Ramos vs. Central Bank of the Philippines

A government monetary authority that induces bank stockholders to execute a voting trust agreement and mortgage their properties in exchange for a commitment to rehabilitate and normalize the distressed bank is estopped from reneging on such representations and ordering the bank's liquidation.

The Overseas Bank of Manila (OBM) was a commercial banking corporation organized under Philippine laws, with principal office at Rosario Street, Manila, opened for business on 6 January 1964 with authorized capital of P30 million. Petitioners were the majority and controlling stockholders of OBM. The Central Bank (CB) had suspended OBM from clearing and lending operations for various violations of banking laws and regulations, and assessed penalties of 12% interest on overdrawings and 36% per annum on reserve deficiencies, which by 1968 amounted to several million pesos. The financial distress led to negotiations between the OBM stockholders and the CB for the bank's rehabilitation, culminating in a Voting Trust Agreement executed on 20 November 1967, under which petitioners turned over management control to the CB's Superintendent of Banks as trustee and mortgaged all their private properties to secure OBM's obligations to the CB.

The Overseas Bank of Manila (OBM) was a commercial banking corporation organized under Philippine laws, with its principal office at Rosario Street, Manila. It opened for business on 6 January 1964 with authorized capital of P30 million, of which P10 million was subscribed and P8 million paid. The petitioners — Emerito M. Ramos, Susana B. Ramos, Emerito B. Ramos Jr., Josefa Ramos de la Rama, Horacio de la Rama, Antonio B. Ramos, Filomena Ramos Ledesma, Rodolfo Ramos, Victoria Ramos Tanjuatco, and Teofilo Tanjuatco — were the majority and controlling stockholders of the bank. The OBM had been suspended by the Central Bank from clearing and from lending operations for various violations of banking laws and regulations. Petitioners attributed the bank's financial distress to this suspension and to the CB's deprivation of all usual credit facilities accorded to other banks. The CB also assessed penalties of 12% interest on overdrawings and 36% per annum on reserve deficiencies, which by 1968 had accumulated to several million pesos.

By April 1967, the financial situation of OBM had caused mounting concern in the CB. Petitioner Emerito Ramos, Sr., Chairman of the OBM Board, and the OBM management met with the CB to discuss the necessity and urgency of rehabilitating the bank through financial assistance. On 2 May 1967, CB Governor Andres Castillo wrote to Ramos describing the bank's precarious condition, the imminent danger of its being thrown out of clearing due to continuous adverse clearing balances, and the immediate necessity of putting up additional capital of at least P3 million. Castillo informed Ramos that if the bank were thrown out of clearing, the CB would require the majority stockholders to sign a trusteeship agreement with the Philippine National Bank, which would manage OBM, and the CB would announce its readiness to support PNB to allay the fears of depositors and creditors. As early as 25 September 1967, OBM President Martin Oliva, who had assumed the presidency on 13 March 1967, wrote to the Superintendent of Banks disclosing that transactions worth around P48 million — of which over P43 million were time deposits at usurious rates — had not been incorporated in the bank's books nor reported to the Board of Directors. Oliva explained that OBM management had resorted to these unrecorded transactions because the suspension of lending activities after 14 months of operation had reduced the bank to virtual inactivity, and the high premiums on deposits were comparatively cheaper than the CB's penalties. This disclosure prompted further investigation by CB examiners, which revealed unrecorded deposits amounting to P48,007,211 as of 13 September 1967 (later reduced to P35 million when the petition was filed), diversion of deposits to accounts controlled by certain OBM officials (the so-called COFICO and EMRACO accounts), and loans to the Ramos family and firms controlled by them. Petitioners contended that these transactions were recorded in subsidiary ledger accounts linked to the general ledger and were finally incorporated in OBM's regular books in September 1967 upon Oliva's instructions, and that the loans to the Ramos family had been written off when the Ramoses conveyed properties worth P54.096 million to OBM around 31 July 1967.

On 27 October 1967, the Superintendent of Banks reported that OBM's condition was one of insolvency, calling for liquidation under Section 29 of the Central Bank Act. However, with the listing of Ramos properties worth P100 million, a new possibility emerged to recapitalize OBM. In view of the stockholders' reluctance to execute the voting trust, the Monetary Board adopted Resolution No. 2015 on 16 October 1967, requiring Ramos to submit a listing of his properties and mortgage or assign them to CB to cover the overdraft balance, and requiring the stockholders to subscribe to an appropriate voting trust agreement so the CB could reorganize and transfer management to a nominee of the Monetary Board. On 30 October 1967, Governor Castillo wrote again, referencing a conference at Malacañang and stating that the Monetary Board had decided, as a measure to stave off liquidation, that a voting trust agreement should be executed in favor of the Superintendent of Banks, similar to the one executed by stockholders of the Republic Bank in favor of PNB — a reference significant because the CB had previously advanced funds to rehabilitate the Republic Bank. On 8 November 1967, Castillo followed up, requesting execution of the voting trust agreement prepared by CB's Legal Counsel, finalization of the mortgages on petitioners' properties, and endorsement of shares of stock held by petitioners in their corporations.

On 20 November 1967, petitioners executed the Voting Trust Agreement prepared by CB attorneys, with petitioners as trustors and the CB's Superintendent of Banks as trustee. The agreement's objectives, as stated in its whereas clauses, were "for the rehabilitation, normalization and stabilization of the Overseas Bank of Manila." The trust was to last three years from 20 November 1967, with the trustee given full authority to direct management, vote directors, reorganize operations, hold and vote shares, safeguard depositors' and creditors' interests, and exercise all powers inherent to the owners for sound banking management. Petitioners likewise mortgaged all their private properties and holdings to CB to secure OBM's obligations, with petitioners claiming the properties were worth over P141 million while CB appraised them at around P67 million. On 5 December 1967, new directors and officers drawn from the CB, PNB, and DBP were elected and installed, taking over management and control of OBM. Augusto E. Orosa was elected bank president.

On 6 January 1968, the new management requested a P30 million loan to enable OBM to resume normal operations. However, the CB did not act on this request for almost six months. On 14 June 1968, CB announced that only P10 million would be available as emergency loan. Orosa submitted a projected cash flow statement concluding that P10 million would not save the bank, which needed loanable funds estimated at P196 million to break even. In a memorandum to CB Governor Alfonso Calalang on 22 July 1968, Orosa complained that eight months of indecision had caused depositors to lose faith, resulting in more court suits and withdrawals, and that the psychological advantage initially gained by PNB's takeover had faded. On 23 July 1968, the Superintendent of Banks recommended to the Monetary Board that OBM be liquidated under Section 29 of Republic Act 265, concluding that the bank's continuance in business without capital injection and financial aid would involve certain further losses to depositors and creditors and adverse effects on the banking system.

On 30 July 1968, the Monetary Board adopted Resolution No. 1263, excluding OBM from clearing with the CB, implemented on 31 July 1968. On 1 August 1968, Resolution No. 1290 was adopted, authorizing the OBM Board of Directors to suspend operations, implemented on 2 August 1968. Petitioners then filed the present petition. On 13 August 1968, the Monetary Board adopted Resolution No. 1333, forbidding OBM from doing business and directing the Superintendent of Banks to take charge of its assets and proceed to liquidation under Section 29 of the Central Bank Act. Implementation of this resolution was restrained by the Court on 14 August 1968. The Superintendent of Banks estimated that the actual amount needed to be loaned to OBM for capital requirements was no more than P40.730 million, an amount within CB's capacity, as the CB's assets in 1968 were reported at over P4.5 billion with a surplus of over P269 million.

• Validity of Resolutions: Petitioners argued that the CB resolutions were not legally issued and were promulgated by the Monetary Board in excess of jurisdiction and with grave abuse of discretion.
• Public Policy: Petitioners maintained that the resolutions were prejudicial to the national interest and against public policy, as they would erode confidence in the banking system and undermine its integrity and stability, contrary to the purpose and spirit of the Central Bank Act.
• Irreparable Injury: Petitioners contended that the resolutions had caused and would cause further irreparable losses, damages, and injuries to the depositors, creditors, and stockholders of OBM.
• Due Process: Petitioners argued that the resolutions were promulgated without due process of law, would constitute deprivation of property without due process, and would amount to impairment of the obligations of contract.
• No Adequate Remedy: Petitioners claimed there was no appeal nor any plain, speedy, and adequate remedy in the ordinary course of law.
• CB's Obligation to Rehabilitate: Petitioners averred that the Voting Trust Agreement was bilateral, imposing reciprocal obligations for valuable consideration, and that the CB's obligation to work for the rehabilitation, normalization, and stabilization of OBM through adequate financial assistance was legally demandable and a duty specifically imposed by law. They claimed the CB violated its obligations by adopting the questioned resolutions without notice or hearing after eight months of delay, and that no adequate financial assistance was granted to OBM after the execution of the Voting Trust Agreement.

• Not a Party to Voting Trust: Respondent CB countered that it was not a party to the Voting Trust Agreement and therefore could not be compelled to implement it.
• Legal Limitation on Loans: Respondent argued that even if obliged to rehabilitate OBM, it could not give more loans than already given without violating Section 90 of the Central Bank Act, since neither OBM nor its stockholders could put up additional capital and collaterals to secure future advances.
• No Duty to Rescue at All Cost: Respondent maintained that it would be illegal and contrary to public interest to construe the voting trust agreement as imposing upon CB the duty to rescue OBM at all cost.
• No Absolute Right to Clearing: Respondent argued that no bank has an absolute right to participate in inter-bank clearing, because Section 100 of Republic Act 265 requires a bank to keep deposit reserves as a condition, which OBM did not have — having overdrawn its reserve account beyond the maximum fixed by law.
• Jurisdiction: Respondent contended that any action assailing Resolution No. 1333 should be filed in the Court of First Instance of Manila by the bank itself, not by petitioning stockholders, pursuant to Section 29 of Republic Act 265, and that the adoption of Resolution No. 1333 had rendered the main petition academic.
• OBM Irregularities: Respondent cited specific instances of OBM's unusual and irregular transactions discovered by examiners or revealed by OBM officials, including unrecorded deposits and diversion of funds to accounts controlled by bank officials.

• Jurisdiction: Whether the Supreme Court has jurisdiction to restrain the implementation of CB Resolution No. 1333.
• CB's Commitment to Rehabilitate: Whether the CB had agreed to rehabilitate, normalize, and stabilize OBM.
• Abuse of Discretion: Whether CB Resolutions Nos. 1263, 1290, and 1333 were adopted in abuse of discretion.

• Jurisdiction: Yes. The Supreme Court's jurisdiction, once acquired over the petition assailing Resolutions Nos. 1263 and 1290, was not ousted by the subsequent adoption of Resolution No. 1333, which was a deliberate effort to evade the Court's jurisdiction.
• CB's Commitment to Rehabilitate: Yes. The CB agreed and committed itself to the continued operation and rehabilitation of OBM, as evidenced by its letters, the terms of the Voting Trust Agreement prepared by its own Legal Counsel, and its express representations to petitioners.
• Abuse of Discretion: Yes. The resolutions were adopted in abuse of discretion equivalent to excess of jurisdiction, the CB having failed to comply with its commitments under the Voting Trust Agreement and being estopped from reneging on its representations under the doctrine of promissory estoppel.

• Jurisdiction: Before the CB adopted Resolution No. 1333 on 13 August 1968, the Court had already taken cognizance of the petition assailing Resolutions Nos. 1263 and 1290 as patent acts of liquidation violative of the CB's commitment to rehabilitate OBM, and had required the CB to answer on 12 August 1968. Resolution No. 1333 was clearly an act in pursuance of the policy outlined in the previous resolutions already enjoined by the Court. The rule, as quoted from People vs. Pegarum, is that jurisdiction depends upon the state of facts existing at the time it is invoked, and once jurisdiction attaches to the person and subject matter, subsequent events that would have prevented jurisdiction from attaching in the first instance will not operate to oust jurisdiction already attached. The CB's attempt to have the case thrown back to the Court of First Instance was a deliberate effort to evade the Court's jurisdiction. Further, petitioners, as controlling stockholders, were qualified to represent OBM's interests, particularly since the present management was composed of CB's own nominees who could hardly be expected to resist CB's plans. Nor would it serve the interest of justice to dismiss the case and let a new petition be filed in another court, as split jurisdictions give rise to multiplicity of suits and undermine stability in litigation.

• CB's Commitment to Rehabilitate: The letters from CB to petitioners (Annexes "B," "G," and "H"), considered together with the terms of the Voting Trust Agreement, established that the CB committed itself to the continued operation and rehabilitation of OBM. As early as 2 May 1967, CB advised that it would support PNB's takeover "to allay the fears of depositors and creditors." Resolution No. 2015 confirmed the demand for a voting trust agreement to enable CB to reorganize and transfer management. The reference to the Republic Bank case clarified the purpose — to stave off liquidation — since the CB had previously advanced funds to rehabilitate the Republic Bank. The Voting Trust Agreement, prepared by CB's own Legal Counsel, stated as its objective "the rehabilitation, normalization and stabilization of the Overseas Bank of Manila." While the trust agreement on its face created obligations only for the Superintendent of Banks as trustee, his commitments were those of the CB itself, since the Superintendent was a CB officer acting under the Monetary Board's instructions pursuant to Section 25 of the CB charter. The CB subsequently caused its own nominees to take over OBM's management, and in August 1970 gave notice that it would not extend the voting trust, thereby recognizing the obligations as its own. Construing ambiguities against the party that caused them, the record showed that in consideration of the voting trust agreement and the mortgage of petitioners' properties, the CB had agreed to support OBM and stave off liquidation. Even absent a contract, the CB made express representations that it would support OBM if petitioners executed the voting trust and mortgaged their properties. Petitioners having complied and parted with value to the profit of the CB, which acquired additional security for its own advances, the CB was precluded from reneging under the doctrine of promissory estoppel.

• Abuse of Discretion: The CB's conduct from January 1968 onward revealed a calculated attempt to evade rehabilitating OBM despite its promises. After installing its own nominees on 5 December 1967, the CB failed to act on the new management's request for P30 million in January 1968 for almost six months, then offered only P10 million on 14 June 1968 — one-third of what its own team deemed necessary. The CB kept its own management team in the dark about its policy regarding OBM's future. The actual capital needed was estimated at no more than P40.730 million, an amount within CB's capacity (CB's assets in 1968 were reported at over P4.5 billion). The CB's failure to provide timely aid caused OBM's condition to deteriorate daily, with penalties accumulating at 3% per month. The ordered liquidation would force depositors and creditors to share in OBM's assets while the CB's own credits were secured by the new mortgages, gaining what amounted to an illegal preference. The CB disregarded its representations without offering to discharge the mortgages, notifying petitioners of rescission, or bringing court action. This conduct violated Articles 1159 and 1315 of the Civil Code, requiring contracts to be complied with in good faith. The CB's excuse of OBM irregularities was unpersuasive, since it had knowledge of these irregularities as early as 25 September 1967 yet still insisted on the Voting Trust Agreement on 20 November 1967, importing that the irregularities were not to be blamed on OBM's depositors and creditors but on the officials responsible, and that OBM could still be saved by adequate aid and management reform. The American cases cited by CB were inapplicable, as none involved a central bank that had engaged to support a distressed bank in exchange for control and additional mortgages. Discretion has its limits and does not include arbitrariness, discrimination, or bad faith.

• Promissory Estoppel — An estoppel may arise from the making of a promise, even without consideration, if it was intended that the promise should be relied upon and in fact it was relied upon, and if a refusal to enforce it would be virtually to sanction the perpetration of fraud or would result in other injustice. The reliance by the promisee is generally evidenced by action or forbearance on his part, and such action or forbearance would reasonably have been expected by the promisor. In this case, the CB made express representations that it would support and rehabilitate OBM if petitioners executed the Voting Trust Agreement and mortgaged their properties. Petitioners complied and parted with value to the profit of the CB, which acquired additional security for its own advances. The CB was therefore estopped from reneging on its representations and liquidating OBM.

• Jurisdiction Once Acquired Is Not Ousted by Subsequent Events — Jurisdiction depends upon the state of facts existing at the time it is invoked; once jurisdiction attaches to the person and subject matter, subsequent events that would have prevented jurisdiction from attaching in the first instance will not operate to oust jurisdiction already attached. The CB's adoption of Resolution No. 1333 after the Court had already taken cognizance of the petition was a deliberate effort to evade the Court's jurisdiction and could not divest it of jurisdiction already acquired.

• Contra Proferentem in Government-Prepared Instruments — Ambiguities in documents prepared by a party are construed against that party. The Voting Trust Agreement and related correspondence having been prepared by the CB's Legal Counsel, ambiguities therein were construed against the CB, supporting the conclusion that the CB had committed itself to OBM's rehabilitation.

• Good Faith in Contract Performance — Under Articles 1159 and 1315 of the Civil Code, obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith; parties are bound not only to what has been expressly stipulated but also to all consequences which, according to their nature, may be in keeping with good faith, usage, and law. The CB's deception in inducing petitioners to part with additional security while never intending to fulfill its commitments violated these provisions.

• Limits of Administrative Discretion — Discretion vested in a government monetary authority has its limits and does not include arbitrariness, discrimination, or bad faith. The CB's discretionary authority to determine whether a distressed bank should be supported or liquidated could not be exercised in contravention of its own prior commitments and representations made in exchange for valuable consideration.

• "The doctrine of 'promissory estoppel' is by no means new, although the name has been adopted only in comparatively recent years. According to that doctrine, an estoppel may arise from the making of a promise, even though without consideration, if it was intended that the promise should be relied upon and in fact it was relied upon, and if a refusal to enforce it would be virtually to sanction the perpetration of fraud or would result in other injustice." — This passage defines the doctrine of promissory estoppel as applied in Philippine jurisprudence, forming the analytical core of the decision and supplying the legal basis for holding the CB bound by its representations.

• "Having induced the petitioners to part with additional security in reliance upon its (CB's) promises and commitments to avert liquidation and to support, normalize and rehabilitate the OBM, the respondent CB is duty bound to comply in good faith with such promises." — This states the ratio decidendi, tying promissory estoppel and the duty of good faith to the specific facts of the case and establishing the CB's obligation.

• "Cleverness should never take the place of the loyal, upright and straightforward observance of plighted undertakings." — Quoted from Abelarde vs. Lopez, this encapsulates the Court's view of the CB's conduct and the demands of good faith in contract performance, and is frequently cited in subsequent jurisprudence on contractual good faith.

• "Discretion has its limits and has never been held to include arbitrariness, discrimination or bad faith." — This defines the boundaries of the CB's discretionary authority over distressed banks, distinguishing the case from the American authorities cited by the respondent and establishing that discretion cannot shield bad-faith conduct.

• People vs. Pegarum — Cited for the rule that jurisdiction depends upon the state of facts existing at the time it is invoked, and once jurisdiction attaches, subsequent events will not oust it. Applied to reject the CB's argument that Resolution No. 1333 divested the Supreme Court of jurisdiction.

• Dimayuga vs. Fernandez, 43 Phil. 306 — Cited for guidelines on the exercise of the Supreme Court's original jurisdiction to issue prerogative writs, particularly that prohibition is sui generis and within the sound legal discretion of the court to prevent unlawful and oppressive exercise of legal authority.

• Bay View vs. Manila Hotel Worker's Union, L-21803, 17 December 1966 — Cited for the evils of split jurisdictions and the principle that all causes of action should be cognizable by one court in the interest of orderly administration of justice.

• Abelarde vs. Lopez, 74 Phil. 344 — Cited for the principle that cleverness should never take the place of loyal, upright and straightforward observance of plighted undertakings, applied to the CB's conduct in evading its commitments.

• Albert vs. Court of First Instance, L-26361, 29 May 1968 — Cited for the proposition that controlling stockholders are qualified to represent the interests of the corporation, so that a judgment may be enforced for or against it even if the corporation is not impleaded by name.

• Section 29, Republic Act No. 265 (Central Bank Act) — Governs proceedings upon insolvency of banking institutions. It provides that when the condition of a bank is one of insolvency or its continuance would involve probable loss to depositors or creditors, the Superintendent shall inform the Monetary Board, which shall forbid the institution to do business and take charge of its assets. If the Board determines the bank cannot resume business with safety to creditors, it shall file a petition in the CFI for liquidation. The CB invoked this provision in adopting Resolution No. 1333, but the Court held the CB was precluded from invoking it due to its prior commitments under the Voting Trust Agreement and the doctrine of promissory estoppel.

• Section 25, Republic Act No. 265 — Provides that the Superintendent of Banks is an officer of the CB subject to the instructions of the Monetary Board at all times. The Court used this provision to establish that the Superintendent's commitments under the Voting Trust Agreement were those of the CB itself, not merely personal obligations.

• Section 90, Republic Act No. 265 — CB argued it could not give more loans to OBM without violating this provision, since neither OBM nor its stockholders could put up additional capital and collaterals to secure future advances. The Court implicitly rejected this defense by holding the CB bound by its commitments regardless.

• Section 100, Republic Act No. 265 — Requires banks to keep deposit reserves as a condition for participation in inter-bank clearing. CB argued OBM had no absolute right to clearing because it had overdrawn its reserve account beyond the legal maximum. The Court found this argument insufficient to justify the resolutions given the CB's prior commitments.

• Article 1159, Civil Code of the Philippines — Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith. Applied to the CB's violation of its commitments under the Voting Trust Agreement.

• Article 1315, Civil Code of the Philippines — Contracts are perfected by mere consent, and parties are bound not only to what has been expressly stipulated but also to all consequences which, according to their nature, may be in keeping with good faith, usage, and law. Applied to the CB's obligations under the Voting Trust Agreement, including the implied duty to provide adequate funds for rehabilitation.

• Article 1377, Civil Code of the Philippines — Cited for the rule that ambiguities in contracts are construed against the party that caused them, applied to the Voting Trust Agreement and related correspondence prepared by the CB's Legal Counsel.

Dizon, Teehankee, and Villamor, JJ., concurred. Zaldivar, J., concurred in the result. Separate opinions were filed by Fernando, Makalintal, and Castro, JJ., but their content is not reproduced in the provided text. Concepcion, Barredo, and Makasiar, C.J., took no part.