Rural Bank of Buhi vs. CA

CASE NO. 4 RURAL BANK OF BUHI VS. CA

FACTS: Buhi Bank was a rural bank. Its books were examined by the Rural Banks' Division of the Central Bank. However, it refused to be examined. As a consequence, its financial assistance was suspended. Later, a general examination of the bank’s affairs and operations were again conducted. The rural bank’s division found out massive irregularities in the operations, giving out loans to unknown and fictitious borrowers, and sums amounting to millions past due to the Central Bank. There were also promissory notes rediscounted with the Central Bank for cash. As a result, the Buhi Bank became insolvent. The division chief, Odra, recommended that Buhi be placed under receivership. Thus, the Monetary Board adopted a Resolution # 583, placing the bank under receivership. Odra, the division chief, was made the receiver. Odra thus implemented the resolution, authorizing deputies to take control and possession of Buhi’s assets and liabilities. Del Rosario, the Buhi Bank Manager, filed an injunction against the receiver, arguing that the resolution violated the Rural Banks Act and constitutes gadalej. The bank claims that there was a violation of due process. They claim that the bank was not given the chance to deny and disprove the claim of insolvency or the other grounds and that it was hastily put under receivership. Later on, the Central Bank Monetary Board ordered the liquidation of the Bank. The judge ruled in favor of the Bank and issued a writ of execution. The CA however restrained the enforcement of execution, citing that the Judge did not follow the orders, and thus required the Bank to yield to the CB. ISSUE: Whether or not due process was observed RULING: AFFIRMATIVE. CLOSURE VALID. Under Sec 29 of the RA 265, on proceedings regarding insolvency, there is NO REQUIREMENT that a hearing be first conducted before a bank may be placed under receivership. The law explicitly provides that the Monetary Board can IMMEDIATELY forbid a banking institution from doing business and

IMMEDIATELY appoint a receiver when: 1) there has been an examination by CB, b) a report to the CB, and c) prima facie showing that the bank is insolvent. As to the claim that the RA 265 violates due process, the claim is untenable. The law could not have intended to disregard the constitutional requirement of due process when it conferred power to place rural banks under receivership. The closure and liquidation of the bank is considered an exercise of POLICE POWER. It maybe subject to judicial inquiry and could be set aside if found to be capricious, discriminatory, whimsical, arbitrary, etc. The appointment of a receiver may be made by the Monetary Board, WITHOUT NOTICE AND HEARING, but subject to the JUDICIAL INQUIRY, to insure protection of the banking institution. Due process does NOT necessarily require a PRIOR HEARING. A hearing or an OPPORTUNITY TO BE HEARD may be made SUBSEQUENT to the closure. One could just imagine the dire consequences of a prior hearing: bank runs would happen, resulting in panic and hysteria. In that way, fortunes will be wiped out, and disillusionment will run the gamut of the entire banking industry. There is no question that the action of the MB may be subject to judicial review. Courts may interfere with the MB’s exercise of discretion. Here, the RTC has jurisdiction to adjudicate the question of whether the MB acted in bad faith when it directed the dissolution of Buhi Bank.