66 Central Bank v.

Cloribel computing and paying interest, since this function is not expressly
April 11, 1972 | Concepcion | Authority to Promulgate Rules granted petitioner."
 Monetary Board has no authority to regulate the manner or time of
SUMMARY: Central Bank (CB) fixed the maximum interest rate and the collecting interest due to bank depositors because, while expressly vested
manner of computing and paying interest. Banco Filipino changed its policy by with the power to fix maximum rates of interest, the law is silent on the
compounding and paying the interest on its savings deposits, at the maximum "manner or time" of payment thereof, apart from the alleged circumstance
rate fixed by the Monetary Board, from the quarterly to the monthly basis, and that banks have never been restricted by Petitioner herein as to the manner
by paying, in advance, the maximum rates of interest on time deposits. The or time of collecting interest from their borrowers
Monetary board directed Banco Filipino to comply strictly with circular 222.
Banco Filipino filed petition for prohibition and preliminary injunction against ISSUE: WoN it is fatal that the CB has not exhausted all remedies - NO
CB and the Monetary Board, to annul CB Circulars Nos. 185 and 222 and  It is true that Petitioner herein did not seek a reconsideration of the order
Monetary Board Resolutions Nos. 805 and 1566 insofar as they restrict the complained of, and that, as a general rule, a petition for certiorari will not be
payment of monthly interests on savings deposits and advance interests on entertained unless the respondent has had, through a motion for
time deposits. Judge Cloribel granted the application for a writ of preliminary reconsideration, a chance to correct the error imputed to him.
injunction. SC: Respondent Judge had committed a grave abuse of discretion,  This rule is subject, however, to exceptions, among which are the following,
amounting to excess of jurisdiction. If a bank pays interest in advance on time namely: 1) where the issue raised is one purely of law; 2) where public interest
deposits it is actually paying interest much higher than the maximum rate is involved; and 3) in case of urgency. These circumstances are present in the
allowed. Thus, CB is legally authorized to demand strict compliance therewith case at bar. Moreover, Petitioner herein had raised — in its answer in the main
and to restrain and forbid the Banco Filipino from compounding monthly said case and in the rejoinder to the memorandum of the Banco Filipino in support of
the latter’s application for a writ of preliminary injunction — the very same
rate of interest on savings deposits and from paying advance interest on time
questions raised in the Petition herein.
deposits.
 In other words, Judge Cloribel has already had an opportunity to consider and
pass upon those questions, so that a motion for reconsideration of his contested
DOCTRINE: The authority of the Monetary Board to fix the maximum rates of order would have served no practical purpose. The rule requiring exhaustion of
interest which banks may pay on deposits and on any other obligations remedies does not call for an exercise in futility.
includes the power to determine and fix the manner in which said interests
may be compounded and paid. ISSUE: WoN the contested resolutions and circulars are null and void – NO

 Respondent Banco Filipino is a savings and mortgage bank It began its Notice and hearing
operations in July 1964. On December 15, Petitioner issued, pursuant to  The Central Bank is supposed to gather relevant data and make the
Resolution No. 1769 of the Monetary Board, dated December 11, 1964, necessary study, but has no legal obligation to notify and hear anybody,
Central Bank Circular No. 185 before exercising its power to fix the maximum rates of interest that banks
 When Banco Filipino started its operations in July 1964, savings deposits may pay on deposits or any other obligations.
therein made were to earn interest at the rate of four (4) per cent per  Previous notice and hearing, as elements of due process, are
annum, "compounded quarterly," and its savings passbooks and the rules constitutionally required for the protection of life or vested property rights, as
and regulations, printed on the specimen signature cards of said deposits, well as of liberty, when its limitation or loss takes place in consequence of a
contained the following statements, among others: XXX judicial or quasi-judicial proceeding, generally dependent upon a past act or
 Subsequently, within the same year, Banco Filipino changed its policy by event which has to be established or ascertained.
compounding and paying the interest on its savings deposits, at the  It is not essential to the validity of general rules or regulations promulgated
maximum rate fixed by the Monetary Board, from the quarterly to the to govern future conduct of a class of persons or enterprises, unless the law
monthly basis, and by paying, in advance, the maximum rates of interest on provides otherwise, and there is no statutory requirement to this effect,
time deposits. insofar as the fixing of maximum rates of interest payable by banks is
 On September 20, 1966, the Monetary Board approved Resolution No. concerned.
1566, directing the Banco Filipino to comply strictly with Central Bank  What is more, it is presumed that the Monetary Board has exercised its
Circular No. 222. Said Resolution was communicated to the Banco Filipino power to fix maximum rates of interest conformably to law, and courts will
in a letter dated September 29, 1966. On October 14, 1966, Banco Filipino not interfere with the policy of the Board thereon — unless it acted without
filed with CFI Manila a petition for prohibition and preliminary injunction or in excess of its jurisdiction or in a manifestly arbitrary or unduly
against Petitioner herein and the Monetary Board, to annul Central Bank oppressive manner — upon the theory that the Board is, for obvious
Circulars Nos. 185 and 222 and Monetary Board Resolutions Nos. 805 and reasons, in a better position to determine such question.
1566, "insofar as they restrict the payment of monthly interests on savings
deposits and advance interests on time deposits," Vested rights
 Judge Cloribel granted the application for a writ of preliminary injunction.  The theory to the effect that the contested resolutions and circulars impair
 Petitioner instituted the present action to annul the order upon the ground vested rights is obviously unfounded, for the said resolutions and circulars
that, in issuing said order, Judge Cloribel had committed a grave abuse of operate prospectively, and affect only deposits made and/or interests
discretion amounting to excess of jurisdiction. accruing subsequently to the promulgation thereof.
 Banco Filipino arguments:  Furthermore, all contracts are subject to the police power of the State.
o Petitioner has not exhausted all remedies in the CFI of Manila before Being an inherent attribute of sovereignty, such power is deemed
coming to SC incorporated into the laws of the land, which are part of all contracts,
o Having heard the parties before issuing the contested order, respondent thereby qualifying the obligations arising therefrom.
Judge had neither committed a grave abuse of discretion, nor exceeded  In short, all contractual obligations are subject — as an implied reservation
his jurisdiction therein — to the policy power of the state, of which the regulatory authority
o The contested resolutions and circulars are null and void for (a) they of the Central Bank may be regarded as a mere extension. 14 Far from
were issued without previous notice and hearing, (b) they impair vested being an impairment of contractual obligations, the exercise of that authority
rights, and (c) the statutory power of the Monetary Board to "fix the constitutes, therefore, a mere enforcement of one of the conditions deemed
maximum rates of interest which banks may pay on deposits and any imposed in all contracts.
other obligations" does "not include the regulation of the manner of
[MAIN] WoN the authority of the Monetary Board to "fix the maximum rates of grant of authority to fix said maximum rates of interest that banks may pay
interest which banks may pay on deposits and on any other obligations" includes for deposits and on any other obligations.
the power to determine and fix the manner in which said interests may be  The objective of the power to fix maximum rates of interest payable by
compounded and paid – YES banks is to establish a uniform ceiling applicable to all banks, in order to
 RA 265, SEC. 14. Exercise of authority. — In order to exercise the authority avoid that a competition among the same, in the form of higher rates of
granted to it under this Act, the Monetary Board shall: interest offered to depositors, may ensue and reach such a point that, to
(a) Prepare and issue such rules and regulations as it considers necessary offset the resulting reduction in their profits, said institutions might be
for the effective discharge of the responsibilities and exercise of the powers impelled to increase their earnings, by resorting to risky ventures, or "less
assigned to the Monetary Board and to the Central Bank under this Act: conservative and more remunerative loans and investments," which could
(b) Direct the management, operations and administration of the Central impair the stability of the banking system and jeopardize the financial
Bank and prepare such rules and regulations as it may deem necessary or condition of the nation. The important thing is the amount paid or to be
convenient for this purpose; xxx deposited by the latter and made available for the operations of the bank,
 RA 265, SEC. 109. Interest rates, commissions and charges. — The within the period for which the rate has been fixed. The manner of
Monetary Board may fix the maximum rates of interest which banks may computing such rate and the time or manner of payment of interest are
pay on deposits and on any other obligations. merely incidental thereto.
The Monetary Board may, within the limits prescribed in the Usury Law (Act  In the case at bar: Petitioner says, in its memorandum that the Monetary Board
No. 2655, as amended), fix the maximum rates of interest which banks may does not prohibit Banco Filipino from compounding interest at other than
charge for different types of loans and for any other credit operations, or quarterly intervals provided that the aggregate amount of such interest so
may fix the maximum differences which may exist between the interest or compounded does not exceed the aggregate amount of interest fixed by the
rediscount rates of the Central Bank, and the rates which the banks may Monetary Board. Banco Filipino may compound daily or even weekly or monthly
charge their customers if the respective credit documents are not to lose and the Central Bank will not prevent it from doing so, provided that the
their eligibility for rediscount or advances in the Central Bank. xxx maximum effective late of interest by compounding others than the quarterly
In order to avoid possible evasion of maximum interest rates set by the method will not be in the aggregate amount exceeding the maximum effective
rate of 5.875% per annum, which is the maximum or ceiling effective rate set by
Monetary Board, the Board may also fix the maximum rates that banks may
the Monetary Board.
pay to or collect from their customers in the form of commissions, discounts,
o Thus, for instance, the maximum interest of 5-3/4% per annum,
charges, fees or payments of any sort.
compounded quarterly, as fixed in Petitioner’s Circular No. 222, for
 It is significant that the law does not merely authorize the Board to "fix the
savings deposits, in fact represents 5. 875%, at the end of the year.
maximum rates of interest which banks may pay on deposits and on any
When compounded monthly, it is, however, equivalent to 5.904% at
other obligations." It, also, expressly empowers the Board —" (i)n order to
the close of the year, and, accordingly, exceeds by 0.029% the
avoid possible evasion of maximum interest rates set by the . . . Board" —
maximum set in the aforementioned circular.
to fix also "the maximum rates that banks may pay to or collect from their
o Negligible as this 0.029% might be, it does not detract from the fact
customers in the form of . . . payments of any sort."
that it exceeds the maximum rate fixed by the Monetary Board, such
 Indeed, the authority to establish maximum rates of interest carries with it,
excess were sanctioned, so should 0.03% be. As a consequence,
necessarily, the power to determine the maximum rates payable as interest
banks could avail of devises whereby, although adhering ostensibly
for given periods of time. In other words, it connotes the right to specify the
to the maximum rate of 5-3/4% interest per annum, they would, in
length of time for which the rates thus fixed shall be computed.
effect, pay its savings depositors 0.031%, then 0.032%, later
 Consequently, it cannot but include the prerogative to regulate (a) the 0.033%, etc., in excess of said maximum. In other words, we would
manner of computing said rates and (b) the manner or time of payment of thus open the door to the cut-throat competition and other evils
interest, insofar as these factors affect the amount of interest to be paid. sought to be avoided by the maximum rates of interest fixed by the
 In fact, the record shows that, since, at least, May 25, 1956, when Central Monetary Board.
Bank Circular No. 67 (Annex H) was issued, the Monetary Board has o Then, too, the benefit that a savings deposit with respondent Bank
consistently regulated the time or manner of payment of interest on bank would derive from the monthly compounding and payment of the
deposits. What is more, it would seem that the validity of such regulation maximum rate of interest is either substantial or not. If it is not, then
had never before been contested. the aforementioned advertisement of respondent Bank tends to give
o Since, as early as May 25, 1956, or for over 15 years, Petitioner has to the public a different impression and is, accordingly, of dubious
prescribed the time or manner of payment of the maximum rates of ethical propriety; whereas, if the benefit were substantial, the
interest fixed by the Monetary Board. Furthermore, the power to fix violation of the letter and spirit of the contested resolutions and
maximum rates of interest necessarily carries with it the authority to circulars would be manifest.
determine, prescribe and regulate the time and manner of computing
such rates and collecting the same. OTHER ARGUMENTS:
o Indeed, it would be ridiculous to fix the maximum rate of interest, at Petitioner has adopted in this case a posture different from that which it had
say 5%, without stating how it shall be computed and paid, whether taken in the court of first instance – N0
monthly, quarterly, annually or otherwise. Again, the purpose of said  Taken out of its context, the letter of June 17, 1965 might give the
grant of power is to see to it that banks do not pay its depositors impression that Petitioner had prohibited the monthly payment of interest,
more than what their financial stability and sound banking practices whatever its rate may be BUT It should be noted that the prohibition made
permit. In other words, the time and manner of computation and in this communication is preceded by the phrase" (i)n view of the foregoing,"
payment of the maximum rates fixed are essential elements thereof, which is the advertisement of the Banco Filipino to the effect that savings
as well as vital to the attainment of the purpose of the grant. The and time deposits therein shall earn the stated rates of interest.
absence of a similar limitation to the rates of interest collectible by  The letter further points out that these rates "are not in accordance with
banks will be discussed in connection with the fourth argument. Central Bank Circular No. 185, as amended." What is more, it says that
 The justification for the inclusion, in the power to fix maximum rates of respondent Bank "may advertise only the rates of interest stated" in the
interest, of the authority to prescribe the time or manner of payment thereof aforementioned circular, as amended. In other words, it can neither pay nor
springs, (a) not only from the implied grant of all powers necessary to carry advertise that it shall pay, on savings deposits, 4.5% interest per annum,
out those expressly conferred, 16 and (b) from the explicit authority of the compounded or paid monthly, but, it can pay and advertise that it shall pay
Monetary Board "to avoid possible evasion of maximum interest rates" fixed on said deposits any rate of interest, compounded or paid yearly, quarterly,
by it, by, likewise, fixing maximum rates that banks may pay to their monthly, weekly or daily, provided that the aggregate amount of interest so
customers in any other "form," but, also, (c) from the reasons underlying the paid shall not exceed 4.5% a year, compounded quarterly.
 runs counter to the clear and explicit provisions of the aforementioned
Resp merely pays interest monthly, which, contrary to Petitioner’s claim, is, circulars.
allegedly, not compounded, but — if the depositor chooses not to withdraw it — is
part of his capital and earns interest as such capital, not as interest; The maximum rate of interest set by the Petitioner on savings deposits may be
 The third argument is but an exercise in semantics. It is urged that interest considered as a requirement on banks that the interest stipulated on savings
compounded monthly becomes part of the capital and earns interest as deposits must be deemed due and paid, at least, quarterly - NO
such part of the capital, not as interest, and that, in paying monthly interest  The contested circulars and resolutions do not require the interest to
at the rate of 4.5% per annum, respondent Bank does not, consequently, become due and payable quarterly. Petitioner has merely ordained that "the
compounded interest monthly. maximum rate of interest on savings deposits . . . shall be four and one-half
 This argument merits no serious consideration. Suffice it to say that the per cent (4-1/2%) . . ., compounded quarterly." This means that a bank may
compounding of interest implies precisely that the interest for a given period pay any rate of interest and compute or pay the same at such time and in
— one (1) month in the case of respondent Bank — becomes, at the end of such manner as it may deem fit, provided that the total sum thus paid does
said period, part of the capital, and, hence, earns interest. And this, indeed, not exceed the maximum rate fixed by the Monetary Board, compounded
is the reason why 5-3/4% interest per annum, paid or compounded monthly, quarterly.
exceeds by 0.029% yearly the same rate of interest, when compounded  It is true that, if the maximum rate of interest, as computed and paid by
quarterly, under which the interest does not become part of the capital, and, Banco Filipino, were withdrawn by its depositor at the end of each month,
accordingly, does not earn interest, as such part of the capital, until after the aggregate amount paid to him by said respondent at the end of a year
three (3) months The all-important thing is that by paying or compounding would not exceed the maximum rate of interest fixed by the Monetary
interest monthly, instead of quarterly, at the rate of 5-3/4% per annum, Board, computed quarterly. It is no less true, however, that if said depositor
respondent Bank would pay yearly 0.029% higher than the maximum fixed withdrew the same amount monthly, and the interest on his deposit were
in the contested circulars and resolutions. computed and paid quarterly, as ordained by said Board, he would collect,
within a year, less than the aggregate sum paid by respondent Bank by
The contested circulars and resolutions are arbitrary and discriminatory, as well compounding or paying interest monthly, at said maximum rate. Indeed, if
as deny equal protection of the laws. – NO this rate of interest were compounded quarterly, the aforementioned
 The alleged discrimination, arbitrariness and denial of equal protection is withdrawals of the depositor, before the end of the quarter, would have to
predicated upon the fact that the disputed restrictions to banks as debtors be taken, not from the interest — which would not be due as yet — but from
are not applied to banks as creditors. This pretense is untenable, for settled his capital or deposit. Whether the depositor makes or not said withdrawals,
is the rule that the equal protection clause does not imply the same respondent Bank would pay him, therefore, more than it would if it
treatment to all; that it applies merely to persons, things or transactions compounded quarterly the maximum rate of interest fixed by the Board.
similarly or identically situated; and that it, consequently, permits a o In short, in either case, said rate would be violated by Banco Filipino.
classification of the object or subject of the law, provided that the
classification is reasonable or based upon real or substantial distinctions, DISPOSITION: WHEREFORE, said order and the writ of preliminary injunction
germane to the statutory object or purpose. issued in pursuance thereof are hereby declared null and void, and the
 The purpose of the resolutions and circulars fixing maximum rates of enforcement of both, accordingly, restrained permanently, with costs against
interest payable by banks on savings deposits and prohibiting the payment respondent Banco Filipino. Writ granted.
in advance of interest on time deposits, is to protect the stability of banking
institutions — as vital factors in the national economy — from the danger NOTES:
that may result from cutthroat competition among said institutions. No such Operation of the maximum rate of interest fixed for time deposits and comparison
danger would result either from the interest that banks may collect in with the effect of the payment in advance of the interest thereon
advance from its borrowers or from high rates of interest the former may  As correctly set forth in the petition:"For instance, when the Monetary Board
charge from the latter, aside from the fact that such rates are subject to the fixes the maximum rate of interest on a one-year time deposit at 6-1/2%
limitations imposed by the laws on usury. (6.5%) per annum, and at the same time stipulates that ‘interest on time
deposit shall not be paid in advance. . .,’ the Monetary Board is in truth
Circular No. 149 did not specify that the maximum rates of interest therein fixed fixing the maximum interest that a Bank may pay on time deposits, which
were to be compounded quarterly and that, having failed to answer the letters of means that a deposit of say, P100,000.00 shall earn only P6,500.00 interest
said respondent seeking a clarification of Circular No. 185 and a chance to be at the end of the year. However, if a bank pays interest in advance on time
heard on Circular No. 222, Petitioner herein had impliedly consented to the deposits it is actually paying interest much higher than the maximum rate
practice of Banco Filipino, which is said to have been reflected in its reports to allowed.
Petitioner herein. - NO o [Illustration] if a time deposit of P100,000.00 is paid interest of P6,500.00
 Pursuant to Circular No. 149," (a)ll previously issued circulars . . . which are in advance, the depositor, in effect, is allowing the bank the use of only
inconsistent with the foregoing are hereby amended or revoked." In other P93,500.00 (P100,000.00 less P6,500.00 interest paid in advance). But
words, previous circulars were maintained insofar as not inconsistent with at the end of one year, the bank will pay back to him the amount of
Circular No. 149. Said previous circulars - namely, Circulars Nos. 67 (dated P100,000.00. This means that his actual deposit of P93,500.00 (the
May 25, 1956), 71 (dated July 31, 1956), 74 (dated September 2, 1957), 78 amount that was left with the bank after P6,500.00 was returned to him
(dated October 25, 1957), 103 (dated March 21, 1960), and 112 (dated as interest in advance) will earn interest of P6,500.00 after one year. This
October 26, 1960) — uniformly provided that the maximum rates of interest interest of P6,500.00 on the amount of P93,500.00 means an effective
therein fixed shall be compounded "quarterly." This provision was not rate of interest of 6.952% which is 0.452% higher than the maximum rate
inconsistent with Circular No 149, which was silent thereon. Consequently, of 6.5% allowed by the Monetary Board to be paid on time deposits."
the rates fixed in Circular No. 149 were deemed subject to said limitation.  It is apparent from the foregoing that — insofar as it compounds monthly
 At any rate, the maximum rates of interest fixed in Circulars Nos. 185 and the maximum rate of interest fixed for savings deposits and pays in advance
222, dated December 15, 1964, and June 14, 1966, for savings deposits, the maximum rate of interest prescribed for time deposits — Banco Filipino
are qualified therein by the phrase "compounded quarterly." Circular No. pays or undertakes to pay to its depositors more than the amount
222, moreover, provides that" (i)nterest on time deposits shall not be paid in equivalent to the maximum rates of interest fixed in the contested
advance, but only at maturity, or upon withdrawal of the deposit." Thus, the resolutions and circulars.
practice, adopted by Banco Filipino, of compounding monthly the maximum
rates of interest fixed by the Monetary Board for savings deposits, and of
paying in advance the maximum rates of interest allowed for time deposits,