Tayug Rural Bank - v - Central Bank
Facts:
Note: I made this case digest when I was still a law student. The ones posted on my blog were not due for submission as part of any academic requirement. I want to remind you that there is no substitute to reading the full text of the case! Use at your own risk.
1. Tayug
Rural Bank, Inc., is a banking corporation in Tayug, Pangasinan.
2. It
obtained (13) loans from Central Bank of the Philippines, by way of
rediscounting, at the rate of 1/2 of 1% per annum from 1962 to 1963 and
thereafter at the rate of 2-1/2% per anum.
3.The
loans, amounting to P813,000.00 were all covered by corresponding promissory
notes prescribing the terms and conditions of the aforesaid loans
4. Central
Bank, thru the Director of the Department of Loans and Credit, issued Memo
Circular No. DLC-8, informing all rural banks that an additional penalty
interest rate of (10%) per annum would be assessed on all past due loans
beginning 1965.
5. On
1969, Rural Bank sued Central Bank in CFI Manila, to recover the 10% penalty
imposed by Central Bank amounting to P16K, as of 1968 and to restrain Central
Bank from continuing the imposition of the penalty.
6. Central
Bank filed a counterclaim for the outstanding balance and overdue accounts of
Appellee in the total amount of P444K plus accrued interest and penalty at 10%
per annum on the outstanding balance until full payment. It justified the
imposition of the penalty by way of affirmative and special defenses, stating
that:
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Penalty
was legally imposed under the provisions of Section 147 and 148 of the Rules
and Regulations Governing Rural Banks promulgated by the Monetary Board on
1958, under authority of Section 3 of Republic Act No. 720, as amended
7. Rural
Bank prayed for the dismissal of the counterclaim claiming:
a.
if
Rural Bank has any unpaid obligations with Central Bank, it was due to the
latter's fault on account of its flexible and double standard policy in the
granting of rediscounting privileges to Rural Bank and its subsequent arbitrary
and illegal imposition of the 10% penalty
b.
Central
Bank had no basis to impose the penalty interest inasmuch as the promissory
notes covering the loans executed by Rural Bank in favor of Central Bank do
not provide for penalty interest rate of 10% per annum on just due loans
beginning 1965
8. Lower
Court: In favor of Rural Bank; CA: Forwarded the case to SC for proper
determination
Issue: WON the Central
Bank can validly impose the 10% penalty on Appellee's past overdue loans
beginning 1965, by virtue of Memorandum Circular No. DLC-8. Negative.
Held: Affirmed.
Important
Laws discussed -
Memo Circular No. DLC-8:
rural banks which shall default in their loan obligations, thus incurring past
due accounts with the Central Bank, shall be assessed an additional penalty
interest rate of (10%) per annum on such past due accounts with the Central
Bank over and above the customary interest rate(s) at which such loans were
originally secured from the Central Bank." Basis: Sections 147[1]
and 148[2] of
the Rules and Regulations Governing Rural Banks of the Philippines
Section 3 of R.A. No. 720: In
furtherance of this policy, the Monetary Board of the Central Bank of the
Philippines shall formulate the necessary rules and regulations governing the
establishment and operatives of Rural Banks for the purpose of providing
adequate credit facilities to small farmers and merchants, or to cooperatives
of such farmers or merchants and to supervise the operation of such banks.
Section 10 of R.A. 720:
The power to supervise the operation of any Rural Bank by the Monetary Board of
the Central Bank as herein indicated, shall consist in placing limits to the
maximum credit allowed any individual borrower; in prescribing the interest
rate; in determining the loan period and loan procedure; in indicating the
manner in which technical assistance shall be extended to Rural Banks; in
imposing a uniform accounting system and manner of keeping the accounts and
records of the Rural Banks; in undertaking regular credit examination of the
Rural Banks: in instituting periodic surveys of loan and lending procedures,
audits, test check of cash and other transactions of the Rural Banks; in
conducting training courses for personnel of Rural Banks; and, in general in
supervising the business operation of the Rural Banks.
-
Nowhere
in any of the above-quoted pertinent provisions of R.A. 720 nor in any other
provision of R.A. 720 for that matter, is the monetary Board authorized to mete
out on rural banks an additional penalty rate on their past due accounts with
Appellant.
-
As
correctly stated by the trial court, while the Monetary Board possesses broad
supervisory powers, nonetheless, the retroactive imposition of administrative
penalties cannot be taken as a measure supervisory in character.
-
A
rule shaped out by jurisprudence is that when Congress authorizes promulgation
of administrative rules and regulations to implement given legislation, all
that is required is that the regulation be not in contradiction with it, but
conform to the standards that the law prescribes.
-
"A rule is
binding on the courts so long as the procedure fixed for its promulgation is
followed and its scope is within the statute granted by the legislature, even
if the courts are not in agreement with the policy stated therein or its innate
wisdom ...." "administrative
interpretation of the law is at best merely advisory, for it is the courts that
finally determine what the law means."
-
In
case of discrepancy between the basic law and a rule or regulation issued to
implement said law, the basic law prevails because said rule or regulation
cannot go beyond the terms and provisions of the basic law.
-
An
administrative agency cannot impose a penalty not so provided in the law
authorizing the promulgation of the rules and regulations, much less one that
is applied retroactively.
-
While
there is now a basis for the imposition of the 10% penalty rate on overdue
accounts of rural banks, there was none during the period that Rural Bank
contracted its loans from Central Bank, the last of which loan was on 1963.
Surely, the rule cannot be given retroactive effect.
-
Monetary
Board in its Resolution No. 475 revoked its Resolution No. 1813 imposing the
questioned 10% per annum penalty rate on past due loans of rural banks and
amended sub-paragraph (a), Section 10 of the existing guidelines governing
rural banks' applications for a loan or rediscount.
-
This
move on the part of the Monetary Board clearly shows an admission that it has
no power to impose the 10% penalty interest through its rules and regulations
but only through the terms and conditions of the promissory notes executed by
the borrowing rural banks.
Not
part of the main topic but if Sir asks what happened:
-
Central
Bank evidently hoped that the defect could be adequately accomplished by the
revision of DLC Form No. 11: In the event
that this note becomes past due, the undersigned shall pay a penalty at the
rate of _____ per cent ( ) per annum on such past due account over and above
the interest rate at which such loan was originally secured from the Central
Bank. Such clause was not a part of the promissory notes executed by Rural
Bank to secure its loans.
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BUT
it is provided in all the promissory notes signed by Rural Bank that in case
of suit for the collection of the amount of the note or any unpaid balance
thereof, the Rural Bank shall pay the Central Bank of the Philippines a sum
equivalent to (10%) of the amount unpaid not in any case less than (P500.00) as
attorney's fees and costs of suit and collection.
-
Decision
affirmed but modified ordering Rural Bank to pay its unpaid obligations based
on its promissory note as stated above.
[1] Section
147. Duty of Rural Bank to turn over payment received for papers discounted or
used for collateral.
[2] Sec.
148. Default and other violations of
obligation by Rural Bank, effect.
