Salud vs. Central Bank of the Philippines

A banking institution's claim that a Monetary Board resolution under Section 29 of the Central Bank Act is "plainly arbitrary and made in bad faith" may be asserted as an affirmative defense or counterclaim in the very proceeding for assistance in liquidation, and need not be raised in a separate and distinct action; the Regional Trial Court has jurisdiction to adjudicate that issue in such proceeding.

The Rural Bank of Muntinlupa, Inc. and its stockholders (collectively, the Muntinlupa Bank) were subject to the regulatory authority of the Central Bank and its Monetary Board under Section 29 of the Central Bank Act (Republic Act No. 265, as amended by Presidential Decree Nos. 1007 and 1771). Section 29 empowers the Monetary Board, upon finding a banking institution insolvent or likely to cause probable loss to depositors, to forbid it from doing business, appoint a receiver, and within sixty days determine whether the bank may be rehabilitated or should be liquidated. The statute declares the Monetary Board's actions "final and executory," subject to judicial review only upon "convincing proof that the action is plainly arbitrary and made in bad faith." When liquidation is ordered, the Central Bank files a petition for assistance in liquidation with the Regional Trial Court, which has jurisdiction to adjudicate disputed claims and implement the liquidation plan.

The Monetary Board of the Central Bank, acting under Section 29 of the Central Bank Act, adopted Resolution No. 213 on February 3, 1978, forbidding the Rural Bank of Muntinlupa, Inc. from doing business and designating Consolacion Odra as its statutory receiver. Thereafter, on August 28, 1981, the Monetary Board adopted Resolution No. 1523, ordering the liquidation of the Muntinlupa Bank after confirming that it was insolvent, could not resume business with safety to depositors, creditors, and the general public, and that public interest required liquidation.

Pursuant to these resolutions, the Central Bank and its designated Liquidator, Consolacion Odra, filed on April 6, 1982 a "Petition for Assistance in the Liquidation of the Rural Bank of Muntinlupa, Inc." with the Court of First Instance at Pasay City, docketed as Sp. Proc. No. 9697. The petition recited the proceedings taken by the Monetary Board and prayed for the court's assistance in the liquidation of the bank. The Muntinlupa Bank filed an Opposition, raising two principal defenses: first, that liquidation was premature and void because Section 28-A of the Central Bank Act mandates that the Central Bank first attempt to reorganize the bank's management and restore its viability; and second, that the action was arbitrary and in bad faith because the bank remained capable of rehabilitation, and the Central Bank had previously rehabilitated similarly distressed banks such as the Republic Bank and the Overseas Bank of Manila.

The Regional Trial Court, treating the Opposition as tantamount to a Motion to Dismiss, promulgated an Order on June 6, 1983 dismissing the petition for assistance in liquidation. The RTC opined that, based on the figures provided by the petitioners themselves, the Muntinlupa Bank had more assets than liabilities and could not under any circumstance be considered insolvent. It further ruled that conservatorship under Section 28-A, rather than liquidation under Section 29, was the mandatory remedy. After two failed attempts to have this Order reconsidered, the Central Bank and its Liquidator filed a special civil action of certiorari and mandamus under Rule 65 before the Supreme Court, which referred the petition to the Intermediate Appellate Court.

The IAC rendered its Decision on November 22, 1984, declaring that while the Monetary Board had the power to determine whether a rural bank's continuance in business would involve probable loss, whether such findings were issued with abuse was subject to judicial inquiry. However, because the RTC had dismissed the petition outright on the basis of the Opposition without conducting a hearing for both parties to substantiate their allegations, the IAC found that the RTC had exceeded its authority and remanded the case for further proceedings. Upon motion for reconsideration by the Central Bank, the IAC amended its dispositive portion on January 4, 1985, declaring the RTC's orders null and void for grave abuse of discretion and ordering the RTC to approve the petition for assistance in liquidation. The Muntinlupa Bank's motion for reconsideration of this amended resolution was denied on July 23, 1985, prompting the present petition before the Supreme Court.

• Jurisdiction to Review Monetary Board Resolutions: Petitioner Muntinlupa Bank maintained that under Section 29 of the Central Bank Act, the Regional Trial Court has jurisdiction to adjudicate whether the Monetary Board's resolution directing dissolution was "arbitrary and made in bad faith," and that the IAC's original Decision of November 22, 1984 remanding the case for hearing was in complete accord with the law, as it would afford the bank an opportunity to adduce convincing proof that Monetary Board Resolution No. 213 was arbitrary and made in bad faith.
• Premature Liquidation: Petitioner argued that the liquidation decreed by the Monetary Board was premature and void because Section 28-A of the Central Bank Act mandates that prior to liquidation, it is the Central Bank's primordial duty to reorganize the management of the bank and restore its viability.
• Arbitrary and Bad Faith Action: Petitioner contended that the liquidation was arbitrary and in bad faith because the bank was still capable of rehabilitation, and the Central Bank had previously rehabilitated similarly distressed banks such as the Republic Bank and the Overseas Bank of Manila.

• No Jurisdiction in Liquidation Proceeding: Respondent Central Bank and its Liquidator argued that the Regional Trial Court, in which a petition for assistance in liquidation is filed, has no jurisdiction over the issue of whether the Monetary Board resolution is "arbitrary and made in bad faith" when that issue is raised in the same proceeding by an opposition or motion to dismiss. They asserted that the issue may only be raised in a separate action or proceeding.
• Collateral Attack Prohibition: Respondent argued that to raise the question of whether liquidation is justified in the assistance proceeding is to conduct a collateral attack on the liquidation, which cannot be done; an attack on the validity of the liquidation must be made directly in a proceeding specifically for that purpose, because the factual basis of the liquidation — the insolvency of the bank — requires a full-blown hearing.
• Exclusive IAC Appellate Jurisdiction: Respondent postulated, for the first time, that the Monetary Board is among the quasi-judicial boards whose judgments are within the exclusive appellate jurisdiction of the IAC, and therefore only the IAC, to the exclusion of the Regional Trial Courts, may review the Monetary Board's resolutions.

• Scope of Judicial Review in Liquidation Proceedings: Whether the issue of whether a Monetary Board resolution under Section 29 of the Central Bank Act is "plainly arbitrary and made in bad faith" may be raised and adjudicated in the very proceeding for assistance in liquidation, or whether it must be raised in a separate and distinct action.
• Appellate Jurisdiction over Monetary Board Resolutions: Whether the Intermediate Appellate Court has exclusive appellate jurisdiction over resolutions of the Monetary Board, to the exclusion of the Regional Trial Courts.

• Scope of Judicial Review in Liquidation Proceedings: Yes. The claim that a Monetary Board resolution is "plainly arbitrary and made in bad faith" may be asserted as an affirmative defense or counterclaim in the proceeding for assistance in liquidation itself; no law requires a separate proceeding exclusively for that purpose.
• Appellate Jurisdiction over Monetary Board Resolutions: No. The IAC has no appellate jurisdiction over resolutions or orders of the Monetary Board, as no law prescribes any mode of appeal from the Monetary Board to the IAC; the contention is inconsistent with Section 29 of the Central Bank Act and with the Central Bank's own theory conceding original jurisdiction in the RTC.

• Scope of Judicial Review in Liquidation Proceedings: Resolutions of the Monetary Board under Section 29 — forbidding a bank to do business, appointing a receiver, or determining whether a bank should be rehabilitated or liquidated — are declared by law to be "final and executory," but may be set aside by the court upon "convincing proof that the action is plainly arbitrary and made in bad faith." The Central Bank conceded the court's power to set aside such resolutions but insisted this could only be done in a separate action, citing Central Bank vs. Court of Appeals where the aggrieved parties had filed a separate petition for certiorari. The Court found no reason why the challenge could not be raised as an affirmative defense or counterclaim in the liquidation proceeding itself. No provision of law, express or implied, requires a separate proceeding. Requiring one would engender a multiplicity of proceedings which the law abhors. Moreover, failure to assert the defense in the liquidation proceeding would constitute a waiver under the Omnibus Motion Rule and the rule on Waiver of Defenses. The fact that separate proceedings existed in Central Bank vs. Court of Appeals was entirely fortuitous — the petition to annul the resolution happened to be filed ahead of the petition for assistance, and the two were in fact jointly heard and decided, indicating the intimate relationship between the issues. That case actually supported the proposition that the validity of the Monetary Board's exercise of police power is subject to judicial inquiry and may be set aside if capricious, discriminatory, whimsical, arbitrary, unjust, or a denial of due process and equal protection.
• Appellate Jurisdiction over Monetary Board Resolutions: The contention that the Monetary Board is among the quasi-judicial boards whose judgments fall within the exclusive appellate jurisdiction of the IAC was found utterly devoid of merit. No law prescribes any mode of appeal from the Monetary Board to the IAC. The argument was inconsistent with the text of Section 29 of the Central Bank Act, which contemplates the RTC's role in the liquidation proceeding. It was also inconsistent with the Central Bank's own theory, which conceded original jurisdiction in the RTC provided the challenge was alleged as a cause of action in a separate suit.

• Finality of Monetary Board Actions Subject to Judicial Review — Under Section 29 of the Central Bank Act, the actions of the Monetary Board in forbidding a banking institution to do business, appointing a receiver, and ordering liquidation are "final and executory." They may be set aside by the court only upon "convincing proof that the action is plainly arbitrary and made in bad faith." The Court applied this doctrine by affirming that the RTC, in the liquidation proceeding, may adjudicate whether the Monetary Board's resolution was arbitrary and made in bad faith when that issue is properly raised as a defense.
• Judicial Inquiry into Exercise of Police Power — While the closure and liquidation of a bank may be considered an exercise of police power, the validity of such exercise is subject to judicial inquiry and may be set aside if it is capricious, discriminatory, whimsical, arbitrary, unjust, or a denial of due process and equal protection. The Court relied on this principle, as articulated in Central Bank vs. Court of Appeals, to support the propriety of judicial review of Monetary Board resolutions within the liquidation proceeding.
• Omnibus Motion Rule and Waiver of Defenses — Defenses and objections not pleaded either in a motion to dismiss or in the answer are generally deemed waived; a motion attacking a pleading or proceeding must include all objections then available, and all objections not so included shall be deemed waived. The Court applied this rule to support its conclusion that the challenge to the Monetary Board's resolution must be raised within the liquidation proceeding, lest it be waived.

• "This Court perceives no reason whatever why a banking institution's claim that a resolution of the Monetary Board under Section 29 of the Central Bank Act should be set aside as plainly arbitrary and made in bad faith cannot be asserted as an affirmative defense or a counterclaim in the proceeding for assistance in liquidation, but only as a cause of action in a separate and distinct action." — This passage states the ratio decidendi: the Court's core holding that the arbitrariness and bad faith challenge is cognizable within the liquidation proceeding itself.
• "No reason exists to preclude determination of this question in the very proceeding for assistance in liquidation instituted pursuant to Section 29 of the Central Bank Act." — This sentence crystallizes the Court's conclusion rejecting the Central Bank's theory that a separate action is required.
• "While the closure and liquidation of a bank may be considered an exercise of police power, the validity of such exercise of police power is subject to judicial inquiry and could be set aside if it is either capricious, discriminatory, whimsical, arbitrary, unjust or a denial of the due process and equal protection clauses of the Constitution." — This quotation, drawn from Central Bank vs. Court of Appeals and cited by the Court, articulates the doctrinal basis for judicial review of Monetary Board resolutions.

• Central Bank vs. Court of Appeals, 106 SCRA 143 — Cited by both parties. The Central Bank invoked it to support the proposition that the challenge to a Monetary Board resolution must be raised in a separate proceeding, since in that case a separate certiorari petition had been filed. The Court distinguished this use, holding that the existence of separate proceedings there was fortuitous and that the two proceedings were in fact jointly heard. The Court relied on the case for its actual ruling that the validity of the Monetary Board's exercise of police power in closing and liquidating a bank is subject to judicial inquiry and may be set aside if arbitrary, capricious, or a denial of due process and equal protection.

• Section 29, Central Bank Act (Republic Act No. 265, as amended by PD 1007 and PD 1771) — Governs proceedings upon insolvency of banking institutions. Authorizes the Monetary Board to forbid a bank from doing business, appoint a receiver, determine within sixty days whether the bank may be rehabilitated or should be liquidated, and order liquidation with appointment of a liquidator. Declares Monetary Board actions "final and executory," subject to judicial review only upon "convincing proof that the action is plainly arbitrary and made in bad faith." The Court interpreted this provision as permitting the arbitrariness and bad faith challenge to be raised within the liquidation proceeding itself.
• Section 28-A, Central Bank Act — Provides for the appointment of a conservator and the Central Bank's duty to reorganize bank management and restore viability. Petitioner invoked this provision to argue that liquidation was premature, but the Court's ruling focused on the procedural question of where the challenge may be raised rather than on the substantive merits of this argument.
• Sections 1 and 4(b), Rule 6, Rules of Court — Cited in support of asserting the challenge as an affirmative defense or counterclaim in the liquidation proceeding.
• Section 2, Rule 9, Rules of Court (Waiver of Defenses) — Cited to support the proposition that defenses not pleaded in a motion to dismiss or answer are deemed waived, reinforcing the conclusion that the challenge must be raised within the liquidation proceeding.
• Section 8, Rule 15, Rules of Court (Omnibus Motion Rule) — Cited to support the requirement that a motion attacking a pleading or proceeding must include all available objections, lest they be deemed waived.
• Section 9(3), Batas Pambansa Blg. 129 — Cited by the Central Bank for the proposition that the IAC has exclusive appellate jurisdiction over quasi-judicial boards; the Court rejected this contention as devoid of merit.

Yap, Melencio-Herrera, Cruz, and Paras, JJ., concurred.