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CASE K. FPIB v CA

The Supreme Court ruled that a conservator of a bank cannot unilaterally revoke a perfected contract made prior to their appointment, emphasizing that their role is to preserve and rehabilitate the bank rather than annul valid obligations. In this case, the court upheld the existence of a valid contract for the sale of land between First Philippine International Bank and the plaintiffs, affirming the lower court's decision to enforce the contract. The ruling reinforces the principle that conservatorship powers do not extend to repudiating legally concluded transactions.

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5 views2 pages

CASE K. FPIB v CA

The Supreme Court ruled that a conservator of a bank cannot unilaterally revoke a perfected contract made prior to their appointment, emphasizing that their role is to preserve and rehabilitate the bank rather than annul valid obligations. In this case, the court upheld the existence of a valid contract for the sale of land between First Philippine International Bank and the plaintiffs, affirming the lower court's decision to enforce the contract. The ruling reinforces the principle that conservatorship powers do not extend to repudiating legally concluded transactions.

Uploaded by

Bryan Latagan
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the Philippines) and

MERCURIO RIVERA, petitioners, vs.

COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO DEMETRIA, and JOSE


JANOLO, respondents.

G.R. No. 115849 January 24, 1996, PANGANIBAN, J.

DOCTRINE

A conservator of a bank does not have absolute power to repudiate a contract already
perfected prior to their appointment. While a conservator has the power under Section
28-A of the Central Bank Act (Republic Act No. 265) to overrule or revoke acts of the
previous management, such authority does not extend to contracts that have already
been legally concluded and perfected. The Supreme Court emphasized that a
conservator's role is primarily to preserve assets and rehabilitate the bank, not to
unilaterally rescind valid obligations entered into before their tenure.

FACTS

The case involves a dispute over the sale of six parcels of land in Sta. Rosa, Laguna
between First Philippine International Bank (FPB, formerly Producers Bank of the
Philippines) and the buyers led by Carlos Ejercito, substitute to original plaintiffs Demetrio
Demetria and Jose Janolo.

FPB, dealing with liquidity issues, was under the conservatorship of the Central Bank of the
Philippines since 1984. The Bank acquired six parcels of land with a total area of 101
hectares located at Don Jose, Sta. Rose, Laguna which the original plaintiffs Demetrio
Demetria and Jose Janolo wanted to buy. Negotiations for the sale of the land started in
August 1987.

Plaintiffs led by Janolo met with FPB’s Property Management Department head, Rivera,
and eventually made a formal purchase offer for P3.5 million. Rivera, on behalf of FPB,
counter-offered at P5.5 million. After negotiations and multiple exchanges of
communication, Janolo and his legal partner Demetria accepted FPB’s offer of P5.5
million, and a letter confirming their acceptance was sent to FPB.

Later, the conservator of the bank was replaced by Acting Conservator Encarnacion.
Plaintiffs made a series of demands to the Bank for compliance with the perfected
contract of sale, but these were refused. They twice made a tender of payment but were
refused. Instead, the parcels of land were advertised by the Bank for sale to any
interested buyer.

Acting Conservator Encarnacion repudiated Rivera’s authority to enter into contracts on


behalf of FPB, effectively annulling the sale of the parcels of land, and claimed that his
dealings with the plaintiffs, particularly his counter-offer of P5.5M were unauthorized or
illegal. Demetria and Janolo filed for specific performance with damages against FPB,
Rivera, and Encarnacion.

Petitioners contend that the conservator has the power to revoke or overrule actions of
the management or the board of directors of a bank, under Section 28-A of Republic Act
No. 265 (otherwise known as the Central Bank Act)

The trial court ruled in favor of the plaintiffs and held that a perfected contract to buy
and sell existed over the six parcels of land in Sta. Rosa, Laguna, between the plaintiffs as
buyers and the Producers Bank as the seller, with an agreed purchase price of ₱5.5M.
The court ordered the bank to execute a deed of absolute sale and deliver the property
titles upon payment. The CA affirmed with modification.

ISSUE

Whether or not the Conservator may revoke a perfected and enforceable contract.
RULING

The Court held that, while the Central Bank law gives vast and far-reaching powers to
the conservator of a bank, such powers must be related to the "(preservation of) the
assets of the bank, (the reorganization of) the management thereof and (the restoration
of) its viability." Such powers, enormous and extensive as they are, cannot extend to the
post-facto repudiation of perfected transactions, otherwise they would infringe against
the non-impairment clause of the Constitution.

Section 28-A merely gives the conservator power to revoke contracts that are, under
existing law, deemed to be defective — i.e., void, voidable, unenforceable or rescissible.
Hence, the conservator merely takes the place of a bank's board of directors. What the
said board cannot do — such as repudiating a contract validly entered into under the
doctrine of implied authority — the conservator cannot do either. His power is not
unilateral and he cannot simply repudiate valid obligations of the Bank. His authority
would be only to bring court actions to assail such contracts. A contrary understanding
of the law would simply not be permitted by the Constitution. Neither by common sense.
To rule otherwise would be to enable a failing bank to become solvent, at the expense
of third parties, by simply getting the conservator to unilaterally revoke all previous
dealings which had one way or another or come to be considered unfavorable to the
Bank, yielding nothing to perfected contractual rights nor vested interests of the third
parties who had dealt with the Bank.

The Court DENIED the petition and AFFIRMED the CA Decision.

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