RURAL BANK OF SAN MIGUEL, INC. AND HILARIO P. SORIANO, IN HIS CAPACITY AS MAJORITY STOCKHOLDER IN THE RURAL BANK OF SAN MIGUEL, INC., PETITIONERS, VS. MONETARY BOARD, BANGKO SEN…

Rural Bank of San Miguel versus Monetary Board

The Case

This is a petition for review on certiorari brought by the Rural Bank of San Miguel, Incorporated and its claimed majority stockholder, Hilario P. Soriano, against the Monetary Board of the Bangko Sentral ng Pilipinas and the Philippine Deposit Insurance Corporation. The petitioners ask the Supreme Court to set aside the ruling of the Court of Appeals that upheld Resolution Number 105 of the Monetary Board, the resolution that prohibited the bank from doing business in the Philippines, placed it under receivership, and designated the Philippine Deposit Insurance Corporation as receiver. The case matters because it fixes the threshold requirement of the New Central Bank Act: whether the Monetary Board needs a full examination of a bank before closing it, or whether a report of the head of the supervising or examining department will suffice. It is a study in statutory repeal, in the plain meaning rule, and in the summary and expeditious nature of bank closure as an exercise of police power.

Procedural History

On the twenty first of January 2000, the Monetary Board issued Resolution Number 105. Ten days later, the petitioners filed a petition for certiorari and prohibition before the Regional Trial Court of Malolos, Branch 22, to nullify that resolution. On the seventh of February 2000, however, the petitioners filed a notice of withdrawal in the trial court and, on the same day, filed a special civil action for certiorari and prohibition before the Court of Appeals. On the eighth of February 2000, the trial court dismissed the case pursuant to the rule on dismissal upon notice by the plaintiff.

The Court of Appeals dismissed the petition on the twenty eighth of March 2000, holding that the Monetary Board's action rested on the findings and recommendations of the Department of Rural Banks Supervision and Examination Sector, on the comptroller reports as of the thirty first of October 1999 and the thirty first of December 1999, and on the declaration of a bank holiday, and that these amounted to substantial evidence. The petitioners' motion for reconsideration was denied in a resolution dated the thirteenth of November 2001. The petitioners then came to the Supreme Court by petition for review on certiorari under Rule 45.

Facts

The Rural Bank of San Miguel began operations in 1962 and by the year 2000 maintained fifteen branches in Bulacan. To assist its impaired liquidity, it was granted emergency loans on several occasions in the aggregate amount of 375 million pesos. As early as the eighteenth of November 1998, the Land Bank of the Philippines advised the bank that it would terminate the clearing of its checks because of frequent clearing losses and its continuing failure to replenish its special clearing demand deposit. The Bangko Sentral interceded to protect depositors and creditors, but after a year the Land Bank informed the Bangko Sentral of the termination of the clearing facility, effective the twenty ninth of December 1999.

On the twenty eighth of December 1999, the Monetary Board approved the release of 26.189 million pesos, the last tranche of the emergency loan, for the sole purpose of servicing withdrawals. Of that amount, 12.6 million pesos was not used to service withdrawals and remained unaccounted for, as admitted by the bank's treasury officer. Instead, the bank paid two collection entities owned and controlled by Hilario P. Soriano and other bank officers. On the fourth of January 2000, the bank declared a bank holiday, and all fifteen branches closed.

The comptroller's findings showed total liabilities of over one billion pesos against realizable assets of less than nine hundred million pesos as of the thirty first of October 1999, a deficit of 178.275 million pesos, and a required capital infusion of 252.120 million pesos, against an actual infusion of only five million pesos. The head of the Department of Rural Banks Supervision and Examination Sector submitted a fifty page memorandum to the Monetary Board on the twentieth of January 2000, and the Board issued Resolution Number 105 the next day. The Philippine Deposit Insurance Corporation then took over the management of the bank's assets and affairs. Later, on the ninth of June 2000, the Monetary Board directed the corporation to proceed with liquidation.

Issues

• Whether or not Section 30 of Republic Act Number 7653, the New Central Bank Act, and applicable jurisprudence require a current and complete examination of a bank before the Monetary Board may close it and place it under receivership.
• Whether or not the Monetary Board had sufficient basis, supported by substantial evidence, to conclude that grounds existed to justify the closure of the Rural Bank of San Miguel.

Applicable Provisions

Section 30 of Republic Act Number 7653, the New Central Bank Act, provides:

SECTION 30. Proceedings in Receivership and Liquidation. — Whenever, upon report of the head of the supervising or examining department, the Monetary Board finds that a bank or quasi-bank: (a) is unable to pay its liabilities as they become due in the ordinary course of business: Provided, That this shall not include inability to pay caused by extraordinary demands induced by financial panic in the banking community; (b) has insufficient realizable assets, as determined by the Bangko Sentral ng Pilipinas to meet its liabilities; or (c) cannot continue in business without involving probable losses to its depositors or creditors; or (d) has willfully violated a cease and desist order under Section 37 that has become final, involving acts or transactions which amount to fraud or a dissipation of the assets of the institution; in which cases, 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.

This is the governing provision, and its use of the word report, rather than examination, is the textual hinge on which the entire case turns.

The same section continues on the finality of the Board's action:

The 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.

This defines the narrow door through which judicial review of a closure order may pass.

Section 29 of the old Central Bank Act, Republic Act Number 265, which the petitioners relied upon, provided:

SECTION 29. Proceedings upon insolvency. — Whenever, upon examination by the head of the appropriate supervising or examining department or his examiners or agents into the condition of any bank or non-bank financial intermediary performing quasi-banking functions, it shall be disclosed that the condition of the same is one of insolvency, or that its continuance in business would involve probable loss to its depositors or creditors, it shall be the duty of the department head concerned forthwith, in writing, to inform the Monetary Board of the facts.

This old provision required an examination, and the Court holds that it was expressly repealed by Republic Act Number 7653, so the jurisprudence built upon it no longer controls.

Ruling

On the first issue, the Court ruled against the petitioners. The Banco Filipino case and the other authorities they cited were decided under Section 29 of the old law, which required an examination by the head of the supervising or examining department. That law was expressly repealed by Republic Act Number 7653, which took effect in 1993, while Resolution Number 105 was issued in January 2000. Under the new law, only a report of the head of the supervising or examining department is necessary. The Court applied the plain meaning rule, verba legis, meaning that where the words of a statute are clear, plain and free from ambiguity, the statute must be given its literal meaning and applied without attempted interpretation. The Court distinguished the two words:

The word report has a definite and unambiguous meaning which is clearly different from examination. A report, as a noun, may be defined as something that gives information or a usually detailed account or statement. On the other hand, an examination is a search, investigation or scrutiny.

The Court added that it cannot impose a requirement absent from the law, for to do so would be judicial legislation. It explained that the purpose of the law is to make the closure of a bank summary and expeditious in order to protect public interest, which is also why prior notice and hearing are no longer required. The legislature could have retained the word examination but chose the word report instead.

On the second issue, the Court held that the absence of an examination did not mean there was no basis for the closure. The Monetary Board relied on the fifty page memorandum of the head of the supervising or examining department, which detailed the facts showing that the bank was unable to pay its liabilities as they became due in the ordinary course of business and could not continue in business without probable losses to its depositors and creditors. These are grounds under Section 30. The findings of an administrative body must be supported by substantial evidence, and here they were. The issuance of Resolution Number 105 was therefore untainted by arbitrariness. Having resolved the decisive issue, the Court found it unnecessary to resolve the other minor issues raised.

Doctrine

Under Section 30 of Republic Act Number 7653, the Monetary Board may summarily forbid a bank from doing business and designate the Philippine Deposit Insurance Corporation as receiver upon a report of the head of the supervising or examining department. No prior and complete examination is required, because the law uses the word report, not examination. The old requirement of an examination under Section 29 of Republic Act Number 265 was expressly repealed and cannot be read back into the new law. The closure of a bank is an exercise of police power, and the action of the Monetary Board is final and executory, subject to judicial inquiry only on certiorari for excess of jurisdiction or grave abuse of discretion amounting to lack or excess of jurisdiction. The findings of the Board must rest on substantial evidence, but that evidence need not arise from an examination. Finally, where the words of a statute are clear and unambiguous, they must be given their literal meaning, for from the words of a statute there should be no departure.

Disposition

The petition was denied, and the decision and resolution of the Court of Appeals were affirmed, with costs against the petitioners.

Remember This

The one line to memorize: under the New Central Bank Act, a report of the head of the supervising or examining department suffices, and no prior examination is needed before the Monetary Board may close a bank. Examiners like to use this case to test the plain meaning rule, the effect of an express repeal on prior jurisprudence, and the summary nature of bank closure as an exercise of police power.