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REPUBLIC OF THE PHILIPPINES
SUPREME COURT
MANILA
FIRST DIVISION
TEODORO C. BORLONGAN,
Petitioner,
-versus- GR No. 161276
ALBERTO V. REYES, et al.,
Respondents.
x----------------------------------------------------x
REPLY
(To Respondents Reyes and Aure’s Comment)
PETITIONER TEODORO C. BORLONGAN, by counsel, unto this Honorable Court, respectfully
begs leave of court to file this Reply to Respondents Reyes and Aure’s Comment, a copy of which he received on
6 May 2004:
PREFATORY STATEMENT
1. Lies, repeated a hundred times, remain, as they are -- Lies. They may sound convincing and even
mislead others. But the truth will always prevail!
2. A perusal of the 41-page Comment readily shows that respondents Reyes and Aure have
unabashedly foisted before this Honorable Court half-truths, misleading if not totally distorted statements, and
plain and simple falsehoods. What is revealing is that respondents capriciously and recklessly recommended the
closure of Urban Bank, Inc. (UBI), Urbancorp Development Bank (UDB) and Urbancorp Investments, Inc. (UII),
knowing that there were no grounds and that other more appropriate options were available to them. Respondents
desperately came out with “haphazardly and negligently done” reports, even to the extent of fabricating and
falsifying documents, to cover up their misdeeds that led to the eventual closure of these three institutions imbued
with public interest. This is the plain and simple truth, which petitioner shall unravel before this Honorable Court.
3. Most glaring, however, is respondents’ crude attempt to question the decision of the Fifth
Division of the Court of Appeals in another related case, which remains pending before that body because of their
motions for reconsideration. They have virtually pre-empted the Court of Appeals to act decisively on the matter,
by raising before this Court the same arguments contained in their said motions.
4. Judicial power includes the duty of the courts of justice to settle actual controversies involving
rights which are legally demandable and enforceable, and to determine whether or not there has been a grave
abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the
Government (Article VIII, Section 1, 1987 Constitution). It is therefore not correct to say that respondents’
actions cannot be questioned. They are public officials and remain accountable for their actions and deeds
(Article XI, Section 1, ibid). Precisely, petitioner filed a complaint before the Office of the Ombudsman which
found respondents administratively liable for having acted “haphazardly and negligently” in their performance of
their duties. What remains to be decided is the appropriate penalty.
SUMMARY OF COUNTER-ARGUMENTS
5. Petitioner submits his counter-arguments on the matters contained in Respondents Reyes and
Aure’s Comment, as follows:
I. Refutation of Relevant Facts
A. Respondents did not deny the facts and evidence in the Petition that showed their partiality
and bad faith against UBI.
B. Respondents did not deny the facts and evidence in the Petition that showed their haphazard
preparation of the SES Reports and their prejudice to close down UBI.
2
C. Respondents admit their failure to comply with the condition of Sec. 30(a) RA 7653 when
they recommended UBI and UDB’s closure.
D. Respondents’ misleadingly cite previous SES reports and MB resolutions that allegedly
depicted UBI’s long-time distressful condition.
E. Respondents omit recriminatory details in their narration of events on 25 April 2000, when
they prepared to close down UBI, UDB and UII.
F. Respondents mislead the Honorable Court when they stated that their initial support for UBI
was P800 Million when it was only P300 Million.
G. Respondents’ argument regarding BSP’s offer of financial support is self-serving and false.
Evidence show that such support was never seriously contemplated by BSP.
H. Respondents blame petitioner for “amazingly” declaring the bank holiday, when it was the
only option BSP admitted to have given to UBI.
I. Respondents mislead the Honorable Court regarding their finding of UBI’s alleged capital
deficiency.
J. Respondents mislead the Honorable Court regarding their finding of UBI’s loan loss
provision.
K. Respondents misleadingly cite Sec. 30(c) of RA 7653 as basis for UBI and UDB’s closure
when said provision was not cited at all as basis for the closure.
L. Respondents cannot deny or refute their perjurous statements to conceal that UBI and UDB
were the only banks in Philippine banking history to have been closed for alleged
illiquidity.
II. Refutation of Legal Arguments
A. Contrary to their implications, respondents are precisely empowered by RA 7653 to directly
assist banks, even without collaterals, in times of illiquidity or emergency.
B. Respondents quibble with respect to the definition of a bank holiday when the summary
closure of UBI and UDB made the temporary holiday permanent.
C. Respondents mislead the Honorable Court on the bank holiday and closure of Orient Bank.
D. Respondents mislead the Honorable Court that illiquidity under Sec. 30(a) is a “new”
ground for bank closure under the New Central Bank Act.
E. Respondents misleadingly cite RA 8791 as basis for the closure when the law was not yet
existent at the time, and could not have been the basis of the closure of UBI and UDB.
F. Respondents hold themselves above the law when they refute the wisdom of Sec. 29 of RA
7653 and disregard its provisions.
G. Respondents mislead the Honorable Court that their role in the closure of UBI, UDB and
UII was merely recommendatory.
H. Contrary to respondents’ assertions, the Banco Filipino is applicable in the herein case. It
also demonstrates how much worse the herein case compares with Banco Filipino.
3
I. REFUTATION OF RELEVANT FACTS
A. Respondents did not deny the
following facts and evidence that
showed their partiality and bad faith
against UBI.
6. The following facts and evidence presented in the Petition were not denied or refuted by
respondents in their Comment:
6.1. Respondents rendered a favorable Final Report of Examination to the Monetary Board (hereafter
“MB”) on 19 November 1999. In the “Overall Conclusion” of said Final Report, SES found that UBI
“showed satisfactory financial condition”, “managed to maintain its solvency and liquidity”, and
“substantially complied with banking laws, BSP rules and regulations”.1
6.2. Despite the favorable findings in the recently-concluded examination report, respondents conducted
another unlawful examination of UBI (and UII) in January and February 2000, in violation of Sec. 28,
RA 7653 which provides that bank examinations be conducted at intervals of at least twelve (12) months.
6.3. Despite their examination, respondents rendered a false and erroneous report to the MB on 4 February
2000 that UBI failed to comply, within the deadline set by the MB, the required divestment of its excess
equity holdings in UII. As a result of SES’ false report, the MB issued Resolution No. 171 imposing
restrictions in the meantime that UBI had allegedly not completed its divestment.2
6.4. Respondent Reyes and BSP were the source of misleading media reports on UBI’s condition (at least
six newspaper accounts in March 2000), portraying it as an errant bank and threatening sanctions and
penalties for downgrading. Their irresponsible disclosures came at the time of a panicky financial
market, and violated Sec. 16 and 27(c) of RA 7653.3
6.5. Respondents were in receipt of petitioner’s letter dated 20 March 2000, calling their attention to their
false report on UBI’s alleged failure to divest in UII, and to Reyes’ negative press statement which
“unfavorable impression has spread to the public” given the panicky market at the time.4
6.6. The following factors existed in February to April 2000, indicating a panicky financial market at the
time of respondents’ irresponsible disclosures to media:
a. There was a staggering P15 Billion in unpaid debt instruments held by investors in the market, and
issued by institutions such as Wincorp, ASB Realty Group, C&P Homes, and East Asia Capital;
b. There was a massive flight of investment capital which BSP closely monitored;
c. There was a stock market crash as a result of the BW fiasco and controversial investigation;
d. Prevalent rumors of a coup and “Erap-resign” movement further exacerbated an already fidgety
financial environment; and
e. Immediately after UBI, UDB and UII’s closure, there were runs on numerous banks and investment
houses, further evidencing the existence of a panicky market. BSP and PDIC lent about P25-billion
to bail-out numerous banks in the few weeks right after 26 April 2000.
6.7. UBI and UII, which shared the same clientele, suffered constant withdrawals in the five weeks until their
closure. Even the BSP Provident Fund pre-terminated its deposits with UBI one (1) day before UBI was
forced to declare a bank holiday on 25 April 2000, and when its deposits had only four (4) remaining days
to mature.5
1 Annex 22 of petitioner’s Comment in CA-G.R. SP No. 72234 (Annex I of Petition)
2 Annex 1-B of Reyes’ counter-affidavit, which is Annex F of respondents’ Petition in CA-G.R. SP No. 72234 (Annex H of
Petition)
3 Annexes 7, 8, 10 to 13 of petitioner’s Comment in CA-G.R. SP No. 72234 (Annex I of Petition)
4 Annex 9 of petitioner’s Comment in CA-G.R. SP No. 72234
5 Annexes 18 & 19 of petitioner’s Comment in CA-G.R. SP No. 72234
4
6.8. On 25 April 2000, UBI faced extraordinary demands of withdrawal of closer to P2 Billion during that
last day alone. Petitioner and UBI Chairman Arsenio Bartolome III met with BSP Governor Rafael
Buenaventura to pre-clear with him the declaration of a bank holiday to halt the panic withdrawals,
particularly the P1.2-Billion inward checks expected through the clearing house that evening.
6.9. UBI and UDB were ordered closed less than twenty-four (24) hours after they voluntarily declared a bank
holiday. UBI was one of the largest banks, if not the largest, in Philippine banking history to have been
ordered closed.
B. Respondents did not deny the
following facts and evidence that
showed their haphazard preparation
of the SES Reports and their
prejudice to close down UBI.
7. The following facts and evidence presented in the Petition were not denied or refuted by
respondents in their Comment:
7.1. Three (3) SES Reports on UBI, UDB and UII, which made such sensitive and critical recommendations
of closure, took respondents only three (3) or four (4) hours to prepare, beginning the evening of 25
April 2000. They were rushed in time for the MB Special Meeting the following morning, which was
especially called for the purpose of deliberating upon said Reports and deciding on the recommendations
contained therein.
7.2. The findings in the SES Reports were neither furnished nor discussed with the institutions concerned,
in violation of the Central Bank Manual of Examination Procedures.6 Contrary to said Manual, no
opportunity whatsoever was given for the institutions to respond to and take corrective action on the
findings, before the Reports were finalized for submission to the MB.
7.3. UBI and UDB’s closure is UNPRECEDENTED in Philippine banking history. UBI and UDB were the
only banks ever closed merely due to alleged illiquidity in the fifty-two years of the old and New Central
Bank Acts (RA 265 and RA 7653, respectively). Respondents Reyes and Aure perjured themselves
several times before the Ombudsman to conceal this fact.
7.4. Gov. Buenaventura announced UBI’s closure on television news, twelve (12) hours before the MB met
to deliberate upon and decide on the closure. In arriving at this decision, Buenaventura dispensed with
the requirements of an MB deliberation and SES Reports which were inexistent at the time.7
7.5. There was no record of the actual deliberations of the MB during the 26 April 2000 Special Meeting. No
tape recording or stenographic notes were made of said MB meeting, in violation of Sec. 11 of RA.
7653. Such tape recording and stenographic notes would have otherwise revealed what and how MB
actually deliberated upon the SES Reports if they indeed existed at the time.
7.6. PDIC prematurely served upon UBI, the MB closure order, even citing the MB resolution number, when
the MB had not yet met to deliberate upon and approve such closure. This is supported, among others,
by the affidavits of the PDIC official who served the closure order, and of the UBI Corporate Secretary
who received said order.8
7.7. PDIC served the wrong closure order on UDB. Worse, it was addressed to UBI Cebu Branch at an
address that had been vacated for more than a year.9
7.8. Despite the requirements of the Central Bank Manual of Examination Procedures, respondents did not
furnish the institutions nor petitioner with a copy of the SES reports or their findings therein, until five (5)
months later. Upon the written demand by petitioner’s counsel, respondents belatedly furnished
petitioner on 20 September 2000 the SES Report on UBI, and on 11 October 2000, the SES Reports on
UDB and UII. (Petitioner thereafter submitted the evidence of respondents’ falsification when he filed his
herein complaint before the Ombudsman on 8 November 2000.) 10
6 Annex M of Petition. Also, Annex 1 of petitioner’s Comment in CA-G.R. SP No. 72234
7 Annex 17 of petitioner’s Comment in CA-G.R. SP No. 72234 (Annex I of Petition)
8 Annexes 32, 34 & 35 of petitioner’s Comment in CA-G.R. SP No. 72234
9 Annex 33 of petitioner’s Comment in CA-G.R. SP No. 72234
10 Annexes C, D & E of Petition.
5
7.9. Under coercion and threat, petitioner filed before the Ombudsman two (2) letters on 13 and 14 December
2000 withdrawing his herein complaint. The exact contents of the 14 December 2000 letter were made
and demanded by Gov. Buenaventura, who was dissatisfied with the 13 December 2000 letter.
7.10. As evidenced by the Brotonel affidavit, respondents substituted the SES Report on UBI and altered its
supporting annexes. In his affidavit, BSP’s Antonio Brotonel enumerated the source documents that
supported the SES Report on UBI; however, these documents were not the same allegedly annexed to the
Report. Brotonel, who was manager in respondent Aure’s department, stated that it was he who prepared
the financial data and gathered the information for Aure in the evening of 25 April 2000. 11
7.11. Respondents altered the SES Report on UII and intercalated information not available at the time of the
Report. Respondents also made misleading and erroneous findings.
7.12. Contrary to the finding in the SES Report, the following facts indicate UBI’s strong and unusual
liquidity condition from 1998 through 1999 through 2000, and even on 26 April 2000 when UBI was
closed:
a. BSP found UBI’s financial condition in 1998 to be superior than the majority of the universal banks
in the country, in terms of Solvency, Liquidity and Management;
b. UBI lent in 1999 P2.4 Billion to the National Food Authority (NFA), about P2 Billion of which were
lent in December 1999, making UBI among the largest if not the largest lenders to NFA in that year;
c. UBI lent in 1999 P921 million to the housing sector under the government’s Home Insurance and
Guaranty Corporation (HIGC) guaranty, benefiting some 30 developers and countless homebuyers.
UBI became one of the largest if not the largest lenders under the HIGC program in the year;
d. UBI actively lent-out an extraordinary volume of P4 Billion in 1999, including loans to NFA, HIGC
and private businesses;
e. For the month of January 2000, UBI was among of the largest lenders in the inter-bank call loan
market, which was composed of all commercial banks, all quasi-banks and several thrift banks. UBI
also managed to lend in the inter-bank market on certain days in March and April 2000.
f. In the five weeks of constant withdrawals until the holiday (mid-March until April 2000), UBI and
UII made good about P3 Billion in withdrawals. No financial institutions of similar size could have
accomplished such a feat.
g. Even at the time of their closure on 26 April 2000, UBI still had left P2.0 Billion left in liquid and
non-risk assets and UII had P355 million. They did not receive a single centavo of financial
assistance from BSP or PDIC.12
7.13. Contrary to the finding in the SES Report, the following facts indicate UDB’s strong liquidity condition
as of 26 April 2000:
a. UDB had P1.324-million cash to immediately pay-off one-half (1/2) of the total deposits of P2.748-
million (P2.4-million actually).
b. UDB had P50.987-million in government securities which were more than enough to pay for the
remaining deposits thirty-six times (36x) over. (Said securities were fully accounted for when PDIC
took over UBI and UDB.)
c. PDIC received, on 25 May 2000, P20-million cash on UDB’s behalf arising from the payment of the
government securities owned by UDB. UDB’s cash could have entirely paid-off the P2.4-million
deposits and still have more than enough to resume operation. Said cash receipt was concealed from
UDB’s records for more than a year to conceal its liquidity.13
11 Annex 36 (and pages 63-64) of petitioner’s Comment in CA-G.R. SP No. 72234
12 UBI’s liquid and non-risk assets of P2.0-Billion exclude the P562.5-million that LBP withdrew after UBI’s closure and in
violation of Sec. 30 RA 7653, which is the subject of another pending case GR No. 159754. UII’s liquid assets of P355-million
exclude UII’s deposits with UBI, which amounted to another P550-million.
13 Annexes 26 thru 31-1 of petitioner’s Comment in CA-G.R. SP No. 72234 (Annex I of Petition)
6
C. Respondents admit their failure to
comply with the condition of Sec.
30(a) RA 7653 when they
recommended UBI and UDB’s
closure.
8. Respondents stated that UBI and UDB were closed under Sec. 30(a) of RA 7653 due to
illiquidity. Sec. 30(a) provides that a bank may be ordered closed when it “is unable to pay its liabilities as
they become due in the ordinary course of business: Provided, That this shall not include inability to pay
caused by extraordinary demands induced by financial panic in the banking community.”
9. However, in their Comment, respondents admitted that “UBI could not meet the cash
withdrawals” “when it was hit by the bank run that reached critical proportions in April, 200(0)”. Respondents
acknowledged the existence of extraordinary demands upon UBI brought on by the financial panic. This is the
exempting provision under Sec. 30(a) of RA 7653. Thus:
“The above-enumerated facts allegedly ignored and concealed by Respondents Reyes and Aure do not
negate the precarious condition of UBI. The fact remains that when it was hit by the bank run that reached
critical proportions in April, 200(0), UBI could not meet the cash withdrawals; and, the stockholders were
not willing to put in additional capital.” (Respondents’ Comment, p. 27)
10. There is no disagreement with respondents that petitioner admitted to UBI’s illiquidity, but as a
result of such run (Comment, p. 14). As said by former MB Member Cayetano Paderanga and admitted by
respondent Reyes: “Bank-runs are occasioned by fear” and “could cause perfectly sound banks to fold;” “there
is no bank in the whole world that can stand a large scale bank run”.14
11. In their Comment, respondents also admitted that “UDB’s inability to pay its obligations in the
ordinary course of business was not due to ‘extraordinary demands induced by financial panic in the banking
community,’ but rather due to its unilateral declaration of a bank holiday”. Respondents acknowledged that they
made no finding as to the absence of extraordinary demands or financial panic. (UDB was not even illiquid.) This is
the clear condition required under Section 30(a) of RA 7653 before any bank may be closed under said provision.
Thus:
“Likewise, in the case of UDB, the Memorandum [SES Report] clearly shows that UDB’s inability to pay
its obligations in the ordinary course of business was not due to ‘extraordinary demands induced by financial
panic in the banking community,’ but rather due to its unilateral declaration of a bank holiday (as a result of its
mother bank’s holiday), which may eventually lead to losses, and the deterioration of its liquidity position.”
(Respondents’ Comment, pp. 19-20)
D. Respondents’ misleadingly cite
previous SES reports and MB
resolutions that allegedly depicted
UBI’s long-time distressful condition.
12. In their Comment (p. 5), respondents stated:
“UBI’s financial condition precarious for several months prio r to its closure. - UBI's financial
condition did not unfold before the eyes of Respondents and the Members of the Monetary Board
of BSP overnight. The truth is, concerned top officials of the BSP, as well as members of the
Monetary Board, have known about the distressful financial condition of UBI, UDB and UII even
prior to UBI's declaration of a bank holiday. In fact, the Monetary Board, upon receipt of previous
SES Reports, had acted on several matters relative to the precarious financial condition of UBI
months before its closure on 26 April 2000, as shown by the following Resolutions of the
Monetary Board, to wit: Resolution No. 633 dated 24 April 2000; Res. No. 629 dated 18 April 2000;
Res. No. 171 dated 04 February 2000; Res. No. 1639 dated 26 November 1998; and Res. No. 957 dated
08 July 1998.” (Underscoring supplied)
13. Respondents mislead the Honorable Court in citing “previous SES Reports” that allegedly
evidenced UBI’s long-time “precarious” and “distressful financial condition”:
14 Annex 14 and page 46 of petitioner’s Comment in CA-G.R. SP No. 72234
7
13.1. SES rendered a report in 1998 that found UBI’s financial condition to be superior to the majority of
expanded commercial banks (universal banks) in the country, in terms of Solvency, Liquidity and
Management.
13.2. SES rendered the 1999 Final Report of Examination that found UBI to have “show(n) satisfactory
financial condition”, “managed to maintain its solvency and liquidity”, and “substantially complied with
banking laws, BSP rules and regulations”.15
14. Respondents similarly mislead the Honorable Court in citing the following MB resolutions that
allegedly evidenced UBI’s long-time “precarious” and distressful financial condition”:
14.1. Resolution No. 957 (8 July 1998) 16 refers to MB’s approval of UBI’s request for extension of time to
comply with the new capital increase for expanded commercial banks. Resolution No. 1639 (26
November 1998) 17 refers to MB’s approval of UBI’s application to revert to a regular commercial bank.
Respondents failed to disclose that BSP continually increased the minimum capital requirement for
expanded commercial banks to P1.5-billion (when UBI became a universal bank in 1995), then to P3.0-
billion, then to P4.5-billion, then finally to P5.4-billion under BSP Circular No. 156 dated 19 March
1998. UBI’s voluntary downgrade in 1998 was therefore not an indication of its “precarious” and
“distressful” financial condition but was a business decision by UBI shareholders. UBI’s true financial
condition was evident in UBI’s letter-application to BSP and other communications, as well as the tape-
recording of the MB deliberations on 26 November 1998.
14.2. Resolution No. 171 (4 February 2000) 18 refers to MB’s extension of time and imposition of restrictions
upon UBI until it would have divested its excess equity holdings in UII. The resolution was based on the
false and erroneous SES report that UBI failed to comply with the required divestment within the one-
year deadline set by the MB. Respondents made this false report despite their verification of UBI’s
divestment during the January-February 2000 examination.
14.3. Resolution No. 629 (18 April 2000) 19 refers to MB’s action noting the SES reports on UBI and UII
based on January-February 2000 examination. Said examination was unlawfully conducted in violation
of Sec. 28 of RA 7653. Moreover, the SES findings, as noted by the MB, did not indicate any
“precarious” or “distressful” condition warranting its appropriate action in such case.
14.4. Resolution No. 633 (24 April 2000) 20 refers to MB’s action “to note the financial data and other
relevant information about Urban Bank, Inc. (UBI), showing among other things, that (a) the bank is
capital deficient for the last two months; (b) the bank appeared to be experiencing liquidity problems as
can be gleaned from the large amounts of interbank borrowings; the liquidity squeeze experience by the
bank may be attributed to its past due non-performing accounts which exceeded industry average”. The
Honorable Court will note that these three (3) findings were coincidentally the same findings made two
days later in the SES Report suddenly recommending UBI’s immediate closure.
14.5. Yet, in the same Resolution No. 633, the MB “approve(d)-in-principle the grant to the Philippine
Deposit Insurance Corporation (PDIC) of a loan of up to P800 million as authorized under Section 13 of
R.A. No. 3591, as amended, which loan shall be secured by papers acceptable to the Bangko Sentral ng
Pilipinas (BSP) and a real estate mortgage on a Bonifacio Land property with appraised value of at least
P1.0 billion, and subject to the following terms and conditions: a. Submission by PDIC of an application
for aforementioned loan; xxx” The Honorable Court will note that:
a. The amount of P800-million is inconsistent with prior declarations by respondents, BSP Gov.
Buenaventura, BSP General Counsel Zuniga, and PDIC President Norberto Nazareno;
b. The MB approved only “in principle” a loan that was most urgently needed by a distressed yet
qualified borrower, despite its earlier pleas; and
c. The loan was not granted directly but through PDIC when BSP would pick which of UBI’s collaterals
were “acceptable”; and
15 Annex 22 of petitioner’s Comment in CA-G.R. SP No. 72234 (Annex I of Petition)
16 Annex 1-D of Reyes’ counter-affidavit, which is Annex F of respondents’ Petition in CA-G.R. SP No. 72234 (Annex H of
Petition)
17 Annex 1-C of Reyes’ counter-affidavit
18 Annex 1-B of Reyes’ counter-affidavit
19 Annex 1-A of Reyes’ counter-affidavit
20 Annex 1 of Reyes’ counter-affidavit
8
d. It is a mystery why the MB would choose “a real estate mortgage on a Bonifacio Land property with
appraised value of at least P1.0 billion” when no such collateral was offered by UBI.
E. Respondents omit recriminatory
details in their narration of events on
25 April 2000, when they prepared to
close down UBI, UDB and UII.
15. In their Comment (pp. 35-36), respondents stated:
“By declaring a bank holiday for an indefinite period, UBI, thru its President and CEO (herein
Petitioner), admitted that UBI was suffering from liquidity problems. In a Letter dated 25 April 2000
addressed to Governor Buenaventura, UBI categorically admitted that it was suffering from liquidity
problems, thus:
‘Please be informed that in view of media reports of our down grading to a thrift bank which
created liquidity problems, Urban Bank is declaring a bank holiday xxx.’
“In effect, UBI closed itself when it voluntarily declared a bank holiday and its two (2) other
subsidiaries followed suit. What herein Respondents did in making the Reports was simply to apply the
law (Sec. 30, R.A. No. 7653), and recommended the placement of UBI under receivership since the
declaration of a bank holiday, by itself, constituted UBI’s admission that it could not pay its liabilities as
they became due in the ordinary course of business.”
16. Firstly, it was BSP Gov. Buenaventura who demanded from petitioner “then and there”21 a
written letter formalizing UBI’s declaration of a bank holiday, on 25 April 2000. And it was respondent Reyes
who prepared the draft of said letter in Buenaventura’s office. Reyes instructed Buenaventura’s secretary to call
petitioner’s secretary to fax the stationery of petitioner. Buenaventura’s secretary then photocopied the faxed-in
stationery on plain paper, and typed Reyes’ draft thereon. The letter, which was annexed to the SES Report on
UBI, is the physical evidence of its hurried creation.22 Respondents in their Comment did not deny these facts
contained in the Petition.
17. Not realizing the ultimate intentions of the BSP Governor, petitioner signed the letter without
assistance of counsel, as he trusted Gov. Buenaventura and relied on his (false) promise that UBI would reopen
in thirty (30) days. As admitted by PDIC President Norberto Nazareno on 4 May 2000:23 “I believe Archit
(Bartolome) and Ted (Borlongan) were ill-advised, if ever they sought legal counsel. I think both had the
impression that they will still have about a month to try to fix things up.” In at least three newspaper accounts on
12-13 May 2000 which quoted Buenaventura, the latter even threatened to delay UBI’s reopening if UBI
shareholders would file a suit against BSP for wrongful closure.
18. Secondly, the letter, which petitioner signed, clearly stated the reason for UBI’s declaration of a
holiday: The “media reports of our down grading.” How does anyone conceive that negative media reports create
liquidity problems for a bank, other than by public panic? The attention of the Honorable Court is called to
petitioner’s earlier letter to respondents dated 20 March 2000 which called their attention to the negative, false
press statement which respondent Reyes was the source and which “unfavorable impression has spread to the
public” given the panicky market at the time. Despite petitioner’s warning, more “media reports of our down
grading” were disclosed by a “senior official of the Bangko Sentral”, further fueling the flames of uncertainty
and distrust that led to the unceasing withdrawals from UBI and UII.
19. Thirdly, respondents were informed and made aware, on 25 April 2000, of UBI’s extraordinary
demands during that last day. As admitted by respondents in their Comment (at page 7): “Mr. Bartolome
explained that the initial support of P800 [error] Million from PDIC would be useless considering that UBI’s
expected inward clearing items (or clearing loss) for that day would be anywhere between one to two Billion
Pesos. Mr. Bartolome also revealed that deposits have already been over-drawn by P4.5 Billion for the past (2)
weeks.”
21 Buenaventura’s counter-affidavit (par. 2.3.3i) which is Annex D of respondents’ Petition in CA-G.R. SP No. 62234 (Annex H
of Petition)
22 Letter is attached to the SES Report on UBI, which is Annex C of Petition
23 Annex 16 of petitioner’s Comment in CA-G.R. SP No. 72234 (Annex I of Petition)
9
24
20. Gov. Buenaventura, in a television news interview the following day, acknowledged that the
BSP’s offer of assistance was insufficient such that UBI’s “better alternative” was to declare a bank holiday.
Respondents therefore cannot argue that “UBI closed itself” when the holiday was made the only alternative BSP
gave to the bank.
21. Fourth, respondents were correct in recounting that UBI’s “two (2) other subsidiaries followed
suit” after UBI declared a holiday on 25 April 2000. However, tell-tale facts and evidence betray respondents’
malice and bad faith when they recommended the closure of UDB and UII, together with UBI.
22. In the case of UDB, the thrift bank declared its bank holiday on the following day 26 April 2000,
which letter was allegedly attached as “Annex A” of the SES Report on UDB. However, since respondents
received UDB’s letter at their Roxas Boulevard offices at 10:18 AM, they therefore could not have enough time to
prepare the reports and deliver them to Manila Golf Club in time for the MB meeting that met at 10:45 AM and
adjourned at 11:30 AM. Under Sec. 30 of R.A. 7653, the MB may close a bank only upon the SES report.
23. Respondents therefore fabricated a non-existent fax document that they allegedly received from
UDB at 8:46 AM. Respondents claimed that it was the fax, not the original letter, which was annexed to the SES
Report. Truth is, there was no fax and there was no valid report when the MB met on 26 April 2000.
Respondents ante-dated the SES Report and, since the report cited UDB’s letter, they had to prove that they
received the letter much earlier than 10:18 AM, hence the incredible and fictitious 8:46 AM fax. Seven (7)
pieces of vital evidence, including four (4) pieces of physical evidence, were submitted proving respondents’
falsification.25
24. Fifth, in the case of UII, the MB ordered the virtual closure of the investment house, upon the
SES Report on UII. MB Resolution No. 636 approved respondents’ recommendations to “revoke the trust license
of UII;” “endorse to the Securities and Exchange Commission (SEC) the revocation of the investment house
license of UII;” and endorse the “joint designation of a receiver for said investment house by the SEC and the
Bangko Sentral ng Pilipinas.” 26
25. However, it was only on 8 May 2000 that UII filed with the SEC its petition for a suspension of
payments with rehabilitation. How could respondents therefore recommend the endorsement, to SEC, of UII’s
receivership and revocation of its investment-house license, two (2) weeks before UII even filed its petition
before the SEC? How could respondents seek to revoke UII’s trust and investment-house licenses, when UII
merely sought for temporary relief from the panic withdrawals? As correctly found by the Ombudsman,
respondents’ recommendations were indeed “premature”, “harsh” and “drastic”.
26. In the same manner that UBI and UDB submitted to BSP their letters on a declaration of a
temporary bank holiday, UII submitted to the SEC a petition for a suspension of payments with rehabilitation. The
Honorable Court will note that corporate receivership under a suspension of payments is the equivalent of a bank
conservatorship, not bank receivership, under the old and New Central Bank Acts (Sec. 28 and 29, respectively).
A bank receivership is neither a relief nor temporary take-over: It is a shut-down operation that has almost always
led to liquidation.
F. Respondents mislead the Honorable
Court when they stated that their
initial support for UBI was P800
Million when it was only P300
Million.
27. In their Comment (p. 7), respondents stated:
“On 25 April 2000, at about 3:30 P.M., Petitioner BORLONGAN and Mr. Arsenio Bartolome
(Chairman of the Board of UBI), had a meeting with BSP Governor Buenaventura, MB Member Mr.
Alindogan, and Respondent Reyes, at the Office of Governor Buenaventura. Also, present in said meeting
was Ms. Teresita Hatta.
“At the said meeting, Petitioner BORLONGAN and Bartolome declined the offer of PDIC to provide
funding support to UBI. In declining the offer of PDIC, Mr. Bartolome explained that the initial support of
24 Annex 17 of petitioner’s Comment in CA-G.R. SP No. 72234
25 Annexes 38 thru 44 of petitioner’s Comment in CA-G.R. SP No. 72234
26 Annex 3 of Zuniga’s counter-affidavit, which is Annex E of respondents’ Petition in CA-G.R. SP No. 72234 (Annex H of
Petition)
10
P800 Million from PDIC would be useless considering that UBI's expected inward clearing items (or
clearing loss) for that day would be anywhere between one to two Billion Pesos. Mr. Bartolome also
revealed that deposits have already been over-drawn by P4.5 Billion for the past two (2) weeks.”
(Underscoring supplied)
28. Again in their Comment (p. 12), respondents reiterated their initial support offered to UBI: “The
BSP’s initial financial support amounted to P800 Million, because this was the most that UBI's collateral
could secure.”
29. Respondents mislead the Honorable Court as to the initial support actually offered to UBI. As
borne by the counter-affidavits of respondent Reyes and Gov. Buenaventura,27 the amount of initial support was
only P300 Million and not P800 Million. Thus:
“On 25 April 2000, at about 3:30 P.M., Complainant Borlongan and Mr. Arsenio Bartolome
(Chairman of the Board of UBI), had a meeting with Respondent Governor Buenaventura, Mr. Alindogan
and I, at the Office of Governor Buenaventura. Also present in said meeting was Ms. Teresita Hatta.
“At the said meeting, Complainant Borlongan and Bartolome declined the offer of PDIC to provide
funding support. In declining the offer of PDIC, Mr. Bartolome reasoned out that the initial support of
P300 Million from PDIC would be useless considering that UBI’s expected inward clearing items (or
clearing loss) for that day would be anywhere from P1-2 Billion. Mr. Bartolome also stated that deposits
have already been drawn by P4.5 Billion for the past two (2) weeks. (Reyes’ counter-affidavit, par. 4.2.1)
**** ***** ****
“Finally, in the afternoon of 25 April 2000, at about 3:30 p.m., Bartolome and Borlongan were at the
Bangko Sentral and had a meeting with respondents Governor Buenaventura, Deputy Governor Reyes and
Monetary Board Member Alindogan during which Bartolome indicated that since they expected checks
drawn against Urban Bank amounting from Php 1 to 2 billion would be going to the clearing house that
night, the assistance available from the PDIC, which amounted to Php 300 million only, would be
insufficient.” (Buenaventura’s counter-affidavit, par. 2.3.3i)
G. Respondents’ argument regarding
BSP’s offer of financial support is
self-serving and false. Evidence show
that such support was never seriously
contemplated by BSP.
30. In their Comment (pp. 11-12), respondents stated:
“In concluding that the SES Reports were haphazardly and negligently done, the Office of the
Ombudsman failed to consider that UBI sought the financial support of the BSP to address its illiquidity
problem and the BSP in fact agreed to extend such support thru the PDIC. Prior to UBI’s declaration of a
bank holiday and its subsequent closure, the officers of UBI, specifically Petitioner BORLONGAN
(President) and Arsenio M. Bartolome III (Chairman), had met several times and on different
occasions with Governor Rafael Buenaventura, some members of the Monetary Board, and Respondent
Deputy Governor Reyes, precisely to discuss UBI’s concerns over heavy withdrawals and UBI’s urgent
need for funding to restore public confidence in the bank.
31. Respondents admit to petitioner’s and UBI Chairman Bartolome’s meetings with BSP officials
on “several times and on different occasions” “to discuss UBI’s concerns over heavy withdrawals and UBI’s
urgent need for funding”. The first of these meetings was on 20 March 2000 when petitioner and Bartolome
discussed with respondent Reyes their grave concern regarding negative media reports on UBI (of which Reyes
was the source), and the need for a liquidity war chest to meet possible withdrawals as a result of these news-
driven rumors. On several occasions and on one occasion evidenced by UBI’s letter dated 27 March 2000,
petitioner and Bartolome sought BSP’s assistance for liquidity by offering as collateral the National Food
Authority (NFA) -issued Notes and the Home Insurance Guaranty Corporation (HIGC) -guaranteed Notes. Both
Notes carried the guarantee of the National Government.
32. Despite repeated requests by petitioner and Bartolome for liquidity assistance, respondent Reyes
and BSP refused to acknowledge the urgency of the matter. They never even bothered to reply to UBI’s letter.
UBI never received a single centavo of assistance from BSP and/or PDIC in respect thereof. This fact alone
provides ample rebuttal of respondents’ claim that BSP readily provided liquidity assistance to UBI.
27 Annexes F & D, respectively, of respondents’ Petition in CA-G.R. SP No. 72234
11
33. In its official statement dated 13 October 2000 entitled “Urban Bank Case on Track”, BSP
stated:28
“The first request for assistance from Messrs. Bartolome and Borlongan was for the possibility of UBI
rediscounting their NFA (National Food Authority) promissory notes with the Bangko Sentral totaling
P2.4 billion. What BSP did was to refer the matter to the Land Bank instead and the result was that NFA
was given a loan that enabled it to pay the promissory notes.” (Underscoring supplied)
34. It is difficult under the following circumstances to ignore some nefarious intentions behind
BSP’s offer of assistance:
34.1. One wonders if the liquidity requests from other distressed banks after UBI’s closure were likewise
referred by it to the Land Bank.
34.2. It is a mystery why BSP was reluctant to accept a paper that was guaranteed by the National Government
itself, especially in crisis situations where timing and swift decisions were paramount.
34.3. When BSP “refer(red) the matter to the Land Bank” which resulted in Land Bank’s loan to NFA, which
in turn enabled NFA to pay-down its borrowing from UBI, was it not intended to assist in UBI’s liquidity
situation? The fact is BSP did this not before but after UBI’s closure. Land Bank lent P562.5-Million to
NFA on 25 May 2000, enabling NFA to prepay its Notes owed to UBI but allegedly assigned to Land
Bank for the same amount. The funds merely went around and back to Land Bank, after UBI was
already closed.
35. These facts betray the true intentions of BSP’s supposed offer of liquidity assistance to UBI.
H. Respondents blame petitioner for
“amazingly” declaring the bank
holiday, when it was the only option
BSP admitted to have given to UBI.
36. In their Comment, respondents stated:
“Amazingly, however, PDIC's offer to provide limited funding support was declined by UBI. Instead,
on April 25, 2000, UBI decided to declare a bank holiday effective at the close of business hours of that
day.” (Respondents’ Comment, p. 7; Bold ours)
“PDIC’s offer to provide funding support was declined by UBI. Instead, on April 25, 2000, UBI
decided to declare a bank holiday effective at the close of business hours of that day ! ” (Respondents’
Comment, p. 12; Exclamation point theirs.)
37. It was former MB Member Paderanga who said that “simultaneous withdrawals will naturally
weaken any bank even the good ones, (but) government has all the cash that depositors need to service their
claims. There will always be enough liquidity (from the government) to service claims. It’s all a game of
confidence.” 29 It should also be noted that BSP and PDIC extended Billions of pesos in liquidity assistance to
several banks immediately after UBI’s closure.
38. Yet, despite such policy, no less than BSP Gov. Buenaventura publicly admitted that BSP’s offer
of assistance to UBI was insufficient such that UBI’s “better alternative” was to declare a bank holiday. Thus: 30
“Newscaster: Urban Bank has chosen not to tap a emergency fund facility, that was an option for them in
this situation?
“Buenaventura: Well, it was an option for them, but we came to the conclusion that at the rate things were
going, it would probably prove to be insufficient, so that the better alternative course of action was to
declare a holiday to allow the Central Bank and the PDIC to first pay-off the people with less than
P100,000 and subsequently put the house, put the records in order…”
(Television news interview ANC-21, 26 Apr 2000)
28 Annex 15 of petitioner’s Comment in CA-G.R. SP No. 72234 (Annex I of Petition)
29 Annex 14 of petitioner’s Comment in CA-G.R. SP No. 72234 (Annex I of Petition)
30 Annex 17 of petitioner’s Comment in CA-G.R. SP No. 72234
12
39. Even PDIC President Norberto Nazareno admitted having been told by Gov. Buenaventura on 25
April 2000 that their offer of financial assistance to UBI was insufficient. Thus: 31
“Bank management instead decided to declare a bank holiday. I was told that the primary reason was that
they knew P1.3-billion was not sufficient. Governor Buenaventura gave me a call right after the bank
made that decision.” (Nazareno’s speech before Rotary Club of Manila, 4 May 2000)
40. Indeed, what would a bank (and investment house), that had already serviced P3 billion in
withdrawals, do with only P1.3 billion? In his affidavit dated 6 October 2000, petitioner narrated his last two
meetings with Gov. Buenaventura prior to UBI’s declaration of bank holiday:
“On Holy Wednesday April 19th at 9:00am, Mr. Bartolome and I met with Gov. Buenaventura and
Mssrs. Alindogan and Reyes in the Governor’s conference room. The relationship between UBI and UII
was clear to them, as they offered financial assistance of P3.5 billion which, they suggested, would have
to be coursed through a conduit so that the investment house may be assisted. (BSP can only give direct
assistance to banks and quasi-banks.) It was in that meeting that Gov. Buenaventura suggested Banco de
Oro as a possible conduit and our ‘white knight’.
“On Easter Sunday April 23rd at 5:00pm, Mr. Bartolome and I met with Gov. Buenaventura, Mr.
Alindogan, and PDIC President Norberto Nazareno at the Manila Golf Club. Also in the meeting were
Ms. Tessie Coson and Mr. Nestor Tan of Banco de Oro. In that meeting, Mr. Alindogan said that our
liquidity assistance would only be P1.3 billion (and I don’t know how BSP arrived at that amount),
broken down as follows – P500 million from PDIC to finance the trust withdrawals of UII, and P800
million from BSP to finance UBI’s deposit withdrawals. I said that the amount was not enough, but Mr.
Alindogan said that if it was not enough, ‘Urban may have to declare a holiday’. I told Gov.
Buenaventura, ‘Governor, should Urban declare a holiday, it will cause an industry run.’ Gov.
Buenaventura replied, ‘There will be no industry run. I will just declare a holiday for these banks. So be
it.” (Petitioner’s affidavit before DOJ, 6 October 2000)
41. For five (5) weeks, the BSP was slow in acting on UBI’s requests for liquidity support. That
UBI, with UII, survived during those weeks of constant cash outflow was remarkable, when other similarly sized
institutions could not have lasted for a couple of weeks.
42. Then, when BSP was willing to provide liquidity assistance, the amount was meager. Petitioner
had informed respondents that P1.3 billion was not enough. But MB Member Alindogan made it a take-it-or-
leave-it proposition and remarked: “If it is not enough, Urban may have to declare a holiday.”
43. It was at this particular moment that petitioner became mindful of the reality that a bank holiday
was the only option made available by BSP officials to UBI, in order to put a temporary halt on the panic
withdrawals. Support had been purposely delayed, offered too late in the game, then not enough to be of
meaningful assistance. It had become a futile exercise.
44. While a bank holiday is one of the textbook options, it is the least desired in the checklist of
strategies. Yet, BSP officials were dangling this option in front of petitioner. Despite the more than sufficient
collaterals, it was astonishing that the BSP officials were too insistent for UBI to declare a bank holiday, yet were
also too reluctant to provide liquidity assistance.
45. Petitioner turned to Buenaventura and told him that should UBI declare a holiday, it would cause
an industry run. Buenaventura callously replied to petitioner: “There will be no industry run. I will just declare a
holiday for these banks. So be it.”
46. Evidence supporting above facts is the uncut tape-recording (which the BSP is required to
maintain and preserve, under Sec. 11 of RA 7653) of the MB Meeting of 9 May 2000 evening. In the presence
of MB members including Buenaventura, petitioner made the aforesaid narration which they did not deny.
47. Despite BSP’s claim that it did not tape-record the MB Meeting of 26 April 2000 (when it
ordered the closure of UBI, UDB and UII), there are nevertheless tape recordings of several other MB Meetings
that will also betray respondents’ true bias and intention.
31 Annex 16 of petitioner’s Comment in CA-G.R. SP No. 72234
13
I. Respondents mislead the Honorable
Court regarding their finding of
UBI’s alleged capital deficiency.
48. In their Comment, respondents argued:
“In concluding that the SES Reports were haphazardly and negligently done, the Office of the Ombudsman
failed to consider that UBI’s capital deficiency was already known to herein Respondents prior to UBI’s
closure.” (Respondents’ Comment, p. 11)
“Secondly, although UBI was, in fact, capital deficient (by P215,531,000.00 as of January 31, 2000;
P198,338,000.00 as of February 29, 2000; and P198,461(000).00 as of March 31, 2000), Respondents
Reyes, Yuvienco and Aure did not recommend closure on that ground.” (Respondents’ Comment, p. 12)
49. Respondents self-servingly ignored the legal construction of BSP Circular No. 156 dated 19
March 1998, which clearly provides that publicly listed banks, such as UBI, shall have additional six months
from 31 December 1999 or until 30 June 2000 to meet the increased minimum capital from P2.0-billion to P2.4-
billion. (As found in the SES Report dated 26 April 2000, UBI’s capital was P2.2-billion at the time.) Said
Circular states:32
“Commercial banks which are existing, or which are newly authorized but not yet operating, or
persons from whom completed applications to establish commercial banks have been received as of (date
of MB Resolution) but pending action by the Bangko Sentral ng Pilipinas (BSP) are hereby allowed the
following time frame within which to meet the minimum capital requirement:
P2.000 billion on or before December 24, 1998
P2.400 billion on or before December 31, 1999
P2.800 billion on or before December 31, 2000.
“xxx Provided, further, That for commercial banks which are listed in the Philippine Stock Exchange,
or are in the process of listing as certified by the Securities and Exchange Commission, shall have an
additional six (6) month period to meet the minimum capital requirement.”
50. Under Sec. 30 of RA 7653, capital deficiency is not a ground for closure. Yet, capital deficiency,
together with illiquidity, was the ground actually used by the respondents to close UBI. Respondents were
truly “haphazard and negligent” in recommending UBI’s closure on such ground: The following evidence
disprove respondents’ claim that they “did not recommend closure on that ground”:
50.1. Capital deficiency was actually stated in the SES Report,33 which recommended UBI’s closure. In the
“Recommendation” section of said Report, respondents recommended UBI’s closure “(c)onsidering all
the foregoing and in view of the opinion of the BSP General Counsel”. Three (3) financial findings --
capital deficiency (at page 2 of the SES Report); illiquidity (at pp.2-3, ibid.); and high past due and
adversely classified loans (at p.3, ibid.) -- were stated in “all the foregoing” of the short five-page Report
on UBI.
50.2. Capital deficiency was also actually stated in MB Resolution No. 634,34 as a basis in ordering UBI’s
closure. Said resolution read:
“On the basis of the memorandum of Mr. Tomas S. Aure, Jr. Officer-in-Charge, Department of
Commercial Banks II, dated April 26 2000 which showed that (a) Urban Bank, Inc. (UBI) is capital
deficient, (b) the bank is suffering from illiquidity and therefore, is unable to pay its liabilities as they
become due in the ordinary course of business, and (c) such condition is confirmed by UBI’s letter dated
April 25 2000 advising the Bangko Sentral ng Pilipinas of its declaration of a bank holiday, the Board
decided as follows:
“1. To prohibit the bank from doing business in the Philippines….” (Underscoring supplied)
50.3. BSP’s own official statement 35 dated 13 October 2000 stated, also, that “capital deficient” and
“suffering from illiquidity” were the conditions that justified UBI’s closure.
32 Annex O of Petition. Also, Annex 20 of petitioner’s Comment in CA-G.R. SP No. 72234
33 Annex C of Petition.
34 Annex 1 of Zuniga’s counter-affidavit, which is Annex E of respondents’ Petition in CA-G.R. SP No. 72234 (Annex H of
Petition)
35 Annex 15 of petitioner’s Comment in CA-G.R. SP No. 72234 (Annex I of Petition)
14
50.4. Even the Ombudsman found that respondents “recommend(ed) to the Monetary Board to harshly place
UBI and UDB under receivership without giving the latter the six (6) month period within which to meet
the minimum capital requirement as provided for under BSP Circular No. 156”.36
J. Respondents mislead the Honorable
Court regarding their finding of
UBI’s loan loss provision.
51. In their Comment (p. 25), respondents stated:
“Contrary to Petitioner’s claim, Respondents Reyes and Aure did not falsify the SES findings nor
perjured themselves.
x x x
“3.1.9.2. UBI’s loan loss provision booked only on 14 April 2000. – In his Complaint-Affidavit,
Petitioner stated, thus: ‘UBI instead provided P920 million as of December 31, 1999 or P348 million
more or 61% greater tha(n) BSP prescribed reserve(s). It must be noted that Respondent Reyes
declared in the same Paragraph 4.2.1.3 of his Counter-Affidavit that the aforequoted statement of
Complainant is false because UBI’s loan loss provision per books as of March 31, 2000 was at P572
million and that the additional provision of P348 million was booked only on April 14, 2000 xxx
“3.1.9.3. xxx The above-quoted declaration of Respondent Reyes is not perjured as shown by the very
allegation in Petitioner’s Motion For Reconsideration that UBI’s Report to BSP on Compliance with
General Loss Provision as of 31 March 2000 was received by the Department of Commercial Banks II
on 14 April 2000, giving credence to the above-quoted allegation of Respondent Reyes that the
‘additional provision of “348 million was booked only on April 14, 2000.’”
52. Loan loss-provision or reserves (also known as valuation reserves) are funds deducted from a
bank’s income or capital surplus and are set-aside to meet potential losses from probable bad loans. On 22
November 1999, on the basis of the SES Final Report of Examination, the BSP required UBI to set-aside an
aggregate of P572-million in reserves for loans and other risk assets. Thus, in the eyes of the BSP, the amount of
P572-million was sufficient to cover probable losses from UBI's past-due or adversely classified loans. Instead of
merely meeting BSP’s directive, UBI voluntarily provided P920-million in loss-reserves, which was sixty-one
percent (61%) more or P348-million more than what the BSP required.
53. The substantial loss-reserves was a material and offsetting fact in evaluating UBI’s past-due and
adversely classified loans, as the reserves are provided precisely to answer for probable losses arising from such
loans. Such fact was purposely and maliciously omitted in the SES Report that discussed UBI’s past-due and
adversely classified loans.
54. Respondents did not deny the evidence of the SGV-audited financial statements of UBI as of
31 December 1999 which clearly stated that UBI provided P920-million in loss-reserves AS OF SAID
ACCOUNTING DATE.37
55. Respondents mislead the Honorable Court on the evidence of the “Report On Compliance With
General Loan Loss Provision As Of March 31, 2000”, which UBI submitted to BSP on 14 April 2000. Said
report clearly stated that UBI provided 920-million in loss-reserves.
56. It was respondent Aure’s own department received said Compliance Report on 14 April 2000,
evidenced by its receiving stamp.38 Respondents were actually and fully aware of UBI’s substantial loss-
reserves at the time that they prepared the SES Report on 25 April 2000. Even BSP Manager Antonio
Brotonel affirmed in his affidavit that said Compliance Report was among the source documents rendered in the
preparation of the SES Report dated 26 April 2000.39 Yet, respondents concealed this important fact in the SES
Report.
57. Finally, if respondents claim that UBI provided the P348-million excess reserves only on 14 April
2000 and not on 31 December 1999 (which would have reduced UBI’s capital by same amount beginning April
2000 and not December 1999), then UBI’s capital would have been P348-million more than its reported
capital of P2.2-Billion in December 1999 until March 2000 amounting to P2.5-Billion. How then how could
36 Annex G of Petition
37 Annex 21 of petitioner’s Comment in CA-G.R. SP No. 72234
38 Annex 37 of petitioner’s Comment in CA-G.R. SP No. 72234
39 Annex 36 (and pages 63-64) of petitioner’s Comment in CA-G.R. SP No. 72234
15
the SES Report on UBI possibly find UBI to be capital-deficient in January, February and March 2000 by P215.5-
million, 198.3-million and P198.5-million, respectively, assuming ex gratia argumenti that the required minimum
capital on UBI was P2.4-billion and not P2.0-billion at the time? Obviously, respondents make a vain attempt to
deceive the Honorable Court.
K. Respondents misleadingly cite Sec.
30(c) of RA 7653 as basis for UBI
and UDB’s closure when said
provision was not cited at all as
basis for the closure.
58. In par. 3.2.1.3(d) of their Comment (pp. 31-32), respondents stated:
“The recommendations of herein Respondents to prohibit UBI and UDB from doing business in the
Philippines and placing them under receivership were made in accordance with Section 30 (a) and
(c) of the New Central Bank Act (R.A. No. 7653), which reads as follows:
‘Sec. 30. Proceedings in Receivership and Liquidation. - Whenever, upon report of the head of the
supervising or examining department, the Monetary Board finds that a bank or quasi -bank:
‘(a) is unable to pay its liabilities as they become due in the ordinary course of business:
Provided, That this shall not include inability to pay caused by extraordinary demands
induced by financial panic in the banking community;
‘(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or
‘(c) cannot continue in business without involving probable losses to its depositors or creditors; or
‘(d) has willfully violated a cease and desist order under Sectio n 37 that has become final,
involving acts or transactions which amount to fraud or a dissipation of the assets of the
institution; xxx’”
59. Respondents misleadingly cite Sec. 30(c), in addition to Sec. 30(a) of RA 7653, as their basis in
closing UBI and UDB.
60. At the time when the banks were closed, respondents did not have any fact or data to conclude
that UBI and UDB could not continue in business without involving probable losses to its depositors or creditors.
As a matter of fact, no such finding was anywhere mentioned in the SES report on UBI.
61. Moreover, the provision of Sec. 30(c) was nowhere cited in the MB minutes and resolutions that
ordered UBI and UDB’s closure.40
62. Even the BSP General Counsel and MB Secretary Juan de Zuniga Jr. stated in his counter-
affidavit that MB Resolutions nos. 634 and 635 closing UBI and UDB, respectively, were approved in accordance
with Sec. 30(a) and not 30(c).41
63. As admitted by respondents Reyes and Aure, the justification to closedown UBI and UDB
(together with UII), was formulated “at the flick of a finger” and “easily…at such short notice”.42 No data
gathering or analysis prepared in a span of three (3) hours could possibly support such sweeping and serious
conclusion, especially on institutions imbued with public interest.
L. Respondents cannot deny or refute
their perjurous statements to conceal
that UBI and UDB were the only
banks in Philippine banking history
to have been closed for alleged
illiquidity.
64. As stated in the Petition, the closure of UBI and UDB was unprecedented: They were the only
banks in Philippine history to have been ordered closed on mere illiquidity. Respondents, in the effort to cover-
40 Annexes 1 & 2 of Zuniga’s affidavit, which is Annex E of respondents’ Petition in CA-G.R. SP No. 72234 (Annex H of
Petition)
41 Pages 3-4 of Zuniga’s affidavit
42 Pages 6-7 of petitioner’s Comment in CA-G.R. SP No. 72234 (Annex I of Petition)
16
up this fact, perjured themselves repeatedly in the course of the Ombudsman’s investigation, in order to prevent
their malfeasance from coming to light. Respondents falsely asserted before the Ombudsman that “(t)he closure
of a bank suffering from liquidity problems pursuant to Section 30(a) of RA 7653 is not without a precedent,”
citing as precedents to UBI’s closure, four (4) rural banks which were allegedly closed “because of illiquidity but
not on the basis of insolvency”. Thus:
“This Honorable Office in insisting that the Respondents should have made a finding on the
insolvency of UBI, failed to consider that the closure of UBI for illiquidity is not without precedent.
Earlier other banks were also closed by the Monetary Board for incurring liquidity problems. The closure
of UBI for illiquidity arising from a bank holiday was not the first closure undertaken by the Monetary
Board. On several occasions, the Monetary Board had placed a bank under Receivership because of
illiquidity but not on the basis of insolvency. In the years 1999 and 2000, the following banks were
placed by the BSP under Receivership on the ground of illiquidity, to wit: Rural Bank of Santander
(Cebu), Inc.; Rural Bank of Gumaca (Quezon), Inc.; Rural Bank of Bocaue (Bulacan), Inc.; and Rural
Bank of San Teodoro, Inc. It must be stressed again that the legal basis for the closure of UBI was its
illiquidity problem and not because it was insolvent.” (OMB-ADM-0-00-0867, Reyes’ and Aure’s Motion
for Reconsideration, 18 July 2002)
**** **** ****
“Notably, the closure of UBI for illiquidity is not without precedent. Earlier other banks were also
closed by the Monetary Board for incurring liquidity problems.
“The closure of UBI for illiquidity arising from a bank holiday was not the first closure undertaken
by the Monetary Board. On several occasions, the Monetary Board had placed a bank under receivership
because of illiquidity but not on the basis of insolvency. In the years 1999 and 2000, the following banks
were placed by the BSP under receivership on the ground of illiquidity, to wit: Rural Bank of Santander
(Cebu), Inc.; Rural Bank of Gumaca (Quezon), Inc.; Rural Bank of Bocaue (Bulacan), Inc.; and Rural
Bank of San Teodoro, Inc.” (OMB-ADM-0-00-0867, Reyes & Aure’s Supplement to Opposition, 22
October 2001)
**** **** ****
“The closure of a bank suffering from liquidity problems pursuant to Section 30(a) of RA 7653 is
not without a precedent. This is not the first time that the Monetary Board has placed a bank under
receivership not on the basis of insolvency. In fact, in the years 1999 and 2000, the following banks were
earlier placed under receivership on the ground of illiquidity, to wit: Rural Bank of Santander (Cebu),
Inc.; Rural Bank of Gumaca (Quezon), Inc.; Rural Bank of Bocaue (Bulacan) Inc.; and Rural Bank of San
Teodoro, Inc.” (OMB-0-01-0089, Reyes’ counter-affidavit, 16 April 2001)
65. Respondents would claim that UBI and UDB’s closure due to illiquidity was regular and
precedented. Unfortunately, the banks identified by respondents as precedents only highlighted their whimsical
and capricious basis for recommending UBI and UDB’s closure. All four (4) banks cited by respondents --Rural
Bank of Santander, Rural Bank of Gumaca, Rural Bank of Bocaue, and Rural Bank of San Teodoro -- were
actually found by respondents to be insolvent, and not merely illiquid, even before they were ordered closed.
66. The irrefutable evidence of respondents’ perjury are the SES reports prepared for each of these
four banks, which respondents concealed in this case. In said SES reports, SES found all four banks to be
insolvent when it recommended their closure to the MB. Insolvency, unequivocally defined under Sec. 30(b) of
RA 7653 as “insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities,” is a basis
for closure under said provision.
67. Despite the allegations and evidence of perjury made against respondents before the Ombudsman
in OMB-ADM-0-00-0867, OMB-0-00-1651 and OMB-0-01-0089, and before the Court of Appeals in CA-GR SP
No. 72234 and 72270, respondents never denied nor refuted any of them. Even in the herein case before this
Honorable Court, respondents in their Comment did not deny nor refute this allegation made in the Petition.
68. The following excerpts from the SES reports on these four rural banks prove the false and
devious testimonies by respondents in order to mislead the investigators and the courts:43
43 Annexes 2, 3, 4 & 5 of petitioner’s Comment in CA-G.R. SP No. 72234 (Annex I of Petition)
17
1. Rural Bank of San Teodoro, Inc.
SES Report, 2 September 1999
“The book value of the bank’s assets is less than its liabilities by P17.185 million (as of February 28,
1999).
x x x
“Despite a P32.938 million drawdown from its approved emergency loan of P50.000 million
(approved by the M.B. in its Res. No. 091 [P20 million] dated January 21, 1998, and No. 980 [P30
million] dated July 8, 1998), the bank has not been able to contain the continuing demands for
withdrawal.
x x x
“In our [BSP] letters of February 9 and 15, 1999, the bank was given up to February 28, 1999 to have
the rehabilitation in place, otherwise Section 30 of R.A. 7653 shall be applied. Again, in our letter of
March 30, 1999, management was informed that it has been given sufficient time within which to
rehabilitate the bank.
“In our [BSP] letter of May 12, 1999 informing the bank of the results of the special examination as
of February 28, 1999, we reiterated to management that it has been given enough time within which to
rehabilitate the bank but none has ever materialized. The bank was warned that the persisting and
untenable condition leaves BSP with no recourse but to implement Section 30 of R.A. 7653.”
2. Rural Bank of Gumaca (Quezon), Inc.
SES Report, 9 August 2000.
“The bank has insufficient realizable assets, as determined by the Bangko Sentral ng Pilipinas, to
meet its liabilities. Net realizable assets as of April 30, 2000 is computed as follows (in million) …
(P9.644).
x x x
“The realizable value of the bank’s assets is P11.218 million less than its liabilities to be settled.
Realizable value after considering appraisal increment of P1.574 million on ROPOA would still be less
than the liabilities by P9.644 million.
x x x
“In our [BSP] letter dated May 23, 2000, the bank was given a final deadline of June 15, 2000 to
correct the serious findings noted in the April 30, 2000 special examination, particularly the infusion of
fresh capital to correct the deficiency. Bank management failed to infuse the required capital within the
June 15, 2000 deadline.
“In a [BSP] letter dated July 6, 2000, the Board of Directors was reminded of management’s inaction
on the directives as contained in the May 23, 2000 letter; and that said inaction would be taken to mean as
disinterest on its part to rehabilitate the bank; and that BSP would have to take action as mandated by
law.”
3. Rural Bank of Bocaue (Bulacan), Inc.
SES Report, 16 August 2000
“Findings in the general examination as of January 31, 2000 disclosed that the bank has insufficient
realizable assets to meet its liabilities…
x x x
“The bank has insufficient realizable assets, as determined by the Bangko Sentral to meet its
liabilities. The bank’s net realizable assets is computed as… (P39.269).
x x x
“The bank was granted a liquidity loan of P100 million on June 5, 2000 (MB Resolution No. 927).
A total of P17.023 million has been released…
x x x
“In a meeting held at the BSP last April 7, 2000 and attended by one bank officer and the legal
counsel, the bank was enjoined to infuse fresh funds of at least P53.146 million within 30 days from April
7, 2000.
“The bank was advised to consider inviting new investors to rehabilitate the bank within 30 days if
present stockholders are not in a position to infuse fresh funds.”
4. Rural Bank of Santander (Cebu), Inc.
SES Report, 6 September 2000.
“The bank has insufficient realizable assets, as determined by the Bangko Sentral ng Pilipinas, to
meet its liabilities. Net realizable assets as of March 31, 2000 is P14.951 million less than liabilities of
P67.180 million.
x x x
18
“In a meeting held on August 24, 2000, it was emphasized that infusion of fresh capital should be
adequate to cover capital deficiency and solve the liquidity problems…
“On August 28, 2000, the [BSP] Department received Resolution No. 27 dated August 25, 2000
adopted by the [rural bank’s] board of directors and controlling stockholders voluntarily surrendering the
operation/affairs of the bank.”
69. The Honorable Court will note that, in the cases of these four rural banks, it took some months
before the SES finally recommended their closure, whereas in the case of UBI and UDB, it took less than 24
hours to do the same. Moreover, these four banks were accorded due process evident from the conferences held
by BSP and from BSP’s communications informing them of their findings and prospective actions. These banks
were given ample time and opportunity to correct their deficiencies, all in compliance with the Central Bank
Manual of Examination Procedures. However, in the case of UBI and UDB (and UII), no effort at due process
nor opportunity to explain their position was given to the institutions by respondents.
70. Accordingly, respondents’ recommendations to close UBI and UDB (and UII) were not merely
irregular, unprecedented, and without valid basis, they were also made with gross and inexcusable negligence,
manifest partiality, and utter bad faith.
II. REFUTATION OF LEGAL ARGUMENTS
A. Contrary to their implications,
respondents are precisely empowered
by RA 7653 to directly assist banks,
even without collaterals, in times of
illiquidity or emergency.
71. In their Comment (p. 12), respondents stated:
“xxx The BSP in fact offered funding support for UBI by way of an emergency loan from the PDIC and
even tried to help UBI in the latter’s search for investors who were willing to infuse additional capital to
the bank. The BSP’s initial financial support amounted to P800 Million, because this was the most that
UBI's collateral could secure. Specifically, the Monetary Board, in its Resolution No. 633,
decided to extend financial assistance to UBI thru PDIC to the tune of Eight Hundred Million Pesos…”
72. Respondents claimed that BSP’s financial support was only so much (or so little) “because
this was the most that UBI's collateral could secure.” In their Comment (p. 27), respondents added,
“UBI could not raise the collaterals for loans from BSP.”
73. Truth is, and as is evident in the bank’s own records and books, UBI had more than sufficient
collaterals to secure even a P3.5 Billion loan.
74. One wonders why BSP would offer such meager assistance to a commercial bank, and through
PDIC as a necessary conduit. The Honorable Court will note that Secs. 83 and 84 of R.A. 7653 precisely
empowers the BSP to directly assist banks, even without collaterals, particularly in situations of illiquidity or
emergency:
“Sec. 83. Loans for Liquidity Purposes. – the Bangko Sentral may extend loans and advances to
banking institutions for a period of not more than seven (7) days without any collateral for the purpose of
providing liquidity to the banking system in times of need.
“Sec. 84. Emergency Loans and Advances. – In periods of national and/or local emergency or of
imminent financial panic which directly threaten monetary and banking stability, the Monetary Board, may,
by a vote of at least five (5) of its members, authorize the Bangko Sentral to grant extraordinary loans or
advances to banking institutions secured by assets as defined hereunder: xxx
“The Monetary Board may at its discretion, likewise authorize the Bangko Sentral to grant emergency
loans or advances to banking institutions, even during normal periods, for the purpose of assisting a bank
in a precarious financial condition or under serious financial pressures brought by unforeseen events, or
events which, though foreseeable, could not be prevented by the bank concerned: Provided, however, that
the Monetary Board has ascertained that the bank is not insolvent and has the assets defined hereunder to
secure the advances: xxx” (Underscoring supplied)
19
75. BSP did not offer timely and sufficient financial assistance, including the P800-million loan
under MB Resolution No. 633 that was approved merely “in principle” and one day before the holiday despite
earlier pleas.
B. Respondents quibble with respect to
the definition of a bank holiday when
the summary closure of UBI and UDB
made the temporary holiday
permanent.
76. In their Comment (pp. 18-19), respondents stated:
“xxx Moreover, there is no basis to state that a bank holiday is a mere ‘temporary’ suspension of banking
activities. Firstly, there is no stated certainty as to when the holiday will be lifted. To be sure, the bank holidays
declared by UBI and UDB in the present case were for an indefinite period. Secondly, insofar as the bank
supervisors and the depositors are concerned, it simply means a cessation of business.”
77. Respondents’ definition of a bank holiday is self-serving and false. It was the respondents that
made the temporary bank holiday permanent.
78. Jurisprudence and banking history, such as in the case of Banco Filipino, prove that a “bank
holiday” is by definition neither permanent nor irreversible. Banco Filipino declared a bank holiday on 23 July
1984 because of continuing illiquidity and despite having availed of P119.7-million emergency loan on 29 June
1984. Despite its apparent illiquidity and declaration of holiday, the bank was not ordered closed by the MB. In
fact, it reopened on 1 August 1984 under conservatorship. Central Bank even assisted its reopening by granting an
additional P3-billion credit line.
79. A bank holiday is, in practice or according to human experience, self-imposed and temporary. A
holiday may be definite or indefinite, but it cannot be considered a permanent closure; otherwise it would not be a
mere “holiday”. Although respondents controvert the definition of a bank holiday, they cite no legal basis for their
objection. Neither can they support their obvious assertion that a bank holiday is permanent or that it is sufficient
reason to close a bank summarily and without due process.
80. The tenor of respondents’ argumentation is patent, viz: a bank holiday, regardless if it was caused
by extraordinary demands brought on by financial panic in the banking community, is sufficient cause to
summarily close down viable institutions. According to respondents, a bank holiday gives them license to cobble-
together SES reports overnight to justify the closure of financial institutions imbued with public interest and to
deprive them of due process.
81. Respondents have likewise failed to state any precedent or support, historically or
jurisprudentially, for their argument that a bank holiday gives them the right to summarily close an institution
overnight at “a flick of the finger”.
82. Given the availability and wealth of banking data at BSP’s disposal, it would have been easy for
respondents to gather the facts (and corresponding SES reports to support their facts) regarding ALL banks which
had declared bank holidays in the past 52 years. A simple matrix of the dates when these banks declared the
holiday, what the SES reports found, and when these banks were ordered closed, if at all, would have proven that
there was precedent to UBI and UDB.
83. On the contrary, respondents chose to make sweeping statements rather than bother with this
research. The reason is obvious: The closure of UBI and UDB was unprecedented. UBI and UDB were the
only banks in the 52-year history of the Central Bank and Bangko Sentral, and its governing statutes, to have been
ordered closed for mere illiquidity or for declaring a bank holiday to halt the panic withdrawals. Perhaps
respondents hold the record as well for their SES reports, which they cobbled together in a span of three hours.
Respondents Reyes and Aure, in the effort to cover their telltale malfeasance, even perjured themselves in the
course of the Office of the Ombudsman’s investigation to prevent their dereliction of duty from coming to light.
84. Gov. Buenaventura, in the television news interview on 26 April 2000,44 admitted that the BSP’s
offer of assistance was insufficient such that UBI’s “better alternative” was to declare a bank holiday. Thus, how
44 Annex 17 of petitioner’s Comment in CA-G.R. SP No. 72234 (Annex I of Petition)
20
can respondents argue that UBI closed itself when the holiday was made the only alternative to the bank? Little
did petitioner know that the holiday would be made the basis for the permanent closure of UBI (together with
UDB and UII), contrary to law, banking experience and practice.
C. Respondents mislead the Honorable
Court on the bank holiday and
closure of Orient Bank.
85. In their Comment (p. 36), respondents stated:
“The reaction of herein Respondents and of the Monetary Board towards a bank holiday declaration is
in fact a reaction to the earlier stand that they took with regard to the Orient Bank which declared a long
bank holiday for which the Monetary Board was publicly and roundly criticized because it did not
immediately order the closure of Orient Bank despite said bank’s declaration of such bank holiday.”
86. Respondents only mislead the Honorable Court in the case of Orient Bank (Orient Commercial
Banking Corporation) which supposedly justifies the immediate closure of UBI, UDB and UII.
87. Orient Bank declared a bank holiday on 14 February 1998, following a heavy surge of
withdrawals that began in December 1997. The MB ordered the bank’s closure on 14 October 1998, or eight (8)
months after Orient Bank declared its holiday. In the herein case, however, the MB ordered UBI and UDB’s
closure less than twenty-four (24) hours after they declared a bank holiday.
88. Orient Bank was ordered closed under Sec. 30(a), 30(b), 30(c) and 30(d) of RA 7653, based on
the findings in the SES reports. In the herein case, however, UBI and UDB were ordered closed under Sec. 30(a)
with no finding as to the requirement of Sec. 30(a), that is, the absence of extraordinary demand and financial
panic. No such finding was mentioned anywhere in the SES reports on UBI and UDB and, much less, in the MB
minutes and resolutions ordering their closure.
89. In compliance with the clear provisions of the Central Bank Manual of Examination Procedures,
Orient Bank was furnished a copy of the SES reports and was given the opportunity to take responsive and
corrective action on the findings in said reports. These reports were furnished on 1 June 1998 and 29 July 1998,
several months before the MB finally ordered Orient Bank’s closure. In the herein case, however, UBI and UDB
(and UII) were not furnished any copy of the SES reports, much less, given any opportunity to respond to the
(false) findings therein. They were instantly closed and given absolutely zero due process.
D. Respondents mislead the Honorable
Court that illiquidity under Sec. 30(a)
is a “new” ground for bank closure
under the New Central Bank Act.
90. In their Comment (pp. 17-18), respondents stated:
“Illiquidity as ground for closure of banks is a new ground under the new law and need not require
extensive examination of condition.- Notably, the recommendations to prohibit UBI and UDB from
doing business in the Philippines and placing them under receivership due to illiquidity were
made in accordance with Section 30 (a) of the New Central Bank Act (R.A. No. 7653), which reads as
follows:
‘Sec. 30. Proceedings in Receivership and Liquidation. - Whenever, upon report of the head of the
supervising or examining department, the Monetary Board finds that a bank or quasi-bank:
‘(a) is unable to pay its liabilities as they become due in the ordinary course of
business: Provided, That this shall not include inability to pay caused by extraordin ary
demands induced by financial panic in the banking community;’”
91. Respondents only mislead the Honorable Court. Even the old Central Bank Act (RA 265, as
amended by Presidential Decree No. 1827), which the New Central Bank Act repealed in 1993, had its own
counterpart provision of “illiquidity”. To wit:
21
“PRESIDENTIAL DECREE NO. 1827, FURTHER AMENDING REPUBLIC ACT NUMBERED TWO
HUNDRED SIXTY-FIVE, AS AMENDED, OTHERWISE KNOWN AS ‘THE CENTRAL BANK ACT’
x x x
“Sec. 6. Section 29 of the same Act is hereby amended to read as follows:
x x x
‘Sec. 29. Proceedings upon insolvency. - Whenever, upon examination by the head of the appropriate
supervising or examining department or his examiners or agents into the condition of any bank or non-bank
financial intermediary performing quasi-banking functions, it shall be disclosed that the condition of the
same is one of insolvency, or that its continuance in business would involve probable loss to its depositors
or creditors, it shall be the duty of the department head concerned forthwith, in writing to inform the
Monetary Board of the facts, and the Board may, upon finding the statements of the department head to be
true, forbid the institution to do business in the Philippines and shall designate an official of the Central
Bank or a person of recognized competence in banking or finance, as receiver to immediately take charge
of its assets and liabilities, as expeditiously as possible collect and gather all the assets and administer the
same for the benefit of its creditors, exercising all the powers necessary for these purposes including, but
not limited to, bringing suits and foreclosing mortgages in the name of the bank or non-bank financial
intermediary performing quasi-banking functions.
x x x
‘Insolvency, under this Act, shall be understood to mean the inability of a bank or non-bank financial
intermediary performing quasi-banking functions to pay its liabilities as they fall due in the usual and
ordinary course of business: Provided, however, That this shall not include the inability to pay of an
otherwise non-insolvent bank or non-bank financial intermediary performing quasi-banking functions
caused by extraordinary demands induced by financial panic commonly evidenced by a run on the bank or
non-bank financial intermediary performing quasi-banking functions in the banking or financial
community.” (Underscoring supplied)
92. In the 52 years from the time when RA 265 Central Bank Act was enacted in 1948 and when RA
7653 New Central Bank Act was enacted in 1993 repealing the old law, the closure of UBI and UDB is
unprecedented: They were the only banks in Philippine history to have been ordered closed for reason of
alleged illiquidity.
E. Respondents misleadingly cite RA
8791 as basis for the closure when the
law was not yet existent at the time,
and could not have been the basis of
the closure of UBI and UDB.
93. In their Comment (p. 32), respondents stated:
“The recommendations of herein Respondents were, likewise, based on the Legal Opinion
rendered by BSP's General Counsel that --
‘A bank which declares a bank holiday closes itself for business and, consequently, would be unable to
discharge its obligations in due course. In such situation, its depositors are prevented from transacting
and withdrawing their deposits. It is believed that this is a situation equivalent to the inability ‘to pay
its liabilities as they become due in the ordinary course of business’, a ground for placing a bank under
receivership under aforesaid Section 30.’
“Parenthetically, it is for this reason as stated by the BSP General Counsel that under REPUBLIC
ACT NO. 8791, otherwise known as the General Banking Act of 2000, it is now categorically provided
that:
‘In case a bank or quasi-bank notifies the Bangko Sentral or publicly announces a bank
holiday, or in any manner suspends the payment of its deposit liabilities continuously
for more than thirty (30) days, the Monetary Board may summarily and without need
for prior hearing close such banking institution and place it under receivership of the
Philippine Deposit Insurance Corporation.’”
94. Respondents make reference to a provision under Sec. 53 of R.A. 8791, which allegedly was the
reason for Sec. 30(a) of RA 7653 and for the Legal Opinion rendered by BSP General Counsel Juan de Zuniga, Jr.
95. Respondents attempt to mislead this Honorable Court. RA 8791, which repealed RA 337 General
Banking Act, was approved only on 23 May 2000. UBI, UDB and UII were summarily closed on 26 April 2000
or a month before the law was approved and several months before it was published and came into effect.
22
96. RA 8791 therefore could not have been the legal basis for the SES Reports to recommend UBI
and UDB’s closure, since the law had not been passed at the time.
97. Nor could RA 8791 have been the legal basis behind Zuniga’s Legal Opinion dated 26 April
2000,45 because the law did not exist at the time. Respondents have been betrayed by their own deceit.
F. Respondents hold themselves above
the law when they refute the wisdom
of Sec. 29 of RA 7653 and disregard
its provisions.
98. In their Comment (p. 8), respondents stated:
“UBI and UDB were closed due to illiquidity. - The legal basis for the closure of UBI was thus its
illiquidity, which first became apparent when Petitione r BORLONGAN and Bartolome asked for
emergency assistance. Petitioner BORLONGAN and Bartolome were, however, not able to
produce the required collateral and Board authorization. Conservatorship was not the proper
response to the illiquidity of UBI because conservatorship would have kept UBI open, which
situation would have allowed the depositors to continue to go to UBI and demand the payment of their
deposits, which UBI could not have made. The only logical response was to place UBI and UDB
under receivership precisely to preserve their respective assets.” (Underscoring provided)
99. In a capricious, discriminatory and whimsical manner, respondents would hold themselves above
the law and even disregard the provisions of Sec. 29, RA 7653, which plainly talks of illiquidity and calls for
conservatorship, not closure, when a bank is illiquid.
100. Sec. 29 of R.A. 7653 provides: “Whenever, on the basis of a report submitted by the appropriate
supervising or examining department, the Monetary Board finds that a bank or a quasi-bank is in a state of
continuing inability or unwillingness to maintain a condition of liquidity deemed adequate to protect the interest
of depositors and creditors, the Monetary Board may appoint a conservator with such powers as the Monetary
Board shall deem necessary xxx”
101. Moreover, Sec 30(a) is conditioned upon a bank’s “ordinary course of business”, evidenced by
the absence of “extraordinary demands” and “financial panic”. A bank run is definitely not in the ordinary course
of business.
102. Respondents did not deny the fact that, subsequent to UBI’s closure, BSP and PDIC granted large
liquidity assistance to numerous other banks -- such as but not limited to Philippine Bank of Communications,
International Exchange Bank, Export and Industry Bank, Philippine National Bank, and Equitable PCI Bank ---
which likewise suffered from illiquidity as UBI. Respondents did not recommend their closure despite their
illiquidity, which also “became apparent when (they) asked for emergency assistance.” Clearly, illiquidity was
not a “legal basis for the closure” of any bank.
103. In his privilege speech delivered on 3 October 2000 (Petition, p. 41), Rep. Michael Defensor
made the following statement. This was not denied nor refuted by Gov. Buenaventura and respondents who
attended the 6 December 2000 hearing of the Congressional Committee on Good Government that acted on
Defensor’s privilege speech.46
“The BSP governor said the bank ‘was solvent and should be opened before a short period of time.’ Urban
Bank, he added, was just ‘experiencing a temporary liquidity crunch due to heavy withdrawals, but recent
examination of their books showed that it was healthy’. xxx For he actually named a few banks and
institutions that he dubbed to be ‘below par’ than Urban Bank’s books showed. xxx If the BSP could
release P9 billion to I-Bank and 5 billion to PBCom– loans required after his irresponsible statements on
national TV–why did he refuse a P3.5 billion request from an institution that, in his own words, showed
better books than banks that received the dole outs?”
45 Zuniga’s Opinion is attached to the SES Report un UBI, which is Annex C of Petition
46 See par. 134 of Petition.
23
G. Respondents mislead the Honorable
Court that their role in the closure of
UBI, UDB and UII was merely
recommendatory.
104. In their Comment, respondents stated:
“If insolvency is a ground for bank closure, examination of condition is obligatory.- Thus, applying the
requirements of Section 29 (RA 265) to the Monetary Board’s decision to close Banco Filipino, the
Honorable Court held, among other things, that the mandatory requirement of an examination into the
bank’s condition…” (Respondents’ Comment, p. 16)
x x x
“The fact that the Memoranda (SES Reports on UBI and UDB) did not make a ‘categorical finding
with respect to the existence or absence of financial panic in the banking community which induced the
extraordinary demand upon UBI’s deposits,’ does not detract at all from the findings and recommendations
on UBI and UDB, much less make herein Respondents liable for neglect. Section 30(a) of R.A. No. 7653
does not expressly require the Report to contain a categorical finding to that effect.” (p. 19)
x x x
“Finally, it should be stressed that the decision to place UBI and UDB under receivership was not
herein Respondents’ responsibilities to make. By law, that power belonged to the Monetary Board. What
herein Respondents merely did was to prepare their respective SES Memoranda and make
recommendations therein for the consideration of the Monetary Board.” ( p. 23)
105. Respondents poorly attempt to mislead the Honorable Court and pass the blame to the MB for
respondents’ recommendations of closure
106. Firstly, respondents make the ludicrous excuse that an examination is not necessary in order to
make a finding under Sec. 30 of RA 7653. How then does the head of a supervising and examining department
base his “finding” in his SES report? Without an examination or investigation into the condition of the bank, he
could only be guessing.
107. Respondents’ excuse is betrayed by the cases of Orient Bank and the four (4) rural banks cited by
respondents in their Comment and discussed in this Reply. The conditions of all these banks, which became
grounds for recommending their closure under the New Central Bank Act, were all based on examination
findings in compliance with the BSP’s prescribed examination procedures. That they were based on findings as a
result of an examination, were indicated in the respective SES reports that recommended their eventual closure.
108. Secondly, respondents continue with their ludicrous argument that Sec. 30(a) RA 7653 does not
expressly require the SES report to contain a categorical finding. What then should “the report of the head of the
supervising or examining department,” as required by Sec. 30, contain in order that the MB may be informed of
such finding?
109. Sec. 30(a) of R.A. 7653 crucially requires the determination of absence of extraordinary demands
and financial panic. Whose job is it then, if not the respondents as officials of the Bangko Sentral responsible for
the supervision and examination of banks, to make such determination before invoking Sec. 30(a)?
110. Respondents contradict themselves when they state that an examination is “obligatory” for
insolvency, which is a condition under Sec. 30(b) of RA 7653. Arbitrarily and without legal basis, can
respondents choose which condition under the law would require a “mandatory” examination and which would
not? The Court will note that there are four conditions specified under Sec. 30 RA 7653 – that is, Sec. 30(a),
30(b), 30(c) and 30(d).
111. Finally, respondents make the ludicrous argument that their role is only recommendatory, as what
they “merely did was to prepare their respective SES Memoranda and make recommendations therein for the
consideration of the Monetary Board”.
112. On the contrary, the Ombudsman found: “As frontline soldiers, it is but natural that the
Monetary Board, as BSP’s policy-making body, would tend to believe that the respondents’ report and findings of
facts and applicable laws are real and accurate insofar as UBI and UDB are concerned.” The Ombudsman also
found that that the SES reports were “haphazardly and negligently done”, and that respondents’
recommendations of closure were “harsh”, “drastic” and “premature”.
24
113. Respondents’ role was not merely recommendatory. They flagrantly violated the due process
expressly provided in their own Central Bank Manual of Examination Procedures. In violation of said Manual,
respondents did not furnish UBI, UDB and UII with the findings in their Reports, nor confer with them on their
findings, nor give them any opportunity to explain the findings before finalizing their SES Reports to the MB on
26 April 2000.
114. Respondents’ role was not merely recommendatory. On the contrary and as expressly provided
under Sec. 30 RA 7653, the MB based its decision upon the SES Reports, and without said reports the MB could
not have ordered the closure of any financial institution. Such was evident in MB Resolutions Nos. 634 and 635
which closed down UBI and UDB, respectively, “on the basis of the memorandum [SES Report] of Mr. Tomas S.
Aure, Jr. Officer-in-Charge, Department of Commercial Banks II.” and “on the basis of the memorandum [SES
Report] of Mr. Candon B. Guerrero, Director, Department of Thrift Banks and Non-Bank Financial
Institution.”47
115. In their defense, respondents argued on “the presumption conferred by law that ‘official duty has
been regularly performed” (Comment, p. 10). However, when public officials perform their duties in a
haphazard and negligent manner, when they discharge their functions with manifest partiality, evident bad faith or
gross inexcusable negligence, or when they falsify official documents, then they rightly fall under judicial review.
Under these circumstances, no government official can use the argument of being “merely recommendatory” as a
shield against administrative and criminal liabilities. This argument insults the intelligence.
116. “Merely recommendatory” does not exempt the respondents from performing their duties with
“extraordinary diligence” as required under Sec. 16 of R.A. 7653.
117. “Merely recommendatory” does not exempt the respondents from performing and discharging
their duties with “the highest degree of excellence, professionalism, justness, sincerity, honesty and non-
discrimination,” as required under Sec. 4 of R.A. 6713.
118. “Merely recommendatory” does not apply when respondents wield tremendous powers of
“supervision and examination” over the operations, activities, transactions, books and records of all banks, quasi-
banks, their subsidiaries and affiliates, as provided under Sec. 25 of R.A. 7653.
119. “Merely recommendatory” does not apply when the MB can “summarily and without need for
prior hearing” close banks only upon the basis of respondents’ reports as required under Sec. 30 of R.A. 7653.
120. Respondents’ logic boggles the mind and does violence to the principle of public responsibility
and accountability. In fact, to sustain respondents’ argument would be to single-handedly abrogate Article XI of
the Constitution and allow unfit public servants to run roughshod over the very persons they seek to serve.
Verily, respondents’ argumentation provides insight as to how public officials, at a flick of the finger, justify the
closure of three financial institutions imbued with public interest, and expect to get away with it.
H. Contrary to respondents’ assertions,
the Banco Filipino is applicable in
the herein case. It also demonstrates
how much worse the herein case
compares with Banco Filipino.
121. There is a dictum among practitioners. If the law and jurisprudence is clearly against you, argue
the facts of your case and claim that they are different. Hence, true to form, respondents argue that reliance on the
Banco Filipino case is misplaced since the facts are different. No amount of nitpicking can force this Court to
ignore the ruling in the Banco Filipino case.
122. In CA-G.R. SP No. 72270 Borlongan vs. Buenaventura et al., the Fifth Division of the Court of
Appeals found that “(t)he closure of UBI, UBD and UII was done in an arbitrary manner violative of fair play
and committed with grave abuse of discretion which was worst than what happened when the Central Bank closed
Banco Filipino.” An extensive table is hereunder provided, illustrating how much worse the herein case compare
with that of Banco Filipino:
47Annexes 1 & 2 of Zuniga’s counter-affidavit, which is Annex E of respondents’ Petition in CA-G.R. SP No. 72234 (Annex H
of Petition)
25
BANCO FILIPINO UBI, UDB and UII
1. Banco Filipino (BF) was a thrift bank. Three (3) financial institutions, imbued with public interest,
were simultaneously closed.
UBI was a publicly-listed commercial bank. It was one of
the largest banks, if not the largest, ever closed in Philippine
banking history.
UDB was a thrift bank, and a subsidiary of UBI. UII was an
investment house with a trust department, and an affiliate of
UBI.
2. BF suffered from illiquidity, and was granted by the Numerous negative media reports, attributed to BSP sources,
Central Bank a P119.7-million emergency loan on 29 June sparked the withdrawals at the time of a panicky financial
1984. market.
In the five weeks of constant withdrawals, UBI and UII,
which shared the same clientele, serviced P3-Billion in
withdrawals, a feat which no similar-sized institutions could
have accomplished.
On 25 April 2000 when UBI declared the holiday, the panic
withdrawals during that day alone amounted to an
extraordinary magnitude of closer to P2-Billion.
Even at the time of their closure, UBI still had P2.6-Billion
remaining in liquid and non-risk assets, and UII had P355-
million. UBI, UDB and UII did not receive a single centavo
of financial assistance from BSP or PDIC.
3. BF declared a self-imposed bank holiday on 23 July In the afternoon of 25 April 2000, petitioner and UBI
1984 because of continuing illiquidity and despite the Chairman Bartolome met with Gov. Buenaventura to pre-
emergency loan it recently availed of. clear with him the declaration of a bank holiday to halt the
panic withdrawals, particularly the P1.2-Billion inward
checks expected through the clearing house that evening.
Buenaventura directed petitioner to submit “right then and
there” a written letter formalizing UBI’s declaration of a
bank holiday. Reyes drafted the letter, and Buenaventura’s
secretary typed the letter on a photocopy of a faxed-in
stationery. Said letter cited “media reports of our
downgrading” as the cause of UBI’s “liquidity problems”.
4. BF was not ordered closed by the MB when it declared Despite the provisions of Sec. 29 of the New Central Bank
a bank holiday. In fact, BF re-opened under Act (Sec. 28 of the old Central Bank Act) for banks in a state
conservatorship one week later, on 1 August 1984. The of illiquidity, UBI and UDB were not placed under
Central Bank even assisted its re-opening by granting an conservatorship. Instead, they were ordered closed less
additional P3 billion credit line. than 24 hours after they declared a bank holiday.
UBI and UDB’s closure is unprecedented in Philippine
banking history. They were the only banks ever closed due
to mere illiquidity in the 52 years of the old and New Central
Bank Acts. Respondents Reyes and Aure perjured
themselves repeatedly before the Ombudsman to conceal
this fact.
26
BANCO FILIPINO UBI, UDB and UII
5. The Central Bank submitted to the MB on 23 January Respondents prepared the three SES Reports on UBI, UDB
1985 the SES report on BF’s financial condition as of 31 and UII beginning the evening of 25 April 2000, and rushed
July 1984. It took the Central Bank six (6) months to them in time for the MB Special Meeting the following
prepare the report. Upon the report’s recommendation (and morning. Respondents admitted that it took them only three
not because of BF’s declaration of bank holiday), the MB (3) hours to prepare the Reports and “at the flick of a
ordered its closure two (2) days later on 25 Jan.1985. finger”.
Respondents signed the Reports between 9:00 AM and
10:00 AM of 26 April 2000. On the bases of their Reports,
the MB ordered the instant closure of UBI, UDB and UII on
the very same morning.
6. The SES report which recommended BF’s closure found If this Honorable Court found that the SES report on BF,
that the bank was illiquid and insolvent. However, this which took six (6) months to prepare, was incomplete, what
Honorable Court found that that the SES report was based more of three SES Reports simultaneously rushed in a few
on incomplete findings. In Banco Filipino vs Monetary hours?
Board (G.R. No. 70054, 11 December 1991):
UBI, UDB and UII were not even found to be insolvent in
“Clearly, Tiaoqui based his [SES] report on an said Reports.
incomplete examination of petitioner bank and
outrightly concluded therein that the latter's financial Worse, the Reports contained falsified, untrue and
status was one of insolvency or illiquidity. misleading findings to justify their recommendations of
“xxx It would be a drastic move to conclude immediate closure.
prematurely that a bank is insolvent if the basis for such
conclusion is lacking and insufficient, especially if Moreover, the Reports were substituted and were ante-
doubt exists as to whether such bases or findings dated to give the impression that they existed at the time
faithfully represent the real financial status of the that the MB met to deliberate and decide on their closure.
bank.”
7. This Honorable Court found: If the Supreme Court found that four (4) days was an
unreasonable time given by SES for BF to take responsive
“The actuation of the Monetary Board in closing and corrective action on the SES findings, what more for
petitioner bank on January 25, 1985 barely four days UBI, UDB and UII, which were given zero time but were
after a conference with the latter on the examiners’ instantly closed? There was no effort at due-process for
partial findings on its financial position is also violative these institutions, in flagrant disregard of BSP’s existing
of what was provided in the CB Manual of procedures.
Examination Procedures. Said manual provides that
only after the examination is concluded, should a pre- In violation of the Central Bank Manual of Examination
closing conference led by the examiner-in-charge be Procedures, respondents did not furnish UBI, UDB and UII
held with the officers/ representatives of the institution with the findings of their Reports.
on the findings/exception, and a copy of the summary
of the findings/violations should be furnished the In violation of said Manual, respondents did not conduct
institution examined so that corrective action may be any conference with the three institutions to discuss their
taken by them as soon as possible. It is hard to SES findings
understand how a period of four days after the
conference could be a reasonable opportunity for a bank In violation of said Manual, respondents did not give any
to undertake a responsive and corrective action on the time or opportunity whatsoever for the institutions to take
partial list of findings of the examiner-in-charge.” responsive and corrective action on their (false) findings.
Respondents belatedly furnished petitioner with a copy of
the three SES Reports five (5) months later, and upon
written demand by petitioner’s counsel.
27
BANCO FILIPINO UBI, UDB and UII
8. BF requested the tapes and transcripts of the MB When the New Central Bank Act was enacted in 1993
meetings deliberating upon BF’s closure, and the Central repealing the old Central Bank Act, one of the significant
Bank refused. changes in the new law was Section 11 thereof, which
provides:
In Banco Filipino vs Monetary Board (G.R. No. 70054, 8
July 1986), this Honorable Court ruled: “The Bangko Sentral shall maintain and preserve a
complete record of the proceedings and
“Respondent’s reason for their resistance to the deliberations of the Monetary Board, including the
order of production are tenuous and specious. If the tapes and transcripts of the stenographic notes, either
respondents public officials acted rightfully and in their original form or in microfilm.”
prudently in the performance of their duties, there
should be nothing at all that would provoke fear of The MB Special Meeting on 26 April 2000 was especially
disclosure. called for the purpose of deliberating upon the SES Reports
on UBI, UDB and UII, and deciding on their
“On the contrary, public interests will be served by recommendations. The MB conducted its meeting at the
the disclosure of the documents. Not only the banks and Manila Golf Club at Makati City. It convened at 10:45 AM
its employees but also its numerous depositors and and adjourned at 11:30 AM.
creditors are entitled to be informed as to whether or
not there was a valid and legal justification for the However, despite Section 11 and the BF precedent, no
petitioner's bank closure. It will be well to consider that detailed record of the MB’s deliberations was made on that
- morning. No tape recording or stenographic notes were
‘Public interest means more than a mere curiosity; it taken of the MB meeting that otherwise would have revealed
means something ion which the public, the community what and how the MB actually deliberated upon the SES
at large, has some pecuniary interest by which their Reports if they indeed existed at the time.
legal rights or liabilities are affected’.
“In view of all the foregoing, the order to produce
documents…is hereby affirmed, except as to the copies
of the tapes relative to the Monetary Board
deliberations on the closure of Banco Filipino…and
only if such tapes are actually no longer available
taking into account respondent Monetary Board's
manifestations that the tape recording of the
deliberations of that Board are, for purposes of
economy, used over and over again inasmuch as these
tapes are not required to be kept or stored.”
123. Respondents, for a variety of untenable reasons, argue that the Banco Filipino does not apply to
the herein case. They sorely missed the point. A considered reading of the Honorable Court’s decision in Banco
Filipino vs Monetary Board et al. (G.R. No. 70054, 11 December 1991) shows that the central issue was DUE
PROCESS, which herein respondents violated to a much worse degree.
124. The “Tiaoqui Report”, cited in Banco Filipino, was the SES report that recommended BF’s
closure based on its finding of insolvency. The Honorable Court, in its decision, found that the Central Bank did
not observe the “basic standards of substantial due process” in the rendering of said SES report. To wit:
“It is a well-recognized principle that administrative and discretionary functions may not be interfered
with by the courts. In general, courts have no supervising power over the proceedings and actions of the
administrative departments of the government. This is generally true with respect to acts involving the
exercise of judgment or discretion, and findings of fact. But when there is a grave abuse of discretion which
is equivalent to a capricious and whimsical exercise of judgment or where the power is exercised in an
arbitrary or despotic manner, then there is a justification for the courts to set aside the administrative
determination reached (Lim, Sr. v. Secretary of Agriculture and Natural Resources, L-26990, August 31,
1970, 34 SCRA 751).
“The jurisdiction of this Court is called upon, once again, through these petitions, to undertake the
delicate task of ascertaining whether or not an administrative agency of the government, like the Central
Bank of the Philippines and the Monetary Board, has committed grave abuse of discretion or has acted
without or in excess of jurisdiction in issuing the assailed order. Coupled with this task is the duty of this
Court not only to strike down acts which violate constitutional protections or to nullify administrative
decisions contrary to legal mandates but also to prevent acts in excess of authority or jurisdiction, as well as
to correct manifest abuses of discretion committed by the officer or tribunal involved.
xxx xxx xxx
28
“The actuation of the Monetary Board in closing petitioner bank on January 25, 1985 barely four days
after a conference with the latter on the examiners' partial findings on its financial position is also violative
of what was provided in the CB Manual of Examination Procedures. Said manual provides that only after
the examination is concluded, should a pre-closing conference led by the examiner-in-charge be held with
the officers/representatives of the institution on the findings/exception, and a copy of the summary of the
findings/violations should be furnished the institution examined so that corrective action may be taken by
them as soon as possible (Manual of Examination Procedures, General Instruction, p. 14). It is hard to
understand how a period of four days after the conference could be a reasonable opportunity for a bank to
undertake a responsive and corrective action on the partial list of findings of the examiner-in-charge.
“We recognize the fact that it is the responsibility of the Central Bank of the Philippines to administer
the monetary, banking and credit system of the country and that its powers and functions shall be exercised
by the Monetary Board pursuant to Rep. Act No. 265, known as the Central Bank Act. Consequently, the
power and authority of the Monetary Board to close banks and liquidate them thereafter when public
interest so requires is an exercise of the police power of the state. Police power, however, may not be done
arbitrarily or unreasonably and could be set aside if it is either capricious, discriminatory, whimsical,
arbitrary, unjust or is tantamount to a denial of due process and equal protection clauses of the Constitution
(Central Bank v. Court of Appeals, Nos. L-50031-32, July 27, 1981, 106 SCRA 143).
“In the instant case, the basic standards of substantial due process were not observed. Time and again,
We have held in several cases, that the procedure of administrative tribunals must satisfy the fundamentals
of fair play and that their judgment should express a well-supported conclusion.”
125. In the herein case, three SES Reports on UBI, UDB and UII recommending their closure were
prepared in a span of three hours. They were furnished five months after the ordered closure and only after
written demand by petitioner’s counsel. The three Reports, dated April 26, 2000, contained findings that were not
previously discussed nor disclosed to the institutions, in disrespectful disregard of the constitutional right to due-
process (Article III, Section 1, 1987 Constitution), and in flagrant violation of the procedural due-process
provided under the Central Bank Manual of Examination Procedures.
126. As properly observed by the Fifth Division of the Court of Appeals in CA-G.R. SP No. 72270:
“The nature and responsibility of public officers enshrined in the 1987 Constitution and repeated in case law are
not merely rhetorical words, not to be taken as idealistic sentiments but as working standards and attainable
goals that should be matched with actual deeds.” Indeed, it is the New Central Bank Act, the Code of Conduct
and Ethical Standards for Public Officials, the Central Bank Manual of Examination Procedures, and other
pertinent laws, rules and regulations that dictate how respondent BSP officials should discharge their functions
and duties.
127. In Enrique T. Garcia vs. Board of Investments, G.R. No. 88637, 7 September 1989 (177 SCRA
374), the Honorable Court explained that it is not the economic and political aspects of a case that concern the
courts; rather it is the violation of due process that is scrutinized. Thus:
“This Court is not concerned with the economic, social, and political aspects of this case for it does not
possess the necessary technology and scientific expertise to determine whether the transfer of the proposed
BPC petrochemical complex from Bataan to Batangas and the change of fuel from naphtha only to
‘naphtha and or LPG’ will be best for the project and for our country. This Court is not about to delve into
the economics and politics of this case. It is concerned simply, with the alleged violation of due process and
the alleged extra limitation of power and discretion on the part of the public respondents in approving the
transfer of the project to Batangas without giving due notice and an opportunity to be heard to the vocal
opponents of that move.”
128. In closing, petitioner cannot help but cite respondents’ attempt to preempt the Fifth Division of
the Court of Appeals in CA-G.R. SP No. 72270, by raising before this Honorable Court the same arguments
contained in their motions for reconsideration which are still pending before said Division (Respondents’
Comment, pp. 28-40). The Court’s review of these arguments would be premature and unfair to the Fifth
Division, since its decision is not the subject of this appeal but rather the Decision of the Seventeenth Division in
CA G.R. SP No. 72234.
129. Respondents also argue that petitioner refused to consolidate the two cases (Respondents’
Comment, pp. 3-5). Petitioner wishes to emphasize that although he filed, before the Fifth and Seventeenth
Divisions, his motions to consolidate the two cases and later to withdraw said motions, the same was addressed to
the sound discretion of the court. Just like any motion, the same may be denied or granted: It is not automatic.
Thus, it was well within the prerogative of the Fifth Division to deny the motion for consolidation, effectively
denying petitioner’s subsequent motion to withdraw said motion. In fact, the Fifth Division was justified in
denying said motion after hearing the mixed reactions of all the respondents. On the other hand, the Seventeenth
Division merely noted petitioner’s motions.
29
130. Respondents falsely state that “(a)ctually, the Fifth Division of the Court of Appeals took a
shorter time to come out with its decision dated 13 August 2003 than the Seventeenth Division whose Decision
was dated 18 September 2003” (Respondents’ Comment, p. 28). Petitioner presents hereunder a chronological
sequence of the progress of the two cases. Said chronology shows the justification of the Fifth Division’s denial
of the motion to consolidate, and highlights the alarming haste and questionable resolutions by the Seventeenth
Division (formerly, the Ninth Division and Special Sixth Division):
CA-G.R. SP No. 72234 CA-G.R. SP No. 72270
Date “Reyes et al., vs. Borlongan” “Borlongan vs. Buenaventura, et al.”
16 August Reyes et al. filed a Motion for Extension of Time to
2002 File Petition for Review.
In its resolution dated 22 August 2002, the 9th Div.
gave them a non-extendible period until August
31, 2002 “within which to file the Petition for
Review, failing which the case shall be dismissed”.
19 August Borlongan filed his Petition for Review.
2002 (the
following
working day)
22 August The 5th Div. issued its resolution, directing the
2002 respondents to file their comments.
5 September Reyes et al. filed their Petition for Review, out of
2002 time.
14 October The 9th Div. issued its resolution, dismissing the
2002 Petition.
23 January The 5th Div. issued its resolution, deeming the
2003 case submitted for decision.
14 February The Former Special 6th Div. issued its resolution,
2003 reinstating the Petition and directing (petitioner)
Borlongan to file his Comment (not a Motion to
Dismiss).
6 May 2003 The Former Special 6th Div. issued its resolution,
noting (petitioner) Borlongan’s motion to withdraw
his motion to consolidate.
20 June 2003 The 5th Div. issued its resolution, directing the
respondents to comment, within 10 days from
notice, on petitioner’s motion for consolidation
and his motion to withdraw said motion.
24 July 2003 The parties, as directed by the Court, filed the last
Memorandum.
13 August The 5th Div. rendered its Decision, denying
2003 petitioner’s motion for consolidation, and ruling
on the case.
It affirmed the Ombudsman’s order with
30
CA-G.R. SP No. 72234 CA-G.R. SP No. 72270
Date “Reyes et al., vs. Borlongan” “Borlongan vs. Buenaventura, et al.”
modification that respondents’ neglect of duty was
gross, thus increasing the penalty to one-year
suspension.
In same Decision, the 5th Div. noted:
“Respondent Buenaventura filed his Comment
contending that petitioner’s motion for
consolidation, to the effect that this case is at a far
an advanced stage was already ripe for resolution,
is correct. On July 11 2003, respondents Alberto
V. Reyes and Tomas Aure prayed that this case be
consolidated with CA-G.R. SP No. 72234.
Respondents Juan de Zuniga, Jr., Ma. Dolores B.
Yuvienco and Candon B. Guerrero on July 22
2003 defer to the Honorable Court's sound
discretion in resolving petitioner’s motion to
consolidate…”
28 August (Respondents) Reyes and Aure filed their Motion to
2003 Admit Supplemental Memorandum “in view of the
Decision of the…Fifth Division dated 13 August
2003 in CA G.R. No. SP-72270.”
12 September (Petitioner) Borlongan filed his Comment on Reyes
2003 and Aure’s Motion and Supplemental
Memorandum, attaching a copy of the Decision by
the 5th Div.
18 September The 17th Div. rendered its Decision, reversing and
2003 setting-aside the Ombudsman’s order.
Justice Mario Guariña penned the decision, despite
the very short period of time and despite the 300
cases deemed submitted for decision but pending
before him earlier than the herein case.
10 October (Petitioner) Borlongan filed his Motion for
2003 Reconsideration of the Decision.
5 November The 17th Div. issued its resolution, directing
2003 (respondents) Reyes et al. to comment, within 10
days from notice, on the Motion for
Reconsideration. Yuvienco and Guerrero filed two
motions for extension of time praying for a total
additional period of 10 days within which to file
their Comment.
10 December (Respondents) Yuvienco and Guerrero filed their
2003 Comment. On the part of Reyes and Aure, they
filed a Motion to Adopt the Comments of their co-
respondents.
15 December The 17th Div. received, by registered mail,
2003 respondents’ Comment on the motion for
reconsideration.
31
CA-G.R. SP No. 72234 CA-G.R. SP No. 72270
Date “Reyes et al., vs. Borlongan” “Borlongan vs. Buenaventura, et al.”
17 December The 17th Div. issued its resolution, denying the
2003 Motion for Reconsideration.
131. Finally, petitioner reiterates his Motion to Refer the Case to the Supreme Court en banc in view
of the issues raised in this case, to wit:
The case raises the constitutional issue of whether any law or interpretation thereof can curtail or place a
ten-day expiry to the constitutional requirement of public accountability.
The case raises a question of law and validity of Sec. 30 RA 7653 that imposes a ten-day period for the
bank’s majority stockholders to file a petition for certiorari, contrary to the Rules of Court.
The case raises a novel question of law whether the ten-day period for certiorari provided in Sec. 30, RA
7653 supersedes the prescription periods provided in the Revised Penal Code, RA 3019, RA 6713 and
RA7653 for violations thereof.
The case involves a doctrine or principle laid down by the Court’s Third Division in G.R. No. 159605 that
may be modified or reversed.
PRAYER
WHEREFORE, it is respectfully prayed of this Honorable Office that the Decision of the Court of
Appeals dated 18 September 2003 and Resolution dated 17 December 2003 in CA G.R. SP No. 72234 be SET
ASIDE and REVERSED; and in lieu thereof, judgment be rendered, as follows:
1. Finding respondents Alberto V. Reyes, Dolores B. Yuvienco, Candon B. Guerrero and Tomas S. Aure
guilty of GROSS NEGLECT OF DUTY, SERIOUS MISCONDUCT AND OTHER VIOLATIONS,
under Section 4, RA No. 7613 and Section 16, R.A. No. 7653; and,
2. Imposing the maximum penalty provided under Section 25, RA No. 6770 upon all of respondents.
Other remedies just and equitable under the circumstances are likewise prayed for.
Pasig City for City of Manila, 14 May 2004.
CHATO & ELEAZAR
Counsel for Teodoro C. Borlongan
8/F Strata 2000, Emerald Avenue
Ortigas Center, Pasig City
By:
WILFREDO M. CHATO
PTR No. 0395664/01-05-04/Pasig City
IBP No. 602540/12-30-03/Makati City
Roll No. 21487
PETER PAUL S. ROMERO
PTR No. 0395668/01-05-04/Pasig City
IBP No. 602537/12-30-03/Quezon City
Roll No. 43115
32
VERIFICATION
I, TEODORO C. BORLONGAN, of legal age, with postal address at No. 1 Sparrow Street, Greenmeadows 1,
Quezon City, after being duly sworn in accordance with law, hereby depose and say that:
I am the petitioner in the above-entitled case. As such, I caused the preparation of the foregoing Reply, the
contents of which I have read and attest to be true based on my own knowledge and belief.
IN WITNESS WHEREOF, I have hereunto set my hand this May 17 2004 at Pasig City.
TEODORO C. BORLONGAN
SUBSCRIBED AND SWORN to before me this May 17 2004 at Pasig City, Affiant exhibiting to me his
Community Tax Certificate No. 13879381 issued on January 17, 2004 at Quezon City.
Copy furnished:
Hon. HILARIO G. DAVIDE, JR.
Chief Justice
Supreme Court
Padre Faura Street, Ermita
Manila
YNGSON & ASSOCIATES
Counsel for respondents Reyes and Aure
7/F Strata 2000, Emerald Avenue
Ortigas Center, Pasig City
ONGKIKO KALAW MANHIT & ACORDA
Counsel for respondents Yuvienco and Guerrero
4/F Cacho-Gonzalez Building
101 Aguirre Street, Legaspi Village
Makati City
OFFICE OF THE OMBUDSMAN
Agham Road, Diliman, Quezon City
COURT OF APPEALS
Manila
(CA-G.R. SP No. 72234)
