Central Bank Act Case Digests
Central Bank Act Case Digests
Facts:
In the instant case, the original complaint was filed more than 3 years after PBP
was placed under conservator, long after the expiration of the 10-day period
deferred to above. It is also beyond question that the complaint and the
amended complaint were not initiated by the stockholders of record
representing the majority of the capital stock.
Spouses Lipana v. DBP, G.R. No. 73884, Sept 24, 1987
After the Monetary Board has declared that a bank is insolvent and
has ordered it to cease operations, the Board becomes the trustee of
its assets for the equal benefit of all the creditors, including
depositors. To execute the judgment would unduly deplete the assets
of respondent bank to the obvious prejudice of other depositors and
creditors.
Facts:
Petitioners opened and maintained both time and savings deposits with the
respondent Development Bank of Rizal. When some of the time deposit
certificates matured, petitioners were not able to cash them but instead were
issued a managers check which was dishonored upon presentment. Demands
for the payment of both time and savings deposits have failed. Hence,
petitioners filed with the RTC a collection suit with prayer for issuance of a writ
of preliminary attachment which was granted by the court. The RTC rendered
judgment in favor of petitioners. Meanwhile, the Monetary Board placed the
respondent bank under receivership. Subsequently, the motion for execution
pending appeal filed by petitioners was granted by the court but was also
stayed by the trial judge. The motion filed by petitioners to lift the stay order
having been denied, this petition was filed.
Issue:
Whether or not respondent judge could legally stay execution of
judgment that has already become final and executor
(2) Said pleading must be filed within ten (10) days from receipt of notice by
said majority stockholders of the order placing the bank under conservatorship;
and
Held:
Issue: Whether or not the trial court erred in not dismissing the case for lack
of cause of action and declaring the MB resolutions as arbitrary.
Held:
(3) There must be convincing proof, after hearing, that the action is plainly
arbitrary and made in bad faith.
In the instant case, the stay of the execution of judgment is warranted by the
fact that respondent bank was placed under receivership. To execute the
judgment would unduly deplete the assets of respondent bank to the obvious
prejudice of other depositors and creditors, since, as aptly stated in Central
Bank of the Philippines vs. Morfe (63 SCRA 114), after the Monetary Board has
declared that a bank is insolvent and has ordered it to cease operations, the
Board becomes the trustee of its assets for the equal benefit of all the
creditors, including depositors. The assets of the insolvent banking institution
are held in trust for the equal benefit of all creditors, and after its insolvency,
one cannot obtain an advantage or a preference over another by an
attachment, execution or otherwise.
After the Monetary Board has declared that a bank is insolvent and has ordered
it to cease operations, the Board becomes the trustee of its assets for the equal
benefit of all the creditors, including depositors. The assets of the insolvent
banking institution are held in trust for the equal benefit of all creditors, and
after its insolvency, one cannot obtain an advantage or a preference over
another by an attachment, execution or otherwise. To execute the judgment
would unduly deplete the assets of respondent bank to the obvious prejudice of
other depositors and creditors.
G.R. No. 191424 : August 7, 2013
ALFEO D. VIVAS, ON HIS BEHALF AND ON BEHALF OF THE
SHAREHOLDERS OF EUROCREDIT COMMUNITY BANK,Petitioner v.THE
MONETARY BOARD OF THE BANGKO SENTRAL NG PILIPINAS AND THE
PHILIPPINE DEPOSIT INSURANCE CORPORATION,Respondents.
MENDOZA, J.:
FACTS:
The Rural Bank of Faire, Incorporated (RBFI) was a duly registered rural banking
institution with principal office in Centro Sur, Sto. Ni, Cagayan. Record shows
that the corporate life of RBFI expired on May 31, 2005. Notwithstanding,
petitioner Alfeo D. Vivas (Vivas) and his principals acquired the controlling
interest in RBFI sometime in January 2006. At the initiative of Vivas and the
new management team, an internal audit was conducted on RBFI and results
thereof highlighted the dismal operation of the rural bank. In view of those
findings, certain measures calculated to revitalize the bank were allegedly
introduced.On December 8, 2006, the Bangko Sentral ng Pilipinas (BSP) issued
the Certificate of Authority extending the corporate life of RBFI for another fifty
(50) years. The BSP also approved the change of its corporate name to
EuroCredit Community Bank, Incorporated, as well as the increase in the
number of the members of its BOD, from five (5) to eleven (11).
Pursuant to Section 28 of Republic Act (R.A.) No. 7653, otherwise known as The
New Central Bank Act, the Integrated Supervision Department II (ISD II) of the
BSP conducted a general examination on ECBI with the cut-off date of
December 31, 2007. Shortly after the completion of the general examination,
an exit conference was held on March 27, 2008 at the BSP during which the
BSP officials and examiners apprised Vivas, the Chairman and President of
ECBI, as well as the other bank officers and members of its BOD, of the
advance findings noted during the said examination. The ECBI submitted its
comments on BSPs consolidated findings and risk asset classification through a
letter, dated April 8, 2008.
Sometime in April 2008, the examiners from the Department of Loans and
Credit of the BSP arrived at the ECBI and cancelled the rediscounting line of the
bank. Vivas appealed the cancellation to BSP.Thereafter, the Monetary Board
(MB) issued Resolution No. 1255, dated September 25, 2008, placing ECBI
under Prompt Corrective Action (PCA) framework because of the following
serious findings and supervisory concerns noted during the general
examination : 1] negative capital of 14.674 million and capital adequacy ratio
of negative 18.42%; 2] CAMEL (Capital Asset Management Earnings Liquidity)
composite rating of "2" with a Management component rating of "1"; and 3]
serious supervisory concerns particularly on activities deemed unsafe or
unsound.Vivas claimed that the BSP took the above courses of action due to
the joint influence exerted by a certain hostile shareholder and a former BSP
examiner.
Through its letter, dated September 30, 2008, the BSP furnished ECBI with a
copy of the Report of Examination (ROE) as of December 31, 2007. In addition,
the BSP directed the banks BOD and senior management to : 1] infuse fresh
capital of 22.643 million; 2] book the amount of 28.563 million representing
unbooked valuation reserves on classified loans and other risks assets on or
before October 31, 2008; and 3] take appropriate action necessary to address
the violations/exceptions noted in the examination.
Vivas moved for a reconsideration of Resolution No. 1255 on the grounds of
non-observance of due process and arbitrariness. The ISD II, on several
instances, had invited the BOD of ECBI to discuss matters pertaining to the
placement of the bank under PCA framework and other supervisory concerns
before making the appropriate recommendations to the MB. The proposed
meeting, however, did not materialize due to postponements sought by Vivas.
In its letter, dated February 20, 2009, the BSP directed ECBI to explain why it
transferred the majority shares of RBFI without securing the prior approval of
the MB in apparent violation of Subsection X126.2 of the Manual of Regulation
for Banks (MORB).Still in another letter,dated March 31, 2009, the ISD II
required ECBI to explain why it did not obtain the prior approval of the BSP
anent the establishment and operation of the banks sub-offices.
Also, the scheduled March 31, 2009 general examination of the books, records
and general condition of ECBI with the cut-off date of December 31, 2008, did
not push through. According to Vivas, ECBI asked for the deferment of the
examination pending resolution of its appeal before the MB. Vivas believed that
he was being treated unfairly because the letter of authority to examine
allegedly contained a clause which pertained to the Anti-Money Laundering
Law and the Bank Secrecy Act.
The MB, on the other hand, posited that ECBI unjustly refused to allow the BSP
examiners from examining and inspecting its books and records, in violation of
Sections 25 and 34 of R.A. No. 7653. In its letter, dated May 8, 2009, the BSP
informed ECBI that it was already due for another annual examination and that
the pendency of its appeal before the MB would not prevent the BSP from
conducting another one as mandated by Section 28 of R.A. No. 7653.
In view of ECBIs refusal to comply with the required examination, the MB issued
Resolution No. 726,dated May 14, 2009, imposing monetary penalty/fine on
ECBI, and referred the matter to the Office of the Special Investigation (OSI) for
the filing of appropriate legal action. The BSP also wrote a letter,dated May 26,
2009, advising ECBI to comply with MB Resolution No. 771, which essentially
required the bank to follow its directives.
Thereafter, the MB issued Resolution No. 823,dated June 4, 2009, approving the
issuance of a cease and desist order against ECBI, which enjoined it from
pursuing certain acts and transactions that were considered unsafe or unsound
banking practices, and from doing such other acts or transactions constituting
fraud or might result in the dissipation of its assets.
On June 10, 2009, the OSI filed with the Department of Justice (DOJ) a
complaint for Estafa Through Falsification of Commercial Documents against
certain officials and employees of ECBI. Meanwhile, the MB issued Resolution
No. 1164,dated August 13, 2009, denying the appeal of ECBI from Resolution
No. 1255 which placed it under PCA framework. On November 18, 2009, the
general examination of the books and records of ECBI with the cut-off date of
September 30, 2009, was commenced and ended in December 2009. Later, the
BSP officials and examiners met with the representatives of ECBI, including
Vivas, and discussed their findings.On December 7, 2009, the ISD II reminded
ECBI of the non-submission of its financial audit reports for the years 2007 and
2008 with a warning that failure to submit those reports and the written
explanation for such omission shall result in the imposition of a monetary
penalty.In a letter, dated February 1, 2010, the ISD II informed ECBI of MB
Resolution No. 1548 which denied its request for reconsideration of Resolution
No. 726.
On March 4, 2010, the MB issued Resolution No. 276placing ECBI under
receivership in accordance with the recommendation of the ISD II.
Assailing MB Resolution No. 276, Vivas filed this petition for prohibition before
this Court.
ISSUE:
Whether or not there was grave abuse of discretion to the MB for prohibiting
ECBI from continuing its banking business and for placing it under receivership?
HELD:
To begin with, Vivas availed of the wrong remedy. The MB issued Resolution No.
276, dated March 4, 2010, in the exercise of its power under R.A. No. 7653.
Under Section 30 thereof, any act of the MB placing a bank under
conservatorship, receivership or liquidation may not be restrained or set aside
except on a petition for certiorari. Pertinent portions of R.A. 7653 read.
Section 30.
The actions of the Monetary Board taken under this section or under Section 29
of this Act shall be final and executory, and may not be restrained or set aside
by the court except on petition for certiorari on the ground that the action
taken was in excess of jurisdiction or with such grave abuse of discretion as to
amount to lack or excess of jurisdiction. The petition for certiorari may only be
filed by the stockholders of record representing the majority of the capital stock
within ten (10) days from receipt by the board of directors of the institution of
the order directing receivership, liquidation or conservatorship.
REMEDIAL LAW
Granting that a petition for prohibition is allowed, it is already an ineffective
remedy under the circumstances obtaining. Prohibition or a "writ of prohibition"
is that process by which a superior court prevents inferior courts, tribunals,
officers, or persons from usurping or exercising a jurisdiction with which they
have not been vested by law, and confines them to the exercise of those
powers legally conferred. Its office is to restrain subordinate courts, tribunals or
persons from exercising jurisdiction over matters not within its cognizance or
exceeding its jurisdiction in matters of which it has cognizance.In our
jurisdiction, the rule on prohibition is enshrined in Section 2, Rule 65 of the
Rules on Civil Procedure, to wit.
Sec. 2. Petition for prohibition - When the proceedings of any tribunal,
corporation, board, officer or person, whether exercising judicial, quasi-judicial
or ministerial functions, are without or in excess of its or his jurisdiction, or with
grave abuse of discretion amounting to lack or excess of jurisdiction, and there
is no appeal or any other plain, speedy, and adequate remedy in the ordinary
course of law, a person aggrieved thereby may file a verified petition in the
proper court, alleging the facts with certainty and praying that the judgment be
rendered commanding the respondent to desist from further proceedings in the
action or matter specified therein, or otherwise granting such incidental reliefs
as the law and justice require.
Indeed, prohibition is a preventive remedy seeking that a judgment be
rendered which would direct the defendant to desist from continuing with the
commission of an act perceived to be illegal.As a rule, the proper function of a
writ of prohibition is to prevent the doing of an act which is about to be done. It
is not intended to provide a remedy for acts already accomplished.
Though couched in imprecise terms, this petition for prohibition apparently
seeks to prevent the acts of closing of ECBI and placing it under receivership.
Resolution No. 276, however, had already been issued by the MB and the
closure of ECBI and its placement under receivership by the PDIC were already
accomplished. Apparently, the remedy of prohibition is no longer appropriate.
Settled is the rule that prohibition does not lie to restrain an act that is already
a fait accompli.
REMEDIAL LAW
Even if treated as a petition for certiorari, the petition should have been filed
with the CA. Section 4 of Rule 65 reads.
Vivas insists that the circumstances of the case warrant the application of
Section 11 of R.A. No. 7353, which provides.
Section 4. When and where petition filed. The petition shall be filed not later
than sixty (60) days from notice of the judgment, order or resolution. In case a
motion for reconsideration or new trial is timely filed, whether such motion is
required or not, the sixty (60) day period shall be counted from notice of the
denial of said motion.
Sec. 11. The power to supervise the operation of any rural bank by the
Monetary Board as herein indicated shall consist in placing limits to the
maximum credit allowed to any individual borrower; in prescribing the interest
rate, in determining the loan period and loan procedures, in indicating the
manner in which technical assistance shall be extended to rural banks, in
imposing a uniform accounting system and manner of keeping the accounts
and records of rural banks; in instituting periodic surveys of loan and lending
procedures, audits, test-check of cash and other transactions of the rural
banks; in conducting training courses for personnel of rural banks; and, in
general, in supervising the business operations of the rural banks.
The petition shall be filed in the Supreme Court or, if it relates to the acts or
omissions of a lower court or of a corporation, board, officer or person, in the
Regional Trial Court exercising jurisdiction over the territorial area as defined by
the Supreme Court. It may also be filed in the Court of Appeals whether or not
the same is in aid of its appellate jurisdiction, or in the Sandiganbayan if it is in
aid of its appellate jurisdiction. If it involves the acts or omissions of a quasijudicial agency, unless otherwise provided by law or these Rules, the petition
shall be filed in and cognizable only by the Court of Appeals.
That the MB is a quasi-judicial agency was already settled and reiterated in the
case of Bank of Commerce v. Planters Development Bank And Bangko Sentral
Ng Pilipinas.
REMEDIAL LAW
Even in the absence of such provision, the petition is also dismissible because
it simply ignored the doctrine of hierarchy of courts. True, the Court, the CA and
the RTC have original concurrent jurisdiction to issue writs of certiorari,
prohibition and mandamus. The concurrence of jurisdiction, however, does not
grant the party seeking any of the extraordinary writs the absolute freedom to
file a petition in any court of his choice. The petitioner has not advanced any
special or important reason which would allow a direct resort to this Court.
Under the Rules of Court, a party may directly appeal to this Court only on pure
questions of law.In the case at bench, there are certainly factual issues as Vivas
is questioning the findings of the investigating team.
Strict observance of the policy of judicial hierarchy demands that where the
issuance of the extraordinary writs is also within the competence of the CA or
the RTC, the special action for the obtainment of such writ must be presented
to either court. As a rule, the Court will not entertain direct resort to it unless
the redress desired cannot be obtained in the appropriate lower courts; or
where exceptional and compelling circumstances, such as cases of national
interest and with serious implications, justify the availment of the extraordinary
remedy of writ of certiorari, prohibition, or mandamus calling for the exercise of
its primary jurisdiction.The judicial policy must be observed to prevent an
imposition on the precious time and attention of the Court.
REMEDIAL LAW : quasi judicial power of the monetary board
In any event, no grave abuse of discretion can be attributed to the MB for the
issuance of the assailed Resolution No. 276.
The Central Bank shall have the power to enforce the laws, orders, instructions,
rules and regulations promulgated by the Monetary Board, applicable to rural
banks; to require rural banks, their directors, officers and agents to conduct
and manage the affairs of the rural banks in a lawful and orderly manner; and,
upon proof that the rural bank or its Board of Directors, or officers are
conducting and managing the affairs of the bank in a manner contrary to laws,
orders, instructions, rules and regulations promulgated by the Monetary Board
or in a manner substantially prejudicial to the interest of the Government,
depositors or creditors, to take over the management of such bank when
specifically authorized to do so by the Monetary Board after due hearing
process until a new board of directors and officers are elected and qualified
without prejudice to the prosecution of the persons responsible for such
violations under the provisions of Sections 32, 33 and 34 of Republic Act No.
265, as amended.
The thrust of Vivas argument is that ECBI did not commit any financial fraud
and, hence, its placement under receivership was unwarranted and improper.
He asserts that, instead, the BSP should have taken over the management of
ECBI and extended loans to the financially distrained bank pursuant to Sections
11 and 14 of R.A. No. 7353 because the BSPs power is limited only to
supervision and management take-over of banks, and not receivership.
Vivas argues that implementation of the questioned resolution was tainted with
arbitrariness and bad faith, stressing that ECBI was placed under receivership
without due and prior hearing, invoking Section 11 of R.A. No. 7353 which
states that the BSP may take over the management of a rural bank after due
hearing.He adds that because R.A. No. 7353 is a special law, the same should
prevail over R.A. No. 7653 which is a general law.
The Court has taken this into account, but it appears from all over the records
that ECBI was given every opportunity to be heard and improve on its financial
standing. The records disclose that BSP officials and examiners met with the
representatives of ECBI, including Vivas, and discussed their findings.There
were also reminders that ECBI submit its financial audit reports for the years
2007 and 2008 with a warning that failure to submit them and a written
explanation of such omission shall result in the imposition of a monetary
penalty.More importantly, ECBI was heard on its motion for reconsideration. For
failure of ECBI to comply, the MB came out with Resolution No. 1548 denying
its request for reconsideration of Resolution No. 726. Having been heard on its
motion for reconsideration, ECBI cannot claim that it was deprived of its right
under the Rural Bank Act.
POLITICAL LAW
At any rate, if circumstances warrant it, the MB may forbid a bank from doing
business and place it under receivership without prior notice and hearing.
Section 30 of R.A. No. 7653 provides, viz.
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 wilfully violated a cease and desist order under Section 37
that has become final, involving acts or transactions which amount to
fraud or a dissipation of the assets of the institution; in which cases,
the Monetary Board may summarily and without need for prior
hearing forbid the institution from doing business in the Philippines
and designate the Philippine Deposit Insurance Corporation as
receiver of the banking institution.
Accordingly, there is no conflict which would call for the application of the
doctrine that a special law should prevail over a general law. It must be
emphasized that R.A .No. 7653 is a later law and under said act, the power of
the MB over banks, including rural banks, was increased and expanded. The
Court, in several cases, upheld the power of the MB to take over banks without
need for prior hearing. It is not necessary inasmuch as the law entrusts to the
MB the appreciation and determination of whether any or all of the statutory
grounds for the closure and receivership of the erring bank are present. The
MB, under R.A. No. 7653, has been invested with more power of closure and
placement of a bank under receivership for insolvency or illiquidity, or because
the banks continuance in business would probably result in the loss to
depositors or creditors. In the case of Bangko Sentral Ng Pilipinas Monetary
Board v. Hon. Antonio-Valenzuela,the Court reiterated the doctrine of "close
now, hear later," stating that it was justified as a measure for the protection of
the public interest. Thus.
The "close now, hear later" doctrine has already been justified as a measure for
the protection of the public interest. Swift action is called for on the part of the
BSP when it finds that a bank is in dire straits. Unless 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 suffered by
the bank depositors, creditors, and stockholders, who all deserve the protection
of the government.
In Rural Bank of Buhi, Inc. v. Court of Appeals,the Court also wrote that due process does not necessarily require a prior hearing; a hearing or an
opportunity to be heard may be subsequent to the closure. 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.
The doctrine is founded on practical and legal considerations to obviate
unwarranted dissipation of the banks assets and as a valid exercise of police
power to protect the depositors, creditors, stockholders, and the general
public.Swift, adequate and determined actions must be taken against
financially distressed and mismanaged banks by government agencies lest the
public faith in the banking system deteriorate to the prejudice of the national
economy.
Accordingly, the MB can immediately implement its resolution prohibiting a
banking institution to do business in the Philippines and, thereafter, appoint the
PDIC as receiver. The procedure for the involuntary closure of a bank is
summary and expeditious in nature. Such action of the MB shall be final and
executory, but may be later subjected to a judicial scrutiny via a petition for
certiorari to be filed by the stockholders of record of the bank representing a
majority of the capital stock. Obviously, this procedure is designed to protect
the interest of all concerned, that is, the depositors, creditors and stockholders,
the bank itself and the general public. The protection afforded public interest
warrants the exercise of a summary closure.
In the case at bench, the ISD II submitted its memorandum, dated February 17,
2010, containing the findings noted during the general examination conducted
on ECBI with the cut-off date of September 30, 2009. The memorandum
underscored the inability of ECBI to pay its liabilities as they would fall due in
the usual course of its business, its liabilities being in excess of the assets held.
Also, it was noted that ECBIs continued banking operation would most probably
result in the incurrence of additional losses to the prejudice of its depositors
and creditors. On top of these, it was found that ECBI had willfully violated the
cease-and-desist order of the MB issued in its June 24, 2009 Resolution, and
had disregarded the BSP rules and directives. For said reasons, the MB was
forced to issue the assailed Resolution No. 276 placing ECBI under receivership.
In addition, the MB stressed that it accorded ECBI ample time and opportunity
to address its monetary problem and to restore and improve its financial health
and viability but it failed to do so.
was given a wide discretion and latitude only as to how the law should be
implemented in order to attain its objective of protecting the interest of the
public, the banking industry and the economy.
POLITICAL LAW
Lastly, the petitioner challenges the constitutionality of Section 30 of R.A. No.
7653, as the legislature granted the MB a broad and unrestrained power to
close and place a financially troubled bank under receivership. He claims that
the said provision was an undue delegation of legislative power. The contention
deserves scant consideration.
Preliminarily, Vivas attempt to assail the constitutionality of Section 30 of R.A.
No. 7653 constitutes collateral attack on the said provision of law. Nothing is
more settled than the rule that the constitutionality of a statute cannot be
collaterally attacked as constitutionality issues must be pleaded directly and
not collaterally.A collateral attack on a presumably valid law is not permissible.
Unless a law or rule is annulled in a direct proceeding, the legal presumption of
its validity stands.
Be that as it may, there is no violation of the non-delegation of legislative
power.The rationale for the constitutional proscription is that "legislative
discretion as to the substantive contents of the law cannot be delegated. What
can be delegated is the discretion to determine how the law may be enforced,
not what the law shall be. The ascertainment of the latter subject is a
prerogative of the legislature. This prerogative cannot be abdicated or
surrendered by the legislature to the delegate."
"There are two accepted tests to determine whether or not there is a valid
delegation of legislative power, viz, the completeness test and the sufficient
standard test. Under the first test, the law must be complete in all its terms and
conditions when it leaves the legislature such that when it reaches the
delegate the only thing he will have to do is enforce it. Under the sufficient
standard test, there must be adequate guidelines or stations in the law to map
out the boundaries of the delegate's authority and prevent the delegation from
running riot. Both tests are intended to prevent a total transference of
legislative authority to the delegate, who is not allowed to step into the shoes
of the legislature and exercise a power essentially legislative."
In this case, under the two tests, there was no undue delegation of legislative
authority in the issuance of R.A. No. 7653. To address the growing concerns in
the banking industry, the legislature has sufficiently empowered the MB to
effectively monitor and supervise banks and financial institutions and, if
circumstances warrant, to forbid them to do business, to take over their
management or to place them under receivership. The legislature has clearly
spelled out the reasonable parameters of the power entrusted to the MB and
assigned to it only the manner of enforcing said power. In other words, the MB
Laying down the requisites for the closure of a bank under the law is the
prerogative of the legislature and what its wisdom dictates. The lawmakers
could have easily retained the word "examination" (and in the process also
preserved the jurisprudence attached to it) but they did not and instead opted
to use the word "report." The insistence on an examination is not sanctioned by
RA 7653 and we would be guilty of judicial legislation were we to make it a
requirement when such is not supported by the language of the law.