Vivas vs. Monetary Board

A petition for prohibition does not lie to restrain an act already accomplished, and the proper remedy to challenge a Monetary Board resolution placing a bank under receivership is a petition for certiorari under Section 30 of R.A. No. 7653, filed with the Court of Appeals; on the merits, Section 30 of the New Central Bank Act validly prevails over the Rural Banks Act of 1992 and authorizes summary closure without prior hearing, and does not constitute an undue delegation of legislative power.

Petitioner Alfeo D. Vivas and his principals acquired controlling interest in the Rural Bank of Faire, Incorporated (RBFI), a duly registered rural banking institution with principal office in Centro Sur, Sto. Niño, Cagayan, sometime in January 2006, after the bank's corporate life had expired on May 31, 2005. On December 8, 2006, the BSP issued a Certificate of Authority extending RBFI's corporate life for another fifty years and approved the change of its corporate name to EuroCredit Community Bank, Incorporated (ECBI), as well as the increase in the number of its board members from five to eleven. The BSP, through its Integrated Supervision Department II (ISD II), conducted general examinations of ECBI pursuant to Section 28 of R.A. No. 7653 (The New Central Bank Act), which governs the supervision, examination, and closure of banks and quasi-banks. The Rural Banks Act of 1992 (R.A. No. 7353) provides an alternative supervisory framework for rural banks, including management take-over after due hearing.

The Rural Bank of Faire, Incorporated (RBFI) was a duly registered rural banking institution with principal office in Centro Sur, Sto. Niño, Cagayan, whose corporate life expired on May 31, 2005. Notwithstanding the expiration, petitioner Alfeo D. Vivas and his principals acquired controlling interest in RBFI sometime in January 2006. An internal audit was conducted at the initiative of Vivas and the new management team, the results of which highlighted the bank's dismal operations, prompting certain measures calculated to revitalize the institution. On December 8, 2006, the BSP issued a Certificate of Authority extending RBFI's corporate life for another fifty years and approved the change of its corporate name to EuroCredit Community Bank, Incorporated (ECBI), as well as the increase in the number of its board members from five to eleven.

Pursuant to Section 28 of R.A. No. 7653, the BSP's Integrated Supervision Department II (ISD II) conducted a general examination on ECBI with a cut-off date of December 31, 2007. An exit conference was held on March 27, 2008, during which BSP officials and examiners apprised Vivas, the Chairman and President of ECBI, and other bank officers and board members of the advance findings. ECBI submitted its comments on the consolidated findings and risk asset classification through a letter dated April 8, 2008. Sometime in April 2008, BSP examiners from the Department of Loans and Credit arrived at ECBI and cancelled the bank's rediscounting line, a cancellation that Vivas appealed to the BSP. Vivas claimed that the BSP took these actions due to the joint influence exerted by a hostile shareholder and a former BSP examiner.

On September 25, 2008, the Monetary Board (MB) issued Resolution No. 1255 placing ECBI under the Prompt Corrective Action (PCA) framework based on serious findings: negative capital of ₱14.674 million and a capital adequacy ratio of negative 18.42%; a CAMEL composite rating of "2" with a Management component rating of "1"; and serious supervisory concerns, particularly on activities deemed unsafe or unsound. Through a letter dated September 30, 2008, the BSP furnished ECBI with a copy of the Report of Examination as of December 31, 2007, and directed the bank's board and senior management to infuse fresh capital of ₱22.643 million, book ₱28.563 million representing unbooked valuation reserves on classified loans and other risk assets on or before October 31, 2008, and take appropriate action to address the violations and exceptions noted. Vivas moved for reconsideration of Resolution No. 1255 on grounds of non-observance of due process and arbitrariness. The ISD II invited ECBI's board on several instances to discuss matters pertaining to the PCA placement, but the proposed meetings did not materialize due to postponements sought by Vivas.

The BSP, through letters dated February 20, 2009 and March 31, 2009, directed ECBI to explain why it transferred majority shares of RBFI without securing prior MB approval in apparent violation of Subsection X126.2 of the Manual of Regulation for Banks, and why it did not obtain prior BSP approval for the establishment and operation of its sub-offices. The scheduled March 31, 2009 general examination with a cut-off date of December 31, 2008 did not push through because, according to Vivas, ECBI asked for deferment pending resolution of its appeal before the MB. The MB, for its part, posited that ECBI unjustly refused to allow BSP examiners to examine its books and records, in violation of Sections 25 and 34 of R.A. No. 7653. In a letter dated May 8, 2009, the BSP informed ECBI that it was due for another annual examination and that the pendency of its appeal would not prevent the BSP from conducting one as mandated by Section 28 of R.A. No. 7653.

Because of ECBI's refusal to comply with the required examination, the MB issued Resolution No. 726 on May 14, 2009, imposing a monetary penalty on ECBI and referring the matter to the Office of Special Investigation (OSI) for the filing of appropriate legal action. On June 4, 2009, the MB issued Resolution No. 823 approving a cease and desist order against ECBI, enjoining it from pursuing acts and transactions considered unsafe or unsound banking practices and from doing acts constituting fraud or that might result in the dissipation of its assets. On June 10, 2009, the OSI filed a complaint for Estafa Through Falsification of Commercial Documents with the Department of Justice against certain ECBI officials and employees. On August 13, 2009, the MB issued Resolution No. 1164 denying ECBI's appeal from Resolution No. 1255.

The general examination of ECBI's books and records with a cut-off date of September 30, 2009 was commenced on November 18, 2009 and ended in December 2009. BSP officials and examiners thereafter met with ECBI representatives, including Vivas, to discuss their findings. On December 7, 2009, the ISD II reminded ECBI of the non-submission of its financial audit reports for 2007 and 2008, warning that failure to submit would result in a monetary penalty. On February 1, 2010, the ISD II informed ECBI that the MB had denied its request for reconsideration of Resolution No. 726 via Resolution No. 1548. On March 4, 2010, the MB issued Resolution No. 276 placing ECBI under receivership upon the ISD II's recommendation, which was based on findings that ECBI was unable to pay its liabilities as they became due in the ordinary course of business, had insufficient realizable assets to meet liabilities, could not continue in business without involving probable losses to depositors and creditors, and had willfully violated the cease and desist order. The MB designated the PDIC as receiver. Vivas then filed the present petition for prohibition before the Supreme Court.

• Wrong Law Applied: Petitioner argued that it was grave abuse of discretion amounting to loss of jurisdiction for the MB to apply Section 30 of the New Central Bank Act (R.A. No. 7653), a general law, instead of Sections 11 and 14 of the Rural Banks Act of 1992 (R.A. No. 7353), a special law, which should prevail. He contended that the BSP's power over rural banks is limited to supervision and management take-over, and that the BSP should have taken over the management of ECBI and extended loans to the financially distressed bank rather than placing it under receivership.
• Arbitrariness and Violation of Due Process: Petitioner maintained that the implementation of Resolution No. 276 was tainted with arbitrariness and bad faith, stressing that ECBI was placed under receivership without due and prior hearing in violation of his and the bank's right to due process. He invoked Section 11 of R.A. No. 7353, which provides that the BSP may take over the management of a rural bank only after due hearing. He added that respondent PDIC actually closed ECBI even in the absence of any directive to this effect.
• Unconstitutionality of Section 30: Petitioner assailed the constitutionality of Section 30 of R.A. No. 7653, claiming that it vested the BSP with unbridled power to close and place under receivership a rural bank, constituting an undue delegation of legislative power and an invasion of the powers of the Supreme Court in violation of Section 2, Article VIII of the Philippine Constitution.

• Propriety of Remedy: Whether a petition for prohibition is the proper remedy to challenge MB Resolution No. 276 placing ECBI under receivership.
• Proper Forum: Whether the petition should have been filed with the Court of Appeals rather than directly with the Supreme Court.
• Applicability of Section 30 of R.A. No. 7653 vs. Sections 11 and 14 of R.A. No. 7353: Whether the MB committed grave abuse of discretion in applying Section 30 of the New Central Bank Act instead of the Rural Banks Act of 1992.
• Due Process — "Close Now, Hear Later": Whether ECBI was denied due process by being placed under receivership without prior notice and hearing.
• Constitutionality of Section 30: Whether Section 30 of R.A. No. 7653 constitutes an undue delegation of legislative power.

• Propriety of Remedy: No. Prohibition does not lie because the acts sought to be enjoined — the closure of ECBI and its placement under receivership — were already accomplished, making prohibition unavailing as it cannot restrain a fait accompli. The proper remedy is a petition for certiorari under Section 30 of R.A. No. 7653.
• Proper Forum: No. The petition should have been filed with the Court of Appeals, as the MB is a quasi-judicial agency and Section 4 of Rule 65 directs that petitions involving acts of quasi-judicial agencies be filed with the CA. Direct resort to the Supreme Court also violated the doctrine of hierarchy of courts, especially since factual issues were involved.
• Applicability of Section 30 of R.A. No. 7653: No grave abuse of discretion. R.A. No. 7653 is a later law that expanded the MB's powers over all banks, including rural banks; there is no conflict calling for the special-law-over-general-law doctrine, and management take-over under R.A. No. 7353 was no longer feasible given ECBI's serious insolvency and illiquidity.
• Due Process — "Close Now, Hear Later": No denial of due process. Section 30 of R.A. No. 7653 expressly authorizes the MB to summarily and without prior hearing forbid a bank from doing business and place it under receivership; ECBI was given opportunities to be heard through exit conferences, submission of comments, and a motion for reconsideration.
• Constitutionality of Section 30: No undue delegation. Section 30 satisfies both the completeness test and the sufficient standard test, as the law is complete in its terms and provides adequate guidelines mapping out the boundaries of the MB's authority.

• Propriety of Remedy: Prohibition is a preventive remedy that seeks to prevent the doing of an act about to be done; it is not intended to provide a remedy for acts already accomplished. Resolution No. 276 had already been issued and the closure and receivership of ECBI had already been effected by the PDIC. Settled is the rule that prohibition does not lie to restrain an act that is already a fait accompli. Moreover, Section 30 of R.A. No. 7653 expressly provides that actions of the MB placing a bank under receivership may not be restrained or set aside except on a petition for certiorari on the ground that the action was in excess of jurisdiction or with grave abuse of discretion amounting to lack or excess of jurisdiction. The petition for certiorari must be filed by stockholders of record representing the majority of the capital stock within ten days from receipt by the board of directors of the order directing receivership. Vivas availed of prohibition, an improper remedy under the circumstances.

• Proper Forum: Section 4 of Rule 65 provides that where the petition relates to acts or omissions of a quasi-judicial agency, it shall be filed with the Court of Appeals. The MB's status as a quasi-judicial agency was settled in Bank of Commerce vs. Planters Development Bank and Bangko Sentral ng Pilipinas. Even absent that provision, the petition is dismissible for ignoring the doctrine of hierarchy of courts. While the Supreme Court, the CA, and the RTC have original concurrent jurisdiction over extraordinary writs, concurrence does not grant a party absolute freedom to file in any court. The petitioner advanced no special or important reason justifying direct resort to the Supreme Court, and the case involved factual issues — Vivas was questioning the findings of the investigating team — which preclude treatment as a pure question of law.

• Applicability of Section 30 of R.A. No. 7653: Petitioner's argument that R.A. No. 7353, as a special law, should prevail over R.A. No. 7653, a general law, is unavailing. There is no conflict between the two laws that would call for application of the special-law-over-general-law doctrine. R.A. No. 7653 is a later law under which the MB's power over banks, including rural banks, was increased and expanded. The Court has upheld the MB's power to take over banks without prior hearing. The ISD II's memorandum dated February 17, 2010, based on the general examination with a cut-off date of September 30, 2009, found that ECBI was unable to pay its liabilities as they fell due, had insufficient realizable assets, could not continue in business without probable losses to depositors and creditors, and had willfully violated the cease and desist order. Management take-over under Section 11 of R.A. No. 7353 was no longer feasible given the financial quagmire showing serious conditions of insolvency and illiquidity. Placing ECBI under receivership would effectively stop the further draining of its assets.

• Due Process — "Close Now, Hear Later": Section 30 of R.A. No. 7653 expressly provides that the MB may summarily and without need for prior hearing forbid a bank from doing business and designate the PDIC as receiver. The "close now, hear later" doctrine has been justified as a measure for the protection of public interest: swift action is called for when a bank is in dire straits, and prior hearing would trigger bank runs, panic, and hysteria. The doctrine is founded on practical and legal considerations to obviate unwarranted dissipation of bank assets and as a valid exercise of police power. In any event, ECBI was given every opportunity to be heard: BSP officials and examiners met with ECBI representatives, including Vivas, to discuss findings; reminders were sent requiring submission of financial audit reports; and ECBI was heard on its motion for reconsideration, which the MB denied via Resolution No. 1548. Having been heard on its motion for reconsideration, ECBI cannot claim deprivation of its right under the Rural Bank Act.

• Constitutionality of Section 30: Petitioner's challenge to the constitutionality of Section 30 constitutes a collateral attack, which is not permissible — constitutionality issues must be pleaded directly. Be that as it may, there is no undue delegation of legislative power. Under the completeness test, the law must be complete in all its terms and conditions when it leaves the legislature, such that the delegate's only task is to enforce it. Under the sufficient standard test, there must be adequate guidelines or stations in the law to map out the boundaries of the delegate's authority. Section 30 satisfies both tests: the legislature has clearly spelled out the reasonable parameters of the power entrusted to the MB — specifying the four grounds for closure and receivership — and assigned to the MB only the manner of enforcing that power to attain the objective of protecting the interest of the public, the banking industry, and the economy.

• "Close Now, Hear Later" Doctrine — The Monetary Board may forbid a bank from doing business and place it under receivership without prior notice and hearing. The doctrine is justified as a measure for the protection of public interest, as swift action is called for when a bank is in dire straits. Prior hearing would trigger bank runs, panic, and hysteria, resulting in the dissipation of bank assets. Due process does not necessarily require a prior hearing; a hearing or an opportunity to be heard may be subsequent to the closure. The doctrine is founded on practical and legal considerations and constitutes a valid exercise of police power to protect depositors, creditors, stockholders, and the general public. In this case, the MB validly placed ECBI under receivership without prior hearing under Section 30 of R.A. No. 7653, which expressly authorizes summary closure.

• Doctrine of Hierarchy of Courts — While the Supreme Court, the Court of Appeals, and the RTC have original concurrent jurisdiction to issue writs of certiorari, prohibition, and mandamus, concurrence of jurisdiction does not grant a party absolute freedom to file in any court of choice. Strict observance of the policy demands that where the issuance of extraordinary writs is within the competence of the CA or RTC, the special action must be presented to either court. Direct resort to the Supreme Court is not entertained unless redress cannot be obtained in lower courts or where exceptional and compelling circumstances justify it. In this case, the petition was dismissible for ignoring this doctrine, as the petitioner advanced no special reason for direct resort and the case involved factual issues.

• Prohibition Does Not Lie Against a Fait Accompli — The proper function of a writ of prohibition is to prevent the doing of an act which is about to be done; it is not intended to provide a remedy for acts already accomplished. Prohibition does not lie to restrain an act that is already a fait accompli. In this case, Resolution No. 276 had already been issued and the closure and receivership of ECBI had already been effected, rendering prohibition unavailing.

• Completeness Test and Sufficient Standard Test for Non-Delegation — Under the completeness test, the law must be complete in all its terms and conditions when it leaves the legislature such that the delegate's only task is to enforce it. Under the sufficient standard test, there must be adequate guidelines or stations in the law to map out the boundaries of the delegate's authority and prevent the delegation from running riot. Both tests are intended to prevent a total transference of legislative authority to the delegate. In this case, Section 30 of R.A. No. 7653 satisfied both tests, as the legislature spelled out the reasonable parameters of the MB's power — the four statutory grounds for closure — and assigned to the MB only the manner of enforcement.

• Special Law vs. General Law Doctrine (Inapplicability) — The doctrine that a special law should prevail over a general law applies only when there is an irreconcilable conflict between the two. Where the later law expands and increases the powers of the regulatory body over the subject matter of both laws, there is no conflict calling for the doctrine's application. In this case, R.A. No. 7653, a later law, expanded the MB's powers over all banks, including rural banks, and Section 30's receivership provisions properly applied to ECBI.

• "The 'close now, hear later' doctrine has already been justified as a measure for the protection of the public interest. Swift action is called for on the part of the BSP when it finds that a bank is in dire straits. Unless adequate and determined efforts are taken by the government against distressed and mismanaged banks, public faith in the banking system is certain to deteriorate to the prejudice of the national economy itself, not to mention the losses suffered by the bank depositors, creditors, and stockholders, who all deserve the protection of the government." — This passage articulates the rationale for the "close now, hear later" doctrine, the controlling principle permitting the MB to summarily close a bank without prior hearing, and is frequently cited in banking receivership jurisprudence.

• "x x x due process does not necessarily require a prior hearing; a hearing or an opportunity to be heard may be subsequent to the closure. One can just imagine the dire consequences of a prior hearing: bank runs would be the order of the day, resulting in panic and hysteria. In the process, fortunes may be wiped out and disillusionment will run the gamut of the entire banking community." — This passage, quoting Rural Bank of Buhi, Inc. vs. Court of Appeals, defines the due process standard applicable to bank closures and explains why post-closure hearing satisfies constitutional requirements.

• "There are two accepted tests to determine whether or not there is a valid delegation of legislative power, viz, the completeness test and the sufficient standard test. Under the first test, the law must be complete in all its terms and conditions when it leaves the legislature such that when it reaches the delegate the only thing he will have to do is enforce it. Under the sufficient standard test, there must be adequate guidelines or stations in the law to map out the boundaries of the delegate's authority and prevent the delegation from running riot." — This passage states the canonical formulation of the twin tests for valid delegation of legislative power, applied in this case to uphold the constitutionality of Section 30 of R.A. No. 7653.

• Bank of Commerce vs. Planters Development Bank and Bangko Sentral ng Pilipinas, G.R. Nos. 154470-71, September 24, 2012, 681 SCRA 521 — Followed for the proposition that the MB is a quasi-judicial agency, which determines the proper forum for petitions challenging its actions under Rule 65.

• Bangko Sentral ng Pilipinas Monetary Board vs. Hon. Antonio-Valenzuela, G.R. No. 184778, October 2, 2009, 602 SCRA 698 — Followed for the "close now, hear later" doctrine, upholding the MB's authority to summarily close a bank without prior hearing as a measure for the protection of public interest.

• Rural Bank of Buhi, Inc. vs. Court of Appeals, 245 Phil. 263 (1988) — Followed for the principle that due process in bank closures does not necessarily require a prior hearing, and that a hearing or opportunity to be heard may be subsequent to closure.

• Eastern Shipping Lines, Inc. vs. Philippine Overseas Employment Administration, 248 Phil. 762 (1998) — Followed for the formulation of the completeness test and sufficient standard test for determining whether there is a valid delegation of legislative power.

• Montes vs. Court of Appeals, 523 Phil. 98 (2006) — Followed for the rule that prohibition does not lie to restrain an act that is already a fait accompli.

• Section 30, R.A. No. 7653 (The New Central Bank Act) — Governs proceedings in receivership and liquidation of banks and quasi-banks. It enumerates four grounds for closure: (a) inability to pay liabilities as they become due in the ordinary course of business; (b) insufficient realizable assets to meet liabilities; (c) inability to continue in business without involving probable losses to depositors or creditors; and (d) willful violation of a cease and desist order involving fraud or dissipation of assets. It authorizes the MB to summarily and without prior hearing forbid the institution from doing business and designate the PDIC as receiver. It also provides that MB actions under this section are final and executory and may not be restrained except on petition for certiorari filed by stockholders of record representing the majority of capital stock within ten days from receipt of the order. Applied as the controlling law for ECBI's closure and receivership.

• Section 28, R.A. No. 7653 — Authorizes the BSP to conduct general examinations of banks. Applied as the statutory basis for the BSP's periodic examinations of ECBI's books and records.

• Sections 11 and 14, R.A. No. 7353 (Rural Banks Act of 1992) — Section 11 governs the MB's power to supervise rural banks, including management take-over after due hearing. Section 14 pertains to the extension of loans to financially distressed rural banks. Petitioner argued these provisions should govern instead of Section 30 of R.A. No. 7653. The Court held that management take-over was no longer feasible given ECBI's serious insolvency and illiquidity, and that R.A. No. 7653, as a later and expanded law, properly governed.

• Section 2, Rule 65, Rules of Civil Procedure — Defines the remedy of prohibition. Applied to determine that prohibition was the wrong remedy because the acts sought to be enjoined were already accomplished.

• Section 4, Rule 65, Rules of Civil Procedure — Provides the period and proper forum for filing petitions under Rule 65, directing that petitions involving acts of quasi-judicial agencies be filed with the Court of Appeals. Applied to hold that the petition should have been filed with the CA.

• Section 2, Article VIII, Philippine Constitution — Vests judicial power in the Supreme Court and lower courts. Petitioner invoked it to argue that Section 30 of R.A. No. 7653 unconstitutionally diminished the Supreme Court's powers. The Court found no violation.

Velasco, Jr., P.J. (Chairperson), Peralta, D.M., Abad, R.A., and Leonen, M.M.V.F. — all concurred in the decision. No separate concurring opinions were written.