BSP v. Hon. Antonio-Valenzuela, G.R. No.

184778, October 2, 2009

The issuance by the RTC of writs of preliminary injunction is an unwarranted interference with the
powers of the MB refer to the appointment of a conservator or a receiver for a bank, which is a
power of the MB for which they need the ROEs done by the supervising or examining department.
The writs of preliminary injunction issued by the trial court hinder the MB from fulfilling its function
under the law.
The "close now, hear later" scheme is grounded on practical and legal considerations to prevent
unwarranted dissipation of the bank’s assets and as a valid exercise of police power to protect the
depositors, creditors, stockholders, and the general public.

Moreover, the respondent banks have failed to show that they are entitled to copies of the ROEs.
They can point to no provision of law, no section in the procedures of the BSP that shows that the BSP
is required to give them copies of the ROEs. Sec. 28 of RA 7653, provides that the ROE shall be
submitted to the MB; the bank examined is not mentioned as a recipient of the ROE.

FACTS
Supervision and Examination Department (SED) of the Bangko Sentral ng Pilipinas (BSP) conducted
examinations of the books of the following banks:
Rural Bank of Parañaque, Inc. (RBPI), Rural Bank of San Jose (Batangas), Inc., Rural Bank of Carmen
(Cebu), Inc., Pilipino Rural Bank, Inc., Philippine Countryside Rural Bank, Inc., Rural Bank of
Calatagan (Batangas), Inc. (now Dynamic Rural Bank), Rural Bank of Darbci, Inc., Rural Bank of
Kananga (Leyte), Inc. (now First Interstate Rural Bank), Rural Bank de Bisayas Minglanilla (now
Bank of East Asia), and San Pablo City Development Bank, Inc.

After the examinations, exit conferences were held with the officers of the banks wherein SED
provided copies of Lists of Findings containing the deficiencies discovered during the examinations.
Banks were then required to comment and to undertake the remedial measures which included the
infusion of additional capital.

Though the banks claimed that they made the additional capital infusions, petitioner Chuchi Fonacier,
officer-in-charge of the SED, sent separate letters to the Board of Directors of each bank, informing
them that the SED found that the banks failed to carry out the
required remedial measures.

In response, the banks requested that they be given time to obtain BSP approval to amend their
Articles of Incorporation, that they have an opportunity to seek investors. They requested as well that
the basis for the capital infusion figures be disclosed, and noted that none of them had received the
Report of Examination (ROE) which finalizes the audit findings.

In response, Fonacier reiterated the banks’ failure to comply with the directive for
additional capital infusions. RBPI filed a complaint for nullification of the BSP ROE with application
for a TRO and writ of preliminary injunction before the RTC. Praying that Fonacier, her subordinates,
agents, or any other
person acting in her behalf be enjoined from submitting the ROE or any similar report to the
Monetary Board (MB), or if the ROE had already been submitted, the MB be enjoined from acting on
the basis of said ROE, on the allegation that the failure to furnish the bank with a copy of the ROE
violated its right to due process.
The rest of the banks followed suit filing complaints with the RTC substantially similar to that of RBPI.

RTC denied the prayer for a TRO of Pilipino Rural Bank, Inc. The bank filed a motion for
reconsideration the next day.Respondent Judge Nina Antonio-Valenzuela of Branch 28 granted RBPI’s
prayer for the issuance of a TRO.
The other banks separately filed motions for consolidation of their cases in Branch 28, which
motions were granted. Petitioners assailed the validity of the consolidation of the nine cases before
the RTC, alleging that the court had already prejudged the case by the earlier issuance of a TRO and
moved for the inhibition of respondent judge.
Petitioners filed a motion for reconsideration regarding the consolidation of the subject cases. The
RTC ruled that the banks were entitled to the writs of preliminary injunction prayed for. It held that
it had been the practice of the SED to provide the ROEs to the banks before submission to the MB. It
further held that as the banks are the subjects of examinations, they are entitled to copies of the
ROEs. The denial by petitioners of the banks’ requests for copies of the ROEs was held to be a denial
of the banks’ right to due process.

Petitioners claims grave abuse of discretion on the part of Judge Valenzuela.

The CA ruled that the RTC committed no grave abuse of discretion when it ordered the issuance of a
writ of preliminary injunction and when it ordered the consolidation of the 10 cases. It held that
petitioners should have first filed a motion for reconsideration of the assailed orders, and failed to
justify why they
resorted to a special civil action of certiorari instead.

On November 24, 2008, a TRO was issued by this Court, restraining the CA, RTC, and respondents
from implementing and enforcing the CA Decision. By reason of the TRO issued by this Court, the
SED was able to submit their ROEs to the MB. The MB then prohibited the respondent banks from
transacting business and placed them under receivership

ISSUES
a. Whether or not the TRO issued by the RTC violated section 25 of the New Central Bank Act that
prevented the MB to discharge functions.

b. Whether or not the respondents are required to be given copies of the ROEs before submission of
such to the Monetary Board.

RULING
(A. ) YES, Requisites for preliminary injunctive relief are: (a) the invasion of right sought to be
protected is material and substantial; (b) the right of the complainant is clear and unmistakable; and
(c) there is an urgent and paramount necessity for the writ to prevent serious damage.

The twin requirements of a valid injunction are the existence of a right and its actual or
threatened violations. Thus, to be entitled to an injunctive writ, the right to be protected and the
violation against that right must be shown. These requirements are absent in the present case.

The issuance by the RTC of writs of preliminary injunction is an unwarranted interference with the
powers of the MB refer to the appointment of a conservator or a receiver for a bank, which is a power
of the MB for which they need the ROEs done by the supervising or examining department.
The writs of preliminary injunction issued by the trial court hinder the MB from fulfilling its function
under the law. The actions of the MB under Secs. 29 and 30 of RA 7653 "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 respondent banks have shown no necessity for the writ of preliminary injunction to prevent
serious damage. The serious damage contemplated by the trial court was the possibility of the
imposition of sanctions upon respondent banks, even the sanction of closure.

Under the law, the sanction of closure could be imposed upon a bank by the BSP even without
notice and hearing. This "close now, hear later" scheme is grounded on practical and legal
considerations to prevent unwarranted dissipation of the bank’s assets and as a valid exercise of
police power to protect the depositors, creditors, stockholders, and the general public.

Judicial review enters the picture only after the MB has taken action; it cannot prevent such action
by the MB. The threat of the imposition of sanctions, even that of closure, does not violate their
right to due process, and cannot be the basis for a writ of preliminary injunction.
The "close now, hear later" doctrine has already been justified as a measure for the protection of the
public interest.

(B) NO, The respondent banks have failed to show that they are entitled to copies of the ROEs. They
can point to no provision of law, no section in the procedures of the BSP that shows that the BSP is
required to give them copies of the ROEs.
Sec. 28 of RA 7653, provides that the ROE shall be submitted to the MB; the bank examined is
not mentioned as a recipient of the ROE. The respondent banks cannot claim a violation of their right
to due process if they are not provided
with copies of the ROEs. The same ROEs are based on the lists of findings/ exceptions containing the
deficiencies found by the SED examiners when they examined the books of the respondent banks.

As found by the RTC, these lists of findings/exceptions were furnished to the officers or
representatives of the respondent banks, and the respondent banks were required to comment and
to undertake remedial measures stated in said lists. Despite these instructions, respondent banks
failed to comply with the SED’s directive.

Respondent banks are already aware of what is required of them by the BSP, and cannot claim
violation of their right to due process simply because they are not furnished with copies of the ROEs.

2. First Phil. Int’l. Bank v. Court of Appeals, G.R. No. 115849, January 4, 1996
While admittedly, the Central Bank law gives vast and far-reaching powers to the conservator of a
bank, it must be pointed out that such powers must be related to the "(preservation of) the assets of
the bank, (the reorganization of) the management thereof and (the restoration of) its viability."
Such powers, enormous and extensive as they are, cannot extend to the post-facto repudiation
of perfected transactions, otherwise they would infringe against the non-impairment clause of the
Constitution.
In the case, it is not disputed that the bank was under a conservator placed by the Central Bank
of the Philippines during the time that the negotiation and perfection of the contract of sale took
place.
Moreover, there was absolutely no evidence that the Conservator, at the time the contract was
perfected, actually repudiated or overruled said contract of sale. The bank never objected to the sale,
what it unilaterally repudiated was—not the contract —but the authority of Rivera to make a binding
offer —and which unarguably came months after the perfection of the contract.
FACTS
Producer Bank of the Philippines acquired six parcels of land located at Laguna. The property used to
be owned by BYME Investment and Development Corporation which had them mortgaged with the
bank as collateral for a loan. The original plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted to
purchase the property and thus initiated negotiations for that purpose. Plaintiffs, met
with defendant Mercurio Rivera, Manager of the Property Management Department of the
defendant bank.
After the meeting, plaintiff Janolo made a formal purchase offer to the bank in the amount of
3.5M but counter offered by Rivera(Bank) with 5.5M. Janolo revised there offer to 4.25M but
received no response but Luis co and rivera had a meeting and in the end the offer of Mr. Rivera
was accepted.
The conservator of the bank was replaced by an Acting Conservator in the person of defendant
Leonida T. Encarnacion whereby they stated that Rivera’s proposal was under study yet as of this time
by the newly created committee for submission to the newly designated Acting Conservator of the
bank.Thereafter transpired was a series of demands by the plaintiffs for compliance by the bank
with what plaintiff considered as a perfected contract of sale, which demands were in one form or
another refused by the bank.

Plaintiffs filed a suit for specific performance with damages against the bank, Acting Conservator
Encarnacion. The basis of the suit was that the transaction had with the bank resulted in a perfected
contract of sale, The defendants took the position that there was no such perfected sale because
the
defendant Rivera is not authorized to sell the property, and that there was no meeting of the minds
as to the price.
ISSUE
Whether or not the bank conservator has the unilateral power to repudiate the authority of the bank
officers and/or to revoke the said contract

RULING
Section 28-A - Whenever, on the basis of a report submitted by the appropriate supervising or
examining department, the Monetary Board finds that a bank or a non-bank financial intermediary
performing quasi-banking functions is in a state of continuing inability or unwillingness to maintain a
state of liquidity deemed adequate to protect the interest of depositors and creditors, the
Monetary Board may appoint a conservator to take charge of the assets, liabilities, and the
management of that institution, collect all monies and debts due said institution and exercise all
powers necessary to preserve the assets of the institution, reorganize the management thereof, and
restore its viability. He shall have the power to overrule or revoke the actions of the previous
management and board of directors of the bank or non-bank financial intermediary performing quasi-
banking functions, any provision of law to the contrary notwithstanding, and such other powers as the
Monetary Board shall deem necessary.

While admittedly, the Central Bank law gives vast and far-reaching powers to the conservator of
a bank, it must be pointed out that such powers must be related to the "(preservation of) the assets
of
the bank, (the reorganization of) the management thereof and (the restoration of) its viability."
Such powers, enormous and extensive as they are, cannot extend to the post-facto repudiation of
perfected transactions, otherwise they would infringe against the non-impairment clause of the
Constitution. Section 28-A merely gives the conservator power to revoke contracts that are, under
existing law,
deemed to be defective. Hence, the conservator merely takes the place of a bank's board of directors,
so what the board cannot do; the conservator cannot do either. His power is however, not unilateral
as he cannot simply repudiate valid obligations of the Bank. His authority would be only to bring
court actions to assail such contracts.

In the case, it is not disputed that the bank was under a conservator placed by the Central Bank of the
Philippines during the time that the negotiation and perfection of the contract of sale took place.
Moreover, there was absolutely no evidence that the Conservator, at the time the contract
wasperfected, actually repudiated or overruled said contract of sale. The bank never objected to the
sale, what it unilaterally repudiated was—not the contract —but the authority of Rivera to make a
binding offer —and which unarguably came months after the perfection of the contract.
The conservator’s authority would be only to bring court actions to assail such contracts —as he has
already done so in the instant case.

3. Koruga v. Arcenas, G.R. No. 168332, June 19, 20094. Rural Bank of San Miguel v. Monetary
Board, G.R. No. 150886, February 16, 2007

We hold that it is the BSP that has jurisdiction over the case. The acts complained of pertain to the
conduct of Banco Filipino's banking business. The law vests in the BSP the supervision over operations
and activities of banks.
Specifically, the BSP's supervisory and regulatory powers include: conduct of examination to
determine compliance with laws and regulations if the circumstances so warrant as determined by
the Monetary Board; Overseeing to ascertain that laws and Regulations are complied with; Regular
investigation which shall not be oftener than once a year from the last date of examination to
determine whether an institution is conducting its business on a safe or sound basis Inquiring into the
solvency and liquidity of the institution.

FACTS
Koruga is a minority stockholder of Banco Filipino. On August 20, 2003, she filed a complaint before
the Makati RTC. Koruga's complaint alleged:
1 Violation of Sections 31 to 34 of the Corporation Code ("Code") which prohibit self-dealing and
conflicts of interest of directors and officers.
2.Right of a stockholder to inspect the records of a corporation (including financial statements) under
Sections 74 and 75 of the Code
3.Receivership and Creation of a Management Committee

On September 12, 2003, Arcenas, et al. filed their Answer raising, among others, the trial court's lack
of jurisdiction to take cognizance of the case. They also filed a Manifestation and Motion seeking the
dismissal of the case.

In an Order dated October 18, 2004, the trial court denied the Manifestation and Motion. On
February 9, 2005, the CA issued a 60-day TRO enjoining Judge Marella from conducting further
proceedings in the case.

On February 22, 2005, the RTC issued a Notice of Pre-trial setting the case for pre-trial on June 2 and
9, 2005. Arcenas, et al. filed a Manifestation and Motion before the CA, reiterating their application
for a writ of... preliminary injunction. Thus, on April 18, 2005, the CA issued the assailed Resolution,
which reads in part: (C)onsidering that the Temporary Restraining Order issued by this Court on
February 9, 2005 expired on April 10, 2005, it is necessary that a writ of preliminary injunction be
issued in order not to render ineffectual whatever final resolution this Court may render... in this case,
after the petitioners shall have posted a bond.

Dissatisfied, Koruga filed this Petition for Certiorari under Rule 65 of the Rules of Court. Koruga
alleged that the CA effectively gave due course to Arcenas, et al.'s petition when it issued a writ of
preliminary injunction without factual or legal basis
Meanwhile, on March 13, 2006, this Court issued a Resolution granting the prayer for a TRO and
enjoining the Presiding Judge of Makati RTC, Branch 138, from proceeding with the hearing of the
case upon the filing by Arcenas, et al. of a P50,000.00 bond.

In their Petition, Arcenas, et al. asked the Court to set aside the Decision[14] dated July 20, 2005 of
the CA in CA-G.R. SP No. 88422, which denied their petition, having found no grave abuse of
discretion on the part of the Makati RTC. The CA said that... the RTC Orders were interlocutory in
nature and, thus, may be assailed by certiorari or prohibition only when it is shown that the court
acted without or in excess of jurisdiction or with grave abuse of discretion.

ISSUES
Which body has jurisdiction over the Koruga Complaint, the RTC or the BSP?

RULING
We hold that it is the BSP that has jurisdiction over the case. The acts complained of pertain to the
conduct of Banco Filipino's banking business. The law vests in the BSP the supervision over
operations and activities of banks.
Specifically, the BSP's supervisory and regulatory powers include: conduct of examination to
determine compliance with laws and regulations if the circumstances so warrant as determined by
the Monetary Board; Overseeing to ascertain that laws and Regulations are complied with; Regular
investigation which shall not be oftener than once a year from the last date of examination to
determine whether an institution is conducting its business on a safe or sound basis Inquiring into the
solvency and liquidity of the institution. Correlatively, the General Banking Law of 2000 specifically
deals with loans contracted by bank directors or officers, thus:
SECTION 36. Restriction on Bank Exposure to Directors, Officers, Stockholders and Their Related
Interests. DOSRI
The Monetary Board may regulate the amount of loans, credit accommodations and guarantees that
may be extended, directly or indirectly, by a bank to its directors, officers, stockholders and their
related interests, as well as investments of such bank in enterprises owned or... controlled by said
directors, officers, stockholders and their related interests.

Furthermore, the authority to determine whether a bank is conducting business in an unsafe or

unsound manner is also vested in the Monetary Board.
Finally, the New Central Bank Act grants the Monetary Board the power to impose administrative
sanctions on the erring bank:
Section 37.
The Monetary Board may, at its discretion, impose upon... any bank or quasi-bank, their directors
and/or officers or any commission of irregularities, and/or conducting business in an unsafe or
unsound manner as may be determined by the Monetary Board

Koruga's invocation of the provisions of the Corporation Code is misplaced. In an earlier case with
similar antecedents, we ruled that: The Corporation Code, however, is a general law applying to all
types of corporations, while the New Central Bank Act regulates specifically banks and other
financial institutions, including the dissolution and liquidation thereof. As between a general and
special... law, the latter shall prevail - generalia specialibus non derogant.

Consequently, it is not the Interim Rules of Procedure on Intra-Corporate Controversies,[32] or Rule

59 of the Rules of Civil Procedure on Receivership, that would apply to this case. Instead, Sections 29
and 30 of the New Central Bank Act should be followed viz.: Section 30.
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.

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 appointment of a receiver under this section shall be vested exclusively with the Monetary Board.
On the strength of these provisions, it
is the Monetary Board that exercises exclusive jurisdiction over proceedings for receivership of banks.

From the foregoing disquisition, there is no doubt that the RTC has no jurisdiction to hear and decide
a suit that seeks to place Banco Filipino under receivership. The court's jurisdiction could only have
been invoked after the Monetary Board had taken action on the matter and only 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.

5. Spouses Bacolor v. Banco Filipino Savings, G.R. No. 148491, February 8, 2007
6. Balayan Bay Rural Bank v. National Livelihood Dev. Corp., G.R. No. 194589, September
21, 2015
7. Spouses Larrobis v. Philippine Veterans Bank, G.R. No. 135706, October 1, 2004
8. In Re: Petition for Assistance in the Liquidation of Rural Bank of Bokod, G.R. No, G.R. No.
158261, December 18, 2006