Tayug Rural Bank vs Central Bank of the Philippines

GR No. L-46158 | November 28, 1986

Ponente: J. Paras
Facts:

Tayug Rural Bank, Inc. (Appellee) sued the Central Bank of the Philippines (Appellant) to recover the 10%
penalty imposed by the Appellant on Appellee's past due loans. Appellee also sought to restrain
Appellant from continuing to impose the penalty. Appellant filed a counterclaim for the outstanding
balance and overdue accounts of Appellee, plus accrued interest and penalty at 10% per annum. The
lower court ruled in favor of Appellee, finding that Appellant did not have the authority to impose the
penalty rate of 10% per annum on past due loans of rural banks. Appellant appealed the decision to the
Court of Appeals, which affirmed the lower court's ruling. A rural bank sued the central bank to get back
a 10% penalty that the central bank charged on the bank's past due loans. The bank also wanted the
central bank to stop charging the penalty. The central bank countersued for the unpaid loans, plus
interest and penalties. The lower court ruled in favor of the bank, finding that the central bank did not
have the authority to charge the penalty. The central bank appealed, but the appellate court upheld the
lower court's ruling.

Issues: whether or not the Central Bank can validly impose the 10% penalty on Appellee's past overdue
loans beginning July 4, 1965, by virtue of Memorandum Circular No. DLC-8 dated December 23, 1964.
Ruling

No. The Monetary Board of the Central Bank does not have the authority to impose an additional
penalty rate on past due accounts of rural banks. This is because there is no provision in R.A. 720 that
authorizes the Monetary Board to do so. Administrative rules and regulations have the force and effect
of law, but they cannot be in contradiction with the law that they are implementing. In this case, the
Monetary Board's rule imposing a penalty rate on past due accounts is in contradiction with R.A. 720,
which does not authorize the Monetary Board to do so. Therefore, the Monetary Board's rule imposing
a penalty rate on past due accounts is invalid.