Case Title: BSP MB vs. Hon. Antonio Valenzuela, et al.

Docket No.: G.R. No. 184778

Date: October 02, 2009
Ponente:VELASCO JR., J.:
Topic:

Doctrine:

​ 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.

FACTS:
​
The Supervision and Examination Department (SED) of the Bangko Sentral ng Pilipinas
(BSP) examined the books of several banks, including the Rural Bank of Parañaque, Inc.
(RBPI). The SED found deficiencies and required these banks to comment and to undertake the
remedial measures, including the infusion of additional capital. Although the banks claimed that
they complied, petitioner Chuchi Fonacier, officer-in-charge of the SED, through letters sent to
the Board of Directors of each bank, informed these banks that they have failed to carry out the
required remedial measures.

In response, the banks requested more time to obtain BSP approval to amend their
Articles of Incorporation, to have an opportunity to seek investors, the basis for the capital
infusion figures be disclosed, and noted that none of them had received the Report of
Examination (ROE) which finalizes the audit findings. As well as meetings with BSP audit
teams.

Consequently, RBPI filed a complaint for nullification of the BSP ROE with application for
a TRO and writ of preliminary injunction before the RTC. RBPI prayed that Fonacier, her
subordinates, agents, or any other person acting in her behalf be enjoined from submitting the
ROE or any similar report to the Monetary Board (MB), or if the ROE had already been
submitted, the MB be enjoined from acting on the basis of said ROE, arguing that not receiving
the ROE violated its right to due process.

The other banks sought to consolidate their cases in the same branch, which was
granted. However, petitioners challenged the consolidation, claiming it prejudged the case due
to earlier TRO issuance and moved for the inhibition of the respondent judge. San Pablo City
Development Bank, Inc. filed a similar complaint against the same defendants with the RTC,
and this was later consolidated with RBPI’s case, leading to additional TROs being issued.
 Petitioners filed a Motion to Dismiss against all the complaints (except that of the San
Pablo City Development Bank, Inc.), 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. A hearing
was conducted on the application for a TRO and for a writ of preliminary injunction of San Pablo
City Development Bank, Inc.

On June 4, 2008, RTC ruled that the banks were entitled to the writs of preliminary
injunction prayed for. It held that it had been the practice of the SED to provide the ROEs to the
banks before submission to the MB. It further held that as the banks are the subjects of
examinations, they are entitled to copies of the ROEs. The denial by petitioners of the banks'
requests for copies of the ROEs was held to be a denial of the banks' right to due process.

Petitioners then appealed to the Court of Appeals (CA) via a petition for certiorari under
Rule 65 claiming grave abuse of discretion on the part of Judge Valenzuela when she issued the
orders dated May 21, 2008 and June 4, 2008. Finding that no grave abuse of discretion
attended the issuance of the orders by the RTC, the CA denied the petition.

​ The CA ruled that the RTC committed no grave abuse of discretion when it ordered the
issuance of a writ of preliminary injunction and when it ordered the consolidation of the 10
cases. It held that petitioners should have first filed a motion for reconsideration of the assailed
orders, and failed to justify why they resorted to a special civil action of certiorari instead.

The CA also found that aside from the technical aspect, there was no grave abuse of
discretion on the part of the RTC, and if there was a mistake in the assessment of evidence by
the trial court, that should be characterized as an error of judgment, and should be correctable
via appeal. It held that the principles of fairness and transparency dictate that the respondent
banks are entitled to copies of the ROE.

Regarding the consolidation of the 10 cases, the CA found that there was a similarity of
facts, reliefs sought, issues raised, defendants, and that plaintiffs and defendants were
represented by the same sets of counsels. It found that the joint trial of these cases would
prejudice any substantial right of petitioners. Hence, this recourse.

ISSUES:

Whether or not BSP is required to give the banks copies of the ROEs?

RULING:

No. The respondent banks have failed to show that they are entitled to copies of the ROEs.
They can point to no provision of law, no section in the procedures of the BSP that shows that
the BSP is required to give them copies of the ROEs. Sec. 28 of RA 7653, or the New Central
Bank Act, which governs examinations of banking institutions, provides that the ROE shall be
submitted to the MB; the bank examined is not mentioned as a recipient of the ROE. The
respondent banks cannot claim a violation of their right to due process if they are not provided
with copies of the ROEs. The same ROEs are based on the lists of findings/exceptions
containing the deficiencies found by the SED examiners when they examined the books of the
respondent banks. As found by the RTC, these lists of findings/exceptions were furnished to the
officers or representatives of the respondent banks, and the respondent banks were required to
comment and to undertake remedial measures stated in said lists. Despite these instructions,
respondent banks failed to comply with the SED's directive.

This "close now, 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. 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.

The trial court required the MB to respect the respondent banks' right to due process by
allowing the respondent banks to view the ROEs and act upon them to forestall any sanctions
the MB might impose. Such procedure has no basis in law and does in fact violate the "close
now, hear later" doctrine. We held in Rural Bank of San Miguel, Inc. v. Monetary Board, Bangko
Sentral ng Pilipinas: It is well-settled that the closure of a bank may be considered as an
exercise of police power. The action of the MB on this matter is final and executory. Such
exercise may nonetheless be subject to judicial inquiry and can be set aside if found to be in
excess of jurisdiction or with such grave abuse of discretion as to amount to lack or excess of
jurisdiction.

The respondent banks cannot--through seeking a writ of preliminary injunction by

appealing to lack of due process, in a roundabout manner-- prevent their closure by the MB.
Their remedy, as stated, is a subsequent one, which will determine whether the closure of the
bank was attended by grave abuse of discretion. 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 "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.

Petition was granted.The assailed CA Decision dated September 30, 2008 in CA-G.R.
SP No. 103935 is hereby REVERSED. The assailed order and writ of preliminary injunction of
respondent Judge Valenzuela in Civil Case Nos. 08-119243, 08- 119244, 08-119245,
08-119246, 08-119247, 08-119248, 08-119249, 08-119250, 08-119251, and 08-119273 are
hereby declared NULL and VOID.