CB Vs CA
CB Vs CA
CB Vs CA
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G.R. No. 76118. March 30, 1993.
Central Bank Act; Section 29, R.A 265; The Central Bank through
Monetary Board is vested exclusive authority to assess, evaluate and
determine condition of any bank; Effects.—Under Sec. 29 of R.A. 265, the
Central Bank, through the Monetary Board, is vested with exclusive
authority to assess, evaluate and determine the condition of any bank, and
finding such condition to be one of insolvency, or that its continuance in
business would involve probable loss to its depositors or creditors, forbid
the bank or non-bank financial institution to do
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* EN BANC.
537
the case. Plainly, the legislature could not have intended to authorize "no
prior notice and hearing" in the closure of the bank and at the same time
allow a suit to annul it on the basis of absence thereof.
Same; Same; Same; Same; Judicial review allowed to determine the
presence of arbitrariness and bad faith in placing bank under receivership.
—Admittedly, the mere filing of a case for receivership by the Central Bank
can trigger a bank run. x x x The procedure prescribed in Sec. 29 is truly
designed to protect the interest of all concerned, x x x and the summary
closure pales in comparison to the protection afforded public interest. At any
rate, the bank is given full opportunity to prove arbitrariness and bad faith
in placing the bank under receivership, in which event, the resolution may
be properly nullified and the receivership lifted as the trial court may
determine.
Same; Same; Same; Same; Conditions prerequisite to action of
Monetary Board placing bank under receivership; Reiterated.—Once again
We refer to Rural Bank of Buhi, Inc. v. Court of Appeals, and reiterate Our
pronouncement therein that—"x x x the law is explicit as to the conditions
prerequisite to the action of the Monetary Board to forbid the institution to
do business in the Philippines and to appoint a receiver to immediately take
charge of the bank's assets and liabilities. They are: (a) an examination made
by the examining department of the Central Bank; (b) report by said
department to the Monetary Board; and (c) prima facie showing that its
continuance in business would involve probable loss to its depositors or
creditors."
Same; Same; Same; Same; Absence of prior notice of hearing as valid
exercise of the police power of the State, not constitutive of acts of
arbitrariness and bad faith.—ln sum, appeal to procedural due process
cannot just outweigh the evil sought to be prevented; hence, We rule that
Sec. 29 of R.A. 265 is a sound legislation promulgated in accor-
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dance with the Constitution in the exercise of police power of the state.
Consequently, the absence of notice and hearing is not a valid ground to
annul a Monetary Board resolution placing a bank under receivership. The
absence of prior notice and hearing cannot be deemed acts of arbitrariness
and bad faith. Thus, an MB resolution placing a bank under receivership, or
conservatorship for that matter, may only be annulled after a determination
has been made by the trial court that its issuance was tainted with
arbitrariness and bad faith. Until such determination is made, the status quo
shall be maintained, i.e., the bank shall continue to be under receivership.
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BELLOSILLO, J.:
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540
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6 Triumph Savings Bank vs. Hon. Jose de Guzman, G.R. No. 71465.
7 Rollo, pp. 30-31.
8 Brief for Petitioners, p. 4; Rollo, p. 70.
9 Central Bank of the Philippines vs. Hon. Jose de Guzman, CA G.R. SP No. 07867, penned
by Melo, J., concurred in by De Pano, Jr., and Chua, JJ.; Rollo pp. 29-34.
541
under the receivership of the officials of the Central Bank was done without
prior hearing, that is, without first hearing the side of the bank. They further
admit that said resolution can be the subject of judicial review and may be
set aside should it be found that the same was issued with arbitrariness and
in bad faith.
"The charge of lack of due process in the complaint may be taken as
constitutive of allegations of arbitrariness and bad faith. This is not of
course to be taken as meaning that there must be previous hearing before the
Monetary Board may exercise its powers under Section 29 of its Charter.
Rather, judicial review of such action not being foreclosed, it would be best
should private respondent be given the chance to show and prove
arbitrariness and bad faith in the issuance of the questioned resolution,
especially so in the light of the statement of private respondent that neither
the bank itself nor its officials were even informed of any charge of
violating banking laws.
"In regard to lack of capacity to sue on the part of Triumph Savings
Bank, we view such argument as being specious, for if we get the drift of
petitioners' argument, they mean to convey the impression that only the CB
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The respondents, on 12
the other hand, allege inter alia that in the
Banco Filipino case, We held that CB violated the rule on
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administrative due process laid down in Ang Tibay vs. CIR (69 Phil.
635) and Eastern Telecom Corp. vs. Dans, Jr. (137 SCRA 628)
which requires that prior notice and hearing be afforded to all parties
in administrative proceedings. Since MB Resolution No. 596 was
adopted without TSB being previously notified and heard, according
to respondents, the same is void for want of due process;
consequently, the bank's management should be restored to its board
13
of directors and officers.
Petitioners claim that it is the essence of Sec. 29 of R.A. 265 that
prior notice and hearing in cases involving bank closures should not
be required since in all probability a hearing would not only cause
unnecessary delay but also provide bank "insiders" and stockholders
the opportunity to further dissipate the bank's resources, create
liabilities for the bank up to the insured amount of P40,000.00, and
even destroy evidence of fraud or irregularity in the bank's 14
operations to the prejudice of its depositors and creditors.
Petitioners further argue that the legislative intent of Sec. 29 is to
repose in the Monetary Board exclusive
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11 Id., p. 7-8.
12 Banco Filipino Savings and Mortgage Bank vs. Monetary Board, Central Bank,
G.R. No. 70054, and companion cases, G.R. Nos. 68878, 77255-58, 78766, 78767,
78894, 81303, 81304 and 90473, 11 December 1991, 204 SCRA 767.
13 Rollo, pp. 54-56.
14 Rollo, p. 70.
543
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544
was then in effect at the time the action was commenced, allows the
filing of a case to set aside the actions of the Monetary Board which
are tainted with arbitrariness and bad faith.
Contrary to the notion of private respondent, Sec. 29 does not
contemplate prior notice and hearing before a bank may be directed
to stop operations and placed under receivership. When par. 4 (now
par. 5, as amended by E.O. 289) provides for the filing of a case
within ten (10) days after the receiver takes charge of the assets of
the bank, it is unmistakable that the assailed actions should precede
the filing of the case. Plainly, the legislature could not have intended
to authorize "no prior notice and hearing" in the closure of the bank
and at the same time allow a suit to annul it on the basis of absence
thereof.
17
In the early case of Rural Bank of Lucena, Inc. v. Arca [1965],
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second paragraph of Section 34 of this Act shall be final and executory, and can be
set aside by the court only if there is convincing proof that the action is plainly
arbitrary and made in bad faith; Provided, That the same is raised in an appropriate
pleading filed before the proper court within a period of ten (10) days from the date
the conservator or receiver takes charge of the assets and liabilities of the bank or
nonbank financial intermediary performing quasi-judicial functions or, in case of
liquidation, within ten (10) days from receipt of notice by the said bank or non-bank
financial intermediary of the order of its liquidation. No restraining order or
injunction shall be issued by the court enjoining the Central Bank from implementing
its actions under this Section and the second paragraph of Section 34 of this Act,
unless there is convincing proof that the action of the Monetary Board is plainly
arbitrary and made in bad faith and the petitioner or plaintiff files with the clerk or
judge of the court in which the action is pending a bond executed in favor of the
Central Bank, in an amount to be fixed by the court. The restraining order or
injunction shall be refused or, if granted shall be dissolved upon filing by the Central
Bank of a bond, which shall be in the form of cash or Central Bank cashier's check, in
an amount twice the amount of the bond of the petitioner or plaintiff conditioned that
it will pay the damages which the petitioner or plaintiff may suffer by the refusal or
the dissolution of the injunction. The provisions of Rule 58 of the New Rules of Court
insofar as they are applicable and not inconsistent with the provisions of this Section
shall govern, the issuance and dissolution of the restraining order or injunction
contemplated in this Section."
17 G.R. No. L-21146, 29 September 1965, 15 SCRA 67, 72 and 74,
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"x x x due process does not necessarily require a prior hearing; a hearing or
an opportunity to be heard may be subsequent to the closure.
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citing Sec. 29, R.A. 265; 12 Am. Jur. 305, Sec. 611; Bourjois vs. Chapman, 301 U.S. 183,
81 Law Ed. 1027, 1032; American Surety Co. vs. Baldwin, 77 Law Ed. 231, 86 ALR 307;
Wilson vs. Standefer, 46 Law Ed. 612.
18 Banco Filipino Savings and Mortgage Bank v. Monetary Board, Central Bank, and
companion cases, supra, p. 798, citing Rural Bank of Bato vs. IAC, G.R. No. 65642, 15
October 1984, Rural Bank vs. Court of Appeals, G.R. 61689, 20 June 1988, 162 SCRA 288.
19 G.R. No. 61689, 20 June 1988, 162 SCRA 288, 302.
546
One can just imagine the dire consequences of a prior hearing: bank runs
would be the order of the day, resulting in panic and hysteria. In the process,
fortunes may be wiped out and disillusionment will run the gamut of the
entire banking community."
20
We stressed in Central Bank of the Philippines v. Court of Appeals
that—
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'x x x x [u]nless adequate and determined efforts are taken by the government
against distressed and mismanaged banks, public faith in the banking system is
certain to deteriorate to the prejudice of the national economy itself, not to mention
the losses
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20 G.R. Nos. 88353 and 92943, 8 May 1992, 208 SCRA 652, 684, 685.
547
suffered by the bank depositors, creditors, and stockholders, who all deserve the
protection of the government. The government cannot simply cross its arms while
the assets of a bank are being depleted through mismanagement or irregularities. It is
the duty of the Central Bank in such an event to step in and salvage the remaining
resources of the bank so that they may not continue to be dissipated or plundered by
those entrusted with their management.'"
closure of the bank was arbitrary and attendant with grave abuse of
discretion, not because of the absence of prior notice and hearing,
but that the Monetary Board had no sufficient basis to arrive at a
sound conclusion of insolvency to justify the closure. In other
words, the arbitrariness, bad faith and abuse of discretion were
determined only after the bank was placed under conservatorship
and evidence thereon was received by the trial court. As this Court
found in that case, the Valenzuela, Aurellano and Tiaoqui Reports
contained unfounded assumptions and deductions which did not
reflect the true financial condition of the bank. For instance, the
subtraction of an uncertain amount as valuation reserve from the
assets of the bank
548
would merely result in its net worth or the unimpaired capital and
surplus; it did not reflect the total financial condition of Banco
Filipino.
Furthermore, the same reports showed that the total assets of
Banco Filipino far exceeded its total liabilities. Consequently, on the
basis thereof, the Monetary Board had no valid reason to liquidate
the bank; perhaps it could have merely ordered its reorganization or
rehabilitation, if need be. Clearly, there was in that case a manifest
arbitrariness, abuse of discretion and bad faith in the closure of
Banco Filipino by the Monetary Board. But, this is not the case
before Us. For here, what is being raised as arbitrary by private
respondent is the denial of prior notice and hearing by the Monetary
Board, a matter long settled in this jurisdiction, and not the
arbitrariness which the conclusions of the Supervision and
Examination Sector (SES), Department II, of the Central Bank were
reached.
Once again We refer to Rural Bank of Buhi, Inc. v. Court of
21
Appeals, and reiterate Our pronouncement therein that—
"x x x the law is explicit as to the conditions prerequisite to the action of the
Monetary Board to forbid the institution to do business in the Philippines
and to appoint a receiver to immediately take charge of the bank's assets and
liabilities. They are: (a) an examination made by the examining department
of the Central Bank; (b) report by said department to the Monetary Board;
and (c)prima facie showing that its continuance in business would involve
probable loss to its depositors or creditors."
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nation has been made by the trial court that its issuance was tainted
with arbitrariness and bad faith. Until such determination is made,
the status quo shall be maintained, i.e., the bank shall continue to be
under receivership.
As regards the second ground, to rule that only the receiver may
bring suit in behalf of the bank is, to echo the respondent appellate
court, "asking for the impossible, for it cannot be expected that the
master, the CB, will allow the receiver it has appointed to question
that very appointment." Consequently, only stockholders of a bank
could file an action for annulment of a Monetary Board resolution
placing the bank under 22
receivership and prohibiting it 23from
continuing operations. In Central Bank v. Court of Appeals, We
explained the purpose of the law—
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22 As amended by E.O. 289, then par. 4, now par. 5, reads: "x x x [T]he actions of
the Monetary Board under this Section x x x shall be final and executory, and can be
set aside by a court only if there is convincing proof, after hearing, that the action is
plainly arbitrary and made in bad faith; Provided, That the same is raised in an
appropriate pleading filed by the stockholders of record representing the majority of
the capital stock of the institution before the proper court within a period of ten (10)
days from the date the receiver takes charge of the assets and liabilities of the bank x
x x x"
23 Op. cit.
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