CENTRAL BANK OF THE PHILIPPINES AND HON. JOSE B. FERNANDEZ, PETITIONERS, VS. HON. COURT OF APPEALS, RTC JUDGE TEOFILO GUADIZ, JR., PRODUCERS BANK OF THE PHILIPPINES AND PRODUCER…

The common origin of these cases is Civil Case No. 17692 filed
before Branch 147 (Makati) of the Regional Trial Court, National Capital
Judicial Region and entitled Producers Bank of the Philippines and Producers
Properties, Inc. versus Central Bank of the Philippines, Jose B. Fernandez, Jr.
and the Monetary Board. On 21 January
1991, this Court ordered the consolidation of G.R. No. 92943 with G.R. No.
88353.^[1]

The first case, G.R. No. 88353, is a petition for review on certiorari
of the decision of 6 October 1988^[2]
and the resolution of 17 May 1989^[3]
of the respondent Court of Appeals in C.A.-G.R. No. SP- 13624. The impugned decision upheld the 21
September 1987 Order of respondent Judge Teofilo Guadiz, Jr. in Civil Case No.
17692 granting the motion for issuance of a writ of preliminary injunction —
enjoining petitioners Central Bank of the Philippines (CB), Mr. Jose B.
Fernandez, Jr. and the Monetary Board, or any of their agencies from
implementing Monetary Board (MB) Resolutions No. 649 and No. 751, or from taking
the threatened appropriate alternative action — and the 27 October 1987 Order
in the same case denying petitioners’ motion to dismiss and vacate said
injunction. The challenged resolution,
on the other hand, denied petitioners’ motion for reconsideration of the 6
October 1988 decision.

The second case, G.R. No. 92943, is a petition for review
directed principally against the 17 January 1990 decision of the respondent
Court of Appeals in C.A.-G.R. SP No. 16972. The said decision dismissed the petition therein filed and sustained the
various Orders of the respondent Judge in Civil Case No. 17692, but directed
the plaintiffs therein to amend the amended complaint by stating in its prayer the specific amount of damages which
Producers Bank of the Philippines (PBP) claims to have sustained as a result of
losses of operation and the conservator’s bank frauds and abuses; the Clerk of
Court was also ordered to determine the amount of filing fees which should be paid
by the plaintiffs within the applicable prescriptive or reglementary period.^[4]

The records of both cases reveal the following factual and
procedural antecedents:

Petitioners claim that on 29 April 1983, during the regular
examination of the PBP, CB examiners stumbled upon some highly questionable loans
which had been extended by the PBP management to several entities. Upon further examination, it was discovered
that these loans, totalling approximately P300 million, were
“fictitious” as they were extended, without collateral, to certain
interests related to PBP owners themselves. Said loans were deemed to be anomalous particularly because, the total
paid-in capital of PBP at that time was only P140.544 million. This means that the entire paid-in capital
of the bank, together with some P160 million of depositors’ money, was utilized
by PBP management to fund these unsecured loans.

Sometime in August of the same year, at the height of the
controversy surrounding the discovery of the anomalous loans, several blind
items about a family-owned bank in Binondo which granted fictitious loans to
its stockholders appeared in major newspapers. These news items triggered a bank-run in PBP
which resulted in continuous over-drawings on the bank’s demand deposit account
with the Central Bank; the over-drawings reached P74.109 million by 29 August
1983. By 17 January 1984, PBP’s
overdraft with the CB increased to P143.955 million, an indication of PBP’s
continuing inability to maintain that condition of solvency and liquidity
necessary to protect the interests of its depositors and creditors. Hence, on 20 January 1984, on the basis of
the report submitted by the Supervision and Examination Sector, Department I of
the CB, the Monetary Board (MB), pursuant to its authority under Section 28-A
of R.A. No. 265 and by virtue of MB Board Resolution No. 164, placed PBP under
conservatorship.^[5]

While PBP admits that it had no choice but to submit to the
conservatorship,^[6]
it nonetheless requested that the same be lifted by the CB. Consequently, the MB issued on 3 February 1984
Resolution No. 169 directing the principal stockholders of PBP to increase its
capital accounts by such an amount that would be necessary for the elimination
of PBP’s negative net worth of P424 million. On 10 April 1984, CB senior deputy Governor Gabriel Singson informed PBP
that pursuant to MB Resolution No. 490 of 30 March 1984, the CB would be
willing to lift the conservatorship under the following conditions:

“(a) PBP’s
unsecured overdraft with the Central Bank will be converted into an emergency
loan, to be secured by sufficient collateral, including but not limited to the
following properties offered by PBP’s principal stockholders:

i.          
6 floors and other areas of the Producers Bank Bldg., at Paseo
de Roxas, owned by PBP;

ii.        
15 floors of the Producers Bank Bldg., at Paseo de
Roxas, Makati, owned by the Producers Properties, Inc.;

iii.       
Manhattan Bldg. on Nueva Street, Binondo, Manila; and

iv.      
Producers Bank, Makati Branch Bldg., at Buendia Avenue,
Makati;

(b) A comptroller for PBP and any number of bank
examiners deemed necessary to oversee PBP’s operations shall be designated by
the Central Bank, under terms of reference to be determined by the Governor;

(c) A letter from the Management of PBP
authorizing the Central Bank to automatically return clearing items that would
result in an overdraft in its Central Bank account shall be submitted to the
Central Bank.”

On 27 April 1984, the MB adopted Resolution No. 584 approving the
consolidation of PBP’s other unsecured obligations to the CB with its overdraft
and authorizing the conversion thereof into an emergency loan. The same resolution authorized the CB
Governor to lift the conservatorship and return PBP’s management to its
principal stockholders upon completion of the documentation and full
collateralization of the emergency loan, but directed PBP to pay the emergency
loan in five (5) equal, annual installments, with interest and penalty rates at
MRR 180 days plus 48% per annum, and liquidated damages of 5% for delayed
payments.

On 4 June 1984, PBP submitted a rehabilitation plan to the CB
which proposed the transfer to PBP of three (3) buildings owned by Producers
Properties, Inc. (PPI), its principal stockholder and the subsequent mortgage
of said properties to the CB as collateral for the bank’s overdraft obligation.^[7]
Although said proposal was explored and discussed, no program acceptable to
both the CB and PPI was arrived at because of disagreements on certain matters
such as interest rates, penalties and liquidated damages.

No other rehabilitation program was submitted by PBP for almost
three (3) years; as a result thereof, its overdrafts with the CB continued to
accumulate. By the end of June 1987,
the figure swelled to a staggering P1.023 billion. Consequently, per Resolution No. 649 dated 3
July 1987, the CB Monetary Board decided, to approve in principle what it
considered a viable rehabilitation program for PBP. The program had these principal features:

“A1. The
Central Bank will assign in favor of the Philippine Deposit Insurance
Corporation (PDIC) its claim over the overdraft of PBP net of net peso
differential arising from swap transactions and interest thereon, up to the
amount of the par value of the Producers Properties, Inc. (PPI) shares of stock
in PBP presently pledged to the Central Bank, and PDIC will enter into a
contract of dacion en pago with PBP and PPI whereby PDIC will acquire 4,116,100
preferred shares of stock of PBP with a par value of P100 per share in
consideration for which PDIC will convey its rights over the overdraft assigned
to it by the Central Bank, in favor of PPI;

2. The balance of the overdraft of PBP, after
the assignment to PDIC of a portion of such overdraft referred to in Item I
above, will also be assigned to PDIC and converted into preferred shares of
stock of PBP;

3. The interest on the overdraft of PBP will
be reduced to 11.75% p.a. retroactively to the date when the overdraft of PBP
was incurred;

4. The accrued interest on the overdraft of
PBP, at the reduced rate approved in Item 3 above, as well as the unbooked
penalties on legal reserve deficiencies of PBP will be assigned in favor of
PDIC and such amounts will be allowed to be converted into preferred shares of
stock of PBP; and

5. The booking of valuation reserves will be allowed as follows:

3rd year             –           P 31     million

4th year              –           48    
million

5th year              –           67    
million

6th year              –           85    
million

7th year              –           105    million

8th year              –           124.61 million

subject to the following conditions:

a.    Fresh capital of P200.0 million shall be put
up, provided that a new group of stockholders shall hold at least 40% of the
total outstanding voting shares of stock of PBP;

b.    PBP
shall submit additional collaterals to fully collateral­ize its overdraft with
the Central Bank;

c.    PPI shall convey to PBP the remaining floors
of the Producers Bank Centre for a value of P143.54 million partly in payment
of DOSRI loans of P27.6 million, principal plus interest, and the balance of
P115.94 million for shares of stock of PBP, P15.12 million common and P100.89
million preferred, with features as presently provided under PBP’s Articles of
Incorporation and By-Laws;

d.    PBP’s Articles of Incorporation and By-Laws
shall be amended so as to create a special class of
preferred, non-voting, cumulative, non-participating
shares of stock with a dividend rate
of 12%, which shall be issued (i)
in exchange for the PPI shares that
will be conveyed to PDIC under the
dacion en pago mentioned in Item 1
above, (ii) in consideration of the balance
of PBP’s overdraft assigned to PDIC under
Item 2 above, and (iii) in consideration
of the accrued interest on PBP’s overdraft
assigned to PDIC and the unbooked penalties
on legal reserve deficiencies of PBP also
assigned to PDIC. The
said preferred shares of stock shall be
convertible into common voting shares of
stock upon the sale of such preferred shares to
private parties at the option of such
parties. Proceeds
from the sale of these shares of stock shall be used to liquidate the advances
made by the Central Bank to PDIC by virtue of the various assignments under
Items 1, 2 and 4 above. The said shares
of stock shall not share in losses and other capital adjustments representing
reduction of capital accounts as recommended by SES Department I incurred up to
the date of the issuance of such shares of stock;

e.    PBP shall execute in favor of a trustee to
be approved by the Central Bank of mortgage trust indenture covering the assets
presently mortgaged/pledged to the Central Bank as collateral for the overdraft
of PBP as well as additional collaterals to be submitted to fully collateralize
the overdraft of PBP, under which indenture PDIC as holder of the preferred
shares of stock, shall have the first lien and preference over the assets
subject of the indenture in case of insolvency, to the extent of the overdraft
converted into preferred shares of stock, provided that PBP shall submit an
opinion from the Securities and Exchange Commission that such indenture is
legal and valid; and

f.     The principal stockholders of both PBP and
PPI shall submit in writing their conformity to the above conditions, with the
effect that any previous agreements to the contrary shall be set aside; and

B. To require PBP to submit to the
Monetary Board for approval the identities
of the new stockholders and the new
management which shall not be changed without the prior approval of the Central
Bank, it being understood that final approval of the above rehabilitation plan
shall depend entirely upon the acceptance by the Board of the new stockholders
and the new management; and to give PBP a period of two weeks after such final
approval within which to implement the above rehabilitation plan.”^[8]
(Underscoring provided).

There being no response from both PBP and PPI on the proposed
rehabilitation plan, the MB issued Resolution No. 751 on 7 August 1987
instructing Central Bank management to advise the bank, through Mr. Henry Co,
as follows:

“a. The Central Bank conservatorship over PBP
may be lifted only after PBP shall have identified the new group of
stockholders who will put in new capital in PBP and after the Monetary Board
shall have considered such new stockholders as acceptable; and

b. The stockholders of PBP have to decide
whether or not to accept the terms of the rehabilitation plan as provided under
Resolution No. 649 dated July 3, 1987 within one week from receipt of notice
hereof and if such terms are not acceptable to them, the Central Bank
will take appropriate alternative action on the matter; x x x.”^[9]

Additionally, in a letter dated 14 August 1987, the CB called the
attention of the PBP directors and officers to Section 107 of R.A. No. 265, as
amended by Executive Order No. 289 dated 23 July 1987, which provides, inter
alia, that:

“x x x any bank which incurs an
over­drawing in its deposit account with
the Central Bank shall fully cover said
overdraft not later than the next clearing
day: Provided, Further, That settlement
of clearing balances shall not be
effected for any account which continue (sic)
to be overdrawn for five consecutive
banking days until such time as the
overdrawing is fully covered or otherwise
converted into an emergency loan or advance
pursuant to the provisions of Sec. 90 of this Act. Provided, Finally, That the appropriate clearing office
shall be officially notified of banks with overdrawn balances. Banks with existing overdrafts
with the Central Bank as of the
effectivity of this amended section shall,
within such period as may be prescribed
by the Monetary Board, either convert
the overdraft into an emergency loan or
advance with a plan of payment, or
settle such overdrafts, and that upon
failure to so comply herewith, the Central
Bank shall take such action against the
bank as may be warranted under this
Act.” (Underscoring provided).

A few days later, or on 27 August 1987, the PBP, without
responding to the communications of the CB, filed a complaint verified by its
former board chairman, Henry Co, with the Regional Trial Court of Makati
against the CB, the MB and CB Governor Jose B. Fernandez, Jr. The complaint, docketed as Civil Case No.
17692,^[10]
devoted several pages to specific allegations in support of PBP’s assertions
that the conservatorship was unwarranted, ill-motivated, illegal, utterly
unnecessary and unjustified; that the appointment of the conservator was
arbitrary; that herein petitioners acted in bad faith; that the CB-designated
conservators committed bank frauds and abuses; that the CB is guilty of
promissory estoppel; and that by reason of the conservatorship, it suffered
losses enumerated in paragraph 27 thereof, the total quantifiable extent of
which is P108,479,771.00, exclusive of loss of profits and loss of goodwill.^[11]
It concluded with a prayer for:

“x x x judicial review of Monetary Board Resolutions No. 649
dated July 3, 1987 and No. 751 dated 14 August, 1987 and that judgment be
rendered nullifying the same and ordering defendant Central Bank’s conservator
to restore the viability of PBP as mandated by section 28-A of R.A. 265 and to
fully repair the damages inflicted on
PBP consisting of losses of operation
and the conservators’ bank frauds and abuses,
with costs against defendants.” (underscoring supplied).

and for:

“x x x the issue of a
temporary restraining order/preliminary injunction enjoining defendants’
coercion on PBP to accept the rehabilitation plan within one week or their
taking ‘appropriate alternative action’ including exclusion of PBP from
settlement of clearing balances at the Central Bank clearing house, pending
judicial review of Monetary Board Resolutions No. 649 dated July 3, 1987 and
No. 751 dated August 14,1987 — defendants not being above the law.”^[12]

Only P102.00 was paid as docket fee.

The case was raffled to Branch 147 of said court which was then
presided over by respondent Judge.

On 31 August 1987, respondent Judge issued a temporary
restraining order and set the hearing of the application for preliminary
injunction on 9 September 1987.^[13]
On 11 September 1987, petitioner filed an Opposition to the application for preliminary
injunction.^[14]

Subsequently, on 21 September 1987, respondent Judge issued an
Order granting the writ^[15]
and enjoining defendant-petitioners or any of their agents from:

“x x x implementing Monetary Board Resolutions Nos. 649 and
751 or from taking the threatened ‘appropriate alternative action’ including
exclusion of plaintiff bank from settlement of clearing balances at the Central
Bank clearing house or any other action that will disturb the status quo or the
viability of plaintiff bank during the pendency of this case conditioned upon
the posting of a bond in the amount of P2,000,000.00.”

On 25 October 1987, PBP filed the Amended Complaint^[16]
impleading PPI as an additional plaintiff. No new allegations or causes of action for said plaintiff were made.

On 5 November 1987, petitioners filed a Motion to Dismiss the
Amended Complaint. The motion contained
a prayer to vacate the injunction and raised the following grounds:

1) the amended complaint states no cause of
action; MB Resolution Nos. 649 and 751 are merely advisory, thus, neither
effect impairment of plaintiffs’ rights nor cause it prejudice, loss or damage;
furthermore, there is no basis for the averments on the legality or illegality
of the conservatorship since the amended complaint does not seek its annulment;

2)   the
amended complaint is not authorized by the management of PBP; and

3)   the lower court did not acquire jurisdiction
over the case except to order the amended complaint expunged from the records
because the proper filing fee was not paid.^[17]

On 27 November 1987, the trial court, through the respondent
Judge, handed down an Order denying the motion to dismiss on the following
grounds: (a) the amended complaint alleges ultimate facts showing that
plaintiff has a right and that such a right has been violated by defendant; the
questioned MB Resolutions were issued arbitrarily and with bad faith,
“being a part of a scheme to divest plaintiff’s present stockholders of their
control of PBP and to award the same to the PDIC or its unknown
transferees”; and the averments of legality or illegality of the
conservatorship are relevant to the cause
of action since the complaint seeks the lifting of the conservatorship; (b)
while it is true that under Section 28-A of the Central Bank Act the
conservator takes over the management of a bank, the Board of Directors of such
bank is not prohibited from filing a suit to lift the conservatorship and from
questioning the validity of both the conservator’s fraudulent acts and abuses
and its principal’s (MB) arbitrary action; besides, PPI is now a
party-plaintiff in the action; and (c) plaintiffs have paid the correct filing
fees since “the value of the case cannot be estimated.^[18]

G. R. No. 88353

Unable to accept the above Order, herein petitioners CB and Jose
B. Fernandez, Jr. filed with respondent Court of Appeals on 11 January 1988
a petition for certiorari with preliminary injunction^[19]
to annul the 21 September and 27 November 1987 Orders of the respondent Judge,
restrain the implementation of the same and nullify the writ of preliminary
injunction. They contend therein that:

1.   The trial court’s injunctive order and writ
are anomalous and illegal because they are directed against CB acts and measures
which constitute no invasion of plaintiff’s rights; and

2.   The complaint filed was, on its face,
dismissible: (a) for failure to state a cause of action, (b) for being
unauthorized by the party in whose name it purports to have been filed, and (c)
for failure of the purported plaintiff to pay the required filing fees.

Confronted with the “threshold and decisive issue of whether
the respondent Judge gravely abused his discretion when he issued the Writ of
Preliminary Injunction to enjoin petitioner from implementing Monetary Board
Resolutions Nos. 649 and 751 for having been issued arbitrarily and with bad
faith,” the respondent Court promulgated the challenged decision
dismissing the petition for lack of merit.^[20]
Respondent Court ruled that the CB’s sudden and untimely announcement of the
conservatorship over PBP eroded the confidence which the banking public had
hitherto reposed on the bank and resulted in the bank-run; it then concluded
that when the CB “peremptorily and illtimely (sic) announced” the conservatorship,
PBP was not given an opportunity to be heard since the CB arbitrarily brushed
aside administrative due process notwithstanding PBP’s having
“sufficiently established its inherent corporate right to autonomously
perform its banking activities without undue governmental interference that
would in effect divest its stockholders of their control over the operations of
the bank.” It further held that the challenged resolutions of the MB are
not just advisory in character “because the same sought to impose upon the
respondent bank petitioners’ governmental acts that were specifically designed
and executed to devise a scheme that would irreparably divest from the
stockholders of the respondent bank control of the same.”

The motion filed by petitioners for the reconsideration of the
above decision was denied by the respondent Court in its Resolution of 17 May
1989.^[21]
On the issue of the non-payment of the correct docket fees, the said court, in
ruling that the correct amount was paid, said that “the instant case is
incapable of pecuniary estimation because the value of the losses incurred by
the respondent bank cannot be calibrated nor pinned down to a specific amount
in view of the damage that may be caused by the appointment of a conservator to
its goodwill and standing in the community.”

Undaunted by the adverse decision of the Court of Appeals,
petitioners filed with this Court on 30 July 1989 the instant petition for
review under Rule 45 of the Rules of Court.^[22]
It is alleged therein that the respondent Court committed grave abuse of
discretion in:

(1)  Ignoring petitioners’ contention that since
PBP did not pay the correct filing fees, the trial court did not acquire
jurisdiction over the case; hence, pursuant to Manchester Development Corp.,
et al. vs. Court of Appeals, et al., G.R. No. 75919, 7 May 1987,^[23]
the complaint should have been dismissed for lack of jurisdiction on the part
of the court;

(2)  … ruling on the propriety or impropriety of
the conservatorship as a basis for determining the existence of a cause of
action since the amended complaint does not seek the annulment or lifting of
the conservatorship;

(3)  … not holding that the amended complaint
should have been dismissed because it was filed in the name of PBP without the
authority of its conservator; and

(4) …not setting aside the Order of the trial
court granting the issuance of a writ of preliminary injunction which
unlawfully restrained the CB from exercising its mandated responsibilities and
effectively compelled it to allow the PBP to continue incurring overdrafts with
it.

This petition was docketed as G.R. No. 88353.

On 19 July 1989, this Court required the respondents to comment
on the petition.^[24]

In the Comment^[25]
filed on 9 October 1989, private respondents maintain that: (a) the issue of
whether or not they paid the correct filing fees involves a question of
correctness of judgment, not grave abuse of discretion; errors of judgment
cannot be the subject of the present petition for certiorari; (b) the
complaint and the amended complaint state sufficient causes of action because
they both contain specific allegations of an illegal, unnecessary, disastrous
and repressive conservatorship conducted contrary to its mandated purpose, and
breach of promissory estoppel; furthermore, the trial court committed no grave
abuse of discretion when it found that the questioned MB Resolutions were
arbitrarily issued in contravention of the due process clause of the
Constitution; (c) the filing of the complaint without authority from the conservator
is an issue involving an error of judgment; besides, it would be ridiculous and
absurd to require such prior authorization from the conservator for no one
expects him to sanction the filing of a suit against his principal — the CB;
moreover, Rule 3 of the Rules of Court requires that every action must be
prosecuted and defended in the name of the real party in interest; besides, no
administrative authority, even the CB, can nullify judicial review of
administrative action by requiring that only said administrative authority or
its designated conservator can file suit for judicial review of its actuation;
and (d) the writ of preliminary injunction was properly issued.

Petitioners filed a Reply^[26]
to the Comment on 3 November 1989.

In their Supplemental Comment, private respondents argue that the
Manchester rule is not applicable to the case at bar because what
is primarily sought for herein is a writ of injunction and not an award for
damages; it is further alleged that an order denying a motion to dismiss is
neither appealable nor be made the proper subject of a petition for certiorari
absent a clear showing of lack of jurisdiction or grave abuse of
discretion.

On 15 February 1990, this Court resolved to give due course to
the instant petition and require the parties to simultaneously file their
respective Memoranda,^[27]
which they complied with.

On 1 March 1990, petitioners filed an Urgent Motion^[28]
informing this Court of the fact that on 6 June 1989, PBP, through Henry Co,
proposed another rehabilitation plan which involved the infusion of fresh
capital into PBP by Banque Indosuez (Banque) and the AFP-Retirement and
Separation Benefits System (ARSBS). Under said proposal, all existing law suits of PBP against the Central
Bank and the PBP conservator, and vice versa, shall be withdrawn upon
approval and implementation of the plan. The plan was approved by the Monetary Board in its Resolution No. 497
dated 23 June 1989. However, before the
mechanics of the rehabilitation plan could be threshed out among the parties, a
“quarrel” developed between Henry and Luis Co, who both have
controlling interests in PBP. Luis
accused Henry of “serious manipulations” in PBP and both steadfastly
refused to settle their differences notwithstanding efforts of mediators,
including prospective investors. Eventually, the prospective investors, in a letter dated 20 November
1989, advised the Central Bank that they are withdrawing their offer to infuse
capital in PBP and that they have terminated all discussions with the Co
family.

Petitioners further allege that with the withdrawal of Banque
Indosuez and RSBS, the rehabilitation plan for PBP is no longer
feasible. Meanwhile, the bank’s
overdraft with the Central Bank continues to rise. As of 13 February 1990, PBP’s overdraft with the CB increased to
P1.233 billion. If the
injunction is not lifted, PBP will continually bleed the CB because of the
former’s inability to discharge its responsibilities under the law.

G. R. No. 92943

Pursuant to the powers and authority conferred upon her by the
Central Bank, Atty. Leonida Tansinsin-Encarnacion, in her capacity as
conservator, instituted reforms aimed at making PBP more viable. With this purpose in mind, she started
reorganizing the bank’s personnel and committees.

In order to prevent her from continuing with the reorganization,
PBP filed on 24 October 1987, or after it obtained a writ of preliminary
injunction in Civil Case No. 17692, an Omnibus Motion asking the trial court
for an order: (a) reinstating PBP officers to their original positions and
restoring the bank’s standing committees to their respective compositions prior
to said reorganization; (b) enjoining the lease of any portion of the bank’s
space in Producers Bank Centre building to third parties and the relocation of
departments/offices of PBP as was contemplated; and (c) to hold, after an
opportunity to be heard is given her, said conservator in contempt of court for
disobedience of and resistance to the writ of injunction. An opposition to the contempt charge was
later filed by said petitioner.

Subsequently, upon its inclusion as party-plaintiff via the
amended complaint, PPI filed on 4 November 1987 a motion asking the lower court
to order the Central Bank and its agents to restore to PPI the administration
of the three (3) buildings earlier assigned to PBP pending the lifting of the
conservatorship. PPI claimed that such
transfer was necessary to prevent the rental income of said buildings being
dissipated by the conservator.

On 17, November 1987, both PBP and PPI filed a motion praying:

“(1) that the CB Conservator be ordered to
publish PBP’s financial statement for the last quarter of 1987 and every
quarterly statement thereafter during the pendency of this case, with the
following claims of plaintiff PBP against the Central Bank, to wit:

(a)  Interest in unconscionable rates of CB
overdrawing illegally paid by the CB conservators to CB — now totaling
P56,002,000.00,

(b)  Penalties on reserve deficien­cies illegally
paid by the CB conservators to CB — now totaling P20,657,000.00,

(c) Penalties on
reserve deficien­cies not yet paid but which the conservator has booked as
liabilities — now totaling P31, 717,000.00,

(d)  Losses of operation by the CB conservators
from January 31, 1984 to October 31, 1987 — now totaling P461,092,000.00

as ‘suspense’ accounts;
and (2) that the CB conservator be ordered to carry those ‘suspense’ accounts
in the books of PBP.”

The following day, respondent Judge issued an Order (a) requiring
conservator Tansinsin-Encarnacion to reinstate PBP officers to their original
positions prior to the reorganization of the bank’s personnel and restore PBP’s
standing committees to their original compositions, and (b) restraining her
from leasing out to third parties any portion of PBP’s space in the Producers
Bank Centre building. However,
respondent Judge held in abeyance the contempt proceedings against the
conservator pending her immediate compliance with the Order.

On 22 December 1987, respondent Judge granted PPI’s motion for an
order transferring to it the administration of the three (3) buildings assigned
to PBP. A motion for reconsideration of
this order was filed by petitioners but was subsequently denied by respondent
Judge in the Order of 4 October 1988.

A second Order, issued by respondent Judge on the same day, 22
December 1987, directed conservator Tansinsin?Encarnacion to publish the
financial statement of PBP in the manner prayed for in the aforesaid 17
November 1987 motion. The motion to
reconsider this Order was denied by respondent Judge on 3 October 1988.

On several occasions thereafter, conservator
Tansinsin-Encarnacion caused the publication of PBP’s financial statement as
required by regulations, without, however, carrying the items enumerated by the
trial court as “suspense accounts.” Consequently, two (2) contempt charges were
filed against her, one for the 3 February 1988 publication in the Manila
Standard of PBP’s statement of condition as of 29 December 1987 and the
other for the 29 July 1988 publication in the Daily Globe of the bank’s
statement as of 30 June 1988. Oppositions to both charges of contempt were filed.

On 9 November 1988, respondent Judge declared said conservator
guilty of contempt of court on three (3) counts and imposed upon her a fine of
P1,000.00 for each count of contempt. The latter asked for a reconsideration the order but the respondent
Judge denied the same.

Another contempt charge against her was filed for publishing the
statement of condition of PBP (as of 13 September 1988) in the 9 November 1988
issue of the Daily Globe without carrying the alleged “suspense
accounts.” She was again found guilty as charged and her motion for
reconsideration was denied. Finding no
other adequate relief, Tansinsin-Encarnacion filed with this Court on 11
January 1989 a petition for certiorari against respondent Judge, Henry
L. Co and the law firm of Quisumbing, Torres and Evangelista. This case was docketed as G.R. No
86526. She prays therein for judgment
declaring respondent judge to be without jurisdiction to entertain both the
complaint and amended complaint in Civil Case No. 17692; declaring null and
void all his orders, specially the contempt orders; and finding respondent
Judge and respondent lawyers guilty of violating their respective oaths
of office.^[29]

On 8 February 1989, this Court resolved to refer said, petition
to the Court of Appeals which docketed it as C.A.-G.R. SP No. 16972.

In her Memorandum submitted to the Court of Appeals,
Tansinsin-Encarnacion alleged that: (1) respondent Judge has no jurisdiction
over Civil Case No. 17692 because its filing was not authorized by the
petitioner or the conservator in violation of Section 28-A of R.A. No. 265, as
amended, it was filed after the ten (10)
day period prescribed by Section 29 of
R.A. No. 265, as amended, and the correct
docket fees were not paid; (2) respondent Judge illegally ordered her to return
to PPI the administration of the bank’s three (3) properties, contrary
to his own writ of preliminary injunction and earlier order to make the bank
viable, and to publish the alleged “suspense accounts” contrary
to Section 28-A of R.A. No. 265, as amended, the writ of preliminary injunction
and her constitutional right to silence; (3) respondent Judge erred in
declaring her in contempt of court notwithstanding his lack of jurisdiction
over the case and failure to set any date for the hearing and reception of
evidence, in violation of her right to due process of law; and (4) respondents
Judge and lawyers are administratively liable for their grossly illegal
actuations and for depriving the Government of at least P13.2 million in filing
fees.^[30]

In its decision dated 17 January 1990, the Court of Appeals
(Twelfth Division)^[31]
dismissed the petition; while finding the claim of lack of jurisdiction to be
without merit, the said court nonetheless gave the following exception:

“x x x except that plaintiffs in Civil Case No. 17692, within
15 days from receipt of a copy of this Decision, shall file the corresponding
amendment to their amended complaint in said case, stating a specific amount
‘to fully repair the damages inflicted on PBP consisting of losses of operation
and the conservator’s bank frauds and abuses’, in the prayer of their amended
complaint. Thereafter, the Clerk of
Court of the lower court and/or his duly authorized Docket Clerk of Court in
charge, should determine the amount found due, which should be paid by
complainants within the applicable prescriptive or reglementary period, failure
of which said claims for damages shall be dismissed.”

In disposing of the issues raised, respondent Court merely
adopted with approval the ruling of the respondent Judge on the question of
jurisdiction and cited the decision of the Court of Appeals in C.A.-G.R. SP No.
13624 (subject of G.R. No. 88353), sustaining the respondent Judge’s
ruling. As to the filing of the
complaint after the lapse of the 10-day period provided for in Section 29 of
R.A. No. 265, it ruled that the section does not apply because the complaint
essentially seeks to compel the conservator to perform his duties and refers to
circumstances and incidents which transpired after said 10-day period.

On the issue of lack of jurisdiction for non-payment of correct
filing fees, to which an exception was made in the dispositive portion, the
respondent Court found the same to be “partly” meritorious. It agreed with petitioner that while the
other losses and damages sought to be recovered are incapable of pecuniary
estimation, the damages inflicted on PBP due to losses of operation and the
conservator’s bank frauds and abuses were in fact pegged at P108,479,771.00 in
paragraph 26 of the amended complaint. This specific amount, however, should have been stated in the prayer of
the complaint. It also held that the Manchester
case “has been legally construed in the subsequent case of Sun
Insurance Office Ltd.^[32]
and the case of Filipinas Shell Petroleum Corp.^[33]
to the effect that applying the doctrine initiated in the case of Manchester,
together with said subsequent thereto (sic), plaintiffs in Civil Case No.
17692 should be given a reasonable time to amend their complaint, more
particularly, to state in their prayer in the amended complaint the specific
amount of damages x x x.”

On the orders of contempt and the reasons therefor, respondent
Court merely stated:

“x x x Generally, when the court has jurisdiction over the subject
matter and of the person, decisions upon or questions pertinent to the cause
are decisions within its jurisdiction, and however, irregular or
erroneous they may be, they cannot be
corrected by certiorari. Whether the court’s conclusion
was based merely on speculations and conjecture,
or on a misapprehension of facts and
contrary to the documents and exhibits
of the case is not for us to
determine in a petition for certiorari
wherein only issues of jurisdiction may
be raised. x x x Thus,
the instant petition cannot prosper.”

and opined that under the Rules of Court,
a judgment of contempt may be questioned on appeal and not on certiorari.

Finally, on the administrative liability of the respondent Judge
and the lawyers, the respondent Court declared the claim to be without merit.

Petitioner’s motion to reconsider the decision having been denied
in the 2 April 1990 Resolution of the respondent Court,^[34]
she filed with this Court a petition under Rule 45 of the Rules of Court, which
was docketed as G.R. No. 92943. Petitioner claims that respondent Court grossly erred in
confirming/affirming the allegedly void Orders of respondent Judge which denied
the motion to dismiss the complaint and granted the writ of preliminary
injunction, restating in this regard the issues raised by the CB in G.R. No.
88353, and in holding her in contempt of court on four occasions. As to the last ground, she asserts that the
Orders were issued in violation of the Rules of Court and infringed her right
to due process since there was no hearing on the motions for contempt, except
for the third motion wherein respondent Judge immediately ordered the movant to
present evidence.

In their Comment,^[35]
filed in compliance with Our Resolution 21 May 1990, private respondents
practically reiterated the arguments in their Comment to the petition in G.R. No.
88353; in addition, more specifically on the issue of contempt, they assert
that while the motions for contempt were set for hearing, there is no showing
that the scheduled hearings actually took place. Besides, the remedy to question a contempt order is an appeal;^[36] since petitioner did not appeal the questioned
orders, the same became final and executory.^[37]

After petitioner filed a Reply and private respondents submitted
their Rejoinder thereto, this Court gave due course to the petition.

THE ISSUES

The basic issue in these cases is whether or not the respondent
Court committed reversible error in affirming the challenged Orders of the
respondent Judge. This necessarily
calls for a determination of whether or not the respondent Judge committed
grave abuse of discretion amounting to lack of jurisdiction:

(1)  In not dismissing Civil Case No. 17692 on the
following grounds: (a) lack of legal
personality to bring the action as the same was filed in the name of the PBP
without the authority of the conservator; (b) failure of the complaint and
amended complaint to state a cause of action; and (c) non-payment of the
correct amount of docket fee in violation of the rule enunciated in Manchester
Development Corp. vs. Court of Appeals, et al.;

(2) In granting the writ of preliminary
injunction; and

(3)  In issuing the assailed Orders in G.R. No.
92943.

DISCUSSION

We shall take up the issues sequentially.

1. PBP has been under
conservatorship since 20 January 1984. Pursuant to Section 28-A of the Central Bank Act,^[38]
a conservator, once appointed, takes over the management of the bank and
assumes exclusive powers to oversee every aspect of the bank’s operations and
affairs. Petitioners now maintain that
this power includes the authority to determine “whether or not to maintain
suit in the bank’s name.”^[39]
The trial court overruled this contention stating that the section alluded to
“does not prohibit the Board of Directors of a bank to file suit to lift
the conservatorship over it, to question the validity of the conservator’s
fraudulent acts and abuses and the arbitrary action of the conservator’s
principal — the Monetary Board of the Central Bank. The conservator cannot be expected to question his own continued
existence and acts. He cannot be
expected to file suit to annul the action of his principal x x x or a suit that
would point out the ill-motivation, the disastrous effects of the
conservatorship and the conservator’s bank frauds and abuses as alleged in the
complaint,”^[40]

Obviously, the trial court was of the impression that what was
sought for in Civil Case No. 17692 is the lifting of the conservatorship
because it was arbitrarily and illegally imposed. While it may be true that the PBP devoted the first 38 pages of
its 47-page complaint and amended complaint to what it considers an
unwarranted, ill-motivated, illegal, unnecessary and unjustified
conservatorship, it, nevertheless, submitted to the same. There is nothing in the amended complaint to
reflect an unequivocal intention to ask for its lifting. Of course, as subsequent maneuvers would
show, PBP sought to accomplish the lifting thereof through surreptitious
means. That such action was not, on its
face, filed to have the conservatorship lifted, is best evidenced by PBP’s
prayer for a judgment “ordering defendant Central Bank’s conservator to
restore the viability of PBP as mandated by Section 28-A of R.A. No. 265 x x
x.”^[41]
Unfortunately too, respondent Court was easily misled into believing that the
amended complaint sought the lifting of the conservatorship. Thus, although the matter was not
specifically raised in issue and clearly unnecessary for the determination of
the issues squarely raised, the respondent Court opined:

“It is Our sober assessment that the respondent bank was not
given an opportunity to be heard when the Central Bank peremptorily and
illtimely (sic) announced the appointment of a conservatorship over the latter
(bank) for which reason We believe that administrative due process was
arbitrarily brushed aside to the prejudice of the said bank. x x x.”

If it were to lift the conservatorship because it was arbitrarily
imposed, then the case should have been dismissed on the grounds of
prescription and lack of personality to bring the action. Per the fifth paragraph of Section 29 of the
Central Bank Act, as amended by Executive Order No. 289, the actions of the MB
may be assailed in an appropriate pleading filed by the stockholders of record
representing the majority of the capital stock within ten (10) days from
receipt of notice by the said majority stockholders of the order placing the
bank under conservatorship. The
pertinent portion of said paragraph reads as follows:

“The provisions of any law to the contrary notwithstanding,
the actions of the Monetary Board under this Section, Section 28-A, and the
second paragraph “of Section 34 of this Act shall be final and executory,
and can be set aside by a court only if there is convincing proof, after
hearing, that the action is plainly arbitrary and made in bad faith: Provided,
That the same is raised in an appropriate pleading filed by the stockholders of
record representing the majority of the capital stock within ten (10) days from
the date the receiver takes charge of the assets and liabilities of the bank or
non-bank financial intermediary performing quasi-banking functions or, in case
of conservatorship or liquidation, within ten (10) days from receipt of notice
by the said majority stockholders of said bank or non-bank financial
intermediary of the order of its placement under conservatorship or
liquidation. x x x.”

The following requisites, therefore, must be present before the
order of conservatorship may be set aside by a court:

1.  The appropriate pleading must be filed by the
stockholders of record representing the majority of the capital stock of the
bank in the proper court;

2.  Said pleading must be filed within ten (10)
days from receipt of notice by said majority stockholders of the order placing
the bank under conservatorship; and

3.  There
must be convincing proof, after hearing, that the action is plainly arbitrary
and made in bad faith.^[42]

In the instant case, PBP was placed under conservatorship on 20
January 1984. The original complaint in
Civil Case No. 17692 was filed only on 27 August 1987, or three (3)
years, seven (7) months and seven (7)
days later, long after the expiration of the 10-day period referred
to above. It is also beyond question
that the complaint and the amended complaint were not initiated by the
stockholders of record representing the majority of the capital stock. Accordingly, the order placing PBP under
conservatorship had long become final and its validity could no longer be
litigated upon before the trial court. Applying the original provision of the aforesaid Section 29 of the
Central Bank Act, this Court, in Rural Bank of Lucena, Inc. vs. Arca, et
al.,^[43]
ruled that:

“Nor can the proceedings before Judge Arca be deemed a
judicial review of the 1962 resolution No. 122 of the Monetary Board, if only
because by law (Section 29, R.A. 265) such review must be asked within 10 days
from notice of the resolution of the Board. Between the adoption of Resolution No. 122 and the challenged order of
Judge Arca, more than one year had elapsed. Hence, the validity of the Monetary Board’s resolution can no longer be
litigated before Judge Arca, whose role under the fourth paragraph of section
29 is confined to assisting and supervising the liquidation of the Lucena
bank.”

This rule is still good law notwithstanding the amendment to
Section 29 which expands its scope by including the actions of the MB under
Section 28-A of the Act on the appointment of a conservator.

It was precisely an awareness of the futility of any action to
set aside the conservatorship which prompted PBP to limit its action to a claim
for damages and a prayer for an injunction against the implementation of MB
Resolutions Nos. 649 and 751. However,
to make it appear that it had a meritorious case and a valid grievance against
the Central Bank, it wandered long into the past and narrated a sad story of
persecution, oppression and injustice since the inception of the
conservatorship — obviously to gain the sympathy of the court, which it
eventually obtained.

The next crucial question that suggests itself for resolution is
whether an action for damages arising from the MB’s act of placing the PBP
under conservatorship and the acts of the conservator, and to enjoin the MB
from implementing resolutions related or incident to, or in connection with the
conservatorship, may be brought only for and in behalf of the PBP by the
stockholders on record representing the majority of the capital stock thereof
or simply upon authority of its Board of Directors, or by its Chairman. We hereby rule that as to the first kind of
damages, the same may be claimed only if the MB’s action is plainly arbitrary
and made in bad faith, and that the action therefor is inseparable from an
action to set aside the conservatorship. In other words, the same must be filed within ten (10) days from receipt
of notice of the order placing the bank under conservatorship. Otherwise, the provision of the fifth
paragraph of Section 29 of the Central Bank Act could be rendered meaningless
and illusory by the bank’s filing, beyond the prescribed ten-day period, of an
action ostensibly claiming damages but in reality questioning the
conservatorship. As to actions for the
second kind of damages and for injunction to restrain the enforcement of the
CB’s implementing resolutions, said fifth paragraph of Section 29 of the
Central Bank Act, as amended, equally applies because the questioned acts are
but incidental to the conservatorship. The purpose of the law in requiring that only the stockholders of record
representing the majority of the capital stock may bring the action to set
aside a resolution to place a bank under conservatorship is to ensure that it
be not frustrated or defeated by the incumbent Board of Directors or officers
who may immediately resort to court action to prevent its implementation or
enforcement. It is presumed that such a
resolution is directed principally against acts of said Directors and officers
which place the bank in a state of continuing inability to maintain a condition
of liquidity adequate to protect the interest of depositors and creditors. Indirectly, it is likewise intended to
protect and safeguard the rights and interests of the stockholders. Common sense and public policy dictate then
that the authority to decide on whether to contest the resolution should be
lodged with the stockholders owning a majority of the shares for they are
expected to be more objective in determining whether the resolution is plainly
arbitrary and issued in bad faith.

The original complaint in Civil Case No. 17692 was not initiated
by the majority of the stockholders, hence it should have been dismissed. However, confronted with this fatal flaw,
counsel for PBP, through shrewd maneuvering, attempted to save the day by
impleading as co-plaintiff a corporation, the PPI, which was not under conservatorship. Unfortunately, the maneuver was crudely and
imperfectly executed. Except for the
inclusion of its name, nothing new was actually added to the original complaint
in terms of causes of action and reliefs for PPI. The amendment then was an exercise in futility.

We cannot, however, subscribe to the petitioner’s view that: (a) once a bank is placed under
conservatorship, no action may be filed on behalf of the bank without prior
approval of the conservator, and (b) since in this case such approval was not
secured prior to the filing of Civil Case No. 17692, the latter must also be
dismissed on that ground. No such
approval is necessary where the action was instituted by the majority of the
bank’s stockholders. To contend
otherwise would be to defeat the rights of such stockholders under the fifth
paragraph of Section 29 of the Central Bank Act. It must be stressed here that a bank retains its juridical
personality even if placed under conservatorship;^[44]
it is neither replaced nor substituted by the conservator who, per Section 28-A
of the Central Bank Act, as amended by P.D. No 1932, shall only:

“x x x take charge of the assets, liabilities, and the management
of that institution, collect all monies and debts due said institution and
exercise all powers necessary to preserve the assets of the institution,
reorganize the management thereof, and restore its viability. He shall have the power to overrule, or
revoke the actions of the previous management and board of directors x x x, any
provision of law to the contrary notwithstanding, and such other powers as the
Monetary Board shall deem necessary.”

Even assuming for the sake of argument that the action was
properly brought by an authorized party, the same must nevertheless be
dismissed for failure of the plaintiffs therein to pay the correct docket fees,
pursuant to Manchester Development Corp. vs. court of Appeals, et al.;^[45]
the said case was decided by this Court on 7 May 1987, exactly three (3)
months and twenty (20) days before the filing of the original complaint and
five (5) months and eighteen (18) days before the filing of the Amended
Complaint in Civil Case No. 17692. We
ruled therein that:

“The Court acquires jurisdiction over any case only upon the
payment of the prescribed docket fee. An amendment of the complaint or similar pleading will not thereby vest
jurisdiction in the Court, much less the payment of the docket fee based on the
amounts sought in the amended pleading. The ruling in the Magaspi case [115 SCRA 193], in so far as it is
inconsistent with this pronouncement is overturned and reversed.”

The respondent Judge, in ruling that PBP and PPI had paid the
correct docket fee of P102.00, said that “the value of the case cannot be
estimated” since what is sought is an injunction against the enforcement
of the challenged resolutions of the MB; in short, the claim for damages is
merely incidental. Upon the other hand,
respondent Court, in its Resolution of 17 May 1989 in C.A.-G.R. SP No. 13624,
ruled that the case is “incapable of pecuniary estimation” because
the value of the losses incurred by the PBP “cannot be calibrated nor
pinned down to a specific amount in view of the damage that may be caused by
the appointment of a conservator to its goodwill and standing in the
community.”^[46]

Both conclusions are unfounded and are the result of a
misapprehension of the allegations and causes of action in both the complaint
and amended complaint.

While PBP cleverly worded its complaint in Civil Case No. 17692
to make it appear as one principally for injunction, deliberately omitting the
claim for damages as a specific cause of action, a careful examination thereof
bears that the same is in reality an action for damages arising out of the
alleged “unwarranted, ill-motivated and illegal conservatorship,” or
a conservatorship which “was utterly unnecessary and unjustified,”
and the “arbitrary” appointment of a conservator.^[47]
Thus, as stated earlier, it devoted the bulk of its petition to detailed
events, occurrences and transactions in support thereof and patiently
enumerated the losses it sustained and suffered. The pertinent portions of paragraph 27 of both the original and
amended complaints read as follows:

“27. The record of the Central Bank-conservatorship of PBP
clearly shows that it was responsible for the losses.

x x x

[Then follows an enumeration, from (a) to (u), of particular acts
causing or resulting in losses, most of which are specifically stated]

x x x

(v) Total of only the
foregoing mentioned losses and only of
those that can be quantified is P108,479,771.00.

And that excludes
loss of profits that PBP could have
realized if that disastrous conservatorship had not been imposed on it and
loss of goodwill.

The causes for these
abuses of the conservators are of course graft and corruption of the conservators
aside from fault in the system which denies private enterprise.”
(underscoring supplied)

x x x

These are the very damages referred to in the prayer:

“x x x to fully repair the damages inflicted on PBP consisting
of losses of operation and the conservators bank frauds and abuses, x x
x.”

but not specified therein. To this Court’s mind, this was done to evade
the payment of the corresponding filing fees which, as computed by petitioner
on the basis alone of the specified losses of P108,479,771.00, would amount to
about P437,000.00.^[48]
The PBP then clearly acted with manifest bad faith in resorting to the
foregoing clever strategy to avoid paying the correct filing fees. We are thus constrained to reiterate Our
pronouncements in the Manchester case:

“The Court cannot close this case without making the
observation that it frowns at the practice of counsel who filed the original
complaint in this case of omitting any specification of the amount of damages
in the prayer although the amount of over P78 million is alleged in the body of
the complaint. This is clearly intended
for no other purpose than to evade the payment of the correct filing fees if
not to mislead the docket clerk in the assessment of the filing fee. x x x”

The respondent Court itself, in its decision of 17 January 1990
in C.A.-G.R. SP No. 16972,^[49]
confronted by the same issue, but perhaps unaware of its Resolution of 17 May
1989 in C.A.-G.R. SP No. 13624 aforementioned, ruled that PBP and PPI are
liable for the filing fees on the claim for damages. It even directed PBP and PPI to file “the corresponding
amendment to their amended complaint in said case stating a specific amount ‘to
fully repair the damages inflicted on PBP consisting of losses of operation and
the conservator’s bank frauds and abuses’…,” after which the Clerk of Court of the lower court or his duly authorized
docket clerk should determine the amount found due, which said plaintiffs shall
pay “within the applicable prescriptive or reglementary period, …”^[50]
The 17 January 1990 ruling, clearly reversing the earlier one, is of doubtful
propriety in view of the petition for review of the decision in C.A.-G.R. SP
No.13624 filed by the petitioner.

In granting PBP and PPI an opportunity to amend their amended
complaint to reflect the specific amount of damages in the prayer of their
Amended Complaint, respondent Court took refuge under the rule laid down in Sun
Insurance Office, Ltd., et al. vs. Asuncion, et al.^[51]
and Pilipinas Shell Petroleum Corp. vs. Court of Appeals, et al..^[52]
Of course, it was erroneous for respondent Court to apply these last two
(2) cases which were decided by this Court three (3) months short of two (2)
years after the promulgation of the Manchester decision on 7 May
1987. Accordingly, since the original complaint
in Civil Case No. 17692 was filed on 27 August 1987, the Manchester doctrine
was the controlling and applicable law. The lower court had no choice but to apply it when its attention was
called by the petitioner.

Moreover, even granting for the sake of argument that Sun
Insurance and Pilipinas Shell^[53]
may apply in this case, We should not lose sight of the fact that in the
former, this Court categorically stated:

“1. It is not
simply the filing of the complaint or appropriate initiatory pleading, but the
payment of the prescribed docket fee, that vests a trial court with
jurisdiction over the subject-matter or nature of the action. Where the filing of
the initiatory pleading is not accompanied
by payment of the docket fee, the
court may allow payment of the fee
within a reasonable time but in no
case beyond the applicable prescriptive or
reglementary period.”

The prescriptive period therein mentioned refers to the period
within which a specific action must be filed. It means that in every case, the docket fee must be paid before the
lapse of the prescriptive period. Chapter 3, Title V, Book III of the Civil Code is the principal law
governing prescription of actions.

There can be no question that in the instant case, PBP’s claims
for damages arise out of an injury to its rights. Pursuant to Article 1146 of the Civil Code, the action therefor
must be initiated within four (4) years from the time the cause of action
accrued. Since the damages arose out of
the alleged unwarranted, ill-motivated, illegal, unnecessary and unjustified
conservatorship, the cause of action, if any, first accrued in 1984 and
continued until 27 August 1987, when the original complaint was filed. Even if We are to assume that the four-year
period should start running on 27 August 1987, that period lapsed on 27 August
1991. There is no showing that PBP paid
the correct filing fee for the claim within the prescribed period. Hence, nothing can save Civil Case No. 17692
from being dismissed.

2. And now on the issue of
the writ of preliminary injunction.

The challenged Orders of the trial court granting the application
for a writ of preliminary injunction and the assailed decision of the
respondent Court in C.A.-G.R. No. 13624 clearly betray a prejudgment of the
case. In both instances, not only did
said courts declare MB Resolutions Nos. 649 and 751 to be arbitrary, both also
declared the conservatorship to have been issued in violation of PBP’s right to
administrative due process, which the CB “arbitrarily brushed aside to the
prejudice” of the latter. The said
courts further concluded that “the sudden and untimely announcement by the
Central Bank that respondent Producers Bank will be under a conservatorship
that will oversee its operations worked havoc over the confidence that the
public had hitherto reposed on respondent bank so that the majority of its
depositors over-reacted and rashly withdrew their accounts from said bank, thus
it incurred a loss of P593.707 million or 59.5% of its deposits.”

Thus, save only for the determination of the full extent of PBP’s
claim for damages, said courts have, at the most, decided or, at the very
least, prejudged the case. Courts,
notwithstanding the discretion given to them, should avoid issuing writs of
preliminary injunction which in effect dispose of the main case without a
trial.^[54]
We do not then hesitate to rule that there was grave abuse of discretion in the
issuance of the writ of preliminary injunction.

Besides, there was neither arbitrariness nor bad faith in the
issuance of MB Resolutions Nos. 649 and 751. It must be stressed in this connection that the banking business is
properly subject to reasonable regulation under the police power of the state
because of its nature and relation to the fiscal affairs of the people and the
revenues of the state.^[55]
Banks are affected with public interest because they receive funds from the
general public in the form of deposits. Due to the nature of their transactions and functions, a fiduciary
relationship is created between the banking institutions and their
depositors. Therefore, banks are under
the obligation to treat with meticulous care and utmost fidelity the accounts
of those who have reposed their trust and confidence in them.^[56]

It is then Government’s responsibility to see to it that the
financial interests of those who deal with banks and banking institutions, as
depositors or otherwise, are protected. In this country, that task is delegated to the Central Bank which,
pursuant to its charter,^[57]
is authorized to administer the monetary, banking and credit system of the
Philippines. Under both the 1973 and
1987 Constitutions, the Central Bank is tasked with providing policy direction,
in the areas of money, banking and credit; corollarily, it shall have
supervision over the operations of banks.^[58]
Under its charter, the CB is further authorized to take the necessary
steps against any banking institution if its continued operation would cause
prejudice to its depositors, creditors and the general public as well. This power has been expressly recognized by
this Court. In Philippine Veterans
Bank Employees Union-NUBE vs. Philippine Veterans Bank,^[59]
this Court held that:

“x x x Unless adequate and determined efforts are taken
by the government against distressed and mismanaged banks, public faith in the
banking system is certain to deteriorate to the prejudice of the national
economy itself, not to mention the losses suffered by the bank depositors,
creditors, and stockholders, who all deserve the protection of the government. The government cannot simply cross its arms
while the assets of a bank are being depleted through mismanagement or
irregularities. It is the duty of the
Central Bank in such an event to step in and salvage the remaining resources of
the bank so that they may not continue to be dissipated or plundered by those
entrusted with their management.”

One important measure adopted by the government to protect the
public against unscrupulous practices of some bankers is to require banking
institutions to set up reserves against their deposit liabilities. These reserves, pegged at a certain
percentage of the volume of deposit liability, is that portion of the deposit
received by a banking institution which it cannot use for loans and investments. The reserve requirement, which ordinarily
takes the form of a deposit with the Central Bank, is one means by which the
government ensures the liquidity of banking institutions.^[60]

These reserve accounts maintained by banking institutions with
the Central Bank also serve as a basis for the clearing of checks and the
settlement of interbank balances.^[61]

The need to maintain these required reserves cannot be
over-emphasized. Thus, where
over-drawings on deposit accounts (regardless of amount) are incurred, R.A. No.
265 requires the delinquent bank to:

“x x x fully cover said overdraft not later than the next
clearing day: Provided, Further, That settlement of clearing balances
shall not be effected for any account which continue to be overdrawn for five
consecutive banking days until such time as the overdrawing is fully covered or
otherwise converted into an emergency loan or advance pursuant to the
provisions of Sec. 90 of this Act. Provided,
Finally, That the appropriate clearing office shall be officially notified
of banks with overdrawn balances. Banks
with existing overdrafts with the Central Bank as of the effectivity of this
amended section shall, within such period as may be prescribed by the Monetary
Board, either convert the overdraft into an emergency loan or advance with a
plan of payment, or settle such overdrafts, and that, upon failure
to so comply herewith, the Central Bank
shall take such action against the bank
as may be warranted under
this Act.“^[62]
[Underscoring supplied.]

The fact that PBP is grossly overdrawn on its reserve account
with the CB (up to P1.233 billion as of 13 February 1990) is not disputed by
PBP. This enormous overdraft evidences
the patent inability of the bank’s management to keep PBP liquid. This fact alone sufficiently justifies the
remedial measures taken by the Monetary Board.

MB Resolutions Nos. 649 and 751 were not promulgated to
arbitrarily divest the present stockholders of control over PBP, as is claimed
by the latter. The same contemplates an
effective and viable plan to revive and restore PBP. It is to be noted that before issuing these resolutions, the MB
gave the management of PBP ample opportunity (from 30 March 1984 to June of
1987) to submit a viable rehabilitation plan for the bank.

MB Resolution No. 751 merely reiterated the requirement set forth
in Resolution No. 649 for PBP to identify and submit the list of new
stockholders who will infuse new capital into the bank for CB approval. In this Resolution, the MB gave PBP’s
stockholders one (1) week from notice within which to signify their acceptance
or rejection of the proposed rehabilitation plan.

The foregoing resolutions refer to a recommended
rehabilitation plan. What was conveyed
to PBP was a mere proposal. There was
nothing in the resolutions to indicate that the plan was mandatory. On the contrary, PBP was given a specific
period within which to accept or reject the plan. And, as petitioners correctly pointed out, the plan was not
self-implementing. The warning given by
the MB that should said proposal be rejected, the CB “will take
appropriate alternative actions on the matter,” does not make the proposed
rehabilitation plan compulsory. Whether
or not there is a rehabilitation plan agreed upon between PBP and the MB, the CB
is authorized under R.A. No. 265 to take appropriate measures to protect the
interest of the bank’s depositors as well as of the general public.

Furthermore, the assignment of claims to PDIC and the subsequent dacion
en pago (payment of credit through shares) do not divest the present
stockholders of control over PBP. As
may be readily observed from the terms of Resolution No. 645, the shares which
shall be issued to PDIC under the dacion are preferred, non-voting
and non-participating shares. Hence, except for the instances enumerated in the Corporation Code where
holders of non-voting shares are given the right to vote, PDIC shall have no
hand in the bank’s operation or business. In any event, these preferred shares will eventually be sold to private
parties or new stockholders as soon as they are identified by PBP and approved
by the CB. Prior approval by the CB of
the stockholders is necessary for screening purposes.

There is nothing objectionable to the actions of the MB. We, therefore, find to be completely without
legal or evidentiary basis the contention that the impugned resolutions are
arbitrary, illegal and made in bad faith.

Moreover, respondent Judge acted in complete disregard of Section
107 of R.A. No. 265 when he enjoined the CB from taking appropriate actions
against the bank, “including exclusion of (PBP) from settlement of
clearing balances at the Central Bank clearing house” as warranted under
the law. By using his own standards, and
without scrutinizing the law, respondent Judge arbitrarily determined when the
CB may or may not initiate measures against a bank that cannot maintain its
liquidity. He also arbitrarily and
capriciously decided who can continually overdraw from the deposit account with
the CB, to the prejudice of other banking institutions, the banking public and
the government.

3. As could be
gleaned from the pleadings in G.R. No. 92943, the respondent Judge, per his
Order of 18 November 1987, (a) directed the conservator to restore both the PBP
officers to their original positions prior to the reorganization of the bank’s
personnel, and the PBP’s standing committees to their original compositions,
and (b) restrained her from leasing out to a third party any portion of PBP’s
space in the Producers Bank Centre; per his Order of 22 December 1987,
respondent Judge granted PPI’s motion for an order transferring to the latter
the administration of the three (3) buildings; and per the Order of 22 December
1987, he granted the motion directing the conservator to publish the financial
statement of the PBP in the manner prayed for by the latter.

The foregoing Orders were issued without due hearing. Moreover, these reliefs were not prayed for
in the Amended Complaint. They were not
even covered by any specific allegations therein. Except for the prohibition to lease, the rest partook of the
nature of a preliminary mandatory injunction which deprived the conservator of
her rights and powers under Section 28-A of R.A. No. 265 and, in effect, set
aside the conservatorship which PBP itself had earlier accepted. It must be remembered that PBP did not ask,
in its Amended Complaint, for the setting aside of the conservatorship. On the contrary, it even prayed that the
conservator be ordered to restore the viability of PBP as mandated by said
Section 28-A.

The respondent Judge should not have forgotten the settled
doctrine that it is improper to issue a writ of preliminary mandatory
injunction prior to the final hearing, except in cases of extreme urgency,
where the right is very clear, where considerations of relative inconvenience
bear strongly in complainant’s favor, where there is a willful and unlawful
invasion of plaintiff’s right against his protest and remonstrance, the injury
being a continuing one, and where the effect of the mandatory injunction is
rather to re-establish and maintain a pre-existing continuing relation between
the parties, recently and arbitrarily interrupted by the defendant, than to
establish a new relation.^[63]

It is plain to this Court that respondent Judge ceased to be an
impartial arbitrator; he became the godfather of PBP and PPI, granting to them
practically all that they had asked for in the motions they filed. Upon the issuance of these Orders, nothing
appeared clearer in the judicial horizon than this —    PBP and PPI had everything in the bag, so to speak, including the
reliefs not even contemplated in their Amended Complaint. The challenged Orders then were whimsically
and arbitrarily issued.

Compounding such detestable conduct is the respondent Judge’s issuance,
with undue haste and unusual speed, of the orders of contempt without the
proper hearing. If the conservator
could, at all, be liable for contempt, it would be for indirect contempt
punished under Section 3, Rule 71 of the Rules of Court, more specifically item
(b) of the first paragraph which reads:

“SEC. 3. Indirect contempts to be punished after charge and
hearing. – After charge in writing has been filed, and an
opportunity given to the accused to be heard by himself or counsel, a person
guilty of any of the following acts may be punished far contempt:

x x x

(b). Disobedience of
or resistance to a lawful writ, process, order, judgment, or command of a
court, or injunction granted by a court or judge, x x x;”

It is clear from the said section that it is necessary that there
be a charge and that the party cited for contempt be given an opportunity to be
heard. The reason for this is that
contempt partakes of the nature of a criminal offense. In the instant case, each motion for
contempt served as the charge. It is
settled that a charge may be filed by a fiscal, a judge, or even a private
person.^[64]
Petitioner Tansinsin-Encarnacion filed oppositions thereto. Thereafter, it was the duty of the
respondent Judge to hold a hearing on the motions. Respondent Judge deliberately did away with the hearing and this
Court finds no justifiable reason therefor.

There is, moreover, another reason why the contempt orders must
be struck down. The orders which were
supposedly disobeyed and from which the motions for contempt arose were, as
earlier indicated, null and void for having been issued with grave abuse of
discretion amounting to lack of jurisdiction. Such orders, therefore, cannot then be characterized as lawful. Consequently, resistance thereto cannot be
punished as contempt.^[65]

PREMISES CONSIDERED, the petitions in G.R. Nos. 88353 and
92943 are GRANTED. The 6 October 1988
decision and 17 May 1989 resolution of the Court of Appeals in C.A.-G.R. SP No.
13624 are REVERSED and SET ASIDE. Respondent Judge is ordered to dismiss Civil Case No. 17692. All proceedings undertaken and all orders
issued by respondent Judge are hereby. SET ASIDE for being null and void. The writ of preliminary injunction issued by the trial court in its
Order dated 21 September 1987 is hereby LIFTED.

IT IS SO ORDERED.

Narvasa, C.J., Melencio-Herrera, Cruz, Paras, Feliciano, Bidin,
Griño-Aquino, Regalado, Romero and
Nocon, JJ., concur.

Gutierrez, Jr., J., see concurring
opinion.

Padilla, J., No part, Producers
Bank being a lessee of a building which I own.

Medialdea, J., joins Gutierrez
in his concurring opinion.

Bellosillo, J., No part. Did
not take part in deliberations

 

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^[1]
Rollo, G. R. No. 92943, 294.

^[2]
Id., G.R. No. 88353, 41-60; per associate Justice Hector C. Fule,
concurred in by Associate Justices Nathanael P. De Paño, Jr. and Asaali S. Isnani.

^[3] ld., 63-68.

^[4]
Rollo, G.R. No. 92943, 27-46; per Associate Justice Jorge G. Imperial,
concurred in by Associate Justices Reynato S. Puno and Filemon M. Mendoza.

^[5]
Rollo, 12-13.

^[6]
Paragraph 15 of Amended Complaint; Id., 124.

^[7]
Rollo, 131-133.

^[8]
Rollo, G.R. No. 88353, 108-110.

^[9]
Rollo, G.R. No. 88353, 111.

^[10]
Rollo, G.R. No. 92943, 123-169.

^[11]
Id., 154-159.

^[12]
Id., 167-168.

^[13]
Rollo, G.R. No. 88353, 115.

^[14]
Id., 163-174.

^[15]
Id., 100-103.

^[16]
Id., 115-162.

^[17]
Rollo, G.R. No. 88353, 11; 105.

^[18]
Rollo, G.R. No. 88353, 105-107.

^[19]
Id., 69-99.

^[20]
Rollo, G.R. No. 88353, 41-59. Per Associate Justice Hector C. Fule, concurred in by Associate Justices
Nathanael P. De Paño and Asaali S. Isnami.

^[21]
Id., 63-68.

^[22]
Rollo, G.R. No. 88353, 10-38.

^[23]
149 SCRA 562 (1987).

^[24]
Rollo, G.R. No. 88353, 199.

^[25]
Id., 204-224.

^[26]
Rollo, G.R. No. 88353, 227-234.

^[27]
Id., 269-a.

^[28]
Id., 273-282.

^[29]
Rollo, G.R. No. 92943, 36-37.

^[30]
Rollo, G.R. No. 92943, 37-38.

^[31]
Id., 27-46; per Associate Justice Jorge S. Imperial, concurred in by
Associate Justices Reynato S. Puno and Filemon H. Mendoza.

^[32]
G.R. Nos. 79937-38, 13 February 1989.

^[33]
G.R. No. 76119, 10 April 1989.

^[34]
Rollo, G.R. No. 92943, 48-49.

^[35]
Rollo, G.R. No. 92943, 58-94.

^[36]
Section 10, Rule 71, Rules of Court.

^[37]
Op. cit.,
88-94.

^[38]
R.A. No. 265.

^[39]
Rollo, G.R. No. 88353, 25.

^[40]
Rollo, G.R. No. 88353, 106.

^[41]
Id., 124.

^[42]
Central Bank vs. De la Cruz, 191 SCRA 346 (1990); Salud vs.
Central Bank, 143 SCRA 590 (1986); Central Bank vs. Court of Appeals,
106 SCRA 143 (1981).

^[43]
15 SCRA 66 (1965).

^[44]
9 C.J.S.

^[45]
Supra.

^[46]
Rollo, G.R. No. 88353, 68.

^[47]
Subheadings in the Complaint and Amended Complaint, Id., 115, et seq.;
G.R. No. 92943, 123, et seq.

^[48]
Per Section 5, Rule 141 of the Rules of Court, the filing fee thereon would be
P200.00 for the first P150,000.00 and P4.00 for every P1,000.00 in excess
P150,000.00.

^[49]
Rollo, G.R. No. 92943, 27, et seq.

^[50]
Id., 45.

^[51]
170 SCRA 274 (13 February 1989).

^[52]
171 SCRA 674 (10 April 1989).

^[53]
Further clarification was subsequently made in Tacay vs. Regional Trial
Court of Tagum, Davao del Norte, 180 SCRA 433 (20 Dec. 1989).

^[54]
Ortigas & Co. Limited Partnership vs. Court of Appeals, 162 SCRA 165
(1988); Teotico vs. Agda, Sr., 197 SCRA 675 (1991).

^[55]
9 C.J.S. 32.

^[56]
Simex International (Manila), Inc. vs. Court of Appeals, 183 SCRA
360(1990).

^[57]
R.A. No. 265, as amended.

^[58]
Section 14, Article XV, 1973 Constitution, and Section 20, Article XII, 1987
Constitution.

^[59]
189 SCRA 14 (1990).

^[60]
Section 100, R.A. No. 265, as amended.

^[61]
Section 107, Id.

^[62]
Section 107, R.A. No. 265, as amended.

^[63]
Alvaro vs. Zapata, 118 SCRA 722 (1982).

^[64]
People vs. Venturanza, 98 Phil. 211 (1956).

^[65]
Moran, M., Comments on the Rules of Court,
vol. 3, 1980 ed., 360-361.

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