This case clarifies the extent of a receiver’s authority over a company’s assets during receivership. The Supreme Court ruled that when a company is under receivership, its officers lose the power to sell company assets, and the receiver’s authority is limited to administering those assets for the benefit of creditors. This means that any sale or disposition of assets requires more than just the receiver’s approval; it necessitates a higher level of authorization consistent with protecting creditor interests. This ruling highlights the restrictions placed on a company and its appointed receiver during financial distress, providing clarity on who can make decisions about company assets.

Can a Bank President Commit to a Sale While the Bank is Under Receivership?

Abacus Real Estate Development Center, Inc. sought to enforce an “exclusive option to purchase” land and a building from Manila Banking Corporation (Manila Bank), which had been granted by Manila Bank’s acting president, Vicente G. Puyat. However, Manila Bank was under receivership at the time the option was granted. Abacus argued that the receiver later ratified this agreement. The central question before the Supreme Court was whether Puyat had the authority to grant the option and, if not, whether the receiver’s alleged ratification could validate the agreement.

The Supreme Court emphasized the impact of receivership on a corporation’s authority. It cited the case of Villanueva vs. Court of Appeals, explaining that receivership suspends the authority of a bank’s officers over its property, vesting such authority in the receiver. This suspension prevents officers from “intermeddling with the property of the bank in any way.” Consequently, the Court found that Vicente G. Puyat, as acting president, lacked the authority to grant the exclusive option to purchase because Manila Bank was already under receivership.

Abacus contended that even if Puyat lacked initial authority, the receiver, Atty. Renan Santos, ratified the agreement. However, the Court rejected this argument, citing Section 29 of the Central Bank Act, which defines the receiver’s role. This section specifies that a receiver’s authority is limited to administering assets for the benefit of creditors, including collecting assets and bringing suits.

Sec. 29. Proceedings upon insolvency. – … 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 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 banking institution.

The Court drew a distinction between acts of administration and acts of ownership. Granting an “exclusive option to purchase” was classified as an act of strict ownership—a disposition of bank property. Since the receiver’s authority extended only to administrative actions, the supposed “approval” by Atty. Santos held no legal weight.

Furthermore, the Court referenced Section 30 of the New Central Bank Act, which reiterates the receiver’s administrative powers and explicitly restricts any actions that involve the transfer or disposition of assets, with the exception of administrative expenditures. Thus, neither Puyat nor Santos had the authority to bind Manila Bank to the exclusive option to purchase.

Finally, Abacus also claimed that Manila Bank’s appeal to the Court of Appeals was filed late, which would have nullified the appeal. The Court of Appeals determined, based on registry receipts and other documentation, that Manila Bank had indeed filed its Motion for Reconsideration on time. The Supreme Court stated that this determination was a factual matter beyond its power to review, deferring to the appellate court’s finding.

The Supreme Court denied Abacus’s petition, affirming the Court of Appeals’ decision. It reiterated that during receivership, bank officers lose authority to transact bank assets, and the receiver’s power is limited to administration, not disposition.

FAQs

What was the key issue in this case?	The key issue was whether the acting president of Manila Bank had the authority to grant an exclusive option to purchase bank property while the bank was under receivership.
What is receivership?	Receivership is a process where a receiver is appointed to manage a company’s assets and liabilities, typically when the company is facing financial difficulties. During receivership, the company’s officers’ authority over its assets is suspended.
What powers does a receiver have?	A receiver primarily has administrative powers to manage the assets for the benefit of the company’s creditors. This includes collecting assets, administering them, and bringing suits, but not disposing of the assets through sale or transfer.
Can a receiver ratify an agreement made by the company’s officers before receivership?	A receiver can only ratify agreements within the scope of their administrative powers. They cannot ratify agreements that involve the disposition of company assets unless explicitly authorized.
What happens to the authority of a company’s officers when it goes into receivership?	The authority of a company’s officers over its assets is suspended when the company goes into receivership. The receiver then takes control of managing the company’s assets and liabilities.
Why was the receiver’s alleged ratification not valid in this case?	The receiver’s ratification was not valid because granting an exclusive option to purchase is an act of disposition, which is beyond the receiver’s administrative powers as defined by the Central Bank Act.
What was the basis for the Court’s decision that the appeal was filed on time?	The Court of Appeals found, based on registry receipts and a manifestation filed by Manila Bank, that the Motion for Reconsideration had been filed on time, thus making the subsequent appeal also timely.
What is the significance of the distinction between acts of administration and acts of disposition?	The distinction is significant because it determines the scope of a receiver’s authority. Receivers are generally authorized to perform acts of administration but not acts of disposition, which involve transferring ownership or rights to company assets.

This case serves as a critical reminder of the limitations placed on both companies and their appointed receivers during times of financial distress. It highlights the importance of understanding the scope of authority granted to receivers and the restrictions imposed on corporate officers during receivership, affecting all parties involved in transactions with distressed entities.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Abacus Real Estate Development Center, Inc. vs. The Manila Banking Corporation, G.R. NO. 162270, April 06, 2005