Tayug Rural Bank vs.
Central Bank of the Phils rules and regulations authorize the Central
146 SCRA 120; G.R. No. L-46158; Nov. 28, 1986
FACTS:
Tayug Rural is a bank in Pangasinan which took out
13 loans from Central Bank in 1962 and1963, all
covered by promissory notes, amounting to 813k. In
late 1964, Central Bank released a circular;
Memorandum Circular No. DLC-8 thru the Director
of Loans and Credit. This circular allinformed all
rural banks that an additional 10% per annum penalty
interest would be assessed on all past due loans
beginning 1965.
This was enforced beginning July 1965.In 1969, the
outstanding balance of Tayug was at 444k. Tayug
Rural filed a case in CFI Manila to recover the 10%
penalty it paid up to 1968, amounting to about 16k,
and to restrain Central bank from further imposing
the penalty. Central Bank filed a counterclaim for the
outstanding balance includingthe10% penalty, stating
that it was legally imposed under the Rules and
Regulations Governing Rural Banks promulgated by
the Monetary Board on 1958, under RA 720.Tayug’s
defense was that the counterclaim should be
dismissed since the unpaid obligation of Tayug was
due to Central Bank’s flexible and double standard
policy of its rediscounting privileges to Tayug Rural
and its subsequent arbitrary and illegal imposition of
the 10% penalty. Tayug Rural contends that no such
10% penalty starting from 1965 was included in the
promissory notes covering the loans. A judgment was
rendered by CFI Manila in favor of Central Bank
ordering Tayug Rural Bank to pay10% penalty in the
amount of around 19k pesos for loans up to July
1969, and to pay nothing for the next remaining
loans.Tayug’s claim in the case was however
successful, and so Tayug was also ordered to pay
444k, with interest to the Central Bank for the
overdue accounts with respect to the promissory
notes. Central Bank appealed to the CA, but also lost
on the ground that only a legal question had been
raised in the pleadings. The case was then raised to
the SC, with each party arguing in the following
manner:
 CFI rules that the circular’s retroactive effect
on past due loans impairs the obligation of
contracts and deprives Tayug Rural of
property without due process of law.
 Central Bank reasons that Tayug Rural,
despite the loans, should have known that
Bank to impose additional reasonable
penalties.
ISSUE:
WON The Central Bank can validly impose the 10%
penalty via Memorandum Circular No. DLC-8
HELD:
NO. A reading of the circular and pertinent
provisions, including that of RA 720, shows that
nowhere therein is the authority given to the
Monetary Board to mete out additional penalties to
the rural banks on past due accounts with the Central
Bank.
As said by the CFI, while the Monetary Board
possesses broad supervisory powers, nonetheless, the
retroactive imposition of administrative penalties
cannot be taken as a measure SUPERVISORY in
character. Administrative rules have the force and
effect of law. There are, however, limitations in the
rulemaking power of administrative agencies. All
that is required of administrative rules and
regulations is to implement given legislation by not
contradicting it and conform to the standards
prescribed by law.
Rules and regulations cannot go beyond the basic
law. Since compliance therewith can be enforced by
a penal sanction, an administrative agency cannot
implement a penalty not provided in the law
authorizing it, much less one that is applied
retroactively.
The new clause imposing an additional penalty was
not part of the promissory notes when Tayug took out
its loans. The law cannot be given retroactive effect.
More to the point, the Monetary Board revoked the
additional penalty later in 1970, which clearly shows
an admission that it had no power to impose the
same. The Central bank hoped to rectify the defect by
revising the DLC Form later. However, Tayug Rural
must pay the additional 10% in case of suit, since in
the promissory notes, 10% should be paid in
attorney’s fees and costs of suit and collection.
Judgment AFFIRMED with modification