has already rehabilitated similarly
distressed banks, the Republic Bank and the Overseas Bank of Manila,
among several others, so that it would be unjust to PROVIDENT to be deprived of
the Central Bank’s continued support.

2.  The petitioner next
claims that the Court of Appeals erred in not holding that there can be no
estoppel against the petitioner in view of the latter’s valid exercise of
police power by its lawful overseeing of Provident Savings Bank.

The contention is without merit. 
While the closure and liquidation of a bank may be considered an
exercise of police power, the validity of such exercise of police power is
subject to judicial inquiry and could be set aside if it is either capricious,
discriminatory, whimsical, arbitrary, unjust, or a denial of the due process
and equal protection clauses of the Constitution.  In the cases under consideration, it is not
disputed that the Central Bank had committed itself to support PROVIDENT and
restore it to its former sound financial position provided that Fernandez and
Jayme should relinquish and give up its control and management of the bank to
the Iglesia Ni Kristo, and
thereafter, whimsically withdrew such support to the detriment of
PROVIDENT.  In the case of Ramos vs. Central Bank,^[21] where the
Central Bank committed itself to the continued operation of, and rehabilitation
of the Overseas Bank of Manila, and
later on reneged on that promise, the Court therein ruled:

“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., pp. 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
contract.  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 promise is generally evidenced by action or forbearance on his part, and the idea has been expressed that
such action of forbearance would reasonably have been expected by the promissor. 
Mere omission by the
promisee to do whatever the promissor promised to do has been held insufficient ‘forbearance’
to give rise to a promissory estoppel.’ (19 Am Jur. loc cit.).”

3.  Finally, the petitioner claims
that the Court of Appeals erred in not appreciating certain facts, mainly
PROVIDENT’s anomalous grant of substantial loans to its own directors,
officers, stockholders, and related interests, which caused its insolvency,
thereby rendering the remedy of liquidation proper and rehabilitation improper.

The contention is without merit. 
We believe that the judgment complained of is based upon substantial
evidence and that the trial court had not overlooked, nor misinterpreted
certain facts and circumstances of weight in making its findings, so that the
respondent appellate court did
not commit any error in affirming the said judgment.  Besides, the issue of
whether or not certain alleged facts should be appreciated is a question of
fact, not properly cognizable on appeal, since it involves an examination of
the probative value of the evidence presented by the parties.

At any rate, the fact
that the directors, officers, and stockholders of PROVIDENT had been extended loans by the bank which may have caused its
insolvency, is of little importance since these loans were already known to and
taken into consideration by the Central Bank when it decided in 1968 to allow PROVIDENT to continue in business.  In the
case of Ramos vs. Central
Bank,^[22] the Court said:

“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.  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 reported to the OBM directors. 
In fact, on 29 September 1967,
the CB had already ordered its examiners to investigate the Bank’s records and
determine the parties responsible. 
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.”

WHEREFORE, the decision of the Court of Appeals
is hereby AFFIRMED.  Without pronouncement as to costs.

SO ORDERED.

Barredo, (Chairman), Fernandez, Abad Santos, and De Castro, JJ., concur.

^[1]
Record on Appeal, pp. 463-466.

^[2]
Id., p. 317.

^[3]
Id., p. 68, par. 8(d) of Answer of
Central Bank.

^[4]
Id., p. 257.

^[5]
Id., pp.
251-253.

^[6]
Id., pp.
869-870; 871-877.

^[7]
Id., p. 486.

^[8]
Id., pp.
499-501.

^[9]
Id., pp. 256-257.

^[10]
Id., pp. 291-292.

^[11]
Id., p. 294.

^[12]
Id., pp. 2-24.

^[13]
Id., pp. 393-418.

^[14]
Id., pp. 640-641.

^[15]
Id., pp. 815-906.

^[16]
Id., pp. 907, 909.

^[17]
Rollo, pp. 33-64.

^[18]
G.R. No. L-23587, June 10, 1976,
71 SCRA 231.

^[19]
Record on Appeal, pp. 894-896.

^[20]
Id., p. 901.

^[21]
G.R. No. L-29352, Oct. 4, 1971,
41 SCRA 565.

^[22]
Supra.