G.R. No. 150886 . February 16, 2007.
RURAL BANK OF SAN MIGUEL, INC. and HILARIO P. SORIANO, in his capacity as majority stockholder, Petitioners, vs. MONETARY BOARD, BANGKO SENTRAL NG PILIPINAS and PHILIPPINE DEPOSIT INSURANCE CORPORATION, Respondents.

FACTS

Petitioner Rural Bank of San Miguel, Inc. (RBSM) was placed under receivership by the Monetary Board (MB) through Resolution No. 105 dated January 21, 2000. The MB based its decision on comptrollership reports showing RBSM was unable to pay its liabilities as they fell due, could not continue business without probable losses to depositors and creditors, and had failed to make the required capital infusion despite being given adequate time. The reports detailed a severe capital deficit, with realizable assets far below total obligations, which included substantial deposits from 20,000 depositors and borrowings from the Bangko Sentral ng Pilipinas (BSP). Furthermore, RBSM had declared a unilateral bank holiday, and a portion of a final emergency loan intended for depositor withdrawals was unaccounted for and paid to entities owned by RBSM officers instead.
Petitioners filed a petition for certiorari and prohibition before the Court of Appeals, assailing the MB’s resolution as issued with grave abuse of discretion. The CA dismissed the petition, upholding the MB’s action. The MB subsequently issued a resolution directing the Philippine Deposit Insurance Corporation (PDIC) to proceed with RBSM’s liquidation. Petitioners elevated the case to the Supreme Court via a petition for review on certiorari.

ISSUE

Whether the Monetary Board committed grave abuse of discretion in issuing Resolution No. 105, which prohibited RBSM from doing business and placed it under receivership.

RULING

The Supreme Court denied the petition and affirmed the assailed CA decision. The Court held that the MB did not commit grave abuse of discretion. The exercise of the MB’s power to close a bank under Section 30 of Republic Act No. 7653 (The New Central Bank Act) is discretionary and exercised summarily, without need for prior notice or hearing, to prevent imminent bank runs and protect the public interest. Judicial review of such actions is limited to determining whether the exercise was done in bad faith, arbitrarily, or whimsically.
The Court found the MB’s decision was based on substantial evidence, including detailed comptrollership reports from October and December 1999, a report from the BSP’s Department of Rural Banks, and RBSM’s own declaration of a bank holiday. These documents conclusively established that the bank was insolvent, unable to meet its obligations, and continuing its operations would prejudice its depositors and creditors. The MB’s evaluation of this evidence and its consequent finding of existence of statutory grounds for closure were done within its technical expertise and discretion. Thus, its actions were neither arbitrary nor capricious.