BSP MB and petitioner Chuchi Fonacier v Valenzuela

G.R. No. 184778

October 2, 2009

VELASCO, JR., J.
Facts: On September 2007, the Supervision and Examination Dept. (SED) of BSP
conducted examinations of the books of several banks, including but not limited to
Rural Bank of Paranaque (RBPI). After the examinations, the SED examiners
provided the banks with copies of Lists of Findings/Exceptions containing
deficiencies discovered during the examinations. The banks were then required to
comment and to undertake the remedial measures stated in the lists within 30 days
from receipt thereof. The remedial measured include the infusion of additional
capital. Though the banks claimed that they have made additional capital infusions,
Fonacier, OIC of SED sent letters to the BODs of each bank informing them that
they failed to carry out the required remedial measures. The banks requested that
they be given ample time to obtain BSP approval to amend their Articles of
Incorporation and seek for more investors. They also requested that the basis for
capital infusion figures be disclosed and further noted that none of them had
received the Report of Examination (ROE) which finalizes the audit findings. They
then requested meetings with BSP audit teams to reconcile audit figures. Fonacier,
however, in response, only reiterated the banks failure to comply with the directive
for additional capital infusions.
RBPI, on May 12, 2008 filed a complaint for nullification of the BSP ROE with
application for a TRO and writ of preliminary injunction before the RTC (presided by
Valenzuela) against Fonacier, BSP, et. Al. RBPI prayed that Fonacier and the others
acting in her behalf be enjoined from submitting the ROE or any similar report to the
Monetary Board (MB) of if the ROE had been submitted, that the MB be enjoined
from acting on the basis of said ROE, on the allegation that the failure to furnish the
bank with a copy of the ROE violated its right to due process.
The other banks also subsequently filed cases similar to that of RBPI. The RTC
granted RBPIs prayer for issuance of a TRO. After the cases were consolidated, the
RTC also granted the prayer of the issuance of a TRO in favor of the other banks.
On May 26, 2008, petitioners filed a MTD against all complaints on the grounds that
the complaints stated no cause of action and that a condition precedent for filing
the cases had not been complied with.
The RTC, however ruled that the banks were entitled to the writs of preliminary
injunction prayed for by the banks. It held that it had been the practice of the SED
to provide the ROEs to the banks before submission to the MB. It also mentioned
that the banks should be entitled to the copies of the ROEs and the denial of the
banks requests for copies of such was tantamount to denial of their right to due
process.
When petitioners brought the matter to the CA via PFC (Rule 65), the CA ruled that
the RTC committed no grave abuse of discretion. The CA held that the principles of
fairness and transparency dictate that the banks are entitled to copes of the ROE.

On Nov 24, 2008, a TRO was issued by the SC restraining the CA, RTC and
respondents from implementing and enforcing the CA Decision. Because of this
TRO, the SED was able to submit their ROEs to the MB. The MB then prohibited the
respondent banks from transacting business and placed them under receivership
under Sec. 53 of RA 8791 and Sec 30 of RA 7653.
Issue: Whether injunction was proper due to the failure by SED to furnish banks
copies of the respective ROEs.
Ruling: NO.
It had been previously held that the requisites for preliminary injunction are: the
invasion of right sought to be protected is material and substantial; the right of the
complainant is clear and unmistakable; and there is an urgent and paramount
necessity for the writ to prevent serious damage.
Hence, a writ of preliminary injunction may be issued only upon clear showing of an
actual existing right to be protected during the pendency of the principal action. The
twin requirements of a valid injunction are the existence of a right and its actual or
threatened violations. Thus, to be entitled to an injunctive writ, the right to be
protected and the violation against that right must be shown.
In the present case, the above requirements are absent. The lower courts held that
the submission of the ROEs to the MB before the banks would violate the right to
due process of said banks. However, contrary to their assertions, the banks are not
entitled to copies of the ROEs. None of the provisions of the New Central Bank Act
provides that the banks are recipients of the ROE.
The banks cannot claim a violation of their right to due process if they are not
provided with ROE copies since the ROEs are based on the lists of
findings/exceptions containing the deficiencies found be the SED examiners which
said lists have been furnished to the banks. Said ROEs are, in that regard, a
superfluity.
Furthermore, the issuance by the RTC of writs of preliminary injunction is an
unwarranted interference with the powers of the MB. Secs. 29 and 30 of RA 7653
refer to the appointment of a conservator or a receiver for a bank, which is a power
of the MB for which they need the ROEs done by the supervising or examining
department. The writs of preliminary injunction issued by the trial court hinder the
MB from performing its function under the law. The actions of the MB under Secs. 29
and 30 of RA 7653 "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." The writs of preliminary injunction order are precisely what cannot be
done under the law by preventing the MB from taking action under either Sec. 29 or
Sec. 30 of RA 7653.
Lastly, the banks have not shown any necessity for the writ of preliminary injunction
to prevent serious damage. The serious damage contemplated by the RTC was the
possibility of the imposition of sanctions upon the banks, even the sanction of

closure. However, under the law, the sanction of closure could be imposed upon a
bank by the BSP even without notice and hearing. As previously held, the apparent
lack of procedural due process would not result in the invalidity of action by the MB.
The close now, hear later scheme is grounded on practical and legal considerations
to prevent unwarranted dissipation of the banks assets. It is a valid exercise of
police power to protect depositors, creditors, stockholders and the general public.
Swift action is called for on the part of the BSP when it finds that a bank is in dire
straits. Judicial review enters the picture only after the MB has taken action; it
cannot prevent such action by the MB. The threat of the imposition of sanctions,
even that of closure, does not violate their right to due process, and cannot be the
basis for a writ of preliminary injunction. The writ of preliminary injunction cannot,
thus, prevent the MB from taking action, by preventing the submission of the ROEs
and worse, by preventing the MB from acting on such ROEs.
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.
All these considered, the banks are clearly not entitled to the injunctive reliefs
sought. The writs of preliminary injunction must hence be nullified.