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. SARMIENT…

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 virtue of Republic Act No. 720, otherwise known as the Rural Banks’ Act (p. 231, 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 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, 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 provides:

“SECTION 29.  Proceedings upon insolvency  – Whenever, upon examina­tion by the head of
the appropriate supervising or examining
department or his examiners of 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
depositor 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 proceedings 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 quasi-banking functions and enforce individual
liabilities of the stockholders and do all that is necessary to preserve the
assets 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 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.

“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.” (Underscoring
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 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 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 Consolation 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 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
proceeding 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
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
(pp. 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 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.

SO ORDERED.

Narvasa, (Chairman), Cruz, Gancayco, and Medialdea, JJ., concur.