Rural Bank of Buhi vs. CA Case Digest G.R. No. 61689 June 20, 1988 162 SCRA 288

Rural Bank of Buhi vs CA Case Digest

GR 61689 ; June 20, 1988 ; 162 SCRA 288

DOCTRINE/S:

Banking Law

a) 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:

(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 the bank is in a condition of insolvency or so situated that its continuance in business would involve probable loss to its depositors or creditors

b) Whenever it shall appear prima facie that a banking institution is in "a condition of insolvency" or so situated "that its continuance in business would involved probable loss to its depositors or creditors," the Monetary Board has authority:

(1) Forbid the institution to do business and appoint a receiver therefor; and

(2) Determine within 60 days whether or not:

i) the institution may be reorganized and rehabilitated to such an extent as to be permitted to resume business with safety to depositors, creditors and the general public; or

ii) it is indeed insolvent or cannot resume business with safety to depositors, creditors and the general public, and public interest requires that it be liquidated.

-liquidation will be ordered and a liquidator appointed by the Monetary Board.  The Central Bank shall thereafter file a petition in the Regional Trial Court praying for the Court's assistance in the liquidation of the bank." ... (Salud vs. Central Bank, 143 SCRA 590 [1986]).

c) How a banking institution should assert that a resolution of the Monetary Board under Section 29 of the Central Bank Act should be set aside as plainly arbitrary and made in bad faith:

1) affirmative defense (Sections 1 and 4[b], Rule 6, Rules of Court)

2) counterclaim (Section 6, Rule 6; Section 2, Rule 72 of the Rules of Court)

Where:

a) In the proceedings for assistance in liquidation, or

b) as a cause of action in a separate and distinct action where the latter was filed ahead of the petition for assistance in liquidation (Central Bank vs. Court of Appeals, 106 SCRA 143 [1981]).

Constitutional Law

a) Due process

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.

FACTS:

Short version: The bank was placed under receivership by the Monetary Board. The Bank claims that what the Monetary Board has done was a violation of due process since they did not receive any notice prior to the Bank being placed under receivership.

Long version: The Rural Bank of Buhi (Bank) was placed under receivership and designated respondent Odra as Receiver pursuant to the provisions of Section 29 of Republic Act No. 265 as amended. Odra implemented and carried out said Monetary Board Resolution No. 583 by authorizing deputies of the receiver to take control, possession and charge of the Bank, its assets and liabilities. The Bank filed a petition for injunction with Restraining Order against respondent Odra and DRBSLA assailing the action of herein respondent Odra in recommending the receivership over the Bank as a violation of the provisions of Sections 28 and 29 of Republic Act No. 265 as amended, and Section 10 of Republic Act No. 720 (The Rural Banks Act) and as being ultra vires and done with grave abuse of discretion and in excess of jurisdiction. Respondents filed their motion to dismiss alleging that the petition did not allege a cause of action and is not sufficient in form and substance. Petitioners filed an opposition to the motion to dismiss averring that the petition alleged a valid cause of action and that respondents have violated the due process clause of the Constitution. Thereafter the Central Bank Monetary Board issued a Resolution ordering the liquidation of the Bank. The RTC ruled in favor of the Bank and issued a writ of execution. The CA however restrained the enforcement of the execution.

ISSUE/S: WON due process was violated.

HELD: NO. Republic Act No. 265 does not require that a hearing be first conducted before a banking institution may be placed under receivership. Rather it provides 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 the bank is in a condition of insolvency or so situated that its continuance in business would involve probable loss to its depositors or creditors.

The petitioner’s contention that no property shall be taken without due process of law is guaranteed under the consitution is without merit. It has long been established that the closure and liquidation of a bank may be considered as an exercise of police power. Such exercise may, however, be subject to judicial inquiry and could be set aside if found to be capricious, discriminatory, whimsical, arbitrary, unjust or a denial of the due process and equal protection clauses of the Constitution (Central Bank vs. Court of Appeals, 106 SCRA 155 [1981]).

Hence, Appointment of a receiver may be made by the Monetary Board without notice and hearing but its action is subject to judicial inquiry. 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.

Furthermore, a banking institution's claim that a resolution of the Monetary Board under Section 29 of the Central Bank Act should be set aside as plainly arbitrary and made in bad faith, may be asserted as an affirmative defense (Sections 1 and 4[b], Rule 6, Rules of Court) or a counterclaim (Section 6, Rule 6; Section 2, Rule 72 of the Rules of Court) in the proceedings for assistance in liquidation or as a cause of action in a separate and distinct action where the latter was filed ahead of the petition for assistance in liquidation (ibid; Central Bank vs. Court of Appeals, 106 SCRA 143 [1981]).