THE SURIGAO DEVELOPMENT BANK, FELIPE PLAZA CHUA, MELCHOR AVILA CHUA, LUCIA RAMA LIMCHIU, MARIANELLA G. RAMA, CELERINA A. CHUA, EUFEMIO. V. DARUNDAY AND BENJAMIN LOZADA, PETITION…

Surigao Development Bank versus Central Bank of the Philippines

The Case

This is an original petition for certiorari and prohibition with preliminary injunction filed by the Surigao Development Bank and its directors and officers against the Republic of the Philippines, the Central Bank of the Philippines, and the Superintendent of Banks. The petitioners ask the Supreme Court to annul the order of the Court of First Instance of Surigao del Norte, which granted ex parte the application for receivership and appointed the Superintendent of Banks as receiver pendente lite of the bank, and to restrain the respondents from taking over the business, operations, properties, and assets of the bank. The case matters because it fixes the standard of review for a trial court's appointment of a receiver: receivership is addressed to the sound discretion of the court, and a reviewing court will not interfere unless that discretion has been gravely abused.

Procedural History

The Republic and the Central Bank filed a verified petition in the Court of First Instance of Surigao del Norte, docketed as Civil Case No. 1582, styled as proceedings under Section 34 of Republic Act No. 265 and for quo warranto. On the same day, the trial court gave the petition due course and, on the strength of the verified petition, appointed the Superintendent of Banks as receiver pendente lite. The petitioners moved to dissolve the receivership; the trial court denied the motion and ordered the immediate implementation of the receivership, directing the Provincial Commander to detail guards at the bank's premises. The petitioners then went to the Court of Appeals on certiorari and prohibition with preliminary injunction. The Court of Appeals issued a writ of preliminary injunction, but later dismissed the petition and dissolved the writ for lack of jurisdiction, since the value in controversy exceeded two hundred thousand pesos. Upon the dismissal, the trial court reinstated its receivership orders, and the Superintendent of Banks took over the assets of the bank. The petitioners then filed this original petition with the Supreme Court.

Facts

The Surigao Development Bank was organized in March 1961 as a private development bank under Section 8 of Republic Act No. 85, as amended, in relation to the General Banking Act. Of its capital stock of one million pesos, fifty percent, or five hundred thousand pesos in preferred shares, was subscribed and paid in full by the Development Bank of the Philippines; the other fifty percent in common shares was paid in full by the private stockholders, who are the individual petitioners.

The Central Bank examined the bank's books and operations as early as September 1961. The Superintendent of Banks wrote the bank's president and treasurer and its board requesting authority for the Pacific Banking Corporation to furnish a copy of the bank's demand deposit transactions, but the request was not complied with. Further letters and requests for comment on findings of violations and irregularities went unanswered or were met with replies containing no explanation. The Monetary Board adopted resolutions, which the respondents did not comply with, and the bank's officers instead asked for reconsideration, which was denied.

In January 1963, the Development Bank of the Philippines, as stockholder, filed a derivative suit in the Court of First Instance of Manila, docketed as Civil Case No. 52693, for accounting and restitution of an alleged shortage of five hundred fifty-five thousand pesos and for injunction or mandamus. While that case was pending, the Republic and the Central Bank filed Civil Case No. 1582 in Surigao del Norte, alleging violations of the bank's charter and by-laws and of banking laws and regulations, misappropriation of the five hundred fifty-five thousand pesos, and that the bank was insolvent or in imminent danger of insolvency. On the same day, the trial court gave the petition due course and appointed the Superintendent of Banks as receiver pendente lite upon a nominal bond.

Issues

• Whether or not the respondent Judge acted with sound discretion, or with clear and grave abuse thereof, in appointing the Superintendent of Banks as receiver pendente lite of the Surigao Development Bank on an ex parte application.
• Whether or not the Superintendent of Banks, being an officer of the Central Bank, was disqualified from acting as receiver.
• Whether or not the pendency of the prior derivative suit in Manila barred the application for receivership.

Applicable Provisions

Section 34 of Republic Act No. 265, the Central Bank Act, provides the statutory ground invoked by the petitioners for the proceedings:

Proceedings under Section 34 of Republic Act No. 265 and for quo warranto.

This is the provision under which the Republic and the Central Bank initiated Civil Case No. 1582, and it bears on the case because it supplies the legal basis for the reliefs prayed for, including liquidation of the bank's business.

Rule 59 of the Rules of Court governs the appointment of a receiver pendente lite, and the trial court expressly invoked it:

WHEREFORE, pursuant to the provisions of Rule 59 of the New Rules of Court, the Court hereby names and appoints the Superintendent of Banks of the petitioner Central Bank of the Philippines as receiver of the respondent Surigao Development Bank during the pendency of this action.

This is the rule the trial court applied in appointing the receiver, and the rule against which the propriety of the ex parte appointment is measured.

Ruling

On the first issue, the Court held that the appointment and discharge of receivers are matters primarily addressed to, and resting largely on, the discretion of the trial court, not being a matter of strict right, and that a reviewing court will not interfere with the exercise of such discretion unless convinced that the same has been abused. The main issue, therefore, was whether the respondent Judge acted in the exercise of a sound discretion or with clear and grave abuse thereof. The petitioners contended that there was no emergency, no imperative necessity, and no extreme urgency for a receivership as to dispense with the requisite notice and hearing, and that the matters complained of could have been ordered done after proper hearing without placing the bank under receivership. The Court found that the petitioners overlooked the fact that the verified petition alleged serious violations of the bank's charter and of banking rules and regulations, and that the trial court had before it allegations of misappropriation and of insolvency or imminent danger of insolvency. On this record, the Court was not convinced that the respondent Judge had gravely abused his discretion in granting the ex parte application and appointing the Superintendent of Banks as receiver pendente lite.

On the second issue, the trial court had ruled that by its charter the Central Bank is authorized to supervise all banking institutions through its Department of Supervision and Examination headed by the Superintendent of Banks, who by the nature of his position cannot be said to be an interested party, and that no other person was better qualified to act as receiver. The Court sustained the appointment.

On the third issue, the pendency of the derivative suit in Manila did not bar the receivership proceedings in Surigao del Norte, and the Court upheld the trial court's denial of the motion to dissolve the receivership.

Doctrine

The appointment and discharge of receivers are matters primarily addressed to, and resting largely on, the discretion of the trial court; receivership is not a matter of strict right, and a reviewing court will not interfere with the exercise of that discretion unless convinced that it has been abused. Where the verified petition alleges serious violations of the bank's charter and of banking laws and regulations, misappropriation of funds, and insolvency or imminent danger of insolvency, the trial court does not gravely abuse its discretion in appointing a receiver pendente lite on an ex parte application under Rule 59 of the Rules of Court. The Superintendent of Banks, as head of the Central Bank's Department of Supervision and Examination, is not disqualified from acting as receiver by reason of his office, since his position carries no interest adverse to the bank and its depositors.

Disposition

The petition was denied, and the receivership of the Surigao Development Bank in favor of the Superintendent of Banks was sustained.

Remember This

The single line worth memorizing is that the appointment of a receiver rests on the sound discretion of the trial court, reviewable only for grave abuse. Examiners use this case to test the standard of review for receivership orders and the qualifications of the Superintendent of Banks to act as receiver.