APOLLO M. SALUD, AS ATTORNEY-IN-FACT FOR ITS STOCKHOLDERS, IN HIS BEHALF AND FOR AND IN BEHALF OF THE RURAL BANK OF MUNTINLUPA, INC., HON. VICENTE R. CAMPOS, PRESIDING JUDGE, RE…

Salud versus Rural Bank of Muntinlupa

The Case

This is a petition for certiorari brought by the Rural Bank of Muntinlupa and its stockholders against the Central Bank and its designated liquidator, questioning two resolutions of the Intermediate Appellate Court. The dispute turns on a single, practical question of procedure: when the Monetary Board of the Central Bank orders a bank liquidated under Section 29 of the Central Bank Act, may the bank resist that order inside the very proceeding for assistance in liquidation, or must it file a separate action? The case matters because it fixes where and how a bank may attack a Monetary Board resolution that the law itself declares final and executory.

Procedural History

The Central Bank and its liquidator filed a petition for assistance in the liquidation of the Rural Bank of Muntinlupa before the Court of First Instance of Pasay City. The bank filed an opposition, which the trial court treated as a motion to dismiss. The trial court dismissed the petition, ruling that the bank was not insolvent and that conservatorship, not liquidation, was the proper remedy. After two failed motions for reconsideration, the Central Bank and its liquidator went to the Supreme Court by certiorari and mandamus under Rule 65. The Supreme Court referred the petition to the Intermediate Appellate Court. The Intermediate Appellate Court rendered judgment remanding the case to the trial court for further proceedings, because the trial court had dismissed outright without a hearing. On motion for reconsideration, the Intermediate Appellate Court modified its judgment and ordered the trial court to approve the petition for assistance in liquidation. The bank then elevated the matter to the Supreme Court, which decided the case in August 1986.

Facts

On February 3, 1978, the Monetary Board issued a resolution forbidding the Rural Bank of Muntinlupa from doing business and designating a statutory receiver. On August 28, 1981, after confirming that the bank was insolvent and could not resume business with safety to depositors, creditors, and the public, the Monetary Board ordered its liquidation and appointed a liquidator.

On April 6, 1982, the Central Bank and the liquidator filed a petition for assistance in liquidation before the Court of First Instance of Pasay City, expressly invoking Section 29 of the Central Bank Act. The bank opposed, arguing that liquidation was premature because the law made reorganization the primordial duty, and that the action was arbitrary and in bad faith, since the bank was still capable of rehabilitation and the Central Bank had rehabilitated similarly distressed banks.

The trial court dismissed the petition, finding that the bank had more assets than liabilities and could not be considered insolvent, and that conservatorship was the mandatory remedy. The Intermediate Appellate Court initially remanded for a hearing, but on reconsideration it declared the trial court orders void and directed approval of the petition for assistance in liquidation.

Issues

• Whether or not a bank may raise, as an affirmative defense or counterclaim in a proceeding for assistance in liquidation, the claim that the Monetary Board resolution ordering liquidation is plainly arbitrary and made in bad faith, instead of filing a separate action.
• Whether or not the Intermediate Appellate Court has exclusive appellate jurisdiction over resolutions of the Monetary Board, to the exclusion of the Regional Trial Courts.

Applicable Provisions

Section 29 of the Central Bank Act provides, in its pertinent portion:

The provisions of any law to the contrary notwithstanding the actions of the Monetary Board under this Section and the second paragraph of Section 34 of this Act shall be final and executory, and can be set aside by the court only if there is convincing proof that the action is plainly arbitrary and made in bad faith.

This is the provision that makes the Monetary Board action final and executory, yet opens it to judicial setting aside on the single ground of plain arbitrariness and bad faith.

The same Section provides on the authority of the Monetary Board:

The appointment of a conservator under Section 28-A of this Act or the appointment of receiver under this Section shall be vested exclusively with the Monetary Board, the provision of any law, general or special, to the contrary notwithstanding.

This confirms that the choice between conservatorship and receivership belongs to the Monetary Board, subject only to the limited judicial review just quoted.

Ruling

On the first issue, the Court ruled that the bank's claim may be asserted as an affirmative defense or a counterclaim in the proceeding for assistance in liquidation. The Court found no provision of law, express or implied, requiring a separate proceeding exclusively devoted to that issue. To hold otherwise would engender that multiplicity of proceedings which the law abhors. The Court added that failure to raise the ground in the assistance proceeding would constitute a waiver under the rules on waiver of defenses and the omnibus motion rule. The earlier case where two separate proceedings existed was merely fortuitous, since the two were in fact jointly heard and decided.

On the second issue, the Court held that the contention was utterly devoid of merit. The Intermediate Appellate Court has no appellate jurisdiction over resolutions of the Monetary Board, and no law prescribes any mode of appeal from the Monetary Board to that court. The contention was also inconsistent with the text of Section 29 and with the Central Bank's own theory, which conceded original jurisdiction in the Regional Trial Court.

Doctrine

A bank may challenge a Monetary Board resolution ordering its liquidation as plainly arbitrary and made in bad faith by way of affirmative defense or counterclaim in the proceeding for assistance in liquidation; no separate action is required. The action of the Monetary Board is final and executory and may be set aside only upon convincing proof that it is plainly arbitrary and made in bad faith. The Regional Trial Court, not the Intermediate Appellate Court, exercises original jurisdiction over that challenge.

Disposition

The Supreme Court set aside the two resolutions of the Intermediate Appellate Court and reinstated and affirmed its earlier decision remanding the case to the trial court for further proceedings, with no costs.

Remember This

The one line to memorize: a Monetary Board liquidation order, though final and executory, may be attacked as plainly arbitrary and in bad faith by affirmative defense or counterclaim in the assistance proceeding itself. Examiners use this case to test the limits of judicial review over Monetary Board actions and the rule against multiplicity of suits.