Central Bank vs. CA

SECOND DIVISION
[G.R. No. L-50031-32. July 27, 1981.]

CENTRAL BANK OF THE PHILIPPINES, petitioner, vs. HONORABLE COURT OF APPEALS,
ISIDRO E. FERNANDEZ, and JESUS R. JAYME, respondents.
Alfredo Bautista, Felicisimo Asoy and Marino Eslao for petitioner.
Felicisimo C. Tumale for respondents.
FACTS:
In 1968, the Central Bank committed itself to support and rehabilitate the Provident Savings
Bank which had become financially distressed as a result of a bank run, but in return compelled private
respondents to relinquish their control and management of the bank in favor of the Iglesia Ni Kristo, a
major depositor. However, after the transfer, the new management committed irregularities which
ultimately led to the bank's collapse, and the consequent passage of a Monetary Board resolution
forbidding "the Provident Savings Bank to do business in the Philippines." This prompted private
respondents to petition the Court of First Instance to annul and set aside said Monetary Board
resolution. Later, the Central Bank petitioned the tame court for liquidation of Provident Savings Bank.
After a joint hearing of the two cases, the trial court set aside the disputed resolution; ordered the
Central Bank to desist from liquidating Provident and to specifically perform its obligation to support
and rehabilitate the distressed bank; and directed the Central Bank and the Iglesia Ni Kristo group to
pay damages and attorney's fees to private respondents.
Petitioner appealed, but the Court of Appeals sustained the lower court's judgment except the
award of damages and attorney's fees.
Hence, this petition.
ISSUE:
1. WoN the court erred in ordering the closure and liquidation of a bank. NO
2. WoN the action of the Monetary Board in ordering the closure and liquidation of an insolvent
bank is final and executory. YES but may be set aside if arbitrary and in BF
HELD: NO. Decision affirmed.
The Supreme Court held that under Republic Act No. 265, as amended by P.D. No. 1007, the
law then prevailing, the action of the Monetary Board in ordering the closure and liquidation of a bank
is final and executory, but may be set aside upon a showing that it is clearly arbitrary and made in bad
faith, as in the instant case.
Under section 29 of Republic Act No. 265, as amended by Presidential Decree No. 1007, the
action of the Monetary Board in ordering the closure and liquidation of an insolvent bank is final and
executory and can be set aside only if there is convincing proof that the action is plainly arbitrary and
made in bad faith. While there may not be gross and evident bad faith on the part of the Central Bank
and Eagle Broadcasting Corporation to sustain the award of damages to private respondents Fernandez
and Jayme, as ordered by the trial court, the action of the Monetary Board in forbidding Provident from
doing business in the Philippines and ordering its liquidation is clearly arbitrary and was made in bad
faith. The arbitrariness and bad faith of the petitioner Central Bank is evident from the fact that it
pressured Fernandez and Jayme into relinquishing the management and control of Provident to the
Iglesia Ni Kristo (INK) which did not have any intention of restoring the bank into its former sound
financial condition but whose interest was merely to recover its deposits from Provident, and,
thereafter, allowing the Iglesia Ni Kristo to mismanage Provident until the Bank's financial
deterioration and subsequent closure.
While the closure and liquidation of a bank may be considered an exercise of police power, the
validity of such exercise of police power is subject to judicial inquiry and could be set aside if it is
either capricious, discriminatory, whimsical, arbitrary, unjust, or a denial of the due process and equal
protection clauses of the Constitution.
The doctrine of promissory estoppel applies. According to that doctrine, an estoppel may arise
from the making of a promise, even though without consideration, if it was intended that the promise
should be relied upon, and if a refusal to enforce it would be virtually to sanction the perpetration of
fraud or would result in other injustice. In this respect, the reliance by the promisee is generally
evidenced by action or forbearance on his part, and the idea has been expressed that such an action of
forbearance would reasonably have been expected by the promissor. Mere omission by the promisee to
do whatever the promissor promised to do has been held insufficient `forbearance' to give rise to a
promissory estoppel. The Central Bank had committed itself to support Provident Savings Bank and
restore it to its former sound financial position provided that Fernandez and Jayme should relinquish
and give up their control and management of the Bank to the Iglesia Ni Kristo. It may not now,
therefore, whimsically withdraw such support to the detriment of Provident, under the rule of
promissory estoppel.

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SECOND DIVISION

[G.R. No. L-50031-32. July 27, 1981.]

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