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Banking Law Outline (SYLLABUS 1)
A.
The Philippine Financial System and the Players
Laws/Regulations
The Bangko Sentral ng Pilipinas:
• PHILIPPINE CONSTITUTION, ARTICLE XII, SECTION 20
SECTION 20. The Congress shall establish an independent central monetary authority, the members
of whose governing board must be natural-born Filipino citizens, of known probity, integrity, and
patriotism, the majority of whom shall come from the private sector. They shall also be subject to such
other qualifications and disabilities as may be prescribed by law. The authority shall provide policy
direction in the areas of money, banking, and credit. It shall have supervision over the operations of
banks and exercise such regulatory powers as may be provided by law over the operations of finance
companies and other institutions performing similar functions.
Until the Congress otherwise provides, the Central Bank of the Philippines, operating under existing
laws, shall function as the central monetary authority.
Ø Central Bank of the Philippines, replaced by Bangko Sentral ng Pilipinas.
Ø BSP is a body created by mandate of the Constitution.
Ø Majority of the members of the Monetary Board must come from the private sector.
• THE NEW CENTRAL BANK ACT; ARTICLE I
SECTION 1. Declaration of Policy. – The State shall maintain a central monetary authority that shall
function and operate as an independent and accountable body corporate in the discharge of its
mandated responsibilities concerning money, banking and credit. In line with this policy, and
considering its unique functions and responsibilities, the central monetary authority established under
this Act, while being a government- owned corporation, shall enjoy fiscal and administrative autonomy.
Ø §1 Characteristics:
1. Independent – free from all undue control and influence, whether it be from local
capital interest or foreign interest, or even from the State or government,
particularly from the executive.
• Thus, (1) majority of the members of the Monetary Board must come
from the private sector; (2) fiscal autonomy; and (3) administrative
autonomy.
• Independence in setting policies for money, banking and credit.
• Independence in the supervision of banks, finance companies and
other institutions performing similar functions.
• Limited by accountability.
2. Accountable body corporate – not being above the law. The BSP is subject to the
Constitution and the laws of the State.
3. Fiscal autonomy – full flexibility to allocate and utilize their resources with the
wisdom and dispatch that their needs require.
• Power to adopt its own budget.
• BSP is exempt from the salary standardization law (SSL).
• Non-reliance on Congressional budgetary support as its funds are
sourced from their own operations.
4. Administrative autonomy – freedom from interference and intervention by other
agencies.
• Flexibility to establish a human resource system.
• Governor is not subject to Commission on Appointments’ approval.
• In general, decisions of the Monetary Board are not subject to
administrative review and can be reviewed judicially by way of a
petition for certiorari.
• Term of the Board Members not coterminous with the president.
SEC.2. Creation of the Bangko Sentral. – There is hereby established an independent central
monetary authority, which shall be a body corporate known as the Bangko Sentral ng Pilipinas,
hereafter referred to as the Bangko Sentral.
The capital of the Bangko Sentral shall be Fifty billion pesos (P50,000,000,000), to be fully subscribed
by the Government of the Republic, hereafter referred to as the Government, Ten billion pesos
(P10,000,000,000) of which shall be fully paid for by the Government upon the effectivity of this Act and
the balance to be paid for within a period of two (2) years from the effectivity of this Act in such manner
and form as the Government, through the Secretary of Finance and the Secretary of Budget and
Management, may thereafter determine.
Ø §2 – Creation of the Bangko Sentral
§ Body corporate
§ Government-owned (but not controlled) – because the Constitution mandates that it
must be independent.
§ Outstanding and paid-in capital of PHP50B.
• Initial paid-in capital came from the assets of the predecessor Central Bank
of the Philippines.
SEC. 3. Responsibility and Primary Objective. – The Bangko Sentral shall provide policy directions in
the areas of money, banking, and credit. It shall have supervision over the operations of banks and
exercise such regulatory powers as provided in this Act and other pertinent laws over the operations of
finance companies and non-bank financial institutions performing quasi-banking functions, hereafter
referred to as quasi-banks, and institutions performing similar functions.
The primary objective of the Bangko Sentral is to maintain price stability conducive to a balanced and
sustainable growth of the economy. It shall also promote and maintain monetary stability and the
convertibility of the peso.
Ø §3 – Responsibilities and Primary Objective
§ Principal responsibilities:
1. Policy direction in money, banking and credit
2. Supervision over banks, finance companies, quasi-banks and institutions
performing similar functions
§ Principal objectives:
1. Maintain price stability – control of domestic inflation by keeping it low and
stable; utilization of monetary policy/money supply tools.
2. Promote and maintain monetary stability and the convertibility of the peso –
preserve the international value of the peso through Bangko Sentral
intervention in foreign exchange trading.
SEC.4. Place of Business. – The Bangko Sentral shall have its principal place of business in Metro
Manila, but may maintain branches, agencies and correspondents in such other places as the proper
conduct of its business may require.
SEC.5. Corporate Powers. – The Bangko Sentral is hereby authorized to adopt, alter, and use a
corporate seal which shall be judicially noticed; to enter into contracts; to lease or own real and
personal property, and to sell or otherwise dispose of the same; to sue and be sued; and otherwise to
do and perform any and all things that may be necessary or proper to carry out the purposes of this
Act.
The Bangko Sentral may acquire and hold such assets and incur such liabilities in connection with its
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operations authorized by the provisions of this Act, or as are essential to the proper conduct of such are subject to Bangko Sentral supervision. (2-Ca)
operations.
The Bangko Sentral may compromise, condone or release, in whole or in part, any claim of or settled For the purposes of this Act, "quasi-banks" shall refer to entities engaged in the borrowing of
liability to the Bangko Sentral, regardless of the amount involved, under such terms and conditions as funds through the issuance, endorsement or assignment with recourse or acceptance of
may be prescribed by the Monetary Board to protect the interests of the Bangko Sentral. deposit substitutes as defined in Section 95 of Republic Act No. 7653 (hereafter the "New
Central Bank Act") for purposes of relending or purchasing of receivables and other
Ø §5 – Corporate Powers obligations. (2-Da)
1. Adopt, alter, and use a corporate seal
2. Enter into contracts SECTION 5. Policy Direction; Ratios, Ceilings and Limitations. — The Bangko Sentral shall provide
3. Lease, own or dispose of real and personal property policy direction in the areas of money, banking and credit. (n) For this purpose, the Monetary Board
4. Sue and be sued may prescribe ratios, ceilings, limitations, or other forms of regulation on the different types of accounts
5. Do any perform any and all things that may be necessary or proper to carry out its and practices of banks and quasi-banks which shall, to the extent feasible, conform to internationally
mandate accepted standards, including those of the Bank for International Settlements (BIS). The Monetary
6. Acquire and hold such assets and incur such liabilities in connection with its operations Board may exempt particular categories of transactions from such ratios, ceilings and limitations, but
authorized by law or as are essential to the proper conduct of such operations not limited to exceptional cases or to enable a bank or quasi-bank under rehabilitation or during a
7. Compromise, condone or release, in whole or in part, any claim of or settled liability merger or consolidation to continue in business with safety to its creditors, depositors and the general
public. (2-Ca)
• GENERAL BANKING LAW, SECTIONS 3, 4-7

SECTION 6. Authority to Engage in Banking and Quasi-Banking Functions. — No person or entity shall
SECTION 3. Definition and Classification of Banks. —
engage in banking operations or quasi-banking functions without authority from the Bangko Sentral:
3.1. "Banks" shall refer to entities engaged in the lending of funds obtained in the form of Provided, however, That an entity authorized by the Bangko Sentral to perform universal or commercial
deposits. (2a) banking functions shall likewise have the authority to engage in quasi-banking functions.

3.2. Banks shall be classified into:
a. Universal banks;
b. Commercial banks;
c. Thrift banks, composed of: (i) Savings and mortgage banks, (ii) Stock savings and
loan associations, and (iii) Private development banks, as defined in Republic Act No.
7906 (hereafter the "Thrift Banks Act");
d. Rural banks, as defined in Republic Act No. 7353 (hereafter the "Rural Banks Act");
e. Cooperative banks, as defined in Republic Act No. 6938 (hereafter the "Cooperative
Code");
f. Islamic banks as defined in Republic Act No. 6848, otherwise known as the "Charter
of Al-Amanah Islamic Investment Bank of the Philippines"; and
g. Other classifications of banks as determined by the Monetary Board of the Bangko
Sentral ng Pilipinas. (6-Aa)
SECTION 4. Supervisory Powers. — The operations and activities of banks shall be subject to
supervision of the Bangko Sentral. "Supervision" shall include the following:
4.1. The issuance of rules of conduct or the establishment of standards of operation for uniform
application to all institutions or functions covered, taking into consideration the distinctive
character of the operations of institutions and the substantive similarities of specific functions to
which such rules, modes or standards are to be applied;
4.2. The conduct of examination to determine compliance with laws and regulations if the
circumstances so warrant as determined by the Monetary Board;
4.3. Overseeing to ascertain that laws and regulations are complied with;
4.4. Regular investigation which shall not be oftener than once a year from the last date of
examination to determine whether an institution is conducting its business on a safe or sound
basis: Provided, That the deficiencies/irregularities found by or discovered by an audit shall be
immediately addressed;
4.5. Inquiring into the solvency and liquidity of the institution (2-D); or
4.6. Enforcing prompt corrective action. (n)
The Bangko Sentral shall also have supervision over the operations of and exercise regulatory
powers over quasi-banks, trust entities and other financial institutions which under special laws
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The determination of whether a person or entity is performing banking or quasi- banking functions
without Bangko Sentral authority shall be decided by the Monetary Board. To resolve such issue, the
Monetary Board may, through the appropriate supervising and examining department of the Bangko
Sentral, examine, inspect or investigate the books and records of such person or entity. Upon issuance
of this authority, such person or entity may commence to engage in banking operations or quasi-
banking functions and shall continue to do so unless such authority is sooner surrendered, revoked,
suspended or annulled by the Bangko Sentral in accordance with this Act or other special laws.
The department head and the examiners of the appropriate supervising and examining department are
hereby authorized to administer oaths to any such person, employee, officer, or director of any such
entity and to compel the presentation or production of such books, documents, papers or records that
are reasonably necessary to ascertain the facts relative to the true functions and operations of such
person or entity. Failure or refusal to comply with the required presentation or production of such
books, documents, papers or records within a reasonable time shall subject the persons responsible
therefore to the penal sanctions provided under the New Central Bank Act.
Persons or entities found to be performing banking or quasi-banking functions without authority from
the Bangko Sentral shall be subject to appropriate sanctions under the New Central Bank Act and
other applicable laws. (4a)
SECTION 7. Examination by the Bangko Sentral. — The Bangko Sentral shall, when examining a
bank, have the authority to examine an enterprise which is wholly or majority-owned or controlled by
the bank. (21-Ba)
Ø §5 – Policy Direction
§ The Monetary Board may prescribe rations, ceilings, limitations, or other forms of
regulation on the different types of accounts and practices of banks and quasi-banks.
§ The Monetary Board may exempt particular categories of transactions from such
ratios, ceilings and limitations
Ø §4, 6 and 7 – Supervision
1. Rule-making
2. Visitorial Powers
3. Enforcement Action
4. Licensing

TYPES OF BANKS:
• THRIFT BANKS (THRIFT BANKS ACT; SECTIONS 3 AND 10)
Sec. 3. Definition of Terms. — For purposes of implementing this Act, the following definitions
shall apply:
(a) "Thrift banks" shall include savings and mortgage banks, private development banks, and
stock savings and loans associations organized under existing laws, and any banking corporation
that may be organized for the following purposes:
(1) Accumulating the savings of depositors and investing them, together with capital loans
secured by bonds, mortgages in real estate and insured improvements thereon, chattel
mortgage, bonds and other forms of security or in loans for personal or household finance,
whether secured or unsecured, or in
financing for homebuilding and home development; in readily marketable and debt
securities; in commercial papers and accounts receivables, drafts, bills of exchange,
acceptances or notes arising out of commercial transactions; and in such other
investments and loans which the Monetary Board may determine as necessary in the
furtherance of national economic objectives;
(2) Providing short-term working capital, medium- and long-term financing, to businesses
engaged in agriculture, services, industry and housing; and
(3) Providing diversified financial and allied services for its chosen market and
constituencies specially for small and medium enterprises and individuals.
(b) "Monetary Board" shall mean the Monetary Board of the Bangko Sentral ng Pilipinas.
(c) "Bangko Sentral" shall refer to the Bangko Sentral ng Pilipinas created under Republic Act
No. 7653.
Sec. 10. Powers of Thrift Banks. — In addition to powers granted it by this Act and existing laws,
any thrift bank may:
(a) Accept savings and time deposits;
(b) Open current or checking accounts: Provided, That the thrift bank has net assets of at least
Twenty million pesos (P20,000,000) subject to such guidelines as may be established by the
Monetary Board; and shall be allowed to directly clear its demand deposit operations with the
Bangko Sentral and the Philippine Clearing House Corporation;
(c) Act as correspondent for other financial institutions;
(d) Act as collection agent for government entities, including but not limited to, the Bureau of
Internal Revenue, Social Security System, and the Bureau of Customs;
(e) Act as official depository of national agencies and of municipal, city or provincial funds in
the municipality, city or province where the thrift bank is located, subject to such guidelines as
may be established by the Monetary Board;
• RURAL BANKS (RURAL BANKS ACT; SECTIONS 2 AND 3)
Sec. 2. The State hereby recognizes the need to promote comprehensive rural development with the
end in view of attaining acquitable distribution of opportunities, income and wealth; a sustained
increase in the amount of goods and services produced by the nation of the benefit of the people; and
in expanding productivity as a key raising the quality of life for all, especially the underprivileged.
Towards these ends, the State hereby encourages and assists in the establishment of rural banking
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system designed to make needed credit available and readily accessible in the rural areas on
reasonable terms.
Sec. 3. In furtherance of this policy, the Monetary Board of the Central Bank of the Philippines shall
formulate the necessary rules and regulations governing the establishment and operation of rural
banks for the purpose of providing adequate credit facilities to farmers and merchants, or to
cooperatives of such farmers and merchants and in general, the people of the rural communities, and
to supervise the operation of such banks.
• COOPERATIVE BANKS (COOPERATIVE CODE, ARTICLE 6, 7 AND 100)
ART. 6. Purposes of Cooperatives. – A cooperative may be organized and registered for any or all
of the following purposes:
"(1) To encourage thrift and savings mobilization among the members;
"(2) To generate funds and extend credit to the members for productive and provident
purposes;
"(3) To encourage among members systematic production and marketing; "(4) To provide
goods and services and other requirements to the members; "(5) To develop expertise and
skills among its members;
"(6) To acquire lands and provide housing benefits for the members; "(7) To insure
against losses of the members;
"(8) To promote and advance the economic, social and educational status of the members;
"(9) To establish, own, lease or operate cooperative banks, cooperative wholesale and retail
complexes, insurance and agricultural/industrial processing enterprises, and public markets;
"(10) To coordinate and facilitate the activities of cooperatives;
"(11) To advocate for the cause of the cooperative movements;
"(12) To ensure the viability of cooperatives through the utilization of new technologies;
"(13) To encourage and promote self-help or self-employment as an engine for economic
growth and poverty alleviation; and
"(14) To undertake any and all other activities for the effective and efficient implementation of
the provisions of this Code.
ART. 7. Objectives and Goals of a Cooperative. – The primary objective of every cooperative is to
help improve the quality of life of its members. Towards this end, the cooperative shall aim to:
"(a) Provide goods and services to its members to enable them to attain increased income,
savings, investments, productivity, and purchasing power, and promote among themselves
equitable distribution of net surplus through maximum utilization of economies of scale,
cost-sharing and risk-sharing;
"(b) Provide optimum social and economic benefits to its members;
"(c) Teach them efficient ways of doing things in a cooperative manner;
"(d) Propagate cooperative practices and new ideas in business and management;
"(e) Allow the lower income and less privileged groups to increase their ownership in the
wealth of the nation; and
"(f) Cooperate with the government, other cooperatives and people-oriented organizations
to further the attainment of any of the foregoing objectives.
ART. 100. Powers, Functions and Allied Undertakings of Cooperative Banks. – A cooperative bank
shall primarily provide financial, banking and credit services to cooperative organizations and their
members. However, the BSP may prescribe appropriate guidelines, ceilings and conditions on
borrowing of a cooperative organization from a cooperative bank.
"The powers and functions of a cooperative bank shall be subject to such rules and regulations as may
be promulgated by the BSP.
"In addition to the powers granted by this Code and other existing laws, any cooperative bank may
perform any or all of the banking services offered by other types of banks subject to the prior approval
of the BSP.

• DEVELOPMENT BANK OF THE PHILIPPINES (REVISED CHARTER OF THE DEVELOPMENT BANK OF
THE PHILIPPINES; SECTIONS 2 AND 3)
Sec. 2. Name, Purpose and Domicile. The Development Bank of the Philippines, hereinafter called the
Bank, operating under the provisions of Republic Act No. 85, as amended, shall henceforth operate
under the provisions of this 1986 Revised Charter. The Bank shall be a body corporate and shall exist
for a period of fifty years.
The primary purpose of the Bank shall be to provide banking services principally to service the medium
and long term needs of agricultural and industrial enterprises, particularly in the country-side and
preferably for small and medium scale enterprises; Provided, however, that the pursuit of these
objectives shall be undertaken within the context of a financially viable and stable banking institutions;
Provided, further that the Bank shall continue to be classified as a development Bank, Provided,
finally, that unless otherwise provided herein, the Bank may perform all other functions of a thrift bank.
The Bank's principal office and place of business shall be in the National Capital Region, also known
as Metro Manila. It may open and maintain branches, agencies or other offices at such places in the
Philippines as its Board of Directors may deem advisable, with the prior approval of the Monetary
Board of the Central Bank of the Philippines.
Sec. 3. Corporate Powers. The Development Bank of the Philippines shall have the power.
(a) To accept such deposits as are allowed thrift banks under existing law and Central
Bank regulations, including but not limited to demand, savings, and time deposits.
(b) To grant loans for the establishment, development or expression of any agricultural or
industrial enterprise;
(c) To accept and manage trust funds and properties and carry on the business of a trust
corporation;
(d) To act as official government depository with authority to maintain deposits of the
government, its subdivisions, branches, and instrumentalities, and of government-owned or
controlled corporations, subject to such rules and regulations as the Monetary Board may
prescribe;
(e) To acquire, assign, or otherwise dispose of marketable securities and other debt
instruments which are essential to the effective conduct of its general banking activities;
(f) To enter into such contracts of guaranty on suretyship as are generally allowed
domestic banking institutions under the General Banking Act; and
(g) To adopt, amend, or charge its By-laws; to adopt, alter and use a seal; to make
contracts; to sue and be sued; and to exercise the general powers of a corporation
mentioned in the Corporation Code of the Philippines, and of a thrift bank under the General
Banking Act, insofar as such powers are not inconsistent or incompatible with the provisions
of this Charter.
Unless otherwise provided in this Charter, the exercise of the above-mentioned powers on
banking shall be subject to applicable law, as well as regulations promulgated by the Central
Bank of the Philippines.
• LAND BANK OF THE PHILIPPINES (REPUBLIC ACT 3844 AS AMENDED; SECTIONS 74 AND 75)
Section 74. Creation - To finance the acquisition by the Government of landed estates for division and
resale to small landholders, as well as the purchase of the landholding by the agricultural lessee
from the landowner, there is hereby established a body corporate to be known as the "Land Bank
of the Philippines", hereinafter called the "Bank", which shall have its principal place of business in
Manila. The legal existence of the Bank shall be for a period of fifty years counting from the date of the
approval hereof. The Bank shall be subject to such rules and regulations as the Central Bank may from
time to time promulgate.
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Section 75. Powers in General - To carry out this main purpose, the Bank shall have the power:
(1) To prescribe, repeal, and alter its own by laws, to determine its operating policies, and
to issue such rules and regulations as may be necessary to achieve the main purpose for
the creation of the Bank;
(2) To adopt, alter and use a corporate seal;
(3) To acquire and own real and personal property and to sell, mortgage or otherwise
dispose of the same;
(4) To sue and be sued, make contracts, and borrow money from both local and foreign
sources. Such loans shall be subject to approval by the President of the Philippines and
shall be fully guaranteed by the Government of the Philippines;
(5) Upon recommendation of the Committee on Investments, to hold, own, purchase,
acquire, sell or otherwise invest, or reinvest in stocks, bonds or other securities capable of
giving the Bank a reasonably assured income sufficient to support its financing activities
and give its private stockholders a fair return on their holdings: Provided, however, That
pending the organization of the Committee on Investments, the Bank may exercise the
powers herein provided without the recommendation of said Committee on Investments:
Provided, further, That in case of the dissolution of the Land Bank all unsold public lands
transferred to it which may be allocated to the Government of the Philippines in the course
of liquidation of the business of the Bank shall revert to the Department of Agriculture and
Natural Resources; and
(6) To provide, free of charge, investment counselling and technical services to
landowners whose lands have been acquired by the Land Bank. For this purpose, the Land
Bank may contract the services of private consultants.
• AL-AMANAH ISLAMIC BANK (THE CHARTER OF THE AL-AMANAH ISLAMIC INVESTMENT BANK OF THE
PHILIPPINES; SECTIONS 2-6)
Section 2. Name, Domicile and Place of Business. - There is hereby created the Al- Amanah Islamic
Investment Bank of the Philippines, which shall be hereinafter called the Islamic Bank.ts principal
domicile and place of business shall be in Zamboanga City. It may establish branches, agencies or
other offices at such places in the Philippines or abroad subject to the laws, rules and regulations of the
Central Bank.
Section 3. Purpose and Basis. - The primary purpose of the Islamic Bank shall be to promote and
accelerate the socio-economic development of the Autonomous Region by performing banking,
financing and investment operations and to establish and participate in agricultural, commercial and
industrial ventures based on the Islamic concept of banking.
All business dealings and activities of the Islamic Bank shall be subject to the basic principles and
rulings of Islamic Shari'a within the purview of the aforementioned declared policy. Any zakat or "ithe"
paid by the Islamic Bank on behalf of its shareholders and depositors shall be its obligation to
appropriate said zakat fund and to disburse it in legitimate channels to be ascertained first by the
Shari'a Advisory Council.
Section 4. Shari'a Advisory Council. - There is hereby created a Shari'a Advisory Council of the Islamic
Bank which shall be composed of not more than five (5) members, selected from among Islamic
scholars and jurists of comparative law.
The members shall be elected at a general shareholders meeting of the Islamic Bank every three (3)
years from a list of nominees prepared by the Board of Directors of the Islamic Bank. The Board is
hereby authorized to select the members of the first Shari'a Advisory Council and to determine their
remunerations.
Section 5. Functions of the Shari'a Advisory Council. - The functions of the Shari'a Advisory Council
shall be to offer advice and undertake reviews pertaining to the application of the principles and rulings

of the Islamic Shari'a to the Islamic Bank's transactions, but it shall not directly involve itself in the
operations of the Bank.
Any member of the Shari'a Advisory Council may be invited to sit in the regular or special meetings of
the Board of Directors of the Islamic Bank to expound his views on matters of the Islamic Shari'a
affecting a particular transaction but he shall not be entitled to vote on the question presented before
the board meetings.
Section 6. Islamic Bank's Powers. – The Al-Amanah Islamic Investment Bank of the Philippines,
upon its organization, shall be a body corporate and shall have the power:
(1) To prescribe its bylaws and its operating policies;
(2) To adopt, alter and use a corporate seal;
(3) To make contracts, to sue and be sued;
(4) To borrow money; to own real or personal property and introduce improvements
thereon, and to sell, mortgage or otherwise dispose of the same;
(5) To employ such officers and personnel, preferably from the qualified Muslim sector,
as may be necessary to carry Islamic banking business;
(6) To establish such branches and agencies in provinces and cities in the Philippines,
particularly where Muslims are predominantly located, and such correspondent offices in
other areas in the country or abroad as may be necessary to carry on its Islamic banking
business, subject to the provisions of Section 2 hereof;
(7) To perform the following banking services:
(a) Open current or checking accounts;
(b) Open savings accounts for safekeeping or custody with no participation in
profit and losses except unless otherwise authorized by the account holders to
be invested;
(c) Accept investment account placements and invest the same for a term with
the Islamic Bank's funds in Islamically permissible transactions on participation
basis;
(d) Accept foreign currency deposits from banks, companies, organizations and
individuals, including foreign governments;
(e) Buy and sell foreign exchange;
(f) Act as correspondent of banks and institutions to handle remittances or any
fund transfers;
(g) Accept drafts and issue letters of credit or letters of guarantee, negotiate
notes and bills of exchange and other evidence of indebtedness under the
universally accepted Islamic financial instruments;
(h) Act as collection agent insofar as the payment orders, bills of exchange or
other commercial documents are exclusive of riba or interest prohibitions;
(i) Provide financing with or without collateral by way of leasing, sale and
leaseback, or cost-plus-profit sales arrangement;
(j) Handle storage operations for goods or commodity financing secured by
warehouse receipts presented to the Bank;
(k) Issue shares for the account of institutions and companies assisted by the
Bank in meeting subscription calls or augmenting their capital and/or fund
requirements as may be allowed by law;
(l) Undertake various investments in all transactions allowed by Islamic Shari'a
in such a way that shall not permit the haram (forbidden), nor forbid the halal
(permissible);
(8) To act as an official government depository, or its branches, subdivisions and
instrumentalities and of government-owned or controlled corporations, particularly those doing
business in the autonomous region;
(9) To issue investment participation certificates, muquaradah (non-interest- bearing
bonds), debentures, collaterals and/or the renewal or refinancing of the same, with the
approval of the Monetary Board of the Central Bank of the Philippines, to be used by the Bank
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in its financing operations for projects that will promote the economic development primarily of
the Autonomous Region;
(10) To carry out financing and joint investment operations by way of mudarabah
partnership, musharaka joint venture or by decreasing participation, murabaha purchasing for
others on a cost-plus financing arrangement, and to invest funds directly in various projects or
through the use of funds whose owners desire to invest jointly with other resources available
to the Islamic Bank on a joint mudarabah basis;
(11) To invest in equities of the following allied undertakings:
(a) Warehousing companies;
(b) Leasing companies;
(c) Storage companies;
(d) Safe deposit box companies;
(e) Companies engaged in the management of mutual funds but not in the mutual
funds themselves; and
(f) Such other similar activities as the Monetary Board of the Central Bank of the
Philippines has declared or may declare as appropriate from time to time, subject to
existing limitations imposed by law;
(12) To exercise the powers granted under this Charter and such incidental powers as may
be necessary to carry on its business, and to exercise further the general powers mentioned
in the Corporation Law and the General Banking Act, insofar as they are not inconsistent or
incompatible with the provisions of this Charter.
• UNIVERSAL BANKS AND COMMERCIAL BANKS (GENERAL BANKING LAW, SECTIONS 23 AND 29)
SECTION 23. Powers of a Universal Bank. — A universal bank shall have the authority to exercise, in
addition to the powers authorized for a commercial bank in Section 29, the powers of an investment
house as provided in existing laws and the power to invest in non-allied enterprises as provided in this
Act. (21-B)
SECTION 29. Powers of a Commercial Bank. — A commercial bank shall have, in addition to the
general powers incident to corporations, all such powers as may be necessary to carry on the business
of commercial banking, such as accepting drafts and issuing letters of credit; discounting and
negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; accepting or
creating demand deposits; receiving other types of deposits and deposit substitutes; buying and selling
foreign exchange and gold or silver bullion; acquiring marketable bonds and other debt securities; and
extending credit, subject to such rules as the Monetary Board may promulgate. These rules may
include the determination of bonds and other debt securities eligible for investment, the maturities and
aggregate amount of such investment. (21a)
NON-BANK FINANCIAL INSTITUTIONS:
• INVESTMENT HOUSES (INVESTMENT HOUSES LAW; SECTIONS 2, 3, 6, 7);
SECTION 2. Scope. — Any enterprise which engages in the underwriting of securities of other
corporations shall be considered an "Investment House" and shall be subject to the provisions of this
Decree and of other pertinent laws.
Nothing in this Decree shall be understood to preclude other enterprises from engaging in the mere
buying and selling of short-term securities of other persons or enterprises.
SECTION 3. Definitions. — For the purpose of this Decree, unless the context otherwise
indicates, the following definition of terms are hereby adopted:
(a) "Underwriting" is the act or process of guaranteeing the distribution and sale of securities
of any kind issued by another corporation.
(b) "Securities" are written evidences of ownership, interest, or participation, in an enterprise,

or written evidences of indebtedness of a person or enterprise. It includes, but is not
limited to the instruments enumerated in Section 2 of the Securities Act (Commonwealth
Act No. 83, as amended).
SECTION 6. Prohibitions. — Except as may be authorized by the Monetary Board, no director or officer
of an Investment House shall concurrently be a director or officer of a bank, as defined in Section 2 of
the Republic Act No. 337, as amended: Provided, however, That in no event can a person be
authorized to be concurrently an officer of an Investment House and of a bank except where the
majority or all of the equity of the Investment House is owned by the bank.
No Investment House shall engage in banking operations as defined in Section 2 of Republic Act No.
337, as amended.
SECTION 7. Powers. — In addition to the powers granted to corporations in general, an
Investment House is authorized to do the following:
(1) Arrange to distribute on a guaranteed basis securities of other corporations and of the
Government or its instrumentalities;
(2) Participate in a syndicate undertaking to purchase and sell, distribute or arrange to
distribute on a guaranteed basis securities of other corporations and of the Government or
its instrumentalities; cd i
(3) Arrange to distribute or participate in a syndicate undertaking to purchase and sell on a
best-efforts basis securities of other corporations and of the Government or its
instrumentalities;
(4) Participate as soliciting dealer or selling group member in tender offers, block sales, or
exchange offering of securities; deal in options, rights or warrants relating to securities and
such other powers which a dealer may exercise under the Securities Act (Commonwealth
Act No. 83, as amended);
(5) Promote, sponsor, or otherwise assist and implement ventures, projects and programs
that contribute to the economy's development;
(6) Act as financial consultant, investment adviser, or broker;
(7) Act as portfolio manager, and/or financial agent;
(8) Encourage companies to go public, and initiate and/or promote, whenever warranted,
the formation, merger, consolidation, reorganization, expansion or recapitalization of
productive enterprises, by providing assistance or participate in the form of debt or equity
financing or through the extension of financial or technical advice or service;
(9) Undertake or contract for researches, studies and surveys on such matters as
business and economic conditions of various countries, the structure of financial markets,
the institutional arrangements for mobilizing investments;
(10) Acquire, own, hold, lease or obtain an interest in real and/or personal property as may
be necessary or appropriate to carry on its objectives and purposes;
(11) Design pension, profit-sharing and other employee benefits plans;
(12) Such other activities or business ventures as are directly or indirectly related to the
dealing in securities and other commercial papers, unless otherwise governed or prohibited
by special laws, in which case the special law shall apply;
(13) Subject to prior approval by the Monetary Board, the provisions of Chapter IV of the
Central Bank Charter, and such rules and regulations as may be issued by the Monetary
Board, engage in foreign exchange operations which the Monetary Board identified as
directly related to an supportive of the activities specified under Subsection 8 of this
section; and
(14) Act as trustee of a trust fund or trust property, subject to the provisions of Chapter VII
of the General Banking Act.
Nothing in this section shall preclude other enterprises not covered by this Decree from
engaging in the activities listed under subsection (3) to (11) of this section, except as may
otherwise be governed by special laws.
Ø Forms of Securities Undertaking:
1. Firm Basis – guaranteed.
2. Best-efforts Basis – not responsible for failure to sell securities.
6 DEAN JMGH | BANKING L AW | YAP, K.
SECTION 7-A. Subject to applicable laws and regulations and with prior approval of the Monetary
Board, an Investment House may be converted into a commercial bank authorized to operate under an
expanded commercial banking authority pursuant to Section 21-B of Republic Act No. 337, as
amended.
• FINANCING COMPANIES (FINANCING COMPANY ACT; SECTIONS 3 AND 9);
Sec. 3. Definition of Terms. — As used in this Act, the term:
'Financing companies' hereinafter called companies, are corporations, except banks, investments
houses, savings and loan associations, insurance companies, cooperatives, and other financial
institutions organized or operating under other special laws, which are primarily organized for the
purpose of extending credit facilities to consumers and to industrial, commercial, or
agricultural enterprises, by direct lending or by discounting or factoring commercial papers or
accounts receivable, or by buying and selling contracts, leases, chattel mortgages, or other
evidences of indebtedness, or by financial leasing of movable as well as immovable property;
(a) 'Securities and Exchange Commission' shall mean the office of the Securities and Exchange
Commission of the Philippines;
(b) 'Credit' shall mean any loan, mortgage, financial lease, deed of trust, advance or discount,
any conditional sales contract, contract to sell, or sale or contract of sale of property or service,
either for present or future delivery, under which, part of all or the price is payable subsequent to
the making of such sale or contract; any contract, any option, demand, lien or pledge, or to the
other claims against, or for the delivery of, property or money, any purchase, or other acquisition
of or any credit upon the security of, any obligation or claim arising out of the foregoing, and any
transaction or series of transactions having similar purpose or effect; and
(d) 'Financial leasing' is a mode of extending credit through a non-cancelable lease contract under
which the lessor purchases or acquires, at the instance of the lessee, machinery, equipment,
motor vehicles, appliances, business and office machines, and other movable or immovable
property in consideration of the periodic payment by the lessee of a fixed amount of money
sufficient to amortize at least seventy (70%) of the purchase price or acquisition cost, including
any incidental expenses and a margin of profit over an obligatory period of not less than two (2)
years during which the lessee has the right to hold and use the leased property with the right to
expense the lease rentals paid to the lessor and bears the cost of repairs, maintenance, insurance
and preservation thereof, but with no obligation or option on his part to purchase the leased
property from the owner-lessor at the end of the lease contract.
(e) 'Purchase discount' is the difference between the value of the receivable purchased or credit
assigned, and the net amount paid by the finance company for such purchases or assignment,
exclusive of fees, services, charges, interest and other charges incident to the extension of credit.
(f) 'Lease rentals' shall refer to the periodic payments made by the lessee to the lessor under
Section 3(d), above.
SEC. 9. Rights and Powers. — Financing companies shall have the following powers, in addition
to those granted by this Act and by other laws:
(a) Engage in quasi-banking and money market operations with the prior approval of the Bangko
Sentral ng Pilipinas;
(b) Engage in trust operations subject to the provisions of the General Banking Act upon prior
approval by the Bangko Sentral ng Pilipinas;
(c) Issue bonds and other capital instruments subject to pertinent rules and regulations of the
Bangko Sentral ng Pilipinas;
(d) Rediscount their paper with government financial institutions subject to relevant laws, rules
and regulations;

(e) Participate in special loan or credit programs sponsored by or made available through (4) Any person substantially all of whose business is confined to industrial banking or similar
government financial institutions; and business.
(f) Provide foreign currency loans and leases to enterprises who earn foreign currency by (5) Any person who is primarily engaged in one or more of the following business: (A)
exports or other means, subject to existing laws and rules and regulations promulgated by the Purchasing or otherwise acquiring notes, drafts, acceptances, open accounts receivable, and
Bangko Sentral ng Pilipinas. other obligations representing part or all of the sales price of merchandise, insurance, and
services; (B) making loans to manufacturers, wholesalers, and retailers of, and to prospective
Nothing in this section shall be construed as precluding a financing company from performing purchasers of, specified merchandise, insurance, and service; and (C) purchasing or otherwise
such services or exercising such powers as may be granted by the Bangko Sentral ng Pilipinas acquiring mortgages and other liens on and interests in real estate.
or the Securities and Exchange Commission or as may be incidental to its activities as a (6) Any company primarily engaged, directly or through majority-owned subsidiaries, in one or
corporation. more of the businesses described in paragraphs (3), (4) and (5), or in one or more of such
businesses (from which not less than forty per centum of such company's gross income during
its last fiscal year was derived) together with an additional business or businesses other than
• INVESTMENT COMPANIES (INVESTMENT COMPANY ACT; SECTION 4).
investing, reinvesting, owning, holding or trading in securities.
(7) Any company ninety per centum or more of the value of whose investment securities are
SECTION 4. Definition of investment company. — represented by securities of a single issuer included within a class of persons enumerated in
paragraphs (4), (5), or (6).
(a) when used in this Act "investment company" means any issuer which is or holds itself out as being (8) Any person substantially all of whose business consist of owning or holding oil, gas, or other
engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading mineral royalties or leases, or fractional interests therein, or certificates of interest or
in securities; participation in or investment contracts relative to such royalties, leases, or fractional interests.
(b) Notwithstanding subsection (a), none of the following persons is an investment company (9) Any company organized and operated exclusively for religious, educational, benevolent,
within the meaning of this Act; fraternal, charitable, or reformatory purposes, no part of the net earnings of which inures to the
benefit of any private shareholders or individual.
(1) Any issuer primarily engaged, directly or through a wholly-owned subsidiary or subsidiaries, (10) Any employees' stock bonus, pension, or profit- sharing trust.
in a business or businesses other than that of investing, reinvesting, or trading in securities. (11) Any voting trust the assets of which consist exclusively of securities of a single issuer which
(2) Any issuer which the Commission, upon application by such issuer, finds and by order is not an investment company.
declares to be primarily engaged in a business or businesses other than that of investing, (12) Any security holders' protective committee or similar issuer having outstanding and issuing
reinvesting, or trading in securities either directly or (A) through majority- owned subsidiaries or no securities other than certificates of deposit and short-term paper.
(B) through controlled companies conducting similar types of business. The filing of an
application under this paragraph by an issuer other than a registered investment company shall
*In connection with the class to be held covering the foregoing assignment, in respect of the provisions
exempt the applicant for a period of sixty days from all provisions of this Act applicable to
of law under the headings “Types of Banks” and “Non-Bank Financial Institutions,” please read through
investment companies as such. For cause shown, the Commission by order may extend
the statutory provisions with a view to gaining a general appreciation of the type of specialized financial
such period of exemption for an additional period or periods. Whenever the Commission,
institutions identified and their overall purpose or function. No requirement to undertake a detailed
upon its own motion or upon application, finds that the circumstances which gave rise to the
memorization of specific powers.
issuance of an order granting an application under this paragraph no longer exist, the
Commission shall by order revoke such order.
(3) Any issuer all the outstanding securities of which (other than short-term paper and directors'
qualifying shares) are directly or indirectly owned by a company excepted from the definition of
investment company.

(c) Notwithstanding subsection (a), and (b), none of the following persons is an investment company
within the meaning of this Act:

(1) Any issuer whose outstanding securities (other than short-term paper) are beneficially
owned by not more than twenty-five persons and which is not making and does not presently
propose to make a public offering of its securities. For the purpose of this paragraph, beneficial
ownership by a company shall be deemed to be beneficial ownership by one person; except
that, if such company owns ten per centum or more of the outstanding voting securities of the
issuer, the beneficial ownership shall be deemed to be that of the holders of such company's
outstanding securities (other than short-term paper).
(2) Any person primarily engaged in the business of underwriting and distributing securities
issued by other persons, selling securities to customers, and acting as broker, or any one or
more of such activities, whose gross income normally is derived principally from such business
and related activities.
(3) Any bank or insurance company; any savings and loan association, building and loan
association, cooperative bank, homestead association, or similar institution, or (any receiver,
conservator, liquidator, liquidating agent, or similar official or person thereof or therefor; any
common trust fund or similar fund maintained by a bank exclusively for the collective investment
and reinvestment of moneys contributed thereto by the bank in its capacity as a trustee,
executor, administrator, or guardian.

7 DEAN JMGH | BANKING L AW | YAP, K.


Banking Law I (SYLLABUS 2)
The Big Picture and The Need for Special Regulation
Laws/Regulations
A. What is Banking?
• General Banking Law, Sections 3.1 and 8.2
SECTION 3.1. "Banks" shall refer to entities engaged in the lending of funds obtained in the form of
deposits. (2a)
Ø Banks – entities engaged in the lending of funds obtained from the public in the form of deposits.
o Deposits of money in banks and similar institutions are considered simple loans.
o The relationship between a depositor and a bank is that of a creditor and debtor.
o The ownership of the amount deposited is transmitted to the bank upon the perfection
of the contract, and the bank can use the amount for its own transactions and other
banking operations.
o Although the bank has the obligation to return the amount deposited, it has no
obligation to return or deliver the “exact same” money that was deposited.
Q: What if 10 millionaires pool funds and put them in a company to loan them out to those who
could not apply for loans from banks, are they engaged in banking? What about hundreds of
millionaires do so?
A: No. The company’s funds are not sourced from deposits from the public.
Q: What if the millionaires instead “loaned” money to the entity, is it now a bank?
A: Yes. In the first situation, it was equity transferred to the company. In the second situation,
the loans are likewise owned by the bank.
SECTION 8.2. That its funds are obtained from the public, which shall mean twenty (20) or more
persons (2-Da);
B. What is Quasi-Banking?
• General Banking Law, Section 4
SECTION 4. xxx The Bangko Sentral shall also have supervision over the operations of and exercise
regulatory powers over quasi-banks, trust entities and other financial institutions which under special
laws are subject to Bangko Sentral supervision. (2 Ca)
For the purposes of this Act, "quasi-banks" shall refer to entities engaged in the borrowing of funds
through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes
as defined in Section 95 of Republic Act No. 7653 (hereafter the "New Central Bank Act") for purposes
of relending or purchasing of receivables and other obligations. (2-Da)
Ø The “borrower” in this case is the quasi-bank.
Q: What does “with recourse mean?” To whom will you have recourse?
A: You will have recourse to the bank. You can claim from the bank’s account.
• The New Central Bank Act, Section 95
SECTION 95. Definition of Deposit Substitutes. — The term "deposit substitutes" is defined as an
alternative form of obtaining funds from the public, other than deposits, through the issuance,
endorsement, or acceptance of debt instruments for the borrower's own account, for the purpose of
8 DEAN JMGH | BANKING L AW | YAP, K.
relending or purchasing of receivables and other obligations. These instruments may include, but need
not be limited to, bankers acceptances, promissory notes, participations, certificates of assignment and
similar instruments with recourse, and repurchase agreements. The Monetary Board shall determine
what specific instruments shall be considered as deposit substitutes for the purposes of Section 94 of
this Act: Provided, however, That deposit substitutes of commercial, industrial and other non-financial
companies issued for the limited purpose of financing their own needs or the needs of their agents or
dealers shall not be covered by the provisions of Section 94 of this Act.
C. The Licensing Requirement
• General Banking Law, Sections 6 and 8
SECTION 6. Authority to Engage in Banking and Quasi-Banking Functions. — No person or entity
shall engage in banking operations or quasi-banking functions without authority from the Bangko
Sentral: Provided, however, That an entity authorized by the Bangko Sentral to perform universal or
ing functions shall likewise have the authority to engage in quasi-banking functions.
The determination of whether a person or entity is performing banking or quasi-banking functions
without Bangko Sentral authority shall be decided by the Monetary Board. To resolve such issue, the
Monetary Board may, through the appropriate supervising and examining department of the Bangko
Sentral, examine, inspect or investigate the books and records of such person or entity. Upon issuance
of this authority, such person or entity may commence to engage in banking operations or quasi-
banking functions and shall continue to do so unless such authority is sooner surrendered, revoked,
suspended or annulled by the Bangko Sentral in accordance with this Act or other special laws.
The department head and the examiners of the appropriate supervising and examining department are
hereby authorized to administer oaths to any such person, employee, officer, or director of any such
entity and to compel the presentation or production of such books, documents, papers or records that
are reasonably necessary to ascertain the facts relative to the true functions and operations of such
person or entity. Failure or refusal to comply with the required presentation or production of such
books, documents, papers or records within a reasonable time shall subject the persons responsible
therefor to the penal sanctions provided under the New Central Bank Act.
Persons or entities found to be performing banking or quasi-banking functions without authority from
the Bangko Sentral shall be subject to appropriate sanctions under the New Central Bank Act and
other applicable laws. (4a)
SECTION 8. Organization. — The Monetary Board may authorize the organization of a bank or quasi-
bank subject to the following conditions:
8.1. That the entity is a stock corporation (7);
8.2. That its funds are obtained from the public, which shall mean twenty (20) or more persons (2-
Da); and
8.3. That the minimum capital requirements prescribed by the Monetary Board for each category
of banks are satisfied. (n)
No new commercial bank shall be established within three (3) years from the effectivity of this Act. In
the exercise of the authority granted herein, the Monetary Board shall take into consideration their
capability in terms of their financial resources and technical expertise and integrity. The bank licensing
process shall incorporate an assessment of the bank's ownership structure, directors and senior
management, its operating plan and internal controls as well as its projected financial condition and
capital base.
Q: So can a partnership apply to be a bank?
A: No. The current law expressly requires that the entity be in the form of a stock corporation.
D. Need for Special Regulation

• General Banking Law, Sections 2 and 22
SECTION 2. Declaration of Policy. — The State recognizes the vital role of banks in providing an
environment conducive to the sustained development of the national economy and the fiduciary nature
of banking that requires high standards of integrity and performance. In furtherance thereof, the State
shall promote and maintain a stable and efficient banking and financial system that is globally
competitive, dynamic and responsive to the demands of a developing economy. (n)
SECTION 22. Strikes and Lockouts. — The banking industry is hereby declared as indispensable to
the national interest and, notwithstanding the provisions of any law to the contrary, any strike or lockout
involving banks, if unsettled after seven (7) calendar days shall be reported by the Bangko Sentral to
the Secretary of Labor who may assume jurisdiction over the dispute or decide it or certify the same to
the National Labor Relations Commission for compulsory arbitration. However, the President of the
Philippines may at any time intervene and assume jurisdiction over such labor dispute in order to settle
or terminate the same. (6-E)
E. Bangko Sentral ng Pilipinas (BSP) as Regulator
1. BSP as Licensor
o General Banking Law, Sections 6, 8, 14, 64
SECTION 6. SECTION 6. Authority to Engage in Banking and Quasi-Banking Functions. — No
person or entity shall engage in banking operations or quasi-banking functions without authority from
the Bangko Sentral: Provided, however, That an entity authorized by the Bangko Sentral to perform
universal or commercial banking functions shall likewise have the authority to engage in quasi-banking
functions.
The determination of whether a person or entity is performing banking or quasi-banking functions
without Bangko Sentral authority shall be decided by the Monetary Board. To resolve such issue, the
Monetary Board may, through the appropriate supervising and examining department of the Bangko
Sentral, examine, inspect or investigate the books and records of such person or entity. Upon issuance
of this authority, such person or entity may commence to engage in banking operations or quasi-
banking functions and shall continue to do so unless such authority is sooner surrendered, revoked,
suspended or annulled by the Bangko Sentral in accordance with this Act or other special laws.
The department head and the examiners of the appropriate supervising and examining department are
hereby authorized to administer oaths to any such person, employee, officer, or director of any such
entity and to compel the presentation or production of such books, documents, papers or records that
are reasonably necessary to ascertain the facts relative to the true functions and operations of such
person or entity. Failure or refusal to comply with the required presentation or production of such
books, documents, papers or records within a reasonable time shall subject the persons responsible
therefor to the penal sanctions provided under the New Central Bank Act.
Persons or entities found to be performing banking or quasi-banking functions without authority from
the Bangko Sentral shall be subject to appropriate sanctions under the New Central Bank Act and
other applicable laws. (4a)
SECTION 8. Organization. — The Monetary Board may authorize the organization of a bank or quasi-
bank subject to the following conditions:
8.1. That the entity is a stock corporation (7);
8.2. That its funds are obtained from the public, which shall mean twenty (20) or more persons (2-
Da); and
8.3. That the minimum capital requirements prescribed by the Monetary Board for each category
of banks are satisfied. (n)
9 DEAN JMGH | BANKING L AW | YAP, K.
No new commercial bank shall be established within three (3) years from the effectivity of this Act. In
the exercise of the authority granted herein, the Monetary Board shall take into consideration their
capability in terms of their financial resources and technical expertise and integrity. The bank licensing
process shall incorporate an assessment of the bank's ownership structure, directors and senior
management, its operating plan and internal controls as well as its projected financial condition and
capital base.
SECTION 14. Certificate of Authority to Register. — The Securities and Exchange Commission
shall not register the articles of incorporation of any bank, or any amendment thereto, unless
accompanied by a certificate of authority issued by the Monetary Board, under its seal. Such certificate
shall not be issued unless the Monetary Board is satisfied from the evidence submitted to it:
14.1. That all requirements of existing laws and regulations to engage in the business for which the
applicant is proposed to be incorporated have been complied with;
14.2. That the public interest and economic conditions, both general and local, justify the
authorization; and
14.3. That the amount of capital, the financing, organization, direction and administration, as well as
the integrity and responsibility of the organizers and administrators reasonably assure the
safety of deposits and the public interest. (9)
The Securities and Exchange Commission shall not register the by-laws of any bank, or any
amendment thereto, unless accompanied by a certificate of authority from the Bangko Sentral. (10)
SECTION 64. Unauthorized Advertisement or Business Representation. — No person,
association, or corporation unless duly authorized to engage in the business of a bank, quasi-bank,
trust entity, or savings and loan association as defined in this Act, or other banking laws, shall advertise
or hold itself out as being engaged in the business of such bank, quasi-bank, trust entity, or
association, or use in connection with its business title, the word or words "bank", "banking", "banker",
"quasi-bank", "quasi-banking", "quasi-banker", "savings and loan association", "trust corporation", "trust
company" or words of similar import or transact in any manner the business of any such bank,
corporation or association. (6)
2. Operating without Authority
o General Banking Law, Section 66
SECTION 66. Penalty for Violation of this Act. — Unless otherwise herein provided, the violation of
any of the provisions of this Act shall be subject to Sections 34, 35, 36 and 37 of the New Central Bank
Act. If the offender is a director or officer of a bank, quasi-bank or trust entity, the Monetary Board may
also suspend or remove such director or officer. If the violation is committed by a corporation, such
corporation may be dissolved by quo warranto proceedings instituted by the Solicitor General. (87)
o The New Central Bank Act, Sections 36 and 37
SECTION 36. Proceedings Upon Violation of This Act and Other Banking Laws, Rules,
Regulations, Orders or Instructions. – Whenever a bank or quasi-bank, or whenever any person or
entity wilfully violates this Act or other pertinent banking laws being enforced or implemented by the
Bangko Sentral or any order, instruction, rule or regulation issued by the Monetary Board, the person
or persons responsible for such violation shall unless otherwise provided in this Act be punished by a
fine of not less than Fifty thousand pesos (P50,000) nor more than Two hundred thousand pesos
(P200,000) or by imprisonment of not less than two (2) years nor more than ten (10) years, or both, at
the discretion of the court.
Whenever a bank or quasi-bank persists in carrying on its business in an unlawful or unsafe manner,
the Board may, without prejudice to the penalties provided in the preceding paragraph of this section
and the administrative sanctions provided in Section 37 of this Act, take action under Section 30 of this
Act.

SECTION 37. Administrative Sanctions on Banks and Quasi-banks. — Without prejudice to the
criminal sanctions against the culpable persons provided in Sections 34, 35, and 36 of this Act, the
Monetary Board may, at its discretion, impose upon any bank or quasi-bank, their directors and/or
officers, for any wilful violation of its charter or by-laws, wilful delay in the submission of reports or
publications thereof as required by law, rules and regulations; any refusal to permit examination into
the affairs of the institution; any wilful making of a false or misleading statement to the Board or the
appropriate supervising and examining department or its examiners; any wilful failure or refusal to
comply with, or violation of, any banking law or any order, instruction or regulation issued by the
Monetary Board, or any order, instruction or ruling by the Governor; or any commission or irregularities,
and/or conducting business in an unsafe or unsound manner as may be determined by the Monetary
Board, the following administrative sanctions, whenever applicable:
(a) fines in amounts as may be determined by the Monetary Board to be appropriate, but in no
case to exceed Thirty thousand pesos (P30,000) a day for each violation, taking into
consideration the attendant circumstances, such as the nature and gravity of the violation or
irregularity and the size of the bank or quasi-bank;
(b) suspension of rediscounting privileges or access to Bangko Sentral credit facilities;
(c) suspension of lending or foreign exchange operations or authority to accept new deposits or
make new investments;
(d) suspension of interbank clearing privileges; and/or
(e) revocation of quasi-banking license.
Resignation or termination from office shall not exempt such director or officer from administrative or
criminal sanctions.
The Monetary Board may, whenever warranted by circumstances, preventively suspend any director or
officer of a bank or quasi-bank pending an investigation: Provided, That should the case be not finally
decided by the Bangko Sentral within a period of one hundred twenty (120) days after the date of
suspension, said director or officer shall be reinstated in his position: Provided, further, That when the
delay in the disposition of the case is due to the fault, negligence or petition of the director or officer,
the period of delay shall not be counted in computing the period of suspension herein provided.
The above administrative sanctions need not be applied in the order of their severity.
Whether or not there is an administrative proceeding, if the institution and/or the directors and/or
officers concerned continue with or otherwise persist in the commission of the indicated practice or
violation, the Monetary Board may issue an order requiring the institution and/or the directors and/or
officers concerned to cease and desist from the indicated practice or violation, and may further order
that immediate action be taken to correct the conditions resulting from such practice or violation. The
cease and desist order shall be immediately effective upon service on the respondents.
The respondents shall be afforded an opportunity to defend their action in a hearing before the
Monetary Board or any committee chaired by any Monetary Board member created for the purpose,
upon request made by the respondents within five (5) days from their receipt of the order. If no such
hearing is requested within said period, the order shall be final. If a hearing is conducted, all issues
shall be determined on the basis of records, after which the Monetary Board may either reconsider or
make final its order.
The Governor is hereby authorized, at his discretion, to impose upon banking institutions, for any
failure to comply with the requirements of law, Monetary Board regulations and policies, and/or
instructions issued by the Monetary Board or by the Governor, fines not in excess of Ten thousand
pesos (P10,000) a day for each violation, the imposition of which shall be final and executory until
reversed, modified or lifted by the Monetary Board on appeal.
3. BSP as Supervisor and Regulator
o General Banking Law, Sections 4-7
10
SECTION 4. Supervisory Powers. — The operations and activities of banks shall be subject to
supervision of the Bangko Sentral. "Supervision" shall include the following:
4.1. The issuance of rules of conduct or the establishment of standards of operation for uniform
application to all institutions or functions covered, taking into consideration the distinctive
character of the operations of institutions and the substantive similarities of specific
functions to which such rules, modes or standards are to be applied;
4.2. The conduct of examination to determine compliance with laws and regulations if the
circumstances so warrant as determined by the Monetary Board;
4.3. Overseeing to ascertain that laws and regulations are complied with;
4.4. Regular investigation which shall not be oftener than once a year from the last date of
examination to determine whether an institution is conducting its business on a safe or
sound basis: Provided, That the deficiencies/irregularities found by or discovered by an
audit shall be immediately addressed;
4.5. Inquiring into the solvency and liquidity of the institution (2-D); or
4.6. Enforcing prompt corrective action. (n)
The Bangko Sentral shall also have supervision over the operations of and exercise regulatory powers
over quasi-banks, trust entities and other financial institutions which under special laws are subject to
Bangko Sentral supervision. (2-Ca)
For the purposes of this Act, "quasi-banks" shall refer to entities engaged in the borrowing of funds
through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes
as defined in Section 95 of Republic Act No. 7653 (hereafter the "New Central Bank Act") for purposes
of relending or purchasing of receivables and other obligations. (2-Da)
SECTION 5. Policy Direction; Ratios, Ceilings and Limitations. — The Bangko Sentral shall
provide policy direction in the areas of money, banking and credit. (n)
For this purpose, the Monetary Board may prescribe ratios, ceilings, limitations, or other forms of
regulation on the different types of accounts and practices of banks and quasi-banks which shall, to the
extent feasible, conform to internationally accepted standards, including those of the Bank for
International Settlements (BIS). The Monetary Board may exempt particular categories of transactions
from such ratios, ceilings and limitations, but not limited to exceptional cases or to enable a bank or
quasi-bank under rehabilitation or during a merger or consolidation to continue in business with safety
to its creditors, depositors and the general public. (2-Ca)
SECTION 6. Authority to Engage in Banking and Quasi-Banking Functions. — No person or entity
shall engage in banking operations or quasi-banking functions without authority from the Bangko
Sentral: Provided, however, That an entity authorized by the Bangko Sentral to perform universal or
commercial banking functions shall likewise have the authority to engage in quasi-banking functions.
The determination of whether a person or entity is performing banking or quasi-banking functions
without Bangko Sentral authority shall be decided by the Monetary Board. To resolve such issue, the
Monetary Board may, through the appropriate supervising and examining department of the Bangko
Sentral, examine, inspect or investigate the books and records of such person or entity. Upon issuance
of this authority, such person or entity may commence to engage in banking operations or quasi-
banking functions and shall continue to do so unless such authority is sooner surrendered, revoked,
suspended or annulled by the Bangko Sentral in accordance with this Act or other special laws.
The department head and the examiners of the appropriate supervising and examining department are
hereby authorized to administer oaths to any such person, employee, officer, or director of any such
entity and to compel the presentation or production of such books, documents, papers or records that
are reasonably necessary to ascertain the facts relative to the true functions and operations of such
person or entity. Failure or refusal to comply with the required presentation or production of such
books, documents, papers or records within a reasonable time shall subject the persons responsible
therefor to the penal sanctions provided under the New Central Bank Act.
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Persons or entities found to be performing banking or quasi-banking functions without authority from
the Bangko Sentral shall be subject to appropriate sanctions under the New Central Bank Act and
other applicable laws. (4a)
SECTION 7. Examination by the Bangko Sentral. — The Bangko Sentral shall, when examining a
bank, have the authority to examine an enterprise which is wholly or majority-owned or controlled by
the bank. (21-Ba)
o The New Central Bank Act, Sections 25, 28, 36 and 37
SECTION 25. Supervision and Examination. — The Bangko Sentral shall have supervision over, and
conduct periodic or special examinations of, banking institutions and quasi-banks, including their
subsidiaries and affiliates engaged in allied activities.
For purposes of this section, a subsidiary means a corporation more than fifty percent (50%) of the
voting stock of which is owned by a bank or quasi-bank and an affiliate means a corporation the voting
stock of which, to the extent of fifty percent (50%) or less, is owned by a bank or quasi-bank or which is
related or linked to such institution or intermediary through common stockholders or such other factors
as may be determined by the Monetary Board.
The department heads and the examiners of the supervising and/or examining departments are hereby
authorized to administer oaths to any director, officer, or employee of any institution under their
respective supervisions or subject to their examination and to compel the presentation of all books,
documents, papers or records necessary in their judgment to ascertain the facts relative to the true
condition of any institution as well as the books and records of persons and entities relative to or in
connection with the operations, activities or transactions of the institution under examination, subject to
the provision of existing laws protecting or safeguarding the secrecy or confidentiality of bank deposits
as well as investments of private persons, natural or juridical, in debt instruments issued by the
Government.
No restraining order or injunction shall be issued by the court enjoining the Bangko Sentral from
examining any institution subject to supervision or examination by the Bangko Sentral, unless there is
convincing proof that the action of the Bangko Sentral is plainly arbitrary and made in bad faith and the
petitioner or plaintiff files with the clerk or judge of the court in which the action is pending a bond
executed in favor of the Bangko Sentral, in an amount to be fixed by the court. The provisions of Rule
58 of the New Rules of Court insofar as they are applicable and not inconsistent with the provisions of
this section shall govern the issuance and dissolution of the restraining order or injunction
contemplated in this section.
SECTION 28. Examination and Fees. — The supervising and examining department head, personally
or by deputy, shall examine the books of every banking institution once in every twelve (12) months,
and at such other times as the Monetary Board by an affirmative vote of five (5) members, may deem
expedient and to make a report on the same to the Monetary Board: Provided, That there shall be an
interval of at least twelve (12) months between annual examinations.
The bank concerned shall afford to the head of the appropriate supervising and examining
departments and to his authorized deputies full opportunity to examine its books, cash and available
assets and general condition at any time during banking hours when requested to do so by the Bangko
Sentral: Provided, however, That none of the reports and other papers relative to such examinations
shall be open to inspection by the public except insofar as such publicity is incidental to the
proceedings hereinafter authorized or is necessary for the prosecution of violations in connection with
the business of such institutions.
Banking and quasi-banking institutions which are subject to examination by the Bangko Sentral shall
pay to the Bangko Sentral, within the first thirty (30) days of each year, an annual fee in an amount
equal to a percentage as may be prescribed by the Monetary Board of its average total assets during
the preceding years as shown on its end-of-month balance sheets, after deducting cash on hand and
amounts due from banks, including the Bangko Sentral and banks abroad.
11
SECTION 36. Proceedings Upon Violation of This Act and Other Banking Laws, Rules,
Regulations, Orders or Instructions. – Whenever a bank or quasi-bank, or whenever any person or
entity wilfully violates this Act or other pertinent banking laws being enforced or implemented by the
Bangko Sentral or any order, instruction, rule or regulation issued by the Monetary Board, the person
or persons responsible for such violation shall unless otherwise provided in this Act be punished by a
fine of not less than Fifty thousand pesos (P50,000) nor more than Two hundred thousand pesos
(P200,000) or by imprisonment of not less than two (2) years nor more than ten (10) years, or both, at
the discretion of the court.
Whenever a bank or quasi-bank persists in carrying on its business in an unlawful or unsafe manner,
the Board may, without prejudice to the penalties provided in the preceding paragraph of this section
and the administrative sanctions provided in Section 37 of this Act, take action under Section 30 of this
Act.
SECTION 37. Administrative Sanctions on Banks and Quasi-banks. — Without prejudice to the
criminal sanctions against the culpable persons provided in Sections 34, 35, and 36 of this Act, the
Monetary Board may, at its discretion, impose upon any bank or quasi-bank, their directors and/or
officers, for any wilful violation of its charter or by-laws, wilful delay in the submission of reports or
publications thereof as required by law, rules and regulations; any refusal to permit examination into
the affairs of the institution; any wilful making of a false or misleading statement to the Board or the
appropriate supervising and examining department or its examiners; any wilful failure or refusal to
comply with, or violation of, any banking law or any order, instruction or regulation issued by the
Monetary Board, or any order, instruction or ruling by the Governor; or any commission or irregularities,
and/or conducting business in an unsafe or unsound manner as may be determined by the Monetary
Board, the following administrative sanctions, whenever applicable:
(a) fines in amounts as may be determined by the Monetary Board to be appropriate, but in no
case to exceed Thirty thousand pesos (P30,000) a day for each violation, taking into
consideration the attendant circumstances, such as the nature and gravity of the violation or
irregularity and the size of the bank or quasi-bank;
(b) suspension of rediscounting privileges or access to Bangko Sentral credit facilities;
(c) suspension of lending or foreign exchange operations or authority to accept new deposits or
make new investments;
(d) suspension of interbank clearing privileges; and/or
(e) revocation of quasi-banking license.
Resignation or termination from office shall not exempt such director or officer from administrative or
criminal sanctions.
The Monetary Board may, whenever warranted by circumstances, preventively suspend any director or
officer of a bank or quasi-bank pending an investigation: Provided, That should the case be not finally
decided by the Bangko Sentral within a period of one hundred twenty (120) days after the date of
suspension, said director or officer shall be reinstated in his position: Provided, further, That when the
delay in the disposition of the case is due to the fault, negligence or petition of the director or officer,
the period of delay shall not be counted in computing the period of suspension herein provided.
The above administrative sanctions need not be applied in the order of their severity.
Whether or not there is an administrative proceeding, if the institution and/or the directors and/or
officers concerned continue with or otherwise persist in the commission of the indicated practice or
violation, the Monetary Board may issue an order requiring the institution and/or the directors and/or
officers concerned to cease and desist from the indicated practice or violation, and may further order
that immediate action be taken to correct the conditions resulting from such practice or violation. The
cease and desist order shall be immediately effective upon service on the respondents.
The respondents shall be afforded an opportunity to defend their action in a hearing before the
Monetary Board or any committee chaired by any Monetary Board member created for the purpose,
upon request made by the respondents within five (5) days from their receipt of the order. If no such
hearing is requested within said period, the order shall be final. If a hearing is conducted, all issues
DEAN JMGH | BANKING L AW | YAP, K.

shall be determined on the basis of records, after which the Monetary Board may either reconsider or
make final its order.
The Governor is hereby authorized, at his discretion, to impose upon banking institutions, for any
failure to comply with the requirements of law, Monetary Board regulations and policies, and/or
instructions issued by the Monetary Board or by the Governor, fines not in excess of Ten thousand
pesos (P10,000) a day for each violation, the imposition of which shall be final and executory until
reversed, modified or lifted by the Monetary Board on appeal.
Jurisprudence (Memory Buzzer)
(1) Republic v. • Central Bank against SCAC
Security Credit • Pursuant to a search warrant applied for by the Superintendent of
and Acceptance Banks of the Central Bank, members of the intelligence division of the
Corporation
Central Bank and the Manila Police Department searched the
(SCAC)
premises of SCAC and seized documents and records thereof relating
to its business operations – this was due to a violation of the General
Banking Act requiring a license from the Central Bank. SCAC’s
directors deny that its transactions partake of the nature of banking
operations. Due to SCAC’s failure to secure such license, the Solicitor
General and the Central Bank commenced this quo warranto
proceeding for the dissolution of SCAC.
• Whether SCAC is engaged in banking operations.
• Yes. Banks are moneyed institutes founded to facilitate the borrowing,
lending, and safe-keeping of money; an investment company which
loans out money of its customers, collects the interests, and charges a
commission to both lender and borrower is a bank. The SC found that:
(1) SCAC through its 74 branches received deposits from the public
which amounted to PHP59,463; (2) these amounts were lent out to
such persons as SCAC deemed suitable therefor; (3) SCAC’s original
capital stock of PHP500,000 had increased to PHP3,000,000 in less
than a year.
(2) Central Bank v. • Central Bank against First Mutual Savings and Loan Organization,
Morfe Inc.
• The Organization is a registered non-stock corporation whose main
purpose is “to encourage and implement savings and thrift among its
members, and to extend financial assistance in the form of loans to
them. It is composed of founder, participating, and honorary members.
A search warrant was issued upon application by a member of the
intelligence division of the Central Bank – caused the seizure of
articles, papers effects, “and others” of the Organization (ex. AOI, by-
laws, journals, ledgers, etc.). The Organization assails such warrant
as being a roving commission (general warrant).
• Whether preliminary injunction is proper.
• Yes. The SC found that the Organization is engaged in banking
activities without the required license from the Central Bank. First, the
law requiring compliance with certain requirements before anybody
can engage in banking obviously seeks to protect the public against
actual, as well as “potential” injury. Hence, there is no need for an
actual “victim” herein, as the respondent judge proposed. Second, the
transactions related constitute the “general pattern of business” of the
Organization – “to extend financial assistance in the form of loans, to
its members.” This is covered by the definition of a bank. Third,
although the designation “members” is used, the documents will
readily show that anybody can be a depositor and thus be a
“participating member” in the Organization, which means that it is
“open to the public for deposit accounts” and the funds so raised may
12
be lent by the Organization. Thus, injunction is made permanent.
(3) Bañas v. Asia • Teodoro Bañas against Union Bank
Pacific Finance • Bañas executed a promissory note in favor of Dizon Construction, to
Corporation be paid in installments. Dizon Construction endorsed the PN to Asia
Pacific. A deed of chattel mortgage was executed covering 3
Caterpillar Bulldozer Crawler tractors, in favor of Asia Pacific (now
Union Bank). Bañas failed to pay due to financial distress. In this
petition for the issuance of a writ of replevin of the tracrots, the heirs of
Bañas argue that Bañas is not liable for the note and mortgage
because they were not intended to be effective since Asia Pacific
could not directly engage in banking business (it’s only an investment
company).
• Whether Bañas is liable.
• Yes. First, an investment company refers to any issuer which holds
itself out as being engaged primarily in the business of investing,
reinvesting or trading in securities (commercial papers evidencing
indebtedness, including PNs). Clearly, Asia Pacific’s transaction is
well-covered by the Revised Securities Act. Second, what is
prohibited by the General Banking Act is the unauthorized lending of
funds obtained from the public through receipts of deposit. Here, the
funds lent by Asia Pacific to Bañas have not been shown to have
been obtained from the public by way of deposits. Hence, the General
Banking Act is inapplicable. Bañas is still liable on the PN and
mortgage – pay the deficiency.
(4) Banco de Oro v. • BDO and RCBC/CODE-NGO against BIR
Republic • The Bureau of Treasury issued PHP30B worth of 10-year Zero-
Coupon Bonds (the issuance being limited to 19 lenders) for auction.
The Auction Guidelines stated that the bonds shall not be subject to
20% withholding tax on deposit substitutes. RCBC won the bidding,
then sold the same to BDO. Thereafter, the BIR issued a ruling that
such zero-coupons would be subject to 20% withholding tax even if in
the hands of subsequent holders.
• Whether the bonds are subject to 20% withholding tax.
• Yes, but not applicable to RCBC/BDO. First, under the New Central
Bank Act, “deposit substitutes” are alternative forms of obtaining funds
from the public, other than deposits, through the issuance,
endorsement, or acceptance of debt instruments for the borrower’s
own account, for the purpose of relending or purchasing of receivable
and other obligations. “Public” refers to 20 or more lenders, and the
controlling factor is the actual number of persons or entities to whom
the products or instruments are issued. This is however expanded
under the NIRC, considering debt instruments issued by commercial,
industrial, and other non-financial companies to finance their own
needs “or the needs of their agents or dealers.” Second, if we follow
the definition under Banking Law, the existence of 20 or more lenders
should be reckoned at the time when the successful Government
Securities Eligible Dealer (GSED)-Bidder distributes the government
securities to final holders. BUT under the Tax Law, it’s the “secondary
market” that governs because of the expanded definition of deposit
substitutes. Third, it is the successful GSED-bidder, as agent of the
Bureau of Treasury, who has the primary responsibility to withhold the
20% final tax on the interest valued at the present value. Lastly, the
phrase “at any one time” is ambiguous, so the banks properly relied
on the BIR opinions exempting them from final withholding tax. “20 or
more individual or corporate lenders” must apply, thus it is determined
at the time of the original issuance. Hence, the PEACe Bonds were
DEAN JMGH | BANKING L AW | YAP, K.

not to be treated as deposit substitutes.
(5) Simex • Simex against Traders Royal Bank (TRB)
International • Simex was an exporter of local goods who paid its purchases on
(Manila), Inc. v. credit. It maintained a deposit in TRB, and even deposited
CA PHP100,000 to cover its purchases. However, the checks were
dishonored due to the bank’s failure to credit the same in Simex’s
account. Simex filed this complaint for damages.
• Whether the trial court erred in ruling that Simex was not entitled to
moral damages.
• Yes. First, TRB is guilty of negligence for not crediting the account of
Simex. The bank offered no explanation therefor, but it did rectify the
mistake around 2-3 weeks after. Second, the Civil Code provides that
compensatory damages may be received for injury to plaintiff’s
business standing or commercial credit, and the Code likewise
provides that no proof of pecuniary loss is necessary for damages
(except liquidated damages) and the amount rests on the sound
discretion of the Court. Third, being engaged in the banking industry
(public interest), TRB should always have in mind the fiduciary nature
of its relationship with its depositors. Hence, moral damages of
PHP20,000 and exemplary damages of PHP50,000 is awarded.
(6) Go v. BSP • Jose Go against BSP
• An information for violation of the General Banking Act was filed
against Jose Go – for borrowing from the bank AND/OR becoming a
guarantor of others for loans from the bank, while he was then
Director-President-CEO of Orient Bank. However, he invokes his right
to be informed of the nature of the accusation against him on the
ground that the use of AND/OR is vague, and that he is covered by its
exemptions – that the credit accommodation was limited to an amount
equivalent to the respective outstanding deposits and book value of
the paid-in capital contribution of the bank.
• Whether Jose Go violated the General Banking Act.
• Yes. First, it is clear from the elements that the essence of the crime
is becoming an obligor of the bank without securing the necessary
written approval of the majority of the bank’s directors. The third mode
is a catch-all phrase that covers any situation when a director
becomes a bank’s obligor. Second, the law does not provide for
exemptions thereto, but provides for restrictions such as approval,
reportorial, and ceiling requirements AFTER obtaining the required
approval from the Board.
• Elements:
1. Offender is a director or officer of any banking institution;
2. Offender, either directly or indirectly, for himself or as
representative or agent of another, performs any of the
following acts:
a. Borrows any of the deposits/funds of such bank;
b. Becomes a guarantor for loans from such bank;
or
c. Becomes IN ANY MANNER an obligor for
money borrowed from the bank;
3. Offender has performed such acts without the approval of
the majority of the board of directors, excluding the
offender.
(7) DBP v. COA • DBP against COA
• In 1986, Pres. Cory Aquino obtained an Economic Recovery Loan
(ERL) from the World Bank on the condition that the Philippine
13
government should rehabilitate the Development Bank of the
Philippines which was saddled with huge non-performing loans.
Pursuant thereto, the Central Bank Governor issued CB Circular No.
1124 providing for a concurrent audit of the DBP by a private external
independent auditor. All was well until the new COA Chairman
assailed the circular on the ground that COA had exclusive authority
to audit the DBP.
• Whether the CB Circular was valid.
• Yes. First, the ConCom deliberations prove that the deletion of the
word “exclusive” from the first paragraph pertaining to audit was
intended. The word “exclusive” in the second paragraph pertains to
the exclusive power to disallow irregular/unnecessary government
expenditures. Second, the New Central Bank Act expressly provides
for its power of supervision over banks including: (1) examination to
determine compliance and (2) regular investigation not oftener than
once a year from the last date of examination. Clearly, COA does not
have the exclusive power to examine and audit government banks – it
has concurrent jurisdiction with the Central Bank.
(8) Busuego v. CA • PAL Employees Savings and Loan Association (PESALA) against
Monetary Board
• The Central Bank, upon examination of PESALA’s documents, took
note of some anomalies: (1) questionable investment in a multi-billion
peso real estate project (Pelasaville); (2) conflict of interest in the
conduct of business; (3) unwarranted declaration and payment of
dividends; and (4) commission of unsound and unsafe business
practices. Hence, the Monetary Board adopted Resolution No. 805
requiring PESALA to improve its operations and adopt internal control
measures, and to file civil and criminal cases against its messengers
for malfeasance and misfeasance. Now the validity of the resolution is
being assailed on the ground of lack of due process on the part of the
Monetary Board.
• Whether Resolution No. 805 is invalid.
• No. First, the requirements of Ang Tibay were met when (1)
petitioners were invited by Dir. Lirio to a conference to discuss the
findings during the 16th regular examination of PESALA; (2) One
petitioner sent his letter to the Board, explaining his side of the
controversy; and (3) PESALA Board’s letter to the Board, explaining
the board’s side of the controversty. Second, the Central Bank is the
government agency charged with the responsibility of administering
the banking system of the country. The Savings and Loan Association
Act authorizes the Monetary Board to conduct regular yearly
examinations of the books and records of PESALA. Third, the law
provides that examinations may be conducted WITH OR WITHOUT
prior notice, but always with fairness and reasonable opportunity to be
heard.
• Ang Tibay requirements:
1. Right to a hearing
2. Consider evidence presented
3. Evidence must be substantial
4. Decision must be based on evidence presented
5. Decision must have something to support itself
6. Tribunal must be independent
7. Tribunal must render a decision in such a manner that the
parties will know the various issues involved, and the
reason for the decision rendered
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(9) UCPB v. E. • UCPB against EGI
Ganzon, Inc. • EGI availed of credit facilities from UCPB to finance its business
expansion. EGI mortgaged its condominium units in Taft Avenue.
UCPB declared EGI in default and they entered into negotiations as to
the properties mortgaged. Based on an amended MOA, the
outstanding balanced was PHP904K. UCPB foreclosed on properties
amounting to PHP723.5K. The balance of PHP192K was to be
collected via dacion en pago of properties. However, it was found that
the actual unpaid balance is PHP226K allegedly due to additional
transaction costs. There was an internal memorandum of UCPB found
with 2 columns: (1) ACTUAL and (2) DISCLOSED TO EGI, the former
being less than the latter. EGI argues that the actual column should
prevail. UCPB, however, argues that the actual column provides
amounts reflected in its financial statements, and disclosed to EGI
provides the actual amounts. The BSP Director ruled in favor of
UCPB, but the CA reversed the decision. UCPB now assails the
jurisdiction of the CA in reversing the BSP’s decision.
• Whether the CA has appellate jurisdiction over decisions of the BSP.
• Yes. First, Rule 43 of the Rules of Court uses the word “including”
which connotes a notion of non-exclusivity. Second, it makes mention
of jurisdiction over decisions of “quasi-judicial bodies.” It is ruled that
BSP is a quasi-judicial body, having the power to subpoena and to
impose fines and sanctions pursuant to Banking laws.
14
Banking Law I (SYLLABUS 3)
Standards of Care
Laws/Regulations
General Banking Law, Section 2
SECTION 2. Declaration of Policy. — The State recognizes the vital role of banks in providing an
environment conducive to the sustained development of the national economy and the fiduciary nature
of banking that requires high standards of integrity and performance. In furtherance thereof, the State
shall promote and maintain a stable and efficient banking and financial system that is globally
competitive, dynamic and responsive to the demands of a developing economy. (n)
Jurisprudence (Memory Buzzer)
(1) BPI v. IAC • BPI against Sps. Arthur and Viviene Canlas
• When Sps. Canlas opened a joint current account in the QC branch of
Commercial Bank and Trust Company (CBTC), the “new accounts” teller,
by mistake, placed the older personal account number of Arthur Canlas (his
existing personal checking account) on the deposit slip, so that the initial
deposit of PHP2,250 went there instead of the joint account. The spouses
subsequently deposited other amounts in the joint account. Apparently, one
of the checks of Sps. Canlas was dishonored due to inefficiency of funds.
The filed a case in Porac, Pampanga, where they lived. In the meantime,
BPI merged with CBTC, the latter being the surviving bank.
• Sps. Canlas claim that the teller’s negligence is imputable to the bank.
• The bank filed a motion to dismiss on the ground of improver venue,
alleging that Sps. Canlas waived the proper venue in Porac, Pampanga,
when they indicated a QC address in their application form (which was
actually the address of Viviene’s parents).
• Whether BPI is liable.
• Yes. First, no waiver of their provincial residence for purposes of
determining the venue of an action against the bank may be inferred from
the so-called “misrepresentation” of their true residence. Second, as a
business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors
with meticulous care, always having in mind the fiduciary nature of their
relationship – extraordinary diligence. Third, the bank’s negligence is
proven by the testimony of its employee who declared that “the approving
officer does not have to see the account numbers and all those things.
Those are very petty things for him to look into.” Unfortunately, it was this
“petty” thing that led to this half-a-million suit against the bank. Hence,
moral damages and attorney’s fees are proper.
(2) BPI v. CA • BPI against Benjamin C. Napiza
• A certain Henry Chan requested Napiza to deposit a $2,500 manager’s
check payable to cash in the latter’s Foreign Currency Deposit Unit Savings
Account in BPI’s Buendia branch – for the purpose of accommodation and
for clearing with Wells Fargo Bank (clearing bank). For such purpose,
Napiza delivered to Chan a signed blank withdrawal slip, with the
understanding that as soon as the check is cleared, both of them would go
to the bank to withdraw the amount of the check upon presentation of
Napiza’s passbook, as required by the bank’s rules. Using such withdrawal
slip, a certain Ruben Gayon, Jr. was able to withdraw $2,541.67 from the
account. Wells Fargo, thereafter, notified BPI that the check was counterfeit
because it was not of the type or style issued by Continental Bank
International.
DEAN JMGH | BANKING L AW | YAP, K.

• BPI argues that Napiza should be liable for violating his warranty that the
check is genuine and in all respects what it purports to be, and that there
was a principal-agent relationship between Napiza and Gayon.
• Napiza counters that BPI was negligent in allowing Gayon to withdraw the
amount without presenting Napiza’s passbook, also a violation of the
bank’s rules.
• Whether BPI is liable.
• Yes. First, there could not have been a principal-agent relationship
between Napiza and Gayon because the former merely signed in blank,
hence the latter’s name was probably intercalated therein. Second, the
encashment of checks without prior clearance is contrary to ordinary bank
practice, specially so where the drawee bank is a foreign bank and the
amounts involved were large. It was proven here that when Wells Fargo
Bank notified BPI of the counterfeit check, the amount was already
withdrawn from the account. Third, in dealing with its depositors a bank
should exercise its functions not only with the diligence of a good father of a
family but it should do so with the highest degree of care. Despite Napiza’s
fault in issuing a blank withdrawal slip in violation of the rules, it was BPI’s
negligence which was the proximate cause of the loss of the amount.
(3) Consolidated • Solidbank against LC Diaz and Company
Bank v. CA • LC Diaz, an accounting firm, had its messenger, Ismael Calapre, deposit
cash and checks – the Solidbank passbook of LC Diaz was given to
Calapre therefor. Since the transaction with Solidbank took time, Calapre
left the passbook with Solidbank then went to Allied Bank. When he came
back, Teller No. 6 informed him that somebody else (much shorter than
him) got the passbook. LC Diaz found out about an unauthorized
withdrawal (by Noel Tamayo) of PHP300,000 from its savings account –
the signatories, Diaz and Murillo, denied signing the withdrawal slip.
• The lower court (in favor of Solidbank) – relied on the contractual
obligations – ruled that Solidbank was not at fault since the passbook rules
stated that “possession of this book shall raise the presumption of
ownership and any payment/s made by the bank upon the production of the
said book and entry therein of the withdrawal shall have the same effect as
if made to the depositor personally.” At the time of the withdrawal, Tamayo
was in possession of both the passbook and withdrawal slips. Furthermore,
the burden was on LC Diaz to prove that the signatures were forged, which
they failed to so prove. LC Diaz also violated the requirement that the
depositor must keep the passbook under lock and key.
• The CA (in favor of LC Diaz) – relied on quasi-delict provisions – ruled that
the teller should have called up the depositor because the money to be
withdrawn was a significant amount, the lack of this was the proximate
cause of the unauthorized withdrawal. While LC Diaz was negligent in
entrusting the deposits to its messenger, Solidbank could not escape
liability by virtue of the doctrine of last clear chance.
• Whether Solidbank is liable.
• Yes. First, Solidbank is liable for culpa contractual, the contract between
the bank and its depositor being governed by the provisions on simple loan
(mutuum). The fiduciary relationship of banks and their depositors means
that the bank’s obligation to observe high standards of integrity and
performance is deemed written into every deposit agreement between the
parties – such does not convert the relationship into a trust agreement
because banks do not accept deposits to enrich depositors, but to earn
money for themselves. Second, when the passbook was in the possession
of Solidbank’s tellers during withdrawals, the law imposes on Solidbank and
its tellers an even higher degree of diligence in safeguarding the passbook
– if the tellers give the passbook to the wrong person, they would be
clothing that person presumptive ownership of the passbook, facilitating
15
unauthorized withdrawals by that person. Third, Solidbank is bound by the
negligence of its employees under the doctrine of respondeat superior – the
defense of diligence in selection and supervision of employees is
immaterial. Fourth, the proximate cause was not the failure to call the
depositor before the withdrawal, there is generally no such duty imposed on
banks and their tellers. Teller No. 5 could not have been put on guard to
verify the withdrawal as the impostor deposited with Teller No. 6 a large
amount of money to deflect suspicion form the withdrawal of a much bigger
amount of money. Fifth, the doctrine of last clear chance does not apply
because this is a case of culpa contractual. Any contributory negligence or
last clear chance merely reduces the recovery of damages, but does not
exculpate.
(4) Goyanko, Jr. • Goyanko, Jr. against UCPB Mango Avenue Branch
v. UCPB • Goyangko, Sr.’s legitimate and illegitimate family presented conflicting
claims regarding the release of an investment made in Philippine Asia
Lending Investors, Inc. (PALII). Pending conflict, PALII deposited the same
in UCPB under the account “Phil Asia: ITF (In Trust For) The Heirs of
Joseph Goyanko, Sr.” Subsequently, UCPB allowed PALII to withdraw
PHP1,500,000 leaving PHP9,318.76. When UCPB refused to restore the
amount, Goyanko, Jr. filed a complaint before the RTC.
• Goyanko, Jr. argues that the opening of the account created an express
trust wherein PALII is the trustor, UCBP is the trustee, and the heirs are the
beneficiaries. This is bolstered by the use of “ITF” in the account name.
Hence, UCPB committed a breach of trust when it allowed PALII to
withdraw the amount.
• UCPB counters that the account involves an ordinary deposit contract
between PALII and UCPB only, and that “ITF” is insufficient to establish the
existence of an express trust or charge it with knowledge of the relation
between PALII and the heirs.
• Whether UCPB is liable.
• No. First, no exception to the question-of-law rule is present and Goyanko,
Jr.’s change of theory cannot be sustained at this juncture of the
proceeding. In the lower court, he argued that PALII was the trustee and
the heirs were the trustor-beneficiaries. Now, he argues that PALII is the
trustee, Goyanko, Sr. is the trustor, and the heirs are the beneficiaries.
Second, the elements of a trust relationship are lacking (1) competent
trustor and trustee (2) ascertainable trust res (3) sufficiently certain
beneficiaries (4) present and complete disposition of the trust property (5)
some power of administration other than a mere duty to perform a contract.
Here, the first element is missing – UCPB was never under any equitable
duty to deal with or give any power of administration over it. Third, the use
of “ITF” was used to merely distinguish this account with other accounts of
PALII with UCPB. Fourth, the fiduciary relationship between banks and
depositors does not create a trust relationship, but merely imposes upon
the bank a higher standard of integrity and performance. Fifth, UCPB was
not negligent or acting in bad faith when it allowed PALII to withdraw from
its own account.
(5) Philippine • Philbanking against Leonilo Marcos
Banking • Due to the persuasion of his close friend, Florencio Pagsaligan (an official
Corporation of Philbanking), Leonilo Marcos made 2 time deposits in the bank which
v. CA earned 17% per annum and had a maturity period of 90 days. Marcos
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allowed Pagsaligan to keep the time deposit certificates on the assurance
that Philbanking would take care of the certificates, interests and renewals.
When Marcos wanted to withdraw the deposits and accumulated interest to
buy materials for his construction business, Pagsaligan instead told him to
open letters of credit and that the deposits will be used to offset the balance
of the letters of credit – Marcos executed 3 trust agreements. Philbanking
claimed from Marcos an based on alleged loan evidenced by machine
copies of promissory notes.
• Philbanking claims that the promissory note is supported by documentary
evidence such as Marcos’s application for the loan and the microfilm of the
cashier’s check issued for the loan.
• Marcos denies liability on the promissory notes and argues that Philbanking
is guilty of gross negligence in failing to deduct the 30% payment made on
the trust receipt agreements.
• Whether Philbanking is liable.
• Yes. First, Philbanking failed to treat the account of Marcos with meticulous
care when it failed to show Marcos the original copies of the disputed
promissory notes and the records and ledgers evidencing the offsetting of
the loan with the time deposits of Marcos. Second, the lower courts
conclusively ruled that Pagsaligan’s misdeed deprived Marcos of the
amount due him – a bank is liable for the wrongful acts of its officers done
in the interest of the bank or in their dealings as bank representatives but
not for acts outside the scope of their authority. Third, Philbanking failed to
satisfy the Best Evidence Rule which is intended to prevent fraud. Fourth,
Philbanking’s failure to account for Marcos’s money justifies the award of
moral and exemplary damages.
(6) Heirs of • Heirs of Eduardo Manlapat against Rural Bank of San Pascual (RBSP),
Manlapat v. the Cruzes and the Register of Deeds
CA • The controversy involves a 1,058sqm lot in Obando, Bulacan owned by
Eduardo Manlapat. Before it was titled, Eduardo sold a total of 203sqm to
Ricardo Cruz, evidenced by 2 deeds of sale. In the meantime, Leon
Banaag, Jr. (heir of Manlapat), mortgaged the lot in favor of the Rural Bank
of San Pascual, leaving the owner’s duplicate certificate of the OCT with
RBSP. When the heirs of Ricardo Cruz learned about the prior sale, the did
everything to get the land bank – including going to RBSP to borrow the
owner’s duplicate certificates. The Cruzes eventually got hold of a TCT
issued in their facor.
• Heirs of Manlapat now argue that the surreptitious lending of the owner’s
duplicate certificate constitutes fraud which would nullify the TCTs.
• The Cruzes assert their right to the lot, as evidenced by the deeds of sale.
• Whether RBSP is liable because it lent the owner’s duplicates.
• Yes. First, a mortgagee-bank must exercise due diligence before entering
into said contract. Judicial notice is taken of the standard practice for
banks, before approving a loan, to send representatives to the premises of
the land offered as collateral and to investigate who the real owners thereof
are. The rule that persons dealing with registered lands can rely solely on
the certificate of title does not apply to banks (hence, the mortgage should
not have happened in the first place). Second, a mortgagee-bank has no
right to deliver to any stranger any property entrusted to it other than to
those contractually and legally entitled to its possession. Although Cruzes’
claims were legitimized by their evidence, the bank evidently failed to notify
the heirs of Manlapat regarding the transactions of the Cruzes involving the
mortgaged lot – nominal damages awarded. Third, the heirs of Manlapat
are the rightful owners of the 50sqm portion (2nd deed of sale) because at
the time of the second sale to the Cruzes, the lot was still covered by the 5-
year prohibition from disposition. Hence, the heirs succeeded to the grant
given to Eduardo Manlapat.
16
(7) Cruz v. • Fr. Edilberto and Simplicio Cruz against Bancom Finance
Bancom • The Cruz brothers owned a 34-hectare lot in Angat, Bulacan. Candelaria
Finance Sanchez introduced Norma Sulit to Fr. Cruz – Norma offered to purchase
the land, but she only had PHP25,000. Fr. Cruz accepted it as earnest
money with the agreement that the titles would be transferred upon
payment of the balance of PHP675,000. Norma and Candelaria persuaded
Fr. Cruz to executed deeds of sale over the land in favor of Norma –
showed that the consideration was only PHP150,000. Through this, Norma
was able to have the land titled in her name and got a corresponding TCT.
Unkown to the Cruz brothers, Norma obtained a loan from Bancom secured
by a mortgage over the land now titled in her name. Since Norma wouldn’t
pay them, the Cruz brothers filed a complaint for reconveyance. Bancom
filed a motion to intervene.
• The Cruz brothers allege that the TCT in the name of Norma is void for
having been issued pursuant to deeds of sale which were absolutely
simulated and hence void.
• Bancom counters that it is a mortgagee in good faith when it purchased the
subject lot during the foreclosure proceedings – that it had the right to rely
on the TCT.
• Whether Bancom is a mortgagee in good faith.
• No. First, the deeds of sale were indeed absolutely simulated since it was
proven by testimonies that neither the Cruz brothers nor Candelaria were
able to receive any subsequent payment from Norma. Another red-flag of
simulation is that Norma never occupied the subject lot even after the
execution of the deeds. It is evident that her purpose was only to obtain a
loan from Bancom. Second, Bancom is not a mortgagee in good faith.
Being a mortgagee-bank, it is expected to exercise greater care and
prudence in its dealings, including those involving registered lands. Banks
have a standard policy in approving loans – there is usually an ocular
inspection in order to find out who really owns the land, which Bancom
failed to do. Moreover, Bancom was already aware of the adverse claim
and notice of lis pendens annotated on the TCT when it registered the
mortgage. Third, the registered mortgage cannot bind the Cruz brothers
since the registration was done subsequent to the annotation of the notice
of lis pendens and the adverse claim. Fourth, the Cruz brothers are
returned to the same position as they were in before they executed the
simulated deeds in favor of Sanchez.
(8) PNB v. Pike • PNB against Norman Pike
• Norman Pike was a gay entertainer in Japan. He maintained a US Dollar
Savings Account in PNB Buendia Branch. His sister reported the loss of his
passbook, so the account was put on hold. However, it appears that 2
unauthorized withdrawals were already made by Joy Manuel Davasol, his
alleged talent manager and choreographer. Thereafter, Norman requested
PNB to lift the hold-order so he could withdraw the remaining balance.
Subsequently, he filed this claim for recovery.
• PNB argues that Norman waived his right to file suit when he sent a
request letter to PNB to lift the holder, stating that he promises not to hold
the bank responsible for the unauthorized withdrawals. Furthermore,
Norman’s signatures were on the front-face of the withdrawal slip. PNB
claimed that it generously accommodated the withdrawal since Norman
was a “valued client.”
• Norman denies making such promise. He claims that the bank was
negligent when it allowed Davasol to withdraw from the account. He denied
authorizing Davasol, and claimed that his signatures were forgeries.
• Whether PNB is liable.
• Yes. First, PNB’s tellers and supervisors were negligent in allowing the
withdrawal despite the lack of authorization which is apparent from the
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following facts: (1) Norman only signed the front of the withdrawal slip,
while the authorization should be found on its back (2) it was alleged that
this was signed in front of the branch supervisor, the latter should have
instructed Norman to sign at the back (3) the bank’s officer admitted that he
was not familiar with Norman’s face, which negates the “valued client”
defense – all he said was “he is a gay looking fellow.” Second, it is
apparent that Norman had no intent to waive his right to hold PNB liable or
the withdrawals – he denied such promise, and he even filed the instant
suit which negates such intention. Third, the law imposes on banks a
higher degree of obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of banking.
(9) Cadiz v. CA • Romeo Cadiz (signature verifier), Carlito Bongkingki (bookkeeper), and
Prisco Gloria IV (foreign currency denomination clerk/bookkeeper-reliever
against PCI Bank (PCIB / now Equitable Bank)
• This is a labor case. Rosalina Alqueza filed a complaint with PCIB for
alleged non-receipt of a $600 demand draft drawn against it which was
purchased by her husband from HSBC. It was found that the same was
deposited with a foreign-currency account under the name of Sofia Alfiscar
– the demand draft, together with 4 other checks, was made to appear as
only one deposit covered by an HSBC check for $1,232. PCIB conducted a
special audit examination wherein the employee-petitioners admitted their
participation in a scheme to divert funds intended for other accounts using
the savings account of Alfiscar. They were subsequently dismissed. The
employee-petitioners filed a complaint for illegal dismissal, alleging lack of
due process in their termination – they were not informed of the cause of
their dismissal.
• Labor Arbiter (in favor of employee-petitioners) ruled that PCIB was guilty
of negligence in the laxity of its operations – the employees’ act of coding
several deposit slips as “1511 (immediately withdrawable)” as mere
procedural inadequacies.
• NLRC (in favor of PCIB) reversed on the ground that the employee-
petitioners were dismissed for just cause.
• Whether employee-petitioners were illegally dismissed.
• No. First, the miscoding of the slips cannot be mere procedural
inadequacies – the act operated as the first indispensable step towards the
commission of fraud on the bank. Second, the LA’s ruling is disturbing,
imputing negligence on the bank despite the admitted acts of its
employees. If such reasoning is followed, then it would be concluded that
bank guards, and not the burglars, bear primary culpability for a bank
robbery. Even assuming that the bank observed less-than-ideal controls
over the security of its operations, such laxity does not serve as the carte
blanche signal for the bank employees to take advantage of safeguard
control lapses and perpetrate chicanery on their employer. Third, the
notion that a lowly employee will never countermand the interests of the
employer is sufficiently rebutted by any labor law casebook – persons are
capable, upon impure motivations, of taking advantage of others, whether
their social lesser, equals, or betters. Fourth, due process was accorded to
the employee-petitioners – (1) PCIB complied with the two-notice rule (2)
an informal meeting was held where the employees admitted their
participation in the diverting of funds (3) a special audit investigation was
conducted. Fifth, employee-petitioners’ reinstatement was not a waiver of
what they did, as the bank was merely ordered by the LA to order such
reinstatement. Sixth, that the bank suffered no pecuniary loss is not a
defense to mitigate their liability. As bank employees, their responsibilities
are impressed with a high degree of public interest – private persons
entrust their fortunes to banks, and it would cause a breakdown of the
financial order if the judicial system were to leave unsanctioned bank
17
employees who treat depositors’ accounts as their own private kitty.
(10) Far East • Far East Bank against Themistocles Pacilan, Jr.
Bank v. • Pacilan maintained a current account in Far East Bank’s Bacolod branch.
Pacilan, Jr. The controversy stemmed when the bank closed Pacilan’s account after a
series of overdrafts.
• Far East Bank cites the numerous instances that Pacilan had an overdraft
over his accounts, and the fact the he used different signature specimen
from time to time. Moreover, the terms and conditions for depositors
provide that (1) the bank reserves the right to close an account if the
depositor frequently draws checks against insufficient funds and/or
uncollected deposits (2) the depositor is not entitled to overdraw on his
deposit and the bank reserves the right at any time to return checks of the
depositor which are drawn against insufficient funds.
• Pacilan claims that the bank’s immediate closure of his account violated
Art. 19 (that every person must, in the exercise of his right, observe good
faith and give everyone his due) and caused him humiliation and subjected
him to BP 22 suits – the bank’s motive being that he was a cashier of
Prudential Bank whose branch office is located just across that of Far East
Bank.
• Whether Far East Bank is liable.
• No. First, at the time Pacilan opened his current account, he was bound by
the terms and conditions of the bank regarding deposits. Second, the bank
has proven by sufficient evidence that it had the right to close Pacilan’s
account on the ground of mishandling – overdrafts and different signature
specimen. This negates bad faith. Third, this is a case of damnum absque
injuria because there was no bad faith on the part of the bank, and there
was no intent to injure Pacilan. Whatever damage Pacilan may have
suffered would have to be borne by him alone as it was his improper and
irregular handling of his account which constrained the bank to close the
same.
(11) Citibank, • Citibank against Sps. Cabamongan, Luis, Jr. and Lito Cabamongan
N.A. v. Sps. • Sps. Cabamongan opened a joint foreign currency time deposit with
Cabamonga Citibank branch in Makati for their sons, Luis and Lito. While the spouses
n were in their residence in California, someone impersonated the wife and
pre-terminated the time deposits – despite the failure to notarize the
release and waiver document, the impostor was allowed to withdraw – she
was actually able to present government IDs such as a passport and bank
cards; the transaction lasted 40 minutes. The bank officer saw that the ID of
the wife was left with him, so he called up her Makati residence – the wife
of Lito answered and told him that the spouses were already residing in
California. The spouses were able to connect the burglary in their California
residence with the incident at the bank since they discovered that their
passports and IDs were also stolen. Hence, this suit.
• Citibank claims that its officer exercised extra diligence during the
transaction – interviewing the impostor for around 40 minutes. Moreover, it
adds that the spouses were contributorily negligent since they failed to
notify Citibank that they had moved to California. Lastly, Citibank argues
that the stipulated interest rate of 2.56% should apply instead of the 12%
legal interest ordered by the lower court.
• The spouses claim that Citibank’s negligence has been established by
evidence, and that the interest rate of 2.56% should apply for the duration
of the time deposit, and then 12% thereafter.
• Whether Citibank is liable.
• Yes. First, Citibank’s assertion of contributory negligence and non-
application of the doctrine of last clear chance cannot be accepted since it
was raised for the first time in its supplemental memorandum. It is
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Citibank’s gross negligence which holds it liable. Second, it was found by
the PNP Crime Lab that there was a divergence between the signatures
which the bank’s officer should have known. Third, a bank is bound to
know the signatures of its customers; and if it pays a forged check, it must
be considered as making the payment out of its own funds, and cannot
ordinarily charge the amount so paid to the account of the depositor whose
name was forged. Fourth, the spouses were right regarding the interest as
the time deposit is a simple loan, governed by the rule in Eastern Shipping
on forbearance or loans of money.
(12) Tan v. CA • Ramon Tan against RCBC
• Ramon Tan is a trader-businessman and community leader in Puerto
Princesa. He’s had a current account with RCBC’s Binondo branch since
1976 (this case started in 1988). Not wanting to bring a large sum with him,
he instead brought a PCIB cashier’s check for PHP30,000 which he
deposited in RCBC. He filled out a local deposit slip instead of a regional
deposit slip, so the check was misrouted to the Central Bank for clearing.
45 days later, Ramon issued 2 more checks which were however
dishonored due to insufficiency of funds. It was only at this time that he
learned of the misrouting. He filed this case for damages.
• Ramon Tan alleged that RCBC was negligent in misrouting the check to
Central Bank, when bank practice has already been established that PCIB
Puerto Princesa has does its own clearing, and RCBC Binondo could have
had this cleared via RCBC Puerto Princesa. Moreover, he argued that he
suffered humiliation and loss of face in the business sector due to the
incident.
• RCBC counters that it was Ramon’s negligence in filling out a local check
instead of a regional check which is the proximate cause of his injury.
Moreover, it exercised extra diligence when it even called Ramon’s sister,
but to no avail. Lastly, it argued that it is the bank’s discretion whether to
debit without awaiting clearance of a cashier’s check.
• Whether RCBC is liable.
• Yes. First, RCBC’s employees should have noticed the patently erroneous
act of Ramon. Bank transactions pass through a succession of bank
personnel whose duty is to check and countercheck transactions for
possible errors. Depositors do not pretend to be past masters of banking
technicalities, and they wholly repose trust in the bank personnel’s mastery
of banking. Second, at the time Ramon issued the 2 checks (45 days
later), there was a sufficient amount of time to have the check cleared with
PCIB since RCBC alleged that it would take 20 days to clear the same with
PCIB Puerto Princesa. Third, there was no such Evelyn Tan-Banzon
(Ramon’s sister) as instructed in the signature card. Fourth, a cashier’s
check is a primary obligation of the issuing bank (PCIB) and accepted in
advance by its mere issuance. In this case, therefore, PCIB by issuing the
check created an unconditional credit in favor of any collecting bank. RCBC
should have relied on PCIB’s cashier’s check since they are members of
the same clearing house group and relying on each other’s solvency.
(13) Metrobank v. • Metrobank against Rural Bank of Padre Garcia (RBPG) and Isabel
CA Katigbak
• Isabel Katigbak is the president and director of RBPG. Metrobank is
RBPG’s depository bank, where Katigbak maintains current accounts.
Metrobank received credit memos from Central Bank that its demand
deposit account was credited PHP304,000 for the account of RBPG (the
credit memo represented loans obtained by RBPG from Central Bank).
Katigbak issued several checks against her account in Metrobank payable
to the Roques. The Roques deposited the same with Philbanking. When
Philbanking forwarded the checks to Metrobank, the checks were returned
18
twice by Metrobank with the annotation DAIF-TNC (drawn against
insufficient funds – try next clearing). RBPG paid Dr. Roque PHP50,000 in
cash to replace the checks. While Isabel Katigbak was in Hongkong on a
business-vacation trip together with her sons, she was called by her sister
informing her that the assistant cashier of Metrobank had been berating her
saying “nag-issue kayo ng tseke, wala naming pondo” so Isabel cut the trip
short and returned to Manila. When she called Metrobank, the assistant
cashier again berated her, which caused her blood pressure to rise and
undero medical treatment in MakatiMed. The controversy stemmed from
the fact that Metrobank’s messenger, through inadvertence, failed to deliver
the credit memo to the department in charge of processing the same.
• Metrobank argues that it should not be held liable for damages on account
of the inadvertence of its bank employee as Art. 1173 of the Civil Code only
requires it to exercise the diligence of a good father of a family.
• Whether Metrobank is liable.
• Yes. First, the dishonoring of RPBG’s checks committed through
Metrobank’s negligence was rectified only 9 days after – Metrobank was
remiss in its obligation to treat RPBG’s account with the highest degree of
care, considering the fiduciary nature of their relationship. Second, insult
was added to injury when Metrobank issued debit memoranda representing
service and penalty charges for the returned checks, and also the assistant
cashier’s remarks berating Katigbak. Third, the carelessness of Metrobank,
aggravated by the lack of promptness in repairing the error and the
arrogant attitude of the assistant cashier handling the matter, justifies the
grant of moral damages which are clearly not excessive and
unconscionable.
(14) PNB v. CA • PNB against Carmelo Flores
• Carmelo Flores purchased from PNB Manila Pavilion Hotel unit (ie.,
branch) 2 manager’s checks worth PHP500,000 each, paying a total of
PHP1,000,040.00 including service charge, as evidence by a receipt issued
by PNB. When Flores presented these checks to PNB Baguio Hyatt Casino
unit, only 1 check was encashed and PNB Baguio asked him to further
break down the PHP500,000 check into 5 PHP100,000 checks. Thereafter,
PNB Baguio still refused to encash 1 of the 5 checks until after it is cleared
by the PNB Manila. Flores tried to encash the checks in PNB Malate, but to
no avail.
• PNB argues that what Flores actually paid was only PHP450,000 for each
check, and that the receipt issued to Flores is not the best evidence to
prove how much money he actually paid. Moreover, PNB’s money counter
Rowena Montes made the good faith mistake of writing PHP1,000,040 due
to Flores’s demanding attitude and temper.
• Flores relies on the receipt issued to him. He argues that he lost a real
estate deal in Monterroza Subdivision, Baguio City due to the incident.
Furthermore, his reputation in Baguio is already besmirched.
• Whether PNB is liable.
• Yes, however the damages awarded by the lower court are excessive and
unconscionable. First, a receipt is a written acknowledgment that money
has been paid for goods and have been delivered; merely presumptive
evidence and is not conclusive. However, an exhaustive review of the
records fails to disclose any other evidence sufficient and strong enough to
overturn the acknowledgment embodied in PNB’s receipt – only self-
serving testimonies, given by the very ones involved in the fiasco, as to the
actual denomination given by Flores. Second, PNB’s act of issuing the
manager’s checks and corresponding receipt BEFORE payment thereof
was completely counted reckless and grossly negligent. It is an appalling
breach of bank procedures and must never be repeated. Third, the
damages, however, must be reduced because Flores failed to substantiate
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Banking Law I (SYLLABUS 4)
the loss he incurred from the failed real estate deal in Baguio – he did not
Corporate Structure of Banks
present the broker/owner of the house he wanted to buy. He merely alleged
that it was sold to someone else.
Laws/Regulations

For this Assignment, in respect of the provisions from the General Banking Law, it is recommended
that you read as well the annotations on the foregoing sections in the Bangko Sentral ng Pilipinas’s
The General Banking Law Annotated (Book II).

A. Organization

• General Banking Law Sections 8, 9, 10, 14 and 57

SECTION 8. Organization. — The Monetary Board may authorize the organization of a bank or quasi-
bank subject to the following conditions:

8.1. That the entity is a stock corporation (7);

8.2. That its funds are obtained from the public, which shall mean twenty (20) or more persons (2-
Da); and
8.3. That the minimum capital requirements prescribed by the Monetary Board for each category
of banks are satisfied. (n)

No new commercial bank shall be established within three (3) years from the effectivity of this Act. In
the exercise of the authority granted herein, the Monetary Board shall take into consideration their
capability in terms of their financial resources and technical expertise and integrity. The bank licensing
process shall incorporate an assessment of the bank's ownership structure, directors and senior
management, its operating plan and internal controls as well as its projected financial condition and
capital base.

SECTION 9. Issuance of Stocks. — The Monetary Board may prescribe rules and regulations on the
types of stock a bank may issue, including the terms thereof and rights appurtenant thereto to
determine compliance with laws and regulations governing capital and equity structure of banks:
Provided, That banks shall issue par value stocks only.

SECTION 10. Treasury Stocks. — No bank shall purchase or acquire shares of its own capital stock
or accept its own shares as a security for a loan, except when authorized by the Monetary Board:
Provided, That in every case the stock so purchased or acquired shall, within six (6) months from the
time of its purchase or acquisition, be sold or disposed of at a public or private sale. (24a)

SECTION 14. Certificate of Authority to Register. — The Securities and Exchange Commission
shall not register the articles of incorporation of any bank, or any amendment thereto, unless
accompanied by a certificate of authority issued by the Monetary Board, under its seal. Such certificate
shall not be issued unless the Monetary Board is satisfied from the evidence submitted to it:

14.1. That all requirements of existing laws and regulations to engage in the business for which the
applicant is proposed to be incorporated have been complied with;
14.2. That the public interest and economic conditions, both general and local, justify the
authorization; and
14.3. That the amount of capital, the financing, organization, direction and administration, as well as
the integrity and responsibility of the organizers and administrators reasonably assure the
safety of deposits and the public interest. (9)

The Securities and Exchange Commission shall not register the by-laws of any bank, or any
amendment thereto, unless accompanied by a certificate of authority from the Bangko Sentral. (10)

SECTION 57. Prohibition on Dividend Declaration. — No bank or quasi-bank shall declare

19 DEAN JMGH | BANKING L AW | YAP, K.

dividends greater than its accumulated net profits then on hand, deducting therefrom its losses and bad
debts. Neither shall the bank nor quasi-bank declare dividends, if at the time of declaration:
57.1 Its clearing account with the Bangko Sentral is overdrawn; or
57.2 It is deficient in the required liquidity floor for government deposits for five (5) or more
consecutive days; or
57.3 It does not comply with the liquidity standards/ratios prescribed by the Bangko Sentral for
purposes of determining funds available for dividend declaration; or
57.4 It has committed a major violation as may be determined by the Bangko Sentral. (84a)
B. Ownership
1. Foreign Ownership
§ General Banking Law Section 11
SECTION 11. Foreign Stockholdings. — Foreign individuals and non-bank corporations may own or
control up to forty percent (40%) of the voting stock of a domestic bank. This rule shall apply to
Filipinos and domestic non-bank corporations. (12a; 12-Aa)
The percentage of foreign-owned voting stocks in a bank shall be determined by the citizenship of the
individual stockholders in that bank. The citizenship of the corporation which is a stockholder in a bank
shall follow the citizenship of the controlling stockholders of the corporation, irrespective of the place of
incorporation. (n)
Ø The BSP’s interpretation of this provision:
o 40% foreign ownership must be the aggregate of foreign ownership.
o Regarding application to Filipinos, an “individual” can own only up to 40%, but the
aggregate of Filipinos can own up to 60%.
Ø In determining the citizenship/nationality of a bank, the General Banking Law provides a different
rule – it shall be determined by the citizenship of the individual stockholders (the controlling
interest, in case of corporations), regardless of the place of incorporation.
§ RA 7721 as amended by RA 10641
REPUBLIC ACT NO. 7721
AN ACT LIBERALIZING THE ENTRY AND SCOPE OF OPERATIONS OF FOREIGN BANKS IN
THE PHILIPPINES AND FOR OTHER PURPOSES
SECTION 1. Declaration of Policy. — The State shall develop a self-reliant and independent national
economy effectively controlled by Filipinos and encourage, promote, and maintain a stable,
competitive, efficient, and dynamic banking and financial system that will stimulate economic growth,
attract foreign investments, provide a wider variety of financial services to Philippine enterprises,
households and individuals, strengthen linkages with global financial centers, enhance the country's
competitiveness in the international market and serve as a channel for the flow of funds and
investments into the economy to promote industrialization.
Pursuant to this policy, the Philippine banking and financial system is hereby liberalized to create a
more competitive environment and encourage greater foreign participation through increase in
ownership in domestic banks by foreign banks and the entry of new foreign bank branches.
In allowing increased foreign participation in the financial system, it shall be the policy of the State that
the financial system shall remain effectively controlled by Filipinos.
SEC. 2. Modes of Entry. — The Monetary Board may authorize foreign banks to operate in the
Philippine banking system through any one of the following modes of entry: (i) by acquiring, purchasing
or owning up to one hundred percent (100%) of the voting stock of an existing bank; (ii) by investing in
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up to one hundred percent (100%) of the voting stock of a new banking subsidiary incorporated under
the laws of the Philippines; or (iii) by establishing branches with full banking authority.
SECTION 3. Guidelines for Approval. — Guidelines for Approval. — In approving entry applications
of foreign banks, the Monetary Board shall: (i) ensure geographic representation and complementation;
(ii) consider strategic trade and investment relationships between the Philippines and the country of
incorporation of the foreign bank; (iii) study the demonstrated capacity, global reputation for financial
innovations and stability in a competitive environment of the applicant; (iv) see to it that reciprocity
rights are enjoyed by Philippine banks in the applicant's country; and (v) consider willingness to fully
share their technology.
Only established, reputable and financially sound foreign banks shall be allowed entry in accordance
with Section 2 of this Act. The foreign bank applicant must be widely-owned and publicly-listed in its
country of origin, unless the foreign bank applicant is owned and controlled by the government of its
country of origin.
In the exercise of this authority, the Monetary Board shall adopt such measures as may be necessary
to ensure that the control of at least sixty percent (60%) of the resources or assets of the entire banking
system is held by domestic banks which are majority-owned by Filipinos.
SECTION 4. Capital Requirements. — Capital Requirements. — (i) For Locally Incorporated
Subsidiaries — The minimum capital required for locally incorporated subsidiaries of foreign banks
shall be equal to that prescribed by the Monetary Board for domestic banks of the same category.
(ii) For Foreign Bank Branches — Foreign banks that shall be authorized to establish branches
pursuant to Section 2(iii) of this Act shall permanently assign capital of an amount not less than the
minimum capital required for domestic banks of the same category. The permanently assigned capital
shall be inwardly remitted and converted into Philippine currency.
The foreign bank branch may open up to five (5) sub-branches as may be approved by the Monetary
Board. Locally incorporated subsidiaries of foreign banks pursuant to Section 2(ii) of this Act shall have
the same branching privileges as domestic banks of the same category.
[For purposes of meeting the prescribed capital ratios, the term "capital" shall include permanently
assigned capital plus "net due to head office, branches and subsidiaries and offices outside the
Philippines" in the ratio prescribed by law or as may be prescribed by the Monetary Board: Provided,
That in all cases, the permanently assigned capital and fifteen percent (15%) of "net due to" required to
comply with prescribed capital ratios shall be inwardly remitted and converted to Philippine currency:
Provided, further, That amounts invested in productive enterprises or utilized by Philippine companies
for export activities, shall not be subject to conversion into Philippine currency: Provided, finally, That
the Monetary Board shall monitor the effective use of the "net due to" funds. Whenever there results
"net due from head office" outside the Philippines, this shall be deducted from the capital accounts for
purposes of determining the required capital ratios.]
SECTION 5. Head Office Guarantee. — The head office of foreign bank branches shall guarantee
prompt payment of all liabilities of its Philippine branches.
SECTION 6. Entrants under Section 2 (iii). — Foreign banks shall be allowed entry under Section 2
(iii) within five (5) years from the effectivity of this Act. During this period, six (6) new foreign banks
shall be allowed entry under Section 2(iii) upon the approval of the Monetary Board. An additional four
(4) foreign banks may be allowed entry on recommendation of the Monetary Board, subject to
compliance with Sections 2, 3, 4, and 5 of this Act, upon approval of the President as the national
interest may require.
SECTION 7. Board of Directors. — Non-Filipino citizens may become members of the Board of
Directors of a bank to the extent of the foreign participation in the equity of said bank.
SECTION 8. Equal Treatment. — Foreign banks authorized to operate under Section 2 of this Act,
shall perform the same functions, enjoy the same privileges, and be subject to the same limitations
imposed upon a Philippine bank of the same category. The single borrower's limit of a foreign bank
branch shall be aligned with that of a domestic bank.
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The foreign banks shall guarantee the observance of the rights of their employees under the
Constitution.
Any right, privilege or incentive granted to foreign banks or their subsidiaries or affiliates under this Act,
shall be equally enjoyed by and extended under the same conditions to Philippine banks.
SECTION 9. Participation in Foreclosure Proceedings. — Foreign banks which are authorized to do
banking business in the Philippines through any of the modes of entry under Section 2 hereof shall be
allowed to bid and take part in foreclosure sales of real property mortgaged to them, as well as to avail
of enforcement and other proceedings, and accordingly take possession of the mortgaged property, for
a period not exceeding five (5) years from actual possession: Provided, That in no event shall title to
the property be transferred to such foreign bank. In case said bank is the winning bidder, it shall, during
the said five (5)-year period, transfer its rights to a qualified Philippine national, without prejudice to a
borrower's rights under applicable laws. Should the bank fail to transfer such property within the five
(5)-year period, it shall be penalized one half (1/2) of one percent (1%) per annum of the price at which
the property was foreclosed until it is able to transfer the property to a qualified Philippine national.
SECTION 10. Transitory Provisions. — Foreign banks which are already authorized to do banking
business in the Philippines through any of the modes of entry under Section 2 hereof may apply to
change their original mode of entry.
Foreign banks operating through branches in the Philippines upon the effectivity of this Act shall retain
their original privilege upon entry to establish a limited number of sub-branches. However, the previous
restriction on the locations of such additional branches is hereby lifted.
The existing Philippine branches of foreign banks shall comply within one (1) year from the effectivity of
this Act with the minimum capital requirements as prescribed under Section 4 (ii) of this Act, unless
otherwise extended by the Monetary Board.
SECTION 11. Separability Clause. — If any provision of this Act is declared unconstitutional, the
same shall not affect the validity of the other provisions not affected thereby.
SECTION 12. Applicability of Other Banking Laws. — The provisions of Republic Act No. 7653,
otherwise known as the New Central Bank Act and the provisions of Republic Act No. 8791, otherwise
known as 'The General Banking Law of 2000', insofar as they are applicable and not in conflict with any
provision of this Act, shall apply to banks authorized pursuant to this Act.
SECTION 13. Rule-Making Powers of the Monetary Board of the Bangko Sentral ng Pilipinas and
Compliance Reports. — The Monetary Board is hereby authorized to issue such rules and regulations
as may be needed to implement the provisions of this Act. On or before May 30 of each year, the
Monetary Board shall file a written report to Congress and its respective Banks Committees, on the
developments in the implementation of this Act. The implementing rules and regulations of this Act
shall be published in at least two (2) newspapers of general circulation.
SECTION 14. Amendment and Repeal of Inconsistent Laws. — Sections 11, 12, 12-A, 12-B, 13,
14-A, 21-B, and 68 of Republic Act No. 337, as amended, otherwise known as the General Banking
Act; Sections 4 and 5 of Republic Act No. 7353, otherwise known as the Rural Banks Act; Sections 4
and 14 of Republic Act No. 3779, as amended, otherwise known as the Savings and Loan Association
Act; and Section 4 of Republic Act No. 4093, as amended, otherwise known as the Private
Development Banks Act insofar as they are inconsistent with this Act, are hereby repealed or modified
accordingly. casia
SECTION 15. Effectivity Clause. — This Act shall take effect fifteen (15) days following its publication
in the Official Gazette or in two (2) national newspapers of general circulation.
2. Family Groups and Related Interests
§ General Banking Law Sections 12 and 13
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SECTION 12. Stockholdings of Family Groups or Related Interests. — Stockholdings of individuals
related to each other within the fourth degree of consanguinity or affinity, legitimate or common-law,
shall be considered family groups or related interests and must be fully disclosed in all transactions by
such an individual with the bank. (12-Da)
SECTION 13. Corporate Stockholdings. — Two or more corporations owned or controlled by the
same family group or same group of persons shall be considered related interests and must be fully
disclosed in all transactions by such corporations or related groups of persons with the bank. (12-Ba)
C. Other Capitalization Requirements
• General Banking Law Section 34
SECTION 34. Risk-Based Capital. — The Monetary Board shall prescribe the minimum ratio which
the net worth of a bank must bear to its total risk assets which may include contingent accounts.
For purposes of this Section, the Monetary Board may require that such ratio be determined on the
basis of the net worth and risk assets of a bank and its subsidiaries, financial or otherwise, as well as
prescribe the composition and the manner of determining the net worth and total risk assets of banks
and their subsidiaries: Provided, That in the exercise of this authority, the Monetary Board shall, to the
extent feasible, conform to internationally accepted standards, including those of the Bank for
International Settlements (BIS), relating to risk-based capital requirements: Provided, further, That it
may alter or suspend compliance with such ratio whenever necessary for a maximum period of one (1)
year: Provided, finally, That such ratio shall be applied uniformly to banks of the same category.
In case a bank does not comply with the prescribed minimum ratio, the Monetary Board may limit or
prohibit the distribution of net profits by such bank and may require that part or all of the net profits be
used to increase the capital accounts of the bank until the minimum requirement has been met. The
Monetary Board may, furthermore, restrict or prohibit the acquisition of major assets and the making of
new investments by the bank, with the exception of purchases of readily marketable evidences of
indebtedness of the Republic of the Philippines and of the Bangko Sentral and any other evidences of
indebtedness or obligations the servicing and repayment of which are fully guaranteed by the Republic
of the Philippines, until the minimum required capital ratio has been restored.
In case of a bank merger or consolidation, or when a bank is under rehabilitation under a program
approved by the Bangko Sentral, the Monetary Board may temporarily relieve the surviving bank,
consolidated bank, or constituent bank or corporations under rehabilitation from full compliance with
the required capital ratio under such conditions as it may prescribe.
Before the effectivity of the rules which the Monetary Board is authorized to prescribe under this
provision, Section 22 of the General Banking Act, as amended, Section 9 of the Thrift Banks Act, and
all pertinent rules issued pursuant thereto, shall continue to be in force. (22a)
Ø This is referred to as the “Capital Adequacy Ratio” – between the net worth of the bank and its
total risk assets.
D. Directors and Officers
• General Banking Law Sections 15, 16, 17, 18 and 19
SECTION 15. Board of Directors. — The provisions of the Corporation Code to the contrary
notwithstanding, there shall be at least five (5), and a maximum of fifteen (15) members of the board of
directors of a bank, two (2) of whom shall be independent directors. An "independent director" shall
mean a person other than an officer or employee of the bank, its subsidiaries or affiliates or related
interests. (n)
Non-Filipino citizens may become members of the board of directors of a bank to the extent of the
foreign participation in the equity of said bank. (Sec. 7, RA 7721)
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The meetings of the board of directors may be conducted through modern technologies such as, but
not limited to, teleconferencing and video-conferencing. (n)
Ø Dean suggests that the independent contract shall still own at least 1 share of stock since the
Corporation Code applies suppletorily to banks.
SECTION 16. Fit and Proper Rule. — To maintain the quality of bank management and afford better
protection to depositors and the public in general, the Monetary Board shall prescribe, pass upon and
review the qualifications and disqualifications of individuals elected or appointed bank directors or
officers and disqualify those found unfit.
After due notice to the board of directors of the bank, the Monetary Board may disqualify, suspend or
remove any bank director or officer who commits or omits an act which render him unfit for the position.
In determining whether an individual is fit and proper to hold the position of a director or officer of a
bank, regard shall be given to his integrity, experience, education, training, and competence. (9-Aa)
SECTION 17. Directors of Merged or Consolidated Banks. — In the case of a bank merger or
consolidation, the number of directors shall not exceed twenty-one (21). (13a)
SECTION 18. Compensation and Other Benefits of Directors and Officers. — To protect the funds
of depositors and creditors, the Monetary Board may regulate the payment by the bank to its directors
and officers of compensation, allowance, fees, bonuses, stock options, profit sharing and fringe
benefits only in exceptional cases and when the circumstances warrant, such as but not limited to the
following:
18.1. When a bank is under comptrollership or conservatorship; or
18.2. When a bank is found by the Monetary Board to be conducting business in an unsafe or
unsound manner; or
18.3. When a bank is found by the Monetary Board to be in an unsatisfactory financial condition.
(n)
SECTION 19. Prohibition on Public Officials. — Except as otherwise provided in the Rural Banks
Act, no appointive or elective public official, whether full-time or part-time shall at the same time serve
as officer of any private bank, save in cases where such service is incident to financial assistance
provided by the government or a government-owned or controlled corporation to the bank or unless
otherwise provided under existing laws. (13)
E. Branches and Hours of Operation
• General Banking Law Sections 20 and 21
SECTION 20. Bank Branches. — Universal or commercial banks may open branches or other offices
within or outside the Philippines upon prior approval of the Bangko Sentral.
Branching by all other banks shall be governed by pertinent laws.
A bank may, subject to prior approval of the Monetary Board, use any or all of its branches as outlets
for the presentation and/or sale of the financial products of its allied undertaking or of its investment
house units.
A bank authorized to establish branches or other offices shall be responsible for all business conducted
in such branches and offices to the same extent and in the same manner as though such business had
all been conducted in the head office. A bank and its branches and offices shall be treated as one unit.
(6-B; 27)
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SECTION 21. Banking Days and Hours. — Unless otherwise authorized by the Bangko Sentral in the
interest of the banking public, all banks including their branches and offices shall transact business on
all working days for at least six (6) hours a day. In addition, banks or any of their branches or offices
may open for business on Saturdays, Sundays or holidays for at least three (3) hours a day: Provided,
That banks which opt to open on days other than working days shall report to the Bangko Sentral the
additional days during which they or their branches or offices shall transact business.
For purposes of this Section, working days shall mean Mondays to Fridays, except if such days are
holidays. (6-Ca)
Jurisprudence (Memory Buzzer)
(1) Busuego v. CA • PAL Employees Savings and Loan Association (PESALA) against
Monetary Board
*Copy-pasted from • The Central Bank, upon examination of PESALA’s documents, took
before note of some anomalies: (1) questionable investment in a multi-billion
peso real estate project (Pelasaville); (2) conflict of interest in the
conduct of business; (3) unwarranted declaration and payment of
dividends; and (4) commission of unsound and unsafe business
practices. Hence, the Monetary Board adopted Resolution No. 805
requiring PESALA to improve its operations and adopt internal control
measures, and to file civil and criminal cases against its messengers
for malfeasance and misfeasance. Now the validity of the resolution is
being assailed on the ground of lack of due process on the part of the
Monetary Board.
• Whether Resolution No. 805 is invalid.
• No. First, the requirements of Ang Tibay were met when (1) petitioners
were invited by Dir. Lirio to a conference to discuss the findings during
the 16th regular examination of PESALA; (2) One petitioner sent his
letter to the Board, explaining his side of the controversy; and (3)
PESALA Board’s letter to the Board, explaining the board’s side of the
controversty. Second, the Central Bank is the government agency
charged with the responsibility of administering the banking system of
the country. The Savings and Loan Association Act authorizes the
Monetary Board to conduct regular yearly examinations of the books
and records of PESALA. Third, the law provides that examinations
may be conducted WITH OR WITHOUT prior notice, but always with
fairness and reasonable opportunity to be heard.
• Ang Tibay requirements:
8. Right to a hearing
9. Consider evidence presented
10. Evidence must be substantial
11. Decision must be based on evidence presented
12. Decision must have something to support itself
13. Tribunal must be independent
14. Tribunal must render a decision in such a manner that the
parties will know the various issues involved, and the
reason for the decision rendered
(2) Prudential Bank • Prudential Bank against Aurora Cruz
v. CA • Aurora and her sister invested PHP200,000 (in Central Bank bills) with
Prudential Bank – the placement was for 63 days at 13.75% annual
interest. The amount of PHP196,122.88 was withdrawn from Aurora’s
savings account and applied to the investment. When the placement
matured, Aurora returned to the bank and “rolled over” (ie., renewed)
her investment – another PHP196,122.88 was withdrawn therefor.
Credit and Debit memos were issued by Susan Quimbo (who’s been
handling Aurora’s transactions), similar to the first placement.
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However, this time Susan asked Aurora to sign a withdrawal slip for
PHP196,122.98 representing the amount to be re-invested, informing
her that this was a new requirement of the bank. Aurora received
another confirmation of sale for this transaction. When Aurora came
back to withdraw PHP200,000, she was informed that the same had
already been withdrawn by her. Prudential Bank convinced her not to
file suit yet so they could settle amicably, but then the bank eventually
denied Aurora’s request, prompting her to file a complaint against
Prudential Bank.
• Prudential Bank simply argues that Aurora already withdrew the
amount, relying on the withdrawal slip signed by Aurora, and alleging
that the credit and debit memos were fake.
• Aurora counters that she has not yet collected her investment,
submitting the confirmation of sale and the debit memo issued by
Susan as proof.
• Whether Prudential Bank is liable.
• Yes. First, the lower court was correct in its observation that, “if,
indeed, it was Aurora’s desire to withdraw their money from Prudential,
they could have withdrawn an amount in round figures (Ex.
PHP200,000). Interestingly, it was the irregular amount of
PHP196,122.98 – the exact amount to be rolled over.” Second, it was
not proven that the credit and debit memos were fake since these were
not made available to the general public, and not even to the
depositors – handled only by bank personnel. Aurora had no obligation
to verify Susan’s authority in issuing such memos because she had the
right to presume it. Third, the moment the bank failed to give Aurora
her PHP200,000, the bank breached its contract over the money
placement. Fourth, a banking corporation is liable to innocent third
persons where the representation is made in the course of its business
by an agent acting within the general scope of his authority, even
though the agent is secretly abusing his authority and attempting to
perpetuate a fraud upon his principal or some other person. If Aurora
did not read the fine print in the contract, this is because she trusts the
bank and relies on its credibility – as an ordinary depositor would.
Fifth, for bad faith, the bank was remiss in rectifying the anomaly
concerning its depositor. Moreover, the bank even tried to avoid liability
at the expense of its depositor because the bank initiated but did not
pursue its case against Susan, to the detriment of Aurora’s cause. The
misdeeds of such employees must be readily acknowledged and
rectified without delay. Hence, the bank is liable for moral and
exemplary damages on top of the money placement.
(3) First Philippine • First Philippine Int’l Bank (formerly Producers Bank) and Mercurio
Int’l Bank v. CAc Rivera against Carlos Ejercito, in substitution of Demetrio
Demetria and Jose Janolo
• The bank acquired 6 parcels of land with a total area of 101 hectares.
Demetrio Demetria and Jose Janolo wanted to purchase the property,
prompting negotiations between them and the bank. Demetrio and
Jose transacted with Mercurio Rivera, the manager of the bank’s
property management department. They first offered to buy the 6
parcels for PHP3,500,000. The bank counter-offered PHP5,500,000.
Demetrio and Jose again countered with PHP4,250,000. The bank
refused and reiterated its PHP5,500,000 offer in a meeting. Demetrio
and Jose sent a letter agreeing thereto, but the bank did not reply. It
was later found out that the bank was advertising the sale of such
parcels. Via counsel, Demetrio and Jose demanded the bank to fulfill
its obligation under the contract. 2 cases were filed: (1) one for specific
performance against the bank, wherein Henry Co (owner of 80% of the
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bank’s shares) filed a motion to intervene with Sycip as counsel and
(2) derivative suit on behalf of the bank filed by Henry Co with ACCRA
as counsel.
• First Philippine Int’l Bank argues that there was no perfected contract
of sale since no price was agreed upon, and that the transactions with
Rivera are ineffective since they were unauthorized during the time the
bank was put under a conservation officer who revoked Rivera’s
authority. The bank tried to avoid liability by presenting proof of
Rivera’s limited authorization.
• Carlos Ejercito, who substituted Demetrio and Jose, contends that a
contract of sale was perfected between the parties.
• (1) Whether First Philippine Int’l Bank is guilty of forum shopping; and
(2) Whether the contract of sale was perfected.
• (1) Yes. A decision recognizing the perfection and directing the
enforcement of the contract of sale will directly conflict with a possible
decision in the derivative suit, barring the parties from enforcing or
implementing the said sale. Indeed, a final decision in one would
constitute res judicata in the other.
• (2) Yes. First, the subject matter (6 parcels of land) was undisputed.
For the consideration – even assuming that the counter-offer of
PHP5,500,000 was extinguished when Demetrio and Jose counter-
offered PHP4,250,000, the PHP5,500,000 was revived at the
subsequent meeting held where it was reiterated, and this time
Demetrio and Jose subsequently sent a letter agreeing thereto.
Second, as to Rivera’s limited authority, the bank offered as evidence
the self-serving testimony of Rivera and various inter-office
memoranda, the knowledge of which cannot be charged against
Demetrio and Jose since they were internal matters. Third, the
conservator could not have repudiated the contract since it can do only
what the board had the power to do – it does not include the
repudiation of a contract entered into under the doctrine of implied
authority. To rule otherwise would be to enable a failing bank to
become solvent, at the expense of third parties, by simply getting the
conservator to unilaterally revoke all previous dealings. Fourth, to rule
in favor of the bank simply because the property in question has
algebraically accelerated in price during the long period of litigation is
to reward lawlessness and delays in the fulfillment of binding contracts.
(4) BPI Family v. • BPI Family against First Metro Investment Corporation
First Metro • First Metro, through its EVP Antonio Ong, opened a current account
Investment Corp. with BPI Family’s San Francisco del Monte Branch upon the request of
his friend who was a branch manager therein – apparently it was for
the purpose of increasing the deposit level in the branch. It was agreed
that BPI Family, after 1 year of keeping the deposit in its bank, would
pay First Metro back the amount of PHP14,667,687.01, representing
the 17% per annum interest of the PHP100,000,000 deposited.
Eventually, it was found that BPI Family transferred PHP80,000,000 to
Tevesteco Arrastre – Stevedoring, Inc. without the authority of First
Metro. First Metro drew checks against its BPI account in order to get
the money, but these were dishonored due to insufficient funds. First
Metro filed a civil case against BPI Family and a criminal case for
estafa against Ong, de Asis, Sebastian and four others. The lower
court ruled in favor of First Metro.
• BPI Family argues that the lower court’s award of 17% per annum
interest is erroneous since First Metro’s deposit is not a special
savings account similar to a time deposit, but actually a demand
deposit, proscribed from earning interest under CB Circular 777.
Moreover, that First Metro should have first inquired as to BPI Family’s
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internal procedures before proceeding with the transaction.
• First Metro relies on the lower court’s ruling.
• Whether BPI Family is liable.
• Yes. First, time deposits are ones, the payment of which cannot legally
be required within such a specified number of days, while demand
deposits are all those liabilities of the CB and of other banks which are
denominated in PH currency and are subject to payment in legal
tender upon demand by the presentation of depositor’s checks. In this
case, it was obvious that the parties’ intent was a time deposit – First
Metro invested its money with BPI Family for a period of 1 year in order
for it to earn 17% interest per annum. Second, if a corporation
knowingly permits its officer, or any other agent, to perform acts within
the scope of an apparent authority, holding him out to the public as
possessing power to do those acts, the corporation will, as against any
person who has dealt in good faith with the corporation through such
agent, be estopped from denying such authority. Third, what
transpires in the corporate board room is entirely an internal matter.
Hence, the bank may not impute negligence on the part of First Metro’s
EVP in failing to find out the scope of authority of BPI Family’s branch
manager. The public has the right to rely on the trustworthiness of
bank managers and their acts. Fourth, interest is proper since the CB
Circular provides that time deposits “shall not be subject to any rate
ceiling,” which means that any rate of interest may be imposed. The
rule is well settled that when an obligation is breached, it consists in
payment of a sum of money, and interest due should be that which
may have been stipulated. Such interest shall itself earn legal interest
from the time it is judicially demanded.
Prudential Bank to release the proceeds of the loan to her. §X-302 of
the Manual of Regulations for Banks requires banks to establish a
system of documentation in case of the issuance by a bank of a
guarantee which is essentially a promise to repay the liabilities of a
debtor – in this case, Corazon. Hence, it would contrary to established
banking practice if Norberto issued a bank guarantee, even if no
request to that effect was made. Second, applying the principle of
relativity of contracts – Neither Prudential Bank nor Norberto were
parties to the agreement between Liwayway and Corazon. So in order
for Liwayway to claim from Prudential, she must prove a clear and
deliberate act of the bank conferring a favor upon her – this would
have been proven by the written request which should have come from
Liwayway or Corazon, but none was presented. Moreover, it was
established that the contract was already perfected from the moment
Liwayway and Corazon had a meeting of the minds as to the subject
matter and price, the only thing left was the source of funds to be used
by Corazon to pay the purchase price. Even if Norberto made such a
guarantee from the bank, Liwayway did not rely on such representation
in order to enter the contract, as it was already perfected even before
they went to Prudential Bank. Third, Liwayway has the burden of
proving that Norberto abused his authority from Prudential Bank. This
was not proven, Norberto was not a privy to the approval or
disallowance of Corazon’s loan application. There was no evidence of
collusion.

(5) Prudential Bank • Prudential Bank against Liwayway Abasolo

v. Abasolo • Liwayway Abasolo had a special power of attorney to sell 2 parcels of
land owned by the heirs of Leonor Valenzuela-Rosales situated in Sta.
Cruz, Laguna. Corazon Marasigan wanted to buy the properties – she
had no available cash, so she broached the idea of “first mortgaging
the properties to Prudential Bank, then the proceeds of the mortgage
would be paid directly to Liwayway.” The latter agreed. They went to
Prudential Bank, and its employee, Norberto Mendiola, advised
Liwayway to issue an authorization for Corazon to mortgage the
properties, and that Liwayway should act as one of the co-makers so
the proceeds could be released directly to both of them. To guarantee
payment of the property, Corazon issued a promissory note in favor of
Liwayway. Norberto advised Liwayway to transfer the property to
Corazon for a faster loan application, so Liwayway executed a Deed of
Absolute Sale in favor of Corazon. In the absence of a written request
for a bank guarantee, Prudential Bank released the proceeds of the
loan to Corazon. Liwayway found out about this so she went to
Corazon, but Corazon failed to pay – she merely paid in kind 1 owner-
type jeepney and 4 passenger jeepneys as partial payment. Due to
Corazon’s failure to pay, Liwayway filed a complaint for collection of
sum of money against Corazon and Prudential Bank.
• Prudential Bank contends that it is not subsidiarily liable for the acts of
Norberto Mendiola. It denied that there was an agreement that the
proceeds of the loan would be paid directly to her.
• Liwayway argues that Prudential Bank is subsidiarily liable due to her
reliance on its employee, Norberto, who allegedly guaranteed that the
proceeds would be paid directly to her.
• Whether Prudential Bank is subsidiarily liable.
• No. First, in the absence of a lender-borrower relationship between
Prudential Bank and Liwayway, there is no inherent obligation of

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Banking Law I (SYLLABUS 5)
Powers and Operating Units of Banks
UNIVERSAL BANKS VS. COMMERCIAL BANKS
• GENERAL BANKING LAW SECTIONS 23-32, 53
ARTICLE I: OPERATIONS OF UNIVERSAL BANKS
SECTION 23. Powers of a Universal Bank. — A universal bank shall have the authority to exercise, in
addition to the powers authorized for a commercial bank in Section 29, the powers of an investment
house as provided in existing laws and the power to invest in non-allied enterprises as provided in this
Act. (21-B)
SECTION 24. Equity Investments of a Universal Bank. — A universal bank may, subject to the
conditions stated in the succeeding paragraph, invest in the equities of allied and non-allied enterprises
as may be determined by the Monetary Board. Allied enterprises may either be financial or non-
financial.
Except as the Monetary Board may otherwise prescribe:
24.1. The total investment in equities of allied and non-allied enterprises shall not exceed fifty
percent (50%) of the net worth of the bank; and
24.2. The equity investment in any one enterprise, whether allied or non-allied, shall not exceed
twenty-five percent (25%) of the net worth of the bank.
As used in this Act, "net worth" shall mean the total of the unimpaired paid-in capital including paid-in
surplus, retained earnings and undivided profit, net of valuation reserves and other adjustments as may
be required by the Bangko Sentral.
The acquisition of such equity or equities is subject to the prior approval of the Monetary Board which
shall promulgate appropriate guidelines to govern such investments. (21-Ba)
SECTION 25. Equity Investments of a Universal Bank in Financial Allied Enterprises. — A universal
bank can own up to one hundred percent (100%) of the equity in a thrift bank, a rural bank or a
financial allied enterprise.
A publicly-listed universal or commercial bank may own up to one hundred percent (100%) of the
voting stock of only one other universal or commercial bank. (21-B; 21-Ca)
SECTION 26. Equity Investments of a Universal Bank in Non-Financial Allied Enterprises. — A
universal bank may own up to one hundred percent (100%) of the equity in a non-financial allied
enterprise. (21-Ba)
SECTION 27. Equity Investments of a Universal Bank in Non-Allied Enterprises. — The equity
investment of a universal bank, or of its wholly or majority-owned subsidiaries, in a single non-allied
enterprise shall not exceed thirty-five percent (35%) of the total equity in that enterprise nor shall it
exceed thirty-five percent (35%) of the voting stock in that enterprise. (21-B)
SECTION 28. Equity Investments in Quasi-Banks. — To promote competitive conditions in financial
markets, the Monetary Board may further limit to forty percent (40%) equity investments of universal
banks in quasi-banks. This rule shall also apply in the case of commercial banks. (12-E)
ARTICLE II: OPERATIONS OF COMMERCIAL BANKS
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SECTION 29. Powers of a Commercial Bank. — A commercial bank shall have, in addition to the
general powers incident to corporations, all such powers as may be necessary to carry on the business
of commercial banking, such as accepting drafts and issuing letters of credit; discounting and
negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; accepting or
creating demand deposits; receiving other types of deposits and deposit substitutes; buying and selling
foreign exchange and gold or silver bullion; acquiring marketable bonds and other debt securities; and
extending credit, subject to such rules as the Monetary Board may promulgate. These rules may
include the determination of bonds and other debt securities eligible for investment, the maturities and
aggregate amount of such investment. (21a)
SECTION 30. Equity Investments of a Commercial Bank. — A commercial bank may, subject to the
conditions stated in the succeeding paragraphs, invest only in the equities of allied enterprises as may
be determined by the Monetary Board. Allied enterprises may either be financial or non-financial. Cdpr
Except as the Monetary Board may otherwise prescribe:
30.1. The total investment in equities of allied enterprises shall not exceed thirty-five percent
(35%) of the net worth of the bank; and
30.2. The equity investment in any one enterprise shall not exceed twenty-five percent (25%) of
the net worth of the bank.
The acquisition of such equity or equities is subject to the prior approval of the Monetary Board which
shall promulgate appropriate guidelines to govern such investments. (21A-a; 21-Ca)
SECTION 31. Equity Investments of a Commercial Bank in Financial Allied Enterprises. — A
commercial bank may own up to one hundred percent (100%) of the equity of a thrift bank or a rural
bank.
Where the equity investment of a commercial bank is in other financial allied enterprises, including
another commercial bank, such investment shall remain a minority holding in that enterprise. (21-Aa;
21-Ca)
SECTION 32. Equity Investments of a Commercial Bank in Non-Financial Allied Enterprises. — A
commercial bank may own up to one hundred percent (100%) of the equity in a non-financial allied
enterprise. (21-Aa)
Ø Allied enterprise – activity that is related to the business of banking. (Ex. Foreign exchange
companies)
Ø Non-Financial Allied enterprise – something used in the business of banking, but does not involve
money. (Ex. Lender of armored trucks)
SECTION 53. Other Banking Services. — In addition to the operations specifically authorized in this
Act, a bank may perform the following services:
53.1. Receive in custody funds, documents and valuable objects;
53.2. Act as financial agent and buy and sell, by order of and for the account of their customers,
shares, evidences of indebtedness and all types of securities;
53.3. Make collections and payments for the account of others and perform such other services
for their customers as are not incompatible with banking business;
53.4. Upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or
administrator of investment management/advisory/consultancy accounts; and
53.5. Rent out safety deposit boxes.
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The bank shall perform the services permitted under Subsections 53.1, 53.2, 53.3 and 53.4 as
depositary or as an agent. Accordingly, it shall keep the funds, securities and other effects which it
receives duly separate from the bank's own assets and liabilities. prcd
The Monetary Board may regulate the operations authorized by this Section in order to ensure that
such operations do not endanger the interests of the depositors and other creditors of the bank.
In case a bank or quasi-bank notifies the Bangko Sentral or publicly announces a bank holiday, or in
any manner suspends the payment of its deposit liabilities continuously for more than thirty (30) days,
the Monetary Board may summarily and without need for prior hearing close such banking institution
and place it under receivership of the Philippine Deposit Insurance Corporation. (72a)
Ø Universal and commercial banks need not secure another license to perform quasi-banking
functions.
Ø Main differences between universal banks and commercial banks:
o The universal bank, additionally, can (1) perform the functions of an investment house;
and (2) can invest in non-allied enterprises.
Jurisprudence (Memory Buzzer)
(1) Demosthenes P. • Agan, Jr., et. al. against Philippine Int’l Airport Terminals Co.
Agan, Jr., et. al. • This case involves the bidding process for the construction and
v. PIATCO, et. al. management of the Ninoy Aquino International Airport – International
Passenger Terminal III (NAIA IPT III / NAIA 3) under a Build-Operate-
Transfer arrangement pursuant to the BOT Law. It was initiated by
Asia’s Emerging Dragon Corp. (AEDC), incorporated by business
leaders (Gokongwei, Gotianun, Sy, Tan, Ty and Yuchengco). The
petitioners are employees of international airline service providers,
congressmen, and employees of the Manila International Airport
Authority (MIAA). PIATCO, the respondent, was incorporated by
Paircargo Consortium together with Security Bank, among others, to
participate in the bidding. The pertinent provision in the requirements
for bidding is that the applicant “must, at the time of application, have
the prescribed minimum equity investment which is 30% of the project
cost” (NAIA 3’s minimum cost is $350,000,000 or PHP9,183,650,000;
30% of which is PHP2,755,095,000). The Pre-Qualification Bids and
Awards Committee (PBAC) granted the application of PIATCO and
eventually entered into a Concession Agreement therewith. Hence, this
petition.
• Agan, Jr. et. al. assailed PIATCO’s pre-qualification on the ground that
it did not possess the minimum equity investment of 30% since one of
its partners, Security Bank, could not invest more than maximum
investment set by the General Banking Act.
• The issue is whether PIATCO is a qualified bidder / whether the
concession agreement was valid.
• The SC ruled in the negative. First, the SC looked into the General
Banking Act – it provides that “a commercial bank (Security Bank, in
this case) may invest in the equity of a non-allied undertaking
PROVIDED THAT the equity investment in any one enterprise,
whether allied or non-allied, shall not exceed 15% of the net worth of
the bank.” Here, Security Bank’s total net worth is PHP3,523,504,377,
15% of which is only PHP528,536,656.55. Adding such amount to the
other partners: Paircargo’s PHP5,907,107 and Phil. Air and Grounds’
(PAG’s) PHP26,735,700 will have a total of only PHP558,384,871.55
or only 6.08% of the project cost. Second, the concession agreement
was invalid due to the proscription against a “direct government
guarantee” since here, the Republic was put at the risk of incurring a
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monetary obligation resulting from a contract of loan between the
project proponent and its lenders and to which the Republic is not a
party thereto. Third, the agreement provided that “concessionaires
(PIATCO, in this case) shall be entitled to a reasonable compensation
for the duration of a temporary takeover by the Republic” which is
proscribed by the Constitution since the state, in exercising its police
power in times of national emergency or when public interest so
requires, may temporarily take over the operation of any privately
owned public utility or business affected with public interest.
REGULAR UNIT VS. TRUST DEPARTMENT VS. FOREIGN CURRENCY DEPOSIT UNIT
• GENERAL BANKING LAW SECTIONS 79-93
SECTION 79. Authority to Engage in Trust Business. — Only a stock corporation or a person duly
authorized by the Monetary Board to engage in trust business shall act as a trustee or administer any
trust or hold property in trust or on deposit for the use, benefit, or behoof of others. For purposes of this
Act, such a corporation shall be referred to as a trust entity. (56a; 57a)
Ø Review of trusts: Legal ownership is given to the trustee, while beneficial ownership remains in
the trustor, which may be for the benefit of the beneficiary.
SECTION 80. Conduct of Trust Business. — A trust entity shall administer the funds or property under
its custody with the diligence that a prudent man would exercise in the conduct of an enterprise of a
like character and with similar aims.
No trust entity shall, for the account of the trustor or the beneficiary of the trust, purchase or acquire
property from, or sell, transfer, assign or lend money or property to, or purchase debt instruments of,
any of the departments, directors, officers, stockholders, or employees of the trust entity, relatives
within the first degree of consanguinity or affinity, or the related interests, of such directors, officers and
stockholders, unless the transaction is specifically authorized by the trustor and the relationship of the
trustee and the other party involved in the transaction is fully disclosed to the trustor or beneficiary of
the trust prior to the transaction.
The Monetary Board shall promulgate such rules and regulations as may be necessary to prevent
circumvention of this prohibition or the evasion of the responsibility herein imposed on a trust entity.
(56)
Ø Dean Joey is of the opinion that if the trust entity is a bank, §2 of the General Banking Law
overrides this section as to the degree of diligence required.
Ø Kinds of Trusts in Banks:
1. Directed Trusts – those where the trustor gives the bank specific instructions.
2. Discretionary Trusts
SECTION 81. Registration of Articles of Incorporation and By-Laws of a Trust Entity. — The Securities
and Exchange Commission shall not register the articles of incorporation and by-laws or any
amendment thereto, of any trust entity, unless accompanied by a certificate of authority issued by the
Bangko Sentral. (n)
SECTION 82. Minimum Capitalization. — A trust entity, before it can engage in trust or other fiduciary
business, shall comply with the minimum paid-in capital requirement which will be determined by the
Monetary Board. (n)
SECTION 83. Powers of a Trust Entity. — A trust entity, in addition to the general powers incident to
corporations, shall have the power to:
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83.1. Act as trustee on any mortgage or bond issued by any municipality, corporation, or any
body politic and to accept and execute any trust consistent with law;
83.2. Act under the order or appointment of any court as guardian, receiver, trustee, or depositary
of the estate of any minor or other incompetent person, and as receiver and depositary of any
moneys paid into court by parties to any legal proceedings and of property of any kind which may
be brought under the jurisdiction of the court;
83.3. Act as the executor of any will when it is named the executor thereof;
83.4. Act as administrator of the estate of any deceased person, with the will annexed, or as
administrator of the estate of any deceased person when there is no will;
83.5. Accept and execute any trust for the holding, management, and administration of any
estate, real or personal, and the rents, issues and profits thereof; and
83.6. Establish and manage common trust funds, subject to such rules and regulations as may be
prescribed by the Monetary Board. (58)
SECTION 84. Deposit for the Faithful Performance of Trust Duties. — Before transacting trust
business, every trust entity shall deposit with the Bangko Sentral as security for the faithful
performance of its trust duties, cash or securities approved by the Monetary Board in an amount equal
to not less than Five hundred thousand pesos (P500,000.00) or such higher amount as may be fixed
by the Monetary Board: Provided, however, That the Monetary Board shall require every trust entity to
increase the amount of its cash or securities on deposit with the Bangko Sentral whenever in its
judgment such increase is necessary by reason of the trust business of such entity: Provided, further,
That the paid-in capital and surplus of such entity must be at least equal to the amount required to be
deposited with the Bangko Sentral in accordance with the provisions of this paragraph. Should the
capital and surplus fall below said amount, the Monetary Board shall have the same authority as that
granted to it under the provisions of the fifth paragraph of Section 34 of this Act.
A trust entity so long as it shall continue to be solvent and comply with laws or regulations shall have
the right to collect the interest earned on such securities deposited with the Bangko Sentral and, from
time to time, with the approval of the Bangko Sentral, to exchange the securities for others. If the trust
entity fails to comply with any law or regulation, the Bangko Sentral shall retain such interest on the
securities deposited with it for the benefit of rightful claimants. All claims arising out of the trust
business of a trust entity shall have priority over all other claims as regards the cash or securities
deposited as above provided. The Monetary Board may not permit the cash or securities deposited in
accordance with the provisions of this Section to be reduced below the prescribed minimum amount
until the depositing entity shall discontinue its trust business and shall satisfy the Monetary Board that it
has complied with all its obligations in connection with such business. (65a)
SECTION 85. Bond of Certain Persons for the Faithful Performance of Duties. — Before an executor,
administrator, guardian, trustee, receiver or depositary appointed by the court enters upon the
execution of his duties, he shall, upon order of the court, file a bond in such sum as the court may
direct.
Upon the application of any executor, administrator, guardian, trustee, receiver, depositary or any other
person in interest, the court may, after notice and hearing, order that the subject matter of the trust or
any part thereof be deposited with a trust entity. Upon presentation of proof to the court that the subject
matter of the trust has been deposited with a trust entity, the court may order that the bond given by
such persons for the faithful performance of their duties be reduced to such sums as it may deem
proper: Provided, however, That the reduced bond shall be sufficient to secure adequately the proper
administration and care of any property remaining under the control of such persons and the proper
accounting for such property.
Property deposited with any trust entity in conformity with this Section shall be held by such entity
under the orders and direction of the court. (59)
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SECTION 86. Exemption of Trust Entity from Bond Requirement. — No bond or other security shall be
required by the court from a trust entity for the faithful performance of its duties as court-appointed
trustee, executor, administrator, guardian, receiver, or depositary. However, the court may, upon
proper application with it showing special cause therefor, require the trust entity to post a bond or other
security for the protection of funds or property confided to such entity. (59)
SECTION 87. Separation of Trust Business from General Business. — The trust business and all
funds, properties or securities received by any trust entity as executor, administrator, guardian, trustee,
receiver, or depositary shall be kept separate and distinct from the general business including all other
funds, properties, and assets of such trust entity. The accounts of all such funds, properties, or
securities shall likewise be kept separate and distinct from the accounts of the general business of the
trust entity. (61)
SECTION 88. Investment Limitations of a Trust Entity. — Unless otherwise directed by the instrument
creating the trust, the lending and investment of funds and other assets acquired by a trust entity as
executor, administrator, guardian, trustee, receiver or depositary of the estate of any minor or other
incompetent person shall be limited to loans or investments as may be prescribed by law, the Monetary
Board or any court of competent jurisdiction. (63a)
SECTION 89. Real Estate Acquired by a Trust Entity. — Unless otherwise specifically directed by the
trustor or the nature of the trust, real estate acquired by a trust entity in whatever manner and for
whatever purpose, shall likewise be governed by the relevant provisions of Section 52 of this Act. (64a)
SECTION 90. Investment of Non-Trust Funds. — The investment of funds other than trust funds of a
trust entity which is a bank, financing company or an investment house shall be governed by the
relevant provisions of this Act and other applicable laws. (64)
SECTION 91. Sanctions and Penalties. — A trust entity or any of its officers and directors found to
have willfully violated any pertinent provisions of this Act, shall be subject to the sanctions and
penalties provided under Section 66 of this Act as well as Sections 36 and 37 of the New Central Bank
Act. (63)
SECTION 92. Exemption of Trust Assets from Claims. — No assets held by a trust entity in its capacity
as trustee shall be subject to any claims other than those of the parties interested in the specific trusts.
(65)
• REPUBLIC ACT NO. 6426
April 4, 1972
REPUBLIC ACT NO. 6426
AN ACT INSTITUTING A FOREIGN CURRENCY DEPOSIT SYSTEM IN THE PHILIPPINES, AND
FOR OTHER PURPOSES
SECTION 1. Title. — This Act shall be known as the "Foreign Currency Deposit Act of the Philippines."
SECTION 2. Authority to Deposit Foreign Currencies. — Any person, natural or juridical, may, in
accordance with the provisions of this Act, deposit with such Philippine banks in good standing, as
may, upon application, be designated by the Central Bank for the purpose, foreign currencies which
are acceptable as part of the international reserve, except those which are required by the Central
Bank to be surrendered in accordance with the provisions of Republic Act Numbered Two hundred
sixty-five.
SECTION 3. Authority of Banks to Accept Foreign Currency Deposits. — The banks designated by the
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Central Bank under Section two hereof shall have the authority:
(1) To accept deposits and to accept foreign currencies in trust: Provided, That numbered
accounts for recording and servicing of said deposits shall be allowed;
(2) To issue certificates to evidence such deposits;
(3) To discount said certificates;
(4) To accept said deposits as collateral for loans subject to such rules and regulations as may be
promulgated by the Central Bank from time to time; and
(5) To pay interest in foreign currency on such deposits.
SECTION 4. Foreign Currency Cover Requirements. — Except as the Monetary Board, by a
unanimous vote of all incumbent members, may otherwise prescribe or allow, the depository banks
shall maintain at all times a one hundred percent foreign currency cover for their deposit liabilities, of
which cover at least fifteen percent shall be in the form of foreign currency deposit with the Central
Bank, and the balance in the form of foreign currency deposits or of foreign currency loans or
securities, which loans or securities shall be of short term maturities and readily marketable. Such
foreign currency loans may include loans to domestic enterprises which are export-oriented or
registered with the Board of Investments, subject to the limitations to be prescribed by the Monetary
Board on such loans. The foreign currency cover shall be in the same currency as that of the
corresponding foreign currency deposit liability. The Central Bank may pay interest on the foreign
currency deposit, and if requested shall exchange the foreign currency notes and coins into foreign
currency instruments drawn on its depository banks.
SECTION 5. Withdrawability and Transferability of Deposits. — There shall be no restriction on the
withdrawal by the depositor of his deposit or on the transferability of the same abroad except those
arising from the contract between the depositor and the bank.
SECTION 6. Tax Exemption of Interests on Deposits. — The interests on deposits under this Act,
belonging to nonresidents not engaged in trade or business in the Philippines, shall be exempt from
income tax. (The NIRC imposed taxes on interests)
SECTION 7. Rules and Regulations. — The Monetary Board of the Central Bank shall promulgate
such rules and regulations as may be necessary to carry out the provisions of this Act which shall take
effect after the publication of such rules and regulations in the Official Gazette and in a newspaper of
national circulation for at least once a week for three consecutive weeks. In case the Central Bank
promulgates new rules and regulations decreasing the rights of depositors, the rules and regulations at
the time the deposit was made shall govern.
SECTION 8. Secrecy of Deposits. — The secrecy of deposits under this Act shall be governed in
accordance with the provisions of Republic Act Numbered One thousand four hundred five.
SECTION 9. Deposit Insurance Coverage. — The deposits under this Act shall be insured under the
provisions of Republic Act Numbered Three thousand five hundred ninety-one, as amended, as well as
its implementing rules and regulations: Provided, That insurance payment shall be in the same
currency in which the insured deposits are denominated.
SECTION 10. Penal Provisions. — Any willful violation of this Act or any regulation duly promulgated
by the Monetary Board pursuant hereto shall subject the offender upon conviction to an imprisonment
of not less than one year nor more than five years or a fine of not less than five thousand pesos nor
more than twenty-five thousand pesos, or both such fine and imprisonment at the discretion of the
court.
SECTION 11. Separability Clause. — The provisions of this Act are hereby declared to be separable,
and in the event one or more of such provisions are held unconstitutional, the validity of other
provisions shall not be affected thereby.
SECTION 12. Repealing Clause. — All Acts, executive orders, rules and regulations, or parts thereof,
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which are inconsistent with any provision of this Act are hereby repealed, amended or modified
accordingly, without prejudice, however, to deposits made thereunder.
SECTION 13. Effectivity. — This Act shall take effect upon its approval.
Approved: April 4, 1972
Jurisprudence (Memory Buzzer)
(2) Cancio v. CTA • Rosa Cancio against CTA and the Commissioner of Customs
• While Rosa, together with her husband and 3 children, were clearing
through the Pre-Boarding Aria of the Manila International Airport, she
was apprehended after the metal detecting device’s alarm sounded – it
was found that Rosa had in her possession 2 traveler’s checks hidden
in fairly-sized boxes of local chocolate – which were not declared by
her.
• Rosa assails her apprehension, arguing that the amount came from
her foreign currency deposit in Philippine Commercial and Industrial
Bank (PCIB) and was to be used for her travel and medical expenses
in the United States via Hong Kong. That placing the currencies in
chocolate boxes was for “security reasons.”
• The Commissioner of Customs argues that the apprehension was
proper as Rosa, at that time, failed to present a Central Bank authority
to bring said currencies, as required by 2 Central Bank Circulars.
• The issue is whether Rosa’s apprehension was proper.
• The SC ruled in the negative. First, since Rosa is a foreign currency
depositor, it is RA 6426 (Foreign Currency Deposit Act) which applies
– provides that “there shall be no restriction on the withdrawal by the
depositor of his deposit or on the transferability of the same abroad,
except those arising from the contract between the depositor and the
bank.” The exception does not apply herein. Second, the circular-letter
of the Central Bank provides that it is the authorized depository bank
which should advise its depositors to carry with them the certificate of
withdrawal – Rosa was not informed by PCIB thereof. Third, given the
underlying objective of the Foreign Currency Deposit Act which is to
attract and invite the deposit of foreign currencies, it would be to defeat
such purpose if undue restrictions on the transferability of such funds
are prescribed. Fourth, Rosa has presented sufficient evidence that
the currencies are hers: (1) foreign currency bank book (2) withdrawal
cards. This decision, however, does not condone her failure to declare
such currencies, but stresses that the Foreign Currency Deposit Act
grants Rosa the right of transferability of her funds abroad.
(3) Salvacion v. • Karen Salvacion against Central Bank, China Bank and Greg Bartelli
Central Bank y Northcott
• Karen, then 12 years old, was kidnapped and raped by Greg, an
American, for 4 days in the latter’s house in Kalayaan Ave., Makati City
(gruesome details at the bottom). At the time of apprehension, the
policemen found several checks issued against dollar and peso
accounts in banks, one of which was China Bank. Greg was convicted
of Serious Illegal Detention and 4 counts of Rape. He was able to
escape from jail. A writ of execution was issued in order to indemnify
Karen the amount of PHP1,000,000 as damages. Since Greg was not
in the Philippines, a notice of garnishment of the dollar account was
sent to China Bank. The bank, however, refused to release the funds.
• Karen, through her parents, argues that the circular is unconstitutional
for being in excess of the Monetary Board’s delegated quasi-legislative
power, in effect taking away their right to have the bank deposits
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garnished to satisfy the judgment rendered against an alien, creating
an undue favor for a class privilege in violation of the equal protection
clause.
• The Solicitor General supports Karen’s plea, arguing that the law does
not apply to Greg, an alien who is a mere transient in the Philippines.
The law applies to “lenders” and “investors.”
• China Bank argues that a Central Bank Circular exempted dollar
deposits from attachment, garnishment, or any other order or process
of any court, legislative body, government agency or administrative
body, whatsoever. Were it not for that circular, China Bank would have
released the same.
• The Central Bank is of the opinion that the circular merely implements
what is provided for under RA 6426 (Foreign Currency Deposit Act).
• The issue is whether Greg’s dollar account may be subjected
garnishment.
• The SC ruled in the affirmative. First, although this was originally a
petition for declaratory relief, the SC may treat it as one for mandamus
since the present petition has far-reaching implications on the right of a
national to obtain redress for a wrong committed by an alien who takes
refuge under a law and regulation promulgated for a purpose which
does not contemplate the application thereof envisaged by the alien –
an exemption to strict procedural rules. Second, it is evidence from the
“whereas clauses” of the pertinent laws that the Offshore Banking
System and Foreign Currency Deposit System were designed to draw
deposits from foreign LENDERS and INVESTORS – it is these
deposits that are sought to be protected by the law. Obviously, it does
not apply to Greg, a mere transient or tourist who stays only for a few
days in the country, and will therefore maintain his deposit for only a
short period of time. Third, a strict application of the circular would
negate Art. 10 of the New Civil Code which provides that “in case of
doubt in the interpretation and application of laws, it is presumed that
the lawmaking body intended right and justice to prevail.” Furthermore,
when the state is silent or ambiguous, this is one of those fundamental
solutions that would respond to the vehement urge of conscience.
• FACTS RE: RAPE – Karen was then a freshman in St. Mary’s
Academy. She was in Plaza Fair Makati Cinema Square with her
friend. When the friend went home, Greg approached Karen, who was
sitting on a bench. He interviewed Karen, asking what he favorite
subject was – she answered Pilipino. He asked Karen to teach his
niece Pilipino – she agreed. He brought her to his house along
Kalayaan Avenue. He said maybe his niece was upstairs, so he
brought Karen there. He tied Karen up, inserted his finger in her
vagina, applied baby oil to his penis and her vagina and inserted his
penis therein. Karen bled even as she showered thereafter. The next
day, after eating biscuits, Greg again raped her and this continued for
3 days. Karen found a window (covered by mats) and shouted for help.
A neighbor was irritated so she told Karen to sleep and she’ll call the
police. The police arrived a few days later.
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Banking Law I (SYLLABUS 6)
Deposits, Loans and Other Operations
LEGAL NATURE OF DEPOSITS
• CIVIL CODE ARTICLES 1953 AND 1980
ARTICLE 1953. A person who receives a loan of money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.
(1753a)
ARTICLE 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan. (n)
Jurisprudence (Memory Buzzer)
(1) Serrano v. • Manuel Serrano against Central Bank and Overseas Bank of Manila
Central Bank • Manuel Serrano made a time deposit for 1 year with 6% interest of
PHP150,000 with Overseas Bank. Concepcion Maneja also made a
time deposit with 6½% interest of PHP200,000. Concepcion assigned
her time deposit to Serrano. Overseas Bank failed to honor any of
Serrano’s demands for the time deposits. [In a previous case, Ramos
v. Central Bank, where the Central Bank declared the closure of
Overseas Bank upon the finding of insolvency, Serrano filed a motion
to intervene therein arguing that he had a real interest as a depositor of
the Overseas Bank. The SC denied such motion on the ground that it
should be filed in the CFI.] Hence, Serrano filed this current petition for
mandamus and prohibition, seeking to establish a joint and solidary
liability between Central Bank and Overseas Bank.
• Serrano argues that Central Bank failed in its duty to exercise strict
supervision over Overseas Bank in order to protect depositors and the
general public.
• Central Bank counters that (1) it does not have the duty to exercise a
most rigid and stringent supervision of banks, implying that the Central
Bank has to watch every move or activity of all banks (2) it had limited
Overseas Bank’s operations (prohibited from making new loans and
investments) on the ground of Overseas Bank’s chronic reserve
deficiencies against its deposit liabilities (3) it is not a guarantor of
permanent solvency of any bank (4) there was no constructive trust
created in favor of Serrano by virtue of the time deposits (5) it had no
knowledge of Serrano’s claim that the properties given by Overseas
Bank, as additional collaterals to Central Bank for Overseas Bank’s
overdrafts and emergency loans, were acquired through the use of
depositors’ money, including Serrano’s and Maneja’s.
• The issue is whether the Central Bank is solidarily liable with Overseas
Bank.
• The SC ruled in the negative. First, the true nature of this petition is a
recovery of damages from Central Bank and a recovery of time
deposits from Overseas Bank. These claims should be ventilated in the
CFI of proper jurisdiction, as to allow such petition here would prompt
every other depositor to do the same. Mandamus is improper as there
was no grave abuse of discretion by Central Bank in its exercise of
supervision over other banks. Prohibition is improper since the act
(dissolving and liquidating Overseas Bank) sought to be prohibited had
been accomplished a long time ago. Second, bank deposits are in the
nature of irregular deposits. All kinds of bank deposits, whether fixed,
DEAN JMGH | BANKING L AW | YAP, K.

savings, or current are to be treated as loans and are to be covered by
the law on loans (mutuum). The relationship between Serrano and
Overseas Bank was creditor-debtor, not one of trust. Overseas Bank’s
failure to honor the time deposit is a violation of its obligation as a
debtor, and not a breach of trust arising from a depositary’s failure to
return the subject matter of the deposit.
(2) Guingona, Jr. v. • Teofisto Guingona, et. al. against City Fiscal of Manila and Clement
City Fiscal of David
Manila • Clement David (Australian), together with his sister Denise Kuhne,
invested with the National Savings and Loan Association (NSLA)
PHP1,145,546.20 on time deposits, and another investment in the
amount of $75,000. When NSLA was placed under receivership,
Guingona, Jr. (former President of NSLA), et. al., upon request of
David, assumed the obligation of the bank to David by executing a joint
promissory note in favor of David, acknowledging an indebtedness of
PHP1,336,614.02 and $75,000 – larger than the original claim because
of the added interest and the inclusion of other deposits of Kuhne in
the amount of PHP116,613.20. Guingona, Jr., et. al. agreed to divide
the indebtedness, hence they executed separate promissory notes –
Guingona, Jr. acknowledged an indebtedness of PHP668,307.01 and
$37,500 (halves of the original amounts). David filed a complaint
charging Guingona, Jr. et. al. with (1) estafa and (2) violation of CB
Circular No. 364 and related Central Bank Regulations on foreign
exchange transactions. Guingona, Jr. et. al. filed this petition for
prohibition.
• David alleges that (1) he was induced by another Australian national
who was allegedly a close associate of Guingona, Jr. et. al. (2) when
the bank was placed under receivership, Central Bank informed David
that only PHP305,821.92 of his investments were entered in the
records of NSLA. David now alleges that Guingona, Jr.
misappropriated the balance (3) Guingona, Jr. et. al. violated CB
Circular No. 364 when they accepted foreign currency deposit in the
amount of $75,000 without authority from the Central Bank.
• Guingona, Jr., et. al. counter that (1) since NSLA was urgently in need
of funds and at David’s insistence, his investments were treated as
special accounts with interests above the legal rate, and recorded in
separate confidential documents – only a portion of which were to be
reported because David neither wanted the Australian government to
tax his total earnings nor to know his total investments (2) David’s
$50,000 check was cleared through Guingonga, Jr.’s dollar account
because NSLA did not have one (3) Philippine Deposit Insurance
Corporation (PDIC) had already reimbursed David within the legal
limits (this was a consequence of the NSLA’s being placed under
receivership) (4) A co-petitioner had already executed a promissory
note in David’s favor and caused the transfer to David of a 9½ carat
diamond ring with a net value of PHP510,000 and (5) the liabilities of
David were civil in nature, hence the city fiscal has no jurisdiction over
the matter.
• The issue is whether the city fiscal of Manila acted without jurisdiction
when it investigated the charges.
• The SC ruled in the affirmative. First, when David invested his money
on time and savings deposits with NSLA, the contract that was
perfected was a contract of simple loan (mutuum) and not a contract of
deposit (Serrano v. CA and Central Bank v. Morfe were cited,
discussing the nature of deposits). While NSLA has the obligation to
return the amount deposited, it has, however, no obligation to return or
deliver the same money that was deposited (money is fungible) – the
30
failure of NSLA to return the amount deposited will not constitute
estafa through misappropriation, but will only give rise to civil liability.
Second, even assuming arguendo that there was misappropriation,
the criminal liability was deemed avoided because of a novation
effected by Guingona, Jr. et. al.’s assumption of the obligation when
NSLA was placed under receivership by the Central Bank. Hence, the
failure of Guingona, Jr. et. al. to pay would not constitute breach of
trust, but merely failure to pay the obligation as debtor. While novation
does not extinguish criminal liability, it may prevent the rise of criminal
liability if it occurs prior to the filing of the criminal information in court.
Third, when Guingona, Jr. accepted the foreign currency deposit, he
merely accommodated the request of NSLA in order to clear the bank
draft through his dollar account because the bank did not have a dollar
account. Immediately after the bank draft was cleared, Guingona, Jr.
authorized NSLA to withdraw the same in order to be utilized for
NSLA’s banking operations. It is safe to assume that the dollars were
first converted into Philippine pesos before they were accepted and
deposited in NSLA because the bank is presumed to have followed the
ordinary course of business.
(3) BPI Family v. • BPI Family against Amado Franco
Franco • Tevesteco Arrastre-Stevedoring opened a savings and current account
with BPI Family in its San Francisco del Monte branch. First Metro
Investment Corporation also opened a time deposit therein. Amado
Franco opened 3 accounts (current, savings, time deposit) with BPI-FB
– for a total amount of PHP2,000,000, traceable to a check issued by
Tevesteco to Jaime Sebastian (then BPI Family’s Branch Manager),
allegedly in consideration of Franco’s introduction of Eladio Teves, who
was looking for a conduit bank to facilitate Tevesteco’s business
transactions. It was found out that the signatures of First Metro’s
officers on the Authority to Debit were forged. BPI Family debited
Franco’s savings and current accounts for the amounts remaining
therein. Franco’s time deposit account could not be debited due to the
capacity limitations of BPI-FB’s computer. In the meantime, 2 checks
issued by Franco were dishonored since his current account was
garnished by virtue of an order of attachment issued by the RTC of
Makati. Franco filed a motion to discharge the attachment, it was
granted and the order was served on BPI Family. However, the funds
in Franco’s account had already been debited because of First
Investment’s forgery claim. In BPI Family v. Buenaventura (related
case), the SC ruled that BPI Family had no right to freeze its
depositor’s accounts.
• BPI Family claims that as a legal consequence of First Metro’s forgery
claim, the money transferred by BPI Family to Tevesteco is its own,
and considering that it was able to recover possession of the same
when the money was redeposited by Franco, BPI Family had the right
to set up its ownership and freeze Franco’s accounts. It contends that
its position is like that of an owner of personal property who regains
possession after it is stolen (ex. Where X’s TV set is stolen by Y who
thereafter sells it to Z, and where Z unwittingly entrusts possession of
the TV set to X, the latter would have the right to keep possession of
the property and preclude Z from recovering possession thereof). BPI
Family cited Art. 559 of the Civil Code which provides that the
possession of a movable property acquired in good faith is equivalent
to a title.
• Franco relies on the ruling in BPI Family v. Buenaventura that BPI
Family had no right to freeze their accounts.
• The issue is whether BPI Family has a better right to the deposits in
Franco’s accounts.
DEAN JMGH | BANKING L AW | YAP, K.

• The SC ruled in the negative. First, Art. 559 of the Civil Code does not
apply to fungible property, but to specific or determinate things. Money
bears no earmarks of ownership, its primary function is to pass from
hand to hand as a medium of exchange, without other evidence of its
title. Second, BPI Family undoubtedly owns the deposited monies in
the accounts of Franco, but not as a legal consequence of its
unauthorized transfer of First Metro’s deposits to Tevesteco’s account.
As there is a creditor-debtor relationship between BPI Family and
Franco, BPI Family acquired ownership of Franco’s deposits, but such
ownership is coupled with a corresponding obligation to pay Franco an
equal amount on demand. Second, BPI does not have a unilateral
right to freeze the accounts of Franco based on its mere suspicion that
the funds therein were proceeds of the multi-million peso scam Franco
was allegedly involved in. To grant such authority to a bank would
open the floodgates of public distrust in the banking industry (SC cited
Simex case re: bank’s vital role in economic life, etc.). Third, due to the
fiduciary relationship between banks and its depositors, BPI Family is
duty bound to know the signatures of its customers. Having failed to
detect the forgering in the Authority to Debit, BPI Family cannot now
shift liability thereon to Franco and the other payees of the checks
issued by Tevesteco. Fifth, it boggles the mind why BPI Family, even
without delving into the authenticity of the signatures, effected the
transfer of PHP80,000,000 from First Metro to Tevesteco’s account,
when First Metro’s account was a time deposit it had already paid
advance interest to First Metro.
(4) Fulton Iron • Fulton Works against Chinabank, et. al.
Works v. • Fulton Works, a foreign company, sold machinery for a sugar mill to
Chinabank the Binalbagan Estate, Inc., for which the latter executed 3 notes.
Neither of the notes were paid at maturity, so Fulton employed a firm of
Depends whether the lawyers in Manila, of which Schwarzkopf was then a member. While
bank had knowledge Schwarzkopf was in the US, the firm was, by a formal power of
attorney, authorized to do what was necessary to secure a license to
do business in the Philippines for Fulton. The law firm was dissolved. A
PHP10,000 PNB Check was drawn payable to the order of
Schwarzkopf representing the payment of the Binalbagan Estate, and
Schwarzkopf signed a receipt as “attorney-in-fact of Fulton” (but this
was mere fiction since the power of attorney executed was for the
purpose of securing the license to do business). This check was
deposited in a new (no. 2) account with Chinabank, where
Schwarzkopf had a personal account. The amount in the personal
account remained at around PHP500. Schwarzkopf became indebted
to Chinabank due to overdrafts on his personal account, and he issued
a check transferring funds from account no. 2 to his personal account.
• Fulton claims that the amount transferred was part of a large sum of
money which belong to it, and which had been embezzled by
Schwarzkopf, with the full knowledge and consent of Chinabank.
• Chinabank claims that it had no knowledge that the amounts in
account no. 2 were those of another. And that, if any, it should be liable
only for the amount of the last check issued, and not jointly and
severally with the whole amount misappropriated by Schwarzkopf.
• Whether Chinabank is liable.
• The SC ruled in the affirmative. First, the very form in which account
no. 2 was carried on the books of Chinabank was sufficient to charge
the bank with notice of the fact that the money deposited in said
account belonged to Fulton, and not to Schwarzkopf. Second,
although money has no earmarks (ie., no ownership), bank accounts
and commercial paper can have earmarks, and these earmarks consist
31
of the word/s which infallibly convey to the mind notice that the money
or credit represented by the account with which they are associated or
the instrument upon which they are written rightfully belongs to some
other person than the one having control thereof. A bank cannot
permit, much less require, a depositor who is in control of a trust fund
to apply any part of the same to his individual indebtedness to the
bank. Third, Chinabank also erred in extending credit to Schwarzkopf
based on the amount deposited in account no. 2, since it is neither
permissible for the bank to extend personal credit to such depositor
upon the faith of the trust account. Fourth, the liability of the bank
cannot be extended to subsequent acts of malversation and
misappropriation committed by the fiduciary against the real owner of
the fund. Hence, Chinabank is liable only for PHP22,144.39
representing the amount of the trust fund account in favor of Fulton,
and not jointly and severally with Schwarzkopf for PHP131,197.10.
(5) BPI v. CA • BPI (former Comtrust Bank) against Eastern Plywood Corp. and
Benigno Lim
• Eastern and Lim held at least 1 joint bank account (“and/or” account)
with Comtrust Bank. Subsequently, Mariano Velasco opened a joint
checking account (“and” account) with Lim with funds withdrawing from
the account Eastern and/or Lim – the money therein was placed in the
money market. When Velasco died, Lim executed an indemnity
undertaking which provisionally released ½ of the “and” account to one
of the bank accounts of Eastern with Comtrust. Eastern obtained a
loan for additional working capital, and issued a promissory note
therefor. The note was marked with X (ie., unsecured) but there was a
line stating that the loan is wholly/partially secured by the joint account
of Velasco and Lim. Moreover, there was a “holdout agreement” which
authorized Comtrust to apply the balance in the joint account for the
purpose of liquidating (ie., paying) the loan – par. 05 therefor provides
that the acceptance of the holdout shall not impair the right of Comtrust
to declare the loan payable on demand at any time and to institute an
action for collection thereof. In the Velasco’s estate proceeding, the
whole amount of his joint account with Lim was being claimed as part
of Velasco’s estate – the intestate court allowed the heirs to withdraw
the deposit and to divide the amount among themselves. Comtrust
merged with BPI. BPI now filed a complaint against Eastern and Lim
for the payment of the note. Eastern and Lim filed a counterclaim
against BPI for the return of the balance in the disputed account
subject of the holdout agreement. The trial court dismissed the
complaint on the ground that the note was subject to the holdout
agreement, and the agreement stated that it was BPI’s duty to debit
the account to set off the loan. As to the counterclaim, the trial court
denied it on the ground that to award the same would disturb the
estate proceedings. CA affirmed, and further ruled that BPI should
have protected the interest of Eastern and Lim by refusing to give the
amount to the heirs of Velasco.
• BPI alleges that the holdout agreement was subject to a suspensive
condition that the amount shall become a security for the note “only if
Eastern and Lim’s interests to that amount are established as a result
of a final and definitive judicial action or a settlement between and
among the contesting parties thereto.” Moreover, that it gave the
amount to the heirs of Velasco by virtue of a court order.
• Eastern and Lim counter that there was no suspensive condition since
the joint account of Velasco and Lim rightfully belonged to Eastern
and/or Lim, the hence they had a right to have the note set off by the
balance of the account.
• Whether BPI is liable.
DEAN JMGH | BANKING L AW | YAP, K.

• The SC ruled in the negative. First, according to the holdout, BPI had
every right to demand payment from the note. What was conferred
upon the bank was merely a power (ie., option to exercise), not a duty
to set off. Moreover, it stated that the bank was not in any way
precluded from enforcing its claim on the note by court action. Second,
the CA was correct in deciding the counterclaim – that Easter and Lim
had every right to withdraw the deposit from their account on demand
since the relationship between a bank and its depositor is creditor-
debtor. Third, HOWEVER, BPI’s payment to Velasco’s heirs does not
extinguish its obligation as to its Easter and Lim, the true creditors of
the account (bank-depositor relationship).
(6) BPI v. CA • BPI against Annabelle Salazar and Julio Templonuevo
• Annabelle had checks payable to JRT Construction, Julio
Templonuevo’s business. Julio demanded from BPI payment of the
amount representing the value of 3 checks allegedly payable to him,
but were deposited with BPI in Annabelle Salazar’s account without
Julio’s knowledge and corresponding endorsement. BPI froze the
account of A.A. Salazar Construction and Engineering Services
instead of Annabelle’s account since the latter was already closed or
had insufficient funds. As it appeared that Annabelle was not entitled to
such funds, BPI debited the A.A. Salazar account and the sum was
paid to Julio by means of a cashier’s check. A.A. Salazar filed a case
against BPI assailing the amount debited by BPI.
• Whether BPI is liable (ie., whether a collecting bank, over the
objections of its depositor, has the authority to withdraw unilaterally
from such depositor’s account the amount it had previously paid upon
certain unendorsed order instruments deposited by the depositor to
another account that she later closed).
• The SC ruled in the affirmative. First, BPI, as the collecting bank, had
the right to debit Annabelle’s account for the value of the checks it
previously credited in her favor. Second, both accounts admittedly
belonged to Annabelle, the former being the account of the sole
proprietorship which had no separate and distinct personality from her,
and the latter being her personal account. Third, a bank generally has
a right of set-off over the deposits therein for the payment of any
withdrawals on the part of a depositor. The right of a collecting bank to
debit a client’s account for the value of a dishonored check that has
previously been credited has fairly been established by jurisprudence.
Fourth, however, BPI was remiss in its duty to Annabelle as its
depositor – the irregularity appeared plainly on the face of the checks –
despite the obvious lack of indorsement thereon, BPI permitted the
encashment of these checks 3x on 3 separate occasions.
(7) Central Bank v. • Central Bank v. Judge Morfe, Sps. Padilla and Sps. Elizes
Morfe • The Monetary Board declared Fidelity Savings Bank insolvent and
prohibited further business. The liquidation proceeding was
commenced. Prior to the institution of the liquidation proceeding, but
after the declaration of insolvency, Sps. Padilla and Elizes were able to
secure judgments in favor regarding their time deposits in the bank.
• The Central Bank now claims that the final judgments secured by the
spouses do not enjoy any preference because (a) they were rendered
after the bank was declared insolvent and (b) under the Central Bank
Charter and the General Banking Law, no final judgment can be validly
obtained against an insolvent bank.
• Whether Sps. Padilla and Elizes are entitled to their time deposits.
• The SC ruled in the negative. First, deposits of money in banks are
considered simple loans and, as such, are not preferred credits.
32
Second, evidently, the purpose of prohibiting the insolvent bank from
doing business is to prevent some depositors from having an undue or
fraudulent preference over the other creditors and depositors. Such
purpose would be nullified if suits by some depositors could be
maintained and judgments would be rendered would be considered
preferred credits under the Civil Code. Third, if such final judgments
would be preferred, then the other depositors would rush to the courts
to secure judgments for the payment of their deposits – which would
swamp the courts with suits of the same character. Fourth, the effect
of final judgment regarding the deposits in insolvent banks is only to fix
the amount of debt. The depositor can acquire no lien which will give
him any preference or advantage over the general creditors. Fifth,
what was directly prohibited (doing business) cannot be done indirectly
(preference in favor of judgment creditor-depositors).
(8) Lucman v. • Maclaring Lucman (manager of Land Bank of the Philippines)
Malawi against Alimatar Malawi, et. al.
• Malawi, et. al. are incumbent barangay chairmen in Lanao Del Sur.
The elections and special elections in their barangays resulted in a
failure of elections so they remained in office in a holdover capacity.
The LBP became the depositary bank for the Internal Revenue
Allotments (IRAs) of the barangays, so the authorized public officials
had to open new accounts in behalf of their government units. LBP
refused to allow them to withdraw the IRA funds because they failed to
present the requisite Accountant’s Advice. Hence, Malawi, et. al. filed
this petition for mandamus.
• Whether LBP erred in refusing Malawi, et. al. to withdraw.
• The SC ruled in the negative. First, this is actually a petition for
specific performance to compel LBP to allow withdrawal of funds from
the accounts of the barangays headed by Malawi, et. al. By virtue of
the deposits, there exists between the barangays as depositors and
LBP a creditor-debtor relationship (mutuum). Hence, mandamus does
not lie to enforce the performance of contractual obligations. Second,
the barangays are the only lawful recipients of these funds. As a
consequence, any transaction therewith must be done only through
proper authorization. The barangays are the indispensable parties-in-
interest. Third, even if the barangays filed the case, still it would not
prosper. The case involves government funds and as such, any
release therefrom can only be done in accordance with the prevailing
rules and procedures. Certifications are required from (1) local budget
officer as to existence of appropriation (2) local accountant as to legal
obligation occurred (3) local treasurer as to availability of funds and (4)
local department head as to validity of the claim against the
appropriation. Fourth, COMELEC already confirmed the re-election of
Malawi, et. al. However, since public funds are involved, this matter is
referred to DILG for investigation and appropriate action.
SOME TYPES OF DEPOSIT PRODUCTS
• DEMAND DEPOSITS
o NEW CENTRAL BANK ACT, SECTIONS 58-60
SECTION 58. Definition. — For purposes of this Act, the term "demand deposits" means all those
liabilities of the Bangko Sentral and other banks which are denominated in Philippine currency and are
subject to payment in legal tender upon demand by the presentation of checks.
Þ Also known as a “current” account or a “checking” account.
DEAN JMGH | BANKING L AW | YAP, K.

Fig. Certificates of Deposit
SECTION 59. Issue of Demand Deposits. — Only banks duly authorized to do so may accept funds or
create liabilities payable in pesos upon demand by the presentation of checks, and such operations
shall be subject to the control of the Monetary Board in accordance with the powers granted it with Savings Fixed Savings Special Savings
Time Deposit
respect thereto under this Act. Account Deposit (FSD) Deposit (SSD)

Regular savings Higher interest Higher interest

Interest Rate Higher interest rate
SECTION 60. Legal Character. — Checks representing demand deposits do not have legal tender interest rate rate
power and their acceptance in the payment of debts, both public and private, is at the option of the
creditor: Provided, however, That a check which has been cleared and credited to the account of the Period None Fixed term Fixed term Fixed term
creditor shall be equivalent to a delivery to the creditor of cash in an amount equal to the amount
credited to his account. Certificate of
Evidenced by: Passbook Passbook Passbook
Time Deposit
o GENERAL BANKING LAW, SECTION 33
Pre-
None With penalty With penalty With penalty
termination
SECTION 33. Acceptance of Demand Deposits. — A bank other than a universal or commercial bank
cannot accept or create demand deposits except upon prior approval of, and subject to such conditions Holding
None Yes Yes Yes
and rules as may be prescribed by the Monetary Board. (72-Aa) Period

• SAVINGS DEPOSITS
Jurisprudence (Memory Buzzer)
Withdrawal
(9) Int’l Exchange • Int’l Exchange Bank against CIR
Bank v. CIR • CIR assessed the bank for tax deficiencies on Documentary Stamp
Taxes (DSTs) for its Account-Fixed Savings Deposits (FSDs) as
certificates of deposit bearing interest under §180 of the Tax Code.
• Whether the FSDs are taxable.
• The SC ruled in the affirmative. First, through jurisprudence and • TIME DEPOSITS
banking practice, the SC compared the FSDs with regular savings
deposits and time deposits (refer to table hereafter) and found that
FSDs are more akin to time deposits – especially because a higher
rate of interest was granted if the depositor keeps the fund in the bank
for at least 30 days, and earlier withdrawal is tantamount to pre-
(11) BPI v. First Metro
Investment Corp.
termination. The only difference being that the FSDs are evidenced by
passbooks, while time deposits are evidenced by certificates of time
*copied from before
deposit. Second, the fact that it was evidenced in a passbook does not
necessarily mean that it is a regular savings deposit. Third, a
passbook, in no matter what form, can fall under a “certificate of
deposit” so long as there is an acknowledgment by the bank of the
money deposited, and a recognition of the depositor’s right to the
return of the thing deposited.
(10) Chinabank v. • Chinabank against CIR
CIR • CIR assessed the bank for tax deficiencies on Documentary Stamp
Taxes (DSTs) for its Special Savings Deposits (SSDs) as certificates of
deposit bearing interest under §180 of the Tax Code.
• Whether the SSD is a certificate of deposit.
• The SC ruled in the affirmative. First, (same ruling as Int’l Exchange
Bank, also refer to table below). Second, elements of a certificate of
deposit: (1) minimum deposit requirement (2) stated maturity period (3)
interest rate is higher than the ordinary savings account (4) not
payable on sight or demand, but upon maturity or in case of pre-
termination, prior notice is required and (5) early withdrawal penalty in
the form of partial loss or total loss of interest in case of pre-
termination.
Allowed, provided
the minimum amount
to earn the higher
Withdrawal Withdrawal interest rate is
Allowed amounts to pre- amounts to pre- maintained,
termination termination otherwise, the
regular savings
interest rate will
apply
Jurisprudence (Memory Buzzer)
• BPI Family against First Metro Investment Corporation
• First Metro, through its EVP Antonio Ong, opened a current account
with BPI Family’s San Francisco del Monte Branch upon the request of
his friend who was a branch manager therein – apparently it was for
the purpose of increasing the deposit level in the branch. It was agreed
that BPI Family, after 1 year of keeping the deposit in its bank, would
pay First Metro back the amount of PHP14,667,687.01, representing
the 17% per annum interest of the PHP100,000,000 deposited.
Eventually, it was found that BPI Family transferred PHP80,000,000 to
Tevesteco Arrastre – Stevedoring, Inc. without the authority of First
Metro. First Metro drew checks against its BPI account in order to get
the money, but these were dishonored due to insufficient funds. First
Metro filed a civil case against BPI Family and a criminal case for
estafa against Ong, de Asis, Sebastian and four others. The lower
court ruled in favor of First Metro.
• BPI Family argues that the lower court’s award of 17% per annum
interest is erroneous since First Metro’s deposit is not a special
savings account similar to a time deposit, but actually a demand
deposit, proscribed from earning interest under CB Circular 777.
Moreover, that First Metro should have first inquired as to BPI Family’s
internal procedures before proceeding with the transaction.
• First Metro relies on the lower court’s ruling.
• Whether BPI Family is liable.
• Yes. First, time deposits are ones, the payment of which cannot legally
be required within such a specified number of days, while demand

33 DEAN JMGH | BANKING L AW | YAP, K.

deposits are all those liabilities of the CB and of other banks which are
denominated in PH currency and are subject to payment in legal
tender upon demand by the presentation of depositor’s checks. In this
case, it was obvious that the parties’ intent was a time deposit – First
Metro invested its money with BPI Family for a period of 1 year in order
for it to earn 17% interest per annum. Second, if a corporation
knowingly permits its officer, or any other agent, to perform acts within
the scope of an apparent authority, holding him out to the public as
possessing power to do those acts, the corporation will, as against any
person who has dealt in good faith with the corporation through such
agent, be estopped from denying such authority. Third, what
transpires in the corporate board room is entirely an internal matter.
Hence, the bank may not impute negligence on the part of First Metro’s
EVP in failing to find out the scope of authority of BPI Family’s branch
manager. The public has the right to rely on the trustworthiness of
bank managers and their acts. Fourth, interest is proper since the CB
Circular provides that time deposits “shall not be subject to any rate
ceiling,” which means that any rate of interest may be imposed. The
rule is well settled that when an obligation is breached, it consists in
payment of a sum of money, and interest due should be that which
may have been stipulated. Such interest shall itself earn legal interest
from the time it is judicially demanded.
collecting bank which indorses a check bearing a forged indorsement
and presents it to the drawee bank guarantees all prior indorsements,
including the forged indorsement itself, and ultimately should be held
liable therefor. The exception is when the issuance of the check itself
was attended with negligence – the institution issuing the check is just
as liable as or more liable than the collecting bank, as in this case.
Hence, the drawee bank (Allied) is liable for 60% for negligence in
issuing the check without proper written authorization (ie., could’ve
asked the caller or Santos to first present evidence of the placement,
or the bank could’ve called Lim in the number registered), and the
collecting bank (Metrobank) is liable for 40% as the last indorser of the
check, and due to negligence in not verifying the authenticity of Lim’s
indorsement, and despite that it was a crossed check. Third, Santos
could have been the architect of the entire controversy. Since no
summons had been served on Santos, the courts have no jurisdiction
over her. Instead, Producers Bank must be held liable to Allied and
Metrobank for the amount of the check.

• MONEY MARKET PLACEMENTS – a market dealing in standardized short-term credit

instruments (involving large amounts) where lenders and borrowers do not deal directly with
each other but through a middle man or dealer in open market. The investor is a lender who
loans his money to a borrow through a middleman or dealer. (Cebu International Finance
Corporation v. CA)

Jurisprudence (Memory Buzzer)

(12) Allied Bank v. • Allied Bank against Lim Sio Wan, Metrobank, and Producers Bank
Lim Sio Wan • Lim deposited in Allied’s Quintin Paredes Branch in Manila a money
market placement of PHP1,152,597.35. Later on, a person claiming to
be Lim called Allied and instructed the latter to pre-terminate Lim’s
money market placement, and to issue a manager’s check (which was
also a crossed check) representing the proceeds of the placement, and
to give the check to a certain Santos described by the caller. This
check was subsequently deposited in the Metrobank account of
Filipinas Cement Corporation (FCC) with the forged signature of Lim as
indorser. It was found that, earlier on, FCC deposited a money market
placement for PHP2,000,000 with Producers Bank. Coincidentally,
Santos was the money market trader assigned to handle FCC’s
account. When the placement matured, that was the same day Lim’s
money market placement was pre-terminated and deposited in the
account of FCC in Metrobank. In short, the Allied check was deposited
with Metrobank in the account of FCC as Producer’s Bank’s payment
of its obligation to FCC for the money market placement. Allied refused
to pay Lim on the ground that Lim had pre-terminated the account. It
filed a third-party complaint against Metrobank and Santos. Metrobank
filed a fourth-party complaint against FCC. FCC filed a fifth-party
complaint against Producers Bank.
• Whether Allied Bank is liable.
• The SC ruled in the affirmative, but Allied and Metrobank are likewise
to be paid by Producers Bank for the amounts paid by the former.
First, Allied is liable to Lim due to the bank-depositor relationship. Lim,
as creditor of the bank for her money market placement, is entitled to
payment upon her demand, or upon maturity. Second, generally, a
34 DEAN JMGH | BANKING L AW | YAP, K.

Banking Law I (SYLLABUS 7)
Deposits
Administration of Deposit Accounts
Issues Relating to Deposit of Funds
• Civil Code Article 1933, 1934, 1980
ARTICLE 1933. By the contract of loan, one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it, in which case the
contract is called a commodatum; or money or other consumable thing, upon the condition that the
same amount of the same kind and quality shall be paid, in which case the contract is simply called a
loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership
passes to the borrower. (1740a)
ARTICLE 1934. An accepted promise to deliver something by way of commodatum or simple loan is
binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the
delivery of the object of the contract. (n)
ARTICLE 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan. (n)
Jurisprudence (Memory Buzzer)
(1) Firestone Tire & • Firestone against Luzon Development Bank
Rubber Co. v. • Fojas-Arca maintained an account with Luzon, and the former
CA authorized withdrawals through the use of special withdrawal slips.
Fojas-Arca entered into a Franchised Dealership Agreement with
Firestone wherein the former purchased on credit the latter’s products,
and were paid using the special deposit slips. The first transaction went
well, from order until payment – Firestone deposited the withdrawal
slips in its account with Citibank, and the latter credited the account. In
subsequent transactions, however, Citibank informed Firestone that
some withdrawal slips were dishonored by Luzon due to “NO
ARRANGEMENT,” so Citibank debited the amount earlier credited in
the account of Firestone. Firestone filed a case for sum of money and
damages against Luzon.
• Firestone argues that Luzon was remiss in its duty to send notices of
dishonor, and for not paying the special withdrawal slips.
• Luzon counters that, in the first place, the special withdrawal slips are
not checks, and faults Citibank for treating them as such.
• Whether Luzon is liable.
• The SC ruled in the negative. First, Fojas-Arca admits that the slips in
question were non-negotiable, hence the rules governing the giving of
immediate notice of dishonor of negotiable instruments do not apply in
this case. Citibank should have likewise known that the withdrawal
slips were not negotiable instruments, hence it could not have
expected them to be treated as checks by Luzon. Second, Citibank
35
was remiss in its duty to treat its depositor’s accounts with meticulous
care because Citibank relied on the first transaction where everything
went well. It erroneously presumed that the withdrawal slips were
“good.” Third, ordinary course of banking operations – current account
deposits are accepted by the bank on the basis of deposit slips
prepared and signed by the depositor, who indicates therein the
current account number which the deposit is to be credited, the name
of the depositor or current account holder, the date of the deposit, and
the amount of the deposit either in cash or in check. Fourth, despite its
non-negotiability, the fact that Citibank still accepted the withdrawal
slips means that Citibank and Firestone must bear the risks attendant
to such acceptance.
(2) PNB v. Sps. • PNB against Erlando and Norma Rodriguez
Rodriguez • Sps. Rodriguez and the Philnabank Employees Savings and Loan
Association (PEMSLA) maintained accounts in PNB. They were
engaged in the informal lending business – a discounting arrangement
with PEMSLA, an association of PNB employees which granted loans
to its members – Sps. Rodriguez would rediscount the postdated
checks (PDCs) issued to members whenever the association was short
of funds, and Sps. Rodriguez would replace the PDCs with their
personal checks issued in the name of the members. To subvert
PEMSLA’s policy of not approving loan applications of members with
outstanding debts, some of its officers devised a scheme to obtain
additional loans despite their outstanding loan accounts – they would
apply on behalf of other members (ie., payees) without the knowledge
or consent of the latter, then the PEMSLA checks issued would be
given to Sps. Rodriguez for rediscounting, the members’ indorsement
being forged. When PNB found out about this, it closed PEMSLA’s
account so the checks issued in favor of Sps. Rodriguez were
dishonored due to closed account.
• PNB argues that the checks were bearer instruments since the payees
named therein were fictitious persons, and that Sps. Rodriguez have
no cause of action since they were not the named payees.
• Sps. Rodriguez maintained that the instruments were order
instruments, hence PNB and its employees were remiss in their duty
when they allowed the checks to be deposited without the proper
indorsements.
• Whether PNB is liable.
• The SC ruled in the affirmative. First, the general rule is that when the
instrument is issued to a fictitious person (which includes real and
living persons but whom are not intended by the drawer to receive the
checks), it is a bearer instrument and the drawer bears the risk of loss.
However, this is subject to the “commercial bad faith” exception
wherein the transferee acts dishonestly since it has actual knowledge
of facts and circumstances that amount to bad faith, thus itself
becoming a participant in the fraudulent scheme. Second, the checks
here, however, remained order instruments since PNB failed to prove
that the drawers never intended the named payees to receive the
checks. Third, PNB, through its employees, was remiss in its duty as a
drawee bank when it accepted the 69 checks for deposit to PEMSLA’s
account even without any indorsement from the named payees.
Fourth, Sps. Rodriguez have a cause of action since the checks were
given to them as payments for their personal checks.
(3) Equitable PCI • Equitable Bank (merged with PCIB) against Rowena Ong
Bank v. Ong • Warliza Sarande deposited in her PCIB Magsaysay Ave. Davao
account a check from PCIB General Santos – she was assured that
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the check was cleared. Warliza issued 2 checks drawn against her
account, one of which she paid to Rowena Ong owing to a business
transaction. Rowena presented the check to PCIB Magsaysay, she
instead requested to convert the proceeds thereof into a manager’s
check, and PCIB Magsaysay agreed. Rowena deposited this in her
account with Equitable Bank – she received a check return-slip
informing her that PCIB had stopped the payment of said check on the
ground of irregular issuance. Ong filed a complaint for sum of money
against PCIB. She moved for summary judgment.
• Whether Equitable Bank (merged with PCIB) is liable.
• The SC ruled in the affirmative. First, summary judgment is proper
since PCIB admitted that it committed an error in clearing the check of
Warliza and issuing in favor of Rowena a manager’s check. Second,
PCIB’s certification of Rowena’s check and issuance of a manager’s
check amounted to an acceptance thereof, hence PCIB is liable for the
warranties thereof. Third, Rowena is a holder in due course since
PCIB failed to prove want of consideration. Fourth, PCIB was remiss
in its duty of diligence when it inadvertently sent the checks through
local clearing when it should have been through inter-regional clearing
since the check was drawn at the branch in GenSan. Despite this,
PCIB advised Warliza that her check had been cleared. Fifth, having
cleared the check, it would be unjust enrichment for PCIB not to pay
the check on the allegation of want of consideration.
• IMPORTANT:
o Manager’s check – one drawn by the bank’s manager upon
the bank itself. Its effect is similar to a cashier’s check.
o Cashier’s check – a check of the bank’s cashier on his own
or another check. In effect, it is a bill of exchange drawn by
the cashier of a bank upon the bank itself, and accepted in
advance by the act of its issuance. It may be treated as a
promissory note with the bank as a maker – the check
becomes the primary obligation of the bank which issues it
and constitutes its written promise to pay upon demand.
Hence, the mere issuance of it is considered an acceptance
thereof.
(4) Security Bank v. • Security Bank against RCBC
RCBC • Security Bank issued an PHP8,000,000 manager’s check payable to
“CASH,” as proceeds of a loan granted to Guidon Construction and
Development Corporation. This was, on the same day, deposited by
Continental Manufacturing Corporation in its account with RCBC,
which honored the check and allowed Continental to withdraw the
same. On the next banking day, Guidon issued a Stop Payment Order
to Security Bank, claiming that the check was released to a third party
by mistake. Security Bank then dishonored and returned the manager’s
check to RCBC. Thereafter, the check was returned back and forth
between the 2 banks, resulting in automatic debits and credits in each
bank’s clearing balance. RCBC filed a complaint for damages against
Security Bank.
• Security Bank contends that RCBC violated Monetary Board
Resolution mandating all banks to verify the genuineness and validity
of all checks before allowing drawings of the same.
• RCBC avers that the manager’s check issued by Security Bank is good
as cash because of it’s peculiar character. Moreover, that RCBC is a
holder in due course when it credited the check to Continental’s
account. It claims that Security Bank is liable for its lost interest
income, exemplary damages and attorney’s fees.
• Whether Security Bank is liable.
36
• The SC ruled in the affirmative. First, a manager’s check is one drawn
by a bank’s manager upon the bank itself. It stands on the same
footing as a certified check, which is deemed to have been accepted
by the bank that certified it. As the bank’s own check, a manager’s
check becomes the primary obligation of the bank and is accepted in
advance by the act of its issuance. Second, the check, which was
payable to cash, appeared regular on its face, and RCBC found
nothing unusual in the transaction, as the drawer usually issued checks
in big amounts made payable to cash, RCBC cannot be faulted in
paying the value of the check. Third, Security Bank cannot escape
liability by invoking the Monetary Board Resolution. It must be pointed
out that a memorandum interpreting said resolution stated that drawing
against uncollected deposits representing
manager’s/cashier’s/treasurer’s checks may be permitted at the
discretion of each bank. Fourth, Security Bank’s liability as drawer
remains the same – by drawing the instrument, it admits the existence
of the payee and his then capacity to indorse; and engages that on due
presentment, the instrument will be accepted, or paid, or both,
according to its tenor.
Issues Relating to Withdrawal of Funds
Jurisprudence (Memory Buzzer)
(5) Sps. Moran v. • Sps. Moran against Citytrust Banking Corporation
CA • Sps. Moran were owners of Wack-Wack Petron gasoline station. They
regularly purchased bulk fuel and other products from Petrophil, and
sometimes payments were effected by personal checks upon delivery.
Sps. Moran maintained 3 joint accounts (1 current; 2 savings) with
Citytrust. Since they were valued clients, the bank allowed them to
maintain a zero balance in their current account. They also had a Pre-
authorized Transfer Agreement (PAT) wherein Citytrust was given the
authority to automatically transfer funds from savings account no. 1 to
their current account anytime the funds in the latter were insufficient. 2
checks were issued by Sps. Moran, (1) PHP50,576 and (2) PHP56,090
in favor of Petrophil, and the latter deposited the checks to its account
with PNB on December 14. That day, the current account had zero
balance, savings account no. 1 had PHP26,104 and account no. 2 had
PHP43,268. At about 10am on December 15, Sps. Moran deposited
amounts in the accounts. A couple of days after, Sps. Moran were
informed that Petrofil refused to deliver their orders since the checks
they issued were dishonored due to insufficient funds. Hence, Sps.
Moran filed a complaint for damages against Citytrust.
• Whether Citytrust is liable.
• The SC ruled in the negative. First, the clearing procedure – when the
checks were presented to PNB on December 14, PNB will further
present it to the Philippine Clearing House Corporation (PCHC) which
will process it until midnight. A PCHC representative will get the checks
at 2am the next day to have it processed in the Citytrust Computer at
around 3am, but it will be processed for the balance of Citytrust as of
December 14 because PCHC did not open on December 15 at 3am.
Under clearing house rules, it is supposed to be processed on the date
it was presented for clearing (and nowadays also before the cut-off
time). Here, on December 14, the current and savings accounts
subject of the PAT were both insufficient. The deposits made on
December 15 were too late. Second, the PAT agreement covered only
the current account and savings account no. 1. Hence, even if account
no. 2 then had sufficient funds, Citytrust had no authority to
DEAN JMGH | BANKING L AW | YAP, K.

automatically transfer funds therefrom to the current account in order
to make good the checks issued. Third, there is no malice or bad faith
on the part of Citytrust because it actually did more than necessary
when it promptly contacted Sps. Moran to deposit funds in their
accounts in order to make good the checks.
(6) Villanueva v. Nite • Sincere Villanueva against Marlyn Nite
• Marlyn Nite allegedly took out a loan of PHP409,000 from Sincere
Villanueva. As security, Marly issued an Asian Bank Corporation (ABC)
check in the amount of PHP325,500. The date on the check was later
changed with the consent of Sincere. The check was dishonored due
to material alteration when Sincere deposited it. So Marlyn remitted
PHP235,000 to Sincere as partial payment of the loan, the balance of
PHP174,000 being due on or before December 8, 1994. In August,
however, Sincere filed an action for sum of money and damages
against the bank for the full amount of the dishonored check. When
Marlyn went to the bank to withdraw the money from her account, she
was unable to do so because the trial court had ordered the bank to
pay Sincere the value of the check.
• Whether the trial court erred in holding the bank liable.
• The SC ruled in the affirmative. First, a ground for annulment of
judgment is extrinsic fraud. Here, such was present in the apparent
haste by which Sincere filed his complaint, and his failure to implead
Marlyn – who, at that time, was out of the country (it was known
widespread, even appeared in print media). Furthermore, despite the
agreement to pay the remaining balance in December, Sincere
immediately filed the case for the full amount in August. Second, the
NIL provides that a check of itself does not operate as an assignment
of any part of the funds to the credit of the drawer with the bank, and
the bank is not liable to the holder, unless and until it accepts or
certifies the check. Here, Sincere should not have sued the bank since
there is no privity of contract between the drawee-bank and the payee
until the bank accepts/certifies the check. Moreover, the contract of
loan was between Sincere and Marlyn, not the bank. Third, Sincere’s
remedy should have been to sue Marlyn, and the latter would
thereafter sue the bank.
(7) Associated Bank • Associated Bank (now Westmont Bank) against Vicente Tan
v. Tan • Vicente Tan, a businessman and regular depositor-creditor of
Associated Bank, deposited a postdated UCPB check in the amount of
PHP101,000. It was entered in his bank record thereby making his
balance PHP297,000. Upon the advice and instruction of the bank that
the check was already cleared, Tan withdrew PHP240,000, leaving a
balance of PHP57,93.45. A day after, Tan deposited PHP50,000
making the existing balance PHP107,793.45 because he issued
several checks to his business partners. However, the latter went back
to Tan, alleging that the checks bounced for insufficiency of funds.
Apparently, Associated Bank debited the account of Tan for the
amount it earlier credited by virtue of the dishonored check. Tan filed a
complaint for damages against the bank.
• The bank contends that it gave notice to Tan as to the return of the
UCPB check, which is why Tan deposited the amount of PHP50,000.
Moreover, that it has the right to debit the amount of the dishonored
check – since the check deposit slip stipulated that the bank was
obligating itself merely as the depositor’s collecting agent, and that it
reserved the right to charge against Tan’s account any amount
previously credited.
• Tan alleges that he had sufficient funds to pay the checks issued.
37
• Whether Associated Bank had the right to debit the account of Tan for
a check deposit which was dishonored by the drawee bank.
• The SC ruled in the affirmative, but the manner in which the bank did
so was erroneous. First, a bank generally has a right to set off over the
deposits therein for the payment of any withdrawals on the part of a
depositor. This is because the relationship between a bank and its
depositor is creditor-debtor, so the provisions on legal compensation
apply. Second, as depository bank of Tan, Associated Bank was
remiss in its duty to exercise meticulous care in handling Tan’s
deposits when the bank immediately informed Tan that the check had
been cleared despite the contrary. Such practice is unusual because a
check is not legal tender or money. Before the check shall have been
cleared for deposit, the collecting bank can only assume at its own risk.
Third, as collecting agent, the bank is liable for negligence arising from
the acts of its manager and employees who admittedly breached bank
policies when they allowed Tan to withdraw the funds before clearing.
Furthermore, the bank failed to promptly notify Tan of the condition of
his account. Fourth, being a general indorser, it was incumbent on the
bank to give proper notice of dishonor to Tan. Fifth, the stipulation in
the check deposit slip is immaterial since Tan’s signature therein, if
any, is merely to identify himself, not to agree to the conditions set
forth at the back of the slip.
• Requisites for Legal Compensation
1. That each one of the obligors be bound principally, and that
he be at the same time a principal creditor of the other;
2. That both debts consist in a sum of money, or if the things
due are consumable, they be of the same kind, and also of
the same quality if the latter has been stated;
3. That the two debts be due;
4. That they be liquidated and demandable; and
5. That over neither of them there be any retention or
controversy, commenced by third persons and
communicated in due time to the debtor.
(8) Traders Royal • Traders Royal Bank against Radio Philippines, Intercontinental
Bank v. Radio Broadcasting, Banahaw Broadcasting, and Security Bank
Philippines • The BIR assessed the broadcasting networks herein for tax obligations
Network for the taxable years 1978 to 1983. To pay taxes, the networks bought
from Traders Royal Bank (TRB) 3 manager’s checks. TRB’s branch
manager turned over the checks to Mrs. Vera, who was supposed to
deliver the same to the BIR in payment of the networks’ taxes.
However, it was found that the checks were never received by the BIR,
and were presented for payment by unknown persons to Security
Bank. Hence, the networks filed a complaint for sum of money and
damages against TRB.
• TRB asserts that Security Bank is likewise liable as indorser and
collecting bank.
• Whether TRB is solely liable.
• The SC ruled in the affirmative. First, if a bank pays a forged check, it
must be considered as paying out of its funds and cnnot charge the
amount so paid to the account of the depositor. Here, the 3 checks
were payable to BIR, however the checks were never received by the
latter. Despite this, TRB paid the 3 checks. When the check is drawn
payable to the order of one person and is presented by another, it is
the primary duty of TRB to know whether the check was duly indorsed
by the original payee. Failing to do so, its only remedy is against the
person to whom it paid the money. Second, one of the checks was
crossed, hence TRB must suffer the consequences of the
DEAN JMGH | BANKING L AW | YAP, K.

unauthorized or wrongful endorsement by people other than agents of
the BIR. Third, a collecting bank where a check is deposited and
which indorses the check upon presentment with the drawee bank, is
an indorser. So even if the indorsement on the check deposited by the
bank’s client is forged, the collecting bank is bound by his warranties
as an indorser and cannot set up the defense of forgery as against the
drawee bank. Here, however, not one of the disputed checks bears the
requisite indorsement of Security Bank. What appears to be a
guarantee stamped at the back is that of PNB Buendia, thereby
indicating that it was the latter bank which received the same. Hence,
Security Bank is not a party to the transaction and cannot be held
liable together with TRB.
• Effects of a Crossed Check:
1. May not be encashed but only deposited in the bank;
2. May be negotiated only once to one who has an account
with a bank; and
3. Serves as a warning to the holder that the check has been
issued for a definite purpose so that he must inquire if he
has received the check pursuant to that purpose, otherwise,
he is not a holder in due course.
(9) BPI v. CA • BPI against Benjamin C. Napiza
• A certain Henry Chan requested Napiza to deposit a $2,500 manager’s
Copy-pasted from check payable to cash in the latter’s Foreign Currency Deposit Unit
Before (HW #3) Savings Account in BPI’s Buendia branch – for the purpose of
accommodation and for clearing with Wells Fargo Bank (clearing
bank). For such purpose, Napiza delivered to Chan a signed blank
withdrawal slip, with the understanding that as soon as the check is
cleared, both of them would go to the bank to withdraw the amount of
the check upon presentation of Napiza’s passbook, as required by the
bank’s rules. Using such withdrawal slip, a certain Ruben Gayon, Jr.
was able to withdraw $2,541.67 from the account. Wells Fargo,
thereafter, notified BPI that the check was counterfeit because it was
not of the type or style issued by Continental Bank International.
• BPI argues that Napiza should be liable for violating his warranty that
the check is genuine and in all respects what it purports to be, and that
there was a principal-agent relationship between Napiza and Gayon.
• Napiza counters that BPI was negligent in allowing Gayon to withdraw
the amount without presenting Napiza’s passbook, also a violation of
the bank’s rules.
• Whether BPI is liable.
• Yes. First, there could not have been a principal-agent relationship
between Napiza and Gayon because the former merely signed in
blank, hence the latter’s name was probably intercalated therein.
Second, the encashment of checks without prior clearance is contrary
to ordinary bank practice, specially so where the drawee bank is a
foreign bank and the amounts involved were large. It was proven here
that when Wells Fargo Bank notified BPI of the counterfeit check, the
amount was already withdrawn from the account. Third, in dealing with
its depositors a bank should exercise its functions not only with the
diligence of a good father of a family but it should do so with the
highest degree of care. Despite Napiza’s fault in issuing a blank
withdrawal slip in violation of the rules, it was BPI’s negligence which
was the proximate cause of the loss of the amount.
(10) Vitug v. CA • Romarico Vitug against Rowena Faustino-Corona
• Romarico is the widower of Dolores Vitug, whose estate is subject of
the proceedings herein. Romarico filed a motion asking the probate
38
court for authority to sell certain shares of stock and real properties
belonging to the estate to cover his advances to the estate, which he
claimed were his personal funds. The alleged advances were spent for
payment of estate taxes, and were withdrawn from Romarico’s savings
account with the Bank of America. Rowena, the executrix, assailed
such motion on the ground that the money in the savings account
represented conjugal property, and hence there was no ground for
reimbursement.
• Romarico claims that he and his wife, together with the bank, entered
into a Survivorship Agreement regarding their joint account, wherein
when one of them dies, the balance shall be payable to the surviving
spouse.
• Rowena assails the survivorship agreement for violating the prohibition
on donations between spouses.
• Whether Romarico is entitled to the funds in the joint account.
• The SC ruled in the affirmative. First, the funds in the savings account
were conjugal funds made subject to the survivorship agreement.
Since they were of conjugal nature, it cannot be said that one spouse
could have pressured the other in placing his/her personal deposits in
the money pool. Since Rowena failed to prove that the funds were
personal property of either spouse, the funds are presumed conjugal.
Second, a survivorship agreement is not per se contrary to law since it
is sanctioned under Art. 2010 of the Civil Code which provides that “By
an aleatory contract (ie., one which depends on chance), one of the
parties or both reciprocally bind themselves to give or to do something
in consideration of what the other shall give or do upon the happening
of an event which is uncertain, or which is to occur at an indeterminate
time.” The aleatory contract depends on either the happening of an
event which is either (1) uncertain or (2) to occur at an indeterminate
time. A survivorship agreement is an example of the first. The element
of risk is present – the death of one party and the survivorship of the
other. However, the survivorship agreement may be assailed when it is
a mere cloak to: (1) hide an inofficious donation (2) transfer property in
fraud of creditors (3) defeat the legitime of a forced heir. Here, none of
the aforementioned grounds is present. Hence, upon Dolores’s death,
Romarico acquired a vested right over the amounts under the savings
account.
Interest on Deposits
• Civil Code, Articles 1956 and 1959
ARTICLE 1956. No interest shall be due unless it has been expressly stipulated in writing. (1755a)
ARTICLE 1959. Without prejudice to the provisions of article 2212, interest due and unpaid shall not
earn interest. However, the contracting parties may by stipulation capitalize the interest due and
unpaid, which as added principal, shall earn new interest. (n)
Jurisprudence (Memory Buzzer)
(11) Citibank, N.A. v. • Citibank against Sps. Cabamongan, Luis, Jr. and Lito Cabamongan
Sps. • Sps. Cabamongan opened a joint foreign currency time deposit with
Cabamongan Citibank branch in Makati for their sons, Luis and Lito. While the
spouses were in their residence in California, someone impersonated
Copy-pasted from the wife and pre-terminated the time deposits – despite the failure to
Before (HW #3) notarize the release and waiver document, the impostor was allowed to
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withdraw – she was actually able to present government IDs such as a
passport and bank cards; the transaction lasted 40 minutes. The bank
officer saw that the ID of the wife was left with him, so he called up her
Makati residence – the wife of Lito answered and told him that the
spouses were already residing in California. The spouses were able to
connect the burglary in their California residence with the incident at
the bank since they discovered that their passports and IDs were also
stolen. Hence, this suit.
• Citibank claims that its officer exercised extra diligence during the
transaction – interviewing the impostor for around 40 minutes.
Moreover, it adds that the spouses were contributorily negligent since
they failed to notify Citibank that they had moved to California. Lastly,
Citibank argues that the stipulated interest rate of 2.56% should apply
instead of the 12% legal interest ordered by the lower court.
• The spouses claim that Citibank’s negligence has been established by
evidence, and that the interest rate of 2.56% should apply for the
duration of the time deposit, and then 12% thereafter.
• Whether Citibank is liable.
• Yes. First, Citibank’s assertion of contributory negligence and non-
application of the doctrine of last clear chance cannot be accepted
since it was raised for the first time in its supplemental memorandum. It
is Citibank’s gross negligence which holds it liable. Second, it was
found by the PNP Crime Lab that there was a divergence between the
signatures which the bank’s officer should have known. Third, a bank
is bound to know the signatures of its customers; and if it pays a forged
check, it must be considered as making the payment out of its own
funds, and cannot ordinarily charge the amount so paid to the account
of the depositor whose name was forged. Fourth, the spouses were
right regarding the interest as the time deposit is a simple loan,
governed by the rule in Eastern Shipping on forbearance or loans of
money. (see attachment below)

39 DEAN JMGH | BANKING L AW | YAP, K.



RULES ON COMPUTATION OF INTEREST

Based on (1) Eastern Shipping v. CA; and (2) Nacar v. Gallery Frames

Fig. 9
Monetary Interest Compensatory Interest Compound Interest
Nature of obligation BREACHED
(MI) (CE) (CO)
Stipulated interest percentage
FROM EXECUTION
Legal interest (6% per annum) on accrued
Payment of sum of money (ie, loan or Legal interest (6% per annum) if no Legal interest (6% per annum)
interest.
forbearance of money) percentage stipulated. FROM FINALITY OF JUDGMENT
FROM JUDICIAL DEMAND
FROM JUDICIAL/EXTRAJUDICIAL
DEMAND

No loan or forbearance of money
Compensatory Interest (6% per annum –
based on Art. 2209) on the amount of
– damages awarded
Rules on Computation
Where demand is established with reasonable
certainty.
FROM JUDICIAL OR EXTRA-JUDICIAL
DEMAND
Where such cannot be reasonably established
at the time demand is made.
FROM DATE OF JUDGMENT OF RTC

Legal interest (6% per annum) FROM FINALITY OF JUDGMENT

- ARTICLE 2209. IF THE OBLIGATION CONSISTS IN THE PAYMENT OF A SUM OF MONEY, AND THE DEBTOR INCURS IN DELAY, THE INDEMNITY FOR DAMAGES, THERE BEING NO STIPULATION TO THE CONTRARY,
SHALL BE THE PAYMENT OF THE INTEREST AGREED UPON, AND IN THE ABSENCE OF STIPULATION, THE LEGAL INTEREST, WHICH IS SIX PER CENT PER ANNUM.
- NACAR V. GALLERY FRAMES – (12% per annum) was changed to (6% per annum) pursuant to BSP Circular No. 905.

40 DEAN JMGH | BANKING L AW | YAP, K.

18 YAP, K. | ATENEO LAW

Banking Law I (SYLLABUS 8)
Secrecy of Deposits/Garnishment of Deposits
Scope
• Secrecy of Bank Deposits Republic Act No. 1405 as amended.
September 9, 1955
REPUBLIC ACT NO. 1405
AN ACT PROHIBITING DISCLOSURE OF OR INQUIRY INTO, DEPOSITS WITH ANY BANKING
INSTITUTION AND PROVIDING PENALTY THEREFOR
SECTION 1. It is hereby declared to be the policy of the Government to give encouragement to the
people to deposit their money in banking institutions and to discourage private hoarding so that the
same may be properly utilized by banks in authorized loans to assist in the economic development of
the country.
SECTION 2. All deposits of whatever nature with banks or banking institutions in the Philippines
including investments in bonds issued by the Government of the Philippines, its political subdivisions
and its instrumentalities, are hereby considered as of an absolutely confidential nature and may not be
examined, inquired or looked into by any person, government official, bureau or office, except upon
written permission of the depositor, or in cases of impeachment, or upon order of a competent court in
cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or
invested is the subject matter of the litigation.
SECTION 3. It shall be unlawful for any official or employee of a banking institution to disclose to any
person other than those mentioned in Section two hereof any information concerning said deposits.
SECTION 4. All Acts or parts of Acts, Special Charters, Executive Orders, Rules and Regulations
which are inconsistent with the provisions of this Act are hereby repealed.
SECTION 5. Any violation of this law will subject offender upon conviction, to an imprisonment of not
more than five years or a fine of not more than twenty thousand pesos or both, in the discretion of the
court.
SECTION 6. This Act shall take effect upon its approval.
Approved, September 9, 1955.
Published in the Official Gazette, Vol. 51, No. 10, p. 4976 in October 1955
o Secrecy not only pertains to deposits, since §55.1 (b) of the General Banking Law applies the
same to property other than bank deposits. (Ex. Trust accounts)
o The difference with deposits, is that in cases of property other than deposits, any other
court order will suffice as an exception. For deposits, such court order must be
pursuant to cases of bribery or dereliction of duty.
o GR: Secrecy of bank deposits.
o EXC: (1) Written permission
(2) Impeachment proceedings
(3) Order by a competent court in cases of bribery or dereliction of duty
(4) Where money deposited is the subject matter of litigation
(5) Other exceptions granted by law
(a) Anti-Graft and Corrupt Practices Act
(b) Ombudsman Act
(c) Anti-Plunder Act
(d) Anti-Money Laundering Act
(e) Philippine Deposit Insurance Corporation Charter
41
(f) National Internal Revenue Code
(g) Unclaimed Balances Law
(h) Foreign Currency Deposit Act
• Philippine Constitution (Article III, Sections 2, 3 and 7, Article II, Section 28)
SECTION 2. The right of the people to be secure in their persons, houses, papers, and effects against
unreasonable searches and seizures of whatever nature and for any purpose shall be inviolable, and
no search warrant or warrant of arrest shall issue except upon probable cause to be determined
personally by the judge after examination under oath or affirmation of the complainant and the
witnesses he may produce, and particularly describing the place to be searched and the persons or
things to be seized.
SECTION 3. (1) The privacy of communication and correspondence shall be inviolable except upon
lawful order of the court, or when public safety or order requires otherwise as prescribed by law.
(2) Any evidence obtained in violation of this or the preceding section shall be inadmissible for any
purpose in any proceeding.
SECTION 7. The right of the people to information on matters of public concern shall be recognized.
Access to official records, and to documents, and papers pertaining to official acts, transactions, or
decisions, as well as to government research data used as basis for policy development, shall be
afforded the citizen, subject to such limitations as may be provided by law.
SECTION 28. Subject to reasonable conditions prescribed by law, the State adopts and implements a
policy of full public disclosure of all its transactions involving public interest.
• General Banking Law, Sections 55.1(b) and 55.4
SECTION 55. Prohibited Transactions. —
55.1. No director, officer, employee, or agent of any bank shall — (b) Without order of a court of
competent jurisdiction, disclose to any unauthorized person any information relative to the funds or
properties in the custody of the bank belonging to private individuals, corporations, or any other entity:
Provided, That with respect to bank deposits, the provisions of existing laws shall prevail;
55.4. Consistent with the provisions of Republic Act No. 1405, otherwise known as the Banks Secrecy
Law, no bank shall employ casual or nonregular personnel or too lengthy probationary personnel in the
conduct of its business involving bank deposits.
o Banks cannot outsource inherent banking functions (ex. deposit-taking).
Certain Statutory Exceptions
• Bank Secrecy Law – Section 2
SECTION 2. All deposits of whatever nature with banks or banking institutions in the Philippines
including investments in bonds issued by the Government of the Philippines, its political subdivisions
and its instrumentalities, are hereby considered as of an absolutely confidential nature and may not be
examined, inquired or looked into by any person, government official, bureau or office, except upon
written permission of the depositor, or in cases of impeachment, or upon order of a competent court in
cases of bribery or dereliction of duty of public officials, or in cases where the money deposited or
invested is the subject matter of the litigation.
DEAN JMGH | BANKING L AW | YAP, K.

Lectured by Dean because time-constrained | Digests copied form Clarence Tiu
(1) BSB Group v. • R.A. No. 1405 has two allied purposes. It hopes to discourage private
Go-Bangayan hoarding and at the same time encourage the people to deposit their
money in banking institutions, so that it may be utilized by way of
authorized loans and thereby assist in economic development. Thus,
the confidentiality of bank deposits remains to be a basic state policy in
the Philippines. Section 2 of the law institutionalized this policy by
characterizing as absolutely confidential in general all deposits of
whatever nature with banks and other financial institutions in the
country.
• The inquiry into bank deposits allowable under R.A. No. 1405 must be
premised on the fact that the money deposited in the account is itself
the subject of the action.
• The subject matter of the action in the case at bar is to be determined
from the indictment that charges respondent with the offense, and not
from the evidence sought by the prosecution to be admitted into the
records.
• In this case, In the criminal Information filed with the trial court,
respondent, unqualifiedly and in plain language, is charged with
qualified theft by abusing petitioner’s trust and confidence and stealing
cash in the amount of P1,534,135.50. The said Information makes no
factual allegation that in some material way involves the checks subject
of the testimonial and documentary evidence sought to be suppressed.
Neither do the allegations in said Information make mention of the
supposed bank account in which the funds represented by the checks
have allegedly been kept. The subject matter of the action in this case
is the money amounting to P1,534,135.50 alleged to have been stolen
by respondent, and not the money equivalent of the checks which are
sought to be admitted in evidence. Thus, it is that, which the
prosecution is bound to prove with its evidence, and no other. It comes
clear that the admission of testimonial and documentary evidence
relative to respondent’s Security Bank account serves no other
purpose than to establish the existence of such account, its nature and
the amount kept in it. It constitutes an attempt by the prosecution at an
impermissible inquiry into a bank deposit account the privacy and
confidentiality of which is protected by law.
(2) Mellon Bank, • On May 27, 1977, Dolores Ventosa requested the transfer of $1,000
N.A. v. Magsino from the First National Bank of Moundsville, West Virginia, U.S.A. to
Victoria Javier in Manila through the Prudential Bank. Accordingly, the
Copied from online First National Bank requested the petitioner, Mellon Bank, to effect the
transfer. Unfortunately, the wire sent by Mellon Bank to Manufacturers
Hanover Bank, a correspondent of Prudential Bank, indicated the
amount transferred as “US$1,000,000.00” instead of US$1,000.00.
Hence Manufacturers Hanover Bank transferred one million dollars
less bank charges of $6.30 to the Prudential Bank for the account of
Victoria Javier. Javier withdrew $475,000 from account No. 343 and
converted it into eight cashier’s checks made out to the following: (a)
F.C. Hagedorn & Co., Inc., two cheeks for the total amount of
P1,000,000; (b) Elnor Investment Co., Inc., two checks for P1,000,000;
(c) Paramount Finance Corporation, two checks for P1,000,000; and
(d) M. Javier, Jr., two checks for P496,000. Javier also brought several
properties in the United States including the one of his lawyer,
Poblador. Mellon Bank filed a complaint docketed as No. 148056 in the
Superior Court of California, County of Kern, against Melchor Javier,
Jane Doe Javier, Honorio Poblador, Jrn, and Does I through V. In its
first amended complaint to impose constructive trust. The testimonies
of these witnesses were objected to by the defense on the grounds of
42
res inter alios acta, immateriality, irrelevancy and confidentiality due to
RA 1405. The Javier spouses also contend that inasmuch as the
Mellon Bank had filed in California an action to impose constructive
trust on the California property and to recover the same.
• Whether or not an account deposit which is relevant and material to the
resolution of the case may be covered under R.A. No. 1405.
• Yes. Section 2 of said law allows the disclosure of bank deposits in
cases where the money deposited is the subject matter of the litigation.
24 Inasmuch as Civil Case No. 26899 is aimed at recovering the
amount converted by the Javiers for their own benefit, necessarily, an
inquiry into the whereabouts of the illegally acquired amount extends to
whatever is concealed by being held or recorded in the name of
persons other than the one responsible for the illegal acquisition.
• Anti-Graft and Corrupt Practices Act – Section 8 as amended by BP 195
Sec. 8. Prima facie evidence of and dismissal due to unexplained wealth. — If in accordance with
the provisions of Republic Act Numbered One thousand three hundred seventy-nine, a public official
has been found to have acquired during his incumbency, whether in his name or in the name of other
persons, an amount of property and/or money manifestly out of proportion to his salary and to his other
lawful income, that fact shall be a ground for dismissal or removal. Properties in the name of the
spouse and dependents of such public official may be taken into consideration, when their acquisition
through legitimate means cannot be satisfactorily shown. Bank deposits in the name of or manifestly
excessive expenditures incurred by the public official, his spouse or any of their dependents including
but not limited to activities in any club or association or any ostentatious display of wealth including
frequent travel abroad of a non-official character by any public official when such activities entail
expenses evidently out of proportion to legitimate income, shall likewise be taken into consideration in
the enforcement of this section, notwithstanding any provision of law to the contrary. The
circumstances hereinabove mentioned shall constitute valid ground for the administrative suspension
of the public official concerned for an indefinite period until the investigation of the unexplained wealth
is completed.
Lectured by Dean because time-constrained | Digests copied form Clarence Tiu
(3) PNB v. • Ernesto T. Jimenez (former Agricultural Credit and Cooperative
Gancayco Administration administrator) was under investigation for unexplained
wealth. Defendants Gancayco and Flor (DOJ Special Prosecutors)
required plaintiff PNB to produce records of bank deposits at the
hearing. PNB refused citing Sec. 2 of RA 1405 which provides that all
deposits of whatever nature are absolutely confidential except upon (1)
written permission, (2) impeachment, (3) court order, (4) bribery or
dereliction, or (5) where money deposited is subject matter of litigation.
On the other hand, Defendants Gancayco and Flor invoke Sec. 8 of the
Anti-Graft and Corrupt Practices Act (RA 3019) which allows them to
look into the bank deposits of public officials with an amount of
property and/or money manifestly out of proportion to his salary and to
his other lawful income. PNB filed for declaratory relief in the CFI of
Manila. CFI sustained power to compel disclosure of bank deposits.
PNB appealed to the SC.
• W/N a bank can be compelled to disclose the records of accounts of a
depositor who is under investigation for unexplained wealth. --- YES
• Section 8 of the Anti-Graft Law is intended to amend Section 2 of RA
1405 by providing additional exception to the rule against the
disclosure of bank deposits. Disclosure would not be contrary to the
policy which makes bank deposits confidential because cases of
unexplained wealth are similar to cases of bribery or dereliction of duty
and no reason is seen why these two classes of cases cannot. The 2
laws are so repugnant to each other that no reconciliation is possible.
DEAN JMGH | BANKING L AW | YAP, K.

• While RA 1405 provides that bank deposits are "absolutely confidential
... and [therefore] may not be examined, inquired or looked into,"
except in those cases enumerated therein, the Anti- Graft Law directs
in mandatory terms that bank deposits "shall betaken into
consideration in the enforcement of this section, notwithstanding any
provision of law to the contrary.” If the new law is inconsistent with or
repugnant to the old law, the presumption against the intent to repeal
by implication is overthrown because the inconsistency or repugnancy
reveals an intent to repeal the existing law.
• Disclosure would not be contrary to the policy which makes bank
deposits confidential because cases of unexplained wealth are similar
to cases of bribery or dereliction of duty. Cases of unexplained wealth
are similar to cases of bribery or dereliction of duty and no reason is
seen why these two classes of cases cannot be excepted from the rule
making bank deposits confidential. The policy as to one cannot be
different from the policy as to the other.
(4) Banco Filipino v. • Tanodbayan issued (in the course of preliminary investigation)
Purisima subpoena duces tecum to Banco Filipino, commanding it to present
bank records of Cartula, his wife and children and other persons. This
was pursuant to charges filed by BIR (bec of unexplained wealth). BF
refused to comply bec according to BF, the wife and children are
private individuals not charged with violation of Anti-Graft & Corrupt
Practices Act. BF applied for prelim injunction, which was denied by
Judge Purisima. SC ruled against BF. Congress, by enacting sec. 8 of
the Anti-Graft and Corrupt Practices Act, clearly intended to provide an
additional ground for the examination of bank deposits for without such
provision, the prosecutors would be hampered if not altogether
frustrated in the prosecution of those charged with having acquired
unexplained wealth while in public office. Moreover, properties in the
name of the spouse and unmarried children of such public official may
be taken into consideration, when their acquisition through legitimate
means cannot be satisfactorily shown.
• The Anti-Graft Law directs in mandatory terms that bank deposits
"shall be taken into consideration in the enforcement of this section,
notwithstanding any provision of law to the contrary." The only
conclusion possible is that section 8 of the Anti-Graft Law is intended
to amend section 2 of Republic Act No. 1405 by providing an additional
exception to the rule against the disclosure of bank desposits.
• Cases of unexplained wealth are similar to cases of bribery or
dereliction of duty and no reason is seen why these two classes of
cases cannot be excepted from the rule making bank deposits
confidential. The policy as to one cannot be different from the policy as
to the other. This policy expresses the notion that a public office is a
public trust and any person who enters upon its discharge does so with
the full knowledge that his life, so far as relevant to his duty, is open to
public scrutiny. Moreover, the inquiry into illegally acquired property —
or property NOT "legitimately acquired" — extends to cases where
such property is concealed by being held by or recorded in the name of
other persons.
• R.A. No. 3019 further provides: "legitimately acquired property of a
public officer or employee shall NOT include .. property unlawfully
acquired by the respondent, but its ownership is concealed by its being
recorded in the name of, or held by, respondent's spouse, ascendants,
descendants, relatives or any other persons.” To sustain the
petitioner's theory, and restrict the inquiry only to property held by or in
the name of the government official or employee, or his spouse and
unmarried children is unwarranted in the light of the provisions of the
43
statutes in question, and would make available to persons in
government who illegally acquire property an easy and fool- proof
means of evading investigation and prosecution; all they would have to
do would be to simply place the property in the possession or name of
persons other than their spouse and unmarried children. This is an
absurdity that we will not ascribe to the lawmakers.
• Ombudsman Act – Section 15(8)
SECTION 15. Powers, Functions and Duties. — The Office of the Ombudsman shall have the
following powers, functions and duties: (8) Administer oaths, issue subpoena and subpoena duces
tecum, and take testimony in any investigation or inquiry, including the power to examine and have
access to bank accounts and records;
Lectured by Dean because time-constrained | Digests copied form Clarence Tiu
(5) Marquez v. • Marquez, as bank manager, received an Order from the Ombudsman
Desierto Aniano A. Desierto to produce several bank documents for purposes of
inspection in camera relative to various accounts maintained George
Trivinio, a respondent in a case, pending with the office of the
Ombudsman. However, Marquez explained in a letter that such
accounts were dormant already and asked for more time to comply
with the order. For failure to produce the bank documents, The
Ombudman cited Marquez for indirect contempt.
• ISSUE: W/N Marquez can be cited for indirect contempt for failure to
produce the bank documents- NO
• An examination of the secrecy of bank deposits law (R. A. No. 1405)
would reveal the following exceptions
1. Where the depositor consents in writing;
2. Impeachment case;
3. By court order in bribery or dereliction of duty cases against
public officials;
4. Deposit is subject of litigation;
5. Sec. 8, R. A. No. 3019, in cases of unexplained wealth as
held in the case of PNB vs. Gancayco
• The order of the Ombudsman to produce for in camera inspection for
the subject accounts with the bank is based on a pending investigation
at the Office of the Ombudsman
• However, before an in camera inspection may be allowed, there must
be a pending case before a court of competent jurisdiction. Further, the
account must be clearly identified, the inspection limited to the subject
matter of the pending case before the court of competent jurisdiction.
The bank personnel and the account holder must be notified to be
present during the inspection, and such inspection may cover only the
account identified in the pending case.
• Section 2 of the Law on Secrecy of Bank Deposits, as amended,
declares bank deposits to be “absolutely confidential” except:
1. In an examination made in the course of a special or
general examination of a bank that is specifically authorized
by the Monetary Board after being satisfied that there is
reasonable ground to believe that a bank fraud or serious
irregularity has been or is being committed and that it is
necessary to look into the deposit to establish such fraud or
irregularity,
2. In an examination made by an independent auditor hired by
the bank to conduct its regular audit provided that the
examination is for audit purposes only and the results
DEAN JMGH | BANKING L AW | YAP, K.
thereof shall be for the exclusive use of the bank,
3. Upon written permission of the depositor,
4. In cases of impeachment,
5. Upon order of a competent court in cases of bribery or
dereliction of duty of public officials, or
6. In cases where the money deposited or invested is the
subject matter of the litigation”
• In this case, there is yet no pending litigation before any court of
competent authority. What is existing is an investigation by the office of
the Ombudsman. In short, what the Office of the Ombudsman would
wish to do is to fish for additional evidence to formally charge a person.
Clearly, there was no pending case in court.
• Plunder Law – Sections 1(d) and 4
SECTION 1. Definition of Terms. — As used in this Act, the term —
d) Ill-gotten wealth means any asset, property, business enterprise or material possession of any
person within the purview of Section Two (2) hereof, acquired by him directly or indirectly through
dummies, nominees, agents, subordinates and/or business associates by any combination or series of
the following means or similar schemes:
1) Through misappropriation, conversion, misuse, or malversation of public funds or raids on the public
treasury; cdasia
2) By receiving, directly or indirectly, any commission, gift, share, percentage, kickbacks or any other
form of pecuniary benefit from any person and/or entity in connection with any government contract or
project or by reason of the office or position of the public officer concerned;
3) By the illegal or fraudulent conveyance or disposition of assets belonging to the National
Government or any of its subdivisions, agencies or instrumentalities or government-owned or -
controlled corporations and their subsidiaries;
4) By obtaining, receiving or accepting directly or indirectly any shares of stock, equity or any other
form of interest or participation including promise of future employment in any business enterprise or
undertaking;
5) By establishing agricultural, industrial or commercial monopolies or other combinations and/or
implementation of decrees and orders intended to benefit particular persons or special interests; or
6) By taking undue advantage of official position, authority, relationship, connection or influence to
unjustly enrich himself or themselves at the expense and to the damage and prejudice of the Filipino
people and the Republic of the Philippines.
should be considered protected. He argues that the Ombudsman has
no power to inquire into his bank accounts in this case because
following the ruling of Marquez, before an in-camera inspection may be
allowed, there must be a pending case before a court and that the
account holder must be notified to be present during the inspection.
The SC rejected this argument and ruled against Ejercito. First, the
Marquez ruling came out after the subpoenas were issued, hence,
there can be no retroactive application. Also, in any case, even if the
challenged subpoenas are quashed, the Ombudsman is not barred
from requiring the production of the same documents based solely on
information obtained by it from sources independent of its previous
inquiry. If the Ombudsman has prior independent information giving
him grounds to believe that anomalies in the bank accounts exist, it
may validly issue the subpoenas, describing the documents subject
thereof.
• The Marquez ruling that there must be a pending case in order for the
Ombudsman to validly inspect bank records in camera thus reversed a
prevailing doctrine. Hence, it may not be retroactively applied.
Therefore, the Ombudsman’s inquiry into the bank accounts in this
case is valid at the time it was conducted. AT ALL EVENTS, even if the
challenged subpoenas are quashed, the Ombudsman is not barred
from requiring the production of the same documents based solely on
information obtained by it from sources independent of its previous
inquiry.
• Anti-Money Laundering Act – Section 11 as amended by RA 9194
SEC. 11. Authority to Inquire into Bank Deposits. — Notwithstanding the provisions of Republic Act
No. 1405, as amended, Republic Act No. 6426, as amended, Republic Act No. 8791, and other laws,
the AMLC may inquire into or examine any particular deposit or investment with any banking institution
or non-bank financial institution upon order of any competent court in cases of violation of this Act,
when it has been established that there is probable cause that the deposits or investments are related
to an unlawful activity as defined in Section 3(i) hereof or a money laundering offense under Section 4
hereof; except that no court order shall be required in cases involving unlawful activities defined in
Sections 3(i)(1), (2) and (12).
To ensure compliance with this Act, the Bangko Sentral ng Pilipinas (BSP) may inquire into or examine
any deposit or investment with any banking institution or non-bank financial institution when the
examination is made in the course of a periodic or special examination, in accordance with the rules of
examination of the BSP.
Lectured by Dean because time-constrained | Digests copied form Clarence Tiu

(7)
SECTION 4. Rule of Evidence. — For purposes of establishing the crime of plunder, it shall not be
necessary to prove each and every criminal act done by the accused in furtherance of the scheme or
conspiracy to amass, accumulate or acquire ill-gotten wealth, it being sufficient to establish beyond
reasonable doubt a pattern of overt or criminal acts indicative of the overall unlawful scheme or
conspiracy.
Lectured by Dean because times constrained | Digests copied form Clarence Tiu
(6) Ejercito v. • Estrada questions the validity of the subpoenas requested by the SPP
Sandiganbayan before the SB for several documents and testimonies related to his
bank accounts and a certain “Jose Velarde.” Estrada raises the
contention that due to the provisions of RA 1405, his trust accounts
44
Republic v. • Money laundering has been generally defined by the International
Eugenio, jr. Criminal Police Organization (Interpol) `as "any act or attempted act to
conceal or disguise the identity of illegally obtained proceeds so that
they appear to have originated from legitimate sources." Before AMLA,
the problem was addressed by the Philippine government through the
issuance of various circulars by the BSP. Legislative proscription was
necessary, especially with the inclusion of the Philippines in the
Financial Action Task Force’s list of non-cooperative countries and
territories in the fight against money laundering. The original AMLA,
Republic Act (R.A.) No. 9160, was passed in 2001. It was amended by
R.A. No. 9194 in 2003. Section 4 of the AMLA states that "[m]oney
laundering is a crime whereby the proceeds of an unlawful activity as
[defined in the law] are transacted, thereby making them appear to
have originated from legitimate sources. "The section provides the
DEAN JMGH | BANKING L AW | YAP, K.

three modes through which the crime of money laundering is
committed. Section 7 creates the AMLC and defines its powers, which
relate to the enforcement of the AMLA provisions and the initiation of
legal actions authorized in the AMLA such as civil forfeiture
proceedings and complaints for the prosecution of money laundering
offenses.
• AMLA also authorizes certain provisional remedies that would aid the
AMLC in the enforcement of the AMLA. "freeze order" authorized
under Section 10, and the “bank inquiry order" authorized under
Section 11.
• Whether a bank inquiry order under Section 11 may be obtained only
upon the pre-existence of a money laundering offense case already
filed before the courts. NO.
o Based on the phrase "upon order of any competent court in
cases of violation of this Act”. We agree with the Solicitor
General who conceded that the use of the phrase "in cases
of" was unfortunate, yet submitted that it should be
interpreted to mean "in the event there are violations" of the
AMLA, and not that there are already cases pending in court
concerning such violations.
o If the contrary position is adopted, the bank inquiry order
would be limited in purpose as a tool in aid of litigation of
live cases, and wholly inutile as a means for the government
to ascertain whether there is sufficient evidence to sustain
an intended prosecution of the account holder for violation
of the AMLA. Should that be the situation, AMLC would be
virtually deprived of its character as a discovery tool, and
thus would become less circumspect in filing complaints
against suspect account holders.
• Whether or not Section 11 authorizes the issuance ex parte of the bank
inquiry order. NO.
o Section 11 does not specifically authorize, as a general rule,
the issuance ex parte of the bank inquiry order.
o Section 11 allows the AMLC to inquire into bank accounts
without having to obtain a judicial order in cases where
there is probable cause that the deposits or investments are
related to kidnapping for ransom, certain violations of the
Comprehensive Dangerous Drugs Act of 2002, hijacking
and other violations under R.A. No. 6235 destructive arson
and murder. The proviso contemplates a situation distinct
from that which presently confronts us, our discussion and
reference to Section 11 of the AMLA excludes said proviso
o Section 10 uses specific language to authorize an ex parte
application for the provisional relief, a circumstance absent
in Section 11. If the legislature intended to authorize ex
parte proceedings for the issuance of the bank inquiry order,
then it could have easily expressed such intent in the law.
This is confirmed by the present implementing rules and
regulations of the AMLA, and the Rules of Procedure
adopted by this Court in A.M. No. 05-11-04-SC--to enforce
the provisions of the AMLA specifically authorize ex parte
applications with respect to freeze orders under Section 10
but make no similar authorization with respect to bank
inquiry orders under Section 11.
o The implication that Section 11 of the AMLA does not
generally authorize the issuance ex parte of the bank inquiry
order would be that such orders cannot be issued unless
notice is given to the owners of the account, allowing them
the opportunity to contest the issuance of the order.
45
o Section 11 itself requires that it be established that "there is
probable cause that the deposits or investments are related
to unlawful activities," and the court is the arbiter whether
there is indeed such probable cause.
o The court receiving the application for inquiry order cannot
simply take the AMLC’s word that probable cause exists
that the deposits or investments are related to an unlawful
activity. It will have to exercise its own determinative
function in order to be convinced of such fact. The account
holder would be certainly capable of contesting such
probable cause if given the opportunity to be apprised of the
pending application to inquire into his account; Requiring
notice to the account holder should not compromise the
integrity of the bank records subject of the inquiry which
remain in the possession and control of the bank.
• Whether or not a bank inquiry order necessitates a finding of probable
cause, a characteristic similar to a search warrant which is applied to
and heard ex parte. NO.
o The Constitution and the Rules of Court prescribe particular
requirements attaching to search warrants that are not
imposed by the AMLA with respect to bank inquiry orders. A
constitutional warrant requires that the judge personally
examine under oath or affirmation the complainant and the
witnesses he may produce, such examination being in the
form of searching questions and answers. Those are
impositions which the legislative did not specifically
prescribe as to the bank inquiry order under the AMLA, and
we cannot find sufficient legal basis to apply them to Section
11 of the AMLA. Simply put, a bank inquiry order is not a
search warrant or warrant of arrest as it contemplates a
direct object but not the seizure of persons or property.
• PDIC Charter – Section 11(c) as amended by RA 9302
SECTION 11. "(c) In addition to the powers of a receiver pursuant to existing laws, the Corporation is
empowered to:
"(1) bring suit to enforce liabilities to or recoveries of the closed bank;
"(2) appoint and hire persons or entities of recognized competence in banking or finance as its
deputies and assistants, to perform such powers and functions of the Corporation as receiver or
liquidator of the closed bank;
"(3) suspend or terminate the employment of officers and employees of the closed bank: Provided,
That payment of separation pay or benefits shall be made only after the closed bank has been placed
under liquidation pursuant to the order of the Monetary Board under Section 30 of R.A. 7653, and that
such payment shall be made from available funds of the bank after deducting reasonable expenses for
receivership and liquidation;
"(4) pay accrued utilities, rentals and salaries of personnel of the closed bank, for a period not
exceeding three (3) months, from available funds of the closed bank;
"(5) collect loans and other claims of the closed bank, and for the purpose, modify, compromise or
restructure the terms and conditions of such loans or claims as may be deemed advantageous to the
interest of the creditors and claimants of the closed bank;
"(6) hire or retain private counsels as may be necessary;
DEAN JMGH | BANKING L AW | YAP, K.

"(7) borrow or obtain a loan, or mortgage, pledge or encumber any asset of the closed bank, when
necessary to preserve or prevent dissipation of the assets, or to redeem foreclosed assets of the
closed bank, or to minimize losses to the depositors and creditors;
"(8) if the stipulated interest on deposits is unusually high compared with the prevailing applicable
interest rate, the Corporation as receiver may exercise such powers which may include a reduction of
the interest rate to a reasonable rate: Provided, That any modification or reduction shall apply only to
unpaid interest; and
"(9) exercise such other powers as are inherent and necessary for the effective discharge of the duties
of the Corporation as a receiver."
• National Internal Revenue Code – Section 6(f)
SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional
Requirements for Tax Administration and Enforcement. – (F) Authority of the Commissioner to
Inquire into Bank Deposit Accounts and Other Related information held by Financial Institutions. [4] -
Notwithstanding any contrary provision of Republic Act No. 1405, Republic Act No. 6426, otherwise
known as the Foreign Currency Deposit Act of the Philippines, and other general or special laws, the
Commissioner is hereby authorized to inquire into the bank deposits and other related information held
by financial institutions of:
(1) A decedent to determine his gross estate; and
(2) Any taxpayer who has filed an application for compromise of his tax liability under Section 204(A)(2)
of this Code by reason of financial incapacity to pay his tax liability.
In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that
his financial position demonstrates a clear inability to pay the tax assessed, his application shall not be
considered unless and until he waives in writing his privilege under Republic Act No. 1405, Republic
Act No. 6426, otherwise known as the Foreign Currency Deposit Act of the Philippines, or under other
general or special laws, and such waiver shall constitute the authority of the Commissioner to inquire
into the bank deposits of the taxpayer.
(3) A specific taxpayer or taxpayers subject of a request for the supply of tax information from a foreign
tax authority pursuant to an international convention or agreement on tax matters to which the
Philippines is a signatory or a party of: Provided, That the information obtained from the banks and
other financial institutions may be used by the Bureau of Internal Revenue for tax assessment,
verification, audit and enforcement purposes.
In case of a request from a foreign tax authority for tax information held by banks and financial
institutions, the exchange of information shall be done in a secure manner to ensure confidentiality
thereof under such rules and regulations as may be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner.
The Commissioner shall provide the tax information obtained from banks and financial institutions
pursuant to a convention or agreement upon request of the foreign tax authority when such requesting
foreign tax authority has provided the following information to demonstrate the foreseeable relevance
of the information to the request:
(a) The identity of the person under examination or investigation;
(b) A statement of the information being sought, including its nature and the form in which the said
foreign tax authority prefers to receive the information from the Commissioner;
(c) The tax purpose for which the information is being sought;
(d) Grounds for believing that the information requested is held in the Philippines or is in the
46
possession or control of a person within the jurisdiction of the Philippines;
(e) To the extent known, the name and address of any person believed to be in possession of the
requested information;
(f) A statement that the request is in conformity with the law and administrative practices of the said
foreign tax authority, such that if the requested information was within the jurisdiction of the said foreign
tax authority then it would be able to obtain the information under its laws or in the normal course of
administrative practice and that it is in conformity with a convention or international agreement; and
(g) A statement that the requesting foreign tax authority has exhausted all means available in its own
territory to obtain the information, except those that would give rise to disproportionate difficulties.
The Commissioner shall forward the information as promptly as possible to the requesting foreign tax
authority. To ensure a prompt response, the Commissioner shall confirm receipt of a request in writing
to the requesting tax authority and shall notify the latter of deficiencies in the request, if any, within sixty
(60) days from receipt of the request.
If the Commissioner is unable to obtain and provide the information within ninety (90) days from receipt
of the request, due to obstacles encountered in furnishing the information or when the bank or financial
institution refuses to furnish the information, he shall immediately inform the requesting tax authority of
the same, explaining the nature of the obstacles encountered or the reasons for refusal.
The term "foreign tax authority," as used herein, shall refer to the tax authority or tax administration of
the requesting State under the tax treaty or convention to which the Philippines is a signatory or a party
of.
• Unclaimed Balances Law – Section 2
SECTION 2. Immediately after the taking effect of this Act and within the month of January of every
odd year, all banks shall forward to the Insular Treasurer a statement, under oath of their respective
managing officers, of all credits and deposits held by them in favor of persons known to be dead, or
who have not made further deposits or withdrawals during the preceding ten years or more, arranged
in alphabetical order according to the names of depositors, and showing:
(a)The names and last known place of residence or post-office addresses of the persons in whose
favor such credit or deposits stand;
(b)The amount and date of the outstanding credit or deposit and whether the same is in money or in
security, and if the latter, the nature of the same;
(c)The date when the person in whose favor the credit or deposit stands died, if known, or the date
when he made his last deposit or withdrawal; and
(d)The interest due on such credit or deposit, if any, and the amount thereof.
Immediately upon receipt of the above statement the Insular Treasurer shall publish the same once a
week for three consecutive weeks in at least two newspapers of general circulation in the locality where
the bank or banks are situated, if there be any, and if there is none, in the City of Manila, one in English
and one in Spanish. The cost of such publication shall be paid by the Treasury Bureau and the latter
shall be reimbursed out of the escheated fund.
It shall be the duty of the Insular Treasurer to inform the Attorney-General from time to time of the
existence of unclaimed balances held by banks.
DEAN JMGH | BANKING L AW | YAP, K.

• Foreign Currency Deposit Act – Section 8 and 10
SECTION 8. Secrecy of Deposits. — The secrecy of deposits under this Act shall be governed in
accordance with the provisions of Republic Act Numbered One thousand four hundred five.
SECTION 10. Penal Provisions. — Any willful violation of this Act or any regulation duly promulgated
by the Monetary Board pursuant hereto shall subject the offender upon conviction to an imprisonment
of not less than one year nor more than five years or a fine of not less than five thousand pesos nor
more than twenty-five thousand pesos, or both such fine and imprisonment at the discretion of the
court.
Lectured by Dean because time-constrained | Digests copied form Clarence Tiu
(8) Intengan v. CA • Citibank filed a complaint for violation of section 31 in relation to
section 144 of the Corporation Code against two (2) of its officers,
Dante L.Santos and Marilou Genuino. Attached to the complaint was
an affidavit executed by private respondent Vic Lim, a vice-president of
Citibank. As evidence, Lim annexed bank records purporting to
establish the deception practiced by Santos and Genuino. Some of the
documents pertained to the dollar deposits of petitioners Carmen Ll.
Intengan, Rosario Ll. Neri, and Rita P. Brawner. In turn, private
respondent Joven Reyes, vice-president/ business manager of the
Global Consumer Banking Group of Citibank, admits to having
authorized Lim to state the names of the clients involved and to attach
the pertinent bank records, including those of petitioners. Petitioners
aver that respondents violated RA 1405
• W/N Respondents violated R.A. 1405 – NO, prescription has also set
in.
• The accounts in question are U.S. dollar deposits; consequently, the
applicable law is not Republic Act No. 1405 but Republic Act (RA) No.
6426, known as the “Foreign Currency Deposit Act of the Philippines,”
However, applying Act No. 3326, the offense prescribes in eight years,
therefore, per available records, private respondents may no longer be
hailed before the courts for violation of Republic Act No. 6426
• Under R.A. No. 6426 there is only a single exception to the secrecy of
foreign currency deposits, that is, disclosure is allowed only upon the
written permission of the depositor.
• Republic Act No. 6426 being a special law, the provisions of Act No.
3326,[23] as amended by Act No. 3763, are applicable: SECTION
1.Violations penalized by special acts shall, unless otherwise provided
in such acts, prescribe in accordance with the following rules: (a) after
a year for offences punished only by a fine or by imprisonment for not
more than one month, or both: (b) after four years for those punished
by imprisonment for more than one month, but less than two years; (c)
after eight years for those punished by imprisonment for two years or
more, but less than six years; and (d) after twelve years for any other
offence punished by imprisonment for six years or more, except the
crime of treason, which shall prescribe after twenty years: Provided,
however, That all offences against any law or part of law administered
by the Bureau of Internal Revenue shall prescribe after five years.
Violations penalized by municipal ordinances shall prescribe after two
months. SEC. 2. Prescription shall begin to run from the day of the
commission of the violation of the law, and if the same be not known at
the time, from the discovery thereof and the institution of judicial
proceedings for its investigation and punishment. The prescription shall
be interrupted when proceedings are instituted against the guilty
person, and shall begin to run again if the proceedings are dismissed
47
• A violation of Republic Act No. 6426 shall subject the offender to
(9) Van Twest v. CA • Petitioner Alexander Van Twest filed a complaint against private
Focus on this case –
not the kind of deposit
contemplated by
FCDA
• SC held that CA was in reversible error in annulling the writ of
• To the mind of the Court, the evidence of record sufficiently rebut the
for reasons not constituting jeopardy.
imprisonment of not less than one year nor more than five years, or by
a fine of not less than five thousand pesos nor more than twenty- five
thousand pesos, or both. Applying Act No. 3326, the offense
prescribes in eight years.
respondent Gloria Anacleto and International Corporate Bank
("Interbank") for recovery of a sum of money with prayer for a writ of
preliminary injunction. Petitioner alleged in his complaint that in 1989,
he and private respondent opened a joint foreign currency savings
account with Interbank to hold funds which "belonged entirely and
exclusively" to petitioner, to "facilitate the funding of certain business
undertakings" of both of them and which funds were to be "temporarily
(held) in trust" by private respondent, who "shall turnover the same to
plaintiff upon demand." Petitioner further alleged that withdrawals from
the account were always made through their joint signatures; that when
his business relationship with private respondent turned sour, the latter
unilaterally closed their joint account, withdrew the remaining balance
of Deutschmark (DM) 269,777.37 and placed the money in her own
personal account with the same bank. Petitioner thus sought an
injunctive writ to prevent private respondent from withdrawing the
money at any time and thereby defeat petitioner's main and pending
action. RTC issued TROs enjoining private respondent and Interbank
from effecting and allowing withdrawals from the foreign currency
deposit account. CA annulled the TROs. Petitioner's principal
contention is that the public respondent misappreciated the facts of the
case; he did not seek injunction to restrain private respondent from
withdrawing the funds from their joint account, since private respondent
indeed enjoyed a semblance of right to do so and the withdrawal had
already become a fait accompli. Rather, petitioner seeks to restrain
private respondent from effecting withdrawals from her personal
account, into which she had transferred the foreign currency, in order
not to defeat his main action seeking recovery of said fund. Private
respondent contendsthat the personal foreign currency deposit
account she is maintaining is exempt from processes issued by the
courts, pursuant to Section 8 of R.A. 6426 as amended by P. D. 1246,
the statute in force on 26 February 1990, the date she withdrew the
foreign exchange fund from her joint account with petitioner and
transferred the same to her personal account.
preliminary injunction issued in petitioner's favor by the RTC. The
Court must agree with petitioner. The Court of Appeals evidently
misapprehended the facts of this case, a relatively exceptional situation
warranting the Court to rule of factual issues in a petition for review,
preparatory to the resolution of the legal issues posed in this
proceeding.
perception of the Court of Appeals that the foreign funds previously
deposited in the joint savings account were in effect owned in common
by the petitioner and private respondent, such that petitioner could
validly oppose private respondent's attempt to dispose of such funds
by obtaining a writ of preliminary injunction. It does not appear
indubitable that private respondent was a co-owner of the funds who
could unilaterally control the application thereof in payment of
partnership debts. Indeed, petitioner has affirmatively shown that the
Deutschmark originated from him alone and that he alone was owner
thereof. By depositing those funds in a joint 'and/or' account, petitioner
DEAN JMGH | BANKING L AW | YAP, K.

did not convey ownership thereof to private respondent and private
respondent could not convert those funds to her personal and
exclusive ownership and use.
• Court holds that the privileges extended by the statute cited by private
respondent are actually enjoyed, and are invocable only, by the
petitioner, both because private respondent's transactions fall outside
the ambit of the statute, and because petitioner is the owner of the
foreign exchange fund subject of this case. This conclusion is
anchored on the consistent and contemporaneous administrative
construction by the Central Bank of the basic statute, as manifested in
the relevant circulars issued by it in implementation of that law, which
are entitled to great respect by the courts
• Although transfers from one foreign currency deposit account to
another foreign currency deposit account in the Philippines are now
eligible deposits under the Central Bank's Foreign Currency Deposit
System, private respondent is still not entitled to the confidentiality
provisions of the relevant circulars. For, as noted earlier, private
respondent is not the owner of such foreign currency funds
(10) Chinabank v. CA • The case stems from a complaint for a recovery of sums of money and
annulment of sales ofreal property and shares of stocks filed by Jose
Focus on this case Gotianuy against his son-in-law George Dee and his daughter Mary
Margaret Dee.
• Gotianuy accused his daughter of stealing his properties, US Dollar
deposits with Citybank amounting to P35M and $864,000. Margaret
Dee obtained these amounts through check issued by Citybank
naming her as a co-payee of Gotianuy. She allegedly deposited the
checks with petitioner bank. Gotianuy died during the pendency of the
case and was substituted by his daughter Elizabeth.
• Subsequently, employees of China Bank were sent subpoena to testify
re: bank deposits of Margaret Dee but petitioner invoked RA 1405
(Bank Secrecy Law). The lower court held that the disclosure of the
name only of a depositor does not constitute a violation of RA 1405.
The CA affirms the lower court's decision.
• ISSUE: Whether or not the petitioner can validly invoke the bank
secrecy law to prevent the disclosure.
• HELD: No. Jose Gotianuy is a co-payee of the checks deposited in
China Bank hence, he is deemed also a depositor. A depositor is one
who pays money into the bank in the usual course of business to be
placed to his credit and subject to his check of the beneficiary of the
funds held by the bank as trustee. As such, no written consent from
Margaret Dee is needed in order to inquire into the said deposits.
Moreover, there was no issue as to the real source of the funds since
even Marygaret Dee declared that Gotianuy was the source of the
Citibank US Dollar checks. As the owner of the funds unlawfully taken
and now deposited with the petitioner bank, Gotianuy has the right to
inquire into the said deposit. Clearly, it was not the intention of the
lawmakers to perpetrate injustice when it enacted the Bank Secrecy
Law or RA 1405.
o Rules regarding written permission of the depositor:
1. If AND account – consent of both/all depositors.
2. If AND/OR or OR account – consent of either depositor.
Garnishment of Deposits
• Procedure – 1997 Rules of Civil Procedure, Section 9(c), Rule 39
48
SECTION 9. Execution of Judgments for Money, How Enforced. — (c) Garnishment of Debts and
Credits. — The officer may levy on debts due the judgment obligor and other credits, including bank
deposits, financial interests, royalties, commissions and other personal property not capable of manual
delivery in the possession or control of third parties. Levy shall be made by serving notice upon the
person owing such debts or having in his possession or control such credits to which the judgment
obligor is entitled. The garnishment shall cover only such amount as will satisfy the judgment and all
lawful fees.
The garnishee shall make a written report to the court within five (5) days from service of the notice of
garnishment stating whether or not the judgment obligor has sufficient funds or credits to satisfy the
amount of the judgment. If not, the report shall state how much funds or credits the garnishee holds for
the judgment obligor. The garnished amount in cash, or certified bank check issued in the name of the
judgment obligee, shall be delivered directly to the judgment obligee within ten (10) working days from
service of notice on said garnishee requiring such delivery, except the lawful fees which shall be paid
directly to the court.
In the event there are two or more garnishees holding deposits or credits sufficient to satisfy the
judgment, the judgment obligor, if available, shall have the right to indicate the garnishee or garnishees
who shall be required to deliver the amount due; otherwise, the choice shall be made by the judgment
obligee.
The executing sheriff shall observe the same procedure under paragraph (a) with respect to delivery of
payment to the judgment obligee. (8a, 15a)
• Exemptions
§ Foreign Currency Deposits Act, Section 8
SECTION 8. Secrecy of Deposits. — The secrecy of deposits under this Act shall be governed in
accordance with the provisions of Republic Act Numbered One thousand four hundred five.
Jurisprudence (Memory Buzzer)
(11) Salvacion v. • Karen Salvacion against Central Bank, China Bank and Greg Bartelli
Central Bank y Northcott
• Karen, then 12 years old, was kidnapped and raped by Greg, an
Copy-pasted from American, for 4 days in the latter's house in Kalayaan Ave., Makati City
before (gruesome details at the bottom). At the time of apprehension, the
policemen found several checks issued against dollar and peso
accounts in banks, one of which was China Bank. Greg was convicted
of Serious Illegal Detention and 4 counts of Rape. He was able to
escape from jail. A writ of execution was issued in order to indemnify
Karen the amount of PHP1,000,000 as damages. Since Greg was not
in the Philippines, a notice of garnishment of the dollar account was
sent to China Bank. The bank, however, refused to release the funds.
• Karen, through her parents, argues that the circular is unconstitutional
for being in excess of the Monetary Board's delegated quasi-legislative
power, in effect taking away their right to have the bank deposits
garnished to satisfy the judgment rendered against an alien, creating
an undue favor for a class privilege in violation of the equal protection
clause.
• The Solicitor General supports Karen's plea, arguing that the law does
not apply to Greg, an alien who is a mere transient in the Philippines.
The law applies to "lenders" and "investors."
• China Bank argues that a Central Bank Circular exempted dollar
deposits from attachment, garnishment, or any other order or process
of any court, legislative body, government agency or administrative
body, whatsoever. Were it not for that circular, China Bank would have
released the same.
DEAN JMGH | BANKING L AW | YAP, K.

• The Central Bank is of the opinion that the circular merely implements
what is provided for under RA 6426 (Foreign Currency Deposit Act).
• The issue is whether Greg's dollar account may be subjected
garnishment.
• The SC ruled in the affirmative. First, although this was originally a
petition for declaratory relief, the SC may treat it as one for mandamus
since the present petition has far-reaching implications on the right of a
national to obtain redress for a wrong committed by an alien who takes
refuge under a law and regulation promulgated for a purpose which
does not contemplate the application thereof envisaged by the alien -
an exemption to strict procedural rules. Second, it is evidence from the
"whereas clauses" of the pertinent laws that the Offshore Banking
System and Foreign Currency Deposit System were designed to draw
deposits from foreign LENDERS and INVESTORS - it is these deposits
that are sought to be protected by the law. Obviously, it does not apply
to Greg, a mere transient or tourist who stays only for a few days in the
country, and will therefore maintain his deposit for only a short period
of time. Third, a strict application of the circular would negate Art. 10 of
the New Civil Code which provides that "in case of doubt in the
interpretation and application of laws, it is presumed that the
lawmaking body intended right and justice to prevail." Furthermore,
when the state is silent or ambiguous, this is one of those fundamental
solutions that would respond to the vehement urge of conscience.
• FACTS RE: RAPE - Karen was then a freshman in St. Mary's
Academy. She was in Plaza Fair Makati Cinema Square with her
friend. When the friend went home, Greg approached Karen, who was
sitting on a bench. He interviewed Karen, asking what he favorite
subject was - she answered Pilipino. He asked Karen to teach his
niece Pilipino - she agreed. He brought her to his house along
Kalayaan Avenue. He said maybe his niece was upstairs, so he
brought Karen there. He tied Karen up, inserted his finger in her
vagina, applied baby oil to his penis and her vagina and inserted his
penis therein. Karen bled even as she showered thereafter. The next
day, after eating biscuits, Greg again raped her and this continued for 3
days. Karen found a window (covered by mats) and shouted for help. A
neighbor was irritated so she told Karen to sleep and she'll call the
police. The police arrived a few days later.
§ 1997 Rules of Civil Procedure, Section 13, Rule 39
SECTION 13. Property Exempt from Execution. — Except as otherwise expressly provided by law,
the following property, and no other, shall be exempt from execution:
(a) The judgment obligor's family home as provided by law, or the homestead in which he resides, and
land necessarily used in connection therewith;
(b) Ordinary tools and implements personally used by him in his trade, employment, or livelihood;
(c) Three horses, or three cows, or three carabaos, or other beasts of burden, such as the judgment
obligor may select necessarily used by him in his ordinary occupation;
(d) His necessary clothing and articles for ordinary personal use, excluding jewelry;
(e) Household furniture and utensils necessary for housekeeping, and used for that purpose by the
judgment obligor and his family, such as the judgment obligor may select, of a value not exceeding one
hundred thousand pesos;
(f) Provisions for individual or family use sufficient for four months;
49
(g) The professional libraries and equipment of judges, lawyers, physicians, pharmacists, dentists,
engineers, surveyors, clergymen, teachers, and other professionals, not exceeding three thousand
pesos in value;
(h) One fishing boat and accessories not exceeding the total value of one hundred thousand pesos
owned by a fisherman and by the lawful use of which he earns his livelihood;
(i) So much of the salaries, wages, or earnings of the judgment obligor for his personal services within
the four months preceding the levy as are necessary for the support of his family;
(j) Lettered gravestones;
(k) Monies, benefits, privileges, or annuities accruing or in any manner growing out of any life
insurance;
(l) The right to receive legal support, or money or property obtained as such support, or any pension or
gratuity from the Government;
(m) Properties specially exempted by law.
But no article or species of property mentioned in this section shall be exempt from execution issued
upon a judgment recovered for its price or upon a judgment of foreclosure of a mortgage thereon. (12a)
• Relevant jurisprudence
Jurisprudence (Memory Buzzer)
(12) Chinabank v. • Chinabank and Tan Kim Liong against Judge Ortega and Vicente
Ortega Acaban
• Vicente Acaban filed a complaint for collection of a sum of money
against Bautista Logging, B&B Forest Development, and Mariano
Bautista. A judgment by default was rendered against the latter. During
execution, when a notice of garnishment was issued by the sheriff and
served on Tan Kim Liong, Chinabank’s cashier, the latter refused and
directed the sheriff to the provisions of RA 1405 which allegedly
prohibited the disclosure of any information relative to bank deposits.
The judge threatened to cite the cashier in contempt.
• Chinabank argues that its cashier would be subjected to the penalties
under §5 of RA 1405 if he were to comply with the court order.
• Whether a bank may validly refuse to comply with a court process
garnishing the bank deposit of a judgment debtor by invoking RA 1405.
• The SC ruled in the negative. First, the order was not an inquiry into
the deposit of B&B, as contemplated by the law. It merely required the
cashier to inform the court whether B&B had a deposit in Chinabank
only for purposes of garnishment, so that the bank would hold the
same intact and not allow any withdrawal until further order. Second,
the discussion in Congress (between Mr. Marcos and Mr. Ramos)
shows the intention that garnishment may be allowed upon judicial
authorization, in satisfaction of a judgment which has become
executory.
(13) PCIB v. CA • PCIB and Jose Henares against Marinduque Mining
• A group of laborers obtained a favorable judgment for payment of
backwages ordered by the NLRC against Marinduque Mining. A writ of
execution was issued directing the sheriff of Negros Occidental to
enforce the judgment. Consequently, the sheriff went to the mining site
and served the writ of execution on the persons concerned. Thereafter,
the in-house lawyer of Marinduque Mining, Atty. Rexes V. Alejano,
DEAN JMGH | BANKING L AW | YAP, K.

called PCIB requesting the withholding of any release of the deposit of of local Virginia tobacco. PVTA’s creation as an ordinary corporation
Marinduque Mining with PCIB. The day after, the sheriff presented the separates it from the government, and is thus subject to the general
notice of garnishment and writ of execution to Jose Henares. The latter Corporation Law. Second, the immediate issuance of the check was
inquired about any existing restraining order from the NLRC, but there proper. Although the notice of garnishment gave RCBC 5 days to reply,
was none. Henares issued the check to the sheriff, who came back in the day after, the bank already received an order to issue the check
the afternoon to encash the check. Henares again asked whether there and give it to the sheriff. Hence, the issuance was upon a lawful order
was any restraining order, but there was none so he allowed of the court. Being a check, no payment was actually made to the
encashment. Marinduque Mining now assails the issuance and sheriff; that the sheriff encashed the same is not a matter to which
encashment of the check. RCBC is concerned, it being the order of the judge. Third, it was found
• Marinduque Mining avers that the transaction was tainted with undue that RCBC, upon receiving the notice of garnishment, notified PVTA
haste in unlawfully allowing the withdrawal of the funds in the account thereof and told the latter to take the necessary steps to protect its
with PCIB. interests.
• Whether PCIB violated RA 1405.
• The SC ruled in the negative. First, the legal basis of garnishment of
bank deposits is Rule 39 §41 which states that “a person indebted to
the judgment debtor may pay to the officer holding the execution the
amount of his debt or so much thereof as may be necessary to satisfy
the execution…” Since the relationship between a bank and its
depositor is debtor-creditor, PCIB was a debtor of the judgment debtor,
Marinduque Mining. Second, Marinduque Mining’s reliance on the De
la Rama case is erroneous because in that case, the judgment debtor
was able to appeal to the CA and obtain an injunction prohibiting
execution of the judgment. Third, RCBC v. De Castro (the next case)
was cited as authority to absolve PCIB from liability since there is no
issue concerning the indebtedness of PCIB to Marinduque Mining
(debtor of judgment debtor), and the immediate release was absent
any patent defect and enjoys presumption of regularity. Fourth, the
Court actually commended PCIB for its prompt release, noting that the
judgment creditors herein were laborers who had the right to unpaid
backwages.

(14) RCBC v. De • RCBC against Judge De Castro and Philippine Virginia Tobacco
Castro Administration (PVTA)
• Pursuant to a civil case between Badoc Planters and PVTA for
recovery of unpaid tobacco deliveries, an order was issued holding
PVTA liable to Badoc Planters. Subsequently, an urgent ex-parte
motion for a writ of execution was granted. The sheriff issued a notice
of garnishment addressed to RCBC requesting a reply within 5 days as
to any property which PVTA might have in the bank’s possession.
Upon receipt thereof, RCBC notified PVTA to take the necessary steps
for the protection of its own interest. The day after, an order was issued
directing RCBC to deliver, in check, the amount garnished to the
sheriff, and the sheriff was ordered to encash the amount and deliver
the same to Badoc’s counsel/representative. PVTA now questions the
validity of the garnishment and seeks to hold RCBC liable for breach of
trust and dereliction of duty.
• PVTA claims that its funds with RCBC are in the nature of public funds
(ie., tobacco funds) and are thus exempt from garnishment.
Furthermore, that RCBC erred in immediately issuing the check without
waiting for the 5-day period given in the notice of garnishment.
• Whether RCBC is liable.
• The SC ruled in the negative. First, the tobacco funds are not public
funds. It is a special fund created by law earmarked specifically to
answer obligations incurred by the PVTA in connection with its
proprietary and commercial operations authorized under the law.
Hence, said funds may be proceeded against by ordinary judicial
processes such as execution and garnishment. To hold otherwise
would be contrary to the PVTA’s purpose to encourage the production

50 DEAN JMGH | BANKING L AW | YAP, K.



Fig. Secrecy of Bank Deposits

Secrecy of Bank Deposits

General Rule: All deposits of whatever nature with banks or banking institutions in the Philippines including investments in bonds issued by the Government of the Philippines, its political subdivisions and its instrumentalities, are
hereby considered as of an absolutely confidential nature and may not be examined, inquired or looked into by any person, government official, bureau or office. (§2, RA 1405: Bank Secrecy Act)

Exceptions:
(1) Written permission of the depositor (5) In an examination made in the course of a special or general examination of a bank that is specifically authorized by the Monetary Board after
being satisfied that there is reasonable ground to believe that a bank fraud or serious irregularity has been or is being committed and that it is
(2) Impeachment proceedings necessary to look into the deposit to establish such fraud or irregularity (Marquez v. Desierto)

(3) Order by a competent court in cases of bribery or dereliction of duty (6) In an examination made by an independent auditor hired by the bank to conduct its regular audit provided that the examination is for audit
purposes only and the results thereof shall be for the exclusive use of the bank (Marquez v. Desierto)
(4) Where money deposited is the subject matter of litigation

Other Statutory Exceptions

Anti-Graft and Corrupt Practices Act Ombudsman Act Anti-Plunder Act Anti-Money Laundering Act (AMLA)

• If in accordance with the provisions of RA 1379,
a public official has been found to have acquired
during his incumbency, whether in his name or in
the name of other persons, an amount of
property and/or money manifestly out of
proportion to his salary and to his other lawful
income, that fact shall be a ground for dismissal
or removal.
• Bank deposits in the name of…the public official,
his spouse or any of their dependents…shall
likewise be taken into consideration in the
enforcement of this section, notwithstanding any
provision of law to the contrary.
• Banco Filipino v. Purisima: includes property
unlawfully acquired by the public official, but its
ownership is concealed by its being recorded in
the name of, or held by, his spouse, ascendants,
descendants, relative or any other person.
• The Office of the Ombudsman shall have the
power to administer oaths, issue subpoena and
subpoena duces tecum, and take testimony in
any investigation or inquiry, including the power
to examine and have access to bank accounts
and records.
• Marquez v. Desierto Requisites of in-camera
inspection:
1. There must be a pending case before
a court of competent jurisdiction
2. The account must be clearly
identified
3. The bank personal and the account
holder must be notified to be present
during the inspection
4. Such inspection may cover only the
account identified in the pending case
• Ill-gotten wealth – any asset, property, business
enterprise or material possession of any person
within the purview of §2 hereof, acquired by him
directly or indirectly through dummies, nominees,
agents, subordinates and/or business associates
by any combination or series of schemes.
• Ejercito v. Sandiganbayan: Since the inspection
done by the Ombudsman herein was made
before the decision in Marquez v. Desierto, AT
ALL EVENTS, even if the challenged subpoenas
are quashed, the Ombudsman is not barred from
requiring the production of the same documents
based solely on information obtained by it from
sources independent of its previous inquiry.
• The AMLC (AML Commission) may inquire into
or examine any particular deposit or investment
with any banking institution or non-bank financial
institution upon order of any competent court in
cases of violation of this Act, when it has been
established that there is probable cause that the
deposits or investments are related to an
unlawful activity as defined in §3(i) hereof or a
money laundering offence under §4 hereof.
• EXCEPT that no court order shall be required in
cases involving the ff.: (1) Kidnapping for
ransom; (2) certain violations of the
Comprehensive Dangerous Drugs Act (CDDA);
(3) Hijacking, destructive arson and murder.
• Republic v. Eugenio, Jr.: Although §11 of the
AMLA requires probable cause which is
determined by the court, the judge is not required
to personally examine under oath or affirmation
the complainant and the witnesses he may
produce, there being no seizure of persons or
property.

Philippine Deposit Insurance Corporation (PDIC) National Internal Revenue Code (NIRC)
Charter
• Notwithstanding any contrary provision of the
• The PDIC is authorized to exercise the powers of Bank Secrecy Act, the FCDA, or other special
a receiver, including the administration of the laws, the Commissioner is authorized to inquire
accounts of the distressed bank/corporation. into bank deposits and other related information
held by a financial institution of:
1. A decedent to determine his gross
estate
2. Any taxpayer who has filed an
application for compromise of his tax
liability
3. A specific taxpayer/s subject of a
request for the supply of tax
information from a foreign tax
authority pursuant to an international
convention or agreement on tax
matters to which the Philippines is a
signatory or a party of
51
Unclaimed Balances Law Foreign Currency Deposit Act (FCDA)
• Within the month of January of every odd year, • The ONLY EXCEPTION with respect to foreign
all banks shall forward to the Insular Treasurer a currency deposits is written permission of the
statement, under oath of their respective depositor.
managing officers: • In the cases of Van Twest v. CA and Chinabank
1. All credits and deposits held by them v. CA, the SC held that even third persons who
2. In favor of persons either: are not named in the account may such give
a. Known to be dead or permission so long as they prove that the funds
b. Who have not made therein belong to them. To reach this conclusion,
further deposits or the SC considered that it was not the intention of
withdrawals during the the lawmakers to perpetrate injustice when it
preceding 10 years or enacted the Bank Secrecy Law.
more
• The following details must be shown: (1) names
and last known address/es; (2) amount and date
of the outstanding credit or deposit; (3) date
when the person died, if known, or date of last
deposit/withdrawal; (4) interest due, if any.
DEAN JMGH | BANKING L AW | YAP, K.

Banking Law I (SYLLABUS 9)
Lending Operations
o Grant, Purpose and Requirement of Loans
§ General Banking Law, Sections 39 and 40
SECTION 39. Grant and Purpose of Loans and Other Credit Accommodations. — A bank shall
grant loans and other credit accommodations only in amounts and for the periods of time essential for
the effective completion of the operations to be financed. Such grant of loans and other credit
accommodations shall be consistent with safe and sound banking practices. (75a)
The purpose of all loans and other credit accommodations shall be stated in the application and in the
contract between the bank and the borrower. If the bank finds that the proceeds of the loan or other
credit accommodation have been employed, without its approval, for purposes other than those agreed
upon with the bank, it shall have the right to terminate the loan or other credit accommodation and
demand immediate repayment of the obligation. (77)
SECTION 40. Requirement for Grant of Loans or Other Credit Accommodations. — Before
granting a loan or other credit accommodation, a bank must ascertain that the debtor is capable of
fulfilling his commitments to the bank.
Toward this end, a bank may demand from its credit applicants a statement of their assets and
liabilities and of their income and expenditures and such information as may be prescribed by law or by
rules and regulations of Monetary Board to enable the bank to properly evaluate the credit application
which includes the corresponding financial statements submitted for taxation purposes to the Bureau of
Internal Revenue. Should such statements prove to be false or incorrect in any material detail, the bank
may terminate any loan or other credit accommodation granted on the basis of said statements and
shall have the right to demand immediate repayment or liquidation of the obligation.
In formulating rules and regulations under this Section, the Monetary Board shall recognize the peculiar
characteristics of microfinancing, such as cash flow-based lending to the basic sectors that are not
covered by traditional collateral. (76a)
Jurisprudence (Memory Buzzer)
(1) UCPB v. Ramos • UCPB against Teofilo C. Ramos
• UCPB granted loans to Zamboanga Development Corporation, with
Venicio Ramos, Sps. Teofilo Ramos, Sr. (Teofilo1) and Amelita Ramos
as sureties. For failure to pay, UCPB instituted an action for collection
against the sureties. After obtaining favorable judgment, a writ of
execution was applied for by UCPB. The bank’s litigation head assisted
the sheriff in levying by asking an appraiser to ascertain whether Sps.
Ramos had any leviable real and personal property. The appraiser
found a 400sqm land under the name of Teofilo C. Ramos (Teofilo2)
and Rebecca Ramos. Teofilo2 applied for a loan with UCPB on behalf
of Ramdustrial Corporation in order to participate in a bidding project of
San Miguel Corporation, that’s when Teofilo2 found out that his
property had been levied pursuant to UCPB’s case against Teofilo1.
UCPB advised Teofilo2 to file the necessary motion to cancel the
attachment, and assured the latter that the bank would not oppose the
motion. Subsequently, Teofilo2 applied for a loan with Planters
Development Bank to pay for the loan granted by UCPB, and the
former agreed thereto on the condition that UCPB would lift the
mortgage on Teofilo2’s property; apparently, the attachment was not
yet cancelled. Despite subsequent cancellation, Teofilo2 instituted an
action against UCPB for damages, alleging that he suffered anxiety (he
52
was also treated for high blood pressure in St. Luke’s).
• UCBP counters that it had no knowledge that there were 2 persons
with the name Teofilo Ramos, and that upon discovery of the
erroneous attachment, UCPB advised Teofilo2 to file the necessary
motion, which the latter belatedly did.
• Whether UCPB is liable.
• The SC ruled in the affirmative. First, in approving the loan of an
applicant, the bank concerns itself with proper information regarding its
debtors. UCPB is expected to ascertain and verify the identities of the
persons it transacts business with. Apparently, UCPB was more
concerned with the market value of the property when it met with the
appraiser, since it brushed aside the discrepancy as to the name of the
owner and the name of the surety. Second, UCPB knew that the
sureties to the loan granted were Sps. Teofilo Ramos, Sr. and Amelita
Ramos, these names were likewise specified in the writ of execution
issued by the lower court. Third, even when Teofilo2 informed UCPB
of the erroneous attachment, the latter failed to have the annotation
cancelled by the Register of Deeds. Fourth, Teofilo2, despite being
neither the loan applicant, surety, nor party to the case, nevertheless
had legal standing to sue since it was his property which was
erroneously attached, and he himself suffered anxiety. Hence, moral
damages may be awarded, but not exemplary damages since there
was no bad faith or malice on the part of UCPB.
(2) BDO-EPCI, Inc. • BDO against JAPRL Development Corporation, Rapid Forming
v. JAPRL Corporation, and Jose Arollado
Development • JAPRL defaulted in the payment of 4 trust receipts soon after the
approval of its loan with BDO. Moreover, it was found that JAPRL had
altered and falsified its financial statements – allegedly bloated its
sales revenues to post a big income from operations for the concerned
fiscal years to project itself as a viable investment. While BDO filed a
civil case for sum of money before the RTC of Makati, JAPRL filed
petitions for rehabilitation in the RTC of QC and of Laguna pursuant to
which stay orders were issued. The latter then moved to suspend the
proceedings of the civil case due to the petition for rehabilitation.
• JAPRL now claims that service of summons upon an administrative
officer is not among the list of authorized persons to receive summons
under Rule 14 §6.
• Whether suspension is proper.
• The SC ruled in the negative. First, BDO can use the finding of fraud
to move for the dismissal of the rehabilitation case since the protective
remedy of rehabilitation was never intended to be a refuge of a debtor
guilty of fraud. Second, under §40 of the General Banking Law,
“should such statements prove to be false or incorrect in any material
detail, the bank may terminate any loan or credit accommodation
granted on the basis of said statements and shall have the right to
demand immediate repayment or liquidation of the obligation.” Hence,
banks have the right to annul any credit accommodation or loan, and
demand the immediate payment thereof, from borrowers proven to be
guilty of fraud. Third, the prosecutor should investigate whether there
is probable cause to indict JAPRL for violation of §13 of the Trust
Receipts Law.
o Prohibited Transactions
§ General Banking Law, Sections 55.1(c), 55.1(d) and 55.2
DEAN JMGH | BANKING L AW | YAP, K.

SECTION 55. Prohibited Transactions. —
55.1. (c) Accept gifts, fees or commissions or any other form of remuneration in connection with the
approval of a loan or other credit accommodation from said bank;
(d) Overvalue or aid in overvaluing any security for the purpose of influencing in any way the actions of
the bank or any bank;
55.2. No borrower of a bank shall — (a) Fraudulently overvalue property offered as security for a loan
or other credit accommodation from the bank;
(b) Furnish false or make misrepresentation or suppression of material facts for the purpose of
obtaining, renewing, or increasing a loan or other credit accommodation or extending the period
thereof;
(c) Attempt to defraud the said bank in the event of a court action to recover a loan or other credit
accommodation; or
(d) Offer any director, officer, employee or agent of a bank any gift, fee, commission, or any other form
of compensation in order to influence such persons into approving a loan or other credit
accommodation application.
o Monetary Board Regulatory Authority
§ General Banking Law, Sections 41, 42, 43, 48, 49
SECTION 41. Unsecured Loans or Other Credit Accommodations. — The Monetary Board is
hereby authorized to issue such regulations as it may deem necessary with respect to unsecured loans
or other credit accommodations that may be granted by banks. (n)
o Unsecured Loans – those without security.
o Colloquially known as “clean loans.”
SECTION 42. Other Security Requirements for Bank Credits. — The Monetary Board may, by
regulation, prescribe further security requirements to which the various types of bank credits shall be
subject, and, in accordance with the authority granted to it in Section 106 of the New Central Bank Act,
the Board may by regulation, reduce the maximum ratios established in Sections 36 and 37 of this Act,
or, in special cases, increase the maximum ratios established therein. (78)
SECTION 43. Authority to Prescribe Terms and Conditions of Loans and Other Credit
Accommodations. — The Monetary Board may, similarly, in accordance with the authority granted to
it in Section 106 of the New Central Bank Act, and taking into account the requirements of the
economy for the effective utilization of long-term funds, prescribe the maturities, as well as related
terms and conditions for various types of bank loans and other credit accommodations. Any change by
the Board in the maximum maturities shall apply only to loans and other credit accommodations made
after the date of such action.
The Monetary Board shall regulate the interest imposed on microfinance borrowers by lending
investors and similar lenders, such as, but not limited to, the unconscionable rates of interest collected
on salary loans and similar credit accommodations. (78a)
SECTION 48. Renewal or Extension of Loans and Other Credit Accommodations. — The
Monetary Board may, by regulation, prescribe the conditions and limitations under which a bank may
grant extensions or renewals of its loans and other credit accommodations. (81)
53
SECTION 49. Provisions for Losses and Write-Offs. — All debts due to any bank on which interest
is past due and unpaid for such period as may be determined by the Monetary Board, unless the same
are well-secured and in the process of collection shall be considered bad debts within the meaning of
this Section.
§ New Central Bank Act, Section 106.
SECTION 106. Required Security Against Bank Loans. — In order to promote liquidity and solvency
of the banking system, the Monetary Board may issue such regulations as it may deem necessary with
respect to the maximum permissible maturities of the loans and investments which the banks may
make, and the kind and amount of security to be required against the various types of credit operations
of the banks.
o Development Assistance Incentives
§ General Banking Law, Section 46
SECTION 46. Development Assistance Incentives. — The Bangko Sentral shall provide incentives
to banks which, without government guarantee, extend loans to finance educational institutions,
cooperatives, hospitals and other medical services, socialized or low-cost housing, local government
units and other activities with social content. (n)
o Disclosure Requirements
§ Truth in Lending Act
June 22, 1963
REPUBLIC ACT NO. 3765
AN ACT TO REQUIRE THE DISCLOSURE OF FINANCE CHARGES IN CONNECTION WITH
EXTENSIONS OF CREDIT
SECTION 1. This Act shall be known as the "Truth in Lending Act."
SECTION 2. Declaration of Policy. — It is hereby declared to be the policy of the State to protect its
citizens from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of
such cost with a view of preventing the uninformed use of credit to the detriment of the national
economy. cdtai
SECTION 3. As used in this Act, the term —
(1) "Board" means the Monetary Board of the Central Bank of the Philippines.
(2) "Credit" means any loan, mortgage, deed of trust, advance, or discount; any conditional sales
contract; any contract to sell, or sale or contract of sale of property or services, either for present or
future delivery, under which part or all of the price is payable subsequent to the making of such sale or
contract; any rental-purchase contract; any contract or arrangement for the hire, bailment, or leasing of
property; any option, demand, lien, pledge, or other claim against, or for the delivery of, property or
money; any purchase, or other acquisition of, or any credit upon the security of, any obligation or claim
arising out of any of the foregoing; and any transaction or series of transactions having a similar
purpose or effect.
(3) "Finance charge" includes interest, fees, service charges, discounts, and such other charges
incident to the extension of credit as the Board may by regulation prescribe.
DEAN JMGH | BANKING L AW | YAP, K.

(4) "Creditor" means any person engaged in the business of extending credit (including any person
who as a regular business practice makes loans or sells or rents property or services on a time, credit,
or installment basis, either as principal or as agent) who requires as an incident to the extension of
credit, the payment of a finance charge.
(5) "Person" means any individual, corporation, partnership, association, or other organized group of
persons, or the legal successor or representative of the foregoing, and includes the Philippine
Government or any agency thereof, or any other government, or any of its political subdivisions, or any
agency of the foregoing.
SECTION 4. Any creditor shall furnish to each person to whom credit is extended, prior to the
consummation of the transaction, a clear statement in writing setting forth, to the extent applicable and
in accordance with rules and regulations prescribed by the Board, the following information:
(1) the cash price or delivered price of the property or service to be acquired;
(2) the amounts, if any, to be credited as down payment and/or trade-in;
(3) the difference between the amounts set forth under clauses (1) and (2); cd
(4) the charges, individually itemized, which are paid or to be paid by such person in connection with
the transaction but which are not incident to the extension of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance bears to the total amount to be financed expressed as a simple
annual rate on the outstanding unpaid balance of the obligation.
SECTION 5. The Board shall prescribe such rules and regulations as may be necessary or proper in
carrying out the provisions of this Act. Any rule or regulation prescribed hereunder may contain such
classifications and differentiations as in the judgment of the Board are necessary or proper to
effectuate the purposes of this Act or to prevent circumvention or evasion, or to facilitate the
enforcement of this Act, or any rule or regulation issued thereunder.
SECTION 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any
person any information in violation of this Act or any regulation issued thereunder shall be liable to
such person in the amount of P100 or in an amount equal to twice the finance charges required by
such creditor in connection with such transaction, whichever is the greater, except that such liability
shall not exceed P2,000 on any credit transaction. Action to recover such penalty may be brought by
such person within one year from the date of the occurrence of the violation, in any court of competent
jurisdiction. In any action under this subsection in which any person is entitled to a recovery, the
creditor shall be liable for reasonable attorney's fees and court costs as determined by the court.
(b) Except as specified in subsection (a) of this section, nothing contained in this Act or any regulation
contained in this Act or any regulation thereunder shall affect the validity or enforceability of any
contract or transaction.
(c) Any person who wilfully violates any provision of this Act or any regulation issued thereunder shall
be fined by not less than P1,000 or more than P5,000 or imprisonment for not less than 6 months, nor
more than one year or both.
(d) No punishment or penalty provided by this Act shall apply to the Philippine Government or any
agency or any political subdivision thereof.
(e) A final judgment hereafter rendered in any criminal proceeding under this Act to the effect that a
defendant has wilfully violated this Act shall be prima facie evidence against such defendant in an
action or proceeding brought by any other party against such defendant under this Act as to all matters
54
respecting which said judgment would be an estoppel as between the parties thereto.
SECTION 7. This Act shall become effective upon approval.
Approved: June 22, 1963
Published in the Official Gazette, Vol. 59, No. 51, p. 8736 on December 23, 1963
Jurisprudence (Memory Buzzer)
(3) New Sampaguita • New Sampaguita Builders Construction, Inc. (NSBCI) and Sps.
Builders v. PNB Eduardo and Arcelita Dee against PNB
• NSBCI, through Sps. Dee, obtained a PHP8,000,000 loan from PNB.
The loan was secured by promissory notes, credit agreements, and
disclosure agreements. NSBCI defaulted, and sent a letter to PNB
requesting for a 90-day extension for the payment of interests and
restructuring of its loan for another term. After paying around
PHP2,000,000, PNB wrote to NSCBI informing the latter that the total
balance is around PHP4,000,000 representing PHP1,000,000 as
principal, PHP3,000,000 as interests and penalties, and PHP50,000 for
insurance. NSBCI again defaulted so PNB had an extrajudicial sale of
the properties mortgaged. PNB was the highest bidder therein for
PHP10,000,000, but now claims the deficiency since the total amount
owed was PHP12,000,000. The lower court, however, did not grant the
deficiency amount due to the debt relief package granted to NSBCI.
• Whether PNB is liable.
• The SC ruled in the affirmative. First, the two credit agreements
considered by this Court, did not provide for any increase in the
specified interest rates. Thus, none would now be permitted. Second,
no penalty charges or increases thereof appear either in the Disclosure
Statements or in any of the clauses in the second and the third Credit
Agreements. Third, there is no stipulation in the promissory notes that
would justify any increase in the aforementioned penalties and
charges. Fourth, the effect, therefore, when the borrower is not clearly
informed of the Disclosure Statements -- prior to the consummation of
the availment or drawdown -- is that the lender will have no right to
collect upon such charge or increases thereof, even if stipulated in the
Notes. Fifth, the provision in the Mortgage that requires the payment of
insurance and other charges is neither made part of nor reflected in
such Notes, Agreements, or Statements. To summarize, to give full
force to the Truth in Lending Act, only the interest rates of 19.5 percent
and 21.5 percent stipulated in the Promissory Notes may be imposed
by respondent on the respective availments.
(4) Sps. Silos v. • Sps. Eduardo and Lydia Silos against PNB
PNB • Sps. Silos own a department store, and are engaged in the buying and
selling of ready-to-wear apparel. To secure a revolving credit line
obtained from PNB, they executed a real estate mortgage over their lot
in Kalibo, Aklan. In a supplement thereto, they mortgaged another lot.
They likewise issued 8 promissory notes and signed a credit
agreement. The agreement stated that the borrower agrees that the
bank may modify the interest rate in the loan depending on whatever
policy the bank may adopt in the future, and that the bank may, without
need of notice to the borrower, increase or decrease its spread over
the floating interest rate at any time. An amendment to the credit
agreement contained a provision wherein the borrowers agree to pay
interest at the rate per annum which is determined by the bank to be
the prime rate plus applicable spread in effect as of the date of each
availment. Their loan ballooned since the subject promissory notes
DEAN JMGH | BANKING L AW | YAP, K.

were subjected to interest rates ranging from 16% to 26%. Sps. Silos
defaulted, so the bank foreclosed on the mortgaged properties. Sps.
Silos now seek the annulment of the foreclosure sale, and
reimbursement of overpayment since, according to them, the interest
rate should only be 19.5% as agreed, and the bank could not
unilaterally increase the interest rate.
• PNB argues that Sps. Silos are estopped by their failure to question
the imposed rates and their continued payment thereof without
opposition.
• Whether the bank is liable.
• The SC ruled in the affirmative. First, PNB’s practice of providing the
subject stipulations have been struck down by the Court in a number of
decided cases for being in violation of Art. 1308 of the Civil Code. It is
basic that there can be no true contract in the absence of the element
of agreement, or of mutual assent of the parties. Similarly, contract
changes must be made with the consent of the contracting parties. In
the case of loan contracts, it cannot be gainsaid that the rate of interest
is always a vital component, for it can make or break a capital venture.
Second, Sps. Silos never agreed in writing to pay the interest rates
demanded by PNB in contravention to the tenor of their credit
agreement. What has been “stipulated in writing” is that Sps. Silos
were bound merely to pay 21% interest, subject to a possible
escalation or de-escalation when: (1) the circumstances so warrant (2)
within the limits allowed by law and (3) upon agreement. Third, the
rationale of the provision in the Civil Code is to protect users of credit
from a lack of awareness of the true cost thereof, proceeding from the
experience that banks are able to conceal such true cost by hidden
charges, uncertainty of interest rates, deduction of interests from the
loaned amount, and the like. Hence, the provisions are declared void
for violating the principle of mutuality. Sps. Silos are entitled to
reimbursement.
o Terms and Conditions
§ Amortization -- General Banking Law, Section 44
SECTION 44. Amortization on Loans and Other Credit Accommodations. — The amortization
schedule of bank loans and other credit accommodations shall be adapted to the nature of the
operations to be financed.
In case of loans and other credit accommodations with maturities of more than five (5) years,
provisions must be made for periodic amortization payments, but such payments must be made at
least annually: Provided, however, That when the borrowed funds are to be used for purposes which
do not initially produce revenues adequate for regular amortization payments therefrom, the bank may
permit the initial amortization payment to be deferred until such time as said revenues are sufficient for
such purpose, but in no case shall the initial amortization date be later than five (5) years from the date
on which the loan or other credit accommodation is granted. (79a)
In case of loans and other credit accommodations to microfinance sectors, the schedule of loan
amortization shall take into consideration the projected cash flow of the borrower and adopt this into
the terms and conditions formulated by banks. (n)
§ Prepayment -- General Banking Law, Section 45
SECTION 45. Prepayment of Loans and Other Credit Accommodations. — A borrower may at any
time prior to the agreed maturity date prepay, in whole or in part, the unpaid balance of any bank loan
and other credit accommodation, subject to such reasonable terms and conditions as may be agreed
55
upon between the bank and its borrower. (80a)
o The problem with prepayment is that the bank will have to run the risk of looking for something to
put (ie., invest) the money in.
§ Interest – Civil Code, Article 1956
ARTICLE 1956. No interest shall be due unless it has been expressly stipulated in writing. (1755a)
• Usury
Jurisprudence (Memory Buzzer)
(5) Advocates for • Advocates for Truth in Lending (AFTIL) against Monetary Board
Truth in Lending • AFTIL assails Central Bank Circular No. 905 which provides that “the
v. Monetary rate of interest…of any money, goods, or credits…shall not be subject
Board to any ceiling prescribed or under or pursuant to the Usury Law, as
amended.” AFTIL argues that (1) the Monetary Board was authorized
Class Discussion: only to prescribe or set the maximum rates of interest for a loan or
When the state puts a renewal thereof or for the forbearance of any money, goods or credits,
ceiling, you cannot and to change such rates whenever warranted (2) nothing in PD 1684
raise it beyond that, so authorized the Monetary Board to lift or suspend the limits of interest
it affects the market. on all credit transactions (3) CB Circular No. 905 was promulgated
Hence, it was lifted. without public hearing, which is void under Art. 5 of the New Civil Code
and under §1 of the Bill of Rights. (4) just weeks after the issuance of
The law was the circular, the benchmark 91-day treasury bills (aka the Jobo bills)
expanded to allow shot up to 40% per annum, and banks immediately followed suit and
BSP to control the re-priced their loans to rates which were even higher (5) the BSP
ceiling with respect to charter did not re-enact a provision similar to the Central Bank charter,
ALL TYPES of loans hence the Monetary Board has been stripped of the power either to
or forbearances of prescribe the maximum rates or to suspend the same.
money. • Whether CB Circular No. 905 is constitutional.
• The SC ruled in the affirmative. First, the Monetary Board performs
Although there is executive functions, not judicial or quasi-judicial functions. Hence,
currently no ceiling, certiorari will not lie to question the circular. Second, in the absence of
the parties still cannot transcendental importance, the direct injury test will apply. Here, AFTIL
impose did not allege that they themselves sustained any personal injury from
unconscionable the issuance of the circular, neither did they allege that they were
interest rates. borrowers who were actually suspended by the suspension of the
Usury Law. Third, the Central Bank’s power to suspend the Usury Law
If you do, then that has long been upheld in many cases. Circular No. 905 did not repeal
condition will be nor in any way ament the Usury Law, but simply suspended the latter’s
avoided, and it shall effectivity – made it legally non-existent in our jurisdiction. What the
be deemed as if no circular had done is to uphold the parties’ freedom of contract to agree
interest rate was freely on the rate of interest. Fourth, there is no repeal or amendment
charged. since the earlier law covered only loans extended by banks, whereas
under the Usury Law, the Monetary Board may prescribe the maximum
rate of interest for all loans or renewals thereof. The current circular
relates to rates for different types of borrowings, including deposits and
deposit substitutes, or loans of financial intermediaries. Repeals by
implication are not favored. Fifth, the suspension of the Usury Law
does not grant lenders a carte blanche authority to raise interest rates
to levels which will either enslave their borrowers or lead to a
hemorrhaging of their assets. The courts still strike these down as
contrary to morals, if not against the law.
• Elements of Judicial Inquiry
1. Raised by the proper party
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2. Actual case or controversy
3. Raised at earliest possible opportunity
4. Decision on the constitutional or legal question must be
necessary to the determination of the case itself
• Requirements for Legal Standing
1. Case involves constitutional issues
2. For taxpayers, there must be a claim of illegal disbursement
of public funds or that the tax measure is unconstitutional
3. For voters, there must be a showing of obvious interest in
the validity of the election law in question
4. For concerned citizens, there must be a showing that the
issues raised are of transcendental importance which must
be settled early
5. For legislators, there must be a claim that the official action
complained of infringes upon their prerogratives as
legislators
(6) Bulos, Jr. v. • Honorio Bulos, Jr. against Koji Yasuma
Yasuma • The original loan obtained by Bulos, Jr., together with Dr. Lim and Atty.
Tabalingcos, from Yasuma, amounted to PHP2,500,000 with 4%
Class Discussion: interest for 3 months, and in case of extension, the interest of 5% per
When is a rate month will be imposed. Bulos, Jr. failed to pay, and the loan obligation,
“unconscionable?” It including interest, reached a total of PHP2,700,000. A partial payment
depends on the via dacion en pago was deducted. Thereafter, the balance began
circumstances. For earning 5% interest per month. The check issued by Atty. Tabalingcos
banks, for example, was dishonored, hence Yasuma filed a complaint for collection of the
they involve credit debt due.
evaluations.
• Bulos, Jr. argues that the obligation was extinguished when he offered
to pay Yasuma with shares of stock of the Rural Bank of Parañaque,
So long as lenders do which Yasuma rejected. Moreover, that the rate of interest is
not raise interest rates unconscionable.
to levels which will • Whether Bulos, Jr. is liable.
either enslave their • The SC ruled in the affirmative, but reduced the interest rate to 12%
borrowers or lead to a per annum. First, the obligation was not extinguished because the
haemorrhaging of their offer of Bulos, Jr. could not be accepted by Yasuma since shares of
assets Rural Banks may not be owned by foreigners, the capital stock of any
rural bank is required to be fully owned and held directly or indirectly by
citizens of the Philippines. Second, the interest rate of 4% per month
or 48% per annum is unconscionable and must be mitigated. Following
established jurisprudence, the legal interest rate of 12% should apply,
computed from the date of judicial demand. The suspension of the
Usury Law did not grant lenders carte blanche authority to raise
interest rates to levels which will either enslave their borrowers or lead
to a haemorrhaging of their assets. Third, 20% as attorney’s fees is
reasonable, and the discrepancy (20% in ratio, 10% in fallo) is merely a
typographical error. The general rule is that the fallo controls, except
where the inevitable conclusion form the body of the decision is so
clear as to show that there was a mistake in the fallo, the body of the
decision prevails.
(7) Bacolor v. Banco • Sps. Zacarias and Catherine Bacolor against Banco Filipino and
Filipino Marcelino Bonuan
• Sps. Bacolor loaned PHP244,000 from Banco Filipino. They executed
a promissory note payable within a period of 10 years, the amount
being subject to 24% interest per annum, 3% penalty charge, 10%
attorney’s fees and 15% as liquidated damages. Due to default, Banco
Filipino instituted extra-judicial foreclosure of mortgage. Sps. Bacolor
now assail the 24% interest rate as unconscionable.
56
• Whether the 24% is unconscionable.
• The SC ruled in the negative. First, the parties agreed in writing that
the rate of interest shall be 24% per annum. Second, at the time the
parties entered into the loan transaction, the applicable law was the
Usury Law which provided that the interest shall not be more than 6%
per annum “or the maximum rate prescribed by the Monetary Board in
force at the time the loan was granted.” At that time, CB Circular No.
783 provided that loans with a maturity of more than 730 days shall not
be subject to any ceiling. Here, the 10-year loan is thus not subject to
any ceiling. Third, usury has been legally non-existent and interest can
now be charged as lender and borrower may agree upon. Absent any
evidence of fraud, undue influence, or any vice of consent exercised by
one party against the other, the interest rate agreed upon is binding
upon them.
• When no stipulation for interest is made – Civil Code,
Article 1956
ARTICLE 1956. No interest shall be due unless it has been expressly stipulated in writing. (1755a)
• Escalation Clause – one in which the contract fixes a base
price but contains a provision that in the event of specified
cost increases, the seller or contractor may increase the
price up to a fixed percentage of the base.
o Civil Code, Article 1308
ARTICLE 1308. The contract must bind both contracting parties; its validity or compliance cannot be
left to the will of one of them. (1256a)
Jurisprudence (Memory Buzzer)
(8) PNB v. CA • PNB against Ambrosio Padilla
• Padilla was granted a PHP321,800,000 loan by PNB, secured by a real
Class Discussion: estate mortgage for a term of 2 years with 18% interest per annum. In
What is proscribed is a Credit Agreement, Padilla greed to be bound by the rules and
for the bank to regulations of the Central Bank, and those which it may adopt in the
unilaterally increase future, which may have relation to or in any way affect the credit line.
the interest rate. Moreover, the promissory notes uniformly authorized PNB to increase
the stipulated 18% interest “within the limits allowed by law at any time
depending on whatever policy PNB may adopt in the future.”
Eventually, Padilla assailed PNB’s increase of the interest rate from
18% to 32%, then to 41%. After receiving Padilla’s letter-complaint,
PNB even increased the rate to 48%, like rubbing salt to Padilla’s
wound.
• Whether the bank, within the term of the loan, may unilaterally change
or increase the interest rate stipulated therein at will and as often as it
pleased.
• The SC ruled in the negative. First, at that time, the applicable law was
PD 116 which authorized the Monetary Board to prescribe the rates
and change such rates as needed, provided that such changes shall
not be made oftener than once very 12 months. Here, PNB within only
4 months, increased the 18% rate to 32%, to 41%, then to 48%.
Second, no law was ever passed within that time increasing the
interest rates on loans or renewals thereof, and no documents were
presented by PNB to effectuate the increases. Third, the unilateral
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increase is a violation of Art. 1308 of the Civil Code.
• Requirements for Escalation Clauses to be Valid
1. That there be an increase in interest if increased by law or
by the Monetary Board
2. It must include a provision for reduction of the stipulated
interest in the event that the applicable maximum rate of
interest is reduced by law or by the Monetary Board
(9) Llorin, Jr. v. CA • Irineo Llorin, Jr. against Apex Mortgage and Loans Corporations
• Irineo Llorin, Jr. obtained a PHP84,410 loan from Apex, secured by a
real estate mortgage, and payable in 240 installments with interest of
12% per annum, 3% service charge, and 12% penalty charge. It
contained an escalation clause wherein Apex may increase the interest
and service charge without notice, in the event of a law or any
applicable PD or CB regulation. Pursuant thereto, Apex increased the
rate from 12% to 21%, to 25%, to 36%. Despite the absence of a de-
escalation clause, Apex unilaterally decreased the rate from 36% to
28% to 24% to 21%. When Apex demanded payment and filed the
instant complaint, Llorin, Jr. assailed the escalation clause for being
void.
• Whether the escalation clause was valid.
• The SC ruled in the affirmative. First, escalation clauses have been
recognized in this jurisdiction. For validity, it is required that (1) there
be an increase in interest if increased by law or by the Monetary Board
and (2) it must include a provision for reduction of the stipulated
interest in the event that the applicable maximum rate of interest is
reduced by law or by the Monetary Board. Second, the general rule is
that in the absence of a de-escalation clause, the escalation clause
shall be null and void. However, considering that notwithstanding the
absence of such stipulation, Apex unilaterally and actually decreased
the interest charges it imposed on Llorin, Jr., the escalation clause thus
remains valid and enforceable since the evil proscribed by PD 1684
(ie., that the parties do not stand on equal footing) is not present.
• Floating rate – a base rate or a reference rate (which
changes from time to time) plus a margin (ie., a certain
fixed percentage).
o Ex. If the BSP currently imposes 5% per annum
on 5-year notes, add your 5% margin which
totals it to 10% per annum. If BSP subsequently
increases the rate to 10%, then your total would
now be 15% per annum.
Jurisprudence (Memory Buzzer)
(10) Consolidated • Solidbank against Continental Cement Corporation, Gregory Lim
Bank v. CA and spouse
• Continental Cement and Gregory Lim obtained a letter of credit from
Class Discussion: Solidbank to purchase 500,000 liters of bunker fuel oil from Petrophil,
Floating rate is a base which Solidbank delivered directly to Continental in its Bulacan Plant.
rate or a reference Continental made a marginal deposit to pay for the letter of credit. A
rate trust receipt was executed therefor – it contained a provision that the
parties agree to any increase or decrease in the interest rate when the
central Bank floated the interest rate. Solidbank filed a complaint for
sum of money with application for preliminary attachment, claiming that
Continental failed to turn over the goods covered by the trust receipt or
the proceeds thereof.
57
• Continental argues that the transaction between them was a simple
loan and not a trust receipt, and that Solidbank failed to take into
account payments already made. Regarding interest, Solidbank argues
that the marginal deposit should be considered only after computing
the principal plus accrued interests and other charges.
• Whether the floating interest rates prescribed under the letter of credit
are proper.
• The SC ruled in the negative. First, while it may be acceptable for
practical reasons given the fluctuating economic conditions, for banks
to stipulate that interest rates on a loan not be be fixed and instead be
made dependent upon prevailing market conditions, there should
always be a reference rate upon which to peg such variable interest
rates. Second, unlike in Polotan, Sr. v. CA, where the new interest rate
shall be based on the prevailing market rates, here the stipulation
ostensibly signifying an agreement to “any increase or decrease in the
interest rate” without more, cannot be accepted as valid for it leaves
solely to the creditor the determination of what interest rate to charge
against an outstanding loan.
• Extraordinary Inflation/Deflation – exists when there is an
unusual decrease/increase (respectively) in the purchasing
power of currency and such decrease could not be
reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the obligation.
o Civil Code, Article 1250
ARTICLE 1250. In case an extraordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of the establishment of the obligation shall be the
basis of payment, unless there is an agreement to the contrary. (n)
Jurisprudence (Memory Buzzer)
(11) Equitable PCI • Equitable against Ng Sheung Ngor, Ken Marketing, Ken Appliance
Bank v. Ng Division, and Benjamin Go
Sheung Ngor • Ng Sheung Ngor, et. al. filed an action for annulment and/or
reformation of documents and contracts against Equitable.
• Ng Sheung Ngor, et. al. claim that Equitable induced them to avail of
its peso and dollar credit facilities by offering low interest rates, but that
they were not made aware that the documents contained identical
escalation clauses granting Equitable authority to increase interest
rates without their consent.
• Equitable counters that Ng Sheung Ngor, et. al. knowingly accepted all
the terms and conditions in the promissory notes, in fact they
continuously availed of and benefited from the credit facilities for 5
years.
• Whether there was an extraordinary inflation which would relieve Ng
Sheung Ngor, et. al. from their obligation to pay interest.
• The SC ruled in the negative. First, escalation clauses are not void per
se. However, one which grants the creditor an unbridled right to adjust
the interest independently and upwardly, completely depriving the
debtor of the right to assent to an important modification in the
agreement is void. Here, equitable dictated the interest rates if the term
of the loan was extended. Hence, this was a violation of Art. 1309 of
the Civil Code. Second, extraordinary inflation exists when there is an
unusual decrease/increase (respectively) in the purchasing power of
DEAN JMGH | BANKING L AW | YAP, K.

currency and such decrease could not be reasonably foreseen or was
manifestly beyond the contemplation of the parties at the time of the
obligation. Extraordinary deflation, on the other hand, involves an
inverse situation. Here, despite the devaluation of the peso, the BSP
never declared a situation of extraordinary inflation. Moreover,
although the obligation here arose out of a contract, the parties did not
agree to recognize that there was such a stipulation either in the
promissory note or loan agreement. Therefore, Ng Sheung Ngor, et. al.
should pay their dollar-denominated loans at the exchange rate fixed
by the BSP on the date of maturity.
• Requisites for Extraordinary Inflation/Deflation to Affect an Obligation:
1. That there was an official declaration of extraordinary
inflation or deflation from the BSP
2. That the obligation was contractual in nature
3. That the parties expressly agreed to consider the effects of
the extraordinary inflation or deflation
• Single Borrower’s Limit (SBL)
o General Banking Law, Sections 35.1, 35.2, 35.3, 35.4, 35.5, 35.6, 35.7
SECTION 35. Limit on Loans, Credit Accommodations and Guarantees. —
35.1. Except as the Monetary Board may otherwise prescribe for reasons of national interest, the total
amount of loans, credit accommodations and guarantees as may be defined by the Monetary Board
that may be extended by a bank to any person, partnership, association, corporation or other entity
shall at no time exceed twenty percent (20%) of the net worth of such bank. The basis for determining
compliance with single-borrower limit is the total credit commitment of the bank to the borrower.
35.2. Unless the Monetary Board prescribes otherwise, the total amount of loans, credit
accommodations and guarantees prescribed in the preceding paragraph may be increased by an
additional ten percent (10%) of the net worth of such bank provided the additional liabilities of any
borrower are adequately secured by trust receipts, shipping documents, warehouse receipts or other
similar documents transferring or securing title covering readily marketable, non-perishable goods
which must be fully covered by insurance.
35.3. The above prescribed ceilings shall include: (a) the direct liability of the maker or acceptor of
paper discounted with or sold to such bank and the liability of a general indorser, drawer or guarantor
who obtains a loan or other credit accommodation from or discounts paper with or sells papers to such
bank; (b) in the case of an individual who owns or controls a majority interest in a corporation,
partnership, association or any other entity, the liabilities of said entities to such bank; (c) in the case of
a corporation, all liabilities to such bank of all subsidiaries in which such corporation owns or controls a
majority interest; and (d) in the case of a partnership, association or other entity, the liabilities of the
members thereof to such bank.
35.4. Even if a parent corporation, partnership, association, entity or an individual who owns or controls
a majority interest in such entities has no liability to the bank, the Monetary Board may prescribe the
combination of the liabilities of subsidiary corporations or members of the partnership, association,
entity or such individual under certain circumstances, including but not limited to any of the following
situations: (a) the parent corporation, partnership, association, entity or individual guarantees the
repayment of the liabilities; (b) the liabilities were incurred for the accommodation of the parent
corporation or another subsidiary or of the partnership or association or entity or such individual; or (c)
the subsidiaries though separate entities operate merely as departments or divisions of a single entity.
35.5. For purposes of this Section, loans, other credit accommodations and guarantees shall exclude:
(a) loans and other credit accommodations secured by obligations of the Bangko Sentral or of the
Philippine Government; (b) loans and other credit accommodations fully guaranteed by the government
as to the payment of principal and interest; (c) loans and other credit accommodations covered by
58
assignment of deposits maintained in the lending bank and held in the Philippines; (d) loans, credit
accommodations and acceptances under letters of credit to the extent covered by margin deposits; and
(e) other loans or credit accommodations which the Monetary Board may from time to time, specify as
non-risk items.
35.6. Loans and other credit accommodations, deposits maintained with, and usual guarantees by a
bank to any other bank or non-bank entity, whether locally or abroad, shall be subject to the limits as
herein prescribed.
35.7. Certain types of contingent accounts of borrowers may be included among those subject to these
prescribed limits as may be determined by the Monetary Board. (23a)
o The principle herein is that it is too risky for a bank to loan out all its money to a single borrower. If
that borrower fails to pay, then the bank would be in distress.
o Can a bank lend more than 20%? Yes, so long as the bank is given security for the risk.
o Can a bank lend more than 30%? Yes, since the loans under §35.5 are not risky for the bank
since if the borrower does not pay, the government will pay. (Ie., non-risk assets)
• DOSRI
o General Banking Law Section 36
SECTION 36. Restriction on Bank Exposure to Directors, Officers, Stockholders and Their
Related Interests. — No director or officer of any bank shall, directly or indirectly, for himself or as the
representative or agent of others, (1) borrow from such bank nor shall he (2) become a guarantor,
indorser or surety for loans from such bank to others, or (3) in any manner be an obligor or incur any
contractual liability to the bank except with the written approval of the majority of all the directors of the
bank, excluding the director concerned: Provided, That such written approval shall not be required for
loans, other credit accommodations and advances granted to officers under a fringe benefit plan
approved by the Bangko Sentral. The required approval shall be entered upon the records of the bank
and a copy of such entry shall be transmitted forthwith to the appropriate supervising and examining
department of the Bangko Sentral.
Dealings of a bank with any of its directors, officers or stockholders and their related interests shall be
upon terms not less favorable to the bank than those offered to others.
After due notice to the board of directors of the bank, the office of any bank director or officer who
violates the provisions of this Section may be declared vacant and the director or officer shall be
subject to the penal provisions of the New Central Bank Act.
The Monetary Board may regulate the amount of loans, credit accommodations and guarantees that
may be extended, directly or indirectly, by a bank to its directors, officers, stockholders and their related
interests, as well as investments of such bank in enterprises owned or controlled by said directors,
officers, stockholders and their related interests. However, the outstanding loans, credit
accommodations and guarantees which a bank may extend to each of its stockholders, directors, or
officers and their related interests, shall be limited to an amount equivalent to their respective
unencumbered deposits and book value of their paid-in capital contribution in the bank: Provided,
however, That loans, credit accommodations and guarantees secured by assets considered as non-
risk by the Monetary Board shall be excluded from such limit: Provided, further, That loans, credit
accommodations and advances to officers in the form of fringe benefits granted in accordance with
rules as may be prescribed by the Monetary Board shall not be subject to the individual limit.
The Monetary Board shall define the term "related interests."
The limit on loans, credit accommodations and guarantees prescribed herein shall not apply to loans,
credit accommodations and guarantees extended by a cooperative bank to its cooperative
shareholders. (83a)
o Example of fringe benefit not subject to the prohibition: (1) car loan (2) housing loan.
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o For a DOSRI to borrow more than the limit, he must give a non-risk asset as security.

o New Central Bank Act Section 26

SECTION 26. Bank Deposits and Investments. — Any director, officer or stockholder who, together
with his related interest, contracts a loan or any form of financial accommodation from: (1) his bank; or
(2) from a bank (a) which is a subsidiary of a bank holding company of which both his bank and the
lending bank are subsidiaries or (b) in which a controlling proportion of the shares is owned by the
same interest that owns a controlling proportion of the shares of his bank, in excess of five percent
(5%) of the capital and surplus of the bank, or in the maximum amount permitted by law, whichever is
lower, shall be required by the lending bank to waive the secrecy of his deposits of whatever nature in
all banks in the Philippines. Any information obtained from an examination of his deposits shall be held
strictly confidential and may be used by the examiners only in connection with their supervisory and
examination responsibility or by the Bangko Sentral in an appropriate legal action it has initiated
involving the deposit account.

59 DEAN JMGH | BANKING L AW | YAP, K.


Banking Law I (SYLLABUS 10)
Lending Operations
• Collateral/Security
o Unsecured Loans – General Banking Law, Section 41
SECTION 41. Unsecured Loans or Other Credit Accommodations. — The Monetary Board is
hereby authorized to issue such regulations as it may deem necessary with respect to unsecured loans
or other credit accommodations that may be granted by banks. (n)
o Colloquially known as “clean loans.”
o Joint and Solidary Signature
§ Civil Code Article 2047 and 1207-1225
ARTICLE 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title
I of this Book shall be observed. In such case the contract is called a suretyship. (1822a)
o Colloquially known as “credit enhancements” or “carrot” or “sweetener.”
SECTION 4: Joint and Solidary Obligations
ARTICLE 1207. The concurrence of two or more creditors or of two or more debtors in one and the
same obligation does not imply that each one of the former has a right to demand, or that each one of
the latter is bound to render, entire compliance with the prestation. There is a solidary liability only
when the obligation expressly so states, or when the law or the nature of the obligation requires
solidarity. (1137a)
ARTICLE 1208. If from the law, or the nature or the wording of the obligations to which the preceding
article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as
many shares as there are creditors or debtors, the credits or debts being considered distinct from one
another, subject to the Rules of Court governing the multiplicity of suits. (1138a)
ARTICLE 1209. If the division is impossible, the right of the creditors may be prejudiced only by their
collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of the
latter should be insolvent, the others shall not be liable for his share. (1139)
ARTICLE 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does
solidarity of itself imply indivisibility. (n)
ARTICLE 1211. Solidarity may exist although the creditors and the debtors may not be bound in the
same manner and by the same periods and conditions. (1140)
ARTICLE 1212. Each one of the solidary creditors may do whatever may be useful to the others, but
not anything which may be prejudicial to the latter. (1141a)
ARTICLE 1213. A solidary creditor cannot assign his rights without the consent of the others. (n)
ARTICLE 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or
extrajudicial, has been made by one of them, payment should be made to him. (1142a)
ARTICLE 1215. Novation, compensation, confusion or remission of the debt, made by any of the
60
solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice
to the provisions of article 1219.
The creditor who may have executed any of these acts, as well as he who collects the debt, shall be
liable to the others for the share in the obligation corresponding to them.
ARTICLE 1216. The creditor may proceed against any one of the solidary debtors or some or all of
them simultaneously. The demand made against one of them shall not be an obstacle to those which
may subsequently be directed against the others, so long as the debt has not been fully collected.
(1144a)
ARTICLE 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or
more solidary debtors offer to pay, the creditor may choose which offer to accept.
He who made the payment may claim from his co-debtors only the share which corresponds to each,
with the interest for the payment already made. If the payment is made before the debt is due, no
interest for the intervening period may be demanded.
When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor
paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each.
(1145a)
ARTICLE 1218. Payment by a solidary debtor shall not entitle him to reimbursement from his co-
debtors if such payment is made after the obligation has prescribed or become illegal. (n)
ARTICLE 1219. The remission made by the creditor of the share which affects one of the solidary
debtors does not release the latter from his responsibility towards the co-debtors, in case the debt had
been totally paid by anyone of them before the remission was effected. (1146a)
ARTICLE 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does
not entitle him to reimbursement from his co-debtors. (n)
ARTICLE 1221. If the thing has been lost or if the prestation has become impossible without the fault
of the solidary debtors, the obligation shall be extinguished.
If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price
and the payment of damages and interest, without prejudice to their action against the guilty or
negligent debtor.
If through a fortuitous event, the thing is lost or the performance has become impossible after one of
the solidary debtors has incurred in delay through the judicial or extrajudicial demand upon him by the
creditor, the provisions of the preceding paragraph shall apply. (1147a)
ARTICLE 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses
which are derived from the nature of the obligation and of those which are personal to him, or pertain
to his own share. With respect to those which personally belong to the others, he may avail himself
thereof only as regards that part of the debt for which the latter are responsible. (1148a)
SECTION 5: Divisible and Indivisible Obligations
ARTICLE 1223. The divisibility or indivisibility of the things that are the object of obligations in which
there is only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of
this Title.
ARTICLE 1224. A joint indivisible obligation gives rise to indemnity for damages from the time anyone
of the debtors does not comply with his undertaking. The debtors who may have been ready to fulfill
their promises shall not contribute to the indemnity beyond the corresponding portion of the price of the
thing or of the value of the service in which the obligation consists. (1150)
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ARTICLE 1225. For the purposes of the preceding articles, obligations to give definite things and those
which are not susceptible of partial performance shall be deemed to be indivisible.
When the obligation has for its object the execution of a certain number of days of work, the
accomplishment of work by metrical units, or analogous things which by their nature are susceptible of
partial performance, it shall be divisible.
However, even though the object or service may be physically divisible, an obligation is indivisible if so
provided by law or intended by the parties.
In obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation
in each particular case. (1151a)
Jurisprudence (Memory Buzzer)
(1) Security Bank v. • Security Bank against Rodulfo M. Cuenca
Cuenca • Sta. Ines Melale Corporation (SIMC) is a logging corporation with a
timber license. In 1980, it obtained a loan from Security Bank in order
to meet the additional capitalization requirements for its logging
operations. For the loan, SIMC executed a chattel mortgage over its
machineries. Rodulfo Cuenca also executed an indemnity agreement
in favor of Security Bank where he bound himself jointly and severally
with SIMC in favor of the bank for payment, upon demand and without
the benefit of excussion. In 1989, SIMC obtained a restructuring of its
loan with Security Bank due to difficulty in payment. SIMC defaulted so
Security Bank filed a collection case, wherein Cuenca was held
solidarily liable with SIMC. The CA, however, reversed.
• Security Bank now argues that the 1989 agreement did not novate the
1980 agreement, and that the 1989 agreement was not more onerous.
Hence, Cuenca should still be liable for his indemnity agreement under
the 1980 agreement.
• Cuenca relies on the CA ruling that there was a novation.
• Whether Cuenca is still solidarily liable with SIMC.
• The SC ruled in the negative. First, there was a novation since it was
explicit that the purpose of the 1989 agreement was “to liquidate the
principal and the interest of the earlier indebtedness” of SIMC.
Second, since there was a novation, Cuenca was released from his
liability as surety when the novation was effected without notice to him.
It is fundamental in the law of suretyship that any agreement between
the creditor and the principal debtor which essentially varies the terms
of the principal contract, without the consent of the surety, will release
the surety from liability. Third, the reason why Cuenca’s JSS (joint and
solidary signature) was placed was due to the common banking
practice requiring such signature of a major stockholder or corporate
officer, as an additional security for loans granted to corporations.
Here, however, Cuenca was no longer connected with SIMC when the
loan was restructured by the 1989 agreement. Hence, he is not liable.
(2) Sps. Ong v. • Sps. Alfredo and Susana Ong against PCIB
PCIB • Sps. Ong were president and treasurer of Baliwag Mahogany
Corporation (BMC) which was engaged in the manufacture and export
of wood products. BMC obtained a loan from PCIB (now Equitable
PCIB) for additional capital. Sps. Ong acted as sureties for these loans
and issued 3 promissory notes for the purpose. Since BMC was
declared by the SEC to be in a state of suspension of payments, PCIB
declared BMC in default pursuant to a stipulation in the loan
agreement. PCIB filed the suit for collection against PCIB and Sps.
Ong. The latter filed a motion to dismissed the complaint.
61
• Sps. Ong argue that since the SEC declared BMC in a state of
suspension of payments, and since the consortium of creditor banks of
BMC agreed to temporarily suspend any pending civil action against
BMC, they are likewise barred from pursuing the collection case
against Sps. Ong. They likewise rely on the Civil Code which provides
that compromise between the creditors and principal debtor benefits
the guarantor and should not prejudice the latter, and that the
guarantor may set up defenses of the principal debtor, save those
personal to the latter.
• Whether Sps. Ong are liable.
• The SC ruled in the affirmative. First, the reliance on the Civil Code
provisions is misplaced since they apply only to guarantors, not
sureties. Second, under the suretyship contract entered into by Sps.
Ong with PCIB, they obligated themselves to be solidarily bound with
BMC for payment of the loan. Hence, under Art. 1216 of the Civil Code,
PCIB may directly proceed against Sps. Ong as sureties. Third, the
memorandum of agreement of the consortium of creditor banks of
BMC does not apply to Sps. Ong because the subject thereof are
properties of BMC only.
• Differences between guaranty and surety:
Guaranty Surety
Insures the solvency of the debtor Insures the debt itself
Gives rise to a subsidiary No benefit of excussion since the
obligation on the part of the surety is principally liable himself
guarantor; there is a benefit of
excussion (ie., exhaustion of
principal debtor’s properties).
o Loans Secured by Chattel/Intangibles
§ General Banking Law, Section 38
SECTION 38. Loans and Other Credit Accommodations on Security of Chattels and Intangible
Properties. — Except as the Monetary Board may otherwise prescribe, loans and other credit
accommodations on security of chattels and intangible properties, such as, but not limited to, patents,
trademarks, trade names, and copyrights shall not exceed seventy-five percent (75%) of the appraised
value of the security, and such loans and other credit accommodations may be made to the title-holder
of the chattels and intangible properties or his assignees. (78a)
o Appraisers are used by banks to determine the value of the property. For this purpose, remember
the prohibition on overvaluation under the General Banking Law.
o Loans Secured by Real Estate Mortgages
§ Limits – General Banking Law, Section 37
SECTION 37. Loans and Other Credit Accommodations Against Real Estate. — Except as the
Monetary Board may otherwise prescribe, loans and other credit accommodations against real estate
shall not exceed seventy-five percent (75%) of the appraised value of the respective real estate
security, plus sixty percent (60%) of the appraised value of the insured improvements, and such loans
may be made to the owner of the real estate or to his assignees. (78a)
§ Mortgagee in Good Faith
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Jurisprudence (Memory Buzzer)
(3) PNCB v. • Philippine National Cooperative Bank (PNCB) against Judge
Carandang- Carandang-Villalon, Arturo Bengzon, Dr. Vicente Jimenez, and heirs of
Villalon Dionisio Galvan and Carmen Cabrera
• This case involves the foreclosure of a parcel of land in Dagupan City.
In contrast with the It was owned by Faustino Galvan, who donated it to his daughter Aida.
succeeding case Faustino was a lessee of Sps. Dionisio Galvan and Carmen Cabrera.
In a suit to recover rent, Faustino was held liable to the spouses. Later
Class Discussion: on, the administrators of the spouses’ estates were able to have the
This will be different donation to Aida annulled by the court. Note that the bank was never a
from the more recent party in the aforementioned suits. In the meantime, Aida obtained a
decisions of the loan from PNCB and mortgaged the parcel of land therefor. When
Supreme Court, as PNCB foreclosed and went to register the certificate of sale, the
you can see in the registration was denied on the ground that the parcel of land was no
next assigned cases. longer the owned by Aida. Hence, PNCB instituted this case against
the administrators of the spouses’ estate. The lower court ruled that the
mortgage was invalid since the annulment of the donationed retroacted
to the day the mortgage was executed, and thus Aida was not the
owner of the property mortgaged.
• Whether PNCB is entitled to the parcel of land.
• The SC ruled in the affirmative. First, the established principle is that
where the torrens title of the land was in the name of the mortgagor
and later given as security for a bank loan, the subsequent declaration
of said title as null and void is not a ground for nullifying the mortgage
rights of the bank, which had acted in good faith. Hence, PNCB is a
mortgagee in good faith. Second, the bank, in accepting the mortgage,
is not required to make an investigation of the title so it that it could
have found that the donation of the property was invalid. The bank had
the right to rely on the torrens title.
(4) DBP v. CA • DBP against Carlos Cajes
• This case involves 19.4 hectares of land in Bohol. It was originally
I think this overturns owned by Ulpiano Mumar since 1917. Mumar sold the same to Carlos
the first case. Banks Cajes in 1950 who then cultivated and planted cassava and camote.
are now required to Later on, however, Jose Alvarez succeeded in obtained an OCT over a
investigate the large tract of land which included the 19.4 hectares occupied by Cajes.
ownership of Alvarez sold the same to Sps. Beduya. Sps. Beduya obtained a loan
properties mortgaged
from DBP and mortgaged the land covered by their TCT.
in favour of the bank Subsequently, Cajes likewise obtained a loan from DBP and offered
the 19.4 hectares as mortgage. However, DBP’s officer found out that
the 19.4 hectares was included in the land mortgaged by the spouses.
Upon default, DBP foreclosed on the land covered by the TCT. After
consolidation of title, the bank asked Cajes to vacate the property.
• Whether DBP is entitled to the land.
• The SC ruled in the negative. First, since the land registration system
is for the purpose of confirming (not conferring) ownership, the latter
registration by Alavrez could not defeat Cajes’s occupation tacked to
that of Mumar’s. Hence, Cajes was the rightful owner of the 19.4
hectares of land. Second, §38 of the Land Registration Act provides
that a certificate of title is conclusive and binding upon the whole world,
so a buyer need not look behind the certificate of title in order to
determine the actual owner. However, this is subject to the right of a
person deprived of land through fraud to bring an action for
reconveyance, provided that it does not prejudice the rights of an
innocent purchaser for value and in good faith. Third, here, however,
DBP is not a mortgagee in good faith since (1) DBP was already
informed by the spouses that Cajes occupied a portion of the property
62
they mortgaged and (2) DBP’s representative conducted an
investigation of the property and found Cajes therein. Despite thereof,
DBP accepted the mortgage and proceeded to foreclose thereon.
(5) Canlas v. CA • Osmundo and Angelina Canlas against Asian Savings Bank,
Maximo Contreras and Vicente Mañosca
• Osmundo Canlas and Vicente Mañosca decided to venture into
business and to raise the capital needed therefor. They mortgaged 2
parcels of land in BF Homes Parañaque which were in the names of
Osmundo and his wife Angelina Canlas. Osmundo delivered to
Vicente the TCTs of the land since he authorized the latter to
mortgage the same, and in turn Vicente issued 2 post-dated checks.
The lands were mortgaged to Asian Savings Bank (ASB) when
Vicente brought impostors of Sps. Canlas. Despite this, Osmundo
wrote a letter to the bank alleging that the mortgage was made without
authority. The auction sale, however, proceeded. Hence, Sps. Canlas
filed the complaint for annulment of deed of real estate mortgage
against the bank.
• The issue is whether ASB is liable.
• The SC rule in the affirmative. First, ASB failed to observe the
requisite diligence in ascertaining or verifying the real identity of the
couple who introduced themselves as Sps. Canlas. The bank did not
even require a single ID, and yet the bank acted on their
representations simply because of the residence certificates which
bore the same signatures which matched the signatures in the
previous deed of mortgage. Moreover, the previous deed of mortgage
did not even bear the tax account number of the spouses, as well as
the community tax certificate of Angelina. Despite this, the bank did
not require the impostors to submit additional proof of their identity.
Second, under the doctrine of last clear chance, the bank’s simple
expedient of faithfully complying with the requirement of banks to
ascertain the identity of the persons transacting with them could have
avoided this whole suit. Third, settled is the rule that a contract of
mortgage must be constituted only by the absolute owner on the
property mortgaged. Hence, a mortgage constituted by an impostor is
void.
§ Dacion en Pago – General Banking Law, Section 52
SECTION 52. Acquisition of Real Estate by Way of Satisfaction of Claims. — Notwithstanding the
limitations of the preceding Section, a bank may acquire, hold or convey real property under the
following circumstances:
52.1. Such as shall be mortgaged to it in good faith by way of security for debts;
52.2. Such as shall be conveyed to it in satisfaction of debts previously contracted in the course of its
dealings; or
52.3. Such as it shall purchase at sales under judgments, decrees, mortgages, or trust deeds held by it
and such as it shall purchase to secure debts due it.
Any real property acquired or held under the circumstances enumerated in the above paragraph shall
be disposed of by the bank within a period of five (5) years or as may be prescribed by the Monetary
Board: Provided, however, That the bank may, after said period, continue to hold the property for its
own use, subject to the limitations of the preceding Section. (25a)
o Remember the prohibition on pactum commisorium.
DEAN JMGH | BANKING L AW | YAP, K.

Jurisprudence (Memory Buzzer)
(6) Union Bank v. • Union Bank against D’Rossa Incorporated (DRI)
CA • DRI mortgaged parcels of land in favor of Union Bank as security for
the credit facility obtained by Josephine Marine Trading Corporation
(JMTC), which availed PHP3,000,000 from the credit line. The bank
subsequently increased the credit facility to PHP27,000,000 from which
JMTC availed PHP18,318,170.18. Upon JMTC’s failure to pay, Union
Bank instituted foreclosure proceedings on DRI’s properties, which
were later auctioned and Union Bank was the highest bidder. DRI filed
a supplemental complaint seeking to nullify the sale.
• Union Bank alleges that DRI was liable for JMTC’s total outstanding
obligations, regardless of whether it was incurred during or subsequent
to the first agreement.
• DRI counters that its liability is only PHP3,000,000 which was the
liability incurred by JMTC under its first agreement with the bank.
Moreover, that there was a lack of republication of the notice of sale.
• Whether DRI is liable.
• The SC ruled in the affirmative. First, the mortgage clearly provided
the parties’ intent to constitute DRI’s real estate properties as
continuing securities, liable for the current as well as the future
obligations of JMTC (ex. whether presently owing or hereinafter
incurred). A mortgage liability is generally limited to the amount
mentioned in the contract, unless the intent of the parties is manifest
that the mortgage property shall also answer for future loans or
advancements (ie., Dragnet Clause or Blanket Mortgage Clause).
Second, even if DRI is considered as an accommodation mortgagor
only, its liability would still exceed PHP8,610,000 due to the stipulation
securing future obligations, and also because DRI actively participated
in the increase of JMTC’s credit facility. DRI acknowledged and
consented to the renewal and increase of the credit facilities of JMTC.
Third, regarding the issue on lack of republication, the same is without
factual basis. Foreclosure proceedings have in their favor the
presumption of regularity and the burden of evidence to rebut the same
is on the party that seeks to challenge the proceedings. The principal
object of a notice of sale is not so much to notify the mortgagor as to
inform the public in general of the nature and condition of the property
to be sold, and of the time, place, and terms of the sale.
§ Foreclosure – General Banking Law Section 47
SECTION 47. Foreclosure of Real Estate Mortgage. — In the event of foreclosure, whether judicially
or extrajudicially, of any mortgage on real estate which is security for any loan or other credit
accommodation granted, the mortgagor or debtor whose real property has been sold for the full or
partial payment of his obligation shall have the right within one year after the sale of the real estate, to
redeem the property by paying the amount due under the mortgage deed, with interest thereon at the
rate specified in the mortgage, and all the costs and expenses incurred by the bank or institution from
the sale and custody of said property less the income derived therefrom. However, the purchaser at
the auction sale concerned whether in a judicial or extrajudicial foreclosure shall have the right to enter
upon and take possession of such property immediately after the date of the confirmation of the
auction sale and administer the same in accordance with law. Any petition in court to enjoin or restrain
the conduct of foreclosure proceedings instituted pursuant to this provision shall be given due course
only upon the filing by the petitioner of a bond in an amount fixed by the court conditioned that he will
pay all the damages which the bank may suffer by the enjoining or the restraint of the foreclosure
proceeding.
Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an extrajudicial
foreclosure, shall have the right to redeem the property in accordance with this provision until, but not
63
after, the registration of the certificate of foreclosure sale with the applicable Register of Deeds which
in no case shall be more than three (3) months after foreclosure, whichever is earlier. Owners of
property that has been sold in a foreclosure sale prior to the effectivity of this Act shall retain their
redemption rights until their expiration. (78a)
o Right and period of redemption – same; same (§47)
Jurisprudence (Memory Buzzer)
(7) Metrobank v. Tan • Metrobank against Sps. Elisa and Antonio Tan, and Sps. Lilian Tan
and Marcial See
• This case involves loans obtained by a series of juridical entities
(Ylang-Ylang Merchandising Company > Ajax Marketing Company >
Ajax Marketing and Development Corporation). Sps. See and Tan
executed in favor of Metrobank real estate mortgages in favor of
Metrobank, in the aggregate amount of PHP1,000,000. After a re-
structuring of the loan, Sps. Tan executed a promissory note wherein
the loan was payable in 8 equal quarterly installments. Subsequently,
Metrobank filed a case for sum of money against Ajax for another loan
earlier obtained. Metrobank eventually foreclosed and bought the
property at the auction sale. Ajax, et. al. now filed a case for annulment
and cancellation of extra-judicial foreclosure sale on the ground that
the mortgages constituted on the property have been extinguished or
novated when the promissory note was executed.
• Sps. See and Sps. Tan further allege that after the foreclosure sale,
they offered to redeem the property within the 1-year redemption
period and they discovered that Metrobank included in the bid price an
amount not executed by the mortgage.
• Whether Sps. See and Tan properly redeemed the property.
• The SC ruled in the negative. First, there is no dispute that Ajax, et. al.
were already in default in the payment of their obligation. Thus,
Metrobank had the right to foreclose any real estate mortgage
executed in its favor as security for the loans it has given to Ajax, et. al.
Second, the issue in the complaint is the novation of the loan, but the
lower courts ruled on the issue of right of redemption. Third, the filing
of the annulment suit did not toll the running of the 1-year redemption
period. The period within which to redeem the property sold at a
sheriff’s sale is not suspended by the institution of an action to annul
the foreclosure sale. Fourth, Sps. See and Tan did not redeem within
the 1-year period, which is counted not from the date of foreclosure
sale, but from the time the certificate of sale is registered with the
registry of deeds. Thus, Sps. See and Tan had 1 year from June 20,
1984 within which to redeem the foreclosed property. Prior to this, they
did not exercise such right of redemption. Their allegation that they
offered to redeem the subject property through the letter was
insufficient since it was not coupled with a valid tender of payment.
• Redemption Price:
1. The price which the purchaser paid for the property
2. Interest of 1% per month on the purchase price
3. Amount of any assessment or taxes which the purchaser
may have paid on the property after the purchase
4. Interest of 1% per month on such assessment and taxes
(8) Lazo v. Republic • Felix Lazo, Mercedes Castro De Lazo, and Jose Robles against
Surety Republic Surety & Insurance Co., represented by Antonio Koh as
general manager and as attorney-in-fact of Felix and Mercedes
Class Discussion: Lazo
The 1-year period is • Sps. Lazo were guarantors for Jose Robles in connection with a loan
DEAN JMGH | BANKING L AW | YAP, K.

said to be for the obtained by the latter from PBCom. The spouses executed a real
benefit of the estate mortgage in favor of Republic Surety & Insurance Co. in
purchaser, because he consideration of its having consented to act as principal co-debtor for
knows that after 1 the aforesaid loan. The mortgage was extra-judicially foreclosed and
year, if no redemption sold to the mortgagee, as the highest bidder. Antonio Koh, pursuant to
has taken place, then the power granted to him by the mortgage instrument, executed a deed
the property is his. of absolute sale which was registered on March 28, 1963.
• Sps. Lazo and Robles now seek to have the sale annulled on the
ground that Robles subsequently paid the mortgage on the loan, and
asked Republic Surety for an accounting of such payments.
• Whether the right of redemption was still available.
• The SC ruled in the negative. First, generally, since the sheriff’s
certificate of sale was recorded in the register of deeds on March 28,
1963, then the 1-year period had not yet expired when the action was
commenced on December 12, 1963. Second, however, there are
peculiar circumstances in this case which led the Court to rule
otherwise. The certificate of sale expressly provided that the period of
redemption will expire on July 2, 1959 (way earlier than the sale and
registration). Moreover, there is no lien or encumbrance other than the
mortgage in question, so when Republic Surety foreclosed, the title
was entirely clean. Immediately after the foreclosure sale, Robles
started paying “rents” on the property, doing so in the concept of a
tenant. From then on, there were extensions of the redemption period
granted at the request of Sps. Lazo and Robles – an acknowledgment
that the original period was expiring, and a conventional stipulation on
a new period. The new period passed, but Republic Surety did not
consolidate its title. During the second extension, still no payment was
tendered. Eventually, the period to redeem expired on June 30, 1960.
What happened here was that the parties used conventional
redemption instead of legal redemption. Hence, being the contract
between the parties, they are bound by its terms and conditions.
• DISSENT of J. Teehankee: Actual knowledge by Sps. Lazo and
Robles of the auction sale is not equivalent to registration and does not
derogate from the doctrine that the redemption period should be
reckoned from the date of registration of the certificate of sale and not
from the date of the auction sale. Moreover, Sps. Lazo and Robles, in
making their requests for extension, were laboring under the mistaken
notion that Republic Surety had duly registered the sheriff’s sale and
that their period to redeem their property had expired on July 2, 1959.
Hence, they cannot be deemed to have opted for the conventional
redemption and to have freely waived the legal period for redemption,
which had not even commenced in law.
(9) Ibaan Rural Bank • Ibaan Rural Bank against Sps. Tarnate
v. CA • Sps. Reyes mortgaged 3 lots to Ibaan Rural Bank. Then they sold the
lots to Sps. Tarnate with assumption of mortgage. Sps. Tarnate failed
Class Discussion: to pay the loan, so the bank extra-judicially foreclosed the lots and was
Despite absence of the highest bidder at the auction sale. The sheriff issued a certificate of
the authority of the sale which was registered on October 16, 1973. Interestingly, the
sheriff in mistakenly certificate of sale expressly provided that the right of redemption shall
indicating 2 years for expire 2 years from the date of registration, as opposed to the usual 1-
redemption, the bank year period provided by law. On September 23, 1981, Sps. Tarnate
was deemed in offered to redeem, but the bank and the sheriff refused on the ground
estoppel since it failed that the right had prescribed.
to object thereto. • Whether the right of redemption had prescribed.
• The SC ruled in the negative. First, the bank had atual and
constructive knowledge of the certificate and its contents since for 2
years, it did not object to the 2-year redemption period provided in the
64
certificate. Hence, the bank was in estoppel in pais which arises when
one, by his acts, representations or admissions, or by his own silence,
when he ought to speak out, intentionally or through culpable
negligence, induces another to believe certain facts to exist and such
other rightfully relies and acts on such belief, so that he will be
prejudiced if the former is permitted to deny the existence of such
facts. The rule on redemption is liberally interpreted in favor of the
original owners of a property. Second, the bank was expected to be
diligent, meticulous, and a master of its transactions. Had the bank
diligently reviewed the certificate of sale, it could have easily
discovered that the period was extended for a year beyond the usual
period of 1 year from the registration of the certificate of sale. Third,
the award of attorney’s fees must be disallowed for lack of legal basis
(ie., merely the bank’s refusal to allow redemption without malice).
(10) People’s • People’s Financing Corp. (PFC) and Enrique Arcenas against
Financing Gaudioso Manliguez and Purificacion Manliguez
Corporation v. • Kalmar Construction and Mining Exploration Co. purchased several
CA pieces of heavy equipment from JP Enterprises. A 30% payment was
made, leaving a balance to be paid in 18 monthly installments. As
security, a promissory note and chattel mortgage were signed by the
officers of Kalmar. These instruments provided for a 14% interest per
annum on each unpaid monthly installment, with a rebate for any
installment paid on or before due date. Subsequently, the note and
mortgage were assigned by JP Enterprises to PFC. Sps. Gaudioso and
Purification Manliguez executed a real estate mortgage on 1/3 of a
parcel of land owned by them and located at Mandaue City as
additional security for an existing obligation. PFC caused the extra-
judicial foreclosure of this mortgage for non-payment of the note. The
sale was registered on March 5, 1979. Sps. Manliguez filed a
complaint for annulment of the mortgage and sale.
• Whether the right of redemption had prescribed.
• The SC ruled in the affirmative. First, the restraining order issued by
the lower court on February 11, 1980 did not have the effect of
suspending the running of the redemption period. There is no statute
or decision which supports the contention that the period of redemption
is suspended by the institution of an action to annul the foreclosure
sale. Hence, Sps. Manliguez had only until March 5, 1980 to redeem
the property. Second, the interest rates (21% broken down as 14% for
the first 12 months and 7% for the excess 6 months), exclusive of
interest and other charges, are valid since at that time CB Circular No.
905 was in effect, removing the ceiling prescribed for interest on loans.
Third, it has not been sufficiently established that the complaint was
intended merely to harass and place Arcenas in disrepute as Sps.
Manliguez were pursuing a cause of action they sincerely believed was
meritorious.
(11) Solidbank v. IAC • Solidbank against Golden Star Industrial Corporation, Nicos Industrial
Corporation, and the provincial sheriff of Bulacan
Class Discussion: • Solidbank loaned Nicos sums of money. Nicos failed to pay Solidbank
So far, but not the loan, thus Solidbank filed a collection case. As a result thereof, the
absolutely, this is an court issued an order of attachment upon 2 parcels of land. The sheriff
exception to the rule of Manila levied and attached the 2 properties and caused the
due to peculiar facts. annotation by the register of deeds. A year later, however, the attached
properties which were also mortgaged by Nicos to UCPB were
extrajudicially foreclosed by UCPB. Subsequently, UCPB sold its rights
thereon to Manuel Go, who sold the same to Golden Star Industrial
Corporation. Barely a month later, Nicos executed a waiver of right of
redemption in favor of Golden Star. Thereafter, Golden Star filed a
DEAN JMGH | BANKING L AW | YAP, K.

petition for the issuance of a writ of possession over the subject
realties, which was granted by the court. Solibank now filed an
omnibus motion to annul the writ of possession.
• Solidbank argues that the lands in question were already under
custodia legis at the time the writ of possession was executed.
• Whether an attaching creditor acquires the right of redemption of a
debtor over the attached properties of the latter which are
subsequently extrajudicially foreclosed by third parties.
• The SC ruled in the affirmative. First, the records clearly show that
when the writ of possession was issued, the register of deeds had
already inscribed an annotated the notices of levy at the back of the
TCTs. Second, the rule is settled that when a writ of attachment has
been levied on real property or any interest therein belonging to the
judgment debtor, the levy thus effected creates a lien which nothing
can destroy but its dissolution. Hence, the writ of possession is void ab
initio because it interfered with the jurisdiction of a coordinate and co-
equal court. Moreover, Solidbank has acquired by operation of law the
right of redemption over the foreclosed properties. Third, the
circumstances surrounding the transfer of rights to Golden Star are
suspicious, showing conspiration to defeat Solidbank’s right over the
attached properties and to deny its right of redemption. Fourth, the
pendency of an action brought in good faith and relating to the validity
of a sale with pacto de retro tolls the term for the right of redemption.
Moreover, the right of redemption continues after perfection of an
appeal. Here, Solidbank commenced the instant action by way of an
omnibus motion on November 21, 1983 or barely 2 months after the
certificate of sale was registered on September 6, 1983, well within the
1-year period of redemption.
(12) CMS Stock • CMS Stock Brokerage against Judge Buenaventura, Atty. Grace
Brokerage v. CA Belvis and Alberto Valino, ex-officio sheriff and deputy sheriff,
and Carolina Industries, Inc.
Class Discussion: • Rosario Sandejas was the registered owner of 2 parcels of land. She
While in Solidbank, the constituted thereupon a first mortgage in favor of BPI, and a second
filing of the annulment mortgage in favor of Sison, Luz & Jalbuena (Now CMS Stock
case tolled the Brokerage, Inc.). The second mortgage was foreclosed and the
redemption period, certificate of sale was issued and duly annotated on the TCT. Rosario
such is not applicable was granted 5 years to redeem the subject properties. In the
herein since there the meantime, the first mortgage was likewise foreclosed and sold at public
party in whose favour auction to CMS. Rosario used a diamond ring and a pair of earrings in
the period is for is the redeeming her land located at Muntinlupa. Later, when the subject
one who filed the properties were levied on execution by the sheriff, Rosario filed a third-
case. party claim alleging redemption of the properties, and that she merely
neglected to cancel the annotation due to some other more pressing
obligations, she then instituted an action for quieting of title.
• CMS Stock Brokerage now claims that it was precluded from
redeeming the subject properties due to the pendency of the case filed
by Rosario, and hence the 1-year period must be reckoned from the
disposition of that case.
• Whether the 1-year period was interrupted by the civil case.
• The SC ruled in the negative. First, the judgment debtor entitled to the
right of redemption is CMS Stock Brokerage, and none other. Under
§29 of Rule 39 of the Rules of Court, the right of redemption is
available to the judgment debtor or his successors in interest. Such
right is not conditioned upon ownership of the property sold on
execution, but by virtue of a writ of execution directed against such
judgment debtor. In case there is a third-party claimant, and the
property is levied upon and sold despite such claim, §29 provides that
65
the right of redemption is given to the judgment debtor and not to any
third-party claimant. Here, CMS Stock Brokerage is the judgment
debtor, and not Rosario who was only a third-party claimant. Second,
if at all, Rosario, as third-party claimant, may only recover the property
if wrongfully sold on execution, by a proper action annulling such
execution sale and reconveying the property to her. In no instance
would she be allowed to exercise a right of redemption, unless she is
herself a succession-in-interest of the judgment debtor. Third, given
that the issue of ownership has no bearing over the right of
redemption, the pendency of the quieting case did not toll the running
of the 1-year redemption period. If at all, the condition imposed after
the execution sale relating to the pending action for quieting of title,
may only benefit the third-party claimant should her claim prosper, only
then may the execution sale be declared null and void.
o Redemption Price – same; same
§ If it involves banks, the applicable rule is §47 of
the General Banking Law. However, if you are a
bank that is specially chartered (ex. DBP), then
the charter/specific law shall apply.
Jurisprudence (Memory Buzzer)
(13) Union Bank v. • Union Bank against Apolonia and Luciana De Jesus Gregorio,
CA Gonzalo Vincoy, married to Trinidad Gregorio Vincoy
• Sps. Vincoy mortgaged their residence in favor of Union Bank to
secure a loan to Delco Industries, Inc. For failure to pay, the mortgage
was foreclosed and later on a certificate of sale was issued to Union
Bank and duly annotated on the back of the TCT. Prior to the
expiration of the redemption period on May 8, 1992, Sps. Vincoy filed a
complaint for annulment of mortgage on the ground that it was their
family home, and the consent of beneficiaries of legal age therein
(sisters of Trinidad Vincoy) were not obtained.
• Union Bank argues that the CA erred in allowing Sps. Vincoy to
redeem the foreclosed property despite the fact that redemption was
never prayed for in the complaint. Moreover, Sps. Vincoy had
consistently insisted nullity of the mortgage, hence they cannot now
pursue redemption which is contrary to the very theory of their case.
• Whether Sps. Vincoy can redeem the property.
• The SC ruled in the negative. First, the issue of redemption was raised
for the first time on appeal, hence the appellate court erred in
considering the same in its ruling. Second, pursuant to §78 of the
General Banking Act, a mortgagor whose real property has been sold
at public auction shall have the right to redeem the property within 1
year from the date of registration of the sale. The action for annulment
did not toll the running of the redemption period, since the institution of
frivolous suits for annulment of mortgage intended merely to give the
mortgagor more time to redeem the property. Third, although the issue
pertaining to the correct amount of redemption price has been
rendered moot by the foregoing ruling, it is §78 which governs the
determination of the redemption price, which is the amount under the
mortgage deed, or the outstanding obligation of the mortgagor plus
interest and expenses. It was therefore manifest error by the CA when
it applied §30 of Rule 39 of the Rules of Court.
(14) DBP v. West • DBP against West Negros College
Negros College • Bacolod Medical Center (BMC) obtained a loan from DBP for building
(2002) and operating a hospital. This was secured by a mortgage on the 2
DEAN JMGH | BANKING L AW | YAP, K.

parcels of land, the hospital building to be constructed thereon, and the
medical equipment to be used therein. For failure to pay, DBP
extrajudicially foreclosed on the mortgage and was the highest bidder
at the auction. Prior to the expiration of the period of redemption, BMC
paid a first installment of 20% of the compromise amount. During the
process of such payment, BMC assigned its rights to West Negros
College (WNC) and vested upon the latter the right to redeem. The
current case involves a disputed as to the amount due DBP for
purposes of redemption. A certificate of redemption was issued in favor
of WNC, which is now assailed by DBP.
• DBP argues that the redemption price must be based on the charter of
the DBP requiring payment of the amount owed as of the date of the
foreclosure sale with interest on the total indebtedness at the rate
agreed upon in the obligation.
• WNC argues that the redemption price is the amount of purchase with
1% monthly interest thereon including other expenses defrayed by
DBP at the extrajudicial sale, based on §30 of Rule 39 of the Rules of
Court.
• Whether WNC had already paid the proper redemption price.
• The SC ruled in the negative. First, where the real property is
mortgaged to and foreclosed by the DBP, the right of redemption may
be exercised only by paying to the bank all the amount owed on the
date of the sale, with interest on the total indebtedness at the rate
agreed upon in the obligation from said date, unless the bidder has
taken material possession of the property, or unless this had been
delivered to him, in which case the proceeds of the property shall
compensate the interest. Second, this rule applies whether the
foreclosed property is sold to DBP or another person, provided that the
property was mortgaged to DBP. Where the property is sold to persons
other than the mortgagee, the procedure is for DBP, in case of
redemption, to return to the bidder the amount it received from him as
a result of the auction sale with the corresponding interest paid by the
debtor. Third, the foregoing rule has been consistently embodied in the
charters of DBP and its predecessor agencies (Agricultural Industrial
Bank and Rehabilitation Finance Corporation). Third, the DBP charter
applies herein because it is a special law which gives special
protection to a government lending institution. Fourth, the mortgage
contract between DBP and MBC was expressly constituted subject to
the provisions of the DBP charter, and this continues to bind WNC, the
assignee of BMC’s rights on the mortgage.
(15) DBP v. West • DBP against West Negros College
Negros College • Same; same
(2008) • Whether DBP is entitled to collect interest from WNC as of the date of
the public auction.
• The SC ruled in the affirmative. First, the DBP charter provides that
when the bank takes possession during the redemption period, it shall
be entitled to the fruits of the property with no obligation to account for
them, the same being considered compensation for the interest that
would otherwise accrue on the account. Second, the deletion of the
phrase “with interest on the total indebtedness at the rate agreed upon
in the obligation from said date” was deleted in the current charter
which fixed the redemption price as “all of the bank’s claims against the
debtor, as determined by the bank.” This deletion led the Court to
conclude in the former Resolution that contractual interest shall no
longer accrue and form part of the total redemption price. Third,
however, it is noted that the subject property was foreclosed on
January 30, 1989 and DBP did not take possession thereof during the
66
redemption period. Up to the present, in fact, WNC is in possession of
the property. Fourth, since DBP is entitled to the fruits “as
compensation for interest that would otherwise accrue on the account,”
thus it is recognized that the DBP has the right to claim contractual
interest on the account during the redemption period in line with the
intent of the law to protect the government’s investment in the lending
institution.
o Possession – same; same
Jurisprudence (Memory Buzzer)
(16) Sps. Samson v. • Sps. Rempson and Milgaros Samson, and Rempson Realty &
Rivera Development Corporation against Judge Rivera, Atty. Joselita
Malibago-Santos, and Lenjul Realty Corporation
• Sps. Samson incurred loan obligations from Far East Bank and Trust
Company (FEBTC). In order to secure the loan, they executed 2 real
estate mortgages over 5 parcels of commercial property in Antipolo,
Rizal. They failed to settle their loan, so the bank extrajudicially
foreclosed and the highest bidder was Lenjul Realty Corporation.
Lenjul filed a petition for the issuance of a writ of possession, but Sps.
Samson opposed. The latter filed an action for annulment of
extrajudicial foreclosure and prayed for a TRO against the writ of
possession. Judge Rivera eventually issued the writ of possession in
favor of Lenjul.
• Whether the issuance of the writ of possession was proper.
• The SC ruled in the affirmative. First, the purchaser in a foreclosure
sale may apply for a writ of possession during the redemption period
by filing an ex parte motion under oath in the corresponding
registration or cadastral proceeding in case of a property with torrens
title. Upon the filing of such motion and the approval of the
corresponding bond, the court is expressly directed to issue the writ.
Second, being an ex parte motion, such writ issues as a matter of
course and the duty of the trial court to grant such writ is ministerial.
Third, consequently, any question regarding the regularity and validity
of the sale, as well as the cancellation of the writ, is to be determined in
a subsequent proceeding, and cannot be raised to oppose the
issuance of the writ which is ex parte in nature. Fourth, the pending
action for annulment does not stay the issuance of a writ of
possession. Fifth, Sps. Samson availed of the wrong remedy since
there was no grave abuse of discretion herein. Moreover, a plain,
speedy, and adequate relief was still available – Act 3135 provides that
a party may petition for the setting aside of a foreclosure sale and for
the cancellation of a writ of possession in the same proceedings where
the writ of possession was requested.
o Injunction and Bond – same; same
DEAN JMGH | BANKING L AW | YAP, K.

Fig. Special Rules on Loans
Single Borrower’s Limit (§35, General Banking Law)
• General Rule: The total amount of loans, credit accommodations and guarantees that may be
extended by a bank to any person, partnership, association, corporation or other entity shall at no
time exceed 20% of the net worth of such bank.
o Exceptions:
1. May be increased to 30% provided the additional liabilities of any borrower
are adequately secured by trust receipts, shipping documents, warehouse
receipts or other similar documents transferring or securing title covering
readily marketable, non-perishable goods which must be fully covered by
insurance.
2. There is NO LIMIT for the following (non-risk) loans:
a. Loans and other credit accommodations secured by obligations
of the BSP
b. Loans and other credit accommodations fully guaranteed by the
government as to the payment of principal and interest
c. Loans and other credit accommodations covered by assignment
of deposits maintained in the lending bank and held in the
Philippines
d. Loans, credit accommodations and acceptances under letters of
credit to the extent covered by margin deposits
e. Other loans or credit accommodations which the Monetary
Board may from time to time specify as non-risk items
Directors, Officers, Stockholders and their Related Interests (DOSRI) Loans
(§36, General Banking Law)
• General Rule: No director or officer of any bank shall, directly or indirectly, for himself or as the
representative or agent of others:
1. Borrow from such bank
2. Become a guarantor, indorser or surety for loans from such bank to others
3. In any manner be an obligor or incur any contractual liability to the bank
• Exception: When there is written approval of the majority of all the directors of the bank,
excluding the director concerned, and subject to the following limitations.
o Exception to exception: No written approval required for loans, other credit
accommodations and advances granted to officers under a fringe benefit plan
approved by the BSP
• Additional limitation when there is written approval: The outstanding loans, credit
accommodations and guarantees which a bank may extend to each of its DOSRI shall be limited
to an amount equivalent of their respective unencumbered deposits and book value of their paid-
in capital contribution in the bank.
o Excluded from such limit:
1. Loans, credit accommodations and guarantees secured by assets
considered as non-risk by the Monetary Board
2. Loans, credit accommodations and advances to officers in the form of
fringe benefits granted in accordance with the rules prescribed by the
Monetary Board
3. Loans, credit accommodations and guarantees extended by a cooperative
bank to its cooperative shareholders.
• Any DOSRI who contracts a loan or any form of financial accommodation from:
1. His bank
2. From a bank: (a) which is a subsidiary of a bank holding company of which both his bank
and the lending bank or (b) in which a controlling proportion of the shares is owned by the
same interest that owns a controlling corporation of the shares of his bank, in excess of 5%
of the capital and surplus of the bank, or the maximum permitted by law, whichever is lower
shall be required by the lending bank to waive secrecy of his deposits of whatever nature in all banks in
the Philippines, for purposes of inspection by the examiners. (§26, New Central Bank Act)
67
Limitations on Secured Loans (§37 and §38, General Banking Law)
• On security of chattels and intangible properties (ex. patents, trademarks, trade names, and
copyrights) – shall not exceed 75% of the appraised value of the security given.
• On other credit accommodations against real estate – shall not exceed 75% of the appraised
value of the security given, plus an additional 60% of the appraised value of the insured
improvements.
• These loans may be made to the owner or to his assignees.
• The Monetary Board may otherwise prescribe different rates.
Fig. Special Rules on Foreclosure
Redemption Period of Property Mortgaged to Banks
(§47, General Banking Law)
• The owner of the foreclosed property has the following periods of redemption:
o Natural persons – shall have the right within 1 year after the sale of the real estate (ie.,
from the time the certificate of sale is registered with the Registry of Deeds).
o Juridical persons – shall have until, but not after, the registration of the certificate of
foreclosure sale with the applicable Register of Deeds, but in no case shall be more
than 3 months after the foreclosure, whichever is earlier.
o Exceptions:
§ Conventional redemption (ie., where the parties agree to a different period)
§ When the mortgagee is estopped from questioning the period indicated in
the certificate of sale. (Ibaan Rural Bank v. CA)
• Owners of property that has been sold in a foreclosure sale prior to the effectivity of this act shall
retain their redemption rights until their expiration.
• General rule: The period for prescription of the right of redemption is not suspended by the filing
of an action annulling the sale.
o Except: When the circumstances show conspiration to defeat the right to redeem.
(Solidbank v. IAC)
Redemption Price
• If mortgaged to a bank – by paying the amount due under the mortgage deed, with interest
thereon at the rate specified in the mortgage, and all the costs and expenses incurred by the
bank or institution from the sale and custody of said property less the income derived therefrom.
(§47, General Banking Law)
• If mortgaged to the Development Bank of the Philippines (DBP) – by paying to the bank all the
amount owed on the date of the sale, with interest on the total indebtedness at the rate agreed
upon in the obligation from said date.
o Exception: No need to pay interest from the date of sale if (1) the bidder has taken
material possession of the property; or (2) the property had been delivered to him.
DEAN JMGH | BANKING L AW | YAP, K.

Banking Law I (SYLLABUS 11)
Other Operations
• Other Operations
a. Major Investments – General Banking Law, Section 50
SECTION 50. Major Investments. — For the purpose of enhancing bank supervision, the Monetary
Board shall establish criteria for reviewing major acquisitions or investments by a bank including
corporate affiliations or structures that may expose the bank to undue risks or in any way hinder
effective supervision.
b. Ceiling on Investments in Certain Assets – General Banking Law, Section
51
SECTION 51. Ceiling on Investments in Certain Assets. — Any bank may acquire real estate as
shall be necessary for its own use in the conduct of its business: Provided, however, That the total
investment in such real estate and improvements thereof, including bank equipment, shall not exceed
fifty percent (50%) of combined capital accounts: Provided, further, That the equity investment of a
bank in another corporation engaged primarily in real estate shall be considered as part of the bank's
total investment in real estate, unless otherwise provided by the Monetary Board. (25a)
• “Combined capital accounts” means the net worth of the bank.
c. Other Banking Services – General Banking Law, Section 53
SECTION 53. Other Banking Services. — In addition to the operations specifically authorized in this
Act, a bank may perform the following services:
53.1. Receive in custody funds, documents and valuable objects;
53.2. Act as financial agent and buy and sell, by order of and for the account of their customers,
shares, evidences of indebtedness and all types of securities;
53.3. Make collections and payments for the account of others and perform such other services for
their customers as are not incompatible with banking business;
53.4. Upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or
administrator of investment management/advisory/consultancy accounts; and
53.5. Rent out safety deposit boxes.
The bank shall perform the services permitted under Subsections 53.1, 53.2, 53.3 and 53.4 as
depositary or as an agent. Accordingly, it shall keep the funds, securities and other effects which it
receives duly separate from the bank's own assets and liabilities.
The Monetary Board may regulate the operations authorized by this Section in order to ensure that
such operations do not endanger the interests of the depositors and other creditors of the bank.
In case a bank or quasi-bank notifies the Bangko Sentral or publicly announces a bank holiday, or in
any manner suspends the payment of its deposit liabilities continuously for more than thirty (30) days,
the Monetary Board may summarily and without need for prior hearing close such banking institution
and place it under receivership of the Philippine Deposit Insurance Corporation. (72a)
d. Prohibited Transactions – General Banking Law, Sections 54 and 55
68
SECTION 54. Prohibition to Act as Insurer. — A bank shall not directly engage in insurance
business as the insurer. (73)
SECTION 55. Prohibited Transactions. —
55.1. No director, officer, employee, or agent of any bank shall — (a) Make false entries in any bank
report or statement or participate in any fraudulent transaction, thereby affecting the financial interest
of, or causing damage to, the bank or any person;
(b) Without order of a court of competent jurisdiction, disclose to any unauthorized person any
information relative to the funds or properties in the custody of the bank belonging to private
individuals, corporations, or any other entity: Provided, That with respect to bank deposits, the
provisions of existing laws shall prevail;
(c) Accept gifts, fees or commissions or any other form of remuneration in connection with the approval
of a loan or other credit accommodation from said bank;
(d) Overvalue or aid in overvaluing any security for the purpose of influencing in any way the actions of
the bank or any bank; or
(e) Outsource inherent banking functions.
55.2. No borrower of a bank shall — (a) Fraudulently overvalue property offered as security for a loan
or other credit accommodation from the bank;
(b) Furnish false or make misrepresentation or suppression of material facts for the purpose of
obtaining, renewing, or increasing a loan or other credit accommodation or extending the period
thereof;
(c) Attempt to defraud the said bank in the event of a court action to recover a loan or other credit
accommodation; or
(d) Offer any director, officer, employee or agent of a bank any gift, fee, commission, or any other form
of compensation in order to influence such persons into approving a loan or other credit
accommodation application.
55.3. No examiner, officer or employee of the Bangko Sentral or of any department, bureau, office,
branch or agency of the Government that is assigned to supervise, examine, assist or render technical
assistance to any bank shall commit any of the acts enumerated in this Section or aid in the
commission of the same. (87-Aa)
The making of false reports or misrepresentation or suppression of material facts by personnel of the
Bangko Sentral ng Pilipinas shall constitute fraud and shall be subject to the administrative and
criminal sanctions provided under the New Central Bank Act.
55.4. Consistent with the provisions of Republic Act No. 1405, otherwise known as the Banks Secrecy
Law, no bank shall employ casual or nonregular personnel or too lengthy probationary personnel in the
conduct of its business involving bank deposits.
• Section (b) expands the duty not to disclose information to properties in the custody of the bank.
Secrecy is not limited to bank deposits.
o If it’s non-deposits, any court order in any case is valid. For bank deposits, it must be
court orders issued pursuant to cases of bribery or dereliction of duty.
• Inherent banking functions – those that involve deposit-taking and lending.
e. Conducting Business in an Unsafe or Unsound Manner – General Banking
Law, Section 56; Republic Act No. 3591 (PDIC Charter), as amended by RA
10846, Section 8
DEAN JMGH | BANKING L AW | YAP, K.

SECTION 56. Conducting Business in an Unsafe or Unsound Manner. — In determining whether a
particular act or omission, which is not otherwise prohibited by any law, rule or regulation affecting
banks, quasi-banks or trust entities, may be deemed as conducting business in an unsafe or unsound
manner for purposes of this Section, the Monetary Board shall consider any of the following
circumstances:
56.1. The act or omission has resulted or may result in material loss or damage, or abnormal risk or
danger to the safety, stability, liquidity or solvency of the institution;
56.2. The act or omission has resulted or may result in material loss or damage or abnormal risk to the
institution's depositors, creditors, investors, stockholders or to the Bangko Sentral or to the public in
general;
56.3. The act or omission has caused any undue injury, or has given any unwarranted benefits,
advantage or preference to the bank or any party in the discharge by the director or officer of his duties
and responsibilities through manifest partiality, evident bad faith or gross inexcusable negligence; or
56.4. The act or omission involves entering into any contract or transaction manifestly and grossly
disadvantageous to the bank, quasi-bank or trust entity, whether or not the director or officer profited or
will profit thereby.
Whenever a bank, quasi-bank or trust entity persists in conducting its business in an unsafe or
unsound manner, the Monetary Board may, without prejudice to the administrative sanctions provided
in Section 37 of the New Central Bank Act, take action under Section 30 of the same Act and/or
immediately exclude the erring bank from clearing, the provisions of law to the contrary
notwithstanding. (n)
"SANCTIONS AGAINST UNSAFE AND UNSOUND BANKING PRACTICES
"SEC. 8. (a) Whenever upon examination by the Corporation into the condition of any insured bank, it
shall be disclosed that an insured bank or its directors or agents have committed, are committing or
about to commit unsafe or unsound practices in conducting the business of the bank, or have violated,
are violating or about to violate any provisions of any law or regulation to which the insured bank is
subject, the Board of Directors shall submit the report of the examination to the Monetary Board to
secure corrective action thereon. If no such corrective action is taken by the Monetary Board within
forty-five (45) days from the submission of the report, the Board of Directors shall, motu proprio,
institute corrective action which it deems necessary. The Board of Directors may thereafter issue a
cease and desist order, and require the bank or its directors or agents concerned to correct the
practices or violations within forty-five (45) days. However, if the practice or violation is likely to cause
insolvency or substantial dissipation of assets or earnings of the bank, or is likely to seriously weaken
the condition of the bank or otherwise seriously prejudice the interests of its depositors and the
Corporation, the period to take corrective action shall not be more than fifteen (15) days. The order
may also include the imposition of fines provided in Section 26(g) hereof. The Board of Directors shall
duly inform the Monetary Board of the Bangko Sentral ng Pilipinas of action it has taken under this
subsection with respect to such practices or violations.
"(b) The actions and proceedings provided in the preceding subsections may be undertaken by the
Corporation if, in its opinion, an insured bank or its directors or agents have violated, are violating or
about to violate any provision of this Act or any order, rule or instruction issued by the Corporation or
any written condition imposed by the Corporation in connection with any transaction with or grant by
the Corporation.
"(c) The Corporation may terminate the insured status of any bank that fails or refuses to comply,
within thirty (30) days from notice, with any cease-and-desist order issued by the Corporation, or with
any corrective action imposed by the Monetary Board, under this section pertaining to a deposit-related
unsafe and/or unsound banking practice.
"Such termination shall be final and executory, and shall be effective upon publication of the notice of
69
termination in a newspaper of general circulation.
"The deposits of each depositor in the bank on the effective date of the termination of insurance
coverage, less all subsequent withdrawals, shall continue to be insured up to the maximum deposit
insurance coverage for a period of one hundred eighty (180) days. Additions to, or renewal of, existing
deposits and new deposits in such bank after the effective date of termination of insured status of the
bank shall not be insured by the Corporation.
"The bank shall not advertise or represent that additions to, or renewal of, existing deposits and new
deposits made after the effective date of termination are covered by deposit insurance."
• In addition, the PDIC can now report unsafe and unsound banking practices to the BSP so that
the latter can impose correvtive measures.
o If after 45 days of inaction on the part of the BSP, the PDIC itself can impose such
corrective measures.
• Distressed Banks
1. Bangko Sentral Assistance
a. Loans without Collateral – New Central Bank Act, Section 83
C. Special Credit Operation
SECTION 83. Loans for Liquidity Purposes. — The Bangko Sentral may extend loans and advances
to banking institutions for a period of not more than seven (7) days without any collateral for the
purpose of providing liquidity to the banking system in times of need.
b. Emergency Loans – New Central Bank Act, Section 84
D. Emergency Credit Operation
SECTION 84. Emergency Loans and Advances. — In periods of national and/or local emergency or
of imminent financial panic which directly threaten monetary and banking stability, the Monetary Board
may, by a vote of at least five (5) of its members, authorize the Bangko Sentral to grant extraordinary
loans or advances to banking institutions secured by assets as defined hereunder: Provided, That
while such loans or advances are outstanding, the debtor institution shall not, except upon prior
authorization by the Monetary Board, expand the total volume of its loans or investments.
The Monetary Board may, at its discretion, likewise authorize the Bangko Sentral to grant emergency
loans or advances to banking institutions, even during normal periods, for the purpose of assisting a
bank in a precarious financial condition or under serious financial pressures brought by unforeseen
events, or events which, though foreseeable, could not be prevented by the bank concerned: Provided,
however, That the Monetary Board has ascertained that the bank is not insolvent and has the assets
defined hereunder to secure the advances: Provided, further, That a concurrent vote of at least five (5)
members of the Monetary Board is obtained.
The amount of any emergency loan or advance shall not exceed the sum of fifty percent (50%) of total
deposits and deposit substitutes of the banking institution and shall be disbursed in two (2) or more
tranches. The amount of the first tranche shall be limited to twenty-five percent (25%) of the total
deposit and deposit substitutes of the institution and shall be secured by government securities to the
extent of their applicable loan values and other unencumbered first class collaterals which the
Monetary Board may approve: Provided, That if as determined by the Monetary Board, the
circumstances surrounding the emergency warrant a loan or advance greater than the amount
provided hereinabove, the amount of the first tranche may exceed twenty-five percent (25%) of the
bank's total deposit and deposit substitutes if the same is adequately secured by applicable loan
values of government securities and unencumbered first class collaterals approved by the Monetary
DEAN JMGH | BANKING L AW | YAP, K.

Board, and the principal stockholders of the institution furnish an acceptable undertaking to indemnify
and hold harmless from suit a conservator whose appointment the Monetary Board may find necessary
at any time.
Prior to the release of the first tranche, the banking institution shall submit to the Bangko Sentral a
resolution of its board of directors authorizing the Bangko Sentral to evaluate other assets of the
banking institution certified by its external auditor to be good and available for collateral purposes
should the release of the subsequent tranche be thereafter applied for.
The Monetary Board may, by a vote of at least five (5) of its members, authorize the release of a
subsequent tranche on condition that the principal stockholders of the institution:
(a) furnish an acceptable undertaking to indemnify and hold harmless from suit a conservator whose
appointment the Monetary Board may find necessary at any time; and
(b) provide acceptable security which, in the judgment of the Monetary Board, would be adequate to
supplement, where necessary, the assets tendered by the banking institution to collateralize the
subsequent tranche.
In connection with the exercise of these powers, the prohibitions in Section 128 of this Act shall not
apply insofar as it refers to acceptance as collateral of shares and their acquisition as a result of
foreclosure proceedings, including the exercise of voting rights pertaining to said shares: Provided,
however, That should the Bangko Sentral acquire any of the shares it has accepted as collateral as a
result of foreclosure proceedings, the Bangko Sentral shall dispose of said shares by public bidding
within one (1) year from the date of consolidation of title by the Bangko Sentral.
Whenever a financial institution incurs an overdraft in its account with the Bangko Sentral, the same
shall be eliminated within the period prescribed in Section 102 of this Act.
2. Conservatorship
a. General Banking Law, Section 67
Placement Under Conservatorship
SECTION 67. Conservatorship. — The grounds and procedures for placing a bank under
conservatorship, as well as, the powers and duties of the conservator appointed for the bank shall be
governed by the provisions of Section 29 and the last two paragraphs of Section 30 of the New Central
Bank Act: Provided, That this Section shall also apply to conservatorship proceedings of quasi-banks.
(n)
b. New Central Bank Act, Sections 29 and 30
SECTION 29. Appointment of Conservator. — Whenever, on the basis of a report submitted by the
appropriate supervising or examining department, the Monetary Board finds that a bank or a quasi-
bank is in a state of continuing inability or unwillingness to maintain a condition of liquidity deemed
adequate to protect the interest of depositors and creditors, the Monetary Board may appoint a
conservator with such powers as the Monetary Board shall deem necessary to take charge of the
assets, liabilities, and the management thereof, reorganize the management, collect all monies and
debts due said institution, and exercise all powers necessary to restore its viability. The conservator
shall report and be responsible to the Monetary Board and shall have the power to overrule or revoke
the actions of the previous management and board of directors of the bank or quasi-bank.
The conservator should be competent and knowledgeable in bank operations and management. The
conservatorship shall not exceed one (1) year.
The conservator shall receive remuneration to be fixed by the Monetary Board in an amount not to
70
exceed two-thirds (2/3) of the salary of the president of the institution in one (1) year, payable in twelve
(12) equal monthly payments: Provided, That, if at any time within the one-year period, the
conservatorship is terminated on the ground that the institution can operate on its own, the conservator
shall receive the balance of the remuneration which he would have received up to the end of the year;
but if the conservatorship is terminated on other grounds, the conservator shall not be entitled to such
remaining balance. The Monetary Board may appoint a conservator connected with the Bangko
Sentral, in which case he shall not be entitled to receive any remuneration or emoluments from the
Bangko Sentral during the conservatorship. The expenses attendant to the conservatorship shall be
borne by the bank or quasi-bank concerned.
The Monetary Board shall terminate the conservatorship when it is satisfied that the institution can
continue to operate on its own and the conservatorship is no longer necessary. The conservatorship
shall likewise be terminated should the Monetary Board, on the basis of the report of the conservator or
of its own findings, determine that the continuance in business of the institution would involve probable
loss to its depositors or creditors, in which case the provisions of Section 30 shall apply.
SECTION 30. Proceedings in Receivership and Liquidation. — Whenever, upon report of the head
of the supervising or examining department, the Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become due to the ordinary course of business: Provided, That
this shall not include inability to pay caused by extraordinary demands induced by financial panic in the
banking community;
(b) has insufficient realizable assets, as determined by the Bangko Sentral, to meet its liabilities; or
(c) cannot continue in business without involving probable losses to its depositors or creditors; or
(d) has willfully violated a cease and desist order under Section 37 that has become final, involving
acts or transactions which amount to fraud or a dissipation of the assets of the institution; in which
cases, the Monetary Board may summarily and without need for prior hearing forbid the institution from
doing business in the Philippines and designate the Philippine Deposit Insurance Corporation as
receiver of the banking institution.
For a quasi-bank, any person of recognized competence in banking or finance may be designed as
receiver.
The receiver shall immediately gather and take charge of all the assets and liabilities of the institution,
administer the same for the benefit of its creditors, and exercise the general powers of a receiver under
the Revised Rules of Court but shall not, with the exception of administrative expenditures, pay or
commit any act that will involve the transfer or disposition of any asset of the institution: Provided, That
the receiver may deposit or place the funds of the institution in non-speculative investments. The
receiver shall determine as soon as possible, but not later than ninety (90) days from take-over,
whether the institution may be rehabilitated or otherwise placed in such a condition so that it may be
permitted to resume business with safety to its depositors and creditors and the general public:
Provided, That any determination for the resumption of business of the institution shall be subject to
prior approval of the Monetary Board. (now deemed closed upon appointment of a receiver under §12
of the PDIC Charter)
If the receiver determines that the institution cannot be rehabilitated or permitted to resume business in
accordance with the next preceding paragraph, the Monetary Board shall notify in writing the board of
directors of its findings and direct the receiver to proceed with the liquidation of the institution. The
receiver shall:
(1) file ex parte with the proper regional trial court, and without requirement of prior notice or any other
action, a petition for assistance in the liquidation of the institution pursuant to a liquidation plan adopted
by the Philippine Deposit Insurance Corporation for general application to all closed banks. In case of
quasi-banks, the liquidation plan shall be adopted by the Monetary Board. Upon acquiring jurisdiction,
the court shall, upon motion by the receiver after due notice, adjudicate disputed claims against the
DEAN JMGH | BANKING L AW | YAP, K.

institution, assist the enforcement of individual liabilities of the stockholders, directors and officers, and
decide on other issues as may be material to implement the liquidation plan adopted. The receiver
shall pay the cost of the proceedings from the assets of the institution.
(2) convert the assets of the institution to money, dispose of the same to creditors and other parties, for
the purpose of paying the debts of such institution in accordance with the rules on concurrence and
preference of credit under the Civil Code of the Philippines and he may, in the name of the institution,
and with the assistance of counsel as he may retain, institute such actions as may be necessary to
collect and recover accounts and assets of, or defend any action against, the institution. The assets of
an institution under receivership or liquidation shall be deemed in custodia legis in the hands of the
receiver and shall, from the moment the institution was placed under such receivership or liquidation,
be exempt from any order of garnishment, levy, attachment, or execution.
The actions of the Monetary Board taken under this section or under Section 29 of this Act shall be
final and executory, and may not be restrained or set aside by the court except on petition for certiorari
on the ground that the action taken was in excess of jurisdiction or with such grave abuse of discretion
as to amount to lack or excess of jurisdiction. The petition for certiorari may only be filed by the
stockholders of record representing the majority of the capital stock within ten (10) days from receipt by
the board of directors of the institution of the order directing receivership, liquidation or
conservatorship.
The designation of a conservator under Section 29 of this Act or the appointment of a receiver under
this section shall be vested exclusively with the Monetary Board. Furthermore, the designation of a
conservator is not a precondition to the designation of a receiver.
Jurisprudence (Memory Buzzer)
(1) First Philippine • First Philippine International Bank (formerly Producers Bank) and
International Mercurio Rivera against Carlos Ejercito, in substitution of Demetrio
Bank v. CA Demetria, and Jose Janolo
• This case involves 6 parcels of land in Sta. Rosa, Laguna which were
mortgaged to First Philippine International Bank by BYME Investment
and Development Corporation. Demetrio Demetria and Jose Janolo
(now represented by Carlos Ejercito) offered to buy these parcels of
land. At that time, they were negotiating with Mercurio Rivera, who was
then the manager of the Property Management Department of the
bank. The offer and acceptance of the amount due was contested by
the bank, and the Court herein ruled that there was in fact an
acceptance of the PHP5,500,000 offer during the meeting of Demetria,
Janolo and Rivera. Rivera’s authority to enter into the contract of sale
was also upheld on the ground that the bank had given him apparent
authority (ie., he was advertised as the officer in charge of the sale of
the parcels of land, among others).
• First Philippine International Bank now argues that when the bank was
under conservatorship, its second conservator, Leonida Encarnacion,
had repudiated the agreement pursuant to her authority as conservator
under the Central Bank Act which authorized the conservator to
overrule or revoke the actions of the previous management and board
of directors of the bank.
• Whether the conservator may revoke the perfected and enforceable
contract.
• The SC ruled in the negative. First, the issue was raised for the first
time on appeal, hence it should not have been considered in the first
place. Second, there is actually no evidence that Encarnacion had
repudiated the contract of sale. What she actually did was she, via the
letter, repudiated Rivera’s authority to make a binding offer, which was
done 7 months after the perfection of the contract. Third, the powers of
the conservator cannot extend to the post-facto repudiation of
71
perfected transactions, as such would necessarily infringe against the
non-impairment clause of the constitution. What the Central Bank Act
merely gives is the power of the conservator to revoke contracts that
are, under existing law, deemed to be defective (ie., void, voidable,
unenforceable or rescissible). This is in consonance with the principle
that what the board cannot do (ie., repudiating a contract validly
entered into), the conservator cannot do either.
3. Voluntary Liquidation
a. General Banking Law Section 68
Cessation of Banking Business
SECTION 68. Voluntary Liquidation. — In case of the voluntary liquidation of any bank organized
under the laws of the Philippines, or of any branch or office in the Philippines of a foreign bank, written
notice of such liquidation shall be sent to the Monetary Board before such liquidation is undertaken,
and the Monetary Board shall have the right to intervene and take such steps as may be necessary to
protect the interests of creditors. (86)
b. Financial Rehabilitation and Insolvency Act, Section 5 and 138
SECTION 5. Exclusions. — The term debtor does not include banks, insurance companies, pre-need
companies, and national and local government agencies or units.
For purposes of this section:
(a) Bank shall refer to any duly licensed bank or quasi-bank that is potentially or actually subject to
conservatorship, receivership or liquidation proceedings under the New Central Bank Act (Republic Act
No. 7653) or successor legislation;
(b) Insurance company shall refer to those companies that are potentially or actually subject to
insolvency proceedings under the Insurance Code (Presidential Decree No. 1460) or successor
legislation; and
(c) Pre-need company shall refer to any corporation authorized/licensed to sell or offer to sell pre-need
plans.
Provided, That government financial institutions other than banks and government-owned or -controlled
corporations shall be covered by this Act, unless their specific charter provides otherwise.
SECTION 138. Application of Relevant Legislation. — The liquidation of banks, financial institutions,
insurance companies and pre-need companies shall be determined by relevant legislation. The
provisions in this Act shall apply in a suppletory manner.
• FRIA does not apply to banks. The applicable law is the amended PDIC Charter.
4. Corrective Measures/Resolution
a. PDIC Charter, Sections 11 and 12, as amended by RA 10846
"BANK RESOLUTION
"SEC. 11. (a) The Corporation, in coordination with the Bangko Sentral ng Pilipinas, may commence
DEAN JMGH | BANKING L AW | YAP, K.

the resolution of a bank under this section upon:
"(1) Failure of prompt corrective action as declared by the Monetary Board; or
"(2) Request by a bank to be placed under resolution.
"The Corporation shall inform the bank of its eligibility for entry into resolution.
"(b) The Bangko Sentral ng Pilipinas shall inform the Corporation of the initiation of prompt corrective
action on any bank and shall be authorized to share with the Corporation all information, agreements or
documents, including any order of the Monetary Board, in relation to the prompt corrective action. The
Corporation shall have the authority to inquire and monitor the status of banks under prompt corrective
action.
"(c) When there is a failure of prompt corrective action as declared by the Monetary Board due to
capital deficiency, the Corporation, its duly authorized officers or employees, may examine, inquire or
look into the deposit records of a bank: Provided, That such authority may not be exercised when the
failure of prompt corrective action is due to grounds other than capital deficiency. For this purpose,
banks, their officers and employees are hereby mandated to disclose and report to the Corporation or
its duly authorized officers and employees, deposit account information in said bank.
"The Corporation, its duly authorized officers or employees are prohibited from disclosing information
obtained under this section to any person, government official, bureau or office. Any act done pursuant
to this section shall not be deemed as a violation of Republic Act No. 1405, as amended, Republic Act
No. 6426, as amended, Republic Act No. 8791, and other similar laws protecting or safeguarding the
secrecy or confidentiality of bank deposits: Provided, That any unauthorized disclosure of the
information under this section shall be subject to the same penalty under the foregoing laws protecting
the secrecy or confidentiality of bank deposits.
"(d) The stockholders, directors, officers or employees of the bank shall have the following obligations:
"(1) Ensure bank compliance with the terms and conditions prescribed by the Corporation
for the resolution of the bank;
"(2) Cause the engagement, with the consent of the Corporation, of an independent
appraiser or auditor for the purpose of determining the valuation of the bank consistent with
generally accepted valuation standards;
"(3) Ensure prudent management and administration of the bank's assets, liabilities and
records; and
"(4) Cooperate with the Corporation in the conduct or exercise of any or all of its authorities
under this Act and honor in good faith its commitment or undertaking with the Corporation
on the resolution of the bank.
"(e) Within a period of one hundred eighty (180) days from a bank's entry into resolution, the
Corporation, through the affirmative vote of at least five (5) members of the PDIC Board, shall
determine whether the bank may be resolved through the purchase of all its assets and assumption of
all its liabilities, or merger or consolidation with, or its acquisition, by a qualified investor.
"For this purpose, the Corporation may:
"(1) Determine a resolution package for the bank;
"(2) Identify and, with the approval of the Monetary Board, pre-qualify possible acquirers or
investors;
"(3) Authorize pre-qualified acquirers or investors to conduct due diligence on the bank, for
purposes of determining the valuation of a bank through an objective and thorough review
72
and appraisal of its assets and liabilities, and assessment of risks or events that may affect
its valuation; and
"(4) Conduct a bidding to determine the acquirer of the bank.
"(f) In determining the appropriate resolution method for a bank, the Corporation shall consider the:
"(1) Fair market value of the assets of the bank, its franchise, as well as the amount of its
liabilities;
"(2) Availability of a qualified investor;
"(3) Least cost to the DIF; and
"(4) Interest of the depositing public.
"(g) The Corporation may appoint or hire persons or entities of recognized competence in banking,
finance, asset management or remedial management, as its agents, to perform such powers and
functions of the Corporation in the resolution of a bank, or assist in the performance thereof.
"(h) The PDIC Board shall prescribe the guidelines or criteria for a bank to be placed under resolution.
"(i) Upon a determination by the Corporation that the bank may not be resolved, the Monetary Board
may act in accordance with Section 30 of Republic Act No. 7653 or the New Central Bank Act.
"(j) Bank resolution involving the purchase of all assets and assumption of all liabilities of a bank shall
be exempt from the provisions of Act No. 3952, otherwise known as 'The Bulk Sales Law'.
"(k) The provisions of this section are without prejudice to any action that the Monetary Board may take
under existing laws."
"LIQUIDATION OF A CLOSED BANK
"SEC. 12. (a) Whenever a bank is ordered closed by the Monetary Board, the Corporation shall be
designated as receiver and it shall proceed with the takeover and liquidation of the closed bank in
accordance with this Act. For this purpose, banks closed by the Monetary Board shall no longer be
rehabilitated."
5. Receivership/Involuntary Liquidation
a. General Banking Law, Section 69
SECTION 69. Receivership and Involuntary Liquidation. — The grounds and procedures for placing
a bank under receivership or liquidation, as well as the powers and duties of the receiver or liquidator
appointed for the bank shall be governed by the provisions of Sections 30, 31, 32, and 33 of the New
Central Bank Act: Provided, That the petitioner or plaintiff files with the clerk or judge of the court in
which the action is pending a bond, executed in favor of the Bangko Sentral, in an amount to be fixed
by the court. This Section shall also apply to the extent possible to the receivership and liquidation
proceedings of quasi-banks. (n)
b. New Central Bank Act, Section 30 (see above) – §30 used to be the only
applicable provision for liquidation, but it is now likewise governed by §12 of
the PDIC charter. No more 90-day rehabilitation. Deemed closed upon
appointment of a receiver.
c. Financial Rehabilitation and Insolvency Act, Section 5 and 138 (see above)
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Jurisprudence (Memory Buzzer)
(2) In Re: Petition for • Rural Bank of Bokod, Inc. (RBBI), Philippine Deposit Insurance
Assistance in the
Corporation (PDIC) against BIR
Liquidation of the
• The Supervision and Examination Sector (SES) Department III of the
Rural Bank of
BSP conducted a special examination of RBBI wherein various loan
Bokod (Benguet), irregularities were uncovered. Due to the inaction of RBBI, the
Inc. Monetary Board ordered RBBI to be placed under receivership under
the PDIC. When PDIC filed before the RTC a motion for approval of
the project of distribution of RBBI’s assets, the BIR manifested that
PDIC should first secure a tax clearance certificate (TCC) from the
appropriate BIR Regional Office. Pending compliance therewith, the
RTC held in abeyance the motion of PDIC.
• PDIC argues that the closure of banks under the New Central Bank Act
does not require the procurement of TCC as required under the Tax
Code, but merely the approval of the liquidation court.
• BIR counters that the Tax Code applies to all corporations, including
banks ordered closed by the Monetary Board.
• Whether the bank is still required to secure a TCC prior to liquidation.
(3)
• The SC ruled in the negative. First, on the procedural issue the SC
ruled that despite PDIC’s availment of the wrong remedy (ie., filing an
appeal by certiorari under Rule 45), the Court treated this petition as
one filed under Rule 65 in consideration of the crucial issues. Second,
the provision of the Tax Code regulates the relations only as between
the SEC and the BIR, making a TCC a prior requirement before the
SEC could approve the dissolution of a corporation. Here, SEC is not
even a party, and RBBI was placed under receivership by the BSP, not
the SEC. Third, §30 of the New Central Bank Act (ie., procedure for
liquidation of distressed banks) is silent as regards the TCC, and such
omission cannot compel this Court to apply the Tax Code by analogy
since to do so would be to read into the law and regulations something
that is simply not there, and would be tantamount to judicial legislation.
Fourth, since the purpose of the BIR for the TCC is to enable it to
determine the tax liabilities of the closed bank, such purpose is already
addressed by another provision of the Tax Code which imposes a
general duty on all receivers, trustees in bankruptcy and assignees to
file the necessary returns on behalf of the corporation under their care.
Hence, the filing by PDIC of a final tax return, on behalf of RBBI,
should already address the supposed concern of the BIR. Fifth, the
unreasonableness and impossibility of requiring a tax clearance before
the approval by the RTC of the project of distribution of the assets of
the RBBI becomes apparent in the situation wherein should the BIR
find that RBBI still had outstanding liabilities, PDIC will not be a ble to
pay the same because the project of distribution of assets of RBBI
remains unapproved by the RTC. It will be a “chicken-and-egg”
dilemma. Sixth, the evident void in current statutes and regulations is
not for this Court to fill in, but for the legislature.
• Difference between dissolution of ordinary corporations and of banks:
Ordinary Corporation Bank
Filing of a verified complaint and Summarily without need for prior
after proper notice and hearing, hearing, the Monetary Board can
the SEC will issue an order of forbid the bank from doing
suspension business
BIR should issue a TCC to the Monetary Board can immediately
corporation before SEC will issue appoint the PDIC as receiver
a final order of dissolution
73
The corporation is allowed to PDIC shall immediately gather
continue as a body corporate for 3 and take charge of the bank’s
years after dissolution for the assets and liabilities
purpose of prosecuting and
defending suits by or against it
The corporation may undertake its PDIC shall file ex parte with the
own liquidation, or at any time proper RTC a petition for
during said 3 years, it may convey assistance in the liquidation of the
all of its property to trustees for bank. The bank is not given the
the benefit of stockholders, option to undertake its own
members, creditors, etc. liquidation
i. Jurisdiction –
Jurisprudence (Memory Buzzer)
Koruga v. • Ana Maria Koruga against Teodoro Arcenas, Jr., Albert Aguirre,
Arcenas, Jr. Cesar Paguio, and Francisco Rivera
• This is a consolidation of 2 cases involving the parties. Ana Koruga
filed a complaint before the RTC against Arcenas, Jr. et. al. for
violations of §31 to §34 of the Corporation Code which prohibits self-
dealing and conflicts of interest of directors and officers, and
furthermore engaging in unsafe and unsound banking practices.
• Arcenas, et. al. now argue, among others, that the RTC has no
jurisdiction over the subject matter.
• Whether the regular courts have jurisdiction.
• The SC ruled in the negative. First, in re-examining Koruga’s
complaint, she (1) charged Arcenas, Jr., et. al. with violations of the
Corporation Code, prohibiting self-dealing and conflict of interest of
directors and officers; (2) invoked her right to inspect the corporation’s
records; (3) prayed for receivership and creation of a management
committee pursuant to the Rules Governing Intra-Corporate
Controversies, General Banking Law, and the New Central Bank Act.
Thus, it is clear that the acts complained of pertain to the conduct of
Banco Filipino’s banking business. The law vests in the BSP the
supervision over operations and activities of banks under the New
Central Bank Act. Second, the General Banking Law specifically deals
with loans contracted by bank directors or officers (ie., DOSRI loans).
Furthermore, the same law give the Monetary Board the authority to
determine whether a bank is conducting business in an unsafe or
unsound manner. Third, Koruga’s invocation of the Corporation Code
is misplaced since between a general and special law, the latter shall
prevail. Here, the New Central Bank Act regulates specifically banks
and other financial institutions. §30 vests the appointment of a receiver
exclusively with the Monetary Board. “Exclusively” connotes that only
the Monetary Board can resolve the issue of whether a bank is to be
placed under receivership. Fourth, Koruga has no standing since she
is admittedly a mere minority stockholder of Banco Filipino, while the
New Central Bank Act requires the petition for certiorari to be filed only
by the stockholders of record representing the majority of the capital
stock.
ii. Grounds – New Central Bank Act Sections 30 (see above) and 36;
General Banking Law Section 53 (see above); Unsafe and Unsound
practices, violations, etc. per Sec 8 of the PDIC Charter (see above);
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Jurisprudence (Memory Buzzer)
(4) Banco Filipino v. • Banco Filipino Savings and Mortgage Bank against Monetary
Monetary Board Board, Central Bank, Jose Fernandez, Carlota Valenzuela, Arnulfo
Aurellano, and Ramon Tiaoqui
• This is a consolidation of 9 cases concerning the legality of the closure
and receivership of Banco Filipino pursuant to the order of the
Monetary Board. 6 of these cases assail the authority of the liquidator
who caused the extrajudicial foreclosure of the mortgages made in
favor of the bank. The remaining 3 cases assail the alleged
arbitrariness of the Monetary Board in ordering the receivership of the
bank.
• Whether Central Bank and the Monetary Board acted arbitrarily and in
bad faith in finding and thereafter concluding that Banco Filipino is
insolvent, and in ordering its closure.
• The SC ruled in the affirmative. First, the report submitted revealed
that the finding of insolvency of Banco Filipino was based on the partial
list of exceptions and findings on the regular examination of the bank
as of July 31, 1984. At at time, the examination of the bank as to its
financial condition was not yet completed or finished (ex. It was stated
in the latter that “we have not yet officially terminated our examination
and we are still waiting for the unsubmitted replies to our previous
requests). Clearly, the examiner based his report on an incomplete
examination of the bank and outrightly concluded therein that the
latter’s financial status was one of insolvency or illiquidity. Second, the
actuation of the Monetary Board in closing the bank barely 4 days after
a conference with the latter on the examiner’s partial findings on its
financial position is also violative of what was provided in the Central
Bank Manual of Examination Procedures. It is hard to understand how
a period of 4 days after the conference (January 25, 1985) could be a
reasonable opportunity for a bank to undertake a responsive and
corrective action on the partial list of findings of the examiner-in-
charge. Third, here, the basic standards of substantial due process
were not observed (Ang Tibay case procedural due process requisites
for administrative bodies). The decision is merely based on pieces of
documentary evidence that are not sufficiently substantial and
probative for the purpose and conclusion they are presented. Fourth,
concerning the financial position of the bank as of January 25, 1985
showed that the total liabilities of 4,540.84 million does not exceed the
total assets of 4,981.53 million.
• Requisites for a Finding of a Bank’s Insolvency:
1. An examination shall be conducted by the head of the
appropriate supervising or examining department or his
examiners or agents into the condition of the bank
2. It shall be disclosed in the examination that the condition of
the bank is one of insolvency, or that its continuance in
business would involve probable loss to its depositors or
creditors
3. The department head concerned shall inform the Monetary
Board in writing of the facts
4. The Monetary Board shall find the statements of the
department head to be true
SECTION 36. Proceedings Upon Violation of This Act and Other Banking Laws, Rules,
Regulations, Orders or Instructions. — Whenever a bank or quasi-bank, or whenever any person or
entity wilfully violates this Act or other pertinent banking laws being enforced or implemented by the
Bangko Sentral or any order, instruction, rule or regulation issued by the Monetary Board, the person
or persons responsible for such violation shall unless otherwise provided in this Act be punished by a
74
fine of not less than Fifty thousand pesos (P50,000) nor more than Two hundred thousand pesos
(P200,000) or by imprisonment of not less than two (2) years nor more than ten (10) years, or both, at
the discretion of the court.
Whenever a bank or quasi-bank persists in carrying on its business in an unlawful or unsafe manner,
the Board may, without prejudice to the penalties provided in the preceding paragraph of this section
and the administrative sanctions provided in Section 37 of this Act, take action under Section 30 of this
Act.
iii. Receiver – New Central Bank Act Section 30 (see above)
iv. Duties of the Receiver – PDIC Charter, Section 12 (see above) and 13
"SEC. 13. (a) The receiver is authorized to adopt and implement, without need of consent of the
stockholders, board of directors, creditors or depositors of the closed bank, any or a combination of the
following modes of liquidation:
"(1) Conventional liquidation; and
"(2) Purchase of assets and/or assumption of liabilities.
"(b) In addition to the powers of a receiver provided under existing laws, the Corporation, as receiver of
a closed bank, is empowered to:
"(1) Represent and act for and on behalf of the closed bank;
"(2) Gather and take charge of all the assets, records and affairs of the closed bank, and
administer the same for the benefit of its creditors;
"(3) Convert the assets of the closed bank to cash or other forms of liquid assets, as far as
practicable;
"(4) Bring suits to enforce liabilities of the directors, officers, employees, agents of the
closed bank and other entities related or connected to the closed bank or to collect, recover,
and preserve all assets, including assets over which the bank has equitable interest;
"(5) Appoint or hire persons or entities of recognized competence in banking, finance, asset
management or remedial management, as its deputies, assistants or agents, to perform
such powers and functions of the Corporation as receiver of the closed bank, or assist in the
performance thereof;
"(6) Appoint or hire persons or entities of recognized competence in forensic and fraud
investigations;
"(7) Pay accrued utilities, rentals and salaries of personnel of the closed bank for a period
not exceeding three (3) months, from available funds of the closed bank;
"(8) Collect loans and other claims of the closed bank and for this purpose, modify,
compromise or restructure the terms and conditions of such loans or claims as may be
deemed advantageous to the interests of the creditors of the closed bank;
"(9) Hire or retain private counsel as may be necessary;
"(10) Borrow or obtain a loan, or mortgage, pledge or encumber any asset of the closed
bank, when necessary to preserve or prevent dissipation of the assets, or to redeem
foreclosed assets of the closed bank, or to minimize losses to its depositors and creditors;
"(11) If the stipulated interest rate on deposits is unusually high compared with prevailing
applicable interest rates, the Corporation as receiver, may exercise such powers which may
DEAN JMGH | BANKING L AW | YAP, K.

include a reduction of the interest rate to a reasonable rate: Provided, That any
modifications or reductions shall apply only to earned and unpaid interest;
"(12) Utilize available funds of the bank, including funds generated by the receiver from the
conversion of assets to pay for reasonable costs and expenses incurred for the preservation
of the assets, and liquidation of, the closed bank, without need for approval of the liquidation
court;
"For banks with insufficient funds, the Corporation is authorized to advance the foregoing
costs and expenses, and collect payment, as and when funds become available.
"(13) Charge reasonable fees for the liquidation of the bank from the assets of the bank:
Provided, That payment of these fees, including any unpaid advances under the
immediately preceding paragraph, shall be subject to approval by the liquidation court;
"(14) Distribute the available assets of the closed bank, in cash or in kind, to its creditors in
accordance with the Rules on Concurrence and Preference of Credits under the Civil Code
or other laws;
"(15) Dispose records of the closed bank that are no longer needed in the liquidation in
accordance with guidelines set by the PDIC Board of Directors, notwithstanding the laws on
archival period and disposal of records; and
"(16) Exercise such other powers as are inherent and necessary for the effective discharge
of the duties of the Corporation as receiver.
"The Board of Directors shall adopt such policies and guidelines as may be necessary for
the performance of the above powers by personnel, deputies, assistants and agents of the
Corporation.
"(c) After the payment of all liabilities and claims against the closed bank, the Corporation shall pay
surplus, if any, dividends at the legal rate of interest from date of takeover to date of distribution to
creditors and claimants of the closed bank in accordance with the Rules on Concurrence and
Preference of Credits under the Civil Code or other laws before distribution to the shareholders of the
closed bank.
"(d) The officers, employees, deputies, assistants and agents of the receiver shall have no liability and
shall not be subject to any action, claim or demand in connection with any act done or omitted to be
done by them in good faith in connection with the exercise of their powers and functions under this Act
and other applicable laws, or other actions duly approved by the court.
"(e) The placement of a bank under liquidation shall have the following effects:
"(1) On the corporate franchise or existence
"Upon placement by the Monetary Board of a bank under liquidation, it shall continue as a
body corporate until the termination of the winding-up period under Section 16 of this Act.
Such continuation as a body corporate shall only be for the purpose of liquidating, settling
and closing its affairs and for the disposal, conveyance or distribution of its assets pursuant
to this Act. The receiver shall represent the closed bank in all cases by or against the closed
bank and prosecute and defend suits by or against it. In no case shall the bank be reopened
and permitted to resume banking business after being placed under liquidation.
"(2) On the powers and functions of its directors, officers and stockholders
"The powers, voting rights, functions and duties, as well as the allowances, remuneration
and perquisites of the directors, officers, and stockholders of such bank are terminated upon
its closure. Accordingly, the directors, officers, and stockholders shall be barred from
interfering in any way with the assets, records, and affairs of the bank.
75
"The receiver shall exercise all authorities as may be required to facilitate the liquidation of
the closed bank for the benefit of all its creditors.
"(3) On the assets
"Upon service of notice of closure as provided in Section 14 of this Act, all the assets of the
closed bank shall be deemed in custodia legis in the hands of the receiver, and as such,
these assets may not be subject to attachment, garnishment, execution, levy or any other
court processes. A judge, officer of the court or any person who shall issue, order, process
or cause the issuance or implementation of the garnishment order, levy, attachment or
execution, shall be liable under Section 27 of this Act: Provided, however, That collaterals
securing the loans and advances granted by the Bangko Sentral ng Pilipinas shall not be
included in the assets of the closed bank for distribution to other creditors: Provided, further,
That the proceeds in excess of the amount secured shall be returned by the Bangko Sentral
ng Pilipinas to the receiver.
"Any preliminary attachment or garnishment on any of the assets of the closed bank existing
at the time of closure shall not give any preference to the attaching or garnishing party.
Upon motion of the receiver, the preliminary attachment or garnishment shall be lifted and/or
discharged.
"(4) On labor relations
"Notwithstanding the provisions of the Labor Code, the employer-employee relationship
between the closed bank and its employees shall be deemed terminated upon service of the
notice of closure of the bank in accordance with this Act. Payment of separation pay or
benefits provided for by law shall be made from available assets of the bank in accordance
with the Rules on Concurrence and Preference of Credits under the Civil Code or other
laws.
"(5) Contractual obligations
"The receiver may cancel, terminate, rescind or repudiate any contract of the closed bank
that is not necessary for the orderly liquidation of the bank, or is grossly disadvantageous to
the closed bank, or for any ground provided by law.
"(6) On interest payments
"The liability of a bank to pay interest on deposits and all other obligations as of closure shall
cease upon its closure by the Monetary Board without prejudice to the first paragraph of
Section 85 of Republic Act No. 7653 (the New Central Bank Act): Provided, That the
receiver shall have the authority, without need for approval of the liquidation court, to assign,
as payment to secured creditors, the bank assets serving as collaterals to their respective
loans up to the extent of the outstanding obligations, including interest as of date of closure
of the bank, as validated by the receiver. The valuation of the asset shall be based on the
prevailing market value of the collaterals as appraised by an independent appraiser on an
'as is where is' basis.
"(7) Liability for penalties and surcharges for late payment and nonpayment of taxes
"From the time of closure, the closed bank shall not be liable for the payment of penalties
and surcharges arising from the late payment or nonpayment of real property tax, capital
gains tax, transfer tax and similar charges.
"(8) Bank charges and fees on services
"The receiver may impose, on behalf of the closed bank, charges and fees for services
rendered after bank closure, such as, but not limited to, the execution of pertinent deeds
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and certifications.
"(9) Actions pending for or against the closed bank
"Except for actions pending before the Supreme Court, actions pending for or against the
closed bank in any court or quasi-judicial body shall, upon motion of the receiver, be
suspended for a period not exceeding one hundred eighty (180) days and referred to
mandatory mediation. Upon termination of the mediation, the case shall be referred back to
the court or quasi-judicial body for further proceedings.
"(10) Final decisions against the closed bank
"The execution and enforcement of a final decision of a court other than the liquidation court
against the assets of a closed bank shall be stayed. The prevailing party shall file the final
decision as a claim with the liquidation court and settled in accordance with the Rules on
Concurrence and Preference of Credits under the Civil Code or other laws.
"(11) Docket and other court fees
"Payment of docket and other court fees relating to all cases or actions filed by the receiver
with any judicial or quasi-judicial bodies shall be deferred until the action is terminated with
finality. Any such fees shall constitute as a first lien on any judgment in favor of the closed
bank or in case of unfavorable judgment, such fees shall be paid as liquidation costs and
expenses during the distribution of the assets of the closed bank.
"(12) All assets, records, and documents in the possession of the closed bank at the time of
its closure are presumed held by the bank in the concept of an owner.
"(13) The exercise of authority, functions, and duties by the receiver under this Act shall be
presumed to have been performed in the regular course of business.
"(14) Assets and documents of the closed bank shall retain their private nature even if
administered by the receiver. Matters relating to the exercise by the receiver of the functions
under this Act shall be subject to visitorial audit only by the Commission on Audit."
v. “Close Now Hear Later Doctrine” –
Jurisprudence (Memory Buzzer)
(5) Central Bank v. • Monetary Board Resolution 596 was issued, ordering the closure of
CA (1993) Triumph Savings Bank and placing it under receivership based on
reports submitted to the Central Bank that TSB was insolvent and that
Clarence Tiu digest continuing its business would lead to losses. TSB assails the validity of
the resolution on the ground that it was not afforded administrative due
process because no prior notice and hearing were given.
• Issue: May a Monetary Board resolution placing a private bank under
receivership be annulled on the ground of lack of prior notice and
hearing? -- - NO
• Sec. 29 does not contemplate prior notice and hearing before a bank
may be directed to stop operations and placed under receivership.
When par. 4 provides for the filing of a case within 10 days after the
receiver takes charge of the assets of the bank, it is unmistakable that
the assailed actions should precede the filing of the case.
• Sec. 29 does not altogether divest a bank or a non-bank financial
institution placed under receivership of the opportunity to be heard and
present evidence on arbitrariness and bad faith because within 10
days from the date the receiver takes charge of the assets of the bank,
resort to judicial review may be had by filing an appropriate pleading
with the court.
• Respondent TSB did in fact avail of this remedy by filing a complaint
76
with the RTC on the 8th day following the takeover by the receiver of
the bank's assets.
• This "close now and hear later" scheme is grounded on practical and
legal considerations to prevent unwarranted dissipation of the bank's
assets and as a valid exercise of police power to protect the
depositors, creditors, stockholders and the general public.
(6) Monetary Board • Supervision and Examination Department (SED) of BSP conducted
v. Antonio examination of books of respondent banks. Examiners provided them
Valenzuela with Lists of Findings/Exceptions containing the deficiencies
discovered. Respondent banks were informed that the SED found that
Clarence Tiu digest the banks failed to carry out the required remedial measures. Banks
noted that none of them had received the Report of Examination (ROE)
which finalizes the audit findings. Banks prayed that the SED be
enjoined from submitting the ROE or any similar report to the Monetary
Board (MB), or if the ROE had already been submitted, the MB be
enjoined from acting on the basis of said ROE, on the allegation that
the failure to furnish the bank with a copy of the ROE violated its right
to due process. RTC Judge Antonio- Valenzuela granted prayers for
issuance of TROs. CA ruled there was no GADLEJ.
• SC held writs of preliminary injunction were improperly issued bec the
requirements were not present. Banks are not entitled to copies of
ROE; hence, there was no basis for preliminary injunction. The
issuance of the writs of PI is an unwarranted interference of power of
Monetary Board to appoint a conservator or a receiver for a bank (for
which ROE is needed). It is well-settled that the closure of a bank may
be considered as an exercise of police power. The action of the MB on
this matter is final and executory. Such exercise may nonetheless be
subject to judicial inquiry and can be set aside if found to be in excess
of jurisdiction or with such grave abuse of discretion as to amount to
lack or excess of jurisdiction. This “close now, hear later” scheme is
grounded on practical and legal considerations to prevent unwarranted
dissipation of the bank’s assets and as a valid exercise of police power
to protect the depositors, creditors, stockholders, and the general
public. The writ of preliminary injunction cannot, thus, prevent the MB
from taking action, by preventing the submission of the ROEs and
worse, by preventing the MB from acting on such ROEs. Judicial
review enters the picture only after the MB has taken action; it cannot
prevent such action by the MB. The threat of the imposition of
sanctions, even that of closure, does not violate their right to due
process, and cannot be the basis for a writ of preliminary injunction.
• The “close now, hear later” doctrine has already been justified as a
measure for the protection of the public interest. Swift action is called
for on the part of the BSP when it finds that a bank is in dire straits.
Unless adequate and determined efforts are taken by the government
against distressed and mismanaged banks, public faith in the banking
system is certain to deteriorate to the prejudice of the national
economy itself, not to mention the losses suffered by the bank
depositors, creditors, and stockholders, who all deserve the protection
of the government.
vi. Liquidation
a. Actions to take – New Central Bank Act Section 30 (see
above), 31, and 32; PDIC Charter, Sections 14-16
SECTION 31. Distribution of Assets. — In case of liquidation of a bank or quasi-bank, after payment
of the cost of proceedings, including reasonable expenses and fees of the receiver to be allowed by
DEAN JMGH | BANKING L AW | YAP, K.

the court, the receiver shall pay the debts of such institution, under order of the court, in accordance
with the rules on concurrence and preference of credit as provided in the Civil Code.
SECTION 32. Disposition of Revenues and Earnings. — All revenues and earnings realized by the
receiver in winding up the affairs and administering the assets of any bank or quasi-bank within the
purview of this Act shall be used to pay the costs, fees and expenses mentioned in the preceding
section, salaries of such personnel whose employment is rendered necessary in the discharge of the
liquidation together with other additional expenses caused thereby. The balance of revenues and
earnings, after the payment of all said expenses, shall form part of the assets available for payment to
creditors.
"NOTICE OF CLOSURE AND TAKEOVER ACTIVITIES
"SEC. 14. (a) Upon the designation of the Corporation as receiver of a closed bank, it shall serve a
notice of closure to the highest-ranking officer of the bank present in the bank premises, or in the
absence of such officer, post the notice of closure in the bank premises or on its main entrance. The
closure of the bank shall be deemed effective upon the service of the notice of closure. Thereafter, the
receiver shall takeover the bank and exercise the powers of the receiver as provided in this Act.
"(b) The receiver shall have authority to use reasonable force, including the authority to force open the
premises of the bank, and exercise such acts necessary to take actual physical possession and
custody of the bank and all its assets, records, documents, and take charge of its affairs upon the
service of the notice of closure.
"(c) Directors, officers, employees or agents of a bank hold money and other assets of the bank in trust
or under administration or management by them for the bank in their fiduciary capacity. Upon service of
the notice of closure to the bank, all directors, officers, employees or agents of the closed bank shall
have the duty to immediately account for, surrender and turn over to the receiver, and provide
information relative to, the assets, records, and affairs of the closed bank in their possession, custody,
administration or management.
"(d) When the circumstances so warrant, the local government unit and law enforcement agencies
concerned shall, upon request, immediately provide assistance to the receiver during the service of
notice of closure and actual takeover operations to ensure the orderly conduct thereof and the security
and safety of the personnel of the receiver and the employees of the closed bank."
"PURCHASE OF ASSETS AND ASSUMPTION OF LIABILITIES
"SEC. 15. (a) The receiver shall have the authority to facilitate and implement the purchase of the
assets of the closed bank and the assumption of its liabilities by another insured bank, without need for
approval of the liquidation court. The exercise of this authority shall be in accordance with the Rules on
Concurrence and Preference of Credits under the Civil Code or other laws, subject to such terms and
conditions as the Corporation may prescribe. The disposition of the branch licenses and other bank
licenses of the closed bank shall be subject to the approval of the Bangko Sentral ng Pilipinas.
"(b) Such action of the receiver to determine whether a bank may be the subject of a purchase of
assets and assumption of liabilities transaction shall be final and executory, and may not be set aside
by any court."
• There is likewise no need for approval by the court.
"CONVENTIONAL LIQUIDATION
"A. ASSET MANAGEMENT AND CONVERSION
77
"SEC. 16. (a) The assets gathered by the receiver shall be evaluated and verified as to their existence,
ownership, condition, and other factors to determine their realizable value. In the management,
preservation and disposition of assets, the receiver shall be guided by cost-benefit considerations,
resources of the closed bank, and potential asset recovery.
"(b) The conversion of the assets of the closed bank shall be carried out in a fair and transparent
manner in accordance with the rules and procedures as may be determined by the receiver.
"(c) In the management and/or conversion of the assets of the closed bank, the receiver shall have the
authority to:
"(1) Represent the closed bank before the Land Registration Authority (LRA), the Bureau of
Lands, the Register of Deeds, the Land Transportation Office (LTO), the Assessor's Office
or other appropriate office of the local government unit, the Securities and Exchange
Commission (SEC), or such other similar government agencies or private entities in:
"(i) Verifying the authenticity of ownership documents;
"(ii) Registering the interest of the closed bank on a specific property;
"(iii) Consolidating ownership over an asset of the closed bank;
"(iv) Securing certified true copies of documents held by the foregoing
agencies/entities in relation to an asset of the closed bank;
"(v) Securing the appropriate certification from the foregoing agencies/entities in
relation to an asset of the closed bank; and
"(vi) Performing other related activities;
"(2) Conduct a physical or ocular inspection of the properties owned by, or mortgaged to,
the closed bank, to determine their existence and present condition;
"(3) Determine the disposal price of assets in accordance with generally accepted valuation
principles, standards and practices, subject to such guidelines as the receiver may
determine;
"(4) Dispose real or personal properties of the closed bank through bidding, negotiated sale
or any other mode including lease with option to purchase, whether by piece or by lot, as
may be reasonably determined by the receiver based on cost-benefit considerations and to
allow efficient distribution of assets to creditors; and
"(5) Engage third parties to assist in the liquidation, manage and/or dispose the assets,
handle cases filed against or by the closed bank, subject to such guidelines as determined
by the receiver.
"(d) Notwithstanding any provision of law to the contrary, the following rules shall apply to the
management and/or conversion by the receiver of the assets of the closed bank:
"(1) Upon notification of the closure of a bank, the LRA, the Bureau of Lands, the Register of
Deeds, the LTO, the assessor's office or other appropriate office of the local government
unit, or such other similar government agencies shall not allow any transaction affecting the
assets of the closed bank without the consent of the receiver.
"(2) Upon issuance by the Monetary Board of the resolution ordering the closure of a bank,
any person or entity in custody or possession of assets or records of the closed bank,
including, but not limited to, the closed bank's deposit accounts, titles to real property,
collaterals, promissory notes, evidence of indebtedness or investments shall immediately
turn over custody of said assets and records to the receiver. Such obligation shall cover
evidences of deposit such as passbooks or certificates of deposit issued by the bank to its
DEAN JMGH | BANKING L AW | YAP, K.

depositors. Pending turnover, all persons or entities in custody or possession of any asset
or record of the closed bank shall hold the said assets or records in trust for the receiver.
"(3) The persons or entities in custody or possession of such asset shall not allow, authorize
or cause the withdrawal, transfer, disposition, removal, conversion, concealment, or other
transaction involving or relating to the subject asset, unless otherwise directed by the
receiver.
"(e) The receiver shall have the authority to invest funds received from the conversion of the assets of
the closed bank in government securities, other government-guaranteed marketable securities or
investment-grade debt instruments.
"(f) The proceeds of the sale of the bank and branch licenses shall be for the benefit of the creditors of
the closed bank which shall be distributed in accordance with this Act and the Rules on Concurrence
and Preference of Credits under the Civil Code or other laws.
"B. PETITION FOR ASSISTANCE IN THE LIQUIDATION OF A CLOSED BANK
"(g) A petition for assistance in the liquidation is a special proceeding for the liquidation of a closed
bank, and includes the declaration of the concomitant right of its creditors and the order of payment of
their valid claims in the disposition of its assets.
"Any proceeding initiated under this section shall be considered in rem. Jurisdiction over all persons
affected by the proceeding shall be considered as acquired upon publication of the order setting the
case for initial hearing in any newspaper of general circulation in the Philippines.
"(h) The liquidation court shall have exclusive jurisdiction to adjudicate disputed claims against the
closed banks, assist in the enforcement of individual liabilities of the stockholders, directors and officers
and decide on all other issues as may be material to implement the distribution plan adopted by the
Corporation for general application to all closed banks.
"(i) The provisions of Republic Act No. 8799, otherwise known as 'The Securities Regulation Code',
and Supreme Court Administrative Matter No. 00-8-10-SC, entitled, 'The Rules of Procedure on
Corporate Rehabilitation', shall not be applicable to the petition for assistance in the liquidation of the
closed bank.
"(j) The petition shall be filed in the RTC which has jurisdiction over the principal office of the closed
bank or the principal office of the receiver, at the option of the latter.
"(k) The petition shall be filed ex parte within a reasonable period from receipt of the Monetary Board
Resolution placing the bank under liquidation.
"(l) All persons or entities with claims against the assets of the closed bank shall file their claims with
the receiver within sixty (60) days from the date of publication of the notice of closure. Claims filed
outside the foregoing prescribed period shall be disallowed.
"Claims denied by the receiver shall be filed with the liquidation court within sixty (60) days from receipt
of the final notice of denial of claim.
"(m) A claim whose validity has not yet been determined with finality at the time of the submission of
the final asset distribution plan, either by reason of a pending suit or for whatever reason, shall be
considered as contingent claim and shall not be paid under the proposed final asset distribution plan.
"(n) Upon finality of the order approving the final asset distribution plan, the petition for assistance in
the liquidation of a closed bank shall henceforth be, for all intents and purposes, considered closed and
terminated and the receiver, its officers, employees or agents, are forever discharged from any and all
claims and/or liability arising from or in connection with the liquidation of the closed bank.
"(o) The receiver shall submit a final report on the implementation of the approved final asset
78
distribution plan to the Monetary Board and the SEC after the expiration of the winding-up period
provided in this Act.
"(p) The Supreme Court shall promulgate the appropriate procedural rules to implement this section.
"C. WINDING-UP
"(q) The creditors shall have a period of six (6) months from the date of publication of notice of the
approval by the court of the final asset distribution plan of the closed bank within which to claim
payment of the principal obligations and surplus dividends. During this six-month period, the receiver
shall hold as trustee the assets allocated in the final asset distribution plan for said creditors.
"Failure by the creditor to comply with the documentary requirements within the prescribed period
and/or refusal to accept the asset as payment shall be deemed as abandonment or waiver of his or her
right to payment.
"(r) The individual stockholders of record or their duly-authorized representative or the court-appointed
stockholders' representative shall have a period of six (6) months from publication of notice of the
approval by the court of the final asset distribution plan of the closed bank within which to claim the
residual assets. During this six-month period, the receiver shall hold as trustee the assets allocated in
the final asset distribution plan for said stockholders of record.
"Failure by the individual stockholders of record or their duly-authorized representative or the court-
appointed stockholders' representative to comply with the documentary requirements within the
prescribed period and/or refusal to accept the residual assets in kind shall be deemed as abandonment
or waiver of right to receive the residual assets.
"(s) After the lapse of the six-month period provided in paragraphs (q) and (r) of this section, all assets
which remain unclaimed by the creditors and/or stockholders of record shall be turned over to the
Bureau of Treasury.
"(t) The receiver shall continue to keep all the pertinent records of the closed bank for a period of six
(6) months from the date of publication of the approval of the final asset distribution plan. After the
lapse of this period, the receiver is authorized to dispose of the same in accordance with the rules and
regulations to be prescribed by the receiver."
b. Disposition of banking franchise – New Central Bank Act
Section 33
SECTION 33. Disposition of Banking Franchise. — The Bangko Sentral may, if public interest so
requires, award to an institution, upon such terms and conditions as the Monetary Board may approve,
the banking franchise of a bank under liquidation to operate in the area where said bank or its
branches were previously operating: Provided, That whatever proceeds may be realized from such
award shall be subject to the appropriate exclusive disposition of the Monetary Board.
vii. Effects of Receivership and Liquidation - PDIC Charter, Section 13
(see above)
viii. Judicial Review
a. Availability of Remedy – New Central Bank Act Section 30
(see above)
b. Ground: Grave Abuse of Discretion –
Jurisprudence (Memory Buzzer)
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(7) Central Bank v. • Central Bank against Isidro Fernandez and Jesus Jayme
CA (1981) • A major portion of Provident Savings Bank’s loanable funds was
granted to directors, officers and stockholders and their related
interests and the bank was cautioned to avoid concentration of credits
and to adopt a policy where loans would be granted to a larger number
of borrowers who had no financial interest in the bank. Provident,
among other banks, experienced a bank run (ie., occurs when a large
number of customers of a bank or another financial institution withdraw
their deposits simultaneously due to concerns about the bank's
solvency). In view thereof, Provident had no recourse but to request
emergency loans from the Central Bank to meet the demands of the
depositors. The Central Bank denied their request, and later on the
Deputy Governor of Central Bank told Isidro Fernandez and Jesus
Jayme (officers of Provident) that the assistance to Provident would be
given if management and control of the bank was relinquished in favor
of the Iglesia ni Kristo headed by Rogelio Manalo, and the Deputy
Governor likewise told the Iglesia ni Kristo that the only way they could
withdraw their deposits from Provident is if they take such
management and control of the bank. Since the bank’s financial
condition was still deteriorating, Rogelio Manalo subsequently resigned
as chairman and this caused large withdrawals from big depositors
which the bank could not readily meet. The Central Bank instituted
liquidation proceedings before the CFI, but the latter ruled that the
Central Bank is ordered to desist from liquidating Provident.
• Whether liquidation of Provident would be proper.
• The SC ruled in the negative. First, there was arbitrariness and bad
faith when the Central Bank pressured Fernandez and Jayme into
relinquishing management and control of Provident to the Iglesia ni
Kristo which did not have any intention of restoring the bank into its
former sound financial condition but whose interest was merely to
recover its deposits from Provident. Second, the Central bank had
already rehabilitated similarly distressed banks (ex. Republic Bank and
the Overseas Bank of Manila), among several others, so that it would
be unjust to Provident to be deprived of the Central Bank’s continued
support. Third, While the closure and liquidation of a bank may be
considered an exercise of police power, the validity of such exercise of
police power is subject to judicial inquiry and could be set aside if it is
either capricious, discriminatory, whimsical, arbitrary, unjust, or a
denial of the due process and equal protection clauses of the
Constitution. Fourth, at any rate, the fact that the directors, officers,
and stockholders of Provident had been extended loans by the bank
which may have caused its insolvency, is of little importance since
these loans were already known to and taken into consideration by the
Central Bank when it decided in 1968 to allow Provident to continue in
business.
(8) Banco Filipino v. • Same; same
Monetary Board
c. Who may question –
Jurisprudence (Memory Buzzer)
(9) Central Bank v. • Same; same
CA (1993)
(10) Central Bank v. • Central Bank against Producers Bank and Producer Properties, Inc.
CA (1992) • During the regular examination of Producers Bank, the Central Bank
79
examiners stumbled upon some highly questionable loans which had
been extended by the bank’s management to several entities. It was
discovered that these loans, approximately PHP300,000,000 were
fictitious as they were extended, without collateral, to certain interests
related to the bank’s owners themselves. Said loans were deemed
anomalous particularly because the total paid-in capital of the bank at
that time was only PHP140,544,000. This means that the entire paid-in
capital of the bank, together with some PHP160,000,000 of depositors’
money, was utilized by the bank’s management to fund these
unsecured loans. At the height of the controversy, several blind items
about a family-owned bank in Binondo which granted fictitious loans to
its stockholders appeared in major newspapers, which resulted in a
bank run. While the bank now admits that it had no choice but to
submit to conservatorship, it nonetheless requested that the same be
lifted by the Central Bank. No rehabilitation plan was however agreed
between the parties for a period of 3 years. Subsequently, the
Monetary Board issued a resolution instructing Producers Bank to
identify a new group of stockholders who will put in new capital and the
stockholders thereof have to decide whether or not to accept the terms
of the rehabilitation plan. The bank did not respond to such instruction,
but later on filed a complaint, devoting several pages to specific
allegations in support of the bank’s assertions that the conservatorship
was unwarranted, ill-motivated, illegal, utterly unnecessary and
unjustified. The Central Bank filed a motion to dismiss on the ground
that the complaint was filed without the consent of the bank’s
conservator.
• Whether Producers Bank had standing.
• The SC ruled in the negative. First, although a conservator, once
appointed, takes over the management of the bank and assumes
exclusive powers to oversee every aspect of the bank’s operations and
affairs, the §28-A of the Central Bank Act provides that the board of
directors may file suit to lift the conservatorship over it, to question
validity of the conservator’s fraudulent acts and abuses and the
arbitrary action of the conservator’s principal – the Monetary Board of
the Central Bank. Second, however, despite the fact that 38 pages
(out of 47) of the complaint were devoted to unwarranted, ill-motivated,
etc. conservatorship, the bank had already submitted to
conservatorship earlier. The complaint filed is not for the lifting of
conservatorship, but for an order requiring the conservator to restore
the viability of Producers Bank. Third, even if it was complaint for lifting
of conservatorship, such would have been filed out of time since it
should have been filed within 10 days from receipt of notice by the
majority stockholders of the order placing the bank under
conservatorship. However, this complaint was filed only 3 years, 7
months and 7 days later. Moreover, it was not initiated by the
stockholders of record representing the majority of the capital stock.
Hence, the order placing Producers Bank under conservatorship had
long become final and its validity could no longer be litigated in court.
• Requisites before the order of conservatorship may be set aside by a
court:
1. The appropriate pleading must be field by the stockholders
of record representing the majority of the capital stock of the
bank in the proper court
2. Said pleading must be filed within 10 days from receipt of
notice by said majority stockholders of the order placing the
bank under conservatorship
3. There must be convincing proof, after hearing, that the
action is plainly arbitrary and made in bad faith
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d. Finality; Injunction –
Jurisprudence (Memory Buzzer)
(11) Central Bank v. • Central Bank against Rural Bank of Libmanan, Inc.
Dela Cruz • The Department of Rural Banks and Savings and Loan Associations
(DRBSLA) of the Central Bank conducted examinations of the books
and affairs of Libmanan Bank. Irregularities were found in its lending
and deposit operations, including false entries and false statements in
the bank’s records to give it the appearance of solidity and soundness
which it did not possess. As a result of its questionable transactions,
the bank became insolvent. Since Libmanan failed to submit the
required acceptable reorganization and rehabilitation plan, the
Monetary Board ordered its liquidation. The Solicitor General filed in
the CFI a petition for assistance in the liquidation of the bank.
Libmanan filed a separate complaint for prohibition, mandamus, and
injunction against the Central Bank on the ground that the Central
Bank gravely abused its discretion in ordering the liquidation of said
Rural Bank. The judge issued an order restraining the Central Bank
from closing the bank and restoring the control and management to its
board of directors. The Central Bank filed a motion to dismiss on the
ground that the judge had no jurisdiction over a special civil action for
prohibition, mandamus and injunction against the Central Bank.
• Whether the judge acted with grave abuse of discretion in restraining
the Central Bank.
• The SC ruled in the affirmative. First, the actions of the Monetary
Board in proceedings on insolvency are explicitly declared by law to be
"final and executory." They may not be set aside, or restrained, or
enjoined by the courts, except upon "convincing proof that the action is
plainly arbitrary and made in bad faith." Second, the judge acted in
plain disregard of the fourth paragraph of Section 29 of the Central
Bank Act, when he restrained the petitioners from closing and
liquidating the Rural Bank of Libmanan, prevented them from
performing their functions, and ordered them to return the management
and control of the rural bank to its board of directors without receiving
convincing proof that the action of the CB was plainly arbitrary and
made in bad faith. Third, by using his own standards, instead of the
standards set forth in Section 29 of the law, as basis for issuing a
restraining order against the CB, respondent Judge committed a grave
abuse of discretion tantamount to excess, or lack of jurisdiction.
Fourth, a preliminary injunction should never be used to transfer the
possession or control of a thing to a party who did not have such
possession or control at the inception of the case. Its proper function is
simply to maintain the status quo at the commencement of the action.
The status quo at the time of filing Civil Case No. 1309 was that
Libmanan Bank was under the control of the DRBSLA Director, with
Consolacion V. Odra, as liquidator appointed by the Central Bank.
Fifth, a bank's claim that the resolution of the Monetary Board under
Section 29 is plainly arbitrary and done in bad faith should be asserted
as an affirmative defense or counter-claim in the proceedings for
assistance in liquidation. It may be filed as a separate action if no
petition for assistance in liquidation has been instituted yet.
e. Liability of Monetary Board and PDIC –
Jurisprudence (Memory Buzzer)
(12) Miranda v. PDIC • Leticia Mirand against PDIC, BSP and Prime Savings Bank
80
• Leticia Miranda was a depositor of Prime Savings Bank. She withdrew
• substantial amounts but instead of cash she opted to be issued a
crossed cashier’s check (cashier’s check no. 0000000518) worth 2.5M
and worth 3.002M Miranda deposited the two checks into her account
in another bank however, the BSP suspended the clearing privileges of
Prime Savings Bank effective 2:00 p.m. of June 3, 1999. Prime
Savings Bank declared a bank holiday. The two checks of petitioner
were returned to her unpaid. The BSP placed Prime Savings Bank
under the receivership of the Philippine Deposit Insurance Corporation
(PDIC). Miranda filed a civil action for sum of money to recover the
funds from her unpaid checks against Prime Savings Bank, PDIC and
the BSP. (TC – MIRANDA WON). CA - Reversed the TC and ruled in
favor of the PDIC and BSP, dismissing the case against them.
• Whether the PDIC, BSP and Prime Savings Bank are solidarily liable to
Miranda.
• The SC ruled that only Prime Savings Bank is solidarily liable to
Miranda. First, solidary liability cannot attach to the BSP, in its capacity
as government regulator of banks, and the PDIC as statutory receiver
under R.A. No. 7653, because they are the principal government
agencies mandated by law to determine the financial viability of banks
and quasi-banks, and facilitate receivership and liquidation of closed
financial institutions, upon a factual determination of the latter’s
insolvency. Second, Miranda is entitled to a preference in the assets of
Prime Savings Bank in its liquidation for the amounts of P3,002,000.00
and P2,500,000.00. Third, this “disputed claim” (ie., all claims, whether
they be against the assets of the insolvent bank, for specific
performance, breach of contract, damages, or whatever) should
therefore be lodged in the liquidation proceedings by the petitioner as
creditor, since the closure of Prime Savings Bank has rendered all
claims subsisting at that time moot which can best be threshed out
by the liquidation court and not the regular courts. It is well-settled in
both law and jurisprudence that the Central Monetary Authority,
through the Monetary Board, is vested with exclusive authority to
assess, evaluate and determine the condition of any bank, and
finding such condition to be one of insolvency, or that its continuance
in business would involve a probable loss to its depositors or
creditors, forbid bank or non-bank financial institution to do
business in the Philippines; and shall designate an official of the
BSP or other competent person as receiver to immediately take charge
of its assets and liabilities.
DEAN JMGH | BANKING L AW | YAP, K.

Fig. Conservatorship, Receivership, and Liquidation

CONSERVATORSHIP RECEIVERSHIP LIQUIDATION

Attempt to save the bank from bankruptcy and ultimate
liquidation; It is a step short of liquidation; Manner of helping
DEFINITION
a bank by effective management reforms and/or infusion of
additional capital
Summary closure of the Bank by the BSP without prior No hope in rehabilitating the bank; At this point, it
notice and hearing after a finding that continuance in determines and pays the claims of the bank’s creditors
business will involve probable loss to its depositors and
creditors

Based on report of MB that bank is in a state of inability or Upon finding of the MB that: Voluntary liquidation under Sec 68 pf GBL or upon finding
unwillingness to maintain a condition of liquidity deemed a) Unable to pay liabilities that bank can no longer be rehabilitated and cannot continue
adequate to protect the interest of its depositors and b) Insufficient realizable assets to meet its liabilities business after the 90 day receivership period
creditors c) Cannot continue business without involving
INSTANCES WHEN
probable loss to depositors and creditors
PLACED UNDER
d) Willfully violated cease and desist order under
SUCH
Sec. 37 of NCBA that has become final involving
acts or transactions which amount to fraud or
dissipation of assets of institution
e) Notifies BSP or publicly announces Bank Holiday

1 year, no extensions 90 days, no extensions No period stated in the law. May take some time depending
DURATION
on the determination and payment of claims to creditors

Conservator - person appointed to take over the

management of the bank and shall assume exclusive Receiver Liquidator
PERSON-IN-CHARGE
powers to oversee every aspect of the bank’s operations
and affairs

a) take charge of assets, liabilities and management a) immediately gather and take charge of all assets To assist the BSP in determining the claims of creditors
of the bank and liabilities of the bank against the bank
b) reorganize the management of the bank b) administer the assets and liabilities of the bank
c) collect all monies and debts due to the for the benefit of creditors
bank/quasi-bank c) exercise general powers of the receiver under
d) exercise all powers necessary to restore the Revised Rules of Court – preserve, administer
POWERS of PERSON-
viability of the bank/quasi-bank and dispose properties in litigation
IN-CHARGE
• power to overrule or revoke the actions of d) deposit or place the funds of the institution in non-
the previous management and board of speculative investments
directors e) determine as soon as possible, but not later than
• rescind contracts that are to be enforced 90 days, if the bank may be rehabilitated or
and not yet perfected permitted to resume its business subject to the
approval of the MB

May not revoke perfected and enforceable contracts – will May not dispose or sell any assets of the bank; Not allowed n/a
result to an infringement of the non-impairment clause to pay or commit any act that will involve the transfer or
LIMITATIONS TO
guaranteed by the Constitution disposition of any asset of the bank except the payment of
POWER
administrative expenditures and the deposit or placement of
funds in non-speculative investments

a) Bank still continues to operate as a banking
institution. The conservator merely takes the
place of the bank’s management and board of
directors
b) If found that the continuance in operation of the
EFFECTS
bank or quasi bank would involve probable loss to
depositors and creditors, conservatorship will be
terminated and bank will be placed under
receivership
a) Bank’s assets pass beyond its control into the Bank ceases to exist; (d) of receivership
possession and control of the receiver, and the
appointment of the receiver operates to suspend
the authority of the bank and its directors and
officers over its property and effects – equivalent
to injunction to restrain the bank officers from
intermeddling with the property of the bank in any
way
b) Officers are no longer authorized to transact
business in connection with the bank’s assets

81 DEAN JMGH | BANKING L AW | YAP, K.


After 1 year period of upon finding of MB that:
a) Bank can continue to operate on its own
b) When continuance of the business of the bank,
based on report of conservator, would involve
probable loss to depositors and creditors, in such
TERMINATION event bank placed under receivership or
liquidation
Judicial review will come later (based on “Close now, Hear later”) upon finding of grave abuse of discretion or bad faith.
Judicial action must be filed within 10 days from receipt of notice of Bank’s closure in a petition for certiorari by stockholders of record representing the majority of the capital stock in RTC
where head office of Bank is located and appealed to the CA under petition for review
REMEDY
and properties
c) Does not dissolve the bank as a corporation nor
does it interfere with the exercise of corporate
rights; Retain their corporate personality – can
sue and be sued but any case should be initiated
and prosecuted through the liquidator
d) Assets of the bank deemed in custodia legis in
the hands of receiver and shall be exempt from
any order of garnishment, levy, attachment or
execution
e) Forbidden by BSP to continue doing business
f) May not grant new loans or accept deposits BUT
is still obliged to collect debts owing to the bank
and foreclose mortgages
g) Will not pay interest on deposits but may still
collect interest and charge on all loans
After 90-day period and upon determination that bank
cannot be rehabilitated:
a) File ex-parte with RTC, without need for prior
notice or any other action, petition for assistance
in the liquidation of bank
b) Convert assets of bank to money, dispose to
creditors and other parties for the purpose of
paying the debts of the bank
c) Institute actions to collect and recover accounts
and assets and defend any action against the
bank
a) Wait for bank to be viable a) Intervene in the liquidation proceedings; There
b) Participate in receivership will be no preference of claims
82 DEAN JMGH | BANKING L AW | YAP, K.