BANKING LAWS GOVERNING LAWS Banking Institution are governed by the following laws: A. General banking laws .

General Banking Law (R.A. No. 8791) .New Central Bank Act (R.A. No. 7653) B. Special banking laws .New Rural Banks Act (R.A. No. 7353) .Private Development Banks Act (R.A. No. 4093) .Savings and Loan Association Act (R.A. No. 3779) . Thrift Banks Act (R.A. No. 7906) C. Other laws affecting banks .Secrecy of Bank Deposits Law (R.A. No. 1405) .Unclaimed Balances Law (Act No. 3936) .Philippine Deposit Insurance Corporation Act (R.A. No. 3591) .The general banking laws above mentioned are applicable to government banks like DBP and PNB. .The Al- Amanah Islamic Bank is subject to all banking and pertinent laws. (Bar Review Materials in Commercial Law, Jorge Miravite, 2002 ed.) THREE KINDS OF ENTITIES THAT INTRODUCE FUNDS INTO THE ECONOMY: 1.banks : entities that obtains funds from the public in the form of deposits and re-lend it to the public; 2.quasi-banks : those that obtain funds in the form of deposit substitutes and re-lend the same and not from the public or depositors. 3. Finance companies and other financial intermediaries: those that lend funds from their own assets. FIVE PERSONS PRIMARILY INTERESTED IN THE BUSINESS OF BANKING 1. Government 2. Depositors 3. Investors

4. Creditors 5. Borrowers BAR QUESTION: JOINT ACCOUNT VS. PARTNERSHIP (2000) Distinguish joint account from partnership. (3%) SUGGESTED ANSWER The following are the distinctions between joint account and partnership: 1) A partnership has a firm name while a joint account has none and is conducted in the name of the ostensible partner. 2) WHILE A PARTNERSHIP HAS JURIDICAL PERSONALITY AND MAY SUE OR BE SUED UNDER ITS FIRM NAME, A JOINT ACCOUNT HAS NO JURIDICAL PERSONALITY AND CAN SUE OR BE SUED ONLY IN THE NAME OF THE OSTENSIBLE PARTNER. 3) While a partnership has a common fund, a joint account has none. 4) While in a partnership, all general partners have the right of management, in a joint account, the ostensible partner manages its business operations. 5) While liquidations of a partnership may, by agreement, be entrusted to a partner or partners, in joint account liquidation thereof can only be done by the ostensible partner.

BAR QUESTION: Theory of Cognition vs. Theory of Manifestation (1997) The Civil Code adopts the theory of cognition, while the Code of Commerce generally recognizes the theory of manifestation, in the perfection of contracts. How do these two theories differ? SUGGESTED ANSWER: Under the theory of cognition, the acceptance is considered to effectively bind the offeror only from the time it came to his knowledge. Under the theory of manifestation, the contract is perfected at the moment when the acceptance is declared or made by the offeree. GENERAL BANKING LAW OF 2000 (GBL)

(RA No. 8791) Purpose: To 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 (Sec. 2). Scope of Application: The GBL primarily governs universal banks and commercial banks. It suppletorily governs thrift banks, rural banks and other banking institutions. GENERAL CONCEPTS BANKS . Entities engaged in the lending of funds obtained in the form of deposits (Sec. 2) .Entities duly authorized by the Monetary Board to engage in the business of regularly lending funds obtained regularly from the public through the receipt of deposits of any kind. . An investment company that performs function as such is NOT a bank. Thus an investment company that is engage solely in investing, reinvesting or trading in securities is not engage in banking. (Banas vs. Asia Pacific Finance Corp., Oct. 18, 2000). . However, an investment company which loans out money of its customers, collects interest, and charges a commission to both lender or borrower is engage in banking (Republic vs.Security Credit and Acceptance Corp.) QUASI-BANKS . Entities engaged in the borrowing of funds through the issuance, endorsement or assignment with recourse or acceptance of deposit substitutes(Se c.95) . Entities authorized to perform universal or commercial banking functions may also engage in quasi-banking functions. FINANCIAL INTERMEDIARIES . Persons or entities whose principal functions include the lending, investing or placement of funds on evidences of indebtedness or equity deposited with them, acquired by them or otherwise coursed through them, either for their own account or for the account of others. ORGANIZATION AND OPERATION A. Authority to Register/Incorporate

. The SEC 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 (Sec. 14). .The certificate of authority shall not be issued unless the Monetary Board is satisfied: 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; 2. That the public interest and economic conditions, both general and local, justify the authorization; and 3. That the amount of the 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 (Sec. 14). Organization of a Bank or Quasi-Bank Requirements: 1. The entity is a stock corporation; 2. Its funds are obtained from the public, i.e. 20 or more persons; and 3. The minimum capital requirements prescribed by the Monetary Board are satisfied (Sec. 8). Note: In Quasi banks, Deposit substitute are alternative forms of obtaining funds for the public, other than deposit, through the issuance, endorsement, or acceptance of debt instrument for the borrowers own account, for the purpose of relending or purchasing of receivables and other obligations.in banking or quasi-banking functions . A person or entity cannot engage in banking or quasi-banking functions without a certificate of authority from the BSP (Sec. 6). . The determination of whether a person or entity is performing banking or quasi-banking functions without BSP authority shall be decided by the Monetary Board. NATURE OF BANKING BUSINESS Impressed with public interest where the trust andconfidence of the public in general is of paramount importance such that:

1. The appropriate standard of diligence must be very high, if not the highest, degree of diligence;highest degree of care (PCI Bank vs. CA, 350SCRA 446, PBCom vs. CA, G.R. No. 121413, 29 Jan. 2001) . This applies only to cases where banks are acting in their fiduciary capacity, that is, as depository of the deposits of their depositors (Reyes vs. CA, G.R. No. 118492, 15 Aug. 2001). 2. Subject to reasonable regulation under the police power of the state. . While an innocent mortgagee is not expected to conduct an exhaustive investigation on the history of the mortgagors title, in case of a institution, it must exercise due diligence before entering into said contract, and cannot rely upon on what is or is not annotated on the title. Reason: Before a loan is approved, representatives are sent to the premises offered as collaterals so as to investigate who the real owners are (DBP vs. CA, 331SCRA 267). . The business of a bank is one affected by public interest for which reason the bank should guard against loss due to negligence and bad faith. It is expected to ascertain and verify the identities of the persons it transacts business with (UCPB vs. Ramos, G.R. No. 147800, November 11, 2003, Callejo, J.). . Due diligence required of banks extend even to persons, or institutions like the GSIS, regularly engaged in the business of lending money secured by real estate mortgages (GSIS vs. Eduardo Santiago, G.R. No. 155206. October 28, 2003). CONSEQUENCES OF NATURE OF BUSINESS: 1. It is subject to heavy and close supervision and/or regulation by the BSP (Central Bank of the Phils. v. CA, 208SCRA 652). 1. It is required to exercise utmost diligence in the handling of deposits (Simex International Manila Inc., 183SCRA 361). 2. Special rules on strikes and lockouts: any strike or lockout involving banks, if unsettled after 7 calendar days shall be reported by the BSP to the Sec. of Labor who has 2 options: a. He may assume jurisdiction over and decide the dispute; or b. certify it to the NLRC for compulsory arbitration

The President may also intervene at any time and assume jurisdiction over such labor dispute in order to settle or terminate the same. CLASSIFICATION OF BANKS (SEC. 3) 1.Universal banks - Primarily governed by the General Banking Law (GBL), can exercise the powers of an investment house and invest in nonallied enterprises and have the highest capitalization requirement. 2.Commercial banks - Ordinary banks governed by the GBL which have a lower capitalization requirement than universal banks and can neither exercise the powers of an investment house nor invest in non-allied enterprises. 3.Thrift banks - These are a) Savings and mortgage banks; b) Stock savings and loan associations; c) Private development banks, which are primarily governed by the Thrift Banks Act (R.A. 7906). 4.Rural banks - Mandated to make needed credit available and readily accessible in the rural areas on reasonable terms and which are primarily governed by the Rural Banks Act of1992( RA7353). 5.Cooperative banks - Those banks organized whose majority shares are owned and controlled by cooperatives primarily to provide financial and credit services to cooperatives. It shall include cooperative rural banks. They are governed primarily by the Cooperative Code (RA 6938). 6.Islamic banks - Banks whose business dealings and activities are subject to the basic principles and rulings of Islamic Shari a, such as the Al Amanah Islamic Investment Bank of the Philippines which was created by RA 6848. 7.Other classification of banks as determined by the Monetary Board of the Bangko Sentral ng Pilipinas.