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Digest Tayug-Rural-Bank-vs-CBP

The Central Bank of the Philippines imposed a 10% penalty interest rate on past due loans of Tayug Rural Bank beginning January 4, 1965 through Memorandum Circular DLC-8. Tayug Rural Bank sued, arguing the promissory notes did not provide for such a penalty. The Supreme Court ruled in favor of Tayug Rural Bank, finding that while the Central Bank had authority to impose penalties under certain rules and regulations, Republic Act 720 did not authorize a specific 10% penalty on past due accounts. As such, the Central Bank exceeded its authority in imposing the 10% rate since it was not expressly provided for in the promissory notes between the parties.

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L'Michelli Kilayko Horlador
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87 views1 page

Digest Tayug-Rural-Bank-vs-CBP

The Central Bank of the Philippines imposed a 10% penalty interest rate on past due loans of Tayug Rural Bank beginning January 4, 1965 through Memorandum Circular DLC-8. Tayug Rural Bank sued, arguing the promissory notes did not provide for such a penalty. The Supreme Court ruled in favor of Tayug Rural Bank, finding that while the Central Bank had authority to impose penalties under certain rules and regulations, Republic Act 720 did not authorize a specific 10% penalty on past due accounts. As such, the Central Bank exceeded its authority in imposing the 10% rate since it was not expressly provided for in the promissory notes between the parties.

Uploaded by

L'Michelli Kilayko Horlador
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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G.R. No.

L-46158 November 28, 1986

TAYUG RURAL BANK, plaintiff-appellee,


vs.
CENTRAL BANK OF THE PHILIPPINES, defendant-appellant.

FACTS:
1. From December 28, 1962 to July 30, 1963, Tayug Rural Bank obtained 13 loans from Central Bank of the
Philippines (CBP), by way of rediscounting, at the rate of 0.5% per annum from 1962 to March 28, 1963 and
thereafter at the rate of 2.5% per anum. As of July 15, 1969, the outstanding balance was P 444,809.45.
2. On December 23, 1964, the CBP issued Memorandum Circular (MC) No. DLC-8, informing all rural banks
that an additional penalty interest rate of ten per cent (10%) per annum would be assessed on all past due
loans beginning January 4, 1965.
3. On June 27, 1969, Tayug Rural Bank sued CBP in the Court of First Instance of Manila to recover the 10%
penalty imposed by the CBP amounting to P16,874.97, as of September 27, 1968 and to restrain the latter
from continuing the imposition of the penalty.
4. The CBP justified the imposition of the penalty, stating that it 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 September 5, 1958, under authority of Section 3 of Republic Act No. 720, as amended.
5. Tayug raised the contention that the promissory notes covering the loans do not provide for penalty interest
rate of 10% per annum on just due loans beginning January 4, 1965. Hence, the imposition is a violation of
the obligation of contract without due process.
6. The court ruled in favour of Tayug. Afterwards, the case was elevated to the Court of Appeals and
thereafter, to the Supreme Court.

ISSUE: Whether or not the Central Bank can validly impose the 10% penalty on Tayug's past due loans beginning
July 4, 1965, by virtue of MC No. DLC-8 dated December 23, 1964.

HELD:
1. The above MC was based on Sections 147 and 148 of the Rules and Regulations Governing Rural Banks of
the Philippines promulgated by the Monetary Board on September 5, 1958, which authorizes the CBP to
impose additional reasonable penalties, including curtailment or withdrawal of financial assistance, on rural
bank who do not comply with certain loan covenants.
2. The said rules and regulations issued by the Monetary Board, in turn, are pursuant to Section 3 of R.A. No.
720, as amended. However, R.A. 720 does not contain any provision authorizing the Monetary Board to
mete out on rural banks an additional penalty rate on their past due accounts.
3. Administrative rules and regulations have the force and effect of law provided that they conform with the
standards and provisions set forth in the law. 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.
4. On March 31, 1970, the Monetary Board in its Resolution No. 475 effective April 1, 1970, revoked the
imposition of the questioned 10% per annum penalty rate on past due loans of rural banks. This shows an
admission that it has no power to impose the 10% penalty interest unless such is expressly provided in the
promissory notes.
5. Thus, the CBP does not have the authority to impose the 10% penalty on Tayug’s past due loans.

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