Hizon Notes - Special Commercial Laws PDF

NOTES ON SPECIAL COMMERCIAL LAWS
Kenneth and King C. Hizon (3A)_____________________________________________________________________________________________________________

UNIVERSITY OF SANTO TOMAS
Faculty of Civil Law
A.Y. 2012-2013
First Semester
SPECIAL COMMERCIAL LAWS
LETTERS OF CREDIT
A: It is neither a surety nor a guarantor. The liability of the
Definition issuing bank is primary and solidary. It is also not entitled to
the benefit of excussion.
Q: What are letters of credit?
Q: What is the purpose of the letters of credit?
A: Any arrangement however named of described, whereby a
A: To ensure certainty of payment. The seller is assured of
bank acting upon the request of its client or in its own behalf,
payment because the bank intervenes and makes the
agrees to pay another, against a stipulated documents
commitment to pay. This addresses problems arising from the
provided that the terms of the credit are complied with.
sellers refusal to part with his goods before being paid and
the buyers refusal to part with his money before acquiring
Q: What is the duration of LC?
the goods, thus, facilitating commercial transactions.
A:
NOTE: The issuing bank should pay the beneficiary upon the
latters submission of the stipulated documents and
1. Upon the period fixed by the parties; or
compliance with the terms of the credit even though there is
2. If none is fixed:
a pending issue on whether or not the main contract
a. 6 months from its date if used in the Philippines;
underlying the letter of credit has been paid or fulfilled or
b. 12 months if used abroad
not.
Governing law
Q: What are the 2 kinds of letters of credit?
Q: What laws govern commercial transactions?
A:
A: In the absence of any particular provision in the Code of
COMMERCIAL STANDBY
Commerce, commercial transaction shall be governed by
Involves contracts of sale Involves non-sale
usage and customs genereally observed.
transactions
Letter of credit as an independent contract Payable only upon Payable upon certification by
presentation by the seller- the beneficiary of the
Q: Is a letter of credit an accessory contract? beneficiary of documents applicants non-performance
that show he has performed of the agreement.
A: Letters of credit are in effect an absolute undertaking to his contract
pay the money advanced or the amount for which credit is
given on the faith of the instrument. They are primary Q: What are the other kinds of letters of credit?
obligations and not accessory contracts.
A:
NOTE: A letter of credit by itself does not come into 1. Irrevocable letter of credit A letter of credit
operation without a contract supporting it. It is not a contract wherein the terms and the undertakings of the
that can stand on its own, it needs a supporting contract. In a issuing bank cannot be amended or altered or
commercial letter of credit it is a sale; in standby letter of revoked without the consent of the beneficiary
credit, it is a non-sale transaction. 2. Revocable letter of credit can be amended,
altered or revoked even without the consent of the
Q: Describe the liability of the bank which issued the letter beneficiary
of credit.
Facultad de Derecho Civil 1
3. Confirmed letter of credit - the liability of the reimburse the issuing bank any and all amount should be paid
confirming bank is primary under the letter of credit once the issuing bank is compelled
4. Non-confirmed letter of credit to pay because the beneficiary is able to submit the
document stipulated.
Irrevocable letter of credit
He agrees to pay the bank that issued the letter of credit. The
Q: Is irrevocable letter of credit and confirmed letter of applicant has no obligation to reimburse the issuing bank if
credit synonymous? the latter pays without the stipulated amounts duly paid
under the letter of credit.
A: An irrevocable letter of credit is not synonymous with a
confirmed letter of credit. In an irrevocable letter of credit, Q: Who is the beneficiary?
the issuing bank may not, without the consent of the
beneficiary and the applicant, revoke its undertaking under A: The one entitled to payment from the issuing bank upon
the letter, whereas, in a confirmed letter of credit, the his submission of the document stipulated and compliance
correspondent bank gives an absolute assurance to the with the terms of the credit.
beneficiary that it will undertake the issuing banks obligation
as its own according to the terms and condition of the credit. Q: What is the effect of the failure of the beneficiary to
fulfill his obligation under the main contract?
IRREVOCABLE LETTER OF CONFIRMED LETTER OF
CREDIT CREDIT A: It does not negate his right to payment from the issuing
The issuing bank may not, The correspondent bank bank as long as he is able to submit the required documents
without the consent of the gives an absolute assurance and comply with the terms of the credit, without prejudice to
beneficiary and the to the beneficiary that it will his liability against the account party under the law on
applicant, revoke its undertake the issuing banks contract and damages
undertaking under the letter obligation as its own
according to the terms and Q: Who is the issuing bank?
conditions of the credit
A: The one that undertakes to pay the beneficiary upon
Q: Can the irrevocable nature of letter of credit be changed? submission of the beneficiary of these stipulated documents
and compliance with the terms of the credit.
A: The terms of an irrevocable letter of credit cannot be
changed without the consent of the parties, particularly the Q: Enumerate the other parties.
beneficiary thereof (Philippine Virginia Tobacco
Administration v. De Los Angeles, 164 SCRA 543, 1988). A:
Q: Can a court order the release to the applicant the Advising or Not liable to pay the beneficiary; it does not
proceeds of an irrevocable letter of credit without the Notifying bank have any contractual relations with the
consent of the beneficiary? beneficiary. Its only obligation is to determine
the apparent authenticity of the letter of credit;
to check if at first glance that the same is
A: No, such order violates the irrevocable nature of the letter genuine or valid:
of credit. The terms of an irrevocable letter of credit cannot a. If valid, the advising/notifying bank
be changed without the consent of the parties, particularly notifies the beneficiary of the letter of
the beneficiary thereof. credit; transmit the letter of credit in
favor of the beneficiary so that the
Parties to a letter of credit beneficiary can cause shipment of the
equipment
Q: Who are the parties to the letter of credit? Paying bank An agent of the issuing bank for the purpose of
making payment to the beneficiary.
He can also be the advising bank
A:
Confirming bank It lends credence to a letter of credit issued by a
1. Applicant lesser known bank as if it is the one who issued
2. Beneficiary the letter of credit.
3. Issuing bank Its obligation is similar to an issuing bank. Thus,
beneficiary may tender documents to the
Q: Who is the applicant? confirming bank and collect payment
Negotiating The bank in the city of the beneficiary which
A: He may be a buyer, importer or obligor. The person who bank buys or discounts the drafts contemplated by
procures the opening of letter of credit and who agrees to the LC, if such draft is to be drawn on the
opening bank not in the city of the beneficiary
Correspondent If the account party is in the Philippines and the
bank of issuing beneficiary is abroad, the beneficiary will be A: Once the issuing bank shall have paid the beneficiary after
bank notified and consequently will be paid through the latters compliance with the terms of the LC. Presentment
the correspondent bank for acceptance to the customer/applicant is not a condition
sine qua non for reimbursement.
Q: Describe the duty of the advising bank?
Q: Is presentment a condition prior to reimbursement?
A: It determines the apparent authenticity of the letter of
credit and notifies the beneficiary of the letter of credit. A: Presentment for acceptance to the customer or applicant
of the drafts drawn by the beneficiary is not a condition sine
He does not guarantee the genuineness or due execution of qua non for reimbursement (Prudential Bank & Trust Co. v.
the letter of credit. It is not liable for damages even if it turns IAC, 216 SCRA 257, 1992)
out to be spurious provided the spurious character is not
apparent on the face of the instrument. Q: What is the consequence of payment upon an expired
LC?
Q: Does the advising bank have the obligation to pay the
beneficiary? A: An issuing bank which paid the beneficiary of an expired
letter of credit can recover the payment from the applicant
A: which obtained the goods from the beneficiary to prevent
GR: No unjust enrichment.
XPN: When the advising bank is also the confirming or Q: Should the marginal deposit made by the customer, in
paying bank possession of the bank be first deducted from the principal
indebtedness before computing the interest?
Three distinct relationships arising from a letter of credit
A: Yes, since it is supposed to be returned upon compliance
Q: Explain the three (3) distinct but intertwined contract with his obligation. Indeed, it would be onerous to compute
relationships that are indispensable in a letter of credit interest and other charges on the face value of the letter of
transaction. credit which the issuing bank issued, without first crediting or
setting off the marginal deposit which the importer paid to it.
1. Between the applicant/buyer/importer and the Requiring the importer to pay the interest on the entire letter
beneficiary/seller/exporterThe applicant/ buyer/ of credit without deducting first his marginal deposit would
importer is the one who procures the letter of credit be a clear case of unjust enrichment by the bank.
while the beneficiary/seller/exporter is the one who in
compliance with the contract of sale ships the goods to NOTE: The applicant has the right to have the marginal
the buyer and delivers the documents of title and draft deposit deducted from the principal obligation under the
to the issuing bank to recover payment for the goods. letter of credit and to have the interest computed only on the
Their relationship is governed by the contract of sale. balance and not on the face value thereof.
2. Between the issuing bank and the
beneficiary/seller/exporter The issuing bank is the one Doctrine of Independence
that issues the letter of credit and undertakes to pay the
seller upon receipt of the draft and proper documents of Q: What is the doctrine of independence?
title. On the other hand, the beneficiary/seller/exporter
surrenders document of title to the bank in compliance A: Under this doctrine, the obligation of the issuing bank to
with the terms of the LC. Their relationship is governed pay the beneficiary does not depend on the fulfillment or
by the terms of the LC. non-fulfillment of the contract supporting the letter of credit.
3. Between the issuing bank and the If it is a commercial letter of credit, the obligation if the
applicant/buyer/importer The applicant/buyer/ issuing bank to pay the beneficiary is not affected by any
importer obliges himself to reimburse the issuing bank breach of contract by the seller to the buyer because the
upon receipt of the documents of title. Their relationship contract between the issuing bank and beneficiary is separate
is governed by the terms of the application for the and distinct from the contract between the seller and the
issuance of the letter of credit by the bank. buyer.
NOTE: These relationships while interrelated are distinct and Q: Does the issuing bank have the obligation to determine
separate from each other. whether or not the main contract has been fulfilled or not?
Q: When is the bank entitled to reimbursement?

A: No. The issuing bank is liable to pay the beneficiary upon document stipulated must be the document to be submitted,
the latters submission of the stipulated documents and otherwise, the issuing bank is not liable or the beneficiary is
compliance with the terms of the credit regardless of any not entitled to payment.
breach of contract by the beneficiary to the applicant of the
letter of credit.
The SC held that banks deals with documents, they dont deal TRUST RECEIPT
with goods. The issuing bank has no obligation to check the
object, the quantity or quality of the goods. The bank needs Definition
not to verify or go beyond the four corners of the document.
The issuing bank will determine the documents to be Q: What is a trust receipt transaction?
submitted, where the stipulated documents tendered
faithfully. If the documents were submitted, the issuing pays A: It is any transaction between the entruster and entrustee
the seller. whereby the entruster who owns or holds absolute title or
security interests over certain specified goods, documents or
Q: What is the exception to the doctrine of independence? instrument, releases the same to the possession of entrustee
upon the latters execution of a TR agreement.
A: Fraud exception principle
It is a transaction wherein the entrustee binds himself to hold
Fraud exception Principle the designated goods in trust for the entruster and, in case of
default, to sell such goods, documents or instrument with the
Q: What is the Fraud exception principle? obligation to turn over to the entruster the proceeds to the
extent of the amount owing to it or to turn over the goods,
A: The beneficiary may be enjoined from collecting on the documents or instrument itself if not sold.
letter of credit if the following elements are present:
a. There is fraud on the part of the beneficiary NOTE: To be in the nature of a trust receipt, the entruster
b. Fraud must be in relation to the independent should have financed the acquisition or importation of the
purpose or character of the credit goods. The funds should have been delivered before or
c. Unless the beneficiary is restrained, the applicant simultaneously with delivery of the goods.
shall suffer grave and irreparable injury.
Q: What is a trust receipt (TR)?
NOTE: To be an exception, the fraud must NOT be in relation
to the performance of the main contract but in relation to the A: It is the written or printed document signed by the
independent purpose or character of the credit. entrustee in favor of the entruster containing terms and
conditions substantially complying with the provisions of PD
Q: What is the remedy for a fraudulent abuse? 115.
A: Injunction. Q: What is the consequence where the execution of the

trust receipt agreement was made only after the goods
Doctrine of Strict Compliance covered by it had been purchased by and delivered to the
entrustee and the latter as a consequence acquired
Q: How should commercial transaction involving letter of ownership over the goods?
credit be complied?
A: In such case, the transaction does not involve a trust
A: Commercial transaction involving letters of credit are receipt but a simple loan even though the parties
governed by the rule on strict compliance. denominated the transaction as one of trust receipt
(Colinares v. CA, 339 SCRA 609, 2000; Consolidated Bank and
Q: What is the so-called doctrine of strict compliance? Trust Corp., v. CA, 356 SCRA 671, 2001.)
A: The documents that the beneficiary should submit to the Parties to a trust receipt agreement
issuing bank or confirming bank must strictly conform to the
documents stipulated. If there is discrepancy, the issuing Q: Who are the parties to a trust receipt agreement?
bank is not liable to pay. If it pays, it pays at its own risk and
cannot obtain reimbursement from the applicant. A:
1. Entruster
It matters not that the submission of the documents are 2. Entrustee
unfair, unjust or inequitable, the point is, it requires that the

Q: Who is an entruster? responsible for the offense, without prejudice to the civil liabilities arising
from the criminal offense.
A: A lender, financer or creditor. Person holding title over the

goods documents or instruments (GDI) subject of a trust P.D 115 is not violative of the constitutional provision
receipt transaction; releases possession of the goods upon against imprisonment for the non-payment of debt
execution of trust receipt.
Q: Is PD 115 violative of the constitutional provision against
Q: Who is an entrustee? imprisonment for the non-payment of debt?
A: A borrower, buyer, importer or debtor. Person to whom A: No because what is sought to be penalized is not the non-
the goods are delivered for sale or processing in trust, with payment of debt but the dishonesty and abuse of confidence
the obligation to return the proceeds of sale of the goods or in the handling of money or goods to the prejudice of
the goods themselves to the entruster another. It punishes the act not as an offense against
property but against public order (People v. Nitafan, 207
LCs and TRs, not negotiable instruments SCRA 726, 1992).
Q: Are letters of credit and trust receipt considered as NOTE: The penal sanction covers:
negotiable instruments? 1. Criminal liability
2. Civil liability
A: No, but drafts in connection with the former are
negotiable instruments (Lee v. CA 375 SCRA 579, 2002). Estafa
2 features of a trust receipt agreement Q: What is the effect of the failure of the entrustee to
deliver the proceeds of the sale of the goods or instruments
a. Loan feature subject to the trust receipt or return the goods?
b. Security feature
A: It will constitute estafa.
Q: Discuss the dual features of a trust receipt agreement.
Q: May the civil action for the collection of the loan be
A: A trust receipt has a loan and security features. The instituted independently of the criminal action?
entruster (bank) extends loan to the entrustee (importer and
retail dealers) to finance the importation of goods or A: Yes.
instruments in favor of the entrustee who may not be able to
obtain credit except thru utilization of the merchandise Q: What is the effect of the acquittal of the entrustee in the
imported or purchased. criminal case as a result of the surrender or consignation of
the goods?
The security feature is in the covering trust receipt which
secures the indebtedness. A: The acquittal of the entrustee in the criminal case as a
result of the surrender or consignation of the goods is not a
Effect of failure on the part of entrustee to comply with its bar to the filing of a separate civil action to enforce payment
obligations of the loan (Vintola v. Insular Bank of Asia and America, 150
SCRA 140, 1987).
Q: What is the effect of payment of the loan or delivery of
the sale proceeds equivalent to the full amount? Q: What is the effect of compromise of estafa case arising
from trust receipt transaction, after the case has been filed
A: It extinguishes both criminal and civil liabilities of the in court?
entrustee.
A: Compromise of estafa case arising from trust receipt
Section 13. Penalty clause. The failure of an entrustee to turn over the transaction, after the case has been filed in court does not
proceeds of the sale of the goods, documents or instruments covered by a amount to novation and does not erase the criminal liability
trust receipt to the extent of the amount owing to the entruster or as of the accused (Ong v. CA, 124 SCRA 578, 1983).
appears in the trust receipt or to return said goods, documents or
instruments if they were not sold or disposed of in accordance with the
terms of the trust receipt shall constitute the crime of estafa, punishable Penalty in case of corporation
under the provisions of Article Three hundred and fifteen, paragraph one (b)
of Act Numbered Three thousand eight hundred and fifteen, as amended, Q: What if the entrustee is a corporation?
otherwise known as the Revised Penal Code. If the violation or offense is
committed by a corporation, partnership, association or other juridical
entities, the penalty provided for in this Decree shall be imposed upon the A: In such case, the law makes the officers or employees or
directors, officers, employees or other officials or persons therein other persons responsible for the offense liable to suffer the
penalty of imprisonment. The criminal liability falls on the Q: When does the penal sanction under the trust receipts
human agent responsible for the violation of the Trust law apply?
Receipt Law.
A: Jurisprudence provides that the penal sanction does not
A person who admits being the agent of the entrustee apply in case the goods are not intended for sale or resale as
corporation is a person responsible for the offense if he is the when they are for actual use.
signatory of the trust receipts and if he cannot explain why he
is not responsible for the failure to turn over the proceeds of Cases where no criminal liability despite execution of
the sale or account for the goods covered by the trust receipt. TR agreement
Q: Why are the officers, employees, etc. of a corporation 1. Compliance with the terms of the trust receipt either
responsible for the offense? by:
a. payment,
A: It is because they are vested with the authority and b. return of the proceeds or
responsibility to devise means necessary to ensure c. return of the goods.
compliance with the law, and if they fail to do so, are held
criminally accountable. Yet, a corporation may be charged 2. The transaction is not a trust receipt within the
and prosecuted for a crime if the imposable penalty is fine contemplation of the trust receipts law
(Ching v. Sec. of Justice, 481 SCRA 609, 2006) 3. Surrender of the goods to the entruster
4. Non-delivery of the goods to entrustee
Q: Is the person signing the trust receipt for the corporation 5. Compromise agreement before the filing of the
solidarily liable with the entrustee-corporation for the civil criminal information for violation of the TR law
liability arising from the criminal offense? 6. Cancellation of the trust and taking possession by
the entruster
A: No. He may however be personally liable if he bound
himself to pay the debt of the corporation under a separate NOTE: Mere repossession of the goods will
contract of surety or guarantee (Ong v. CA, 401 SCRA 649, extinguish criminal liability.
2003).
7. Loss of the goods due to force majeure
Q: Can we file a criminal case against the corporation? 8. Consignment
A: It depends, if the penalty is imprisonment, we cannot file a Entrustee, owner of the articles subject of the TR
criminal case, but if the penalty is a fine or forfeiture or
revocation of the corporations franchise, then we can. Q: Who is the owner of the articles subject of the TR?
Civil obligation remains as long as loan is not paid A: The entrustee. A trust receipt has two features, the loan
and security features. The loan is brought about by the fact
Q: What is the effect of non-payment of the loan? that the entruster financed the importation or purchase of
the goods under TR. Until and unless this loan is paid, the
A: The civil obligation still remains. obligation to pay subsists. If the entrustee is made to appear
as the owner, it was but an artificial expedient, more of legal
Q: What is the effect of the loss of the goods subject of the fiction than fact, for if it were really so, it could dispose of the
trust receipt? goods in any manner that it wants, which it cannot do. To
consider the entrustee as the true owner from the inception
A: Loss of the goods subject of the trust receipt, regardless of of the transaction would be to disregard the loan feature
the cause does not extinguish the civil liability of the thereof. (Rosario Textile Mills Corp. v. Home Bankers Savings
entrustee. and Trust Company, 2005)
Q: What is the effect of return of goods? Q: Can the entrustee mortgage or pledge the articles in
trust?
A: If the loan is not yet paid, the return of the goods may
extinguish the criminal liability but not the civil liability of the A: The articles covered by the trust receipts are owned by the
entrustee unless the goods are sold and the proceeds thereof entruster and they were only held by the entrustee in trust.
applied in full payment of the loan. While it was allowed to sell the items, the entrustee had no
opportunity to dispose of them or any part thereof or their
Penal sanction applies to goods intended for sale only proceeds through conditional sale, pledge or any other
means. Accordingly, the entrustee has neither ownership,

free disposal nor the authority to freely dispose of the Q: Who can defeat the rights of the entruster over the
articles. Hence, the entrustee could not have subjected them goods?
to a chattel mortgage (DBP v. Prudential Bank, 475 SCRA 623,
2005). A: A purchaser in good faith. He acquires goods, documents
or instruments free from the entruster's security interest.
NOTE: The entrustee cannot mortgage the goods because
one of the requisites of a valid mortgage is that the Goods covered by TR not subject to levy
mortgagor must be the absolute owner of the property
mortgaged or must have free disposal thereof. Entrustee is Q: Are the goods covered by a trust receipt subject to levy?
not the absolute owner of the goods nor has the free disposal
thereof. A:
GR: No, the law warrants the validity of entrusters security
Receipt of bank of sum of money without reference to trust interest as against creditors of the trust receipt agreement
receipt obligation during the duration of the trust receipt agreement.
Q: What is the effect of the receipt of the bank of a sum of XPN: When the properties are in the hands of an innocent
money without reference to the trust receipt obligation to purchaser for value and in good faith (Prudential Bank v.
which the same pertains? NLRC, 251 SCRA 421, 1995).
A: It does not obligate the bank to apply the money received Obligations or liability of the entrustee
against the trust receipt obligation.
Q: What are the obligations and liabilitites of the entrustee?
Q: Does it have the effect of compensation? A:
1. To hold good, documents and instruments (GDI) in
A: No since compensation is not proper when one of the trust for the entruster and to dispose of them strictly
debts consist in civil liability when one of the debts consists in in accordance with the terms of TR;
civil liability arising from a criminal offense (Metropolitan 2. To receive the proceeds of the sale for the entruster
Bank and Trust Company v. Tonda, 338 SCRA 254, 2000). and to turn over the same to the entruster to the
extent of amount owing to the entruster;
Rights of the entruster 3. To insure GDI against loss from fire, theft, pilferage
or other casualties.
Q: What are the right of an entuster? 4. To keep GDI or the proceeds thereof, whether in
money or whatever form, separate and capable of
A: identification as property of the entruster;
1. To be entitled to the proceeds of the sale of the 5. To return GDI to the entruster in case they could not
goods under trust receipt to the extent of the be sold or upon demand of the entruster; and
amount owing to him or to return the goods in case 6. To observe all other conditions of the trust receipts.
of non-sale (Sec. 9, P.D. 115)
2. To cancel the trust and take possession of the goods
or of the proceeds realized therefrom at any time
upon default by the entrustee Order for application of proceeds
3. To sell the goods with at least 5-day notice to the
entrustee and apply the proceeds in payment of the Q: What is the order in the application of proceeds of
obligation. Entrustee is liable to pay deficiency, if the TR transactions?
any.
A:
Validity of the security interest as against creditors of the
1. Expenses of the sale
entrustee/innocent purchasers for value
2. Expenses derived from storing the goods
Q: As between the entruster and the creditors of the
3. Principal obligation
entrustee, who has a better right over the goods?
Q: Is the entrustee liable for the deficiency?
A: The entruster. His security interest in goods, documents,
or instruments pursuant to the written terms of a trust A: Yes, but any excess shall likewise belong to him.
receipt shall be valid as against all creditors of the entrustee
for the duration of the trust receipt agreement.

agreement (South City Homes, Inc. v. BA Finance Corporation,
Liability for loss of goods, documents or instruments 371 SCRA 603, 2001).
Q: Who shall bear the loss of goods which are the subject of
TR?
CHATTEL MORTGAGE
A: The entrustee. Loss of goods, documents or instruments
which are the subject of a TR, pending their disposition, Q: What is a chattel mortgage?
irrespective of whether or not it was due to the fault or
negligence of the entrustee, shall not extinguish his obligation A: An accessory contract whereby a personal property is
to the entruster for the value thereof. (Sec. 10, P.D. 115) recorded in the Chattel Mortgage Register to secure the
NOTE: The principle of res perit domino will not apply against performance of a principal obligation.
the entruster
NOTE: The concept of a chattel mortgage as a conditional sale
Remedies under the old chattel mortgage law has been supplanted by
the definition of chattel mortgage under Art 2140 of the Civil
Q: What are the remedies available to the entruster? Code. It is now an accessory contract, no longer a conditional
sale.
A:
1. File a criminal action for estafa in case of failure of CHARACTERISTICS OF CHATTEL MORTGAGE
the entrustee to deliver the proceeds of the sale of
the goods under the trust receipt up to the extent of 1. An accessory contract because it is for the purpose of
his obligation to the entruster. securing the performance of a principal obligation;
2. A formal contract because of its enforceability,
NOTE: The civil action may be instituted: registration in the Chattel Mortgage Register is
indispensable;
a. In the criminal action 3. A unilateral contract because it produces only
b. Separately filed independently of the criminal action obligations on the part of the creditor to free the thing
from encumbrance on the fulfillment of the obligation.
CRIMINAL ACTION CIVIL ACTION
Based on ex-delicto Based on ex-contracto NOTE: The extinguishment of the accessory contract does not
extinguish the principal contract; the extinguishment of the
2. Cancel the trust and take possession of the goods at principal contract extinguishes the accessory contract.
any time upon default of the entrustee
3. After the repossession, the entruster may sell the ESSENTIAL REQUISITES
goods upon at least 5-day notice to the entrustee
and apply the proceeds in payment of the obligation. Q: What are the essential requisites for a valid chattel
The entrustee is liable for deficiency or entitled to mortgage?
excess, if any.
4. If a surety secures the obligation of the entrustee in A:
addition to the trust receipt, the law does not
obligate the entruster to cancel the trust or take 1. Constituted to secure fulfillment of the principal
possession of the goods. He can proceed against the obligation
surety. The options belong to the entruster. 2. Mortgagor is the absolute owner of the property
3. Mortgagor has free disposal of the property, in the
Q: In the event of default, is it mandatory or compulsory for absence thereof, that he be legally authorized for
the entruster to cancel the trust and take possession of the such purpose
goods to be able to enforce his rights? 4. That it involves a personal property. (Sec. 2085,NCC)
A: No, the law uses the word may in granting to the FORMAL REQUISITES
entruster the right to cancel the trust and take possession of
the goods. Thus, he has the discretion to avail itself of such Q: What are the formal requisites for a valid chattel
right to sue or seek alternative actions, such as third party mortgage?
claim or a separate civil action which it deems bets to protect
its right, at any time upon default or failure of the entrustee A:
to comply with any of the terms and conditions of the
1. Affidavit of good faith

2. Registration with the Chattel Mortgage Registry Q: Explain the Dual registration rule?
3. If necessary, additional registration with the proper
government agency A: The property must be registered:
Affidavit of Good Faith a. Place where the mortgagor resides

b. In the place where the property is situated
Q: What is an affidavit of good faith?
XPN:
A: A certificate included in the chattel mortgage contract
executed by both mortgagor and mortgagee stating that: a. If the mortgagor resides in the same place where the
property is located; or
1. The obligation is valid, just and subsisting; and b. If the amount of the loan is more than P500,000.00,
2. It is not one entered into for purposes of fraud. registration should be made in the city or
municipality where the property is situated (P.D.
Q: What is the effect of absence of affidavit of good faith? 1159, Sec. 113 & 114)
A: It does not affect the validity of the chattel mortgage but RULES:
the same will be unenforceable against third persons.
Private motor Land Transportation Office (LTO)
Q: What is the status of an unrecorded CM? vehicle
Public motor Land Transportation Franchise &
A: The mortgage is valid and binding between the parties. vehicle Regulatory Board (LTFRB)
Registration is necessary only for the purpose of binding third Vessels Maritime Industry Authority (MARINA)
person. Aircrafts Civil Aviation Authority of the
Philippines (CAAP)
NOTE: In an action for collection, the non-registration of the
chattel mortgage which ordinarily does not bind third persons Chattel mortgage vs. Pledge
is not critical. The rule is different when the remedy resorted
to is foreclosure. Q: Distinguish chattel mortgage from pledge.
Q: What is the effect if the mortgage is not registered? A:

CHATTEL MORTGAGE PLEDGE
A: It is nevertheless binding between the parties.
Delivery
Q: What is the period within which the registration should Delivery is not necessary Delivery is necessary
be made? Registration
Registration in the Chattel Registration in the Registry
A: The law does not provide any specific time. Yet, the law is Mortgage register is Property is not necessary.
substantially and sufficiently complied with: necessary for its
a. where the registration is made by the mortgagee enforceability
before the mortgagor has complied with his principal Security
obligation and; Cannot secure future Can secure future obligations
b. no right of innocent third persons Is prejudiced. obligations
Law governing the sale
Q: What is the effect of registration? Procedure for the sale of the Art. 2112, NCC
thing given as security is
A: It creates real rightit is an effective and binding notice to governed by Sec. 14, Act No.
the other creditors of its existence and creates a real right or 1508
lien which follows the chattel wherever it goes. Excess
If the property is foreclosed, If the property is sold, the
The registration gives the mortgagee symbolical possession. the excess goes to the debtor debtor is not entitled to the
The efficacy of the act of recording a chattel mortgage excess unless otherwise
consists in the fact that it operates as a constructive notice of agreed.
the existence of the contract. Recovery of deficiency
The creditor is entitled to The creditor is not entitled to
Dual Registration rule recover the deficiency from recover the deficiency
the debtor except if the notwithstanding any
chattel mortgage is a security stipulation to the contrary.
for the purchase of property A: It is to be considered as personal property and the chattel
in installments mortgage constituted thereon is null and void, regardless of
who owns the land. However, the chattel mortgage is binding
Possession on the contracting parties but cannot prejudice innocent
Possession remains with the Possession is vested in the third parties (Makati Leasing and Finance Corp. v. Wearever
debtor creditor Textile Mills, Inc. 122 SCRA 296, 1983).
Contract
Formal contract Real contract In accordance with Art. 2125 of the Civil Code, an
Recording in a public instrument unregistered chattel mortgage is valid and binding between
Must be recorded in a public Must be in a public the parties because registration is necessary only for the
instrument to bind third instrument containing purpose of binding third persons (Filipinas Marble Corp. v.
persons description of the thing IAC, 142 SCRA 180, 1986).
pledged and the date thereof
to bind third persons Q: What is the appropriate remedy to unbolt the machinery
preparatory to the extra-judicial foreclosure?
SUBJECT MATTER OF CHATTEL MORTGAGE
A:
Q: What is the subject matter of chattel mortgage? 1. Action for replevin preparatory to extra-judicial
foreclosure
A: It must always be personal or movable property. 2. Simply, judicially foreclose
Q: What are the properties mortgageable under the law? Mortgagee vs. Innocent purchaser for value
A: In one case, the court held that chattel mortgage over a

house is valid between the contracting parties even
1. Shares of stock in a corporation- If the owner of the though it is a real property. Since it is a valid mortgage,
shares is not domiciled in the same province where the the mortgagee can foreclose in case of default.
corporation is domiciled, the registration must be made
in both provinces. But, even if he has foreclosed the chattel mortgage, it
2. An interest in business, for its personal proper capable of does not bind the judgment creditor of D because it
appropriation;
does not affect innocent 3rd parties. That conclusion
3. Machinery treated by the parties as personal property
will not change even if the mortgagee sold the house to
subsequently installed on leased land;
4. Vessels but it is essential that the mortgage is recorded a 3rd party, an innocent purchaser for value.
in the office of the MARINA (Maritime Industry
Authority) to be effective as to third persons. It is not That innocent purchaser for value has a right inferior
necessary that it be recorded in the office of the register compared to the rights of the judgment creditors of D
of deeds; for the simple reason that the innocent purchaser for
5. Motor vehicles-which must be registered with the Land value simply steps into the shoes of the original
Transportation Commission (LTO) and with respect to mortgagee and acquires only whatever rights, title, or
vehicles used for public services, it must also be interest that the mortgagee originally had over the
approved by the Public Service Commission (LTFRB);
house and subject to the same limitations.
6. House of mixed materials;
7. House intended to be demolished for what are really
mortgaged in this case are the materials thereof; If the right of the right of the original mortgagee is
8. House built on rented land since it did not form part of enforceable only against the mortgagor, the right of the
the land; innocent purchaser for value, the assignee of the
It is settled that an object placed on land by one who had original mortgagee is also valid and enforceable only
only a temporary right to it does not become against the mortgagor. But, that does not prejudice or
immobilized by attachment; affect innocent 3rd parties, like judgment creditors of
9. A house of strong materials- as long as the parties to the the mortgagor.
contract so agree and no innocent third party will be
prejudiced thereby.
After-Acquired Property
Q: What is the effect if a chattel mortgage is constituted on
Q: Can the CM cover afteracquired properties?
machinery permanently attached on the ground?

foreclosure can only cover the debts extant at the time of
A: constitution and during the life of the CM sought to be
foreclosed.
GR: No, because Section 7 of Act 1508 provides: A chattel
mortgage shall be deemed to cover only the property Dragnet clause
described therein and not like or substituted property
thereafter acquired by the mortgagor and placed in the same Q: What is a dragnet clause?
depository as the property originally mortgage.
A: It is a clause which operates as a convenience and
XPN: Where the afteracquired property is in renewal of, or in accommodation to the barrowers as it makes available
substitution for, goods on hand when the mortgage was additional funds without their having to execute additional
executed, or is purchased with the proceeds of the sale of security documents, thereby saving time, travel, loan closing
such goods. costs, costs of extra legal services, recording fees etc.
NOTE: While pledge, real estate mortgage, or anti-chresis It subsumes all debts of past or future origin.
may secure after-incurred obligations so long as these future
debts are accurately described, a chattel mortgage can only Q: How do you construe such clause?
cover obligations existing at the time the mortgage is
constituted. A: It must be carefully scrutinized and strictly construed
particularly where the mortgage contract is one of adhesion.
Although the promise expressed in the chattel mortgage to
include debts that are yet to be contracted can be a binding NOTE: A mortgage given to secure future advancements is a
commitment that can be compelled upon, the security itself, continuing security and is not discharged by the repayment of
however, does not come into existence or arise until after a the amount named in the mortgage, until the full amount of
chattel mortgage agreement covering the newly contracted the advancements is paid. It permitted the mortgagor to take
debt is executed either by: the money as it is needed and thus avoid the necessity of
a. concluding a fresh chattel mortgage or paying interest until the necessity for its use actually arises.
b. by amending the old contract conformably with the
form prescribed by the Chattel Mortgage Law Remedies available in case of simple loan
Q: Does the law require a minute and specific description of Q: What does the word default cover?
every chattel mortgage in the deed of mortgage?
A:
A: No, it only requires that the description of the mortgaged 1. non-payment
property be such as to enable the parties to the mortgage or 2. violation of the terms of the agreement
any other person to identify the same after a reasonable
investigation and inquiry. Q: What is the effect of stipulation prohibiting the
mortgagor from exercising acts of ownership?
After-Incurred Obligation
A: Such agreement is void. Since the mortgagor remains the
Q: Can the CM cover afterincurred obligations? owner of the chattel, he can sell it even if the chattel
mortgage agreement prohibits the mortgagor from selling the
A: No, the affidavit of good faith in a CM makes it obvious chattel without the consent of the mortgagee.
that the debt referred to in the law is current, not an
obligation that is yet merely contemplated. (Acme Shoe v. CA, The sale, however, is without prejudice to:
G.R. No. 103576, Aug. 22, 1996) a. his criminal prosecution under the permanent
provisions of the RPC
Q: What then is the consequence of a CM covering b. the sale can be considered as violation of the terms
afterincurred obligations? of the chattel mortgage
A: A promise expressed in a CM to include debts that are yet Q: What are the remedies in case of default?
to be contracted can be a binding commitment that can be
compelled upon. The security itself, however, does not come A:
into existence or arise until after a CM agreement covering 1. action for collection
newly contracted debt is executed either by concluding a 2. foreclosure
fresh CM or by amending the old contract conformably with
the form prescribed by the CM law. The remedy of NOTE: There is no rescission in case of simple loan.

power, upon default of the debtor, to foreclose the mortgage
Q: What is the nature of these remedies? by an extrajudicial sale of the mortgaged property.
A: They are alternative remedies. The election of one bars the Q: What is the remedy if the mortgagee cannot obtain
other remedies. possession of mortgaged property?
NOTE: The mere filing of the collection case bars the A: If a mortgagee cannot obtain possession of a mortgaged
foreclosure, regardless of the venue (whether here or property for its sale on foreclosure, the mortgagee cannot
abroad). take the property by force but must institute the appropriate
action in the court.
Foreclosure a. He must bring a civil action for replevin either to
recover such possession as preliminary step on the
Q: What is foreclosure? extra-judicial foreclosure of the chattel mortgage or
b. judicial foreclosure.
A: It is the remedy available to the mortgagee by which he
subjects the mortgaged property to the satisfaction of the NOTE: Foreclosure can be:
obligation to secure which the mortgage was given through 1. public sale
the sale of the property at public auction and the application 2. private sale, if stipulated by the parties
of the proceeds thereof to the payment of his claim.
Two-bidder Rule
Q: State the essence of a contract of mortgage?
Q: What is the so-called Two-bidder rule?
A: The essence of a contract of mortgage indebtedness is that
a property has been identified or set apart from the mass of A: There must be at least 2 participating bidders for the
the property of the debtor-mortgagor as security for the auction sale to be valid.
payment of money or the fulfillment of an obligation to
answer the amount of indebtedness in case of default of Q: Does the two-bidder rule apply to chattel mortgage?
payment.
A: No, it only applies to pledge.
Q: What are the kinds of foreclosure?
Twin Periods Rule
A:
1. judicial foreclosure
Q: What is the twin periods rule?
2. extra-judicial foreclosure
A: In case of the equity of redemption, the mortgagor has the
Judicial foreclosure
right to prevent the sale by paying the debt within 30 days
from default. So it is a grace period that the law affords in
Q: What is judicial foreclosure?
favor of the mortgagor. Within the 30 days grace period there
must be a Notice of sale given to the mortgagor.
A: By bringing an action for that purpose in the RTC of the
province or city where the real property or any part therof
Also, there must be a 10-day notice to the mortgagor prior to
lies.
the sale.
The proceeds of the sale shall be applied to the payment of Claim of deficiency
the:
Q: Can the mortgagee claim in case of deficiency?
a. Costs of the sale;
b. Amount due to the mortgagee; A:
c. Claims of persons holding subsequent
mortgages in the order of their priority; and GR: Yes, mortgagee is entitled to recover deficiency.
d. Balance if any shall be paid to the mortgagor.
XPNS:
Extra-judicial foreclosure
1. Contrary stipulation
Q: What is Extra-judicial foreclosure? 2. Transactions covered by Recto Law (Art. 1484, NCC)
A: A mortgage may be foreclosed extra judicially where there

is inserted in the contract, a clause giving the mortgagee the
3. In accommodation mortgages, the accommodation 3. To foreclose without action at any time within the
mortgagor is liable only to the extent of the value of period allowed by the statute of limitations
the mortgaged property;
4. Due to death of mortgagor. Transactions covered by Recto Law
(Articles 1484 & 1485 of the civil code Civil Code)
Q: In case of pledge, is a stipulation to recover deficiency
valid? ART. 1484. In a contract of sale of personal property the price of which is
payable in installments, the vendor may exercise any of the following
remedies:
A: No, it is void. (1) Exact fulfillment of the obligation, should the vendee fail to
pay;
Q: Does the claim for deficiency prescribe? (2) Cancel the sale, should the vendee's failure to pay cover two
or more installments;
(3) Foreclose the chattel mortgage on the thing sold if one has
A: A mortgage action prescribes in 10 years from the time the been constituted, should the vendee's failure to pay cover two or
right of action accrues, that is, from the time the mortgagor more installments. In this case, he shall have no further action
defaults in the payment of his obligation to the mortgagee against the purchaser to recover any unpaid balance of the price.
Any agreement to the contrary shall be void.
and not from the date of the execution of the mortgage
contract.
Q: When does the Recto Law apply?
Accommodation mortgagor
A:
1. Sale of personal property, the price of which is
Q: Who is an accommodation party?
payable in two or more installments
2. Contracts purporting to be leases of personal
A: He is a person who has signed the instrument as maker,
property with option to buy (Art. 1485, NCC)
drawer, acceptor, or indoser without receiving value therefor,
and for the purpose of lending his name to some other
Q: What are the requisites for the sale to be covered under
persons. He is liable on the instrument notwithstanding that
the Recto Law?
such holder at the time of taking the instrument knew such
person to be only an accommodation party. The
A:
accommodation party has right, after paying the holder, to
obtain reimbursement from the party accommodated since
1. Sale of personal property
the relation between them is in effect that of principal and
2. Payable in installments
surety, the accommodation party being the surety.
3. CM constituted over the same property
NOTE: Ordinarily, the debtor is also the mortgagor, but it is
rd Q: Under the Recto Law, what are the remedies of the
also possible that a 3 party may constitute a mortgage in
unpaid seller?
favor of the mortgagor. This arrangement is valid even if the
accommodating party does not receive anything.
A:
Q: What is the extent of the liability of the accommodation
1. Exact fulfillment of the obligation, should the vendee
mortgagor?
fail to pay (action for specific performance)
2. Cancel the sale, should the vendees failure to pay
A: His liability is limited only to the value of the property he
cover two or more installments (rescission); or
secured for another.
3. Foreclose the chattel mortgage on the thing sold,
should the vendees failure to pay cover 2 or more
Death of mortgagor
installments.
Q: What is the remedy in case of death of the mortgagor?
Q: Can the unpaid seller avail of all remedies?
A:
A: No, the remedies are alternative.
1. File a money claim against the estate (whether real
property or personal property). If the mortgagee
The three remedies under this article, available to the vendor
chose this remedy, he is deemed to have abandoned
who has sold personal property on the installment plan, are
the mortgage and he lost priority.
alternative, not cumulative. In other words, if the vendor has
2. To foreclose the mortgage by ordinary action in
elected to avail himself of any of the remedies, he is deemed
court and recover any deficiency against the estate
to have renounced the others (Tolentino, Vol.V).
in administration; and,
Q: What is the reason for this rule?
A: It is the appropriate action to recover possession
A: According to Sen. Tolentino, in case the vendor preliminary to the extra-judicial foreclosure of a chattel
elects to foreclose the mortgage, if one has been given mortgage.
on the property, he is not obliged to return to the
purchaser the amount of the installment already paid Q: Who can institute replevin suit?
should there be an agreement to that effect, and it is
A: It is not only the owner but also a person entitled to the
not unconscionable. possession of the property can institute a replevin suit.
NOTE: In all proceedings for the foreclosure of chattel Q: In case of recovery of property through replevin
mortgages, executed on the chattels, which have been preparatory to foreclosure, is it a bar to avail of other
sold on the installment plan, the mortgagee is limited to remedies?
the property only in the mortgage.
A: Recovery of property through a replevin case preparatory
Thus, the principal object of Article 1484 was to remedy to foreclosure will not bar the other remedies if there was no
actual foreclosure. If sellermortgagee opts to file an action
the abuses committed in connection with the
for specific performance, he shall be deemed to have waived
foreclosure of chattel mortgages. This prevents his right as a mortgagee but may still levy on the mortgaged
mortgagees from seizing the engaged property, buying property (on execution).
it at foreclosure for a low price and then bringing suit
against the mortgagor for the deficiency judgment. The REPLEVIN
almost invariable result of this procedure was that the VOUNTARY INVOLUNTARY
mortgagor found himself minus the property and still Not akin to foreclosure Akin to foreclosure; a bar to
owing practically the full amount of the original other remedies which are
indebtedness. Ex: surrender of the property alternative
NOTE: According to Dean Divina, the reason for this rule is to Not a bar to avail of other
encourage the mortgagee/creditor to make a reasonable remedies
bid. If he bids at a low price, the company will record on its
book of accounts the deficiency as a loss. To prevent this XPN: if possession is in view
situation, the mortgagee will bid at a reasonable amount. of dacion en pago
Art. 1484 not applicable in case mortgagee is not the vendor Q: Is the mortgagees letter informing the mortgagor of his
intent to foreclose is already considered a foreclosure of the
Q: Does Article 1484 apply as against a mortgagee who is chattel?
not the venodor of the chattel mortgaged?
A: No. A mere offer by the mortgagor to surrender the
A: Art. 1484 of the NCC does not apply as against a chattel, not accepted by the mortgagee, does not preclude
mortgagee who is not the vendor of the chattel mortgaged. the mortgagee from bringing suit to recover the balance of
Thus, a suit for replevin is not equivalent to an exercise of the the purchase price.
remedy of foreclosure under Art. 1484 of the NCC. Hence, a
vendor-mortgagee is not barred from making a claim for Q: Is mere demand sufficient to foreclose the object?
specific performance against the buyer-mortgagor, by the
mere fact that the former was already able to secure a writ of A: A mere demad to surrender the object which is not heeded
replevin. by the mortgagor will not amount to foreclosure, but the
repossession thereof by the vendor-mortgagee would have
Rescission the effect of foreclosure (Borbon II v. Servicewide Specialist,
258 SCRA 634, 1996).
NOTE: In rescission, there should be mutual restitution
except in case of stipulation of forfeiture of prior payments. Q: Is a mortgagee of a personal property sold on
installments, after taking possession of the property, legally
Replevin obligated to foreclose the chattel mortgage and sell it at
public auction?
Q: What is replevin?
A: Having opted to foreclose the chattel mortgage, GAMI can
no longer cancel the sale. The three remedies of the vendor
in case the vendee defaults, in a contract of sale of personal

property the price of which is payable in installment under note and the chattel mortgage as well as the payment
Article 1484 of the Civil Code, are alternative and cannot be of the unpaid balance.
exercised simultaneously or cumulatively by the vendor-
creditor (Esguerra v. CA, 1989). Under the law, should the vendor choose to foreclose
the mortgage, he has to content himself with the
Q: What are included in the term debt which are
extinguished under the Recto Law?
proceeds of the sale at the public auction of the chattels
which were sold on installment and mortgaged to him
A: and having chosen the remedy of foreclosure, he
1. Principal cannot nor should he be allowed to insist on the sale of
2. Interest the house and lot of the vendees, for to do so would be
3. Cost of collection equivalent to obtaining a writ of execution against them
concerning other properties which are separate and
Q: Who bears the necessary expenses incurred in the distinct from those which were sold on installment. This
prosecution by the mortgagee of the action for replevin to would indeed be contrary to public policy and the very
regain possession of the chattel?
spirit and purpose of the law, limiting the vendor's right
A: It is the mortgagor who bears such expenses.
to foreclose the chattel mortgage only on the thing
sold.
Q: What does recoverable expense include?
IMPORTANT: SIMPLE LOAN v. RECTO LAW
A: It includes expenses properly incurred in affecting seizure
of the chattel and reasonable attorneys fees in prosecuting SIMPLE LOAN RECTO LAW
the action for replevin (Agustin v. CA, 271 SCRA 463, 1997). Taking of property through replevin
The taking of possession by The taking of possession by
NOTE: The cost of repossession which is brought by the replevin is not equivalent to replevin is tantamount to
unjustified refusal of the mortgagor can still be recovered and foreclosure foreclosure which bars the
is not deemed extinguished. action for specific
performance
Additional security Remedies
1. Foreclosure 1. Action for specific
Q: What is the effect of the foreclosure as regards the 2. Action for specific performance;
personal property which are not subject of the sale but are performance 2. Cancellation or
given as additional security? rescission; or
3. Foreclose the
A: Under Art. 1484 of the NCC, the vendor of personal chattel mortgage on
property sold on installment who chooses the remedy of the thing sold
foreclosure of the chattel mortgage is limited to the Suggested remedy
foreclosure of the items sold only and not to the other items Foreclose! Dont even think Weigh the options
not subject of the sale although also given as additional about it because you have a
securitty. The foreclosure of the latter is null and void (Ridad lien in such case
v. Filipinas Investment and Finance Corporation, 120 SCRA Recovery of deficiency
246, 1983). You can recover for Precludes the mortgagee to
deficiency. And the right to recover the deficiency
All other additional securities are barred once the mortgagee recover deficiency may be
chose to foreclose. This also bars him from going against the enforced against any one of
surety or guarantor. the solidary co-debtors, if
any, and is not limited to the
Ridad v. Filipinas Investment and Finance Corporation mortgagor for the reason
that the chattel mortgage is
Having chosen to foreclose the chattel mortgage, and just a security, not a mode of
bought the purchased vehicles at the public auction as payment.
the highest bidder, it submitted itself to the Effect of election of action for collection
Election of action for If it is a transaction falling
consequences of the law as specifically mentioned, by
collection is a bar to the under the Recto Law, its only
which it is deemed to have renounced any and all rights
other remedy when the mortgagee actually
which it might otherwise have under the promissory forecloses or elects the

remedy of foreclosure that
he is subject to the rule that BANKING LAWS:
he cannot recover any GENERAL BANKING ACT
unpaid claims.
BANK
So if he files an action for
collection and obtained Q: What are banks?
judgment then he can levy
any and all properties of the A: Entities engaged in the lending of funds obtained through
mortgagor until the debt is deposits from public.
paid or satisfied.
Elements
NOTE: In case of transactions under the Recto Law, it is only
when there has been a foreclosure of the chattel mortgage Q: What are the elements determinative of a bank?
that the vendee-mortgagor would be permitted to escape
from deficiency liability. Hence, if the case is one for specific A:
performance, even when this action is selected after the
vendee has refused to surrender the mortgaged property to 1. Must be authorized by law;
permit n extra-judicial foreclosure, the property may still be 2. Accepts fund, in the form of a deposit, from the
levied on execution. public; and (there are at least 20 despositors)
3. Lends money to the public.
Equity of redemption
NOTE: The fourth element under the old code, habituality,
Q: Is there a right of redemption in case of personal has been deleted.
properties?
Q: Is a transaction involving purchase of receivables
A: None. considered as banking transaction?
Q: When is equity of redemption may be exercised? A: If it is a transaction not involving a loan but purchase
of receivables at a discount, it is well within the purview
A: Equity of redemption may be exercised by the mortgagor of "investing, reinvesting or trading in securities" which an
after his default in the performance of his obligation but investment company is authorized to perform and does not
before the sale of the mortgaged property or confirmation of constitute a violation of the General Banking Act.
sale.
This transaction is known as a deposit substitute.
Q: When is the right of redemption available?
NOTE: What is prohibited by law is for investment companies
A: The SC said that there are only 3 cases where there is a to lend funds obtained from the public through receipts of
right of redemption. And they do not involve personal deposit, which is a function of banking institutions. But here,
property. They only pertain to real property. There are only 3: the funds supposedly "lent" to petitioners have not been
1. Extrajudicial foreclosure of Real Estate Mortgage shown to have been obtained from the public by way of
under Act 3135 deposits, hence, the inapplicability of banking laws (Baas v.
2. Execution sale of a real property under the Rule 39 Asia Pacific Finance Corp., 2000).
of Rules of Court
3. Judicial foreclosure of a real estate mortgage, if the Paluwagan
mortgagee is a bank or a credit institution
Q: Describe the concept of paluwagan?
NOTE: So the mortgagee cannot foreclose right away after
default. He has to give the mortgagor 30 days grace period. A: Even if there are more than 20 members, such is not
That is what you call equity of redemption. The right of the considered as banks: the funds are not obtained in the form
mortgagor to prevent the sale by paying the debt within 30 of deposits. It is for savings among its members.
days from default. It is only when he failed the debt that
there can be actual foreclosure of chattel mortgage. Deposit-taking activity
Q: What is a deposit-taking activity?

A: The funds given to the bank gives rise to a creditor-debtor be ousted by way of quo warranto proceedings (Republic of
relationship. The ownership of the funds is thus transferred the Philippines v. Security Credit and Acceptance Corp, et al.,
to the banks and the latter are free to use the funds as it 1967).
pleases.
Classification of Banks
Deposit substitutes
1. Universal banks can exercise the powers of an
Q: What are deposit substitutes? investment house and invest in nonallied enterprises
and have the highest capitalization requirement.
A: It is an alternative form of obtaining funds from the public,
other than deposits, through the issuance, endorsement, or Capital: 4.950 billion
acceptance of debt instruments, for the borrower's own
account, for the purpose of relending or purchasing of 2. Commercial banks Ordinary banks governed by the GBL
receivables and other obligations. These instruments may which have a lower capitalization requirement than
include, but need not be limited to, bankers acceptances, universal banks and can neither exercise the powers of
promissory notes, participations, certificates of assignment an investment house nor invest in nonallied enterprises.
and similar instruments with recourse, and repurchase
agreements. Capital: 2.4 billion
Quasi-banks 3. Thrift banks These are:

a) Savings and mortgage banks;
Q: What are quasi-banks? b) Stock savings and loan associations;
c) Private development banks, which are primarily
A: These are entities engaged in the borrowing of funds governed by the Thrift Banks Act (R.A. 7906).
through the issuance, endorsement or assignment with
recourse or acceptance of deposit substitutes for purposes of 4. Rural banks
re-lending or purchasing of receivables and other obligations. 5. Cooperative banks
6. Islamic banks
NOTE: Quasi-banks are also under BSP. They have to secure a 7. Other classification of banks as determined by the
license from the BSP. Monetary Board of the Bangko Sentral ng Pilipinas.
Banks vs. Quasi-Banks Bank power and liabilities
BANKS QUASI-BANKS Universal a. Powers of a commercial bank

Obtains funds from the Refer to entities engaged in bank b. Power of an investment house
public in the form of deposit the borrowing of funds c. Power to invest in the equities of
through the issuance, allied enterprises
endorsement or assignment d. Power to invest in the equities of
with recourse or acceptance non-allied enterprises
of deposit substitutes for Commercial a. General power incident to a
purposes of relending or bank corporation
purchasing of receivables and b. All such powers as may be
other obligations necessary to carry on the business
Deposits are insured with Not insured with PDIC of commercial banking such as
PDIC (ADD EBC):
There is creditor-debtor No creditor-debtor 1. Accepting drafts and issuing LCs
relationship relationship 2. Discounting and negotiating
Must secure from the Bangko Sentral ng Pilipinas (BSP) promissory notes, drafts, bills
of exchange, and other
Quo Warranto proceedings evidence of indebtedness
3. Accepting or creating demand
Q: What is the appropriate proceeding to question a deposits
corporation who performs functions of a bank without the 4. Receiving other types of
license from BSP? deposit and deposit substitute
5. Buying and selling foreign
A: Any corporation who does these functions and activities exchange and gold or silver
without a corresponding license or approval from the SEC can bullion

6. Acquiring marketable bonds
and other debt securities and Q: Is a safety deposit box a form of deposit or lease?
extending credit
c. Power to invest in the equities of A: The contract for the use of a safe deposit box should be
allied enterprises governed by the law on lease.
NOTE: Whatever a commercial bank can do, a universal bank Under the old banking law, a safety deposit box is a special
can also perform deposit. However, the new General Banking Law, while
retaining the renting of safe deposit box as one of the
Allied and non-allied transactions services that the bank may render, deleted reference to
depository function.
Q: What do you mean by to invest in equity?
Sia v. Court of appeals
A: It means to be a stockholder of another corporation
Justice Edgardo Paras was of the opinion that the contract for
Q: What are allied or related undertakings? the use of safety deposit box is governed by the law on lease.
The Supreme Court did not agree with him and said that
A: Any undertaking which is about money such as: contract for the use of safety deposit box is a special kind of
a. Foreign exchange deposit. In other words the bank must exercise the due
b. Leasing diligence required of depository in safekeeping or preserving
c. Investment company of the object inside the safety deposit box.
d. Insurance company
e. Warehousing The basis for this is that under the Old General Banking Act, it
provided that in renting out safety deposit boxes the bank
NOTE: An example of non-allied undertaking is cargo shall act as a depositary. Because the law itself provides for
operations. this SC concluded that the contract for the use of safety
deposit box is governed by deposits.
Q: What are the kinds of underwriting agreements?
New Law retains the authority of the Bank to rent out safety
A: deposit box but silent on being a depositary.
FIRM COMMITMENT BEST EFFORTS Power to acquire real properties

Those which are considered underwriter does not
as sold guarantee that it will sell the Q: Can the bank acquire real property in settlement of a civil
entire liability arising from a crime?
The underwriter purchases The underwriter merely sells
outright the securities and for commission A: Generally, no.
then resells the same
XPNS: It can only acquire real property when:
Banking and incidental powers a. it is needed for business (Business)
b. as shall be conveyed to it in satisfaction of debts
Q: What are the other services that a bank may offer? previously contracted in the course of its
dealings (Dacion en pago)
A: c. as shall be mortgaged to it in good faith by way
1. receive in custody funds, documents, and other of security of debts (foreclosure)
valuable objects d. as it shall purchase at sales under judgments,,
2. act as financial agent and buy and sell for the decrees, mortgages, or trust deeds (execution
account securities sale to satisfy judgment)
3. make collections and payments for the account of
others NOTE: Any property acquired under b-d should be disposed
4. perform such other services not incompatible with of within 5 years from the acquisition because the bank is not
banking business and; a realty company.
5. upon prior approval of the BSP, act as manager
adviser of investment management accounts Q: Can banks acquire ownership of real property by virtue of
6. rent out safety deposit box the deed of transfer executed by its former employee in
satisfaction of a civil liability arising from the criminal
Renting out of deposit box offense?

fall into the hands of an impostor. (Consolidated Bank and
A: A bank cannot acquire ownership of real property by virtue Trust Corporation vs. CA, 2003).
of the deed of transfer executed by its former employee in
satisfaction of a civil liability arising from the criminal offense Q: Did a bank exercise the diligence required when the
since debts referred to in the law are only those resulting pretermination of the account is allowed despite
from previous loans and similar transactions made or entered discrepancies in the signature and photograph of the person
into by a bank in the ordinary course of its business. claiming to be the depositor and failure to surrender the
original certificate of time deposit?
Diligence required of banks
A: No. The bank is negligent because the depositor did not
Q: What is the degree of diligence required of banks in present the certificate of deposit
handling deposits?
Q: Is the bank liable when an employee encashed a check
A: Extraordinary diligence. The appropriate standard of without the requisite of endorsement?
diligence must be very high, if not the highest, degree of
diligence; highest degree of care (PCI Bank vs. CA, 350 SCRA A: Yes. The fiduciary nature of the relationship between the
446, PBCom vs. CA, 2001) bank and the depositors must always be of paramount
concern. (Philippine Savings Bank vs. Chowking, 2008).
Q: Does the bank need to exercise extraordinary diligence
in all commercial transactions? NOTE: In a checking transaction, the drawee bank has the
duty to verify the genuineness of the signature of the drawer
A: No, the degree of diligence required of banks, is more than and to pay the checks strictly in accordance with the drawers
that of a good father of the family where the fiduciary nature instructionsto the named payee in the check. Otherwise,
of their relationship with their depositors is concerned, that the drawee will be violating the instructions of the drawer
is, depositary of deposits. But the same higher degree of and it shall be liable for the amount charged to the drawers
diligence is not expected to be exerted by banks in account. The drawee bank had the responsibility to ascertain
commercial transactions that do not involve their fiduciary the regularity of the endorsements, and the genuineness of
relationship with their depositors, such as sale and issuance the signatures on the checks before accepting them for
of foreign exchange demand draft. (Reyes v. CA, 2001) deposit. Thus, banks are minded to treat their customers
accounts with utmost care, confidence, and dishonesty (PNB
Q: In what transactions this highest degree of care or v. Rodriguez, et al., 566 SCRA 513, 2008).
diligence is applied?
Nature of bank funds and bank deposits
A: This applies only to cases where banks are acting in their
fiduciary capacity, that is, as depository of the deposits of Q: What law governs bank deposits?
their depositors. (Reyes v. CA, G.R. No. 118492, 2001)
A: The law on loans. Creditor and debtor relationship is
NOTE: The General Banking Law of 2000 requires banks the created between the Bank and the depositors.
highest degree of standards of integrity and performance.
Hence, a bank is under obligation to treat the accounts of its Q: What is the nature of a bank deposit?
depositors with meticulous care (Philippine Savings Bank v.
Chowking Food Corporation, 2008). A: All kinds of bank deposits are loan. The bank can make use
as its own the money deposited. Said amount is not being
Q: What is the effect when the teller gave the passbook to a held in trust for the depositor nor is it being kept for
wrong person? safekeeping.
A: If the teller gives the passbook to the wrong person, they Bank not a trustee
would be clothing that person presumptive ownership of the
passbook, facilitating unauthorized withdrawals by that Q: Is a bank a trustee?
person. For failing to return the passbook to authorized
representative of the depositor, the bank presumptively A: No, the fiduciary nature of a bank-depositor relationship
failed to observe such high degree of diligence in does not convert the contract between the bank and its
safeguarding the passbook and insuring its return to the party depositors from a simple loan to trust agreement. Failure by
authorized to receive the same. The banks liability, however, the bank to pay the depositor is failure to pay a simple loan,
is mitigated by the depositors contributory negligence in and not a breach of trust.
allowing a withdrawal slip signed by authorized signatories to

Mandamus will not lie A: Unless otherwise prescribed by the Monetary Board,
the total amount of loans, credit accommodations and
Q: In the enforcement of obligations concerning deposit, will guarantees that may be extended by a bank to a single
the remedy of mandamus lie?
borrower shall not exceed 25% of the net worth of such
A: No, because all kinds of deposit are loans. Thus, the
bank.
relationship being contractual in nature, mandamus cannot
be availed of because mandamus will not lie to enforce the NOTE: The amount may be increased by an additional
performance of contractual obligations. 10% of the banks net worth provided that the
additional liabilities are adequately secured by
Q: After procuring a checking account, the depositor issued documents of title covering readily marketable and non-
several checks. He was surprised to learn later that they had perishable goods.
been dishonored for insufficient funds. Investigation
disclosed that deposits made by the depositor were not Q: What is the purpose of the rule?
credited to its account. Is the bank liable for damages?
A: Yes, the depositor expects the bank to treat his account

A: To diversify the banks loan portfolio.
with utmost fidelity, whether such account consist only of a
few hundred pesos or of millions. The bank must record every Q: Let us say the bank has 10 Billion, can the bank lend the
single transaction accurately, down to the last centavo, and entire 10 Billion to Henry Sy?
as promptly as possible. This has to be done if the account is
to reflect at any given time the amount of money the A: No, because the law provides for a single borrowers limit.
depositor can dispose of as he sees fit, confident that the There is a maximum amount of loan a bank may grant to 1
bank will deliver it as and to whomever he directs. A blunder borrower. That is not to exceed 25% of the banks net worth
on the part of the bank, such as the dishonor of the check
without good reason, can cause the depositor not a little NOTE: Branches from part of the Bank. It has no separate
embarrassment if not also financial loss and perhaps even legal personality from the bank.
civil and criminal litigation.
Loans against real estate
Stipulation of interest
Q: What is the limitation regarding loans against real
NOTE: Circular 905 suspended the Usury Law, but it has estate?
not been repealed.
A: Except as the Monetary Board may otherwise
Circular 905 lifted the ceiling on the interest rate. The prescribe, loans and credit accommodations against real
bank and its depositors are therefore free to stipulate estate shall not exceed 75% of the appraised value of
on the rate of interest for loans. Nevertheless, if the the respective real estate security plus 60% of the
interest is unconscionable, it may be nullified on the appraised value of the insured improvements
grounds of equity.
Loans against personal property
Limitations with respect to banks loan functions
Q: What is the limitation regarding loans against
Q: What are the limitations imposed upon the banks personal property?
with respect to its loan function?
A: Loans on the security of chattels and intangible
A: properties shall not exceed 75% of the appraised value
1. Single borrowers limit of the security.
2. Loans against real estate
3. Loans against personal property DOSRI regulation
4. DOSRI regulation
Q: State the so-called Dorsi Regulation.
Single borrowers limit
A: No director or officer of any bank shall, directly or
indirectly, for himself, or as the representative agent of
Q: Discuss the single-borrowers limit?
others: 2. Parents-in-law
3. Children
a. borrow from such bank 4. Children-in-law
b. nor shall become a guarantor, 5. Spouse
c. indorser
d. surety for loans from such bank to others NOTE: Common-law or illegitimate spouse is not included
e. or in any be an obligor
f. or incur any contractual liability to the bank Requirements under the DOSRI Accounts
Except with the written approval of at least majority of all the Q: In case of DOSRI accounts, what are the requirements
directors of the bank excluding the director concerned. The that must be complied with?
required approval shall be entered upon the records of the
bank and a copy of such entry shall be submitted forthwith to A:
the appropriate supervising and examining department of
BSP. 1. Procedural requirements
The outstanding loans, credit accommodations and a. Loan must be approved by the majority of all
guarantees which a bank may extend to the DOSRI shall be the directors not including the director
limited to an amount equivalent to their respective concerned (not merely majority of the quorum)
unencumbered deposits and book value of their pre-paid b. CB approval is not necessary; however, there is
contribution to the bank. a need to inform them prior to the transaction.
Q: What are excluded from the limits? c. Loan must be entered in the books of the
corporation. (Sec. 36)
A: Non-risk loans such as:
2. Substantive requirement or ceiling requirement
1. Loans secured by obligations of the Bangko Sentral Loan must not exceed the paid in contribution and
ng Pilipinas or the Philippine Government unencumbered deposits. (Not to exceed 15% of the
2. Loans fully guaranteed by the Government portfolio or 100% of the net worth, whichever is
3. Loans covered by assignment of deposits maintained lower.) (Sec. 36 [4])
in the lending bank and held in the Philippines
4. Loans, credit accommodations and acceptances Q: What is the effect of noncompliance with the foregoing
under letters of credit to the extent covered by requirements?
margin deposits
5. Other loans or credit accommodations which the MB A: Violation of DOSRI is a crime and carries with it penal
may specify as nonrisk items. sanction.
Q: Who are covered by the DOSRI Regulation? Q: What are the transactions covered by the DOSRI
regulation?
A:
A: The transactions covered are loan and credit
a. Director those who are directly elected by the accommodation. Not being a loan, the ceiling will not apply to
stockholders including those who represent lease and sale. However, it should still comply with the
themselves as director procedural requirement.
b. Officer including those who advertises themselves
c. Stockholder, which should at least 1% (if below 1% NOTE: Each and every requirement constitutes a separate
not anymore covered) violation or offense.
d. Related Interests, such as DOSs spouses, their
relatives within the first degree whether by Ex: no board approval
consanguinity or affinity, partnership whereby DOS
is a partner or a corporation where DOS owns at Q: What is the effect of the non-comppliance with the
least 20% requirements such as the single borrowers limit with regard
the loan?
Q: Who are included under the first degree?
A: The same is valid without prejudice to criminal
A: prosecution. In the case of Republic v. Sandiganbayan,
Cojuangco (12 April 2011, G.R. No. 166859), the Supreme
1. Parents Court held that the loans, assuming that they were of a DOSRI

nature or without the benefit of the required approvals or in ii. or by Foreigners (as in foreign banks)
excess of the Single Borrowers Limit, would not be void for b. partnership
that reason. Instead, the bank or the officers responsible for
the approval and grant of the DOSRI loan would be subject NOTE: The new law allows any natural person to own up to
only to sanctions under the law. 40% of the capital stocks of a bank.
NOTE: Despite such pronouncement, the crime has already Q: Can one group of persons or an entire family, under the
prescribed. Violation of special penal laws has a prescriptive new law, own the entire bank?
period of 10 years.
A: Yes, for as long as not one of them own more than 40%
Q: What is the armslength rule? (maximum) of the capital shares/stock of the Bank.
A: It provides that any dealings of a bank with any of its Q: What about a foreigner? Is there a limit on the number of
DOSRI shall be upon terms not less favorable to the bank than share a foreigner can own in bank?
those offered to others.
A: Only up to 40%. Foreigners can only own 40% of the bank.
NOTE: The arms-length rule is the basis. Loans of directors, This is because a bank is a nationalized activity.
etc. should be beyond question. They should be above board.
Q: What does NATIONALIZED ACTIVITY mean?
Penalties for violation of the limitations
A: It is an activity either wholly or partly reserved for
Q: What are the penalties for the violations? Filipinos.
A: NOTE: A bank is partly reserved for Filipinos, because

Foreigners are allowed to be stock-holders of a bank but not
1. Fines in amounts as the MB may determine but not to exceed 40% of the Banks capital stocks.
exceed P30,000 a day for each violation
2. Suspension of privileges: Q: What about DOMESTIC CORPORATION?
a. Quasi-banking function
b. Clearing operation A: 40%
c. Foreign exchange
d. Rediscounting facility with BSP Q: What about FOREIGN BANK/corporation owned by
foreigners?
3. Dissolution of the bank through a quo warranto
proceeding A: 40%
4. If the offender is a director or officer, the MB may
also remove or suspend such director or officer Q: How do you distinguish the 40% share ownership limit of
5. Penal sanction a natural person who is a Filipino and 40% share limit of a
foreigner?
Structure of bank
A:
Q: What is the nature of a bank? FILIPINO FOREIGNER
Individual Aggregate which means that
A: It is only organized as a stock corporation. They cannot be shares held by foreigners and
organized as a non-stock corporation, because a non-stock is corporations owned by
not organized for profit. foreigners shall not exceed 40%
of the banks capital stocks.
Q: What are the KINDS OF SHARE-HOLDERS/stock-holders?
So foreign held stocks whether
1. Natural persons owned by natural persons or
a. Filipino corporation cannot exceed 40%
b. Foreigner of the bank.
2. Juridical persons Q: What about domestic corporations?

a. corporation or
i. may be owned by a Filipino (domestic A:
corporations)

GR: A corporation may only own 40% of the bank examination over bank and nonbank financial institutions
performing quasibanking functions, including savings and
XPNS: loan associations.
1. In case of wholly owned thrift bank subsidiary of a
universal bank This is because a universal bank can Q: Does it enjoy fiscal and administrative authority?
own up to 100% of a thrift bank
2. If the shares of a corporation are listed in the stock A: Yes.
exchange - it can own up to 60% of the bank. This
privilege can be exercised only once. In other words NOTE: Amando M. Tetangco, Jr. assumed office as Governor
a corporation whose shares are listed can own 60% of the Bangko Sentral ng Pilipinas in July 2005.
of 1 bank only. As to the other banks the maximum
is still 40%. Q: What are the objectives of BSP?
3. If the corporation is in existence for 10 years it can
own up to 60% of the bank. This privilege can only 1. It shall provide policy directions in the areas if
exercised once money, banking and credit
2. It shall have supervision over banks and exercise
Q: How many directors are allowed for a bank? regulatory powers over finance companies and non-
bank financial institutions performing quasi-banking
A: Not less than 5 not more than 15 (min of 5, maximum of functions
15) and 2 of whom must be independent directors. 3. It is mandated to maintain price stability conducive
to a balance and sustainable growth of the economy
Q: Who are INDEPENDENT DIRECTORS? 4. It shall promote and maintain monetary stability and
the convertability of the peso
A: Directors not part of management
Monetary Board
Q: Is there an EXCEPTION? (allowable directors)
Q: What is the Monetary Board?
A: In case of MERGER or CONSOLIDATION law allows 21
directors. A: The powers and function of Bangko Sentral are exercised
by its Monetary Board, which has seven members.
Q: Can you have foreigners as officer of a Bank? Can you
appoint foreign officers in your Bank? Q: Who are the members of the Monetary Board?
A: No. Under the Anti-Dummy Law, foreigners cannot be A:

appointed to any executive possession of any corporation
engaged in nationalized activity. Since a bank is nationalized Chairman Amando M. Tetangco, Jr.
you cannot have foreigner occupying executive positions in a Members Cesar V. Purisima
bank. Alfredo C. Antonio
Ignacio R. Bunye
You can only appoint them as consultants, advisers but they Peter B. Favila
cannot occupy executive positions. Felipe M. Medalla
Armando L. Suratos
Bangko Sentral ng Pilipinas
Legal tender
Q: Who has supervisory power over the banks?
Q: What is Legal Tender?
A:
1. Bangko Sentral ng Pilipinas (for ultra vires act) A: All notes and coins issued by the Bangko Sentral are fully
2. Securities and Exchange Commission (for banking guaranteed by the Republic and shall be legal tender in the
functions) Philippines for all debts, both public and private (Sec. 52)
Q: What is Bangko Sentral ng Pilipinas (BSP)? Q: What is the legal tender power of coins?
A: The states central monetary authority; it is the A:

government agency charged with the responsibility of 1. 1Peso, 5Peso and 10Peso coins: In amounts not
administering the monetary, banking and credit system of the exceeding P1,000.00
country and is granted the power of supervision and

2. .25 centavo coin or less: In amounts not exceeding
P100.00 (Circular No. 537, 2006) Q: What are the assets of the banks?
Q: What are the rules on BSPs Authority to replace legal A:

tender? 1. Cash
2. Properties (real or personal)
A: 3. Receivables
4. Collectibles
1. Notes and coins called in for replacement shall
remain legal tender for a period of one year from the Q: What are the liabilities?
date of call.
2. After that period, they shall cease to be legal tender A:
during the following year or for such longer period as 1. Deposits
MB may determine. 2. Deposit Substitutes
3. After the expiration of this latter period, the notes 3. Standing Letter of Credits
and coins which have not been exchanged shall 4. Obligations Due to Credits
cease to be a liability of BSP and shall be
demonetized. Q: What are the powers of a conservator?
A:
REMEDIES OF BSP IN CASE OF BANKS IN DISTRESS 1. To take charge of the assets, liabilities, and the
management thereof
Q: What are the remedies of the Bangko Sentral ng Pilipinas 2. Recognize the management
in case of banks in distress? 3. collect all monies and debts due said bank
4. Exercise all powers necessary to restore its viability with
A: Place the bank in: the power to overrule or revoke the actions of the
1. Conservatorship previous management and board of directors of the bank
2. Receivership or quasibank
3. Closure of the bank
Q: Can the power to overrule or revoke the actions of the
Conservatorship previous management and board of directors extend to
perfected transactions?
Q: What is conservatorship?
A: Such powers cannot extend to post facto repudiation of
A: Whenever on the basis of the report of appropriate perfected transactions. Thus, the law merely gives contracts
supervising and examining department, the Monetary Board that are deemed to be defective void, voidable,
finds that a bank or quasi-bank is in a state of continuing unenforceable or rescissible. Hence, the conservator merely
inability or unwillingness to maintain a condition of liquidity takes the place of the banks board.
deemed adequate to protect its depositors and creditors, the
Monetary Board may appoint a conservator to take charge of 5. To bring court actions to assail or repudiate contracts
the assets, liabilities and management thereof. entered into by the bank.
Q: Who is a conservator? Q: When is conservatorship terminated?
A: One appointed if the bank is in the state of illiquidity or the A:

bank fails or refuses to maintain a state of liquidity adequate
to protect its depositors and creditors. The bank still has 1. When Monetary Board is satisfied that the
more assets than its liabilities but its assets are not liquid or institution can continue to operate on its own and
not in cash thus it cannot pay its obligation when it falls due. the conservatorship is no longer necessary.
The bank, not the Central Bank, pays for fees. 2. When the Monetary Board, on the basis of the
report of the conservator or of its own findings,
Q: What do you mean by illiquidity? determine that the continuance in business of the
institution would involve probable losses to its
A: The bank still has more assets than its liabilities but its depositors or creditors, the bank will go under
assets are not liquid or not in cash thus it cannot pay its receivership.
obligation when it falls due.

Receivership Q: Does the filing of an intra-corporate case before the RTC
and a complaint with the BSP (to compel a bank to disclose
Q: What is receivership? its stockholdings) innvoking BSPs superviory powers over
banking corporations amount to judicial proceeding and
A: The Monetary Board may appoint a receiver if the MB thus, constitute forum shopping?
finds that a bank or quasi-bank:
a. is unable to pay its liabilities as they come due in the A: No, it does not constitute judicial proceeding. Much more,
ordinary course of business provided that this sahll it does not constitute forum shopping. The 2 proceedings are
not include inability to pay caused by extra-ordinary of different relief. The complaint filed with the BSP was an
demands induced by financial panic in the banking invocation of its supervisory powers over banking operations
community which does not amount to a judicial proceeding (Suan v.
b. has insufficient realizable assets, as determined by Gonzales, 518 SCRA 82, 2007).
the BSP, to meet its liabilities; or
c. cannot continue in business without involving Q: What are the similarities between conservatorship and
probable loss to its depositors and creditors; or receivership?
d. has willfully violated a cease and desist order that
has become final involving transactions which A:
amount to fraud or dissipation of bank assets, the
Monetary Board may summarily and without need CONSERVATORSHIP RECEIVERSHIP
for prior hearing forbid the institution from doing 1. Both can only perform acts of administration and not
business in the Philippines and designate the PDIC as acts of dominion.
the receiver of the bank 2. While they have the power to revoke the actions of the
previous management and the Board of Directors, they
Q: Who is a receiver? cannot invoke a valid contract.
3. Neither can approve an option to purchase real property
A: One appointed if bank is already insolvent which means
that its liabilities are greater than its assets. Q: Do conservators or receivers have powers of dominion?
Q: Is the receiver authorized to transact business in A: No, they only have acts of administration, they cannot sell
connection with the banks assets and property? properties of banks, they cannot approved option to
purchase properties, just purely acts of administration.
A: No, the receiver only has authority to administer the same
for the benefit of its creditors. Closure
NOTE: Once the bank is placed under receivership, its officers Q: Can the BSP close a bank without prior hearing?
can no longer authorized to transact business in connection
with the banks assets and property. A: Yes, because if prior hearing is required then bank run will
be the order of the day. The power of BSP to close a bank is a
Q: Can the court appoint a receiver for a bank? valid exercise of police power. If there is showing of bad faith
or grave abuse of discretion, it can be set aside and subject to
A: No. The power belongs to the BSP. judicial scrutiny.
Q: Should the issue of whether or not the Monetary Boards Q: Can BSP close a bank on the strength of a report by the
resolution is arbitrary be only raised in a separate action? supervising and examining department without complete
notice of such bank?
A: No. While resolutions of the Monetary Board forbidding a
bank to do business on account of a condition of insolvency A: Yes
and appointing a receiver to take charge of the banks assets
or determining whether the bank may be rehabilitated or CLOSE NOWHEAR LATER DOCTRINE
should be liquidated are by law final and executory.
However, they can be set aside by the court on one specific Q: What is the close nowhear later doctrine?
ground if the action is plainly arbitrary and made in bad
faith. Such contention can be asserted as an affirmative A: The law does not contemplate prior notice and hearing
defense of a counterclaim in the proceeding for assistance in before the bank may be directed to stop operations and
liquidation. 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, 3. Thru a petition for certiorari on the ground that the
stockholders and the general public. action taken by the BSP was in excess of jurisdiction
or with grave abuse of discretion as to amount to
Promissory estoppel lack of jurisdiction
Q: What is the rule of promissory estoppel? Q: Should the issue of whether or not the MBs resolution is
arbitrary be only raised in a separate action?
A: When the Central Bank made express representations that
it would support the bank and avoid its liquidation if its A: No. While the resolutions of the MB forbidding a bank to
majority stockholders would execute a voting trust do business on account of a condition of insolvency and
agreement turning over the management of the bank to the appointing a receiver to take charge of the banks assets or
CB or its nominees and mortgage or assign their properties determining whether the bank may be rehabilitated or should
to CB to cover the overdraft balance of the bank, the CB may be liquidated by law final and executory. However, they can
not thereafter renege on its representation and liquidate the be set aside by the ground if the action is plainly arbitrary and
bank after the majority stockholders of the bank complied made in good faith. Such actions can be asserted as an
with the conditions and parted with value to the profit of CB, affirmative defense of a counterclaim in the proceeding for
which thus acquired additional security for its own advances assistance in liquidation.
to the detriment of the banks stockholders, depositors and
other creditors under the rule of promissory estoppel (Ramos NOTE: The Court perceives no reason whatever why a
v. Central Bank of the Philippines, 41 SCRA 565, 1971). banking institutions claim that a resolution of the Monetary
Board under Section 29 of the Central Bank Act should be set
Valid exercise of police power aside as plainly arbitrary and made in bad faith cannot be
asserted as an affirmative defense or a counterclaim in the
Q: Can the closure and liquidation of a bank, which is proceeding for assistance in liquidation, but only as a cause of
considered an exercise of police power, be the subject of action in a separate and distinct action. There is no provision
judicial inquiry? of law which expressly or even by implication imposes the
requirement for a separate proceeding exclusively occupied
A: Yes. While the closure and liquidation of a bank may be with adjudicating this issue. Moreover, to declare the issue as
considered an exercise of police power, the validity of such beyond the scope of matters cognizable in a proceeding for
exercise of police power is subject to judicial inquiry and assistance in liquidation would be to engender that
could be set aside if it is either capricious, discriminatory, multiplicity of proceedings which the law abhors (Salud v.
whimsical, arbitrary, unjust or a denial or due process and Central Bank, G.R. No. L-17620, 1986).
equal protection clauses of the Constitution
Q: Can a bank be held liable to pay interest on deposit once
Q: Upon maturity of the time deposit, the bank failed to it closed and ceased operations?
remit. By reason of punitive action taken by Central Bank,
the bank has been prevented from performing banking A: Generally, no.
operations. Is the bank still obligated to pay the time
deposits despite the fact that its operations were suspended NOTES
by the Central Bank?
A: The suspension of operations of a bank cannot excuse

noncompliance with the obligation to remit the time
deposits of depositors which matured before the banks
closure.
Assailing the order of conservatoship, receivership or

closure
Q: How can the order of conservatoship, receivership or

closure be assailed?
A:
1. By the stockholders representing at least majority of
the outstanding capital stock
2. Within 10 days from receipt by the board of
directors of the order

CONSERVATORSHIP RECEIVERSHIP LIQUIDATION

Grounds
1. Continuing inability 1. Inability to pay liabilities as they fall 1. Insolvency
2. Unwillingness to maintain condition due 2. Bank cannot be rehabilitated
of liquidity e.g: bank run, rumors, etc.
2. Assets are less than its liabilities
3. Cannot continue business
4. without causing damage;
5. Violation of a cease and desist
6. Bank holiday for more than 30
days.
Effects
1. Juridical personality is retained. 1. Juridical personality is retained 1. Juridical personality is retained.
2. Perfected transactions cannot be 2. Suspension of operation /stoppage Perfected transactions cannot be
repudiated; of business repudiated;
3. Assets deemed in custodia legis
Liquidation
Claims against the insolvent bank
Q: When can there be liquidation?
Q: Where should the claims against insolvent bank be filed?
A: If the bank cannot be restored to its financial health upon
the recommendation of the conservator or receiver or head A: All claims against the insolvent bank should be filed in the
of the supervising and examining department, BSP shall file liquidation proceeding. It is not necessary that a claim be
the petition with the RTC for assistance in liquidation. initially disputed in a court or agency before it is filed with the
liquidation court (Ong v. CA, 253 SCRA 105, 1996).
NOTE: Once the liquidation proceedings have been initiated,
the majority stockholders of the bank can no longer file a Q: What is the exception to this rule?
separate action or petition to assail the order of closure.
Instead, issues on validity of closure should be raised as A: It does not apply to a petition for the issuance of a writ of
affirmative defenses in the liquidation proceeding. This is possession for foreclosed property filed by the bank.
necessary to prevent multiplicity of suits or conflicting
resolutions. Q: All claims against the insolvent bank should be filed in
the liquidation proceeding. What is the purpose of such
Lack of tax clearance; effect rule?
Q: Can the liquidation of bank be carried out despite lack of A: The requirement that all claims against the bank be
tax clearance? pursued in the liquidation proceedings is intended:
a. to prevent multiplicity of actions against the insolvent
A: bank, and;
b. designed to establish due process and orderliness in the
GR: Dissolution of a CORPORATION cannot be approved liquidation bank
unless there is payment of taxes
Q: What is the nature of a petition for the Issuance of a Writ
XPN: Closure and liquidation of banks which is governed by a of Possession?
special law. The authority of the BSP to close cannot be
impaired. A: It is not in the nature of a disputed claim against the bank.
On the contrary, it is an action instituted by the bank itself for
NOTEl Unlike in the voluntary dissolution of a corporation the preservation of its asset and protection of its property.
under the Corporation Code. There are substantial
differences in the procedure for involuntary dissolution and Bank deposits, not preferred credits
liquidation of a corporation under the Corporation Code and
that of a bank under the New Central Bank Act so that the Q: What is the nature of bank deposits?
requirements in one cannot simply be imposed in the other
(In Re: Petition for Assistance in the Liquidation in the Rural A:
Bank of Bokod (Benguet), PDIC v. Bureau of Internal Revenue,
511 SCRA 123, 2006). GR: Not preferred credits

XPN: When the deoposits are covered by a cashiers check Prohibited acts
purchased from the bank when the bank officers knew or
ought to have known that the bank is insolvent. Q: What are the prohibited acts?
NOTE: In a situation involving the element of fraud, where a A:

cashiers check is purchased from a bank at a time when it is 1. It shall be unlawful for any official or employee of a
insolvent, as its officers know or are bound to know by the bank to disclose to any person other than those
exercise of reasonable diligence, the purchase is entitled to excepted by law any information concerning deposit
preference in the assets of the bank on its liquidation 2. Non-bank official or employee is not covered by the
(Miranda v. PDIC, 501 SCRA 288, 2006). prohibition
3. Disclosure by a bank official or employee of
Effect of final judgment against the bank information about a bank deposit in favor of a co-
employee in the course of the performance of his
Q: What is the effect of final judgment against the bank? duties is not covered by the prohibition
A: Any final judgment against the bank which has been Q: What are the kinds of deposits covered?
ordered or closed should be stayed as to execute the
judgment would unduly deplete the assets of the bank to the A:
prejudice of other creditors. After the Monetary Board has 1. All deposits of whatever nature with banks or
declared that a bank is insolvent and has ordered it to cease banking institutions found in the Philippines; or
operations, the Board becomes the trustee of its assets for Investments in bonds issued by the Philippine
the equal benefit of all the creditors, including depositors. government, its branches, and institutions
The assets of the insolvent banking institution are held in 2. Trust funds and any sum of money invested in the
trust for the equal benefit of all creditors, and after its bank which the bank may use for loans and similar
insolvency, one cannot obtain an advantage or a preference transaction are now included in the term deposits
over another by an attachment, execution or otherwise. 3. Deposits are thus no longer limited to those
governed by law on loans giving rise to creditor-
Q: Will the suspension of the operations of a bank excuse debtor relationship
non-compliance with its obligation to remit the deposit of
depositors? Q: What do you mean by Bank Deposits in this context?
A: No, the suspension of operations of a bank cannot excuse A: This means funds given to the bank giving to a creditor-
non-compliance with the obligation to remit the time debtor relationship.
deposits of depositors which matured before the banks
closure (Overseas Bank of Manila v. CA, 172 SCRA 521, 1989). Q: What are the requisites?
Q: What is the effect of the closure of a bank as regards the A:

collection and foreclosure of mortgages?
1. Funds given to the banks
A: Even if the bank is questioning the vlidity of its closure, 2. Ownership over the funds is transferred to the bank
during the pendency of the case the liquidator can continue 3. The bank is free to use the funds as he pleases
prosecution suits for collection and foreclosure of mortgages, 4. The bank has the obligation to return the money
as they are acts done in the usual course of administration of upon demand by the depositor under Art 1980 Civil
the bank. Code.
5. Bank Deposits shall be governed by the Law on
Loans (Art 1980 Civil Code).
LAW ON SECRECY OF BANK DEPOSITS (R.A. 1405) Q: What does investment in government securities mean?
Q: What is the purpose? A: Any investment in security issued or guaranteed by the

government is covered. Government securities are
A: Instruments issued or guaranteed by the government.
1. To encourage deposit in banking institutions; and Meaning the payment shall be made or guaranteed by the
2. To discourage private hoarding so that banks may government.
lend such funds and assist in the economic
development of the country.

Examples: Treasury Bills, Erap Bonds, Maharlika Bonds who has filed an application for compromise of his
(during the FVRs time), GSIS Civil Trade Treasury Bonds and tax liability by reason of financial incapacity to pay
any obligation of the government evidenced by a debt his tax liability.
instrument is covered by 1405. 6. Under the Unclaimed Balances Law, the bank may
disclose to the National Treasurer information
Trust funds concerning dormant deposits for the purpose of
initiating escheat proceedings
Q: Are trust funds covered by the term deposit? 7. In case the law is repealed, superseded or modified
by any law to the contrary.
A: Yes, the money deposited under the trust agreement is
intended not merely to remain with the bank but to be Q: Let say the Senate Blue Ribbon Committee is conducting
invested by it elsewhere. To hold that this type of account is an investigation on the extent of jueteng activities in
not protected by R.A. 1405 would encourage private hoarding Pampanga. In aid of legislation, the Senate Blue Ribbon
of funds that could otherwise be invested by banks in other Committee invited persons suspected to be involved in
ventures, contrary to the policy behind the law. (Ejercito v. jueteng and subpoenad various banks in Metro Manila,
Sandiganbayan, G.R. No. 15729495, Nov. 30, 2006) directing such banks to produce documents or records of
the person suspected to be involved in jueteng activities.
NOTE: Despite such pronouncement that trust funds are Supposedly, it is in aid of legislation, can the bank comply
considered deposits, trust funds remain not covered by PDIC. without violating Republic Act 1405 (Law on Secrecy of Bank
Deposits)?
Exceptions
A: No, because the Senate Blue Ribbon Committee is not a
Q: When may deposits be disclosed, examined or looked court, it may be a very powerful committee but the fact
into? remain that it is not a court.
A: Q: The Fiscal is conducting an investigation on Violation of

1. Written permission of the depositor B.P 22, to complete the investigation, the Fiscal issued a
2. Impeachment subpoena to the bank where the check was drawn against
3. Order of competent court in: to produce related documents and records of the
a. Bribery or dereliction of duty of public officials respondent in a criminal case, can the Bank comply without
b. Subject matter of litigation is the money violating the law?
deposited
c. Unexplained wealth (plunder is akin to A: No, because the Fiscal is not a court, it has to be a court
unexplained wealth) order.
d. Violation of Anti-Graft and Corrupt Practices
Act Q: Can the bank disclose the name of the depositor? Is it
e. Prima facie violation of the Anti-Money protected by RA 1405?
Laundering Law
NOTE: Disclousre can only be made to the Anti- A: Still debatable. According to Dean Divina, this should be
Money Laundering Council. Bank inquiry order is covered because of Section 3 of RA 1405?
not necessary if the predicate crime is:
i. kidnapping, Section 3. It shall be unlawful for any official or
employee of a banking institution to disclose to any
ii. hijacking
person other than those mentioned in Section two
iii. arson hereof any information concerning said deposits.
iv. murder
v. violation of dangerous drugs act Money deposited as the subject matter of litigation
f. violation of the Human Security Act
g. garnishment of bank deposits Q: A one transfer for $1000, and ended up being remitted to
the account paying in the Philippines for $1000,000. So the
4. Upon order of the Commissioner of Internal teller must have overlooked, she misread the instrument, so
Revenue in respect of the bank deposits of a the account of that the payee was credited was $1000,000.
decedent for the purpose of determining such He consulted his lawyer and such lawyer advised to
decedents gross estate. withdraw, spend such money. The payee withdrew the
NOTE: The bank cannot disclose to the heirs of the funds, and he deposited such withdrawn amounts to various
deceased depositor but only to the BIR banks. Thereafter, the Bank discovered the error and filed
5. Upon the order of the Commissioner of Internal an action for the reimbursement or return of the money.
Revenue in respect of bank deposits of a taxpayer They ask the court to subpoena ad tefistificandum to

compel the bank managers who have certain accounts allowed the examination under the exception on the
suspected to be depository of the funds. When one of the accounts, documents or records.
Bank managers is suppose to testify, he was opposed by the
lawyer of the payee arguing such testimony by invoking The SC relied on the Anti-graft and Corrupt Practices Act and
Republic Act 1405. Does the testimony violate Republic Act unexplained wealth law, in both laws it provided that Bank
1405? deposits shall be taken into account in the enforcement of
these laws. So, when it comes to anti-graft and corrupt
A: No, because the subject matter of litigation is the money practices act, bribery or dereliction of duty and the
deposited, the subpoena ad tefistificandum is a court order unexplained wealth law, even a prosecutor may have access
directing the person involved to testify. Being a court order to bank deposits.
and being the subject matter of litigation of the money
deposited falls within the exception. Therefore the bank Ombudsmans Authority
manager can testify without violating the law.
Q: What are the requisites before the Ombudsman may
Q: A issued a check for Php1000,000, it was drawn against examine deposits?
Allied Bank and such check was deposited with Union Bank.
Union Bank undecoded the charged slip. Union Bank only A:
recovers Php1000 from Allied Bank when it should have 1. There is a pending case before court of competent
recovered Php1000,000 for the amount for which the jurisdiction
account of A was debited. After 1 year, it was discovered, so 2. The account must be clearly identified
Union Bank filed a petition to examine the account of A. 3. There is notice upon the account holder and bank
Allied Bank opposed the action of the ground that it will personnel of their presence during inspection
violate the right of A under Republic act 1405, which the 4. The same must be limited to the account
Union Bank counter-argue that it will not because the
subject matter of litigation is the account where the money NOTE: The inspection must cover only the account identified
is deposited. Is the money found in the account of A is the in the pending case (Marquez v. Desierto, G.R. No. 138569,
subject matter of the litigation? Sept. 11, 2003).
A: No, because the cause of action of the Union bank is to Q: Can a bank be compelled to disclose the records of the
recover the difference between Php1000,000 and Php1000, it accounts of a depositor under the investigation for
paid Php1000,000 to payee depositor but only got P1000. unexplained wealth?
Union Bank is a collecting Bank, it collects the amount
covered by a check from the drawee bank so it can credit the A: Since cases of unexplained wealth are similar to cases of
account of the depositor. So the cause of action of the Union bribery, dereliction of duty, no reason is seen why it cannot
bank is to recover the difference between Php1000,000 and be excepted from the rule making bank deposits confidential.
Php1000, and not necessarily the funds in the account of A, In this connection, inquiry into illegally acquired property in
so it is any money that falls under the difference between antigraft cases extends to cases where such property is
Php1000,000 and Php1000. The right to privacy is a right concealed by being held or recorded in the name of other
guaranteed by the constitution and if it examines the account persons. This is also because the AntiGraft and Corrupt
of the depositor which do not fall under the exception Practices Act, bank deposits shall be taken into consideration
violates such right to privacy. in determining whether or not a public officer has acquired
property manifestly out of proportion with his lawful income.
Bribery, dereliction of duty, prosecution for unexplained (PNB v. Gancayco, G.R. No. L18343, Sept. 30, 1965).
wealth, prosecution for Anti-graft and Corrupt Practices Act
Garnishment
Q: A special prosecutor was conducting an investigation for
violation of unexplained wealth law involving a public Q: Does garnishment of a bank deposit violate the law?
official suspected to have an ill-gotten wealth. In the course
of the investigation, the special prosecutor issued a A: No, the prohibition against examination does not preclude
subpoena were such public official maintained an account. its being garnished for satisfaction of judgment. The
The Bank opposed citing the R.A 1405. Decide. disclosure is purely incidental to the execution process and it
was not the intention of the legislature to place bank deposits
A: The SC said that when it comes to investigation of beyond the reach of judgment creditor.
unexplained wealth under anti-graft and corrupt practices
act, the prosecutor may have access to bank deposits. Q: How about foreign currency deposits, can they be subject
Although a special prosecutor is not a court, but the SC to garnishment?

A: A: The exemption from garnishment of foreign currency
deposits under R.A. 6426 cannot be invoked to escape liability
GR: Foreign currency deposits shall be exempt from for the damages to the victim. The garnishment of the
attachment, garnishment, or any other order or process of transient foreigners foreign currency deposit should be
any court, legislative body, government agency or any allowed to prevent injustice and for equitable grounds. The
administrative body whatsoever. (Sec 8. R.A. 6426) law was enacted to encourage foreign currency deposit and
not to benefit a wrongdoer (Salvacion vs. Central Bank of the
XPN: The application of Section 8 of R.A. 6426 depends on Philippines, G.R. 94723, August 21, 1997).
the extent of its justice. The garnishment of a foreign
currency deposit should be allowed to prevent injustice and RA 1405 AND RA 6426 COMPARED
for equitable grounds, otherwise, it would negate Article 10
of the New Civil Code which provides that in case of doubt in Q: What are the exceptions to the rule that foreign deposits
the interpretation or application of laws, it is presumed that are privilged and confidential?
the lawmaking body intended right and justice to prevail
A:
Unlclaimed Deposits Law 1. Written permission of the depositor
2. Impeachment
Q: Under the Unclaimed Balances Law, the bank may 3. Court order
disclose to the National Treasurer information concerning a. Violation of the Anti-Money Laundering Law
dormant deposits for the purpose of initiating escheat b. Human Security
proceedings. What is the exception? 4. Equittable consideration
5. One invoking is not the owner or a co-owner
A: In case of automatic roll-over clause. 6. The BIR under the tax Code may inquire into the
deposits for the purpose of computing the tax due of
Q: What is an automatic roll-over clause? the estate of a deceased depositor. Because foreign
currency are not exempt for estate tax
A: This refers to whether your term deposit will automatically 7. The BIR under the Tax code may inquire into the
roll over into a new fixed term once it reaches maturity. bank deposits of a taxpayer who has filed an
Before your account reaches maturity, you have to notify application for compromise of his tax liability on the
your institution of what you wish to do with your money, ground of financial incapacity
whether you decide to collect or transfer it to another term 8. The PCGG under its mandate may have access to
deposit. bank deposit for the purpose of recovering illegally
acquired funds
NOTE: Deposits with Automatic roll-over clause are not 9. In case a law is passed repealing or amending RA
subject to prescription. They cannot be escheated. 6426
Foreign currency deposits not covered Q: How about escheat proceedinggs?
Q: Are foreign currency deposits covered by the Secrecy in A: According to the Secretary of Justice, foreign currency
Bank Deposits (R.A. 1405)? deposits are exempt from escheat proceedings because
escheat is akin to garnishment, since foreign currency
A: deposits are exempt from garnishment and escheat is a form
or specie of garnishment, therefore foreign currency deposits
GR: No. Foreign currency deposits are covered by R.A. 6426 are exempt from escheat proceedings. Being exempt from
otherwise known as the Foreign Currency Act. Under the escheat proceedings, the bank has no authority to disclose to
same law, all authorized foreign currency deposits are the National Treasurer any information about foreign
considered of an absolutely confidential nature and, except currency dormant accounts.
upon the written permission of the depositors, in no instance
shall be examined, inquired or looked into by any person, Filing of the comlaint for violation of RA 1405 does not toll
government official, bureau or office whether judicial or the running of the prescriptive period to file the appropriate
administrative private. complaint for violation of R.A. 6426
Q: Can the foreign currency deposit of a transient foreigner Q: Does the filing of the comlaint for violation of RA 1405
who illegally detained and raped a minor Filipina, be toll the running of the prescriptive period to file the
garnished to satisfy the award for damages to the victim? appropriate complaint for violation of R.A. 6426?

A: No, it did not toll the running of the prescriptive period to deposit box will not put a tag on the contents of Safety
file the appropriate complaint for violation of R.A. 6426 deposit box way beyond human imagination.
(Intengan v. CA, 377 SCRA 63, 2002).
Q: Can the bank disclose the whereabouts of a client, let say
GENERAL BANKING LAW: Provisions of secrecy that a bank has 2 clients and one is indebted to the other,
can the bank upon the request of the creditor disclose
NOTE: General Banking Law prohibits disclosure of any information on the whereabouts of the debtor?
information among funds other than deposits as well as
properties in the banks possession belonging in the private A: This information is not covered by 1405, 6426 or 8791
entity. It covers funds other than deposits. Prior to the case because it is not funds, but it is covered by the Constitution
of Ejercito vs Sandiganbayan, trust funds are confidential not the right to privacy.
because of RA 705 but because of RA 8791, but now TRUST
FUNDS ARE COVERED BY RA 1405 hence funds other than NOTE: Bottom line is that whatever information we give to
deposits for as long as the banks may use the same for loans the bank is confidential or privilege and can only be disclose
or similar transactions. in those cases provided by law
Q: What law governs trust funds?
A: They are now governed by 2 laws: ANTI-MONEY LAUNDERING LAW (R.A. 9160, a amended)
1. RA 8791 and
2. RA 1405. Q: What is the policy of the law?
The Supreme Court did not go beyond explaining what A: To protect and preserve the integrity and confidentiality of
exceptions will apply because under RA 8791 there are 2 bank accounts and to ensure that the Philippines shall not be
exceptions (written permission and court order). There are used as a money laundering site for the proceeds of any
funds which are not covered by RA 1405, these funds that the unlawful activity.
bank cannot be use for loans and other similar transactions.
Q: What is money laundering?
Q: When are funds considered as deposited?
A: Money laundering is a crime whereby the proceeds of an
A: Funds which are deposited or invested with the bank unlawful activity as defined in the AMLA are transacted or
which the bank can use for loans and similar transactions if attempted to be transacted to make them appear to have
the bank can use it for loans and similar transactions then it is originated from legitimate sources.
not covered by RA 1405 but it is governed by RA 8791.
Anti-Money Laundering Council
Examples of these are funds obtained by the bank for strict
deposit meaning for safe keeping. Since the bank cannot use Q: What is the Anti-Money Laundering Council (AMLC)
these funds for loans, it is not covered by RA 1405 but they
are covered by RA 8791. The government body tasked to carry out the
implementation of the Anti-Money Laundering Law is the
NOTE: Whether 1405 or 8791 both laws say that it cannot be Anti-Money Laundering Council. It is authorized to impose
inquired or looked in to but the problem lies on which administrative sanctions for the violation of the law, rules or
exception would apply. regulations issued pursuant to the Anti-Money Laundering
Law.
Q: Can the bank disclose information about the contents of
the safety deposit box? It may freeze monetary instrument or property alleged to be
the proceeds of unlawful activity. The AMLC shall apply for a
A: No, because it will violate RA 8791. freeze order with the Court of Appeals. Such order may be
issued ex parte.
Q: What if the depositor did not pay rents on the safety
deposit box? It is also authorized to inquire into bank deposits or
investments, regardless of currency but it needs a bank
A: If the depositor is not paying rents, then the Bank will inquiry order. The AMLC shall apply for a bank inquiry order
force open the safety deposit box. In case of force opening, with any competent court. Such competent court is the
the Bank will know the contents of the box, so every time the Regional Trial Court. The bank inquiry order cannot be issued
bank will force open the Box it engages with the services of ex parte but under the recent law dated June 2012, bank
the notary public to make sure that the owner of the safety inquiry order can now be issued ex parte.

five hundred thousand pesos (P500,000) within one banking
Covered institutions day.
Q: What are the covered institutions? Suspicious transactions
A: Q: What are suspicious transactions?
1. Institutions supervised or regulated by the BSP A: Suspicious transactions are transactions with covered
2. Institutions supervised and regulated by the Insurance institutions, regardless of the amounts involved, where any of
Commission; and the following circumstances exist:
3. Entities dealing in currency, commodities, or financial
derivatives based thereon valuable objects, cash 1. There is no underlying legal or trade obligation,
substitutes, and other similar monetary or property purpose or economic justification
supervised and regulated by the SEC. 2. The client is not properly identified
NOTE: (Enumeration under Golden Notes 2011) 3. The amount involved is not commensurate with the
business or financial capacity of the client;
1. Banks 4. Taking into account all known circumstances, it may
2. Nonbanks be perceived that the clients transaction is
3. Quasibanks structured in order to avoid being the subject of
4. Trust entities reporting requirements under the AMLA;
5. All other institutions, their subsidiaries and affiliates 5. Any circumstances relating to the transaction which
supervised or regulated by BSP is observed to deviate from the profile of the client
6. Insurance companies and all other institutions and/or the clients past transactions with the
supervised and regulated by the Insurance covered institution;
Commission 6. The transactions is in a way related to an unlawful
7. Securities dealers, brokers, salesmen, investment activity or offense under the AMLA that is about to
houses and other similar entities managing securities be, is being or has been committed; or
or rendering services as investment agent, advisor, 7. Any transactions that is similar or analogous to any
or consultant of the foregoing.
8. Mutual funds, closedend investment companies,
common trust funds, preneed companies and other Q: What are the acts punishable under R.A. 9160?
similar entities
9. foreign exchange, corporations, money changers, A:
money payments, remittance and transfer 1. Knowingly transacting or attempting to transact any
companies and other similar entities; and monetary instrument/property which represents,
10. Other entities administering or otherwise dealing in involves, or relates to, the proceeds of any unlawful
currency, commodities or financial derivatives based activity (Action)
thereon, valuable objects, cash substitutes, and
other similar monetary instruments or property 2. Knowingly performing or failing to perform an act in
supervised or regulated by SEC. relation to any monetary instrument/property
involving the proceeds of any unlawful activity as a
Q: What are the obligations of covered institutions? result of which he facilitated the offense of money
laundering (Omission).
A:
3. Knowingly failing to disclose and file with the AMLC
1. Customer identification any monetary instrument/ property required to be
2. Record keeping (records should be kept and safely disclosed and filed (Failure to report).
stored for 5 years from the date of the transaction)
3. Reporting of covered and suspicious transactions Safe Harbor Provision
Covered transactions Q: What is the so-called Safe harbor provision?
Q: What is a covered transaction? A: No administrative, criminal or civil proceedings shall lie

against any person for having made a covered transaction
A: A covered transaction in cash or other equivalent report in the regular performance of his duties and in good
monetary instrument involving in a total amount in excess of faith, whether or not such reporting results in any criminal
prosecution under the AMLA or any other Philippine law.

Prior to June 2012:
Venue of action; Jurisdiction
A: No. A bank inquiry order, unlike a freeze order cannot be
Q: Which court has jurisdiction for violations of the AMLA? issued unless notice is given to the owners of the account,
allowing them the opportunity to contest the issuance of
A: such order (Republic v. Eugenio, 545 SCRA 384, 2008).
1. RTC-all cases of Anti-Money Laundering
2. Sandiganbayan- those committed by public officers NOTE: Still, even if the bank inquiry order may be availed of
and private persons in conspiracy with them without need of a pre-existing case under the AMLA, it does
not follow that such order may be availed of ex parte. It is
Predicate crimes evident that Sec. 11 does not specifically authorize, as a
general rule, the issuance ex parte of the bank inquiry order.
Q: What is the unlawful activity referred to in R.A. 9160? Of course, Sec. 11 also allows the AMLC to inquire into bank
accounts without having to obtain a judicial order in cases
A: Unlawful activity is the offense which generates dirty where there is probable cause that the deposits or
money. It is commonly called the predicate crime refers to investments are related to kidnapping for ransom, certain
any act or omission or series or combination thereof involving violations of the Comprehensive Dangerous Drugs Act of
or having relation to the following: 2002, hijacking and other violations under R.A. No. 6235,
destructive arson and murder.
1. Kidnapping for ransom;
2. Drug trafficking and related offenses; In the instances where a court order is required for the
3. Graft and corrupt practices; issuance of the bank inquiry order, nothing in Sec. 11
4. Plunder; specifically authorizes that such court order may be issued ex
5. Robbery and extortion; parte. The necessary implication of this finding that Sec. 11 of
6. Jueteng and Masiao; the AMLA does not generally authorize the issuance ex parte
7. Piracy; of the bank inquiry order would be that such orders cannot
8. Qualified theft; be issued unless notice is given to the owners of the account,
9. Swindling; allowing them the to contest the issuance of the order.
10. Smuggling;
11. Violations under the Electronic Commerce Act of The court receiving the application for inquiry order cannot
2000; simply take the AMLCs word that probable cause exists that
12. Hijacking, destructive arson and murder, including the deposits or investments are related to an unlawful
those perpetrated by terrorists against non- activity. It will have to exercise its own determinative
combatant persons and similar targets; function in order to be convinced of such fact. The account
13. Fraudulent practices and other violations under the holder would be certainly capable of contesting such
Securities Regulation Code of 2000; probable cause if given the opportunity to be apprised of the
14. Felonies or offenses of a similar nature that are pending application to inquire into his account; hence a
punishable under the penal laws of other countries. notice requirement would not be an empty spectacle
(Republic v. Eugenio, et al. G.R. No. 174629, Feb. 14, 2008).
Bank inquiry
Q: What are the exceptions to the rule that a court order is
Q: Is there a need for a pre-existing or pending case in court necessary before the AMLC can inquire into bank deposits?
for violation of the Anti-Money Laundering Law before a
bank inquiry order may be issued by a court? A: No court order is required in the following cases:
A: No. 1. Kidnapping for ransom;

2. Drug trafficking and related offenses;
Q: Can a bank inquirty be availed of ex-parte? 3. Hijacking;
4. Destructive arson;
A: The AMLC is authorized to inquire into bank deposits or 5. Murder
investments, regardless of currency but it needs a bank 6. Those perpetrated by terrorists against non-
inquiry order. The AMLC shall apply for a bank inquiry order combatant persons and similar targets.
with any competent court. Such competent court is the
Regional Trial Court. The bank inquiry order cannot be issued Freeze order
ex parte but under the recent law dated June 2012, bank
inquiry order can now be issued ex parte. Q: Which court has jurisdiction in the freezing of monetary
instrument or property?

A: The Court of Appeals has the jurisdiction to freeze the Q: In disclosing Alvin's bank accounts to the AMLC, did the
account upon application ex parte by the AMLC and after bank violate any law?
determination that probable cause exists that any monetary
instrument or property is in any way related to an unlawful A: No, the bank did not violate any law. The bank being
activity. specified as a "covered institution" under the AntiMoney
Laundering Law, is obliged to report to the AMLC covered and
Note: The freeze order shall be for a period of 20 days unless suspicious transactions, without thereby violating any law.
extended by the court. This is one of the exceptions to the Secrecy of Bank Deposit
Act.
BANK INQUIRY ORDER FREEZE ORDER
The AMLC is authorized to The AMLC may freeze
inquire into bank deposits or monetary instrument or
investments, regardless of property alleged to be the TRUTH IN LENDING ACT (RA 3765) (TILA)
currency but it needs a bank proceeds of unlawful activity.
inquiry order. Historical Background
Jurisdiction
Regional Trial Court Court of Appeals The Truth in Lending Law was pass to compliment the then
Issuance USURY LAW. The USURY LAW is suspended (not repealed) as
Under the recent law dated Can be issued ex parte of
June 2012, bank inquiry 1982. The Central Bank (CB) lifted the ceiling on interest rate.
order can now be issued ex
parte. Q: When is an interest considered as usurious?
Duration
N/A The freeze order shall be for A: A rate of interest is USURIOUS if it in excess of the ceiling
a period of 20 days unless set forth by the Bangko Sentral ng Pilipinas (BSP).
extended by the court.
Circular 905
Q: Does the AMLC have the authority to inquire into bank
deposits? In 1982 CB issued Circular 905 lifting the ceiling on interest
rate. There being no ceiling in interest rates then there is no
A: Notwithstanding the provisions of R.A. 1405 (The Bank usurious rate of interest.
Secrecy Law), as amended; R.A. 6426, as amended; R.A. 8791
(General Banking Law of 2000), and other laws, the AMLA Truth in Lending Law
may inquire into or examine any particular deposit or
investment with any banking institution or non-bank financial When the Truth in Lending Law was passed the Usury Law
institution upon order of any competent court in cases of was still in place. Under said law the rate of interest is
violation of AMLA when it has been established that there is usurious if the interest is more than 12% for secured loans
probable cause that the deposits or investments involved are and more than 40% for unsecured loan (no collateral, no
in any way related to an unlawful activity. mortgages).
Q: Alvin is jobless but is reputed to be a jueteng operator. Many persons were found to circumvent the usury law by
He has never been charged or convicted of any crime. He sticking to the ceiling but collecting other items not on their
maintains several bank accounts amounting to P100 Million. interest but other charges. Since they are not interest then
AMLC charged Alvin with violation of the AntiMoney they are not usurious but they jacked up the cost of credit. So
Laundering Law. Can Alvin move to dismiss the case on the this is why the Truth in Lending Law was passed to
ground that he has no criminal record? compliment the Usury Law.
A: No. The contention of Alvin is not tenable because under Purpose

AMLA, "money laundering crime" committed when the
proceeds of an "unlawful activity," like jueteng operations, Q: What is the purpose of Truth in Lending Act (TILA)?
are made to appear as having originated from legitimate
sources. A:
The money laundering crime is separate from the unlawful 1. To complement the Usury Law;
activity of being a jueteng operator, and requires no previous 2. To protect persons from a lack of awareness of the
conviction for the unlawful activity. (Sec. 3, AMLA) true cost of credit by assuring full disclosure of such

cost with a view of preventing the uninformed use of Q: What if a promissory note grants the creditor the power
credit to the detriment of the national economy. to unilaterally fix the interest rate?
Q: What are the items required to be disclosed? A: That means the promissory note does not contain a clear
statement in writing of finance charge. Such provision is
A: Prior to the consummation fo a loan transaction, the bank, illegal not only because it violates the provisions of the Civil
as creditor, is obliged to finish a client with a clear statement, Code on mutuality of contracts but also because it violates
in writing, setting forth, to the extent applicable and in the Truth in Lending Act.
accordance with the Rules and regulations prescribed by the
Monetary Board of the CB, the ff. information: Uncovered transactions
a. the cash price or delivered prie of the property or service Q: What transactions are not covered by TILA?
to be acquired
b. the amounts if any, to be credited as down payment and A: The law does not apply to transaction on cash basis but
or trade-in only where there is a credit component (Dean Divina).
c. the difference between the amounts set forth under
clauses 1 and 2 NOTE: It also does not apply to:
d. the charges, individually itemmized which are to be paid 1. Those which do not involve the payment of any
by such person in connection with the transaction but finance charges by the debtor; and
which are not incident to the extension of credit 2. Where the debtor is the one specifying a definite
e. the finance charges expressed in terms of pesos and and fixed set of credit terms such as bank deposits,
centavos insurance contracts, sale of bonds, etc.
f. the percentage charges bears to the total amount to be
financed expressed as a simple annual rate on the The TILA is also applicable only to a creditor as defined by
outstanding unpaid balance of the obligation (the unpaid law, a person engaged in the business of extending credit.
interest on the outstanding obligation)
Q: You want to buy a DVD component. You went to SM
Illustration: A wants to purchase a car on installment basis. Appliance Center. You got it and you got your credit card
The cost of the car is 3M. He made a down payment of P1M. from your wallet, and then presented it to the sales lady.
The balance (P2M) is covered by a promissory note payable The sales lady swiped it into the machine. After 1 month you
over 60 mos. (5 yrs to pay). The truth in lending law requires got a billing statement from your card company. It turns out
the creditor (the car company) to disclose to the borrower that you have a revolving credit with the card company. You
(the buyer to the car) the ff information: are allowed to pay 36 months with the card company 0
interests for 36 mos. So you are not forced to pay affront.
1. Cost Price/Delivery Price - How much is the cost or You will pay on installment basis for 36 mos. 0 interest.
value of the delivery of the car? P3M Billing statement comes; it says 12% interest on the invoice
2. Amount of Down Payment P1M; OR Trade In (if charges and other fees or charges that the card company
the borrower wants to trade his old car in exchange may determine from time to time. Did SM Appliance
for a new car then the trade in value has to be Center Violated that Truth in Lend Law?
indicated in the document)
3. The Difference bet. 1 and 2 A: No because the transaction between SM and the card
4. Charges not incident to the credit which must be holder is on cash basis. The installment basis is between the
itemized. card holder and the card company. If there is anyone
required to comply with the Truth in Lending Law it is the
Examples: handling fee, service fee, registration fee, card company. The truth in lending law does not apply when
there is no credit component in the transaction. It does not
5. The total amount apply when the transaction is payable in cash.
Example: If the car has a value of 3M and down Effect of non-compliance

payment is 1M, how much is the amount to be
financed? 2M. It is payable in 5 years, then 2M plus Q: What are the effects of non-compliance?
interest over 5 years. It has to be indicated.
A:
6. Finance charges (interest) 1. Charges not disclosed need not be paid and
Example: compounded monthly, in 2. If paid can be recovered
arrears/discounted, collectible quarterly/annually

3. Unenforceability and declaration of nullity are not Q: Who can file the action to recover?
the consequences of non-compliance with the Truth
in Lending Act. A: The action to recover the penalty may be instituted by the
4. The offender is liable to pay a penalty for an amount aggrieved private person separately and independently from
equal to twice the finance charge required by such the criminal case for the same offense (UCPB v. Sps. Beluso,
creditor but not exceed P2,000 on any credit 530 SCRA 567, 2007).
transaction. The action to recover the penalty should
be brought within 1 year from the date of the
occurrence of the violation.
5. In case of willful violation of the law, the offender PHILIPPINE DEPOSIT INSURANCE CORPORATION
shall be liable to pay a fine or imprisonment or both (R.A. 3591 as amended by RA 9302)
at the option of the court.
Basic Policy
Q: What if the borrower is not duly informed of the data
required by RA 3765 prior to the consummation of the Q: What is the basic policy for the creation of PDIC?
availment or drawdown?
A: Promote and safeguard the interest of the depositing
A: The lender will have no right to collect such charge or public by way of providing permanent and continuing
increases thereof, even if stipulated in the promissory note. insurance coverage on all insure deposits.
However, such failure will not affect the validity or
enforceability of any contract or transaction (Development Insured deposit
Bank of the Philippines v. Arcilla, Jr., 462 SCRA 599, 2005).
Q: What is an insured deposit?
ON THE TRANSACTION ON THE CREDITOR
Failure to disclose to any person any information in violation of A: Insured deposit means the amount due to any bona fide
TILA or any regulation issued. depositor for legitimate deposits in an insured bank net of
(Sec. 6 [a]) any obligation of the depositor to the insured bank as of the
Charges not itemized cannot be Liable in the amount of P100 or
date of closure, but not to exceed P500,000.00. Such net
collected. If already paid, can be in an amount equal to twice the
amount shall be determined according to such regulations as
recovered finance charged required by
such creditor, whichever is the the Board of Directors may prescribe. (As amended by Sec. 3,
greater, however, such liability R.A. 9576)
shall not exceed P2,000 on any
credit transaction. Liability to depositors
Willful violation of any provision of TILA or any regulation issued.
Except as provided in subsection Shall be liable to a fine of not Q: Where does PDIC get the premiums?
(a), nothing shall affect the less than P1,000 or more than
validity or enforceability of any P5,000 or imprisonment for not A: It collects premiums from the banks. Not from the
contract or transactions. less than 6 months, nor more
depositors/client. It is based on a certain percentage of the
than one year or both.
total deposits, - 1%. Every year PDIC collects premium from
the bank to insure their deposits dependent on the amount
Q: What is the penalty for violation of law?
of the all the deposits. If the bank collapses, then you can file
your claim with PDIC. This is the concept of PDIC. It ensures
A: The penalty for violation of the law is P100.00 or an
your deposit even without you paying the premium (which is
amount equal to twice the finance charge required by such
paid by the bank).
creditor in connection with such transaction, whichever is
greater, except that such liability shall not exceed P2,000 on
Q: When is the PDIC liable?
any credit transaction.
A: PDIC can only be liable if the insured bank actually receives
Q: When must an action for violation of the Truth in Lending
deposit and the bank is ordered to be closed by the BSP.
Act be brought?
Q: What are the CONDITIONS to make PDIC liable?
A: Within 1 year from the date of the occurrence of the
violation.
A:
1. The bank must have receive deposits
NOTE: As the penalty depends on the finance charge required
2. The bank became insolvent or closed because of
of the borrower, the borrowers cause of action would only
insolvency. If the bank is operating in good condition
accrue when such finance charge is required.

you dont go to PDIC. You go to the bank to get back
your money. 1. Trust Fund
2. Money Market Placement - here you buy securities
Q: What are the requisites in order for the deposits be from the bank there is no creditor debtor
covered by the insurance? relationship)
A: Q: What is a trust fund?
1. The unpaid balance of money or its equivalent A: Funds held by an insured bank in a fiduciary capacity and
received by a bank in the usual course of business include, without being limited to, funds as trustee, executor,
and for which it has given of is obliged to give credit administrator, guardian or agent.
to a commercial, checking, savings, time or thrift
account Q: Why is Trust Fund not included?
2. Must give rise to creditor-debtor relationship
between the bank and the depositor A: Because what are covered by the PDIC are only deposits,
funds deposited with the bank giving rise to a creditor debtor
Q: What is the rule in case of deposits in a branch of relationship. So if there is no creditor-debtor relationship
domestic bank outside the Philippines? then that is not insured with PDIC.
A: Deposits in a branch of domestic bank outside the Extent of liability

Philippines shall not be covered unless the insured elects to
include the same for insurance subject to approval of the Q: What is the extent of PDICs liability?
PDIC.
A: The amount due to any depositor for deposits in an
Commencement of liability insured bank net of any obligation of the depositor to the
insured bank as of the date of the closure, but not exceed
Q: When will the liability by the PDIC to pay insured P500,000.00 per depositor.
deposits commence?
A: PDIC shall commence the determination of insured Determination of the insured deposits
deposits due to the depositors of the closed bank upon its
actual take-over of the closed bank. Q: When and how shall PDIC commence the determination
of insured deposits?
Deposit accounts covered
A: PDIC shall commence the determination of insured
The following accounts are COVERED by PDIC: deposits due the depositors of a closed bank upon its actual
1. Savings take-over of the closed bank. PDIC shall give notice to the
2. Current/Checking Account (these are the same) depositors of the closed bank of the insured deposits due
3. Dollar Deposits the new law made it clear Dollar them by whatever means deemed appropriated by the Board
Deposits are covered. You have to convert the same of Directors. PDIC shall publish the notice once a week for at
to Philippine Currency at the time of closure of the least 3 consecutive weeks in a newspaper of general
Bank. circulation or, when appropriate, in a newspaper circulated in
the community or communities where the closed bank or its
Q: Are the deposits in foreign currency covered by the branches are located.
insurance?
Calculation of liability
A: Deposit obligations in foreign currency of any insured bank
are likewise insured. Per depositor, per capacity rule
NOTE: Foreign currency deposits are covered under the Q: What are the types of deposits covered?
provisions of RA 3591, as amended, and insurance payment
shall be in the same currency in which the insured deposits A: Demand, savings, and time deposits. If the depositor has
are denominated. all three types of accounts with the same bank, he can only
recover up to P500,000.00. He is considered as one depositor.
Accounts not covered
Q: Is the liabiity of PDI on a per bank or per branch basis?
Accounts NOT Covered by PDIC:

A: Per bank basis. to insured deposit of such depositor, subject to
submission of proof of claims
Q: How o you determine the amount due to a depositor?
Effect of payment of insured deposits
A: In determining such amount due to any depositor, there
shall be added together all deposits in the bank maintained in Q: What is the effect of payment of the insured deposits?
the same right and capacity for his benefit either in his own
name and the name of the others. A:
Joint accounts 1. PDIC is discharged from any further liability to the

depositor
Rules: 2. PDIC, upon the payment of any depositor, shall be
subrogated to all the rights of the depositor against
1. Deduct any loan of the depositor from the deposit the closed bank to the extent of such payment.
with the insured bank to determine net insured Subrogation shall include the right on the part of
deposit PDIC to receive the same dividends from the
2. Individually owned deposit account is insured proceeds of the assets of such closed bank and
separately from joint accounts regardless of whether recoveries on account of stockholders equity as
the conjunction and, or, and/or is issued. In would have been payable to the depositor on a claim
determining such amount due to any depositor, for the insured deposit but such depositor shall
there shall be added together all deposits in the retain his claim by any uninsured portion of his
bank maintained in the same right and capacity for deposit.
his benefit either in his own name and the name of
the others. Q: Are the insured deposits paid by PDIC considered as
3. If the account is held jointly by two or more natural preferred credits against the closed bank?
persons, or by 2 or more juridical persons or entities,
the maximum insured deposit shall be divided into A: Yes. All the payments made by PDIC of insured deposits in
as many equal shares as there are individuals, closed banks partake of the nature of public funds, and as
juridical persons or entities, unless a different such, must be considered a preferred credit similar to taxes
sharing is stipulated in the document of deposit; due to the National Government in the order of preference
4. If the account is held by a juridical person jointly under Article 2244 of the New Civil Code.
with a natural person, the maximum shall be
presumed to belong entirely to such juridical person Q: What is the period by which PDIC shall settle a claim of
or entity. the insured depositor?
5. The aggregate of the interests of each coowner over
several joint accounts, whether owned by the same A: PDIC has 6 months from the date of filing of claim for
or different combinations of individuals, juridical insured deposit.
persons or entities, shall likewise be subject to the
maximum insured deposit of P500,000.00. Q: What is the effect of failure to settle a claim of insured of
insured depositor within the 6-month period?
Illustration:
A:
1. A has P400k deposit- can recover P400k
2. A has P200k deposit in 3 branches- only P500k GR: Failure to settle the claim within 6 months, where such
3. A has P200k deposit in 3 branches of ABC and failure was due to grave abuse of discretion, gross negligence,
another P200k deposit in 3 branches of XYZ- P500k bad faith, or malice, shall, upon conviction, subject the
on each bank directors, officers or employees of PDIC responsible for the
4. A and/or B P600k deposit- P300k each delay, to imprisonment from 6 months to one year.
Mode of payment XPN: The period shall not apply if the validity of the claim
requires the resolution of issues of facts and or law by
Q: What are the modes of payment? another office, body or agency.
A: Failure of depositor to claim insured deposits

1. Cash
2. Making available to each depositor a transferred Q: What is the period within which a depositor of insured
deposit in another insured bank in an amount equal deposits may file his claim?

private party, the insured bank, or any shareholder of the
A: 2 years from the closure of the bank by the Central Bank. insured bank.
Q: What is the effect of failure of depositor to claim insured XPN: The Supreme Court may issue a restraining order or
deposits? injunction when the matter is of extreme urgency involving
constitutional issue, such that unless a temporary restraining
A: Unless otherwise waived by the PDIC, if the depositor in order is issued, grave injustice and irreparable injury will
the closed bank shall fail to claim his insured deposit with arise.
PDIC within 2 years from actual take-over of the closed bank
by the receiver or does not enforce his claim filed with the PDIC may reduce interest on deposit
PDIC within 2 years after the 2-year period to file a claim, all
rights of the depositor against the PDIC with respect to the Q: Does PDIC have the power to reduce interest on deposit?
insured deposit shall be barred; however, all rights of the
depositor against the closed bank and its shareholders or the A: PDIC law now empowers the PDIC to reduce the interest
receivership estate to which the PDIC may have become rate on any deposit made within 6 months prior to closure. So
subrogated shall thereupon revert to the depositor. if you are induced by the offer of the bank of its high
interest rate, think twice because all of these banks have
Q: When may the PDIC examine banks and deposit closed in the past and PDIC , any way, has the power to
accounts? reduce the interest rate to a reasonable level.
A: The PDIC may conduct examination of banks with prior

approval of the MB provided that no examination can be
conducted within 12 months from the last examination date;
provided, however that PDIC may, in coordination with BSP WAREHOUSE RECEIPTS LAW
conduct a special examination if there is a threatened or
impending closure of a bank. Q: What is a warehouse receipt?
Prohibiting against splitting of deposits A: A warehouse receipt is both an acknowledgment receipt

and a bilateral contract between a warehouseman and a
Q: When does splitting of deposits occur? depositor.
A: Whenever a depositors deposit account exceeds Q: When does Warehouse Receipts Law apply?
P500,000.00 is broken down and transferred into 2 or more
accounts in the name/s of natural or juridical persons who A: This law only applies if the receipt is issued by a
have no beneficial ownership on transferred deposits within warehouseman as defined by law.
120 days immediately preceding or during a bankdeclared
bank holiday, or immediately preceding a closure order by Nature and Functions
the Monetary Board of the BSP for the purpose of availing of
the maximum deposit insurance coverage. Q: What is the nature of a warehouse receipt?
Q: What is he penalty for splitting of deposits? A:

1. It is a written acknowledgment by the
A: The penalty of prison mayor or a fine or not less than warehouseman that he has received and holds
P50,000.00 but not more than P2,000,000.00 or both, at the certain goods therein described in his warehouse for
discretion of the court. the person to whom the document is issued.
2. Receipts not issued by a warehouseman are not
Prohibition against issuance of TRO warehouse receipts although in the form of
warehouse receipts. This transaction will not be
Q: What is rule regarding issuances of TROs, etc. against governed by the warehouse receipts law but by the
PDIC for acts under R.A. 3591, as amended? law on deposit
3. A warehouse receipt is not a negotiable instrument
A: within the meaning of the Negotiable Instruments
Law even though the warehouse receipt, as a
GR: No court, except the CA, shall issue any TRO, preliminary document of title, may be negotiable
injunction or preliminary mandatory injunction against PDIC
for any action under R.A. 3591, as amended. Such prohibition Q: What are the 2-fold functions of the warehouse receipt?
applies in all cases disputes or controversies instituted by a

A:
1. A contract Q: Who may issue warehouse receipt?
2. A receipt
A:
Q: Distinguish Warehouse Receipts Law from the 1. A warehouseman, whether public or private, bonded
Documents of Title under the Civil Code. or not. (Sec. 1)
2. A person authorized by a warehouseman.
A:
Q: if X is warehouseman and he issued a warehouse receipt,
WAREHOUSE RECEIPTS LAW DOCUMENTS OF TITLE what does that mean?
UNDER THE CIVIL CODE
Warehouse receipts issued Other receipts of documents A:
by warehouses, whether issued in bailment contracts
public or private, bonded or other than warehouse 1. It means that the warehouseman acknowledges the
not receipts (Civil Code receipt of the goods,
1
15071520) 2. And it is bilateral contract in the sense that the
warehouseman has the obligation to safekeep and
Q: Who is a warehouse man? preserve the goods of the goods in his possession
using due diligence of a good family, pending the
A: A person, natural or juridical, lawfully engaged in the delivery to the depositor or any person entitled to
business of storing of goods for profit. (Sec. 58, WRL) possession and he has the right to be paid storage
charges as stipulated in the document.
Q: What are the rights of a warehouseman?
Q: What is the form of a warehouse receipt and what are its
A: essential terms?
1. He has to be paid storage charges and other fees as
may be stipulated in the warehouse receipt. If he is A: It need not be in particular form but must embody within
not paid the storage charges, he may withhold its written or printed terms:
delivery of the goods in his possession; OR
2. When there is an offer pay the lien or the charges 1. The location of the warehouse
but the claimant/depositor doesnt want surrender 2. The date of the issue
the receipt, then the warehouseman cannot be 3. The consecutive number of the receipt
compelled to deliver; OR 4. A statement whether the goods received will be
3. If the depositor/claimant doesnt want to delivered to bearer, to a specified person or to a
acknowledge the receipt of goods, then the specified person or his order
warehouseman cannot be compelled to deliver. 5. Fees
6. description of the goods
Q: What are the basic conditions before a warehouseman 7. The signature of the warehouseman
can be compelled to deliver? 8. If the receipt is issued for goods of which the
warehouseman is the owner, either solely or jointly
A: or in common with others, the fact of such
ownership; and
1. The lien must be paid. This is compose of storage 9. A statement of the amount of advances made and of
charges and other fees. liabilities incurred for which the warehouseman
2. The receipt must be surrendered or returned to the claims a lien. (Sec. 2)
warehouseman
3. The claimant/depositor must acknowledge the Q: What are the effects of omission of any of the essential
receipt of the goods terms?
Q: What is a warehouse? A:
1. A warehouseman shall be liable to any person
A: The building or place where goods are deposited and injured thereby for all damages caused by the
stored for profit. omission
2. Validity of receipt not affected
1 3. Negotiability of receipts not affected
Article 1507 A document of title in which it is stated that the goods referred
to therein will be delivered to the bearer, or to the order of any person 4. Contract is converted to ordinary deposit.
named in such document is a negotiable document of title. (n)

Q: What is the effect when the goods deposited are negotiated warehouse receipt, the latter has the
incorrectly described? better right
6. The rights of the assignee of a non-negotiable
A: It does not make the receipt ineffective when the identity warehouse receipt may be defeated by the
of the goods is fully established by evidence. Thus, the judgment creditor of the depositor or the unpaid
indorsement and delivery shall constitute sufficient transfer seller of the goods deposited pending notice to the
of the title of the goods. warehouseman of the assignment or transfer
7. If the goods were stolen from the owner and
GR: Warehouseman shall be liable for damages for deposited to the warehouseman who subsequently
nonexistence or misdescription of goods at the time of its issued a warehouse receipt which in turn was duly
issue. negotiated to an innocent purchaser for value, the
owner has the better right than the holder of the
XPN: When the goods are described based on: negotiable warehouse receipt. This is because a thief
transfers no title.
1. Series or labels upon them 8. If the goods were deposited by the owner for which
2. Statement that the goods are of certain kind. the warehouseman issued a negotiable warehouse
receipt but the receipt was negotiated in bad faith,
Q: What terms may and may not be inserted? the holder of such negotiable warehouse receipt has
a better right against owner because the validity of
A: A warehouseman may insert in a receipt issued by him any the negotiation is not impaired by the fact that such
other terms and conditions provided that such terms and negotiation was a breach of duty on the part of the
conditions shall not be: person making the negotiation provided the holder
has no notice of the breach of duty or fraud, mistake
1. Contrary to the Warehouse Receipts Law. (Sec. 3) or duress.
2. Terms reducing the required diligence of the 9. The negotiation of the warehouse receipt by the
warehouseman. buyer of goods from and deposited to the
3. Contrary to law, morals, good customs, public order warehouse is valid even if the warehouseman who
or public policy. issued a negotiable receipt was not paid by the
4. Those exempting the warehouseman from liability buyer.
for misdelivery or for not giving statutory notice in
case of sale of goods. KINDS OF WAREHOUSE RECEIPTS
5. Those exempting the warehouseman from liability
for negligence. Q: What are the kinds of warehouse receipts?
To whom delivered A:
1. Negotiable warehouse receipt- is a receipt in which
Q: To whom is the warehouse receipt delivered? it is stated that the goods received will be delivered
to the bearer or to the order of any person named in
A: such receipt.
2. Non-negotiable warehouse receipts- a receipt in
In general which it is stated that the goods received will be
delivered to the depositor or to any other specified
1. To the person lawfully entitled to the possession of person.
the goods or his agent
2. The person entitled to the delivery under a non- Negotiable warehouse Non-negotiable warehouse
negotiable receipt receipt receipt
3. Person in possession of a duly negotiated warehouse May be acquired through May be acquired through
receipt negotiation transfer or assignment
Rights of the holder of the Rights of transferee:
receipt:
Specific situations
1. If indorsed: 1. Acquires title to the
4. Between a judgment creditor and holder of a duly goods subject to the terms
negotiated warehouse receipt, the latter has the a. Acquires title to the goods of any agreement with the
better right as the person negotiating. transferor. (Sec. 42)
5. Between the unpaid seller of the goods deposited to (Sec. 41) 2. Acquires the right to
the warehouseman and the holder of a duly b. Acquires the direct notify the warehouseman of

obligation of the the transfer and thereby 2. The holder of the negotiable warehouse receipt are
warehouseman to hold acquires the direct not subject to the unpaid vendors lien.
possession of the goods for obligation of the 3. The holder of the negotiable warehouse receipt
him as if the warehouseman warehouseman to hold acquires the direct obligation of the warehouseman
directly contracted with him. possession of the goods for to hold the goods in his favor with or without notice
(Ibid.) him. (Sec. 42) of the negotiation.
2. If not indorsed: He may NOTE: Prior to notice, the Q: What is required in a nonnegotiable receipt?
compel indorsement; title of the transferee may be
otherwise, he would acquire defeated by the levy of an A: It shall have plainly placed upon its face by the
title as that of an assignee attachment or execution warehouseman issuing it nonnegotiable, or not
(Section 43). upon the goods by a creditor negotiable. (Sec. 7)
of the transferor or by a
notification to the NOTE: Failure to mark nonnegotiable shall make it
warehouseman by the negotiable (if the holder purchased it for value supposing it to
transferor or a subsequent be negotiable).
purchaser from the
transferor of a subsequent Q: How is it transferred?
sale of the goods by the
transferor. (Sec. 42) A: A nonnegotiable warehouse receipt may be transferred by
Defeats the lien of the seller Acquires the title as that of its delivery to the transferee accompanied by a deed of
of the goods covered his transferor. assignment, donation or other form of transfer.
thereby.
Good covered cannot be Pending notification to the Q: What is the effect of indorsement?
garnished, attached or levied warehouseman, goods can
on execution by execution, be. A: Even if the receipt is indorsed, the transferee acquires no
unless: additional right (Sec. 39)
1. Receipt is Reason: Absent such notice,
surrendered. both the warehouseman and Q: Distinguish between negotiable instrument and
2. Its negotiation is the sheriff have a right to negotiable warehouse receipts.
enjoined by the assume that the goods are
court. still owned by the person A:
3. The goods are whose name appears in the
impounded by receipt. NEGOTIABLE INSTRUMENT NEGOTIABLE WAREHOUSE
the court. (Sec. RECEIPT
25) The obligation is to pay In a warehouse receipt, the
money while in a warehouse endorsers or immediate
Note: This shall not apply if receipt, the obligation is to parties are not liable for any
the person depositing is not deliver goods. failure on the part of the
the owner of the goods or warehouseman or previous
one who has no right to endorsers of the receipt to
convey title to the goods fulfill their obligations.
binding upon the owner. The general endorsers The endorsers of a
Protects the purchaser in The assignee only steps into warrant that the instrument, negotiable warehouse
good faith and for value. the shoes of the assignor. after due presentment, shall receipt may however be held
be paid and in that case of liable for breach of
Q: What are the advantages of a negotiable warehouse dishonor and notice of warranties, such as:
receipt? dishonor is duly given, the 1. The receipt is
endorser shall pay the holder genuine and in
1. The goods while in the possession of the respects what it
warehouseman cannot be garnished or levied on purports to be;
execution 2. They have legal title
UNLESS: to the instrument;
a. the receipt is surrendered or 3. The goods are fit for
b. the negotiation is enjoined, or consumption and
c. the receipt is impounded by order of court merchantable;
4. They are not aware

of any information A:
that would render 1. The holder of a negotiable receipt acquires:
the instrument a. Such title to the goods as the depositor or the
valueless or person negotiating had or had ability to convey
worthless to a purchaser in good faith for value;
b. The direct obligation of the warehouseman to
Q: Who may negotiate? hold possession of the goods for him according
to the terms of the receipt as if the
A: warehouseman had contracted directly with him
1. The owner thereof; 2. The goods covered by the receipt cannot be
2. Any person to whom the possession or custody of garnished or levied upon under execution unless the
the receipt has been entrusted by the owner, if, by receipt is surrendered, or impounded or its
the terms of the receipt, the goods are deliverable to negotiation enjoined.
the order of the person to whom the possession or 3. The goods that the receipt covers are not subject to
custody of receipt has been entrusted or in such a sellers lien or stoppage in transit.
form that it may be negotiated by delivery. (Sec. 40)
RIGHTS OF A TRANSFEREE OF A NON-NEGOTIABLE
Q: What happens if the indorsement is necessary but the WAREHOUSE RECEIPT
negotiable receipt was only delivered?
Q: What are the rights of a holder of a negotiable
A: warehouse receipt?
1. The transferee acquires title against the transferor A:

2. There is no direct obligation of the warehouseman; 1. The title to the goods as against the transferor
and 2. The right to notify the warehouseman of the transfer
3. The transferee can compel the transferor to thereof
complete the negotiation by indorsing the 3. The right, thereafter, to acquire the obligation of the
instrument. Negotiation takes effect as of the time warehouseman to hold the goods for him
when the indorsement is actually made. 4. The right of the transferee is not absolute as it is
subject to the terms if any agreement with the
Q: In case the signature of an owner of a negotiable receipt transferor. He merely steps into the shoes of the
was forged and the forger who now holds the negotiable transferor.
receipt was able to withdraw the goods from the
warehouseman. What are the rights of the owner of the Q: Coco was issued by a warehouseman a negotiable receipt
negotiable receipt? for safekeeping by the latter of his goods. Can the judgment
creditor of Coco levy by execution the goods covered by the
A: If under the terms of the negotiable warehouse receipt, negotiable receipt?
the goods are deliverable to the depositor or to his order, the
owner of the said negotiable receipt may proceed against the A: The goods cannot, while in the possession of the
warehouseman and/or the holder. Without the valid warehouseman, be attached by garnishment or otherwise, or
indorsement of the owner to the holder or in blank, the be levied upon under an execution unless the receipt be first
warehouseman is liable to the owner for conversion in the surrendered to the warehouseman, or its negotiation
misdelivery. If, however, by the terms of the negotiable enjoined. The warehouseman cannot be compelled to deliver
warehouse receipt, the goods are deliverable to bearer the actual possession of the goods until the receipt is
(either because it is so expressed in the warehouse receipt or surrendered to it or impounded by the court.
because of a blank indorsement by a person to whose order
the goods are deliverable) the owner may only proceed Q: Assuming that prior to the levy, the receipt was sold to
against the holder. The warehouseman is not liable for Yoyo on the basis of which he filed a claim with the sheriff.
conversion where the goods are delivered to a person in Would Yoyo have better rights to the goods than the
possession of a bearer negotiable instrument. creditor? Explain your answer.
RIGHTS OF A HOLDER OF A NEGOTIABLE WAREHOUSE A: Yes. Yoyo, as a holder for value of the receipt, has a better
RECEIPT right to the goods than the creditor. It is Yoyo that can
surrender the receipt which is in its possession and can
Q: What are the rights of a holder of a negotiable comply with the other requirements which will oblige the
warehouse receipt? warehouseman to deliver the goods, namely, to sign a receipt

for the delivery of the goods, and to pay the warehouseman's 1. To take care of the goods entrusted to his
liens and fees and other charges. (1999 Bar Question) safekeeping with the same care as reasonably
careful owner of similar goods would exercise
Q: Bon took the goods of Angela without her consent and 2. To deliver the goods to the holder of the receipt or
deposited the same with a warehouseman. The latter issued the deposit provided the following conditions are
to Bon a negotiable receipt which she indorsed for value to fulfilled.
Ryan. Between Angela and Ryan, who has better right over a. Offer to satisfy the warehousemans lien
the goods? Why? b. Offer to surrender the receipt, if negotiable with
such indorsements as would be necessary for
A: Ryan has better right to the goods. The goods are covered the negotiation of the receipt
by a negotiable warehouse receipt which was indorsed to c. Readiness and willingness to sign when the
Ryan for value. The negotiation to Ryan was not impaired by goods are delivered acknowledgement that they
the fact that Bon took the goods without the consent of have received
Angela, as Ryan had no notice of such fact. Moreover, Ryan is
in possession of the warehouse receipt and only he can NOTE: The refusal of the warehouseman who previously
surrender it to the warehouseman. (Sec. 8, WRL) owned goods stored with it to deliver the goods to the
endorsee of the receipt on the ground that the goods had not
Q: What is the proper recourse of the warehouseman if he is been paid by the buyer is unlawful.
uncertain as to who is entitled to the goods? Explain.
The warehouseman has no cause of action for repossession
A: Since there is a conflicting claim of ownership or title, the and damages against a person to whom it delivered
warehouseman should file a complaint in interpleader deposited articles on the basis of an alleged falsified the
requiring Ryan and Angela to interplead. The matter involves delivery permit where the real parties interested in the
a judicial question as to whose claim is valid. questioned articles have not yet sued the warehouseman for
damages on account of wrongful delivery.
Q: What is the rule where a warehouse receipt is transferred
to secure payment of a loan by way of pledge or mortgage? Q: What if the receipts are lost or destroyed?
A: The pledgee or mortgagee does not automatically become A: A court of competent jurisdiction may order the delivery of
the owner of the goods but merely retains the right to keep the goods only:
and with the consent of the owner to sell them so as to
satisfy the obligation from the proceeds for the simple reason a. Upon satisfactory proof of the loss or destruction of
that the transaction is not a sale but only a mortgage or the receipt; and
pledge. Likewise, if the property is lost without the fault or b. Upon the giving of a bond with sufficient sureties to
negligence of the mortgagee or pledgee, then said goods are be approved by the court. (Sec. 14)
to be regarded as lost on account of the real owner,
mortgagor or pledgor. NOTE: The delivery of the goods under an order of the court
shall not relieve the warehouseman from liability to a person
Q: Does the nonpayment by the original depositors of the to whom the negotiable receipt has been or shall be
purchase price render the further negotiation of the receipt negotiated for value without notice of the proceedings or of
invalid? the delivery of the goods. (Sec. 14)
A: No, the negotiation of the warehouse receipt by the buyer Q: When does the duty to insure the goods arise?
of goods purchased from and deposited to the
warehouseman is valid even if the warehouseman who issued A:
the negotiable warehouse receipt was not paid by the buyer.
The validity of the negotiation cannot be impaired by the fact 1. Where the law provides
that the owner/warehouseman was deprived of the 2. Where it was an inducement for the depositor to
possession of the same by fraud, mistake or conversion. enter into the contract;
3. Established practice; or
DUTIES OF WAREHOUSEMAN 4. Where the warehouse receipt contains a
representation to that effect.
Q: What are the duties of warehouseman?
Q: What is conversion?
A:
A: An unathorized assumption and exercise of the right of
ownership over goods belonging to another through the

alteration of their condition or the exclusion of the owners 7. Issuance of warehouse receipts for good not
right. received. (Sec. 50)
8. Commingling of goods. (Sec. 24)
Q: What are the instances where a warehouseman is liable
for conversion? Q: What are the other acts for which warehouseman is
liable?
A:
A:
1. Where the delivery is made to person other than 1. Failure to stamp duplicate on copies of negotiable
those authorized receipt. (Sec.6)
2. Even if delivered to persons entitled, he may still be 2. Failure to place nonnegotiable or
liable for conversion if prior to delivery: notnegotiable on a nonnegotiable receipt. (Sec.
a. He had been requested not to make such 7)
delivery; or 3. Misdelivery of goods.(Sec. 10)
b. He had received notice of the adverse claim or 4. Failure to effect cancellation of a negotiable receipt
title of a third person. upon delivery of the goods. (Sec. 11)
5. Issuing receipt for nonexisting goods or
Q: Give the effects of alteration of the receipt on the liability misdescribed goods. (Sec.20)
of the warehouseman. 6. Failure to take care of the goods. (Sec. 21)
7. Failure to give notice in case of sale of goods to
A: satisfy lien (Sec. 33) or because the goods are
perishable or hazardous. (Sec. 34)
1. Alteration immaterial whether fraudulent or not,
whether authorized or not, the warehouseman is WAREHOUSEMANS LIEN
liable on the altered receipt according to its original
tenor Q: What is the rule when more than one negotiable receipt
2. Authorized material alteration the warehouseman is issued for the same goods?
is liable according to the terms of the receipt as
altered A: A warehouseman shall be liable for all damages caused by
3. Material alteration innocently made the his failure to do so to anyone who purchased the subsequent
warehouseman is liable on the altered receipt receipt for value supposing it to be an original, even though
according to its original receipt the purchase be after the delivery of the goods by the
4. Material alteration fraudulently made warehouseman to the holder of the original receipt (Sec. 6).
warehouseman is liable according to the original
tenor of the receipt to a purchaser of the receipt for Q: What is the warehousemans lien?
value without notice, and even to the alterer and
subsequent purchasers with notice except that as A: The warehousemans lien over the goods deposited with
regards to the last two, the warehousemans liability him is his security, just like a pledge mortgage for the
is limited only to delivery as he is excused from any payment of the charges for the storage and preservation of
liability. the goods, money advanced and other expenses in relation to
such goods.
Q: What are the instances where a warehouseman is
criminally liable for his acts? Q: What are the remedies available to the warehouseman
to enforce his lien?
A:
A:
1. Issuance of receipts for goods not received. (Sec. 50) 1. Refuse to deliver the goods until his lien is satisfied
2. Issuance of receipt containing false statement. (Sec. 2. To sell the goods and apply the proceeds to the
51) value of the lien
3. Issuance of duplicate negotiable warehouse receipt 3. By other means allowed by law to a creditor against
not marked as such. (Sec. 52) his debtor for the collection from the depositor of all
4. Issuance of a negotiable warehouse receipt of which charges and advances which the debtor contracted
he is an owner without stating such fact of with the warehouseman; or
ownership. (Sec. 53) 4. Such remedies allowed by law for the enforcement
5. Delivery of goods without obtaining negotiable of a lien against personal property.
warehouse receipt. (Sec. 54)
6. Negotiation of receipt for mortgaged goods. (Sec. 5) Q: What is the rule in case of the lien of the warehouse?

Must be registered, otherwise, it is not valid against third
A: A warehousemans lien should in no event go beyond the persons although binding between the parties
value of the credit in favor of the pledge. Real right and real property by itself
Q: Where will the warehousemans fees and charges cease Q: What else are deemed included in a mortgage of real
to accrue? property?
A: A warehouseman fees and charges cease to accrue from A:

the date of the rejection by the warehouseman to heed the
lawful demand by the endorsee if the quedan for the release 1. New plantings;
of the goods. 2. Fruits, except those collected before the obligation
falls due, and those removed and stored when it falls
due;
3. Accrued and unpaid rents as well as those which
REAL ESTATE MORTGAGE LAW should have to be paid while certain credits remains
wholly unsatisfied;
Q: What is the essence a contract of mortgage? 4. Buildings, machinery and accessories belonging to
the mortgage debtor
A: Its essence is that a property has been identified or set 5. All objects permanently attached to a mortgaged
apart from the mass of property of the debtor as security for land or building although they may have been placed
the fulfillment of his obligation, in case of default of payment. there after the execution of the mortgage are also
included;
NOTE: In this contract, as a general rule, the debtor retains 6. A more costly building erected in place of the
possession of the property mortgaged as a security for the mortgaged building which was torn down by the
payment of the sum barrowed from the creditor because by debtor unless the mortgaged estate passes to the
mortgage, the debtor merely subjects the property to a lien hands of a third person, the mortgage does not
but ownership thereof is not parted with. extend to any machinery, object or construction
which he may have brought or placed there and
It is not however essential that the property mortgaged which such third person may remove whenever it is
remains in the possession of the mortgagor. Thus, the latter convenient for him to do so.
may deliver said property to the mortgagee without thereby
altering the nature of the contract. After-acquired properties
Q: What is real estate mortgage (REM)? Q: What is the effect of any stipulation in the mortgage
contract including after-acquired properties?
A: It is a contract whereby the debtor secures to the creditor
the fulfillment of a principal obligation, specially subjecting to A: It is valid. This is common and logical in cases where the
such security immovable property or real rights over properties given as collateral are perishable or subject to
immovable property which obligation shall be satisfied with inevitable wear and tear or were intended to be sold or to be
the proceeds of the sale of said property or rights in case the used but with the understanding that they shall be replaced
said obligation is not complied with at the time stipulated. with others to be thereafter acquired by the mortgagor. Its
purpose is to maintain the original value of the properties
Nature given as security.
Q: What is the nature of REM? A mortgage given to secure future advancements enables the
parties to provide continuous dealings, the nature or extent
A: It creates real right over the property, such that in of which may not be known or anticipated at the time, and
subsequent transfers by the mortgagor, the transferee must they avoid the expense and inconvenience of executing a new
respect the mortgage. security on each new transaction.
REAL ESTATE MORTGAGE Q: In such stipulation is the attachment of lien retroactive?

Consensual contract
Subject matter is real property A: The said lien attaches and vests not at the time said
Possession of the thing mortgaged remains with the debtor improvements are constructed but on the date of the
Mortgagee does not possess such right recording and registration of the deed of mortgage.
Sale may be judicial or extrajudicial

NOTE: As a rule, an action to foreclose a mortgage must be
limited to the amount mentioned in the mortgage. But the Remedies available to mortgagee upon default of the
amounts named as consideration in a contract of mortgage mortgagor
do not limit the amount for which the mortgage may stand as
security, if from the 4 corners of the instrument the intent to Q: What are the remedies available to mortgagee upon
secure future loans or advancements and other indebtedness default of the mortgagor?
can be gathered.
A:
Dragnet clause
1. He may file an action for collection to enforce
Q: What is a dragnet clause? payment of the loan secured by the REM. The filing
of an action for collection, regardless of venue,
A: It is a clause which operates as a convenience and precludes the remedy of foreclosure,
accommodation to the barrowers as it makes available 2. As an alternative remedy, the mortgage may
additional funds without their having to execute additional foreclose the mortgage. The foreclosure may be
security documents, thereby saving time, travel, loan closing done judicially or extra-judicially. Foreclsoure bars
costs, costs of extra legal services, recording fees etc. It action for collection unless it is done to recover
subsumes all debts of past or future origin. deficiency after the foreclosure sale. The only
exception is when the complaint for judicial
Q: How do you construe such clause? foreclosure is filed but the court dismissed because
the REM did not have the written conformity of the
A: It must be carefully scrutinized and strictly construed spouse but the court ordered the mortgagee to file
particularly where the mortgage contract is one of adhesion. an action for collection. The action for collection
may be sustained to prevent unjust enrichment.
NOTE: A mortgage must sufficiently describe the debt sought 3. If the loan is secured by the real estate and chattel
to be secured, and an obligation is not secured by a mortgage mortgages and the mortgagee elects to foreclose the
unless it comes fairly within the terms of the mortgage. chattel mortgage, he cannot file an action to recover
any deficiency unless he has foreclosed too the REM
But where the obligation is not a series of indeterminate and the proceeds thereof are still insufficient to
sums incurred over a period of time but 2 specific amounts satisfy the debt
procured in a single instance, what applies is the general rule 4. The filing of criminal case for violation of BP 22 by
state above that an action to foreclose a mortgage must be the mortgagee-creditor against the mortgagor will
limited to the amount mentioned in the mortgage. bar the former from exercising the remedy of
foreclosure because under the Rules of Criminal
A mortgage given to secure future advancements is a Procedure, he is deemed to have already availed
continuing security and is not discharged by the repayment of himself the remedy of collection suit.
the amount named in the mortgage, until the full amount of
the advancements is paid. It permitted the mortgagor to take Foreclosure of REM
the money as it is needed and thus avoid the necessity of
paying interest until the necessity for its use actually arises Q: What is foreclosure?
Stipulation forbidding owner from alienating immovable A: It is the remedy available to the mortgagee by which he
property subjects the mortgaged property to the satisfaction of the
obligation to secure which the mortgage was given through
Art. 2130. A stipulation forbidding the owner from the sale of the property at public auction and the application
alienating the immovable mortgaged shall be void. (n) of the proceeds thereof to the payment of his claim.
NOTE: The mortgagee can simply withhold his consent and NOTE: Foreclosure denotes the procedure adopted by the
thereby prevent the mortgagor from selling the property. Yet, mortgagee to terminate the rights of the mortgagor on the
in case of alienation of property, the transferee is bound to property and includes the sale itself.
respect the encumbrance because being a real right, the
property remains subject to the fulfillment of the obligation Q: What is the remedy of a party aggrieved by the
for whose guaranty it was constituted. foreclosure?
A: He may petition that the sale be set aside and the writ of
possession be canceled because the mortgage was not
violated or the sale was not made in accordance with the

provisions thereof. He may ask for the annulment of the Q: In what newspaper shall the notice of sale be published?
foreclosure sale on ground that:
A: It shall be published in a newspaper of general circulation
a. There was fraud, collusion, accident, mutual once a week for 3 consecutive weeks.
mistake, breach of trust or misconduct by the
purchaser; Q: What is the test to determine the sufficiency of
b. Sale had not been fairly and regularly conducted; newspaper of general circulation?
c. The price was inadequate and the inadequacy was
so great as to shock the conscience of the court. A: It should cater to the general community and not to
specific group or interest only.
Need of power of attorney
Q: When is a paper deemed a newspaper of general
Q: What is the requirement regarding the agreement circulation?
involving real estate mortgage?
A:
A: The loan or mortgage agreement should contain a special
power of attorney authorizing the mortgagee to foreclose 1. It must be published for the dissemination of local
extra-judicially (to take possession of the property and sell it news and general information;
in case of default). This SPA is the basis of the right of the 2. It must have a bona fide subscription list of paying
mortgagee to foreclose the mortgage extra-judicially. subscribers;
3. It must be published at regular intervals; and
Q: Why is special of power of attorney needed? 4. It must be available to the public in general and not
just to a select few chosen by the publisher,
A: Because an extrajudicial foreclosure may only be effected otherwise, the precise objective of publication of
if the mortgage contract covering a real estate, clause is notice of sale will not be realized;
incorporated therein giving the mortgagee the power, upon 5. It must not be devoted to the interests or published
default of the debtor to foreclose the mortgage by an for the entertainment of a particular profession,
extrajudicial sale of the mortgaged property. trade, calling, race or religion.
Procedure Need for Republication in case of postponement
Q: Where is the venue of the action? Q: When is republication required?
A: The petition for sale is not an ordinary action and is A: In case of postponement, the notice of sale must be
therefor not governed by the rules on venue. The petition/s republished once a week for 3 consecutive weeks unless the
for sale must be filed with the Office of the Clerk of Court of notice of sale contains an alternative date and the sale is
the City where the real property/ies is/are situated. subsequently conducted on such date.
Posting requirement Q: Can the publication and posting requirements be waived?
Q: Where should the notice of sale be posted? A: No, they are imbued with public policy considerations and
any waiver thereon would be inconsistent with the intent and
A: It shall be posted in a conspicious place where the sale letter or the law. It would thus be converting into a private
shall be conducted: sale what ought to be a public auction.
a. Sheriffs Office; Yet, the failure to post a notice is not per se a ground for
b. Assessors Office; and invalidating a foreclosure sale provided that the notice
c. Register of Deed thereof is duly published in a newspaper of general
circulation. The publication accordingly alone is more than
Q: What is the posting requirement be waived? sufficient compliance with the notice-posting requirement.
A: The posting requirement is jurisdictional and as such, Personal notice to the mortgagor when and when need not
cannot be waived. The certificate of posting may be waived needed
but not the actual posting itself.
Q: Is personal notice to the mortgagor of the date, time and
Publication requirement place of the sale required?

A: A: If the deficiency is embodied in the judgment, it is referred
GR: No because publication amounts to notice to the whole to as deficiency judgment. A mortgagee may recover any
world deficiency in the mortgage account which is not realized in
XPN: Personal amounts to notice to the whole worls unless the foreclosure sale and that an independent civil action for
personal notice is required by: the recovery of the deficiency may be filed even during the
1. Stipulation, in which case, it must be complied with period of redemption.
in addition to publication, otherwise, the foreclosure
is void. Q: What is the prescriptive period for the action?
Possession by purchaser of foreclosed property A: The action to recover a deficiency after foreclosure
prescribes after 10 years from the time the right of action
Q: During the period of redemption, is the mortgagee accrues.
entitled to possession as a matter of right?
The mortgagee in both real and chattel mortgages has, by
A: law, the right to claim for the deficiency resulting from the
price obtained in the sale of the property at public auction.
GR: No. During the period of redemption, the mortgagee is
not entitled to possession as a matter of right. It is NATURE OF JUDICIAL FORECLOSURE PROCEEDING
discretionary to the court and subject to bond requirement.
Q: What is the nature of judicial foreclosure proceeding?
XPN: But if the petition for writ of possession is prayed for
after the expiration of the redemption period and A: It is an action quasi in rem which is based on a personal
consolidation of title in favor of the mortgagee, the issuance claim against a specific property of the defendant. Its purpose
of the writ is ministerial duty on the part of the court and is to have the property seized and sold by court order to the
bond is not required. end that the proceeds thereof be applied to the payment of
plaintiffs claim.
Remedy in case of foreclosure
Q: What is the result of failure to pay indebtedness?
Q: If there is a balance due to the mortgagee after applying
the proceeds of the sale, is the mortgagee entitled to A: The principal obligation is the money indebtedness and the
recover the deficiency? subjection of the property is only resorted to upon the failure
to pay the debt. Thus, the money indebtedness is the
A: Yes. However, in case of extrajudicial foreclosures, Act. principal thing not the foreclosure of the property which is
3135 does not give a mortgagee the right to recover the only result or an incident of the failure to pay the debt.
deficiency after the public auction sale, neither does it
expressly or impliedly prohibit such recover. NOTE: The fact that the property mortgaged is destroyed is
not ground to reduce the indebtedness secured.
NOTE: To recover deficiency, the extrajudicial foreclosure
must be valid. Action for the foreclosure of mortgage survives after the
death of the mortgagor
Q: Why is the mortgagee entitled to recover deficiency?
Q: Does the action for the foreclosure of mortgage survive
A: In both extrajudicial and judicial foreclosures, the after the death of the mortgagor?
mortgage is but a security and not a satisfaction of the
indebtedness. It is of no importance if the buyer or highest A: Yes. It is an action which survives the death of the
bidder is the creditor himself. mortgagor because the claim against him is not a pure money
claim but an action to enforce a mortgagee lien.
NOTE: Where a third person is the mortgagor, he is not liable Consequently, the judgment rendered therein may be
for any deficiency in the absence of a contrary stipulation. enforced by a writ of execution.
The action for the recovery of such deficiency must be
directed against the debtor. Q: What is the remedy?
CONCEPT OF DEFICIENCY JUDGMENT A: It may be prosecuted against the executor or administrator

independently of the testate or intestate proceedings for the
Q: Explain the concept of deficiency judgment. settlement of the mortgagors estate.

NOTE: The value of the property has no bearing on the bid
NATURE OF POWER OF FORECLOSURE BY EXTRAJUDICIAL price at the public auction, provided that it was regularly and
SALE honestly conducted.
NOTE: The power to foreclose is not an ordinary agency that WAIVER OF SECURITY BY MORTGAGEE
contemplates exclusively the representation of the principal
by the agent but is primarily an authority conferred upon the NOTE: The ME may institute either a:
mortgagee for the latters own protection.
a. personal action for debt (he may waive the right to
Q: What is the nature of the power of foreclosure by extra- foreclose his mortgage and maintain a personal
judicial sale? action for recovery of the indebtedness) or
b. a real action to foreclose the mortgage. In either
A: It is an ancillary stipulation supported by the same cause case, he is entitled to obtain a deficiency judgment
or consideration for the mortgage and forms an essential and for whatever sum might be due after the liquidation
inseparable part of the bilateral agreement. It is proper only of the property covered by the mortgaged.
when so provided under a special power inserted in or
attached to the mortgage contract. Q: What is the nature of these remedies?
NOTE: The power to decide to foreclose or not is the A: The remedy is alternative and not cumulative or
prerogative of the mortgagee. successivemortgagee cannot have both remedies since he
has only 1 cause of action.
STIPULATION OF UPSET PRICE
Q: What are the remedies of the CR holding a real estate
Q: Is a stipulation of upset price valid? mortgage for the satisfaction of his credit in case the MR
dies?
A: A stipulation in a mortgage of real property fixing an upset
pricethe minimum price at which the property shall be A:
soldto become operative in the event of a foreclose sale at
public auction is null and void for the property must be sold 1. Waive the mortgage and claim the entire debt from
to the highest bidder. the estate of the MR as an ordinary claim;
2. Foreclose the mortgage judicially and prove any
It is debatable however if the rule will still apply where the deficiency as an ordinary claim;
purchaser happens to be the creditor or mortgagee himself. 3. Rely on the mortgage exclusively, foreclosing the
same at any time before it is barred by prescription
EFFECT OF INADEQUACY OF THE PRICE without right to file a claim for any deficiency. This is
an extrajudicial foreclosure which bars any
Q: What is the effect of the inadequacy in the price in subsequent deficiency claim against the estate of
foreclosure sale? the deceased.
A: Where there is a right to redeem, inadequacy of the price Q: Does foreclosure have retroactive effect?
is not material because the judgment debtor may reacquire
the property or else sell his right to redeem and thus recover A: A foreclosure sale retroacts to the date of the registration
any loss he claims to have suffered by reason of the price of the mortgage and that a person who takes a mortgage in
obtained at the auction sale. good faith and for valuable consideration, the record showing
clear title to the MR will be protected against equitable
Q: Is inadequacy of price sufficient to annul or set aside claims on the title in favor of third persons of which he had
foreclosure sale? no actual or constructive notice.
A: Mere inadequacy of the price will not be sufficient to NOTE: A notice of adverse claim annotated after the
annul or set aside the foreclosure sale. The property may be registration of the mortgage but before the foreclosure and
sold for less than its fair market value upon the theory that sale at public auction of the property cannot affect the rights
the lesser the price the easier for the owner of to effect the of the ME. Thus, it no longer matters that the annotation of
redemption so that the low price even works to his the sheriffs certificate of sale and the affidavit of
advantage. consolidation of ownership was made subsequent to the
annotation of the notice of lis pendens.

REDEMPTION EQUITY OF REDEMPTION
Q: What is redemption? Exercised before confirmation of sale
A: It is the transaction by which the mortgagor reacquires or Q: When can the mortgagor exercise the equity of
buys back the property which may have passed under the redemption?
mortgage or divests the property of the lien which the
mortgage may have created. A: The mortgagor must exercise his equity of redemption
before but not after the sale is confirmed by the court. It is
Q: What is the purpose of redemption? simply the right of the defendant mortgagor to extinguish the
mortgage and retain ownership of the property by paying the
A: The concept of redemption is to allow the owner to secured debt within the 90-day period after the judgment
repurchase or buy back, within a certain period and for a becomes final in accordance with Rule 68, or even after the
certain amount, a property that has been sold due to debt, foreclosure sale but prior to its confirmation.
tax, or encumbrance.
Q: What if the case is one of judicial foreclosure?
Q: What is the redemption period?
A: No equivalent right of redemption exists.
A:
NOTE: Being an incorporeal right, the value of an equity of
GR: Within one year from the registration of the sale and not redemption can neither be quantified nor equated with
from actual sale. actual value of the property nor equated with the actual
value of the property upon which it may be exercised.
XPN: If the following requisites are present, the redemption
period is 3 months from the date of the sale or registration, Acquired by second mortgagee
whichever comes earlier:
Q: Describe the right of a second mortgagee?
1. The mortgagor is a juridical person
2. The mortgagor is a bank, quasi-bank or trust entity A: A second mortgagee acquires only the equity redemption
3. The mode of foreclose is extrajudicial vested in the mortgagor, and his rights are strictly
subordinate to the superior lien of the first mortgagee.
NOTE: The one year redemption period rule still applies if the
mortgagor is a natural person and/or the mortgagee is not a Taking physical possession not necessary for levy
bank, quasi-bank or trust entity and/or the mode of foreclose
is judicial (but in the latter case, only if the mortgagee is a Q: Is taking of possession necessary for levy?
bank or a credit institution because if the mortgagee is
different, there is no right of redemption in judicial A: To levy upon the mortgagors equity of redemption, it is
foreclosure but only equity of redemption). not necessary for the sheriff to take physical possession of
the mortgaged property.
Kinds of redemption
RIGHT OF REDEMPTION
Q: What are the kinds of redemption?
Q: What is the period to exercise the right of redemption?
A:
A: The mortgagor may redeem the property at any time
1. Equity redemption right of mortgagor in case of within the term of 1 year from and after the date of the sale,
judicial foreclosure to redeem the mortgaged i.e., the date of registration of the certificate of sale with the
property after his default in the performance of the appropriate Registry of Deeds.
conditions of the mortgage but before the
confirmation of the sale of the mortgaged property. Q: Does the filing of an action by redemption to enforce his
2. Right of redemption the right of the mortgagor in right to redeem suspend the running period of the statutory
case of extra-judicial foreclosure to redeem the period to redeem the property?
mortgaged property within a certain period from
and after it was sold for the satisfaction of the A: No. It doesnt also bar the purchaser at public auction from
mortgaged debt. procuring a writ of possession after the period had lapsed,
without prejudice to the final outcome of the action to

enforce the right of redemption. It also doesnt suspend the 1. redemption eliminates from his title the lien created
period to institute an action to annul the foreclosure sale. by the levy or attachment or judgment or
registration of the mortgage thereon.
GENERAL BANKING LAW OF 2000 2. Redemption defeats the inchoate right of purchaser
and restores the property to the same condition as if
The General Banking Law of 2000 (R.A. 8791) now provides no sale had been made
that juridical mortgagors like partnerships and corporations 3. It does not give the mortgagor a new title, but
are barred from the right of redemption of mortgaged merely restores to him the title freed of the
property sold pursuant to an extrajudicial foreclosure, after encumbrance of the lien foreclosed.
the registration of the certificate of foreclosure with the 4. The exercise of the right of redemption is an implied
applicable Register of Deeds. This amendment is open to admission of the regularity of the foreclosure sale
constitutional objection of being violative of equal protection and steps the mortgagor from later impugning its
guarantee for it discriminates against corporate or juridical validity on that ground
mortgagors and the prohibition against the impairment of the
obligation of contracts. NOTE: What is actually effected where redemption is
exercised is not the recovery of the property since ownership
Also, R.A. 8791 now limits the redemption period to only 3 is never lost. Redemption is inconsistent with the claim of
months, to begin from the date of the foreclosure sale but invalidity of the sale.
not after the registration of the certificate of foreclosure sale
rd
which ever comes first. Q: What if the mortgaged property is sold to a 3 party?
rd
Q: What is the effect of failure to exercise right? A: A sale by the mortgagor to a 3 party of the mortgaged
property during the period for redemption transfers only the
A: The title to the property sold under a mortgagee right to redeem the property and the right to possess, use
foreclosure remains with the mortgagor or his grantee until and enjoy the same during the period.
the expiration of redemption period. The right of purchaser
at the foreclosure sale is merely inchoate until after the NOTE: Under Rule 39, the judgment debtor remains in
period of redemption has expired without the right being possession of the property foreclosed and sold, during the
exercised. period of redemption, but he cannot make a conveyance of
the ownership of the property as said ownership belongs to
If no redemption is made within the prescribed period, the the purchaser at the foreclosure sale.
purchaser becomes the absolute owner of the property. He
has the absolute right to a writ of possession which is the Q: What if the sale is not registered and made without
final process to carry out or consummate the extrajudicial consent of the mortgagee?
foreclosure. Henceforth, the mortgagor losses his right over
the property. A: The buyer was not validly substituted as debtor, and
hence, had no right to redeem.
Q: Is this provision regarding the one-year period to exercise
the right of redemption mandatory? Q: What is the effect of an extra-judicial foreclosure effected
with fraud?
A: It is only directory and can be extended by agreement of
the parties. A: Such is null and void ab initio. The consolidation of
ownership of the subject property to the mortgagee as the
rd
Q: What are the 2 requisites for this agreement of the highest bidder and its subsequent resale to a 3 party are
parties? also without force or effect. The mortgagor is entitled to the
equitable remedy of redemption.
A:
1. voluntary agreement of the parties to extend the CONFIRMATION BY COURT OF AUCTION SALE IN JUDICIAL
redemption period FORECLOSURE
2. debtors commitment to pay redemption price on a
fixed date. Q: What is the procedure for the equity of redemption right
of the mortgagor?
Q: What is the effect of the exercise of the right?
A:
A:
1. Pay the secured debt within the 120-day period
from the entry of judgment in accordance with Sec.

2, Rule 68 or even after the foreclosure sale but prior The formal offer to redeem is not a distinct step or condition
to its confirmation sine qua non to the filing of an action in court for the valid
2. In case of compromise agreement, parties may agree exercise of the right of legal redemption.
on the amounts to be paid, when they should be
paid, and the effects of non-payment or violation of Q: What then constitutes a condition precedent?
the terms of their agreement
A: Either a formal offer to redeem or the filing of an action in
Q: What is the nature of judicial foreclosure or real estate court together with the consignation of the redemption price
mortgage? within the reglementary period.
A: The general rule is that the mortgagor cannot exercise his 2. A mere statutory privilege it must be exercised in the
right of redemption after the sale is confirmed. mode and within the period prescribed by the statute.
Q: What is the importance of confirmation of the sale of the The filing of an action to enforce redemption within the
mortgaged real property? period is equivalent to a formal offer to redeem and should
the court allow the redemption, the redemptioner should
A: It cuts off all the rights or interests of the mortgagor and of then pay the amount already determined.
the mortgagee and persons holding under him, and with
them the equity of redemption in the property and vests The right on redemption is liberally construed in favor of the
them in the purchaser. Confirmation retroacts to the date of original owner of the property.
the sale. It is a final order not merely interlocutory.
By executing a dacion en pago by the mortgagor in favor of
CONTROL OF COURT OVER PROCEEDINGS the mortgagee, the former waived the redemption period
BEFORE CONFIRMATION normally given a mortgagor.
Q: Who controls the proceedings over the proceedings 3. Involves title to foreclosed property
before the confirmation?
Redemption period NOT interrupted by the filing of an
A: The court retains control of the proceedings by exercising action for nullity of sale
sound discretion in regard to it either granting or withholding
confirmation as the rights and interests of the parties and Q: Is the redemption period interrupted by the filing of an
ends of justice may require. action for nullity of sale?
rd
NOTE: The subsequent sale by purchaser to a 3 person of A: No.
the mortgaged property does not prevent the court from
granting the mortgagor a period within which to redeem the Q: What will toll the running?
property by paying the judgment debt and the expenses of
sale and costs. A: What will toll the running of the period is the action to
compute the redemption price.
Q: Without the confirmation by the court, what is the effect
of acceptance of bid at the foreclosure sale? Q: Who may redeem?
A: It does not confer title on the purchaser who is nothing A:

more than a preferred bidder.
1. The mortgagor
Q: What is the nature of the mortrgagors right of 2. His successors
redemption? 3. Assign
4. Junior encumbrancer
A:
Amount of redemption price
Nature of the mortgagors right of redemption
Q: What is the amount of the redemption price?
1. An absolute privilege the exercise of which is entirely
dependent upon the will and discretion of redemptioner. A:
Thus, there is no legal obligation to exercise the right 1. If the mortgagee is a bank, quasi-bank, or trust
entity, the bid price is the:
a. outstanding obligation

b. plus interest stipulated in the mortgage 2. His successors in interest
agreement 3. Assigns
c. plus cost and expenses incurred during the
rd
foreclosure less any income derived from the Q: Can the writ of possession be enforced against 3
property, persons?
2. If the mortgagor is an accomodation mortgagor, the
redemption price is the amount of the bid price plus A: No, it cannot be enforced against third persons whose title
12% interest per annum is adverse to the mortgagor, in which case, an action to
3. If the mortgagee is not a bank, quasi-bank or trust recover possession is the appropriate remedy.
entity, the redemption price is the amount of the bid
price plus 12% per annum. Remedy of mortgagee to obtain possession
Q: What is the redemption price in case of accomodation Q: What is the remedy in case the mortgagee cannot obtain
mortgagors? possession?
A: Accommodation mortgagors are not liable for the payment A: If a mortgagee cannot obtain possession of the mortgaged
of the loan of the debtor. The liability of the accommodation property for its sale on foreclosure, he must bring a civil
mortgagors extends only up to the loan value of their action either to:
mortgaged property and not to the entire loan itself. Hence, a. To recover such possession as a preliminary step to
it is only just that they be allowed to redeem their mortgaged the sale or
property by paying only the winning bid price thereof (plus b. To obtain judicial foreclosure.
interest thereon) at the public auction sale.
REPLEVIN
Effect of the pendency of action for annulment of sale
Q: What is replevin?
Q: Is the filing of an action to nullify the extrajudicial sale a
prejudicial question to the petition filed by the mortgagee A: It is the appropriate action to recover possession
for the issuance of the writ of possession? preliminary to the extra-judicial foreclosure of a chattel
mortgage.
A: No, a complaint for annulment of extrajudicial sale is a civil
action and a petition for the issuance of writ of possession is Q: Who can institute replevin suit?
but an incident to the land registration proceeding hence no
prejudicial question can arise from the two actions. A: It is not only the owner but also a person entitled to the
possession of the property can institute a replevin suit.
Q: What is the effect of the pendency of action for
annulment of sale? Q: When does a mortgagee become a transferee?
A: If the foreclosure is irregular, the mortgagor may file an A: He becomes a transferee only after acquiring the property
action to nullify the sale. Such action however, does not in the foreclosure sale and subsequently consolidates his title
suspend the running of the redemption period or the to it.
issuance of the writ of possession if such writ is prayed for
after expiration of the redemption period.
Writ of possession ACT 3135
Q: Is the issuance of the writ of possession ministerial or Q: What are the stages in extra-judicial foreclosure?
discretionary?
A:
A: The issuance of the writ of possession after the expiration
of redemption period and consolidation of title is the 1. Execution of contract of loan and REM agreement
ministerial duty of the court. It can be granted ex parte and with the corresponding SPA;
not subject to a bond requirement. 2. Default of the mortgagor-debtor either by:
Q: To whom can the writ of possession be enforced? a. Non-payment; or

b. Violation of the terms of the loan or REM
A: Only against: agreement.
1. The mortgagor

3. Filing of petition for sale with Clerk of Court who acts What the law requires is the posting of the notice of sale and
as ex-officio sheriff. Then, the clerk of court will not the certificate of posting.
raffle it among the sheriffs who will conduct the
foreclosure sale once given the authority to do so; 5. Foreclosure- the remedy available to the mortgagee
by which he subjects the mortgaged property to the
Q: Where should the petition be filed? Is it subject to the satisfaction of the obligation to secure which the
rules on venue? mortgage was given
6. Registration of sale with the Register of Deeds
A: It is not subject to the rules on venue. The petition is filed
where the property is located. NOTE: This pertains to the annotation of the sale to the
Transfer Certificate of Title on file with the Register of Deeds
Q: What if the mortgaged properties are located in different
places or provinces? 7. Redemption the mortgagor reacquires or buys
back the property, which may have passed under the
A: In case the mortgaged properties are located in different mortgage
provinces, the venue of the extrajudicial foreclosure 8. Consolidation of title
proceedings is the place where each of the mortgaged
property is located. Q: How is the title consolidated?
Q: Will the above rule violate the principle of indivisibility of A: By filing an affidavit with the Register of Deeds.
the mortgagee?
Q: What must the affidavit of consolidation of title indicate?
A: No. The principle of indivisibility of the mortgagee states
that all the mortgaged properties will answer for the A: It must indicate the relevant dates to show mortgagors
mortgage debt and the partial payment of the debt does not failure to redeem within the allowable time. This enables the
extinguish that part paid corresponding to the mortgaged mortgagee to acquire full ownership over the property. His
properties. inchoate right ripens to full ownership.
NOTE: There is no more indivisibility of mortgage after the 9. Cancellation of title of the mortgagor and issuance
foreclosure. The mortgagor can redeem on a piece-meal of a new title in favor of the mortgagee
basis.
Q: What is the basis of this?
Q: What is the prescriptive period of a mortgage action?
A: The basis of which is the order of court confirming the sale.
A: It prescribes in 10 years from the time the right of action
accrues. 10. Petition for writ of possession
Q: When does the right of action accrue? Q: Is there a need to file an ejectment suit?
A: It accrues from the time the mortgagor defaults in the A: No. That would be very costly and although a summay
payment of his obligation to the mortgagor defaults in the proceeding, ejectment cases take long period of time.
payment of his obligation to the mortgagee and not from the
time of the execution of the mortgage contract; Q: What is writ of possession?
4. Compliance with certain jurisdictional requirements: A: Here, the mortgagee employs force to oust the mortgagor
from the property.
a. Publication- in a newspaper of general
circulation once a week for 3 consecutive Q: Can this writ of possession be issued during the
weeks; and redemption period?
b. Posting- of the notice of sale for not less than 20
days in at least 3 public/conspicuous places in A: This writ may be even issued during the redemption
the province or municipality where the property period.
is located.
Q: Is a bond required?
NOTE: A certificate of posting is not indispensable for the
validity of an extra-judicial foreclosure sale of real property.

A: Yes, This writ may be even issued during the redemption 2. The sale was not finished and is continued the
period provided the mortgagee is issued a bond but the grant followi8ng day until completed
of which is discretionary on the part of the court. 3. When there is waiver
Q: What if petition for the writ is filed after the expiration of Q: What is the effect of clerical errors?
the redemption period?
A: Clerical errors in the name of the mortgagor and the
A: The issuance of which is ministerial on the part of the technical description in the notice of sale are not sufficient to
court. This writ can be issued without the issuance of a bond; annul a foreclosure.
in fact, it can even be issued ex parte.
Q: Can the notices required by law be waived?
Q: Is the writ suspended by the mere filing of the mortgagor
of an action to annul the foreclosure sale? A: No. Notices are given to secure bidders and prevent
sacrifice of property.
A: No.
Two-bidder rule not applicable
Publication requirement
NOTE: The case of PS Bank v. Certeza scrapped the 2-bidder
Q: Is there a need for personal notice? rule. Neither Act No. 3135 nor the previous circulars issued by
the Court governing extrajudicial foreclosures provide for a
A: No. The publication takes the place of the notice. similar requirement. The two-bidder rule is provided under
P.D. No. 1594 and its implementing rules with respect to
XPN: contracts for government infrastructure projects because of
the public interest involved. Although there is a public
1. When the mortgagee assumes the obligation to interest in the regularity of extrajudicial foreclosure of
notify the mortgagor mortgages, the private interest is predominant. The reason,
2. unless so stipulated. therefore, for the requirement that there must be at least
two bidders is not as exigent as in the case of contracts for
Q: What is meant by once a week for 3 consecutive government infrastructure projects. It is no longer required
weeks? to have at least two bidders in an extrajudicial foreclosure of
mortgage
A: A period of 7 days, inclusive of the first day of publication.
The publication must be made 7 days apart. Q: Does the two-bidder rule apply in case of foreclosure of a
real estate mortgage?
Q: What happens when the foreclosure sale is postponed?
A: No.
A: The notice of sale must be republished once a week for 3
consecutive weeks, otherwise, foreclosure is invalid. Foreclosure sale
Q: What is the effect of loss of the affidavit of publisher? Q: How is the foreclosure sale conducted?
A: The presumption of regularity in the performance of duty A: The highest bidder wins.
is not applicable. The affidavit must be produced, otherwise,
there is no such publication, hence, no valid public sale. a. if the mortgagee wins, there is no need to pay cash
to the mortgagor, and thus, the bid price would
Republication simply be applied to the amount of obligation
b. if the highest bidder is not the mortgagee, then the
Q: What is the rule in case of republication? purchaser needs to pay cash and remit his payment
to the mortgagee.
A:
Failure to implead subordinate lien holders
GR: Republication is absolute
Q: What is the effect of failure to implead subordinate lien
XPNs: holders to the mortgage as defendants in foreclosure
proceedings? Would that render the proceedings not valid?
1. The publication also states an alternative date and
the sale pushed through on that date

A: No. The only effect of failure on the part of the mortgagee
to make the subordinate lien holder a defendant is that the A:
decree of foreclosure in a suit to which the holders of a
second lien are not parties leaves equity of redemption in a. With respect to the real estate mortgage over the
favor of such lien holders unforeclosed and unaffected. land and building owned by Primetime Corp., a
juridical body, the period of redemption is only 3
Right of redemption months
b. With respect to the real estate mortgage over the
Q: When must the buyer exercise the right of redemption? house and lot owned by Mr. Timbol, the period of
redemption is 1 year from the date of registration of
A: 1 year from the date of registration of the certificate of the certificate of sale.
sale.
Q: What if the mortgagor is an estate?
Q: What is the effect of the exercise of the right of
redemption? A: The issue is not yet settled. Probably 3 months, since it is
already a judicial person since the mortgagor in such case has
A: The exercise of the right of redemption is an implied already died.
admission of the regularity of the foreclosure sale and estops
the mortgagor from later impugning its validity on that Right of redemption vs. repurchase
ground. Redemption is inconsistent with the claim of the
invalidity of the sale. Q: Differentiate the Right of redemption and repurchase.
Q: When does the 1 year period for redemption not apply? A:
A: It does not apply to real estate mortgages constituted by RIGHT OF REDEMPTION REPURCHASE
juridical persons in favor of: Becomes functus officio The exercise of the right
on the date of expiry and of redemption after the
a. bank period is not really one
b. quasi-bank of redemption but
c. trust entity repurchase
By force of law; the No such obligation; the
Q: The period of redemption can only be exercised until but purchaser at public law will not compel the
not after the registration of the certificate of sale or 3 auction is bound to purchaser to resell
months from foreclosure, whichever is earlier, under what accept the redemption
conditions?
Redemption Price
A:
Q: What is the rule as to the redemption price in case the
1. mortgagor must be a juridical person that is either a mortgagee is a banking institution?
partnership or a corporation
2. morgtagee is: A: The redemption price is the amount fixed by the court in
a. bank the order of execution or the amount due under the
b. quasi-bank mortgaged deed.
c. trust entity
3. foreclosure is done extra-judicially Q: How about in case of accommodation mortgagors?
Q: Primetime Corp. obtained a P10 M, 5-year loan from the A: Accomodation mortgagors are not liable for the payment
Universal Bank. As security for the loan the following of the loan of the debtor. The liability of the accommodation
securities were agreed: extends only up to the loan value of their mortgaged property
a. a real estate mortgage over the land and building and not to the entire loan itself. Hence, its only just that they
owned by Primetime Corp be allowed to redeem their mortgaged property by paying
b. joint and several promissory note of Mr. Primo only the winning bid price thereof (plus interest thereon) at
Timbol, the President of Primetime Corp. the public auction.
c. a real estate mortgage over the residential house
and lot owned by Mr. Timbol. Q: What is the effect of filing an action to annul the
The Primetime Corp. was not able to pay the obligation. foreclosure sale during the one year redemption period?
Thus, the real estate was foreclosed.

A: It will not toll the running of the 1 year redemption period.
A: No, to rule otherwise would defeat the purpose of the law.
NOTE: A judicial action instituted for the sole purpose of
determining the amount of the redemption price, if before Q: What is the remedy if the mortgagor failed to redeem but
the expiration of the original period to redeem, has the effect refuses to surrender the certificate of title?
of a valid exercise of the right of the right to redeem and will
suspend the running of the period of redemption even if A: The court may order the Register of Deeds to register the
unaccompanied by a simultaneous tender of the redemption final deed of sale because otherwise the buyer will never be
price. able to consolidate his title.
Summary Q: What if the property is in the possession of the lessee

whose lease has not terminated?
AMOUNT
Banks Outstanding obligation A: The mortgagee is entitled to the issuance of writ of
Quasi-banks + possession even if the property is in the possession of a
Trust entity Interest stipulated under lessee whose lease has not expired
the agreement
Non-banks Bid price XPNS:
+
Interest of 12% per annum a. The lease had been previously registered in the
Registry of Property
NOTE: In this case, there is b. Despite the non-registration, the mortgagee had
encouragement for a higher prior knowledge of the existence and the duration of
bid to make the the lease (actual knowledge being equivalent to
redemption more difficult registration)
rd
Remedies of 3 parties
Mortgagee is a bank but Value of the loan rd
Q: What are the remedies available in favor of 3 parties
mortgagor is an
adversely affected by the order for the issuance of the writ
accommodation mortgagor
of possession in favor of the winning bidder?
A:
Q: Are the bidder obliged to bid based on the FMV?
1. Terceria to determine whether the sheriffs has
A: No. rightfully or wrongfully taken hold of the property
not belonging to the judgment debtor or obligor
XPN: Grossly inadequate/shocking to the conscience 2. An independent separate action to vindicate their
claim of ownership and/or possession over the
Q: What if the right of redemption is exercised beyond the 1 foreclosed property.
year period, what will be the interest rate?
Q: What is the effect of filing a collection case?
A: The interest rate is the stipulated interest rate for the one
year period but beyond such 1 year period, an interest rate of A: It is tantamount to abandonment of the remedy to
12% per annum shall be imposed. foreclose the REM. The principle applies even though the
rd
mortgage was constituted on the property of a 3 party
Owner of the mortgaged property mortgagor and collection suit was filed before foreign courts.
Q: Who is the owner of the mortgaged property? JUDICIAL FORECLOSURE
A: During the redemption period, the mortgagor is still the Q: What are the stages in judicial foreclose?
owner. Hence, he may still execute attributes of ownership
during the period such as executing a second mortgage on A:
the same subject property.
1. File a complaint against the mortgagor together
Q: The mortgagee introduced improvements on the with the subsequent lien holders, otherwise equity
property sought to be redeemed. Will the cost of the of redemption will not be divested
improvements be imputed to the redemption price?
2. Hearing days from entry of judgment and even beyond, until finality
3. Judgment of order confirming the sale.
4. Entry judgment- this is the reckoning point whereby
the period of equity of redemption is computed EQUITY OF RIGHT OF REDEMPTION
5. 90-120 days from the entry of judgment for the REDEMPTION
mortgagor to pay his debt, as determined by the GR: Only in Judicial GR: There is no right of
court foreclosure redemption in juridical
6. Upon failure to pay, the mortgagee must file a foreclosure, only equity
Motion for Execution foreclosing the mortgage XPN: In case of extra- in redemption
7. Execution sale judicial foreclosure
8. Mortgagee to file Motion for Confirmation of Sale involving a bank as XPN: If the mortgagee or
mortgagee and a bidder is:
Q: What is the purpose of the Motion for Confirmation of juridical person as a. Bank
Sale? mortgagor c. Credit
institution, the
A: Its purpose is to declare the sale valid in accordance with mortgagor has
the law. 1 year from the
registration of
9. Issuance of the order confirming the sale order
confirming the
Q: Is this order confirming the sale appealable? sale and the
certificate of
A: Yes because it is not an interlocutory order. Thus, the sale to redeem
mortgagee must wait until the finality of the order the property
10. Cancellation of the title of the mortgagor and To whom conferred

issuance of new title to the mortgagee May be acquired by a To the
second mortgagee in a. mortgagor,
Q: What is the basis of this? case of sale of property b. successors-in-
interest
A: The order of the court confirming the sale c. or any
judgment
11. Motion for writ of possession from the same court creditor of the
that ordered the foreclosure mortgagor
Period
Q: When can you exercise the right of redemption in judicial In judicial foreclosure: GR: Extra-judicial
foreclosure? 90-120 days from entry foreclosure under Act
of judgment or until 3135-1 year from the
A: finality of order date of registration of
confirming sale certificate of sale
GR: There is no right of redemption in judicial foreclosure,
only equity of redemption XPN: in banks, 3 months
from the date of actual
XPN: If the mortgagee or bidder is a: sale or registration
whichever is earlier
a. Bank When exercised
b. Credit institution, the mortgagor has 1 year from the After the entry of Only after foreclosure
registration of order confirming the sale and the judgment but before sale
certificate of sale to redeem the property foreclosure sale;
After foreclosure sale
EQUITY OF REDEMPTION but before confirmation
sale
Q: What is equity of redemption?
A: The right of the mortgagor not to be divested of the

ownership of the mortgaged property and to stop the
foreclosure sale by paying the mortgage debt within 90-120

2
ACT 3135 v. RULE 68 of Rules of Court
ACT 3135 RULE 68 of Rules of
2 Court
RULE 68
FORECLOSURE OF REAL ESTATE MORTGAGE There should be a No special power of
special power of attorney is required
Section 1. Complaint in action for foreclosure. attorney
In an action for the foreclosure of a mortgage or other encumbrance upon
If not registered, the Can extra-judicially
real estate, the complaint shall set forth the date and due execution of the only remedy is the foreclose even if not
mortgage; its assignments, if any; the names and residences of the judicial foreclosure registered
mortgagor and the mortgagee; a description of the mortgaged property; a Process:
statement of the date of the note or other documentary evidence of the
obligation secured by the mortgage, the amount claimed to be unpaid
thereon; and the names and residences of all persons having or claiming an 1. File a complaint
interest in the property subordinate in right to that of the holder of the for judicial
mortgage, all of whom shall be made defendants in the action. foreclosure
Sec. 2. Judgment on foreclosure for payment or sale.
2. Implead the
If upon the trial in such action the court shall find the facts set forth in the junior
complaint to be true, it shall ascertain the amount due to the plaintiff upon mortgagors,
the mortgage debt or obligation, including interest and other charges as otherwise, the
approved by the court, and costs, and shall render judgment for the sum so
found due and order that the same be paid to the court or to the judgment
equity of
obligee within a period of not less than ninety (90) days nor more than one redemption is
hundred twenty (120) days from the entry of judgment, and that in default of reserved to
such payment the property shall be sold at public auction to satisfy the them
judgment.
3. Order
Sec. 3. Sale of mortgaged property; effect. confirming the
When the defendant, after being directed to do so as provided in the next sale
preceding section, fails to pay the amount of the judgment within the period
specified therein, the court, upon motion, shall order the property to be sold
in the manner and under the provisions of Rule 39 and other regulations ACTION FOR FORECLOSURE
governing sales of real estate under execution. Such sale shall not affect the
rights of persons holding prior encumbrances upon the property or a part Q: What is the effect of filing of action for foreclosure?
thereof, and when confirmed by an order of the court, also upon motion, it
shall operate to divest the rights in the property of all the parties to the
action and to vest their rights in the purchaser, subject to such rights of
redemption as may be allowed by law. defendant for any such balance for which, by the record of the case, he may
Upon the finality of the order of confirmation or upon the expiration of the be personally liable to the plaintiff, upon which execution may issue
period of redemption when allowed by law, the purchaser at the auction sale immediately if the balance is all due at the time of the rendition of the
or last redemptioner, if any, shall be entitled to the possession of the judgment; otherwise, the plaintiff shall be entitled to execution at such time
property unless a third party is actually holding the same adversely to the as the balance remaining becomes due under the terms of the original
judgment obligor. The said purchaser or last redemptioner may secure a writ contract, which time shall be stated in the judgment.
of possession, upon motion, from the court which ordered the foreclosure.
Sec. 7. Registration.
Sec. 4. Disposition of proceeds of sale.
The amount realized from the foreclosure sale of the mortgaged property A certified copy of the final order of the court confirming the sale shall be
shall, after deducting the costs of the sale, be paid to the person foreclosing registered in the registry of deeds. If no right of redemption exists, the
the mortgage, and when there shall be any balance or residue, after paying certificate of title in the name of the mortgagor shall be cancelled, and a new
off the mortgage debt due, the same shall be paid to junior encumbrancers one issued in the name of the purchaser.
in the order of their priority, to be ascertained by the court, or if there be no
such encumbrancers or there be a balance or residue after payment to them, Where a right of redemption exists, the certificate of title in the name of the
then to the mortgagor or his duly authorized agent, or to the person entitled mortgagor shall not be cancelled, but the certificate of sale and the order
to it. confirming the sale shall be registered and a brief memorandum thereof
made by the registrar of deeds upon the certificate of title. In the event the
Sec. 5. How sale to proceed in case the debt is not all due. property is redeemed, the deed of redemption shall be registered with the
If the debt for which the mortgage or encumbrance was held is not all due as registry of deeds, and a brief memorandum thereof shall be made by the
provided in the judgment, as soon as a sufficient portion of the property has registrar of deeds on said certificate of title.
been sold to pay the total amount and the costs due, the sale shall
terminate; and afterwards, as often as more becomes due for principal or If the property is not redeemed, the final deed of sale executed by the sheriff
interest and other valid charges, the court may, on motion, order more to be in favor of the purchaser at the foreclosure sale shall be registered with the
sold. But if the property cannot be sold in portions without prejudice to the registry of deeds; whereupon the certificate of title in the name of the
parties, the whole shall be ordered to be sold in the first instance, and the mortgagor shall be cancelled and a new one issued in the name of the
entire debt and costs shall be paid, if the proceeds of the sale be sufficient purchaser.
therefor, there being a rebate of interest where such rebate is proper.
Sec. 8. Applicability of other provisions.
Sec. 6. Deficiency judgment. The provisions of sections 31, 32 and 34 of Rule 39 shall be applicable to the
If upon the sale of any real property as provided in the next preceding judicial foreclosure of real estate mortgages under this Rule insofar as the
section there be a balance due to the plaintiff after applying the proceeds of former are not inconsistent with or may serve to supplement the provisions
the sale, the court, upon motion, shall render judgment against the of the latter.
A:
GR: It bars the action for collection
XPN: In case of deficiency
Mortgage by spouses
Q: What if the mortgage was entered into by the spouses?
A: The surviving spouse should also be impleaded. The

surviving spouse is an indispensable party
DRAGNET CLAUSE
Q: What is a dragnet clause?
A: Such agreement that covers future debts without

executing another fresh agreement or amendment.
NOTE: An agreement with a dragnet clause is valid. In case of

chattel mortgage, there is a need to execute a fresh
agreement or an agreement which modifies the previous
ones.
Currency
Q: What if the agreement provides that the loan should be

in peso but the actual payment was made in dollars? What
should be the currency of the redemption price?
A: It is the currency stipulated, thus, the payment should be

in the currency stipulated.
REFERENCES
DIVINA, Nilo T., Handbook on Philippine Commercial Law

nd
(2 Edition), 2010, CIBI Foundation, Inc.
Divina Notes on Banking and Special Commercial Laws
2012
UST Golden Notes, 2011
Marx Notes
NOTES


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NOTES ON SPECIAL COMMERCIAL LAWS

Kenneth and King C. Hizon (3A)_____________________________________________________________________________________________________________

SPECIAL COMMERCIAL LAWS

Q: When is the bank entitled to reimbursement?

Facultad de Derecho Civil 27

A: Injunction. Q: What is the consequence where the execution of the

Facultad de Derecho Civil 28

A: A lender, financer or creditor. Person holding title over the

Facultad de Derecho Civil 30

Facultad de Derecho Civil 31

Facultad de Derecho Civil 32

Affidavit of Good Faith a. Place where the mortgagor resides

Q: What is the effect if the mortgage is not registered? A:

A: In one case, the court held that chattel mortgage over a

Facultad de Derecho Civil 34

Facultad de Derecho Civil 35

A: A mortgage may be foreclosed extra judicially where there

Facultad de Derecho Civil 38

Facultad de Derecho Civil 39

Q: What is a deposit-taking activity?

Facultad de Derecho Civil 40

Quasi-banks 3. Thrift banks These are:

Banks vs. Quasi-Banks Bank power and liabilities

BANKS QUASI-BANKS Universal a. Powers of a commercial bank

Facultad de Derecho Civil 41

FIRM COMMITMENT BEST EFFORTS Power to acquire real properties

Facultad de Derecho Civil 42

Facultad de Derecho Civil 43

A: Yes, the depositor expects the bank to treat his account

Facultad de Derecho Civil 45

A: NOTE: A bank is partly reserved for Filipinos, because

2. Juridical persons Q: What about domestic corporations?

Facultad de Derecho Civil 46

A: No. Under the Anti-Dummy Law, foreigners cannot be A:

A: The states central monetary authority; it is the A:

Facultad de Derecho Civil 47

Q: What are the rules on BSPs Authority to replace legal A:

Q: Who is a conservator? Q: When is conservatorship terminated?

A: One appointed if the bank is in the state of illiquidity or the A:

Facultad de Derecho Civil 48

Facultad de Derecho Civil 49

A: The suspension of operations of a bank cannot excuse

Assailing the order of conservatoship, receivership or

Q: How can the order of conservatoship, receivership or

Facultad de Derecho Civil 50

CONSERVATORSHIP RECEIVERSHIP LIQUIDATION

Facultad de Derecho Civil 51

NOTE: In a situation involving the element of fraud, where a A:

Q: What is the effect of the closure of a bank as regards the A:

Q: What is the purpose? A: Any investment in security issued or guaranteed by the

Facultad de Derecho Civil 52

A: Q: The Fiscal is conducting an investigation on Violation of

Facultad de Derecho Civil 53

Facultad de Derecho Civil 54

Foreign currency deposits not covered Q: How about escheat proceedinggs?

Facultad de Derecho Civil 55

Q: What law governs trust funds?

Facultad de Derecho Civil 56

Q: What are the covered institutions? Suspicious transactions

A: Q: What are suspicious transactions?

Covered transactions Q: What is the so-called Safe harbor provision?

Q: What is a covered transaction? A: No administrative, criminal or civil proceedings shall lie

Facultad de Derecho Civil 57