CENTRAL BANK OF THE PHILIPPINES vs. THE HONORABLE RAFAEL DE LA CRUZ and the RURAL BANK OF LIBMANAN

CENTRAL BANK OF THE PHILIPPINES vs. THE HONORABLE RAFAEL DE LA CRUZ and the RURAL BANK OF LIBMANAN, INC.,

G.R. No. 59957

DATE November 12, 1990

PONENTE GRIÑO-AQUINO, J.:

FACTS:

The Libmanan Bank started operations in 1965 under and by virtue of Republic Act No. 720, otherwise known as the Rural Banks’ Act. Originally owned and managed by the Albas’ family, Libmanan Bank was later sold to Manuel M. Villar and respondent Alex G. Durante, who commenced banking operations in January 1979.

The Department of Rural Banks and Savings and Loan Associations (DRBSLA) of the Central Bank of the Philippines conducted examinations of the books and affairs of Libmanan Bank and found serious irregularities in its lending and deposit operations, including false entries and false statements in the bank’s records to give it the appearance of solidity and soundness which it did not possess. As a result of its questionable transactions, the bank became insolvent.

The Monetary Board placed Libmanan Bank under statutory receivership. Libmanan Bank was advised to submit to the Monetary Board an acceptable reorganization and rehabilitation program.

As Libmanan Bank failed to submit the required acceptable reorganization and rehabilitation plan, the Monetary Board.

Solicitor General, filed for Liquidation of Libmanan Bank.

Judge issued the questioned order, restraining the respondent Central Bank from “closing the bank and from performing its customary banking business; to restore the control and management of the bank to its Board of Directors; and to desist from liquidating its assets until ordered otherwise by this Court”

ISSUE/S: Can regular courts issue a restraining order against Central Bank in placing a bank under insolvency?

RULING:

It is noteworthy that the actions of the Monetary Board in proceedings on insolvency are explicitly declared by law to be “final and executory.” They may not be set aside, or restrained, or enjoined by the courts, except upon “convincing proof that the action is plainly arbitrary and made in bad faith.”

Respondent Judge acted in plain disregard of the fourth paragraph of Section 29 of the Central Bank Act, when he restrained the petitioners from closing and liquidating the Rural Bank of Libmanan, prevented them from performing their functions, and ordered them to return the management and control of the rural bank to its board of directors (p. 51, Rollo) without receiving convincing proof that the action of the CB was plainly arbitrary and made in bad faith.

By issuing his own standards, instead of the standards set forth in Section 29 of the law, as basis for issuing a restraining order against the CB, respondent Judge committed a grave abuse of discretion tantamount to excess, or lack of jurisdiction.

Respondent Judge acted with grave abuse of discretion in issuing the contested order dated January 15, 1982 enjoining the CB liquidator from closing the rural bank and requiring it to restore the management and control of the bank to its board of directors. It is a basic procedural postulate that a preliminary injunction should never be used to transfer the possession or control of a thing to a party who did not have such possession or control at the inception of the case (Lasala vs. Fernandez, 5 SCRA 79; Emilia vs. Bado, 28 SCRA 183). Its proper function is simply to maintain the status quo at the commencement of the action. The status quo at the time of filing Civil Case No. 1309 was that Libmanan Bank was under the control of the DRBSLA Director, with Consolacion V. Odra, as liquidator appointed by the Central Bank.

Respondent Judge erred in denying the Central Bank’s motion to dismiss the complaint for prohibition and mandamus (Civil Case No. 1309) filed by Libmanan Bank (Annex C, p. 71, Rollo). This Court in the case of Rural Bank of Buhi, Inc. vs. Court of Appeals (162 SCRA 288) and Salud vs. Central Bank of the Phils. (142 SCRA 590), ruled that a bank’s claim that the resolution of the Monetary Board under Section 29 is plainly arbitrary and done in bad faith should be asserted as an affirmative defense or counter-claim in the proceedings for assistance in liquidation. It may be filed as a separate action if no petition for assistance in liquidation has been instituted yet.