THIRD DIVISION

[G.R. No. 95326. March 11, 1999]

ROMEO P. BUSUEGO, CATALINO F. BANEZ and RENATO F.

LIM, petitioners, vs. THE HONORABLE COURT OF APPEALS and
THE MONETARY BOARD OF THE CENTRAL BANK OF THE
PHILIPPINES, respondents.

DECISION
PURISIMA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking a
reversal of the Decision[1], dated September 14, 1990, of the Court of Appeals in CA-G.R. CV No.
23656.
As culled from the records, the facts of the case are as follows:
The 16th regular examination of the books and records of the PAL Employees Savings and
Loan Association, Inc. ("PESALA") was conducted from March 14 to April 16, 1988 by a team
of CB examiners headed by Belinda Rodriguez. Following the said examination, several anomalies
and irregularities committed by the herein petitioners; PESALA's directors and officers, were
uncovered, among which are:
1. Questionable investment In a multi-million peso real estate project (Pesalaville)
2. Conflict of interest in the conduct of business
3. Unwarranted declaration and payment of dividends
4. Commission of unsound and unsafe business practices.
On July 19, 1988,, Central Bank ("CB") Supervision and Examination Section ("SES")
Department IV Director Ricardo. F. Lirio sent a letter to the Board of Directors of PESALA
inviting them to a conference on July 21, 1988 to discuss subject findings noted in the said 16th
regular examination, but petitioners did not attend such conference.
On July 28, 1988, petitioner Renato Lim wrote the PESALA's Board of Directors explaining
his side on the said examination of PESALA's records and requesting that a copy of his letter be
furnished the CB, which was fortwith made by the Board.[2]
On July 29, 1988, PESALA's Board of Directors sent to Director Lirio a letter concerning the
16th regular examination of PESALA's records.
On September 9, 1988, the Monetary Board adopted and issued MB Resolution No. 805 the
pertinent provisions of which are as follows:
 "1. To note the report on the examination of the PAL Employees' Savings and
Loan Association, Inc. (PESALA) as of December 31, 1987, as submitted in a
memorandum of the Director, Supervision and Examination Section (SES)
Department IV, dated August 19, 1988;

2. To require the board of directors of PESALA to immediately inform the

members of PESALA of the results of the Central Bank examination and their
effects on the financial condition of the Association;

xxx

5. To include the names of Mr. Catalino Banez, Mr. Romeo Busuego and Mr.
Renato Lim in the Sector's watchlist to prevent them from holding responsible
positions in any institution under Central Bank supervision;

6. To require PESALA to enforce collection of the overpayment to the Vista

Grande Management and Development Corporation and to require the accounting
of P12.28 million unaccounted and unremitted bank loan proceeds and P3.9
million other unsupported cash disbursements from the responsible directors and
officers; or to properly charge these against their respective accounts, if
necessary;

7. To require the board of directors of PESALA to file civil and criminal cases
against Messrs. Catalino Banez, Romeo Busuego and Renato Lim for all the
misfeasance and malfeasance committed by them, as warranted by the evidence;

8. To require the board of directors of PESALA to improve the operations of the

Association, correct all violations noted, and adopt internal control measures to
prevent the recurrence of similar incidents as shown in Annex E of the subject
memorandum of the Director, SES Department IV;"[3]

xxx xxx xxx

On January 23, 1989, petitioners filed a Petition for Injunction with Prayer for the Immediate
Issuance of a Temporary Restraining Order[4] docketed as Civil Case No. Q-89-1617 before Branch
104 of the Regional Trial Court of Quezon City.
On January 26 1989, the said court issued a temporary restraining order[5] enjoining the
defendant, the Monetary Board of the Central Bank, (now Banko Sentral ng Pilipinas) from
including the names of petitioners in the watchlist.
On February 10, 1989, the same trial court issued a writ of preliminary injunction [6],
conditioned upon the filing by petitioners of a bond in the amount of Ten Thousand (P10,000.00)
Pesos each. The Monetary Board presented a Motion for Reconsideration[7] of the said Order, but
the same was denied.
 On September 11, 1989, the trial court handed down its Decision,[8] disposing thus:

"WHEREFORE, judgment is hereby rendered declaring Monetary Board Resolution

No. 805 as void and inexistent. The writ of preliminary prohibitory injunctions issued
on February 10, 1989 is deemed permanent. Costs against respondent."

The Monetary Board appealed the aforesaid Decision to the Court of Appeals which came out
with a Decision[9] of reversal on September 14, 1990, the decretal portion of which is to the
following effect:

"WHEREFORE, the decision appealed from is hereby reversed and another one
entered dismissing the petition for injunction."

Dissatisfied with the said Decision of the Court of Appeals, petitioners have come to this
Court via the present petition for review on certiorari.
On June 5, 1992, petitioners filed an "Urgent Motion for the Immediate Issuance of a
Temporary Restraining Order and/or Writ of Preliminary Injunction against the Secretary of
Justice and the City Prosecutor of Pasay"[10] stating that several complaints were lodged against the
petitioners before the Office of the City Prosecutor of Pasay City pursuant to Monetary Board
Resolution No. 805; that the said complaints were dismissed by the City Prosecutor and the
dismissals were appealed to the Secretary of Justice for review, some of which have been reversed
already. Petitioners prayed that a Temporary Restraining Order and/or Writ of Preliminary
Injunction issue "restraining and enjoining the Secretary of Justice and the City Prosecutor of
Pasay City from proceeding and taking further actions, and more specially from filing Informations
in I.S. Nos.-90-1836; 90-1831; 90-1835; 90-1832; 90-1248; 90-1249; 90-3031; 90-3032; 90-
1837; 90-1834, pending the final resolution of the case at bar xxx." However, in the
Resolution[11] dated September 9, 1992, the court denied the said motion.
The petition poses as issues for resolution.
I

WHETHER OR NOT THE PETITIONERS WERE DEPRIVED OF THEIR

RIGHT TO A NOTICE AND THE OPPORTUNITY TO BE HEARD BY THE
MONETARY BOARD PRIOR TO ITS ISSUANCE OF MONETARY BOARD
RESOLUTION NO. 805.
II

WHETHER OR NOT THE RESPONDENT BOARD IS LEGALLY BOUND TO

OBSERVE THE ESSENTIAL REQUIREMENTS OF DUE PROCESS OF A
VALID CHARGE, NOTICE AND OPPORTUNITY TO BE HEARD INSOFAR
AS THE PETITIONERS' SUBJECT CASE IS CONCERNED.
III
 WHETHER OR NOT MONETARY BOARD RESOLUTION NO. 805 IS NULL
AND VOID FOR BEING VIOLATIVE OF PETITIONERS' RIGHTS TO DUE
PROCESS.

With respect to the first issue, the trial court said:

"The evidence submitted preponderates in favor of petitioners. The deprivation of petitioners'

rights in the Resolution undermines the constitutional guarantee of due process. Petitioners were
never notified that they were being investigated, much so, they were not informed of any charges
against them and were not afforded the opportunity to adduce countervailing evidence so as to
deserve the punitive measures promulgated in Resolution No. 805 of the Monetary Board. xxx[12]

The foregoing disquisition by the trial court is untenable under the facts and circumstances of
the case. Petitioners were duly afforded their right to due process by the Monetary Board, it
appearing that:
1. Petitioners were invited by Director Lirio to a conference scheduled for July 21, 1988 to
discuss the findings made in the 16th regular examination of PESALA's records. Petitioners did
not attend, said conference;
2. Petitioner Renato Lim's letter of July 28, 1988 to PESALA's Board of Directors, explaining
his side of the controversy, was forwarded to the Monetary Board which the latter considered in
adopting Monetary Board Resolution No. 805; and
3. PESALA's Board of Director's letter, dated July 29, 1988, to the Monetary Board,
explaining the Board's side of the controversy, was properly considered in the adoption of
Monetary Board Resolution No. 805.
Petitioners therefore cannot complain of deprivation of their right to due process, as they were
given ample opportunity by the Monetary Board to air their Submission and defenses as to the
findings of irregularity during the said 16th regular examination. The essence of due process is to
be afforded a reasonable opportunity to be heard and to submit any evidence one may have in
support of his defense.[13]What is offensive to due process is the denial of the opportunity to be
heard.[14] Petitioners having availed of their opportunity to present their position to the Monetary
Board by their letters-explanation, they were not denied due process[15].
Petitioners cite Ang Tibay v. CIR[16] and assert that the following requisites of procedural due
process were not observed by the Monetary Board:
1. The right to a hearing, which includes the right to present one's case and submit evidence in
support thereof;
2. The tribunal must consider the evidence presented;
3. The decision must have something to support itself;
4. The evidence must be substantial;
5. The decision must be rendered on the evidence presented at the hearing, or at least contained
in the record and disclosed to the parties affected;
 6. The tribunal or body or any of its judges must act or its or his own independent consideration
of the law and facts of the controversy and not simply accept the view of a subordinate in arriving at a
decision;
7. The board or body should, in all controversial questions, render its decision in such a manner
that the parties to the proceedings can know the various issues involved, and the reason for the decision
rendered.
Contrary to petitioners' allegation, it appears that the requisites of procedural due process were
complied with by the Monetary Board before it issued the questioned Monetary Board Resolution
No. 805.Firstly, the petitioners were invited to a conference to discuss the findings gathered during
the 16th regular examination of PESALA's records. (The requirement of a hearing is complied
with as long as there was an opportunity to be heard, and not necessarily that an actual hearing
was conducted.[17]) Secondly, the Monetary Board considered the evidence presented. Thirdly,
fourthly and fifthly, Monetary Board Resolution No. 805 was adopted on the basis of said findings
unearthed during the 16th regular examination of PESALA's records and derived from the letter-
comments submitted by the parties. Sixthly, the members of the Monetary Board acted
independently on their own in issuing subject Resolution, placing reliance on the said findings
made during the 16th regular examination. Lastly, the reason for the issuance of Monetary Board
Resolution No. 805 is readily apparent, which is to prevent further irregularities from being
committed and to prosecute the officials responsible therefor.
With respect to the second issue, there is tenability in petitioners' contention that the Monetary
Board, as an administrative agency, is legally bound to observe due process, although they are free
from the rigidity of certain procedural requirements. As held in Adamson and Adamson,
Inc. v. Amores[18]:

"While administrative tribunals exercising quasi-judicial functions are free from the
rigidity of certain procedural requirements they are bound by law and practice to
observe the fundamental and essential requirements of due process in justiciable cases
presented before them. However, the standard of due process that must be met in
administrative tribunals allows a certain latitude as long as the element of fairness is
not ignored. Hence, there is no denial of due process where records show that hearings
were held with prior notice to adverse parties. But even in the absence of previous
notice, there is no denial of procedural due, process as long as the parties are given the
opportunity to be heard."

Even Section 28, (c) and (d), of Republic Act No. 3779 ("RA 3779") delineating the powers
of the Monetary Board over savings and loan associations, require observance of due process in
the exercise of its powers:

xxx

(c) To conduct at least once every year, and whenever necessary, any inspection,
examination or investigation of the books, and records, business affairs,
administration, and financial condition of any savings and loan association with or
without prior notice but always with fairness and reasonable opportunity for the
association or any of its officials to give their side of the case. x x x

(d) After proper notice and hearing, to suspend a savings and loan association for
violation of law, for unsafe and unsound practices or for reason of insolvency. x x x

x x x.

(f) To decide, after appropriate notice and hearings any controversy as to the rights
or obligations of the savings and loan association, its directors, officers, stockholders
and members under its charter, and, by order, to enforce the same;

x x x" (italics supplied)

Anent the third issue, petitioners theorize that Monetary Board Resolution No. 805 is null and
void for being violative of petitioners' right to due process. To support their stance, they cite the
trial court's ruling, to wit:

"A reading of Monetary Board Resolution No. 805 discloses that it imposes
administrative sanctions against petitioners. In fact, it does not only penalize
petitioners by including them in the watchlist to prevent them from holding
responsible positions in any institution under Central Bank supervision,' it mandates
the PESALA Board of Directors as well to file Civil and Criminal charges against
them 'for all the misfeasance and malfeasance committed by them, as warranted by the
evidence.' Monetary Board Resolution No. 805 virtually deprives petitioners their
respective gainful employment, and at the same time marks them for judicial
prosecution. The crucial question here is that were petitioners afforded due process in
the investigations conducted which prompted the issuance of Monetary Board
Resolution No. 805?

x x x Although the Monetary Board is free from the rigidity of certain procedural
requirements, it failed 'to observe the essential requirement of due process' (Adamson
and Adamson, Inc. v. Amores, 152 SCRA 237) specifically its failure to afford
petitioners the opportunity to be heard. In short, there is a clear showing of
arbitrariness resulting in an irreparable injury against petitioners as the Resolution
certainly affects their 'life, liberty and property.'

Monetary Board Resolution No. 805 Violates basic and essential requirements. It
must therefore be, as it is hereby, declared, as void and inexistent because among
other things, it openly derogates the fundamental rights of petitioners."

Petitioners opine that with the issuance of Monetary Board Resolution No. 805, "they are now
barred from being elected or designated as officers again of PESALA, and are likewise prevented
from future engagements or employments in all institutions under the supervision of the Central
Bank thereby virtually depriving them of the opportunity to seek employments in the field which
they can excel and are best fitted." According to them, the Monetary Board is not vested with "the
authority to disqualify persons from occupying positions in institutions under the supervision of
the Central Bank without proper notice and hearing" nor is it vested with authority "to file civil
and criminal cases against its officers/directors for suspected fraudulent acts."
Petitioners' contentions are untenable. It must be remembered that the Central Bank of
the. Philippines (now Bangko Sentral ng Pilipinas), through the Monetary Board, is the
government agency charged with the responsibility of administering the monetary, banking and
credit system of the country[19] and is granted the power of supervision and examination over banks
and non-bank financial institutions performing quasi-banking functions, of which savings and loan
associations, such as PESALA, form part of[20].
The special law governing savings and loan association is Republic Act No. 3779, as amended,
otherwise known as the "Savings and Loan Association Act." Said law authorizes the Monetary
Board to conduct regular yearly examinations of the books and records of savings and loan
associations, to suspend, a savings and loan association for violation of law, to decide any
controversy over the obligations and duties of directors and officers, and to take remedial
measures, among others. Section 28 of Rep. Act No. 3779, reads:

"SEC. 28. Supervisory powers over savings and loan associations. - In addition to
whatever powers have been conferred by the foregoing provisions, the Monetary
Board shall have the power to exercise the following:

xxx

(c) To conduct at least once every year, and whenever- necessary, any inspection,
examination or investigation of the books and records, business affairs,
administration, and financial condition of any savings and loan association with or
without prior notice but always with fairness and reasonable opportunity for the
association or any of its officials to give their side of the case. Whenever an
inspection, examination or investigation is conducted under this grant of power, the
person authorized to do so may seize books and records and keep them under his
custody after giving proper receipts therefor; may make any marking or notation on
any paper, record, document or book to show that it has been examined and verified
and may padlock or seal shelves, vaults, safes, receptacles or similar containers and
prohibit the opening thereof without first securing authority therefor, for as long as
may be necessary in connection with the investigation or examination being
conducted. The official of the Central Bank in charge of savings and loan associations
and his deputies are hereby authorized to administer oaths to any director, officer or
employee of any association under the supervision of the Monetary Board;

xxx
(d) After proper notice and hearing, to suspend a savings and loan association for
violation of law, for unsafe and unsound practices or for reason of insolvency. The
Monetary Board may likewise, upon the proof that a savings and loan association or
its board or directors or officers are conducting and managing its affairs in a manner
contrary to laws, orders, instructions, rules and regulations promulgated by the
Monetary Board or in a manner substantially prejudicial to the interest of the
government, depositors or creditor, take over the management of the savings and loan
association after due hearing, until a new board of directors and officers are elected
and qualified without prejudice to the prosecution of the persons responsible for such
violations. The management by the Monetary Board shall be without expense to the
savings and loan association, except such as is actually necessary for its operation,
pending the election and qualification of a new board of directors and officers to take
the place of those responsible for the violation or acts contrary to the interest of the
government, depositors or creditors;

xxx

(f) To decide, after appropriate notice and hearings any controversy as to the rights or
obligations of the savings and loan association, its directors, officers, stockholders and
members under its charter, and, by order, to enforce the same;

xxx

(l) To conduct such investigations, take such remedial measures, exercise all powers
which are now or may hereafter be conferred upon it by Republic Act Numbered Two
Hundred sixty-five in the enforcement of this legislation, and impose upon
associations, whether stock or noti-stock their directors and/or officers administrative
sanctions under Sections 34-A or 34-B of Republic Act Two Hundred sixty-five, as
amended."

From the foregoing, it is gleanable that the Central Bank, through the Monetary
Board, is empowered to conduct investigations and examine the records of savings and loan
associations. If any irregularity is discovered in the process, the Monetary Board may impose
appropriate sanctions, such as suspending the offender from holding office or from being
employed with the Central Bank, or placing the names of the offenders in a watchlist.
The requirement of prior notice is also relaxed under Section 28 (c) of RA 3779 as
investigations or examinations may be conducted with or without prior notice "but always with
fairness and reasonable opportunity for the association or any of its officials to give their side." As
may be gathered from the records, the said requirement was properly complied with by the
respondent Monetary Board.
We sustain the ruling of the Court of Appeals that petitioners' suspension was only preventive
in nature and therefore, no notice or, hearing was necessary. Until such time that the petitioners
have proved their innocence, they may be preventively suspended from holding office so as not to
influence the conduct of investigation, and to prevent the commission of further irregularities.
Neither were petitioners deprived of their lawful calling as they are free to look for another
employment so long as the agency or company involved is not subject to Central Bank control and
supervision.Petitioners can still practise their profession or engage in business as long as these are
not within the ambit of Monetary Board Resolution No. 805.
All things studiedly considered, the court upholds the validity of Monetary Board Resolution
No. 805 and affirms the decision of the respondent court.
WHEREFORE, the petition is DENIED, and the assailed Decision dated September 14,
1990 of the Court of Appeals AFFIRMED. No pronouncement as to costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 76118 March 30, 1993

THE CENTRAL BANK OF THE PHILIPPINES and RAMON V. TIAOQUI, petitioners,

vs.
COURT OF APPEALS and TRIUMPH SAVINGS BANK, respondents.

Sycip, Salazar, Hernandez & Gatmaitan for petitioners.

Quisumbing, Torres & Evangelista for Triumph Savings Bank.

BELLOSILLO, J.:

May a Monetary Board resolution placing a private bank under receivership be annulled on the
ground of lack of prior notice and hearing?

This petition seeks review of the decision of the Court of Appeals in CA G.R. S.P. No. 07867 entitled
"The Central Bank of the Philippines and Ramon V. Tiaoqui vs. Hon. Jose C. de Guzman and
Triumph Savings Bank," promulgated 26 September 1986, which affirmed the twin orders of the
Regional Trial Court of Quezon City issued 11 November 19851 denying herein petitioners' motion to
dismiss Civil Case No. Q-45139, and directing petitioner Ramon V. Tiaoqui to restore the private
management of Triumph Savings Bank (TSB) to its elected board of directors and officers, subject to
Central Bank comptrollership.2

The antecedent facts: Based on examination reports submitted by the Supervision and Examination
Sector (SES), Department II, of the Central Bank (CB) "that the financial condition of TSB is one of
insolvency and its continuance in business would involve probable loss to its depositors and
creditors,"3 the Monetary Board (MB) issued on 31 May 1985 Resolution No. 596 ordering the
closure of TSB, forbidding it from doing business in the Philippines, placing it under receivership,
and appointing Ramon V. Tiaoqui as receiver. Tiaoqui assumed office on 3 June 1985.4

On 11 June 1985, TSB filed a complaint with the Regional Trial Court of Quezon City, docketed as
Civil Case No. Q-45139, against Central Bank and Ramon V. Tiaoqui to annul MB Resolution No.
596, with prayer for injunction, challenging in the process the constitutionality of Sec. 29 of R.A. 269,
otherwise known as "The Central Bank Act," as amended, insofar as it authorizes the Central Bank
to take over a banking institution even if it is not charged with violation of any law or regulation, much
less found guilty thereof.5

On 1 July 1985, the trial court temporarily restrained petitioners from implementing MB Resolution
No. 596 "until further orders", thus prompting them to move for the quashal of the restraining order
(TRO) on the ground that it did not comply with said Sec. 29, i.e., that TSB failed to show convincing
proof of arbitrariness and bad faith on the part of petitioners;' and, that TSB failed to post the
requisite bond in favor of Central Bank.

On 19 July 1985, acting on the motion to quash the restraining order, the trial court granted the relief
sought and denied the application of TSB for injunction. Thereafter, Triumph Savings Bank filed with
Us a petition for certiorariunder Rule 65 of the Rules of Court6 dated 25 July 1985 seeking to enjoin
the continued implementation of the questioned MB resolution.

Meanwhile, on 9 August 1985; Central Bank and Ramon Tiaoqui filed a motion to dismiss the
complaint before the RTC for failure to state a cause of action, i.e., it did not allege ultimate facts
showing that the action was plainly arbitrary and made in bad faith, which are the only grounds for
the annulment of Monetary Board resolutions placing a bank under conservatorship, and that TSB
was without legal capacity to sue except through its receiver.7

On 9 September 1985, TSB filed an urgent motion in the RTC to direct receiver Ramon V. Tiaoqui to
restore TSB to its private management. On 11 November 1985, the RTC in separate orders denied
petitioners' motion to dismiss and ordered receiver Tiaoqui to restore the management of TSB to its
elected board of directors and officers, subject to CB comptrollership.

Since the orders of the trial court rendered moot the petition for certiorari then pending before this
Court, Central Bank and Tiaoqui moved on 2 December 1985 for the dismissal of G.R. No. 71465
which We granted on 18 December 1985.8

Instead of proceeding to trial, petitioners elevated the twin orders of the RTC to the Court of Appeals
on a petition for certiorari and prohibition under Rule 65.9 On 26 September 1986, the appellate
court, upheld the orders of the trial court thus —

Petitioners' motion to dismiss was premised on two grounds, namely, that the
complaint failed to state a cause of action and that the Triumph Savings Bank was
without capacity to sue except through its appointed receiver.

Concerning the first ground, petitioners themselves admit that the Monetary Board
resolution placing the Triumph Savings Bank under the receivership of the officials of
the Central Bank was done without prior hearing, that is, without first hearing the side
of the bank. They further admit that said resolution can be the subject of judicial
review and may be set aside should it be found that the same was issued with
arbitrariness and in bad faith.
 The charge of lack of due process in the complaint may be taken as constitutive of
allegations of arbitrariness and bad faith. This is not of course to be taken as
meaning that there must be previous hearing before the Monetary Board may
exercise its powers under Section 29 of its Charter. Rather, judicial review of such
action not being foreclosed, it would be best should private respondent be given the
chance to show and prove arbitrariness and bad faith in the issuance of the
questioned resolution, especially so in the light of the statement of private
respondent that neither the bank itself nor its officials were even informed of any
charge of violating banking laws.

In regard to lack of capacity to sue on the part of Triumph Savings Bank, we view
such argument as being specious, for if we get the drift of petitioners' argument, they
mean to convey the impression that only the CB appointed receiver himself may
question the CB resolution appointing him as such. This may be asking for the
impossible, for it cannot be expected that the master, the CB, will allow the receiver it
has appointed to question that very appointment. Should the argument of petitioners
be given circulation, then judicial review of actions of the CB would be effectively
checked and foreclosed to the very bank officials who may feel, as in the case at bar,
that the CB action ousting them from the bank deserves to be set aside.

xxx xxx xxx

On the questioned restoration order, this Court must say that it finds nothing
whimsical, despotic, capricious, or arbitrary in its issuance, said action only being in
line and congruent to the action of the Supreme Court in the Banco Filipino Case
(G.R. No. 70054) where management of the bank was restored to its duly elected
directors and officers, but subject to the Central Bank comptrollership.10

On 15 October 1986, Central Bank and its appointed receiver, Ramon V. Tiaoqui, filed this petition
under Rule 45 of the Rules of Court praying that the decision of the Court of Appeals in CA-G.R. SP
No. 07867 be set aside, and that the civil case pending before the RTC of Quezon City, Civil Case
No.
Q-45139, be dismissed. Petitioners allege that the Court of Appeals erred —

(1) in affirming that an insolvent bank that had been summarily closed by the
Monetary Board should be restored to its private management supposedly because
such summary closure was "arbitrary and in bad faith" and a denial of "due process";

(2) in holding that the "charge of lack of due process" for "want of prior hearing" in a
complaint to annul a Monetary Board receivership resolution under Sec. 29 of R.A.
265 "may be taken as . . allegations of arbitrariness and bad faith"; and

(3) in holding that the owners and former officers of an insolvent bank may still act or
sue in the name and corporate capacity of such bank, even after it had been ordered
closed and placed under receivership.11

The respondents, on the other hand, allege inter alia that in the Banco Filipino case,12 We held that
CB violated the rule on administrative due process laid down in Ang Tibay vs. CIR (69 Phil. 635)
and Eastern Telecom Corp. vs. Dans, Jr. (137 SCRA 628) which requires that prior notice and
hearing be afforded to all parties in administrative proceedings. Since MB Resolution No. 596 was
adopted without TSB being previously notified and heard, according to respondents, the same is
void for want of due process; consequently, the bank's management should be restored to its board
of directors and officers.13

Petitioners claim that it is the essence of Sec. 29 of R.A. 265 that prior notice and hearing in cases
involving bank closures should not be required since in all probability a hearing would not only cause
unnecessary delay but also provide bank "insiders" and stockholders the opportunity to further
dissipate the bank's resources, create liabilities for the bank up to the insured amount of P40,000.00,
and even destroy evidence of fraud or irregularity in the bank's operations to the prejudice of its
depositors and creditors. 14 Petitioners further argue that the legislative intent of Sec. 29 is to repose
in the Monetary Board exclusive power to determine the existence of statutory grounds for the
closure and liquidation of banks, having the required expertise and specialized competence to do so.

The first issue raised before Us is whether absence of prior notice and hearing may be considered
acts of arbitrariness and bad faith sufficient to annul a Monetary Board resolution enjoining a bank
from doing business and placing it under receivership. Otherwise stated, is absence of prior notice
and hearing constitutive of acts of arbitrariness and bad faith?

Under Sec. 29 of R.A. 265,15 the Central Bank, through the Monetary Board, is vested with exclusive
authority to assess, evaluate and determine the condition of any bank, and finding such condition to
be one of insolvency, or that its continuance in business would involve probable loss to its depositors
or creditors, forbid the bank or non-bank financial institution to do business in the Philippines; and
shall designate an official of the CB or other competent person as receiver to immediately take
charge of its assets and liabilities. The fourth paragraph,16 which was then in effect at the time the
action was commenced, allows the filing of a case to set aside the actions of the Monetary Board
which are tainted with arbitrariness and bad faith.

Contrary to the notion of private respondent, Sec. 29 does not contemplate prior notice and hearing
before a bank may be directed to stop operations and placed under receivership. When par. 4 (now
par. 5, as amended by E.O. 289) provides for the filing of a case within ten (10) days after the
receiver takes charge of the assets of the bank, it is unmistakable that the assailed actions should
precede the filing of the case. Plainly, the legislature could not have intended to authorize "no prior
notice and hearing" in the closure of the bank and at the same time allow a suit to annul it on the
basis of absence thereof.

In the early case of Rural Bank of Lucena, Inc. v. Arca [1965],17 We held that a previous hearing is
nowhere required in Sec. 29 nor does the constitutional requirement of due process demand that the
correctness of the Monetary Board's resolution to stop operation and proceed to liquidation be first
adjudged before making the resolution effective. It is enough that a subsequent judicial review be
provided.

Even in Banco Filipino, 18 We reiterated that Sec. 29 of R.A. 265 does not require a previous hearing
before the Monetary Board can implement its resolution closing a bank, since its action is subject to
judicial scrutiny as provided by law.

It may be emphasized that Sec. 29 does not altogether divest a bank or a non-bank financial
institution placed under receivership of the opportunity to be heard and present evidence on
arbitrariness and bad faith because within ten (10) days from the date the receiver takes charge of
the assets of the bank, resort to judicial review may be had by filing an appropriate pleading with the
court. Respondent TSB did in fact avail of this remedy by filing a complaint with the RTC of Quezon
City on the 8th day following the takeover by the receiver of the bank's assets on 3 June 1985.
This "close now and hear later" scheme is grounded on practical and legal considerations to prevent
unwarranted dissipation of the bank's assets and as a valid exercise of police power to protect the
depositors, creditors, stockholders and the general public.

In Rural Bank of Buhi, Inc. v. Court of Appeals,19 We stated that —

. . . 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.

We stressed in Central Bank of the Philippines v. Court of Appeals20 that —

. . . the banking business is properly subject to reasonable regulation under the

police power of the state because of its nature and relation to the fiscal affairs of the
people and the revenues of the state (9 CJS 32). Banks are affected with public
interest because they receive funds from the general public in the form of deposits.
Due to the nature of their transactions and functions, a fiduciary relationship is
created between the banking institutions and their depositors. Therefore, banks are
under the obligation to treat with meticulous care and utmost fidelity the accounts of
those who have reposed their trust and confidence in them (Simex International
[Manila], Inc., v. Court of Appeals, 183 SCRA 360 [1990]).

It is then the Government's responsibility to see to it that the financial interests of

those who deal with the banks and banking institutions, as depositors or otherwise,
are protected. In this country, that task is delegated to the Central Bank which,
pursuant to its Charter (R.A. 265, as amended), is authorized to administer the
monetary, banking and credit system of the Philippines. Under both the 1973 and
1987 Constitutions, the Central Bank is tasked with providing policy direction in the
areas of money, banking and credit; corollarily, it shall have supervision over the
operations of banks (Sec. 14, Art. XV, 1973 Constitution, and Sec. 20, Art. XII, 1987
Constitution). Under its charter, the CB is further authorized to take the necessary
steps against any banking institution if its continued operation would cause prejudice
to its depositors, creditors and the general public as well. This power has been
expressly recognized by this Court. In Philippine Veterans Bank Employees Union-
NUBE v. Philippine Veterans Banks (189 SCRA 14 [1990], this Court held that:

. . . [u]nless 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. The government cannot simply cross
its arms while the assets of a bank are being depleted through
mismanagement or irregularities. It is the duty of the Central Bank in
such an event to step in and salvage the remaining resources of the
bank so that they may not continue to be dissipated or plundered by
those entrusted with their management.
Section 29 of R.A. 265 should be viewed in this light; otherwise, We would be subscribing to a
situation where the procedural rights invoked by private respondent would take precedence over the
substantive interests of depositors, creditors and stockholders over the assets of the bank.

Admittedly, the mere filing of a case for receivership by the Central Bank can trigger a bank run and
drain its assets in days or even hours leading to insolvency even if the bank be actually solvent. The
procedure prescribed in Sec. 29 is truly designed to protect the interest of all concerned, i.e., the
depositors, creditors and stockholders, the bank itself, and the general public, and the summary
closure pales in comparison to the protection afforded public interest. At any rate, the bank is given
full opportunity to prove arbitrariness and bad faith in placing the bank under receivership, in which
event, the resolution may be properly nullified and the receivership lifted as the trial court may
determine.

The heavy reliance of respondents on the Banco Filipino case is misplaced in view of factual
circumstances therein which are not attendant in the present case. We ruled in Banco Filipino that
the closure of the bank was arbitrary and attendant with grave abuse of discretion, not because of
the absence of prior notice and hearing, but that the Monetary Board had no sufficient basis to arrive
at a sound conclusion of insolvency to justify the closure. In other words, the arbitrariness, bad faith
and abuse of discretion were determined only after the bank was placed under conservatorship and
evidence thereon was received by the trial court. As this Court found in that case, the Valenzuela,
Aurellano and Tiaoqui Reports contained unfounded assumptions and deductions which did not
reflect the true financial condition of the bank. For instance, the subtraction of an uncertain amount
as valuation reserve from the assets of the bank would merely result in its net worth or the
unimpaired capital and surplus; it did not reflect the total financial condition of Banco Filipino.

Furthermore, the same reports showed that the total assets of Banco Filipino far exceeded its total
liabilities. Consequently, on the basis thereof, the Monetary Board had no valid reason to liquidate
the bank; perhaps it could have merely ordered its reorganization or rehabilitation, if need be.
Clearly, there was in that case a manifest arbitrariness, abuse of discretion and bad faith in the
closure of Banco Filipino by the Monetary Board. But, this is not the case before Us. For here, what
is being raised as arbitrary by private respondent is the denial of prior notice and hearing by the
Monetary Board, a matter long settled in this jurisdiction, and not the arbitrariness which the
conclusions of the Supervision and Examination Sector (SES), Department II, of the Central Bank
were reached.

Once again We refer to Rural Bank of Buhi, Inc. v. Court of Appeals,21 and reiterate Our
pronouncement therein that —

. . . the law is explicit as to the conditions prerequisite to the action of the Monetary
Board to forbid the institution to do business in the Philippines and to appoint a
receiver to immediately take charge of the bank's assets and liabilities. They are: (a)
an examination made by the examining department of the Central Bank; (b) report by
said department to the Monetary Board; and (c) prima facie showing that its
continuance in business would involve probable loss to its depositors or creditors.

In sum, appeal to procedural due process cannot just outweigh the evil sought to be prevented;
hence, We rule that Sec. 29 of R.A. 265 is a sound legislation promulgated in accordance with the
Constitution in the exercise of police power of the state. Consequently, the absence of notice and
hearing is not a valid ground to annul a Monetary Board resolution placing a bank under
receivership. The absence of prior notice and hearing cannot be deemed acts of arbitrariness and
bad faith. Thus, an MB resolution placing a bank under receivership, or conservatorship for that
matter, may only be annulled after a determination has been made by the trial court that its issuance
was tainted with arbitrariness and bad faith. Until such determination is made, the status quo shall
be maintained, i.e., the bank shall continue to be under receivership.

As regards the second ground, to rule that only the receiver may bring suit in behalf of the bank is, to
echo the respondent appellate court, "asking for the impossible, for it cannot be expected that the
master, the CB, will allow the receiver it has appointed to question that very appointment."
Consequently, only stockholders of a bank could file an action for annulment of a Monetary Board
resolution placing the bank under receivership and prohibiting it from continuing
operations.22 In Central Bank v. Court of Appeals, 23 We explained the purpose of the law —

. . . in requiring that only the stockholders of record representing the majority of the
capital stock may bring the action to set aside a resolution to place a bank under
conservatorship is to ensure that it be not frustrated or defeated by the incumbent
Board of Directors or officers who may immediately resort to court action to prevent
its implementation or enforcement. It is presumed that such a resolution is directed
principally against acts of said Directors and officers which place the bank in a state
of continuing inability to maintain a condition of liquidity adequate to protect the
interest of depositors and creditors. Indirectly, it is likewise intended to protect and
safeguard the rights and interests of the stockholders. Common sense and public
policy dictate then that the authority to decide on whether to contest the resolution
should be lodged with the stockholders owning a majority of the shares for they are
expected to be more objective in determining whether the resolution is plainly
arbitrary and issued in bad faith.

It is observed that the complaint in this case was filed on 11 June 1985 or two (2) years prior to 25
July 1987 when E.O. 289 was issued, to be effective sixty (60) days after its approval (Sec. 5). The
implication is that before E.O

. 289, any party in interest could institute court proceedings to question a Monetary Board resolution
placing a bank under receivership. Consequently, since the instant complaint was filed by parties
representing themselves to be officers of respondent Bank (Officer-in-Charge and Vice President),
the case before the trial court should now take its natural course. However, after the effectivity of
E.O. 289, the procedure stated therein should be followed and observed.

PREMISES considered, the Decision of the Court of Appeals in CA-G.R. SP No. 07867
is AFFIRMED, except insofar as it upholds the Order of the trial court of 11 November 1985 directing
petitioner RAMON V. TIAOQUI to restore the management of TRIUMPH SAVINGS BANK to its
elected Board of Directors and Officers, which is hereby SET ASIDE.

Let this case be remanded to the Regional Trial Court of Quezon City for further proceedings to
determine whether the issuance of Resolution No. 596 of the Monetary Board was tainted with
arbitrariness and bad faith and to decide the case accordingly.

SO ORDERED.