". . . 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 first issue raised before Us is whether absence
of prior notice and hearing may be considered acts of arbitrariness and
bad faith sufficient to annul a Monetary Board resolution enjoining a
bank from doing business and placing it under receivership. Otherwise
stated, is absence of prior notice and hearing constitutive of acts of
arbitrariness and bad faith?
Under Sec. 29 of R.A. 265, 15
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
business in the Philippines; and shall designate an official of the CB
or other competent person as receiver to immediately take charge of its
assets and liabilities. The fourth paragraph, 16
which 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.
In the early case of Rural Bank of Lucena, Inc. v. Arca [1965], 17
We held that a previous hearing is nowhere required in Sec. 29 nor does
the constitutional requirement of due process demand that the
correctness of the Monetary Board's resolution to stop operation and
proceed to liquidation be first adjudged before making the resolution
effective. It is enough that a subsequent judicial review be provided.
Even in Banco Filipino, 18 We
reiterated that Sec. 29 of R.A. 265 does not require a previous hearing
before the Monetary Board can implement its resolution closing a bank,
since its action is subject to judicial scrutiny as provided by law.
It may be emphasized that Sec. 29 does not altogether
divest a bank or a non-bank financial institution placed under
receivership of the opportunity to be heard and present evidence on
arbitrariness and bad faith because within ten (10) days from the date
the receiver takes charge of the assets of the bank, resort to judicial
review may be had by filing an appropriate pleading with the court.
Respondent TSB did in fact avail of this remedy by filing a complaint
with the RTC of Quezon City on the 8th day following the takeover by the
receiver of the bank's assets on 3 June 1985.
This "close now and 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.
In Rural Bank of Buhi, Inc. v. Court of Appeals, 19 We stated 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.
We stressed in Central Bank of the Philippines v. Court of Appeals 20 that —
. .
. the banking business is properly subject to reasonable regulation
under the police power of the state because of its nature and relation
to the fiscal affairs of the people and the revenues of the state (9 CJS
32). Banks are affected with public interest because they receive funds
from the general public in the form of deposits. Due to the nature of
their transactions and functions, a fiduciary relationship is created
between the banking institutions and their depositors. Therefore, banks
are under the obligation to treat with meticulous care and utmost
fidelity the accounts of those who have reposed their trust and
confidence in them (Simex International [Manila], Inc., v. Court of
Appeals, 183 SCRA 360 [1990]).
It is then the Government's responsibility to see to
it that the financial interests of those who deal with the banks and
banking institutions, as depositors or otherwise, are protected. In this
country, that task is delegated to the Central Bank which, pursuant to
its Charter (R.A. 265, as amended), is authorized to administer the
monetary, banking and credit system of the Philippines. Under both the
1973 and 1987 Constitutions, the Central Bank is tasked with providing
policy direction in the areas of money, banking and credit; corollarily,
it shall have supervision over the operations of banks (Sec. 14, Art.
XV, 1973 Constitution, and Sec. 20, Art. XII, 1987 Constitution). Under
its charter, the CB is further authorized to take the necessary steps
against any banking institution if its continued operation would cause
prejudice to its depositors, creditors and the general public as well.
This power has been expressly recognized by this Court. In Philippine
Veterans Bank Employees Union-NUBE v. Philippine Veterans Banks (189
SCRA 14 [1990], this Court held that:
. . . [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 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.
Section 29
of R.A. 265 should be viewed in this light; otherwise, We would be
subscribing to a situation where the procedural rights invoked by
private respondent would take precedence over the substantive interests
of depositors, creditors and stockholders over the assets of the bank.
Admittedly, the mere filing of a case for
receivership by the Central Bank can trigger a bank run and drain its
assets in days or even hours leading to insolvency even if the bank be
actually solvent. The procedure prescribed in Sec. 29 is truly designed
to protect the interest of all concerned, i.e., the depositors,
creditors and stockholders, the bank itself, and the general public, 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.
The heavy reliance of respondents on the Banco Filipino case is misplaced in view of factual circumstances therein which are not attendant in the present case. We ruled in Banco Filipino that
the 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 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 Appeals, 21 and reiterate Our pronouncement therein that —
. .
. 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.
In 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 accordance 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.
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 receivership and prohibiting it from continuing operations. 22 In Central Bank v. Court of Appeals, 23 We explained the purpose of the law —
. .
. in requiring that only the stockholders of record representing the
majority of the capital stock may bring the action to set aside a
resolution to place a bank under conservatorship is to ensure that it be
not frustrated or defeated by the incumbent Board of Directors or
officers who may immediately resort to court action to prevent its
implementation or enforcement. It is presumed that such a resolution is
directed principally against acts of said Directors and officers which
place the bank in a state of continuing inability to maintain a
condition of liquidity adequate to protect the interest of depositors
and creditors. Indirectly, it is likewise intended to protect and
safeguard the rights and interests of the stockholders. Common sense and
public policy dictate then that the authority to decide on whether to
contest the resolution should be lodged with the stockholders owning a
majority of the shares for they are expected to be more objective in
determining whether the resolution is plainly arbitrary and issued in
bad faith.
It is
observed that the complaint in this case was filed on 11 June 1985 or
two (2) years prior to 25 July 1987 when E.O. 289 was issued, to be
effective sixty (60) days after its approval (Sec. 5). The implication
is that before E.O
. 289, any party in interest could institute court
proceedings to question a Monetary Board resolution placing a bank under
receivership. Consequently, since the instant complaint was filed by
parties representing themselves to be officers of respondent Bank
(Officer-in-Charge and Vice President), the case before the trial court
should now take its natural course. However, after the effectivity of
E.O. 289, the procedure stated therein should be followed and observed.
PREMISES considered, the Decision of the Court of Appeals in CA-G.R. SP No. 07867 is AFFIRMED,
except insofar as it upholds the Order of the trial court of 11
November 1985 directing petitioner RAMON V. TIAOQUI to restore the
management of TRIUMPH SAVINGS BANK to its elected Board of Directors and
Officers, which is hereby SET ASIDE.
Let this case be remanded to the Regional Trial Court
of Quezon City for further proceedings to determine whether the
issuance of Resolution No. 596 of the Monetary Board was tainted with
arbitrariness and bad faith and to decide the case accordingly.
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