Authority to Sell: Bank Receivership and Corporate Deals During Receivership

When a bank is placed under receivership, who has the authority to sell or dispose of its assets? This question is central to the Supreme Court's ruling in Abacus Real Estate Development Center, Inc. v. The Manila Banking Corporation (G.R. No. 162270, April 6, 2005), a case that clarifies the limits of a bank receiver's powers and the effect of receivership on corporate deals.

The case arose from a dispute over a 1,435-square meter property in Makati City owned by Manila Banking Corporation. The bank had started constructing a 14-storey building on the land but ran into financial difficulties. In 1987, the Central Bank ordered the closure of Manila Bank and placed it under receivership. A year later, the Central Bank ordered its liquidation and designated a receiver to take charge of its assets.

Despite the receivership, the bank's acting president, Vicente G. Puyat, continued to seek investors to complete the building's construction. In 1989, a group of investors, later forming Abacus Real Estate Development Center, Inc., offered to lease the building and advance the construction costs in exchange for an "exclusive option to purchase" the property for ₱150 million. Puyat accepted the offer.

When Abacus later sought to exercise the option, Manila Bank refused to honor it. Abacus filed a complaint for specific performance and damages. The trial court ruled in favor of Abacus, but the Court of Appeals reversed, holding that Puyat had no authority to grant the option because the bank was under receivership. The Supreme Court affirmed the appellate court's decision.

The case presented two main issues: whether Manila Bank's appeal was filed on time, and whether Abacus had acquired the right to purchase the property.

On the first issue, the Supreme Court declined to disturb the Court of Appeals' factual finding that the appeal was timely filed. The appellate court had found sufficient evidence—including registry receipts and a manifestation filed with the trial court—that the bank's motion for reconsideration was filed by registered mail on July 6, 1999, leaving two days remaining in the reglementary period to appeal. The Court noted that factual findings of lower courts are generally binding, absent compelling reasons to deviate.

On the substantive issue, the Court ruled that Puyat had no authority to grant the exclusive option to purchase. Citing Villanueva v. Court of Appeals, the Court explained that once a bank is placed under receivership, its assets pass beyond its control into the possession and control of the receiver. The appointment of a receiver operates to suspend the authority of the bank and its directors and officers over its property. Receivership, in this respect, is equivalent to an injunction restraining bank officers from intermeddling with the bank's property.

The Court further rejected Abacus's argument that the receiver, Atty. Renan Santos, had ratified the option during a lunch meeting. Under the Central Bank Act (R.A. No. 265, as amended), a receiver is empowered to take charge of a banking institution's assets and administer them for the benefit of its creditors. The Court emphasized that granting or approving an exclusive option to purchase is not an act of administration but an act of strict ownership, involving the disposition of property. A receiver, therefore, cannot validly approve such a transaction on his own.

The Court also cited the New Central Bank Act (R.A. No. 7653), which similarly provides that a receiver shall administer the institution's assets for the benefit of creditors but shall not commit any act that will involve the transfer or disposition of any asset of the institution. The exact statutory text of these provisions is not reproduced in the library consulted for this article, but the Court's interpretation of these laws is clear: a bank receiver's powers are limited to administration, not disposition.

Because neither Puyat nor the receiver had authority to grant or approve the option, the Court held that the exclusive option to purchase was unenforceable against Manila Bank. Abacus could not compel the bank to sell the property.

Practical takeaways

• Once a bank is placed under receivership, its directors and officers lose authority over the bank's assets. Any deal they make involving those assets is unenforceable against the bank.
• A bank receiver's powers are limited to administration—collecting and managing assets for the benefit of creditors. A receiver cannot sell, transfer, or dispose of bank assets without proper authority.
• Contracts entered into without authority may be ratified by the proper party, but in this case, even the receiver's alleged approval was ineffective because it exceeded the receiver's statutory powers.
• For anyone dealing with a bank under receivership, verify who has actual authority to act on the bank's behalf before entering into any transaction involving its assets.
• Factual findings of the Court of Appeals on procedural matters, such as the timeliness of appeals, are generally given great weight and will not be disturbed absent compelling reasons.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.