EMERITO M. RAMOS, SUSANA B. RAMOS, EMERITO B. RAMOS, JR., JOSEFA RAMOS DE LA RAMA, HORACIO DE LA RAMA, ANTONIO B. RAMOS, FILOMENA RAMOS LEDESMA, RODOLFO LEDESMA, VICTORIA RAMOS …

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

The herein petition is based on the following grounds:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Finally, on 20 November
1967, the petitioners herein executed the Voting Trust Agreement
prepared by attorneys of the CB (Petition, Annex “A”) with
petitioners as Cestuis Que
Trust^[1]
and respondent CB’s Superintendent of Banks as the Trustee.  The Trustee entered into the agreement
pursuant to the authority given by respondent’s Monetary Board under M. B.
Resolution No. 2017, dated 17 October
1967.  The salient features
of the said Voting Trust Agreement are the following:

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

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

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

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

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

But as early as 25 September 1967, Mr. Martin Oliva,
who had become president of OBM only since 13 March 1967, had written to the
Superinten­dent of Banks that transactions worth around P48 million, of which
over P43 million were time deposits, at usurious rates of interest, had not
been incorporated in the Bank’s books nor reported to the Board of
Directors.  It was explained3
that the OBM management had resorted to these unrecorded transactions because
the suspension of its lending activities after 14 months of operation reduced
OBM to virtual inactivity, and it had to agree to pay high premiums or
interests on such deposits because this high costs is com­paratively cheaper
than the Central Bank’s interests on overdrawings at
the rate of 12% per annum and a penalty of 36% per annum on reserve
deficiencies.

Oliva’s letter prompted a further
investigation of OBM records by the CB examiners that revealed allegedly
unrecorded deposits and transactions (which is disputed by Petitioners)
amounting to 48,007,211 as of 13 Sept­ember 1967 (reduced to P35 million when
petition was filed); diversion of deposits to accounts controlled by certain
OBM officials (so-called COFICO and EMRACO accounts) and loans to the Ramos
family and firms controlled by them.4 Petitioners contend that these
transactions were recorded in subsidiary ledger accounts that were linked to
the general ledger accounts of the Bank under the so-called EMRACO and COFICO
accounts, and finally incorporated in OBM’ s regular
books in September, 1967 upon instructions of President Martin Oliva.5
And as to the loans to the Ramos family and firms, the same had been written
off when around 31 July 1967 the Ramoses conveyed to
the OBM properties worth P54.096 million.

On 27 October 1967,
the Superintendent of Banks reported that the condition of the OBM was one of
insolvency, calling for applica­tion of Section 29 of the Central Bank Act and
liquidation of OBM.  However, with the
listing of Ramos properties worth 100 million, it was added, a new possibility
emerged to recapitalize the OBM in 100 million.6

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

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

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

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

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

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

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

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

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

OBM president, Mr. Orosa, submitted a
“Projected Cash Flow Statement”7 concluding –

“It is pointed out here that with the P10 million loan from the CB, the extremely distressed financial
condition of TOBM will con­tinue to prevail. 
At best, the P10 million loan will enable TOBM
to resume limited lending operations on a highly selected basis and diminish
its estimated loss by some P492.5 thousand assuming that the loans to be
extended have a high turnover rate and a 100% repayment ratio.  Thus, with the P10 million CB loan, the
annual loss has been estimated to be P8.9 million.  To be able to breakdown in operations,
therefore, TOBM needs loanable funds estimated at
P196 million, pla­cing the cost of such funds at 1-1/2%.”

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

“Eight months of indecision has made de­positors lose faith
and as a result, we are faced with more court suits and withdrawals than ever
before and more obligations have matured.”8

The next day, 23 July 1958,
the Superintendent of Banks recommended to the Monetary Board that OBM be
liquidated under Section 29, Republic Act 265, if its “capital structure
cannot be strengthened to meet the re­quirements of Section 22 of RA 337”9,
and if “massive financing cannot be given to enable the bank to expand its
risk assets”.  He concluded that:

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

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

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

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

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

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

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

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

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

Several petitions for intervention were denied by the Court.

The issues involved appear to be:

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

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

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

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

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

xxxxx                         xxxxx                  xxxxx          

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

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

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

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

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

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

This rule coincides with well-established principles of American
law10
to the same effect.

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

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

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

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

Nor would it serve the interest of justice to dismiss the case at
this stage and let a new petition be filed in another court.  In Bay View vs. Manila Hotel Worker’s Union (G.R. No. L-21803,
17 December 1966), this
Court, through Mr. Justice Conrad V. Sanchez, pointed out the evils attending
split jurisdictions, saying:

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

On previous occasions, this Court has overruled the defense of
jurisdiction in the interest of public welfare and for the advancement of
public policy, where, as in this case, an extraordinary situation existed.11
There is no denying that creditors, depositors and the banking community are
all interested in a quick determination whether the Overseas Bank may, under
the circumstances, be closed or allowed to continue operating at the exclusive
discretion of respondent Central Bank.

The plea that the Overseas Bank is not a party to the case at bar
need not give concern.  The petitioners are
the controlling stockholders of that Bank, and are qualified to represent its
interests, so that a judgment may be enforced for or against it, although it is
not impleaded by name in the suit (v. Albert vs.
Court of First Instance, G.R. No. L-26361, 29 May 1968, 23 SCRA 946, 964). 
This is particularly true considering that the present management of the
OBM (Overseas Bank of Manila) is at
present composed of respondent’s nominees, pursuant to the Trust Agreement, and
they can hardly be expected to resist the plans and actions of respondent
Central Bank (CB).

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

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

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

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

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

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

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

and that the Superintendent of Banks as

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

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

Bearing in mind that the communications, Annexes “B” and
“G”, as well as the voting trust agreement, Annex “A”, had
been prepared by the CB, and the well-known rule that ambiguities therein are
to be construed against the party that caused them12,
the record becomes clear that, in consideration of the execution of the voting
trust agreement by the petitioner stockholders of OBM, and of the mortgage or
assignment of their personal properties to the CB (Res. No. 2015, 16 October
1967, Annex “F”, Petition), the CB had agreed to announce its
readiness to support the new management “in order to allay the fears of
depositors and creditors” (Annex “B”), and to “stave off
liquidation” by providing adequate funds for “the rehabilitation,
normalization and stabilization” of the OBM, in a manner similar to what
the CB had previously done with the Republic Bank (Petition, Annex
“G”, ante).  While no
express terms in the documents refer to the provision of funds by CB for the
purpose, the same is necessarily implied, for in no other way could it
rehabilitate, normalize and stabilize a distressed bank.

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

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

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

How did the CB subsequently treat its commitments?

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

MEMORANDUM TO:

Governor Alfonso Calalang

SUBJECT: 
– POSITION PAPER OF THE OVERSEAS BANK  OF MANILA

BACKGROUND

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

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

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

PRESENT POSITION

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

We are made to understand that an advance of p19 million has been approved
for the Bank and that an initial release of P10 million is under study.  Last July
10, 1968, we wrote the Superintendent of Banks complying with his
request to render a projection of what we can do with P10 million.

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

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

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

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

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

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

(5)  
Any other strings that may be attached.

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

All these points will greatly affect any projection.

REQUEST:

That the PNB management team be withdrawn from TOBM.

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

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

“SEC. 29. Proceedings
upon insolvency.  -­Whenever,
upon examination by the Superintendent or his examiners or agents into the
condition of any banking institution, it shall be disclosed that the condition
of the same is one of insolvency, or that its continuance in business would
involve probable loss to its depositors or creditors, it shall be the duty of
the Superintendent forthwith, in writing, to inform the Monetary Board of the
facts, and the Board, upon finding the statements of the Superintendent to be
true, shall forthwith forbid the institution to do business in the Philippines
and shall take charge of its assets and proceeds according to law.

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

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

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

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

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

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

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

The CB excuses itself by pleading that the OBM officers had
resorted to non-recording of time deposits in the Bank’s books and diverting
such deposits to 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 carried in the books and had not
been reported to the OBM directors.13 In fact, on 29 September 1967, the CB had already ordered its
examiners to investigate the Bank’s records and determine the parties
responsible.14
Notwithstanding knowledge of these irregularities, the CB did not withdraw its
promised support, and insisted on the execution of the Voting Trust Agreement
on 20 Nov­ember 1967.  Such attitude imports that, in its opinion
the irregularities disclosed were not to be blamed on the OBM itself or its
depositors and creditors, but on the officials responsible; and further, that
the OBM could still be saved by adequate aid and management reform, which was
required by CB’s duty to maintain the stability of the banking system and the
preservation of public confidence in it.

Respondent CB likewise urges in its defense that the rehabilitation
of the OBM has become impossible, and points out to the reports of the
Superintendent of Banks and of Mr. Augusto Orosa (the President of OBM elected by the CB nominees
under the Voting Trust) that the Bank’s loanable
funds had to be expanded to P136 million to break even.15 It
is to be borne in mind, however, that these reports were made in July, 1968,
after six months of inaction on the part of the CB, without positive action on
its part to comply with its previous commitments. Furthermore, while the
stabilization of the OBM required injections of capital, it would be erroneous
to assume that such capital would have to reach P130 million, or that it would
have to be advanced all at once.  For had
the CB furnished the original aid of 30 million asked by the Orosa team early in January, 1968, and the OBM allowed to
resume operations with CB support, the restored confidence would have stimu­lated
new deposits, which, as is well-known, become in turn a source of loanable funds.  It
thus becomes apparent that most of the diffi­culties invoked now by the CB are
of its own making, and are not a lawful excuse for its refusal to comply with
its commitments.  Finally, in the
computations by the CB examiners, there are included a total of P16.994 million
for estimated losses, interests and penalties16
that did not represent amounts to be disbursed. 
More concretely, even in July, 1968, after six months of CB
dilly-dallying, the actual amount needed to be loaned to the OBM for capital
requirements “to support the necessary expan­sion in risk assets of
P126.334 million in order to break even in its operations” was estimated
by the Superintendent of Banks at no more than P40.730 million.17
This amount tallies with Mr. A. Orosa’s estimate that
an advance of P30 million in January, 1968 would have saved OBM.18
There is no showing that these amounts were beyond the capacity of CB to make19,
nor is it proved that they exceeded the amounts supplied for the rehabilitation
of the Republic Bank (the CB, for reasons of its own, refused to disclose the latter
amounts despite requests from the court). 
Cer­tainly, the ten million increase in advance capital requirements
between January and July of 1968 can not be blamed on the petitioners herein,
and was not of their own making.

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

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

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

Concepcion, C.J., took no part.

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

Makalintal, J., dissents in a separate opinion.

Zaldivar, J., concur
in the result.

Castro, J., reserves his right
to file dissenting opinion.

Fernando, J., concurs in the
result primarily on the ground that respondent’s arbitrary and improvident
exercise of its asserted power in the premises is violative
of due process.

Barredo and
Makasiar, JJ.,did not take part.

---

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

3
Annex “M”, Petitioners’ Reply Memorandum.

4
Annexes “21-A”, “22-A”, “22-C”,
“23”.

5
Annexes “S”, “T”, “U”, “O” and
“P”, Petition.

6
Annex “21”, Answer.

7
Annex “10-A”, Answer.

8
Annex “X”, Reply Memorandum.

9
Which provides that “the combined capital accounts of
each com­mercial bank shall not be less than an amount equal to fifteen percent
(15%) of its total assets”, i.e., risk assets or investments.

The Bank superintendent estimated
that OBM needed P21.7 million (to replenish OEM’s capital account which was
wiped out because of losses) to support risk assets as of 30 June 1968; plus P18.9 million to support
expansion of risk assets in the amount of P126 million.  In other words, it needed an additional P40
million fresh capital.  Annex
“10”, Answer.

10
20 Am. Jur. 2d, Courts, Section 148; 21 C. J. S., Courts, Section 93.

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

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

13 Reply Memo, Annex “L”, page 483, Record;
Annex “20”, page 248.

14 Answer, Annex “5”.

15 Annex “10” and “10-A”.

16 Report of Superintendent of Banks Ignacio, 23 July 1968.  Answer, Annex “10”, page 4 (Record, page 150).

17 Ibid.

18 Annex “X”, Reply Memo, previously quoted.

19 The CB’s assets in 1968 were reported by it at
P4,516, 469, 275.97 with surplus of P269,712.295.59 (20th Annual Report)

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