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The issue that can be gleaned from this case
relative to police power is:
WON, the close now, hear later scheme of
the Monetary Board is a valid exercise of
police power.
DISCUSSION
What is the close now, hear later
doctrine?
There is no exact definition as to what is
meant by the close now, hear later
doctrine. On the other hand the Supreme
Court interpret it in its decision in Central
Bank of the Philippines v. C.A., G.R. No.
76118, March 30, 1993 stating that,
The law does not contemplate prior notice
and hearing before the bank may be directed
to stop operations and placed under
receivership. The purpose is to prevent
unwarranted dissipation of the banks assets
and as a valid exercise of police power to
protect the depositors, creditors,
stockholders and the general public.
In the present case, the Court provides that
at any rate, if circumstances warrant it, the
MB (Monetary Board) may forbid a bank
from doing business and place it under
receivership without prior notice and
hearing.
Section 30 of R.A. No. 7653 (The New Central
Bank Act) provides:
Sec. 30. Proceedings in Receivership and
Liquidation. Whenever, upon report of the
head of the supervising or examining
department, the Monetary Board finds that a
bank or quasi-bank:
(A) is unable to pay its liabilities as they
become due in the ordinary course of
business: Provided, that this shall not include
inability to pay caused by extraordinary
demands induced by financial panic in the
banking community;
(B) Has insufficient realizable assets, as
determined by the Bangko Sentral, to meet
its liabilities; or
(C) Cannot continue in business without
involving probable losses to its depositors or
creditors; or
(D) has wilfully violated a cease and desist
order under Section 37 that has become final,
involving acts or transactions which amount
to fraud or a dissipation of the assets of the
institution; in which cases, the Monetary
Board may summarily and without need for
prior hearing forbid the institution from
doing business in the Philippines and
designate the Philippine Deposit Insurance
Corporation as receiver of the banking
institution.
The Court, in several cases, upheld the power
of the MB to take over banks without need
for prior hearing.
It is not necessary inasmuch as the law
entrusts to the MB the appreciation and
determination of whether any or all of the
statutory grounds for the closure and
receivership of the erring bank are present.
The MB, under R.A. No. 7653, has been
invested with more power of closure and
placement of a bank under receivership for
insolvency or illiquidity, or because the banks
continuance in business would probably
result in the loss to depositors or creditors.
In the same case of Central Bank of the
Philippines v. C.A., G.R. No. 76118, March
30, 1993, in resolving the question as to
whether absence of prior notice and hearing
is constitutive of acts of arbitrariness and bad
faith the Court answered that:
This "close now and 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 Court in the present case highlighted
that:
The doctrine is founded on practical and
legal considerations to obviate unwarranted
dissipation of the banks assets and as a valid
exercise of police power to protect the
depositors, creditors, stockholders, and the
general public. Swift, adequate and
determined actions must be taken against
financially distressed and mismanaged banks
by government agencies lest the public faith
in the banking system deteriorate to the
prejudice of the national economy.
Accordingly, the MB can immediately
implement its resolution prohibiting a
banking institution to do business in the
Philippines and, thereafter, appoint the
PDIC as receiver.
Obviously, this procedure is designed to
protect the interest of all concerned that is,
the depositors, creditors and stockholders,
the bank itself and the general public.
In Rural Bank of Buhi, Inc. v. Court of
Appeals, G.R. No. L-61689 June 20,
1988 as both cited in Central Bank of the
Philippines v. C.A and in the present case, the
Supreme Court held that:
. . . due process does not necessarily require
a prior hearing; a hearing or an opportunity
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to be heard may be subsequent to the
closure. One can just imagine the dire
consequences of a prior hearing: bank runs
would be the order of the day, resulting in
panic and hysteria. In the process, fortunes
may be wiped out and disillusionment will
run the gamut of the entire banking
community.
FURTHERMORE the Court stressed in Central
Bank of the Philippines v. Court of Appeals
that
. . . the banking business is properly subject
to reasonable regulation under the police
power of the state because of its nature and
relation to the fiscal affairs of the people and
the revenues of the state (9 CJS 32). Banks
are affected with public interest because they
receive funds from the general public in the
form of deposits. Due to the nature of their
transactions and functions, a fiduciary
relationship is created between the banking
institutions and their depositors. Therefore,
banks are under the obligation to treat with
meticulous care and utmost fidelity the
accounts of those who have reposed their
trust and confidence in them (Simex
International [Manila], Inc., v. Court of
Appeals, 183 SCRA 360 [1990]).
It is then the Government's responsibility to
see to it that the financial interests of those
who deal with the banks and banking
institutions, as depositors or otherwise, are
protected. In this country, that task is
delegated to the Central Bank which,
pursuant to its Charter (R.A. 265, as
amended, and at present RA7653 [The New
Central Bank Act]), is authorized to
administer the monetary, banking and credit
system of the Philippines. Under both the
1973 and 1987 Constitutions, the Central
Bank is tasked with providing policy
direction in the areas of money, banking and
credit; corollarily, it shall have supervision
over the operations of banks (Sec. 14, Art. XV,
1973 Constitution, and Sec. 20, Art. XII, 1987
Constitution). Under its charter, the CB is
further authorized to take the necessary
steps against any banking institution if its
continued operation would cause prejudice
to its depositors, creditors and the general
public as well.
This power has been expressly recognized by
this Court.
In Philippine Veterans Bank Employees
Union-NUBE v. Philippine Veterans Banks
(189 SCRA 14 [1990], this Court held that:
. . . [u]nless 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. The
government cannot simply cross its arms
while the assets of a bank are being depleted
through mismanagement or irregularities. It
is the duty of the Central Bank in such an
event to step in and salvage the remaining
resources of the bank so that they may not
continue to be dissipated or plundered by
those entrusted with their management.
In the case at hand, the ISD II submitted its
memorandum, dated February 17, 2010,
containing the findings noted during the
general examination conducted on ECBI with
the cut-off date of September 30, 2009.
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For said reasons, the MB was forced to issue
the assailed Resolution No. 276 placing ECBI
under receivership. In addition, the MB
stressed that it accorded ECBI ample time
and opportunity to address its monetary
problem and to restore and improve its
financial health and viability but it failed to
do so.
In light of the circumstances obtaining in this
case, the application of the corrective
measures enunciated in Section 30 of R.A.
No. 7653 was proper and justified.

The memorandum underscored the inability

of ECBI to pay its liabilities as they would fall
due in the usual course of its business, its
liabilities being in excess of the assets held.

Also, it was noted that ECBIs continued

banking operation would most probably
result in the incurrence of additional losses to
the prejudice of its depositors and creditors.

On top of these, it was found that ECBI had

willfully violated the cease-and-desist order
of the MB issued in its June 24, 2009
Resolution, and had disregarded the BSP
rules and directives.